Science Applications International Corp

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Business Overview and Summary of Significant Accounting Policies:

Overview

Description of Business. Science Applications International Corporation (collectively, with its consolidated subsidiaries, the “Company”) is a leading provider of technical, engineering and enterprise information technology ("IT") services primarily to the U.S. government. The Company integrates emerging technology securely and in real-time into mission critical operations that modernize and enable national imperatives. The Company provides these services for large, complex projects with a targeted emphasis on higher-end, differentiated technology services and solutions that accelerate and transform secure and resilient digital environments through system development, modernization, integration, and sustainment to drive enterprise and mission outcomes.

Effective February 3, 2024, the first day of fiscal 2025, the Company completed a business reorganization which replaced its previous two operating sectors with five customer facing business groups supported by the enterprise organizations, including the Innovation Factory. The Company'sfive business groups, which are also its operating segments, are aggregated intotwo reportable segments for financial reporting purposes given the similarity in economic and qualitative characteristics, and based on the nature of the customers they serve. The Company’stwo reportable segments are the Defense and Intelligence segment and the Civilian segment.

The Defense and Intelligence segment provides a diverse portfolio of national security solutions to the Department of Defense ("DoD") and Intelligence Community of the United States Government.

The Civilian segment provides solutions to the civilian markets, encompassing federal, state, and local governments, in order to deliver services for citizen well-being, border security, and protecting lives. This includes integrating solutions into a spectrum of public service missions that impact travel, trade, health and the economy.

The offerings of both reportable segments entail the integration of emerging technologies into mission critical operations that modernize and enable national imperatives, including IT modernization, digital engineering, artificial intelligence ("AI"), mission systems support and advisory, training and simulation, and ground vehicles support. These services include end-to-end solutions spanning the design, development, integration, deployment, management and operations, sustainment and security of the customers’ entire IT infrastructure.

The Company's Innovation Factory supports the operating segments by developing enterprise-class solutions which are delivered to the Company's customers as stand-alone solutions or integrated with and aligned to product offerings through the operations of the business to meet complex customer needs and accelerate digital transformation. The Innovation Factory includes designated teams focused on AI, application development, network services, platforms and cloud, engineering, and cybersecurity. It uses a highly automated, cloud-hosted tool set to rapidly build, test and deploy solutions and works with customers to enhance solutions going forward.

Costs associated with corporate functions that are not allocable to the reportable segments are presented as Corporate activities. See Note 16—Business Segments Information for additional information.

Within this report, the Company has recast historical financial information to reflect the new reportable segments. The recast historical information has no impact on the Company's previously reported consolidated financial statements.

Principles of Consolidation and Basis of Presentation

References to “financial statements” refer to the consolidated financial statements of the Company, which include the statements of income and comprehensive income, balance sheets, statements of equity and statements of cash flows. These financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). All intercompany transactions and account balances within the Company have been eliminated.

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. "Acquisition and integration costs" are now presented within "Other operating (income) expense" on the consolidated statements of income. "Inventories, net" are now presented within "Other current assets" on the consolidated balance sheets. "Amortization of off-market customer contracts," "Amortization of debt issuance costs,"

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

and "Impairment of assets" are now presented in "Other" within "Adjustments to reconcile net income to net cash provided by operating activities" on the consolidated statements of cash flows. "Distributions to non-controlling interest are now presented in "Other" within "Cash flows from financing activities" on the consolidated statements of cash flows.

Non-controlling Interest. On February 4, 2023, the Company sold 0.1% of its 50.1% majority ownership interest in Forfeiture Support Associates J.V. ("FSA") to its sole joint venture partner for a nominal amount. As a result of the sale and amendment to the joint venture operating agreement of FSA, the Company no longer controls the joint venture and accounts for its retained interest as an equity method investment as of the date of the transaction. Prior to February 4, 2023, the Company held a 50.1% majority interest in FSA. For fiscal 2023, the results of operations of FSA were included in the Company's consolidated statements of income and comprehensive income and statements of cash flows.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant estimates inherent in the preparation of the financial statements may include, but are not limited to, estimated profitability of long-term contracts, income taxes, fair value measurements, fair value of goodwill and other intangible assets, pension and defined benefit plan obligations, and contingencies. Estimates have been prepared by management on the basis of the most current and best available information at the time of estimation and actual results could differ from those estimates.

