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What changed in Science Applications International Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Science Applications International Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+201 added−205 removedSource: 10-K (2023-04-03) vs 10-K (2022-03-28)

Top changes in Science Applications International Corp's 2023 10-K

201 paragraphs added · 205 removed · 145 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeAdditionally, for the second year in a row, SAIC is fully covering the increased costs of employee premiums in the Company’s medical insurance plans and holding employee premiums flat. Employee health and safety is paramount to our business and contributes to our employees’ well-being. We encourage employees to prevent workplace hazards and engage in health and wellness initiatives.
Biggest changeSupporting Well-being We provide wide-ranging options to support employees’ well-being, including an Employee Assistance Program and a wellness program. For the third consecutive year, we are fully covering the increased costs of employee premiums in the Company’s medical insurance plans, holding employee premiums flat.
We hold certifications from the International Organization for Standardization (including ISO 9001, ISO/IEC 27001, ISO 20000-1 and AS9100D), and from the Capability Maturity Model Integration Institute as a CMMI®-DEV Maturity Level 3 organization. The Company is organized as a matrix comprised of two customer facing operating sectors supported by an enterprise solutions and operations organization.
We hold certifications from the International Organization for Standardization (including ISO 9001, ISO/IEC 27001, and AS9100D), and from the Capability Maturity Model Integration Institute as a CMMI®-DEV Maturity Level 3 organization. The Company is organized as a matrix comprised of two customer facing operating sectors supported by an enterprise solutions and operations organization.
We have approximately 26,000 employees that are led by an experienced executive team of proven industry leaders. On July 2, 2021, the Company completed the acquisition of Halfaker and Associates, LLC (Halfaker), a mission focused, pure-play health IT company, which grows the Company's digital transformation portfolio.
We have approximately 25,000 employees that are led by an experienced executive team of proven industry leaders. On July 2, 2021, the Company completed the acquisition of Halfaker and Associates, LLC (Halfaker), a mission focused, pure-play health IT company, which grows the Company's digital transformation portfolio.
Key Customers In each of fiscal 2022, 2021 and 2020, 98% of our total revenues were attributable to prime contracts with the U.S. government or to subcontracts with other contractors engaged in work for the U.S. government. Substantially all of our revenues were earned by entities located in the United States. The U.S. Army and U.S.
Key Customers In each of fiscal 2023, 2022 and 2021, 98% of our total revenues were attributable to prime contracts with the U.S. government or to subcontracts with other contractors engaged in work for the U.S. government. Substantially all of our revenues were earned by entities located in the United States. The U.S. Army and U.S.
Navy 12 % 11 % 12 % Other DoD 21 % 19 % 19 % Other federal government 50 % 51 % 46 % Total U.S. government 98 % 98 % 98 % Other 2 % 2 % 2 % Total 100 % 100 % 100 % 2 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Regulation Our business is heavily regulated and we must comply with and are affected by laws and regulations, including Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS), relating to the award, administration and performance of U.S. government and other contracts.
Navy 12 % 12 % 11 % Other DoD 22 % 21 % 19 % Other federal government 49 % 50 % 51 % Total U.S. government 98 % 98 % 98 % Other 2 % 2 % 2 % Total 100 % 100 % 100 % 2 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Regulation Our business is heavily regulated and we must comply with and are affected by laws and regulations, including Federal Acquisition Regulations (FAR) and U.S. government Cost Accounting Standards (CAS), relating to the award, administration and performance of U.S. government and other contracts.
With approximately $7.4 billion in revenue in fiscal 2022, we are one of the largest pure-play technology service providers to the U.S. government. Our significant scale advantage enables us to serve as a prime systems integrator on large, complex programs and to allocate resources toward further developing and expanding our repeatable, proven solutions and differentiated technical capabilities.
With approximately $7.7 billion in revenue in fiscal 2023, we are one of the largest pure-play technology service providers to the U.S. government. Our significant scale advantage enables us to serve as a prime systems integrator on large, complex programs and to allocate resources toward further developing and expanding our repeatable, proven solutions and differentiated technical capabilities.
Navy each generated more than 10% of our revenues during each of the last three fiscal years. The percentages of total revenues for the U.S. government, its agencies and other customers, including those comprising more than 10% of total revenues for each of the periods presented were approximately: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 U.S.
Navy each generated more than 10% of our revenues during each of the last three fiscal years. The percentages of total revenues for the U.S. government, its agencies and other customers, including those comprising more than 10% of total revenues for each of the periods presented were approximately: Year Ended February 3, 2023 January 28, 2022 January 29, 2021 U.S.
Army 15 % 17 % 21 % U.S.
Army 15 % 15 % 17 % U.S.
Research and Development For information related to our research and development activities, see Note 1 to the consolidated financial statements contained within this report. 7 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Seasonality The U.S. government’s fiscal year ends on September 30.
Research and Development For information related to our research and development activities, see Note 1 to the consolidated financial statements contained within this report. Seasonality The U.S. government’s fiscal year ends on September 30.
In order to help ensure compliance with these complex laws and regulations, we have established policies and procedures that address our approach to meeting these requirements and also administer a robust ethics and compliance training program to maintain a compliance-oriented workforce. These regulations and risks affecting our business are described in more detail under “Risk Factors” in this report.
In order to help ensure compliance with these complex laws and regulations, we have established policies and procedures that address our approach to meeting these requirements and also administer a robust ethics and compliance training program to maintain a compliance-oriented workforce.
As a result of the diverse requirements of the U.S. government, we frequently collaborate with other companies to compete for large contracts and bid against these same companies in other situations.
We also compete against smaller, more specialized companies that concentrate their resources on particular areas, as well as the U.S. government’s own capabilities. As a result of the diverse requirements of the U.S. government, we frequently collaborate with other companies to compete for large contracts and bid against these same companies in other situations.
For additional discussion and analysis related to recent business developments, see “Economic Opportunities, Challenges and Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this report.
The Company's operating sectors are aggregated into one reportable segment for financial reporting purposes. For additional discussion and analysis related to recent business developments, see “Economic Opportunities, Challenges, and Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report.
SAIC is committed to being a good steward of the environment through assessing, mitigating and reducing the impact we have on the world around us. Due to the nature of our business, SAIC has limited exposure to environmental risks, yet we set self-imposed goals related to the reduction of greenhouse gas emissions, energy conservation, recycling and other important environmental initiatives.
Due to the nature of our business, SAIC has limited exposure to environmental risks, yet we set self-imposed goals related to the reduction of greenhouse gas emissions, energy conservation, recycling and other important environmental initiatives.
Additionally, we invest in our people through technical and professional skills training, leadership development programs, higher education programs and tuition assistance programs for continuing education or industry certification. In fiscal 2022, our employees completed approximately 134,000 hours of training including 55,000 hours of ethics and compliance training. Our leaders completed over 11,000 hours of leadership development training.
We invest in our people through technical and professional skills training, leadership development programs, higher education programs and tuition assistance programs for continuing education or industry certification. In fiscal 2023, our employees completed approximately 129,000 hours of training that included over 7,800 hours of leadership specific development for aspiring managers.
The strength of our leadership is greatest when it fully reflects the diversity of our workforce. In fiscal 2022, we established goals to achieve parity in the representation of women and people of color between our leadership and non-leadership roles within five years.
In fiscal 2022, to ensure our leadership reflects the diversity of the workforce, we established goals to achieve parity in the representation of women and people of color between our leader and non-leadership roles by the end of fiscal 2026.
Our phone number is (703) 676-4300 and our homepage is www.saic.com , which contains information about our Company and operations.
Company Website and Available Information Our corporate headquarters is located at 12010 Sunset Hills Road, Reston, VA 20190. Our phone number is (703) 676-4300 and our homepage is www.saic.com , which contains information about our Company and operations.
For the proportionate amount of revenues derived from each type of contract for the last three fiscal years, see “Other Key Performance Measures—Contract Types” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this report. 4 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Backlog Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed.
For the proportionate amount of revenues derived from each type of contract for the last three fiscal years, see “Other Key Performance Measures—Contract Types” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report. 4 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Competition Competition for contracts is intense and we often compete against a large number of established multinational companies, which may have greater name recognition, financial resources and larger technical staffs than we do.
Generally, the U.S. government may disclose or license such information to third parties, including, in some instances, our competitors.
Generally, the U.S. government may disclose or license such information to third parties, including, in some instances, our competitors. In the case of some subcontracts that we perform, the prime contractor may also have certain rights to the programs and solutions that we develop under the subcontract.
Each of the Company’s two operating sectors is focused on providing the Company’s comprehensive technical, engineering and enterprise IT service offerings to one or more agencies of the U.S federal government. 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.
SAIC provides wide-ranging options to support employees’ well-being, including an Employee Assistance Program and a wellness program. This year, based on employee feedback, we substantially raised paid family leave to further support parents and multi-generational families and offered company-subsidized backup child and elder care.
Last year, based on employee feedback, we substantially raised paid family leave to further support parents and multi-generational families and offered company-subsidized backup child and elder care. This year, we significantly expanded military leave for our employees who continue to bravely serve our nation. Employee health and safety is always paramount to our business and to our employees’ well-being.
Contracts We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. government and other contracts. The U.S. government procurement environment has evolved due to statutory and regulatory procurement reform initiatives.
The U.S. government procurement environment has evolved due to statutory and regulatory procurement reform initiatives.
As a technology integrator, we provide engineering, systems integration and information technology offerings for large, complex government projects and offer a broad range of services with a targeted emphasis on higher-end, differentiated technology services. Our end-to-end enterprise IT offerings span the entire spectrum of our customers' IT infrastructure.
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. Our end-to-end enterprise IT offerings span the entire spectrum of our customers' IT infrastructure.
Enhancing employee well-being Through our annual culture survey, we gather confidential feedback from our employees to learn how we can improve our efforts to provide an exceptional employee experience. To ensure all levels of management understand employee sentiment, every individual leader receives aggregated results to develop an action plan to address their team’s needs.
Enhancing Culture and Employee Experience Through our annual culture and engagement survey, we gather confidential feedback from our employees to learn and take action on how we can improve our efforts to create an authentic culture and provide an exceptional employee experience.
Throughout the COVID-19 pandemic, our priority has been the safety and well-being of our employees and business partners. We continue to closely monitor COVID-19 matters and provide comprehensive resources and programs for managing through the pandemic, working virtually and handling associated stress as well as sharing timely information on the topic.
We encourage employees to participate in health and wellness initiatives, and actively work to prevent workplace hazards. Throughout the COVID-19 pandemic, our priority has been the safety and well-being of our employees and business partners. While all aspects of the COVID-19 virus have notably decreased, we continue to monitor COVID-19 matters and provide resources and programs as appropriate.
Our values underpin our culture and are at the heart of how we operate: • Passion: Love what you do • Empowerment: Decide and act • Integrity: Be real • Inclusion: Embrace differences • Innovation: Think courageously Attracting and retaining top talent is an essential element of SAIC’s business strategy and our value proposition for our shareholders, customers, and employees.
Attracting and retaining top talent is an essential element of our business strategy and part of our value proposition for our shareholders, customers and employees.
We achieve our purpose with and through our people, who are fundamental to our success.
People and Culture Overview Our purpose is to advance the power of technology and innovation to serve and protect our world . We achieve our purpose with and through our people, who are fundamental to our success. Our values of passion, empowerment, integrity, inclusion and innovation underpin our culture and are at the heart of how we operate.
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Our backlog consists of funded backlog and negotiated unfunded backlog. At January 28, 2022 and January 29, 2021 our total backlog was $24.1 billion and $21.5 billion, respectively.
Added
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.
Removed
For a complete description of our backlog, see “Other Key Performance Measures—Net Bookings and Backlog” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this report.
Added
These regulations and risks affecting our business are described in more detail under “Risk Factors” in Part I, Item 1A of this report. Contracts We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. government and other contracts.
Removed
Competition Competition for contracts is intense and we often compete against a large number of established multinational companies, which may have greater name recognition, financial resources and larger technical staffs than we do. We also compete against smaller, more specialized companies that concentrate their resources on particular areas, as well as the U.S. government’s own capabilities.
Added
To deliver on this strategy, we seek to be a company that provides meaningful work and purpose by continuing to strengthen our diversity, equity and inclusion efforts; nurturing our people through every aspect of the talent lifecycle; creating a culture where our people are empowered to be their authentic selves and to do their best work; and providing benefits and programs that enhance the employee experience and their well-being. 5 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Advancing Diversity, Equity and Inclusion Our ongoing diversity, equity and inclusion efforts demonstrate our continuing commitment to hold ourselves accountable and to be transparent about both our progress and our areas of opportunity.
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In the case of some subcontracts that we perform, the prime contractor may also have certain rights to the programs and solutions that we develop under the subcontract. 5 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION People and Culture Overview SAIC’s purpose is to advance the power of technology and innovation to serve and protect our world .
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Diversity creates innovation and is critical to the delivery of exceptional business results. In fiscal 2023, we accomplished significant advancement of workforce diversity through internal development, talent acquisition and employee engagement at all levels of the enterprise.
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To deliver on this strategy, we seek to be a company that provides meaningful work and purpose, and creates a fulfilling and differentiated experience for our employees. Our investments in our employees drive a productive, innovative and inclusive culture, where our people are empowered to be their best authentic selves and to do their best work.
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In fiscal 2023, we achieved parity for women ahead of our committed timeline as we increased women in leadership to 28%. In addition, we have increased people of color in leadership 400 basis points over the past two years. To hold ourselves accoun table for our results, our executive compensation incentive plans are tied to meeting our diversity goals.
Removed
As of January 28, 2022, we employed approximately 26,000 employees, of which 93% are full time with the majority l ocated in the United States. To cultivate a differentiated employee experience, we are focused on fostering a flexible work environment, strengthening diversity, equity and inclusion (DE&I), and enhancing employee well-being.
Added
As of February 3, 2023, our diversity representation was: SAIC Leaders 28% Women 23% People of Color SAIC Non-leader Employees 27% Women 33% People of Color We are committed to developing a diverse leadership team from within our existing workforce. Now in its second year, the Company’s AcceleratHER Women’s Leadership Academy program welcomed its second cohort in 2022.
Removed
Fostering flexibility The pandemic has caused people to re-evaluate their priorities and expectations about work. Flexibility of work schedule and location is a key reason why people join and stay at companies, and we are creating an environment at SAIC where our employees can use the power of flexibility to thrive.
Added
This program is for high-performing, early to mid-career women who are on track to progress to leadership roles.
Removed
We implemented flexible work schedules including a 4-day workweek and other schedule options and increased remote and hybrid work opportunities. Our definition of flexibility is not a one-size fits all, rather it is tailored and nurtured through the engagement between our employees and their leaders.
Added
To meet our commitment to enhance our diversity, equity and inclusion in our hiring efforts, the Company continues to ensure our job descriptions, recruiting tools and processes help eliminate the potential for bias, and we actively promote diverse slates of candidates for leadership roles.
Removed
Flexibility has helped us widen the talent pool and attract and retain highly skilled people in extremely sought after disciplines such as science, technology, engineering and cybersecurity. During fiscal 2022, we hired more than 5,800 new employees and kept voluntary turnover below our industry’s average rate.
Added
To cultivate inclusion, we have seven active Employee Resource Groups (ERGs) to allow our employees to foster connections with their fellow colleagues and bring their authentic selves to work. We encourage our employees to actively participate in these ERGs, and as a result in fiscal 2023, our ERGs experienced a 13% year-over-year increase in engagement, which ultimately strengthens employee retention.
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Strengthening diversity, equity, and inclusion Our ongoing diversity, equity, and inclusion efforts demonstrate our continuing promise to share our intentions, to hold ourselves accountable, and to be transparent about both our progress and our areas of opportunity. We believe diversity creates unparalleled innovation and is critical to the delivery of exceptional business results.
Added
Third-parties acknowledge SAIC’s commitment to an inclusive workforce: We are very proud that SAIC was on Forbes 2022 list of 500 Best Employers for Diversity and its Best Employers for Veterans; LATINA Style’s Top 50 Best Companies for Latinas; and No.1 on DiversityInc’s 2022 Top Companies for Veterans.
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We seek to drive tangible change through our commitments to: 1. Fight racism, bias, and prejudice in our workplace. 2. Make SAIC more inclusive and diverse. 3. Support non-profit organizations that are uplifting people of color in our communities. 4. Measure and hold ourselves accountable for results.
Added
For the fourth consecutive year, SAIC received a score of 100% on the Human Rights Campaign Foundation’s 2021 Corporate Equality Index (CEI), which is the most recent year for this recognition and is the nation’s premier benchmarking survey and report measuring corporate policies and practices related to LGBTQ workplace equality.
Removed
We made meaningful progress toward our goals this year, with women now representing 27% of our leadership and people of color representing 22%. While we have achieved parity between women in leader and non-leader roles and made considerable progress toward our people of color leader representation goal, we know there is more work to be done.
Added
Nurturing the Talent Lifecycle At every point in the talent lifecycle, we are committed to creating an inclusive workforce culture that attracts highly skilled, exceptional talent and develops and sustains the critical skills of our employees to drive engagement and retention.
Removed
To hold ourselves 6 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION accountable for results, SAIC’s executive compensation incentive plans are tied to meeting our diversity goals.
Added
During fiscal 2023, we hired approximately 5,800 new e mployees and we are an industry leader in the retention of our employees. Employee referrals often result in some of our best performing new hires.
Removed
As of January 28, 2022, our diversity representation was: SAIC Leaders 27% Women 22% People of Color SAIC Non-leader Employees 27% Women 33% People of Color To build our diversity pipeline, we instituted a new approach to ensure SAIC job descriptions, recruiting tools and processes eliminated the potential for bias, and we required a diverse slate of candidates for leadership roles.
Added
To ensure all levels of management understand employee sentiment, leaders receive aggregated results to develop an action plan to address their team’s needs.
Removed
We launched the AcceleratHER Women's Leadership Academy, a nomination-based development and mentoring program focused on accelerating the advancement of SAIC's high-potential women.
Added
Strengths and opportunities are identified, leading to focused investments to build on our cultural strengths and address areas for improvement. 6 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Inclusion and engagement are often witnessed through employee volunteering and philanthropy. Our people embrace our legacy of community involvement and philanthropy.
Removed
Among our efforts to fight racism, bias, and prejudice in the workplace, we added unconscious bias training as a requirement for all new employees and continued to require that all leaders complete our “From Unconscious Bias to Inclusion” training course.
Added
Last year they volunteered more than 26,000 hours and donated both their time and money to causes circled around SAIC’s three pillars of focus: military heroes, community wellness, and science, technology, engineering and mathematics (STEM).
Removed
As an important demonstration of SAIC’s commitment to advance diversity, equity and inclusion, we added Juneteenth as a paid holiday for our employees, being one of the first in our industry to do so. Our employees are encouraged to actively participate in our multiple employee resource groups (ERG) where they can enhance their personal networks and their sense of belonging.
Added
As a key component of our culture and at the core of our commitment to our employees is the SAIC Foundation, a public 501(c)(3) organization to address the unforeseen financial impact on employees and their families.
Removed
This year, we added a new accessibility ERG to advocate and support employees and their family members with visible and non-visible disabilities including mental health and neurodiversity.
Added
The SAIC Foundation continues its work to help employees and their dependents by providing emergency funds to help them when financial hardships or natural disasters arise. In fiscal 2023, the Foundation awarded 26 grants or $69,000 in direct support to our employees.
Removed
Our progress on our DE&I initiatives has been recognized: SAIC is a Forbes 2022 Best Large Employers; a Forbes America’s Best Employers for Veterans; a Human Rights Campaign Best Places to Work for LGBTQ Equality; and a Forbes Best Employers for Diversity. We are honored that 23% of our employees are veterans of the U.S. armed forces.
Added
These regulations and risks are described in more detail under “Risk Factors” in Part I, Item 1A of this report. We are committed to being a good steward of the environment through assessing, mitigating and reducing the impact we have on climate change and the physical environment in which we operate.
Removed
Strengths and opportunities are identified leading to focused investments to build on our cultural strengths and address areas for improvement. Training to upskill our leaders in coaching, enhancing team well-being, and engaging hybrid teams inclusively was implemented this year as a result of survey feedback.
Added
Our direct emissions from owned or controlled sources (Scope 1) are used in the ordinary course of business and consist primarily of natural gas emissions from some of our facilities. Indirect emissions from purchased electricity (Scope 2) are related to ongoing business operations at our various facilities.