Reporting Periods

The Company utilizes a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2025 began on February 3, 2024 and ended on January 31, 2025, fiscal 2024 began on February 4, 2023 and ended on February 2, 2024, and fiscal 2023 began on January 29, 2022 and ended on February 3, 2023. Fiscal 2025 and 2024 consisted of 52 weeks, while fiscal 2023 consisted of 53 weeks.

Revenue Recognition

The Company provides technical, engineering and enterprise IT services under long-term service arrangements primarily with the U.S. government, including subcontracts with other contractors engaged in work for the U.S. government. The Company also serves a number of state and local governments, foreign governments and U.S. commercial customers.

The Company provides services under various contract types, including fixed price contracts such as firm-fixed price ("FFP"), time-and-materials ("T&M") contracts including fixed-price-level-of-effort contracts, and cost reimbursement contracts such as cost-plus-fixed-fee, cost-plus-award-fee and cost-plus-incentive-fee contracts. The Company's service arrangements typically involve an annual base period of performance followed by renewal option periods that upon exercise are generally accounted for as separate contracts.

To determine the proper revenue recognition, the Company first evaluates whether there is a duly approved and enforceable contract with a customer, in which rights of parties and payment terms are identified and collectability is probable. The Company also evaluates whether two or more contracts should be combined and accounted for as a single contract and whether modifications to existing contracts should be accounted for as part of the original contract or as a separate contract. Contract modifications that create new enforceable rights and obligations are accounted for prospectively. Contract modifications that do not add distinct goods or services are accounted for through cumulative catch-up adjustments. Contract modifications that add distinct goods or services and increase the contract value by an amount that reflects the standalone selling price are accounted for as separate contracts.

The Company recognizes revenue when, or as, performance obligations under a contract are satisfied. A performance obligation is the unit of account for revenue recognition and refers to a promise in a contract to transfer a distinct service or good to the customer. The majority of the Company’s contracts contain a single performance obligation involving a significant integration of various activities that are performed together to deliver a combined service or solution. Performance obligations may be satisfied over time or at a point in time, but the majority of the

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Company’s performance obligations are satisfied over time. The Company selects the appropriate measure of progress for revenue recognition based on the nature of the performance obligation, contract type and other pertinent contract terms.

Performance obligations satisfied over time may involve a series of recurring services, such as network operations and maintenance, operation and program support services, IT outsourcing services, and other IT arrangements where the Company is standing ready to provide support, when-and-if needed. Such performance obligations are satisfied over time because the customer simultaneously receives and consumes the benefits of the Company's performance as services are provided. Alternatively, performance obligations satisfied over time may involve the completion of a contract deliverable. Examples include systems integration, network engineering, network design, and engineering and build services. Deliverable-based performance obligations are satisfied over time when the Company’s performance creates or enhances an asset that is controlled by the customer, or when the Company’s performance creates an asset that is customized to the customer’s specifications and the Company has a right to payment, including a reasonable profit margin, for work performed to date.

For series-services performance obligations, the Company measures progress using either a cost input measure (cost-to-cost), a time-elapsed output measure, or the as-invoiced practical expedient. A cost input measure or the as-invoiced practical expedient typically is applied to the Company’s cost-reimbursable contracts. Revenue is recognized based on the ratio of costs incurred to total estimated costs at completion. Award or incentive fees are allocated to the distinct periods to which they relate. For fixed-price contracts, a time-elapsed output measure is applied to fixed consideration, such that revenue is recognized ratably over the period of performance. Where fixed-price contracts also provide for reimbursement of certain costs, such as travel or other direct costs, consideration may be attributed only to a distinct subset of time within the performance period. The Company’s time-and-material, fixed price-level of effort, and certain cost-plus-fixed-fee contracts generally qualify for the as-invoiced practical expedient. Revenue on these contracts is recognized in the amount to which the Company has a contractual right to invoice.