Removed
In 2014, SAIC set a goal of reducing greenhouse gas emissions by 15% by 2025 and exceeded that goal by reaching the reduction of 25% in 2016. To further encourage cuts to our carbon footprint, we used 2019 as a new baseline and made significant progress in reducing emissions in 2020.
Added
SAIC measures, monitors and tracks our greenhouse gas (GHG) emissions (Scope 1 and Scope 2) and publicly discloses those emissions.
Removed
Specifically, direct emissions from owned or controlled sources (Scope 1) were 25% below 2019 emissions levels, and indirect emissions from purchased electricity (Scope 2) were 21% below 2019 levels. For energy conservation, SAIC’s efforts are sharply focused on electrical energy consumption. We track and evaluate electricity consumption and efficiency at those facilities over which we have operational control.
Added
Given our recent acquisition activities, in 2019 we established a new corporate goal of an additional 15% reduction by 2025 for Scope 1 and Scope 2 emissions. 7 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Calendar year 2021 is our most recently disclosed data on GHG and reflects a 30% decrease in combined Scope 1 and Scope 2 emissions from our 2019 baseline.
Removed
In calendar year 2020, partially due to decreased facility use as a result of the COVID-19 pandemic, SAIC reduced its electrical energy consumption by 3% from 2019 levels, with a total consumption of 34,813,703 kWh.
Added
We track and evaluate electricity consumption and efficiency at facilities where we have operational control.
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For additional information regarding environmental matters, see SAIC's 2022 Corporate Responsibility Report, which is expected to be issued during the second quarter of fiscal 2023 and will be available on our website at www.saic.com . The information on our website is not incorporated by reference into and is not a part of this report.
Added
In calendar year 2021, we reduced our electrical energy consumption by 10.5% from 2020 levels through our ongoing and consistent efforts across our portfolio to improve operating efficiencies including optimizing space utilization, deploying energy efficient lighting and implementing programs addressing after-hours setback and controls for heating and cooling.
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These regulations and risks are described in more detail under “Risk Factors” in this report. Executive Officers For information about our executive officers, see “Directors, Executive Officers and Corporate Governance” in Part III of this report. Company Website and Available Information Our corporate headquarters is located at 12010 Sunset Hills Road, Reston, VA 20190.
Added
SAIC encourages recycling and responsible disposal of non-hazardous waste and works to reduce waste through several initiatives, including leveraging remote work environments, promoting electronic equipment refurbishment programs and implementing programming to reduce paper usage. Executive Officers For information about our executive officers, see “Directors, Executive Officers and Corporate Governance” in Part III, Item 10 of this report.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

29 edited+12 added−3 removed135 unchanged
Biggest changeUnder Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes may be limited. 12 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Legal disputes could require us to pay potentially large damage awards and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.
Biggest changeNet operating loss carryforwards and other tax attributes are subject to various annual limitations under Sections 382 and 383 of the Internal Revenue Code, which restricts a corporation’s ability to use such carryforwards and attributes following an ownership change. 12 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.
In addition, it is possible that an impasse on policy issues could threaten continuous government funding past September 30, 2022 or result in another federal government shutdown, which could cause us to incur labor or other costs without reimbursement under customer contracts or the delay or cancellation of key programs, and could adversely affect our operations, cash flows and financial results.
In addition, it is possible that an impasse on policy issues could threaten continuous government funding past September 30, 2023 or result in another federal government shutdown, which could cause us to incur labor or other costs without reimbursement under customer contracts or the delay or cancellation of key programs, and could adversely affect our operations, cash flows and financial results.
Current U.S. government spending levels for defense-related and other programs may not be sustained beyond government fiscal year (GFY) 2022. Future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts.
Current U.S. government spending levels for defense-related and other programs may not be sustained beyond government fiscal year (GFY) 2023. Future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts.
While the federal government is currently funded in full through the end of GFY 2022, there is a strong possibility that GFY 2023 will begin under a continuing resolution lasting several weeks or months.
While the federal government is currently funded in full through the end of GFY 2023, there is a strong possibility that GFY 2024 will begin under a continuing resolution lasting several weeks or months.
Litigation and other claims, including those described under “Legal Proceedings” in Part I of this report, are subject to inherent uncertainties and management’s view of these matters may change in the future.
Litigation and other claims, including those described under “Legal Proceedings” in Part I, Item 3 of this report, are subject to inherent uncertainties and management’s view of these matters may change in the future.
While we have programs designed to comply with relevant privacy and security laws and restrictions, if a 15 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION system or network that we develop, install or maintain were to fail or experience a security breach or service interruption, whether caused by us, third-party service providers, cybersecurity threats or other events, we may experience loss of revenue, remediation costs or face claims for damages or contract termination.
While we have programs designed to comply with relevant privacy and security laws and restrictions, if a system or network that we develop, install or maintain were to fail or experience a security breach or service interruption, whether caused by us, third-party service providers, cybersecurity threats or other events, we may experience loss of revenue, remediation costs or face claims for damages or contract termination.
Examples of events or changes in circumstances indicating that the carrying value of goodwill may not be recoverable could include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key contracts, customer relationships, or personnel that affect current and future operating cash flows of the 18 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION reporting unit.
Examples of events or changes in circumstances indicating that the carrying value of goodwill may not be recoverable could include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key contracts, customer relationships, or personnel that affect current and future operating cash flows of the reporting unit.
Furthermore, failure to comply with these environmental protection and health and safety laws and regulations could result in civil, criminal, regulatory, administrative or contractual sanctions, including fines, penalties or suspension or debarment from contracting with the U.S. government or could cause us to incur costs to change, upgrade, remediate and/or close some of our operations or properties.
Furthermore, failure to comply with these environmental protection and health and safety laws and regulations could result in civil, criminal, regulatory, administrative or contractual sanctions, including fines, penalties or suspension or debarment from contracting with the U.S. government or could cause us to incur costs to change, upgrade, remediate and/or close 17 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION some of our operations or properties.
While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of cost overruns. Revenues derived from FFP contracts represented approximately 26% of our total revenues for fiscal 2022.
While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of cost overruns. Revenues derived from FFP contracts represented approximately 25% of our total revenues for fiscal 2023.
These divestitures similarly require significant investment of time and resources and may disrupt our business, distract management from other responsibilities and may result in losses on disposal or continued financial involvement in the divested business, including through indemnification, guarantee or other financial arrangements, for a period of time following the transaction, which could adversely affect our financial results.
These divestitures similarly require significant investment of time and resources and may disrupt our 14 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION business, distract management from other responsibilities and may result in losses on disposal or continued financial involvement in the divested business, including through indemnification, guarantee or other financial arrangements, for a period of time following the transaction, which could adversely affect our financial results.
If we have any violations of, or incur liabilities pursuant to, these laws or regulations, our financial condition and operating results could be adversely affected. 17 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION We face risks associated with our international business. Our international business operations may be subject to additional and different risks than our U.S. business.
If we have any violations of, or incur liabilities pursuant to, these laws or regulations, our financial condition and operating results could be adversely affected. We face risks associated with our international business. Our international business operations may be subject to additional and different risks than our U.S. business.
We will incur direct and indirect costs as a result of the acquisitions of Engility Holdings, Inc. (Engility), Unisys Federal, Halfaker, and Koverse.
We will incur direct and indirect costs as a result of the acquisitions of Unisys Federal, Halfaker, and Koverse.
For additional information related to our pension funding and costs, see Note 9 to the consolidated financial statements contained within this report. Goodwill and intangible assets represent a significant amount of our total assets and any impairment of these assets would negatively impact our results of operations.
For additional information related to our pension funding and costs, see Note 9 to the consolidated financial statements contained within this report. 18 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Goodwill and intangible assets represent a significant amount of our total assets and any impairment of these assets would negatively impact our results of operations.
Pension funding and costs are dependent upon several economic assumptions, which if changed may cause our future earnings and cash flow to fluctuate significantly. As a result of the acquisition of Engility, which closed on January 14, 2019, we assumed the obligations under Engility's defined benefit pension plan (the Pension Plan).
Pension funding and costs are dependent upon several economic assumptions, which if changed may cause our future earnings and cash flow to fluctuate significantly. As a result of the acquisition of Engility Holdings, Inc. (Engility) in fiscal 2019, we assumed the obligations under Engility's defined benefit pension plan (the Pension Plan).
In the course of conducting our business, we may inadvertently infringe the intellectual property rights of others, resulting in claims against us or our customers. Our contracts generally indemnify our customers for third-party claims for intellectual property infringement by the services and solutions we provide. The expense of defending these claims may adversely affect our financial results.
In the course of conducting our business, we may inadvertently infringe the intellectual property rights of others, resulting in claims against us or our customers. Our contracts generally indemnify our customers for third-party claims for intellectual property infringement by the services and solutions we provide.
Our continued success depends on our ability to recruit and retain highly trained and skilled engineering, technical and professional personnel. Competition for skilled personnel is intense and competitors aggressively recruit key employees. In addition, many U.S. government programs require contractors to have security clearances.
Our business relies heavily upon the expertise and services of our employees. Our continued success depends on our ability to recruit and retain highly trained and skilled engineering, technical and professional personnel. Competition for skilled personnel is intense and competitors aggressively recruit key employees. In addition, many U.S. government programs require contractors to have security clearances.
In addition, salaries and related costs are a 13 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION significant portion of the cost of providing our services and, accordingly, our ability to efficiently utilize our workforce impacts our profitability. If our employees are under-utilized, our profitability could suffer.
In addition, salaries and related costs are a significant portion of the cost of providing our services and, accordingly, our ability to efficiently utilize our workforce impacts our profitability. If our employees are under-utilized, our profitability could suffer.
We are subject to a number of lawsuits and claims described under “Legal Proceedings” in Part I of this report. We are also subject to, and may become a party to, a variety of other litigation or claims and suits that arise from time to time in the ordinary course of our business.
We are also subject to, and may become a party to, a variety of other litigation or claims and suits that arise from time to time in the ordinary course of our business.
As of January 28, 2022, we have estimated $343 million of gross net operating loss (NOL) carryforwards and tax basis in our acquired amortizable goodwill and other intangible assets of approximately $1.6 billion.
As of February 3, 2023, we have estimated $296 million of gross net operating loss carryforwards and tax basis in our acquired amortizable goodwill and other intangible assets of approximately $1.4 billion.
It is possible that the continued spread of COVID-19 may also further cause disruption in our supply chain; cause delay, or limit the ability of, the U.S. government and other customers to perform, including making timely payments to us; impact investment performance; and cause other unpredictable events.