For deliverable-based performance obligations satisfied over time, the Company recognizes revenue using a cost input measure of progress (cost-to-cost), regardless of contract type. Revenue is recognized based on the ratio of costs incurred to total estimated costs at completion.

The Company may incur costs associated with significant materials or hardware procurements that are not proportionate to the Company’s progress in satisfying its performance obligations. For these contracts, costs are excluded from the measure of progress, and revenue is recognized equal to the costs incurred.

For performance obligations in which the Company does not transfer control over time, the Company recognizes revenue at the point-in-time when the customer obtains control of the related asset, usually at the time of shipment or upon delivery. The Company accrues for shipping and handling costs occurring after the point-in-time control transfers to the customer.

Recognizing revenue on long-term contracts involves significant estimates and judgments. The transaction price is the estimated amount of consideration the Company expects to receive for performance under the Company's contracts. Contract terms may include variable consideration, such as reimbursable costs, award and incentive fees, usage-based fees, service-level penalties, performance bonuses, or other provisions that can either increase or decrease the transaction price. Variable amounts are generally determined upon the Company's achievement of certain performance metrics, program milestones or cost targets and may be based upon customer discretion. When making estimates, the Company considers the customer, contract terms, the complexity of the work and related risks, the extent of customer discretion, historical experience and the potential of a significant reversal of revenue. The Company includes variable consideration in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

For contracts with multiple performance obligations, the Company allocates transaction price to each performance obligation based on the relative standalone selling price of each distinct performance obligation within the contract. Since the Company typically provides customized services and solutions that are specific to a single customer’s requirements, standalone selling price is most often estimated based on expected costs plus a reasonable profit margin.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Changes in Estimates on Contracts

Changes in estimates of revenues, cost of revenues or profits related to performance obligations satisfied over time are recognized in operating income in the period in which such changes are made for the inception-to-date effect of the changes. Changes in these estimates can occur routinely over the performance period for a variety of reasons, which include: changes in scope; changes in cost estimates due to unanticipated cost growth or reassessments of risks impacting costs; changes in the estimated transaction price, such as variable amounts for incentive or award fees; and performance being better or worse than previously estimated.

A significant portion of the Company's contracts recognize revenue on performance obligations using a cost input measure (cost-to-cost), which requires estimates of total costs at completion. Estimating costs at completion is complex due to the nature of the services being performed and the length of certain contracts. Contract costs generally include direct costs, such as labor, subcontract costs and materials, and indirect costs identifiable with or allocable to a specific contract. Management must make assumptions regarding the complexity of the work to be performed, the schedule and associated tasks, labor productivity and availability, increases in wages and prices of materials, execution by the Company's subcontractors, overhead cost rates, and other variables. 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. Total estimated losses are inclusive of any unexercised options that are probable of award, only if they increase the amount of the loss. Contract costs incurred for U.S. government contracts, including indirect costs, are subject to audit and adjustment by the Defense Contract Audit Agency ("DCAA").

Contract Balances

The timing of revenue recognition may differ from the timing of billing and cash receipts from customers. Amounts are invoiced as work progresses, typically biweekly or monthly in arrears, or upon achievement of contractual milestones. The Company records a contract asset when revenue is recognized prior to invoicing, or a contract liability when cash is received in advance of recognizing revenue. A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets include unbillable receivables and contract retentions, but exclude billed and billable receivables. Billed and billable receivables are rights to consideration, which are unconditional other than to the passage of time. Contract liabilities include customer advances, billings in excess of revenues and deferred revenue. Contract assets and liabilities are recorded net on a contract-by-contract basis and are generally classified as current based on the Company's contract operating cycle. Deferred revenue attributable to long-term contract material renewal options may be classified as non-current when the option renewal period will not occur within one year of the balance sheet date.

Deferred Costs

Certain eligible costs, such as costs to obtain and costs to fulfill the Company's service contracts, are capitalized when the costs relate directly to the contract, are expected to be recovered, and generate or enhance resources to be used in satisfying the performance obligation. These costs primarily consist of commissions, transition and set-up costs. Capitalized costs to obtain and fulfill a contract are amortized on a straight-line basis over the expected period of benefit, which generally includes the contract base period and anticipated renewals.