It is also possible that the continued spread of COVID-19 may also cause disruption in our supply chain; cause delay, or limit the ability of, the U.S. government and other customers to perform, including making timely payments to us; impact investment performance; and cause other unpredictable events. 15 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION In addition, the resulting volatility in the global capital markets could restrict our access to capital and/or increase our cost of capital.
In addition, government agencies may bring legal actions against us for violation of or noncompliance with regulatory requirements relating to any unauthorized access to sensitive information.
In addition, government agencies may bring legal actions against us for violation of or noncompliance with regulatory requirements relating to any unauthorized access to sensitive information including failure to make adequate and timely disclosure to the public, regulators or law enforcement agencies.
We continue to work with our stakeholders (including customers, employees, suppliers and local communities) to address the impacts of COVID-19. We continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.
We continue to monitor the ongoing situation relating to COVID-19, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.
We face risks related to climate change if associated increases in extreme weather events prohibit or adversely affect our employees’ ability to work. Severe storms, increased precipitation and flooding, heat waves and other weather-related obstacles due to climate change could adversely affect our ability to execute our strategy and may disrupt our operations.
Severe storms, increased precipitation and flooding, heat waves and other weather-related obstacles due to climate change could adversely affect our ability to execute our strategy and may disrupt our operations.
We face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19. If significant portions of our workforce are unable to work effectively due to illness, quarantines, government actions, facility closures or other reasons in connection with COVID-19, our operations will likely be impacted.
If significant portions of our workforce are unable to work effectively due to illness, quarantines, government actions, facility closures or other reasons in connection with COVID-19 or similar outbreaks, our operations will likely be impacted. We may be unable to perform fully on our contracts and some of our costs may not be fully recoverable or adequately covered by insurance.
Occurrence of any unauthorized access caused by these security threats could adversely affect our reputation, business operations, and impact our financial results. We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows.
We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations and/or cash flows. We face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19.
In the shorter term, a climate-related event could temporarily suspend our ability to do the required work in person, produce operational or other unforeseen challenges, and in the longer term, threaten our ability to perform contracts in a timely manner or meet other requirements of the contract, any of which could harm our business and its results. 16 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Although SAIC has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective or that such measures will not adversely affect our operations or long-term plans.
In the shorter term, a climate-related event could temporarily suspend our ability to do the required work in person, produce operational or other unforeseen challenges, and in the longer term, threaten our ability to perform contracts in a timely manner or meet other requirements of the contract, any of which could harm our business and its results.
While we have assumed that a certain level of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses.
While we have assumed that a certain level of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. Our business and financial results could be negatively affected by cyber or other security threats.
Any future impairment of goodwill or other intangible assets would have a negative impact on our profitability and financial results. Forward-Looking Statement Risks You may not be able to rely on forward-looking statements. This report contains forward-looking statements that are based on our management’s belief and assumptions about the future in light of information currently available to our management.
This report contains forward-looking statements that are based on our management’s belief and assumptions about the future in light of information currently available to our management.
Such misconduct could include fraud or other improper activities such as falsifying time or other records, failure to comply with our policies and procedures or violations of applicable laws and regulations.
Such misconduct could include fraud or other improper activities such as falsifying time or other records, failure to comply with our policies and procedures or violations of applicable laws and regulations. 13 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Business and Operational Risks A failure to attract, train, retain and utilize skilled employees and our senior management team would adversely affect our ability to execute our strategy and may disrupt our operations.
Removed
Business and Operational Risks A failure to attract, train, retain and utilize skilled employees and our senior management team would adversely affect our ability to execute our strategy and may disrupt our operations. Our business relies heavily upon the expertise and services of our employees.
Added
Changes in U.S. (federal or state) regulations, or their interpretation and application, including those with retroactive effect, could result in increases in our tax expense and affect profitability and cash flows.
Removed
Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. 14 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Our business and financial results could be negatively affected by cyber or other security threats.
Added
For example, beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes.
Removed
We may be unable to perform fully on our contracts and some of our costs may not be fully recoverable or adequately covered by insurance. In addition, the resulting volatility in the global capital markets could restrict our access to capital and/or increase our cost of capital.
Added
While the impact to income taxes payable is most significant in fiscal 2023, this impact will decrease over the five-year amortization period and is anticipated to be immaterial in year six.
Added
The actual impact will depend on the amount of research and development costs incurred by the Company, whether Congress modifies, or repeals this provision and whether new guidance and interpretive rules are issued by the U.S. Treasury, among other factors.
Added
Legal disputes could require us to pay potentially large damage awards and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation. We are subject to a number of lawsuits and claims described under “Legal Proceedings” in Part I, Item 3 of this report.
Added
Occurrence of any unauthorized access caused by these security threats could adversely affect our reputation, business operations including contract terminations, ability to win work on future contracts, and impact our financial results.
Added
The expense of defending these claims may adversely affect our financial results. 16 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION We face risks related to climate change if associated increases in extreme weather events prohibit or adversely affect our employees’ ability to work.
Added
Although SAIC has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective or that such measures will not adversely affect our operations or long-term plans.
Added
Any future impairment of goodwill or other intangible assets would have a negative impact on our profitability and financial results. We maintain our cash at financial institutions, often in balances that exceed federally insured limits. The majority of our cash is held in accounts at U.S. banking institutions that we believe are of high quality.
Added
Cash held in depository accounts may exceed the $250,000 Federal Deposit Insurance Corporation (FDIC) insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations.
Added
Any material loss that we may experience in the future could have a material adverse effect on our financial position and could materially impact our ability to pay our operational expenses or make other payments. Banking institution failures, or changes in legislation and regulation, may adversely impact other entities that would, in turn, impact us.
Added
If our customers, suppliers, insurers, joint venture partners, sureties, or other parties with whom we do business with are affected by issues in the banking industry it may have an adverse impact on our operational and financial performance. Forward-Looking Statement Risks You may not be able to rely on forward-looking statements.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We occupy approximately 4 million square feet of floor space, substantially all of which is leased. Our corporate headquarters is located in Reston, Virginia. Our principal locations outside of Reston, Virginia include Chantilly, Virginia, Huntsville, Alabama, Oak Ridge, Tennessee, El Segundo, California and Annapolis Junction, Maryland.
Biggest changeItem 2. Properties We occupy approximately 4 million square feet of floor space, substantially all of which is leased. Our corporate headquarters is located in Reston, Virginia. Our principal locations outside of Reston, Virginia include Chantilly, Virginia; Huntsville, Alabama; Oak Ridge, Tennessee; El Segundo, California; Annapolis Junction, Maryland; Indianapolis and Bedford, Indiana; and Charleston, South Carolina.
As of January 28, 2022, we conducted our operations in approximately 160 offices located in 31 states, the District of Columbia, and various foreign countries. We consider our facilities suitable and adequate for our present needs, which are generally limited to office, warehouse and computer laboratory spaces.
As of February 3, 2023, we conducted our operations in approximately 140 offices located in 29 states, the District of Columbia, and various foreign countries. We consider our facilities suitable and adequate for our present needs, which are generally limited to office, integration, warehouse and computer laboratory spaces. 19 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table presents repurchases of our common stock during the three months ended January 28, 2022: Period (1) Total Number of Shares (or Units) Purchased (2) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (3) October 30, 2021 - December 3, 2021 316,960 $ 88.06 316,960 2,559,585 December 4, 2021 - December 31, 2021 271,702 83.36 271,702 2,287,883 January 1, 2022 - January 28, 2022 252,397 85.18 252,397 2,035,486 Total 841,059 $ 85.68 841,059 (1) Date ranges represent our fiscal periods during the current quarter.
Biggest changeThe following table presents repurchases of our common stock during the three months ended February 3, 2023: Period (1) Total Number of Shares (or Units) Purchased (2) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (3) October 29, 2022 - December 2, 2022 187,084 $ 109.04 187,084 7,725,678 December 3, 2022 - January 6, 2023 176,522 110.74 176,522 7,549,156 January 7, 2023 - February 3, 2023 155,458 103.88 155,458 7,393,698 Total 519,064 $ 108.07 519,064 (1) Date ranges represent our fiscal periods during the current quarter.
Securities and Exchange Commission (SEC), based upon historical data and are not intended to forecast or be indicative of possible future performance of our common stock. 20 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Purchases of Equity Securities We may repurchase shares on the open market in accordance with established repurchase plans.
Securities and Exchange Commission (SEC), based upon historical data and are not intended to forecast or be indicative of possible future performance of our common stock. 21 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Purchases of Equity Securities We may repurchase shares on the open market in accordance with established repurchase plans.
Stock Performance Graph The following graph compares the total cumulative return on our common stock, from the beginning of fiscal year 2017 through fiscal year 2022, to two indices: (i) the Russell 1000 Index and (ii) the Dow Jones US Computer Services Index.
Stock Performance Graph The following graph compares the total cumulative return on our common stock, from the beginning of fiscal year 2018 through fiscal year 2023, to two indices: (i) the Russell 1000 Index and (ii) the Dow Jones US Computer Services Index.
The graph assumes an initial investment of $100 on February 3, 2017 and that dividends have been reinvested. The comparisons in the graph are required by the U.S.
The graph assumes an initial investment of $100 on February 2, 2018 and that dividends have been reinvested. The comparisons in the graph are required by the U.S.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities Our common stock is listed on the New York Stock Exchange under the ticker symbol “SAIC”. As of March 4, 2022, there were approximately 24,000 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the New York Stock Exchange under the ticker symbol “SAIC”. As of March 10, 2023, there were approximately 23,000 holders of record of our common stock.
Our fiscal quarters typically consist of one five-week period and two four-week periods. (2) Includes shares purchased on surrender by stockholders of previously owned shares to satisfy minimum statutory tax withholding obligations related to stock option exercises and vesting of stock awards in addition to shares purchased under our publicly announced plans or programs.
(2) Includes shares purchased on surrender by stockholders of previously owned shares to satisfy minimum statutory tax withholding obligations related to stock option exercises and vesting of stock awards in addition to shares purchased under our publicly announced plans or programs.
(3) On March 27, 2019, the number of shares that may be purchased increased by approximately 4.6 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 16.4 million shares. As of January 28, 2022, we have repurchased approximately 14.4 million shares of common stock under the program.
(3) In June 2022, the number of shares that may be purchased increased by 8.0 million shares, bringing the total authorized shares to be repurchased under the plan to approximately 24.4 million shares. As of February 3, 2023, we have repurchased approximately 17.0 million shares of our common stock under the program.
Added
Our fiscal quarters typically consist of one five-week period and two four-week periods. However, the fourth quarter of fiscal 2023 consisted of two five-week periods and one four-week period.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

73 edited+14 added−32 removed45 unchanged
Biggest changeEBITDA and adjusted EBITDA for the periods presented were calculated as follows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Net income $ 279 $ 211 $ 229 Interest expense and loss on sale of receivables 107 124 90 Interest income — (1) (4) Provision for income taxes 79 60 57 Depreciation and amortization 165 179 131 EBITDA 630 573 503 EBITDA as a percentage of revenues 8.5 % 8.1 % 7.9 % Acquisition and integration costs 56 54 48 Restructuring and impairment costs 2 4 — Depreciation included in acquisition and integration costs (1) (1) (5) Recovery of acquisition and integration costs and restructuring and impairment costs (1) (1) (3) (8) Adjusted EBITDA $ 686 $ 627 $ 538 Adjusted EBITDA as a percentage of revenues 9.3 % 8.9 % 8.4 % (1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through the Company's indirect rates in accordance with Cost Accounting Standards.
Biggest changeWe believe that EBITDA and adjusted EBITDA provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding the long-term financial performance of the Company. 26 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION EBITDA and adjusted EBITDA for the periods presented were calculated as follows: Year Ended February 3, 2023 January 28, 2022 January 29, 2021 (in millions) Net income $ 303 $ 279 $ 211 Interest expense and loss on sale of receivables 128 107 124 Interest income (2) — (1) Provision for income taxes 72 79 60 Depreciation and amortization 157 165 179 EBITDA 658 630 573 EBITDA as a percentage of revenues 8.5 % 8.5 % 8.1 % Acquisition and integration costs 13 56 54 Restructuring and impairment costs 24 2 4 Depreciation included in acquisition and integration costs and restructuring and impairment costs (3) (1) (1) Recovery of acquisition and integration costs and restructuring and impairment costs (1) (12) (1) (3) Adjusted EBITDA $ 680 $ 686 $ 627 Adjusted EBITDA as a percentage of revenues 8.8 % 9.3 % 8.9 % (1) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through the Company's indirect rates in accordance with U.S. government Cost Accounting Standards.
Whether performed by our employees or by our subcontractors, we primarily provide services and, as a result, our cost of revenues are predominantly variable. We also analyze our cost mix (labor, subcontractor or materials) in order to understand operating margin because programs with a higher proportion of SAIC labor are generally more profitable.
Whether performed by our employees or by our subcontractors, we primarily provide services and, as a result, our cost of revenues are predominantly variable. We also analyze our cost mix (labor, subcontractor and materials) in order to understand operating margin because programs with a higher proportion of SAIC labor are generally more profitable.
Changes in costs of revenues as a percentage of revenue other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs, or cumulative revenue adjustments due to changes in estimates.
Changes in cost of revenues as a percentage of revenues other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs, or cumulative revenue adjustments due to changes in estimates.
The proceeds were used for the purchase of Halfaker. Upon the acquisition of Unisys Federal in fiscal 2021, we drew $600 million on our incremental senior secured Term Loan B2 Facility due March 2027 and issued $400 million of Senior Notes due 2028. In addition, in February 2020 we sold $200 million of accounts receivable under our MARPA Facility.
Upon the acquisition of Unisys Federal in fiscal 2021, we drew $600 million on our incremental senior secured Term Loan B2 Facility due March 2027 and issued $400 million of Senior Notes due 2028. In addition, in February 2020 we sold $200 million of accounts receivable under our MARPA Facility. The proceeds were used for the purchase of Unisys Federal.
Net bookings represent the estimated amount of revenues to be earned in the future from funded and negotiated unfunded contract awards that were received during the period, net of adjustments to estimates on previously awarded contracts.
Net Bookings and Backlog. Net bookings represent the estimated amount of revenues to be earned in the future from funded and negotiated unfunded contract awards that were received during the period, net of adjustments to estimates on previously awarded contracts.
It contains forward-looking statements (which may be identified by words such as those described in “Risk Factors—Forward-Looking Statement Risks” in Part I of this report), including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations; backlog; our industry; government budgets and spending; market opportunities; the impact of competition; and the impact of acquisitions.
It contains forward-looking statements (which may be identified by words such as those described in “Risk Factors—Forward-Looking Statement Risks” in Part I, Item 1A of this report), including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations; backlog; our industry; government budgets and spending; market opportunities; the impact of competition; and the impact of acquisitions.
We serve our customers through approximately 1,900 active contracts and task orders and employ approximately 26,000 individuals who are led by an experienced executive team of proven industry leaders. Our long history of serving the U.S. government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve.
We serve our customers through approximately 1,900 active contracts and task orders and employ approximately 25,000 individuals who are led by an experienced executive team of proven industry leaders. Our long history of serving the U.S. government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve.
Risks, uncertainties and assumptions that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors” in Part I of this report. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof.
Risks, uncertainties and assumptions that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors” in Part I, Item 1A of this report. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof.
The acquisition of Unisys Federal, in alignment with our long-term strategy, positions SAIC as a leading government services technology integrator in digital transformation, and is highly accretive across all key financial metrics. See “Risk Factors” in Part I of this report for additional discussion of our industry and regulatory environment.
The acquisition of Unisys Federal, in alignment with our long-term strategy, positions SAIC as a leading government services technology integrator in digital transformation, and is highly accretive across all key financial metrics. See “Risk Factors” in Part I, Item 1A of this report for additional discussion of our industry and regulatory environment.
We analyze historical acquisitions in our industry to estimate a control premium that we incorporate into the fair value estimate of a reporting unit under the market approach. During the fourth quarter of fiscal 2022, we completed our annual goodwill impairment testing and determined that each reporting unit's fair value significantly exceeded its carrying value.
We analyze historical acquisitions in our industry to estimate a control premium that we incorporate into the fair value estimate of a reporting unit under the market approach. During the fourth quarter of fiscal 2023, we completed our annual goodwill impairment testing and determined that each reporting unit's fair value significantly exceeded its carrying value.
The amounts presented in this table exclude the effects of interest rate swaps used to hedge against changes in 1-month LIBOR. (2) Excludes purchase orders for services or products to be delivered pursuant to U.S. government contracts in which we have full recourse under normal contract termination clauses.
The amounts presented in this table exclude the effects of interest rate swaps used to hedge against changes in 1-month Term SOFR. (2) Excludes purchase orders for services or products to be delivered pursuant to U.S. government contracts in which we have full recourse under normal contract termination clauses.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K, as well as Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended January 29, 2021, which provides additional information on comparisons of fiscal 2021 and 2020.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K, as well as Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended January 28, 2022, which provides additional information on comparisons of fiscal 2022 and 2021.
Cost of Revenues Mix. We generate revenues by providing a customized mix of services to our customers.
We generate revenues by providing a customized mix of services to our customers.
Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. Appropriations measures passed in March 2022 provided full funding for the federal government through the end of government fiscal year 2022.
Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. Appropriations measures passed in December 2022 provided full funding for the federal government through the end of government fiscal year 2023.
Non-GAAP Measures Earnings before interest, taxes, depreciation and amortization (EBITDA), and adjusted EBITDA are non-GAAP financial measures. While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP.
Non-GAAP Measures Earnings before interest, taxes, depreciation and amortization (EBITDA), and adjusted EBITDA are non-GAAP financial measures. While we believe that these non-GAAP financial measures are also useful for management and investors in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP.
Substantially all of our revenues and tangible long-lived assets are generated by or owned by entities located in the United States. Economic Opportunities, Challenges, and Risks In fiscal 2022, we generated 98% of our revenues from contracts with the U.S. government, including subcontracts on which we perform.
Substantially all of our revenues and tangible long-lived assets are generated and located in the United States. Economic Opportunities, Challenges, and Risks In fiscal 2023, we generated 98% of our revenues from contracts with the U.S. government, including subcontracts on which we perform.
Under the swap agreements, we pay the fixed rate and the counterparties to the agreement pay a floating interest rate. Our Credit Facility contains customary terms and conditions including financial covenants and covenants restricting the Company's ability to merge or consolidate with another entity or undertake other fundamental changes, enter into property sale and leaseback transactions, and incur liens.
Under the swap agreements, we pay the fixed rate and the counterparties to the agreement pay a floating interest rate. 29 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Our Credit Facility contains customary terms and conditions including financial covenants and covenants restricting the Company's ability to merge or consolidate with another entity or undertake other fundamental changes, enter into property sale and leaseback transactions, and incur liens.
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.
Many of the Company's contracts recognize revenue using a cost input measure (cost-to-cost), which requires estimates of total costs at completion. For contracts using a cost input measure, when total expected contract costs exceed total estimated contract revenues, the Company recognizes the total estimated loss in the quarter identified.
Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we 27 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION generate revenues, see “Business—Contract Types” in Part I of this report.
Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we generate revenues, see “Business—Contract Types” in Part I, Item 1 of this report.
Certain assets and liabilities may be specifically identified and assigned to a reporting unit based on the information 32 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION contained within our financial systems; whereas, other assets and liabilities may be allocated using measurable relationships or other basis for allocation.
Certain assets and liabilities may be specifically identified and assigned to a reporting unit based on the information contained within our financial systems; whereas, other assets and liabilities may be allocated using measurable relationships or other basis for allocation.
The following table summarizes our results of operations: Year Ended January 28, 2022 Percent change January 29, 2021 Percent change January 31, 2020 (dollars in millions) Revenues $ 7,394 5 % $ 7,056 11 % $ 6,379 Cost of revenues 6,535 4 % 6,264 10 % 5,673 As a percentage of revenues 88.4 % 88.8 % 88.9 % Selling, general and administrative expenses 344 (2) % 352 22 % 288 Acquisition and integration costs 56 4 % 54 13 % 48 Other operating income (3) (25) % (4) 100 % — Operating income 462 18 % 390 5 % 370 As a percentage of revenues 6.2 % 5.5 % 5.8 % Net income attributable to common stockholders $ 277 33 % $ 209 (8) % $ 226 Cash flows provided by operating activities $ 518 (31) % $ 755 65 % $ 458 Revenues.
The following table summarizes our results of operations: Year Ended February 3, 2023 Percent change January 28, 2022 Percent change January 29, 2021 (dollars in millions) Revenues $ 7,704 4 % $ 7,394 5 % $ 7,056 Cost of revenues 6,816 4 % 6,535 4 % 6,264 As a percentage of revenues 88.5 % 88.4 % 88.8 % Selling, general and administrative expenses 374 9 % 344 (2) % 352 Acquisition and integration costs 13 (77) % 56 4 % 54 Other operating income — (100) % (3) (25) % (4) Operating income 501 8 % 462 18 % 390 As a percentage of revenues 6.5 % 6.2 % 5.5 % Net income attributable to common stockholders $ 300 8 % $ 277 33 % $ 209 Cash flows provided by operating activities $ 532 3 % $ 518 (31) % $ 755 Revenues.
Total estimated losses are inclusive of any unexercised options that are probable of award, only if they increase the amount of the loss. Aggregate net changes in contract estimates increased operating 31 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION income by $13 million, $9 million and $22 million for fiscal 2022, 2021 and 2020, respectively.
Total estimated losses are inclusive of any unexercised options that are probable of award, only if they increase the amount of the loss. Aggregate net changes in contract estimates increased operating income by $4 million, $13 million and $9 million for fiscal 2023, 2022 and 2021, respectively.
We succeed as a business based on the solutions we deliver, our past performance, and our ability to compete on price. Our solutions are inspired through innovation based on adoption of best practices and technology integration of the best capabilities available. Our past performance was achieved by employees dedicated to supporting our customers' most challenging missions.
Our solutions are inspired through innovation based on adoption of best practices and technology integration of the best capabilities available. Our past performance was achieved by employees dedicated to supporting our customers' most challenging missions.
Additionally, we do not include in backlog contract awards that are under protest until the protest is resolved in our favor. We segregate our backlog into two categories as follows: • Funded Backlog.
Additionally, we do not include in backlog contract awards that are under protest until the protest is resolved in our favor. 27 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION We segregate our backlog into two categories as follows: • Funded Backlog.
Fiscal 2022 began on January 30, 2021 and ended on January 28, 2022, fiscal 2021 began on February 1, 2020 and ended on January 29, 2021, and fiscal 2020 began on February 2, 2019 and ended on January 31, 2020.
Fiscal 2023 began on January 29, 2022 and ended on February 3, 2023, fiscal 2022 began on January 30, 2021 and ended on January 28, 2022, and fiscal 2021 began on February 1, 2020 and ended on January 29, 2021.
(3) Other liabilities primarily consist of liabilities associated with deferred compensation plan obligations, liabilities for unrecognized tax benefits, and the deferral of certain payroll tax payments as permitted by the CARES Act. Deferred compensation plan obligations due in fiscal 2023 are based on participants’ payment elections on retirement and estimated retirement ages.
(3) Other liabilities primarily consist of liabilities associated with deferred compensation plan obligations and liabilities for unrecognized tax benefits. Deferred compensation plan obligations due in fiscal 2024 are based on participants’ payment elections on retirement and estimated retirement ages.
For our annual impairment analysis, we reconcile the aggregate fair value of all of our reporting units to our market capitalization as of the measurement date.
We estimate the fair value of our reporting units using either a market approach, income approach, or a combination of both. For our annual impairment analysis, we reconcile the aggregate fair value of all of our reporting units to our market capitalization as of the measurement date.
Other Key Performance Measures In addition to the financial measures described above, we believe that bookings and backlog are useful measures for management and investors to evaluate our potential future revenues.
Other Key Performance Measures In addition to the financial measures described above, we believe that bookings and backlog are useful measures for management and investors to evaluate our potential future revenues. We also consider measures such as contract types and cost of revenues mix to be useful for management and investors to evaluate our operating income and performance.
The estimated value of our total backlog as of the dates presented was: January 28, 2022 January 29, 2021 (in millions) Funded backlog $ 3,491 $ 3,024 Negotiated unfunded backlog 20,601 18,524 Total backlog $ 24,092 $ 21,548 We had net bookings worth an estimated $9.4 billion and $11.9 billion during fiscal 2022 and 2021, respectively.
The estimated value of our total backlog as of the dates presented was: February 3, 2023 January 28, 2022 (in millions) Funded backlog $ 3,554 $ 3,491 Negotiated unfunded backlog 20,248 20,601 Total backlog $ 23,802 $ 24,092 We had net bookings worth an estimated $7.4 billion and $9.4 billion during fiscal 2023 and 2022, respectively. Contract Types.
In addition, the CARES Act allowed for the deferral of certain payroll tax payments through December 31, 2020 and we deferred total payments of approximately $103 million. The first installment ($51 million) of these deferred payroll taxes was paid during fiscal 2022 with the remaining amounts due in the fourth quarter of fiscal 2023.
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) allowed for the deferral of certain payroll tax payments through December 31, 2020 and we deferred total payments of approximately $103 million. The first installment (approximately $51 million) of these deferred payroll taxes was paid during fiscal 2022 and the second and final installment was paid during fiscal 2023.
Management believes that our critical accounting policies are those that are both material to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments difficult, subjective and complex have to do with making estimates about the effect of matters that are inherently uncertain.
Management believes that our critical accounting policies and estimates are those that are both material to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
We evaluate our results of operations by considering the drivers causing changes in revenues, operating income and operating cash flows. Given that revenues fluctuate on our contract portfolio over time due to contract awards and completions, changes in customer requirements, and increases or decreases in ordering volume of materials, we evaluate significant trends and fluctuations in these terms.
Given that revenues fluctuate on our contract portfolio over time due to contract awards and completions, changes in customer requirements, and increases or decreases in ordering volume of materials, we evaluate significant trends and fluctuations resulting from these factors.
The full extent of the impact of COVID-19 on our business and our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, all of which are uncertain and cannot be predicted. See “Risk Factors” in Part I of this report for additional discussion of the risks associated with the COVID-19 pandemic.
The full extent of the impact of COVID-19 on our business and our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, all of which are uncertain and cannot be predicted.
For a discussion of these items, see Note 17 to the consolidated financial statements contained within this report. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles.
Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from negotiated contracts for which funding has not been appropriated or otherwise authorized and from unexercised priced contract options. Negotiated unfunded backlog does not include any estimate of future potential task orders expected to be awarded under IDIQ, GSA Schedules or other master agreement contract vehicles.
Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from negotiated contracts for which funding has not been appropriated or otherwise authorized and from unexercised priced contract options.
These policies are described below. Revenue Recognition. We generate our revenues primarily from long-term contracts in which we provide technical, engineering and enterprise IT services directly for the U.S. government and as a subcontractor with other contractors engaged in work for the U.S. government.
We generate our revenues primarily from long-term contracts in which we provide technical, engineering and enterprise IT services directly for the U.S. government and as a subcontractor with other contractors engaged in work for the U.S. government. We evaluate the nature of the contract and the services provided when determining the accounting method utilized for each contract.
Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between fiscal 2022 and 2021. Cash Used in Investing Activities.
Refer to “Results of Operations” above for a discussion of the changes in cash provided by operating activities between fiscal 2023 and 2022. Cash Used in Investing Activities. Cash used in investing activities decreased in fiscal 2023 compared to the prior year period primarily due to cash paid for the acquisitions of Halfaker and Koverse in the prior year period.
Some changes that could have an adverse impact on our business include the implementation of future spending reductions (including sequestration), delayed passage of appropriations bills resulting in temporary or full-year continuing resolutions, extreme inflationary increases adversely impacting fixed price contracts, inability to increase or suspend the Federal debt ceiling, and potential government shutdowns.
Some changes that could have an adverse impact on our business include adverse regulations, the implementation of future spending reductions (including sequestration), delayed passage of appropriations bills resulting in temporary or full-year continuing resolutions, extreme inflationary increases adversely impacting fixed-price contracts, inability to increase or suspend the Federal debt ceiling, and potential government shutdowns. 23 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Spending packages, including the infrastructure bill, Inflation Reduction Act, and CHIPS and Science Act, as well as future potential spending packages, may provide additional opportunity in areas of SAIC focus such as digital modernization, cyber, microelectronics support, and climate resiliency.
As one of the largest pure-play technology service providers to the U.S. government, we serve markets of significant scale and opportunity. Our primary customers are the departments and agencies of the U.S. government.
We developed our brand by addressing our customers’ mission critical needs and solving their most complex problems for over 50 years. As one of the largest pure-play technology service providers to the U.S. government, we serve markets of significant scale and opportunity. Our primary customers are the departments and agencies of the U.S. government.
The Company estimates and compares the fair value of each reporting unit to its respective carrying value including goodwill. If the fair value is less than the carrying value, the amount of impairment expense is equal to the difference between the reporting unit’s fair value and the reporting unit’s carrying value.
The Company estimates and compares the fair value of each reporting unit to its respective carrying value including goodwill.
Cash Flows Provided by Operating Activities. Cash flows provided by operating activities were $518 million for fiscal 2022, which represented a decrease of $237 million from fiscal 2021.
Cash flows provided by operating activities were $532 million for fiscal 2023, which represented an increase of $14 million from fiscal 2022.
Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our direct control.
Our ability to fund these needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our direct control.
In accordance with our risk management objectives, we hold fixed interest rate swap agreements to hedge the variability in interest payment cash flows on a substantial portion of our outstanding variable rate debt. These instruments are accounted for as cash flow hedges.
Borrowings under our Term Loan Facilities, our MARPA Facility, and our Revolving Credit Facility incur interest at a variable rate. In accordance with our risk management objectives, we hold fixed interest rate swap agreements to hedge the variability in interest payment cash flows on a substantial portion of our outstanding variable rate debt.
Liquidity and Capital Resources As a services provider, our business generally requires minimal infrastructure investment. We expect to fund our ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under our $400 million Revolving Credit Facility and $300 million MARPA Facility.
We expect to fund our ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under our $1.0 billion Revolving Credit Facility and $300 million MARPA Facility. We anticipate that our future cash needs will be for working capital, capital expenditures, and contractual and other commitments.
Liabilities for unrecognized tax benefits due in fiscal 2023 are based on the fiscal year in which the statute of limitations is currently expected to expire.
Liabilities for unrecognized tax benefits due in fiscal 2024 are based on the fiscal year in which the reversals of timing positions are likely to occur.
The following table presents cost mix for the periods presented: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (as a % of total cost of revenues) Labor-related cost of revenues 54 % 55 % 54 % Subcontractor-related cost of revenues 29 % 29 % 29 % Supply chain materials-related cost of revenues 8 % 8 % 11 % Other materials-related cost of revenues 9 % 8 % 6 % Total 100 % 100 % 100 % Cost of revenues mix for fiscal 2022 remained consistent with the prior year.
The following table presents cost mix for the periods presented: Year Ended February 3, 2023 January 28, 2022 January 29, 2021 (as a % of total cost of revenues) Labor-related cost of revenues 53 % 54 % 55 % Subcontractor-related cost of revenues 29 % 29 % 29 % Supply chain materials-related cost of revenues 8 % 8 % 8 % Other materials-related cost of revenues 10 % 9 % 8 % Total 100 % 100 % 100 % Liquidity and Capital Resources As a services provider, our business generally requires minimal infrastructure investment.
Revenues increased $338 million from fiscal 2021 to fiscal 2022 due to ramp up on new and existing contracts, the acquisitions of Unisys Federal (which occurred in the first quarter of the prior year period) and Halfaker, net favorable changes in contract estimates, and the accelerated amortization on certain off-market liability contracts, partially offset by contract completions.
Revenues increased $310 million from fiscal 2022 to fiscal 2023 due to ramp up on new and existing contracts, four additional working days in the current year period, and the acquisition of Halfaker (approximately $72 million), partially offset by contract completions and lower net favorable changes in contract estimates.
Recently Issued But Not Yet Adopted Accounting Pronouncements For information on recently issued but not yet adopted accounting pronouncements, see Note 1 to the consolidated financial statements contained within this report. Effects of Inflation For any of the most recent three fiscal years ended January 28, 2022, inflation has not had a significant impact on revenues or costs.
Recently Issued But Not Yet Adopted Accounting Pronouncements For information on recently issued but not yet adopted accounting pronouncements, see Note 1 to the consolidated financial statements contained within this report.
The performance measure EBITDA is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing performance.
Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing performance. Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring costs.
The following table summarizes revenues by contract type as a percentage of revenues for the periods presented: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 Cost reimbursement 54 % 54 % 57 % Time and materials (T&M) 20 % 22 % 20 % Firm-fixed price (FFP) 26 % 24 % 23 % Total 100 % 100 % 100 % Our contract mix reflects an increase in firm-fixed price type contracts due in part to the acquisitions of Unisys Federal (which occurred in the first quarter of the prior year period) and Halfaker, which historically had a higher proportion of these contracts.
The following table summarizes revenues by contract type as a percentage of revenues for the periods presented: Year Ended February 3, 2023 January 28, 2022 January 29, 2021 Cost reimbursement 56 % 54 % 54 % Time and materials (T&M) 19 % 20 % 22 % Firm-fixed price (FFP) 25 % 26 % 24 % Total 100 % 100 % 100 % 28 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Cost of Revenues Mix.
Changes in operating cash flows are described with regard to changes in cash generated through the delivery of services, significant drivers of fluctuations in assets or liabilities and the impacts of changes in timing of cash receipts or disbursements. 24 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Results of Operations The primary financial performance measures we use to manage our business and monitor results of operations are revenues, operating income and cash flows from operating activities.
Changes in operating cash flows are described with regard to changes in cash generated through the rendering of services, significant drivers of fluctuations in assets or liabilities and the impacts of changes in timing of cash receipts or disbursements.
We believe our long-term, trusted customer relationships and deep technical expertise provide us with the sophistication to handle highly complex, mission-critical contracts. SAIC’s value proposition is found in the proven ability to serve as a trusted adviser to our customers. In doing so, we leverage our expertise and scale to help them execute their mission.
Our value proposition is found in the proven ability to serve as a trusted adviser to our customers. In doing so, we leverage our expertise and scale to help them execute their mission. We succeed as a business based on the solutions we deliver, our past performance, and our ability to compete on price.
Cost of revenues as a percentage of revenues decreased due to improved profitability across our contract portfolio, net favorable changes in contract estimates, and the accelerated amortization on certain off-market liability contracts, partially offset by higher indirect costs. Selling, General and Administrative Expenses.
Adjusted EBITDA as a percentage of revenues decreased to 8.8% for fiscal 2023, compared to 9.3% for fiscal 2022, primarily due to lower net favorable changes in contract estimates and higher indirect expenses, partially offset by improved profitability across our contract portfolio.
Since the program’s inception in December of 2013, we have repurchased 14.4 million shares for $946 million. 29 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION The following table summarizes our principal contractual commitments as of January 28, 2022: Total Due in Fiscal 2023 (in millions) Long-term debt including current portion $ 2,540 $ 148 Interest payments on long-term debt (1) 338 77 Operating lease obligations 265 59 Estimated purchase obligations (2) 114 76 Other liabilities (3) 155 98 Total contractual obligations $ 3,412 $ 458 (1) Amounts include an estimate of future variable interest payments on the Term Loan Facilities based on scheduled outstanding principal amounts, current applicable margin and projected 1-month LIBOR as of January 28, 2022.
The following table summarizes our principal contractual commitments as of February 3, 2023: Total Due in Fiscal 2024 (in millions) Long-term debt including current portion $ 2,390 $ 31 Interest payments on long-term debt (1) 489 149 Operating lease obligations 211 48 Estimated purchase obligations (2) 94 71 Other liabilities (3) 186 17 Total contractual obligations $ 3,370 $ 316 (1) Amounts include an estimate of future variable interest payments on the Term Loan Facilities based on scheduled outstanding principal amounts, current applicable margin and projected 1-month Term SOFR as of February 3, 2023.
As of January 28, 2022 we were in compliance with our debt covenants and we have not been required to obtain additional financing, or make significant modifications to our capital deployment strategy, as a result of the COVID-19 pandemic.
As of February 3, 2023 we were in compliance with our debt covenants and we have not been required to obtain additional financing, or make significant modifications to our capital deployment strategy, as a result of the COVID-19 pandemic. 24 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Management of Operating Performance and Reporting Our business and program management process is directed by professionals focused on serving our customers by providing high quality services in achieving program requirements.
The acquisition and integration costs relate to the Company’s acquisitions of Engility Holdings, Inc., Unisys Federal, Halfaker, and Koverse. See Note 5 to the consolidated financial statements contained within this report for description of our restructuring and impairment costs.
Integration costs are costs to integrate acquired companies including costs of strategic consulting services, facility consolidation and employee related costs such as retention and severance costs. The acquisition and integration costs relate to the Company’s acquisitions. See Note 1 and Note 5 to the consolidated financial statements contained within this report for information related to our restructuring and impairment costs.
While we continue to navigate the impacts of the COVID-19 pandemic, COVID-19 did not have as significant an impact on revenues and operating income as compared to the prior year.
Impacts of the COVID-19 Pandemic While we are continuing to monitor the ongoing outbreak of COVID-19, the pandemic did not have a material impact to revenues and operating income during fiscal 2023.
General Services Administration (GSA) schedules, and other multi-award contracts), which has resulted in greater competition and increased pricing pressure. We expect a majority of the business we seek in the foreseeable future will be awarded through a competitive bidding process.
The U.S. government has increasingly relied on contracts that are subject to a competitive bidding process (including indefinite delivery, indefinite quantity (IDIQ), U.S. General Services Administration (GSA) schedules, and other multi-award contracts), which has resulted in greater competition and increased pricing pressure.
Reconciliations, definitions, and how we believe these measures 25 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION are useful to management and investors are provided below. Other companies may define similar measures differently. EBITDA and Adjusted EBITDA.
Reconciliations, definitions, and how we believe these measures are useful to management and investors are provided below. Other companies may define similar measures differently. EBITDA and Adjusted EBITDA. The performance measure EBITDA is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization.
Nevertheless, we believe that our existing cash on hand, generation of future operating cash flows, and access to bank financing and capital markets will provide adequate resources to meet our short-term liquidity and long-term capital needs. 28 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Upon the acquisition of Halfaker, we drew $100 million on our incremental senior secured Term Loan A2 Facility due October 2023.
Therefore, we cannot ensure that such financing will be available to us on acceptable terms or that such financing will be available at all. Nevertheless, we believe that our existing cash on hand, generation of future operating cash flows, and access to bank financing and capital markets will provide adequate resources to meet our short-term liquidity and long-term capital needs.
These estimates of costs can span several years and take into account many factors including the availability, productivity and cost of labor, potential delays in our performance and the level of future indirect cost allocations.
These estimates of costs can span several years and take into account many factors including the availability, productivity and cost of labor, potential delays in our performance and the level of future indirect cost allocations. 31 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Many of our contracts include forms of variable consideration such as reimbursable costs, award and incentive fees, usage-based pricing, service-level penalties, performance bonuses, and other provisions that can either increase or decrease the transaction price.
During fiscal 2022, we repurchased approximately 2.4 million shares of our common stock for $211 million from the open market in connection with our existing share repurchase program.
While the impact to income taxes payable is most significant in fiscal 2023, this impact will decrease over the five-year amortization period and is anticipated to be immaterial in year six. During fiscal 2023, we repurchased approximately 2.6 million shares of our common stock for $245 million from the open market in connection with our existing share repurchase program.
When our cash generation enables us to exceed our target average minimum cash balance, we intend to deploy excess cash through dividends, share repurchases, debt prepayments or strategic acquisitions. Our ability to fund these needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results.
We consider various financial measures when we develop and update our capital deployment strategy, which include evaluating cash provided by operating activities, free cash flow and financial leverage. When our cash generation enables us to exceed our target average minimum cash balance, we intend to deploy excess cash through dividends, share repurchases, debt prepayments or strategic acquisitions.
Despite the budget and competitive pressures affecting the industry, we believe we are well-positioned to protect and expand existing customer relationships and benefit from opportunities that we have not previously pursued. Our scale, size, and prime contractor leadership position are expected to help differentiate us from our competitors, especially on large contract opportunities.
Our scale, size, and prime contractor leadership position are expected to help differentiate us from our competitors, especially on large contract opportunities. We believe our long-term, trusted customer relationships and deep technical expertise provide us with the sophistication to handle highly complex, mission-critical contracts.
Operating income as a percentage of revenues increased to 6.2% for fiscal 2022, compared to 5.5% for fiscal 2021, primarily due to improved profitability across our contract portfolio, net favorable changes in contract estimates, benefit from a net favorable settlement of prior indirect rate years, and the accelerated amortization on certain off-market liability contracts, partially offset by higher indirect costs in the current year and gains related to the resolution of certain legal and other program contract matters in the prior year.
Operating income as a percentage of revenues increased from fiscal 2022 to fiscal 2023 primarily due to improved profitability across our contract portfolio and lower acquisition and integration costs, partially offset by higher restructuring costs and lower net favorable changes in contract estimates. Cash Flows Provided by Operating Activities.
Historical Cash Flow Trends The following table summarizes our cash flows: Year Ended January 28, 2022 January 29, 2021 January 31, 2020 (in millions) Net cash provided by operating activities $ 518 $ 755 $ 458 Net cash used in investing activities (292) (1,231) (47) Net cash (used in) provided by financing activities (301) 464 (455) Total decrease in cash, cash equivalents and restricted cash $ (75) $ (12) $ (44) Cash Provided by Operating Activities.
See respective notes to the consolidated financial statements contained within this report for further information about our long-term debt (Note 11), lease payment obligations (Note 15), liabilities for unrecognized tax benefits (Note 10), and letters of credit and surety bonds (Note 17). 30 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Historical Cash Flow Trends The following table summarizes our cash flows: Year Ended February 3, 2023 January 28, 2022 January 29, 2021 (in millions) Net cash provided by operating activities $ 532 $ 518 $ 755 Net cash used in investing activities (36) (292) (1,231) Net cash (used in) provided by financing activities (493) (301) 464 Total increase (decrease) in cash, cash equivalents and restricted cash $ 3 $ (75) $ (12) Cash Provided by Operating Activities.
Cash used in investing activities decreased in fiscal 2022 compared to the prior year period primarily due to cash paid for the acquisition of Unisys Federal in the prior year period, partially offset by cash paid for the acquisitions of Halfaker and Koverse in the current year period. Cash Used in/Provided by Financing Activities.
Acquisition and integration costs decreased $43 million from fiscal 2022 to fiscal 2023 primarily due to the acquisitions of Halfaker and Koverse in the prior year period. Operating Income.
Adjusting for the impact of acquired revenues and divested revenues, revenues grew 2.5% primarily due to new awards and net increases in program volume. Cost of Revenues.
Adjusting for the impact of acquired and divested revenues and the estimated impact of the additional four working days in fiscal 2023, revenues grew approximately 1.5%. Cost of Revenues.
Business Overview We are a leading technology integrator providing full life cycle services and solutions in the technical, engineering and enterprise information technology (IT) markets. We developed our brand by addressing our customers’ mission critical needs and solving their most complex problems for over 50 years.
Fiscal 2023 consisted of 53 weeks with the extra week occurring in the fourth quarter, while fiscal 2022 and 2021 consisted of 52 weeks. Business Overview We are a leading technology integrator providing full life cycle services and solutions in the technical, engineering and enterprise information technology (IT) markets.
Cost of revenues increased $271 million from fiscal 2021 to fiscal 2022 primarily due to an increase in volume on existing contracts and the acquisitions of Unisys Federal (which occurred in the first quarter of the prior year period) and Halfaker.
Cost of revenues increased $281 million from fiscal 2022 to fiscal 2023 primarily due to ramp up on new and existing contracts, four additional working days in the current year period, and the acquisition of Halfaker. Selling, General and Administrative Expenses (SG&A).
The August 2019 Bipartisan Budget Act agreement suspended the Federal debt ceiling until July 31, 2021. In October 2021, the Federal debt ceiling was increased by $480 billion and in December 2021 was further increased by $2.5 trillion which is expected to allow the U.S. government to operate into 2023.
In October 2021, the Federal debt ceiling was increased by $480 billion and in December 2021 was further increased by $2.5 trillion. In January 2023, the Federal debt ceiling was reached and the U.S. Department of the Treasury is currently operating under “extraordinary measures.” Adverse changes in fiscal and economic conditions could materially impact our business.
Throughout each contract’s life cycle, program managers review performance and update contract performance estimates to reflect their understanding of the best information available. For performance obligations satisfied over time, updates to estimates are recognized on inception-to-date activity, during the period of adjustment, resulting in either a favorable or unfavorable impact to operating income.
These professionals carefully monitor contract margin performance by constantly evaluating contract risks and opportunities. Throughout each contract’s life cycle, program managers review performance and update contract performance estimates to reflect their understanding of the best information available. We evaluate our results of operations by considering the drivers causing changes in revenues, operating income and operating cash flows.
Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 requires the capitalization of research and development costs for tax purposes, which can then be amortized over five years. Congress has proposed tax legislation to delay the effective date of this change to 2026, but it is uncertain whether the proposed legislation will ultimately be enacted into law.
Beginning in fiscal 2023, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes.
Removed
It is unlikely but possible these measures could expire without extension and lead to a partial or full government shutdown. Adverse changes in fiscal and economic conditions could materially impact our business.
Added
Additionally, the U.S. government has put renewed emphasis on increasing the number of small business prime set aside contracts that further reduce the addressable market in some areas. Despite the budget and competitive pressures affecting the industry, we believe we are well-positioned to protect and expand existing customer relationships and benefit from opportunities that we have not previously pursued.
Removed
Spending packages, including the infrastructure bill and future potential spending packages, may provide additional opportunity in areas of SAIC focus such as broadband, cyber, and climate resiliency. 22 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION The U.S. government has increasingly relied on contracts that are subject to a competitive bidding process (including indefinite delivery, indefinite quantity (IDIQ), U.S.
Added
Results of Operations The primary financial performance measures we use to manage our business and monitor results of operations are revenues, operating income and cash flows from operating activities.
Removed
Impacts of the COVID-19 Pandemic We are continuing to monitor the ongoing outbreak of the coronavirus disease 2019 (COVID-19) and we continue to work with our stakeholders to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.
Added
SG&A increased $30 million from fiscal 2022 to fiscal 2023 primarily due to higher restructuring costs (see Note 5 to the consolidated financial statements contained within this report) and the acquisition of Halfaker. 25 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Acquisition and integration costs.
Removed
Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a mechanism to recover our labor costs where our employees are ready and able to work but unable to access required facilities due to COVID-19. This support from the CARES Act expired on September 30, 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain market risks in the normal course of business. The following information about our market sensitive financial instruments contains forward-looking statements.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain market risks in the normal course of business. The following information about our market sensitive financial instruments contains forward-looking statements. Foreign Currency Risk Most of our contracts are paid in U.S. dollars and our cost to perform on these contracts are generally paid in U.S. dollars.
Our financial risk management objective is to reduce variability in earnings from changes in interest rates, which we may manage through operational means or the use of financial instruments, such as interest rate swaps. We have approximately $2.1 billion of variable rate debt. The fair value of our outstanding long-term debt obligations approximates its carrying value.
Our financial risk management objective is to reduce variability in earnings from changes in interest rates, which we may manage through operational means or the use of financial instruments, such as interest rate swaps. We have approximately $2.0 billion of variable rate debt. The fair value of our outstanding long-term debt obligations approximates its carrying value.
Under the swap agreements, we pay a fixed rate and the counterparties to the agreements pay a floating interest rate based on 1-month LIBOR. A hypothetical 50 bps change in the 1-month LIBOR curve would change the fair value of the fixed interest rate swaps up to $16 million.
Under the swap agreements, we pay a fixed rate and the counterparties to the agreements pay a floating interest rate based on 1-month Term SOFR. A hypothetical 50 bps change in the 1-month Term SOFR curve would change the fair value of the fixed interest rate swaps up to $7 million.
Foreign Currency Risk Since the substantial majority of our business is conducted in U.S. dollars, a 10% change in any foreign currency exchange rates would not have a material impact to our financial condition or results of operations. Interest Rate Risk Debt obligations.
Since the substantial majority of our business is conducted in U.S. dollars, a 10% change in any foreign currency exchange rates would not have a material impact to our financial condition or results of operations. 33 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Interest Rate Risk Debt obligations.
We regularly evaluate our outstanding debt and swap agreements to meet our risk management 33 Table of Contents SCIENCE APPLICATIONS INTERNATIONAL CORPORATION objective. A hypothetical 50 basis points (bps) change to interest rates would not materially change our results of operations or cash flows.
We regularly evaluate our outstanding debt and swap agreements to meet our risk management objective. A hypothetical 50 basis points (bps) change to interest rates would not materially change our results of operations or cash flows.
For additional information related to our debt and interest rate swap agreements, see Note 11 and Note 12, respectively, to the consolidated financial statements contained in this report. Derivatives. As of January 28, 2022, the fair value of our fixed interest rate swaps was $51 million (liability).
For additional information related to our debt and interest rate swap agreements, see Note 11 and Note 12, respectively, to the consolidated financial statements contained in this report. Derivatives. As of February 3, 2023, the fair value of our fixed interest rate swaps was $25 million (asset).
A 10% unfavorable interest rate movement for interest earned on our cash and cash equivalents would not materially impact the value of our cash holdings and would have a negligible impact on interest income at current market interest rates. Inflation Risk We have generally been able to anticipate increases in costs when pricing our contracts.
A 10% unfavorable interest rate movement for interest earned on our cash and cash equivalents would not materially impact the value of our cash holdings and would have a negligible impact on interest income at current market interest rates.
Bids for longer-term FFP contracts typically include labor and other cost escalations in amounts that historically have been sufficient to cover cost increases over the period of contract performance.
Bids for longer-term FFP and T&M contracts typically include sufficient provisions for labor and other cost escalations to cover anticipated cost increases over the period of performance.
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Inflation Risk For each of the most recent three fiscal years ended February 3, 2023, inflation has not had a significant impact on revenues or costs.
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Approximately 56% of our revenues for fiscal 2023 were derived from cost-reimbursement type contracts, which have limited inflation risk because our contracts generally entail the provision of labor on a reimbursable basis, and, when materials are acquired, they provide for billing to the customer during the period in which the materials were received.
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As a result, if we were to experience significant levels of inflation, our revenues and costs for cost-type contracts would generally both increase commensurate with inflation and operating income as a percentage of total revenues would not be significantly affected.
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Operating income as a percentage of total revenues would not be significantly affected for longer-term FFP and T&M contracts to the extent that bid contract cost escalations are sufficient to cover heightened inflation levels.

Other SAIC 10-K year-over-year comparisons