The Company performs periodic reviews to assess the recoverability of deferred contract transition and setup costs. The carrying amount of the asset is compared to the remaining amount of consideration the Company expects to receive for the services to which the asset relates, less the costs that relate directly to providing those services that have not yet been recognized. If the carrying amount is not recoverable, an impairment loss is recognized.

Pre-contract costs are deferred when eligible costs are incurred prior to the start of a contract and it is probable the costs will be recovered upon contract issuance. Pre-contract costs are expensed when the contract is executed.

Prepaid contract costs may be incurred for certain customer contracts to secure the use of assets or the receipt of services at a future date or over a period of time. For contracts using the as-invoiced practical expedient or a time-elapsed revenue recognition measure, prepaid contract costs are amortized on a straight-line basis over the expected period of benefit.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Costs Allocated to Contracts

The Company classifies indirect costs as overhead (included in cost of revenues) or general and administrative expenses in the same manner as such costs are defined in the Company’s Disclosure Statements under U.S. government Cost Accounting Standards ("CAS").

Stock-based Compensation

The Company issues stock-based awards as compensation to employees and directors. Stock-based awards include stock options, vesting stock awards and performance share awards. These awards are accounted for as equity awards. The Company recognizes stock-based compensation expense, net of estimated forfeitures, on a straight-line basis over the underlying award’s requisite service period, as measured using the award’s grant date fair value. For performance share awards, the Company reassesses the probability of achieving the performance conditions at each reporting period end and adjusts compensation expense based on the number of shares the Company expects to ultimately vest. Under the Company's stock-based compensation arrangements, upon vesting, shares are often withheld from the award for the purposes of satisfying statutory withholding tax obligations.

Income Taxes

The Company accounts for income taxes under the asset and liability method of accounting, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. The provision for federal, state, local and foreign income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes.

Recording the provision for income taxes requires management to make significant judgments and estimates for matters for which the ultimate resolution may not become known until the final resolution of an examination by taxing authorities or the statute of limitations lapses. Additionally, recording liabilities for uncertainty in income taxes involves significant judgment in evaluating the Company’s tax positions and developing the best estimate of the taxes ultimately expected to be paid. Tax penalties and interest are included in income tax expense.

The Company has also recognized liabilities for uncertainty in income taxes when it is more likely than not that a tax position will not be sustained on examination and settlement with various taxing authorities. The Company records the largest amount of benefit that is more likely than not to be realized when the tax position is settled. To the extent the Company prevail in matters for which accruals have been established or are required to pay amounts in excess of reserves, the Company's effective tax rate in a given financial period may be materially impacted.

Deferred tax assets and liabilities are netted by taxable jurisdiction and classified as noncurrent on the consolidated balance sheets.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents are comprised of cash in banks and highly liquid instruments, which primarily consist of bank deposits and investments in institutional money market funds. The Company includes outstanding payments within "Cash and cash equivalents" and "Accounts payable" on the consolidated balance sheets and as of January 31, 2025 and February 2, 2024 these amounts were $33 million and $26 million, respectively. The Company does not invest in high yield or high risk securities. The cash in bank accounts at times may exceed federally insured limits.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Restricted cash includes cash amounts held that are contractually restricted from use in operations, but are subject to future claims of creditors. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheets for the periods presented:

Receivables

Receivables include billed and billable receivables, and unbilled receivables. The Company’s receivables are primarily due from the U.S. government, or from prime contractors on which we are subcontractors and the end customer is the U.S. government, and are generally considered collectable from the perspective of the customer’s ability to pay. The Company does not have a material credit risk exposure.

Unbilled receivables, substantially all of which are expected to be billed and collected withinone year, are stated at their estimated realizable value and consist of costs and fees billable on contract completion or the occurrence of a specified event, other than the passage of time. Legal title to the related accumulated costs of contracts in progress generally vests with the U.S. government on the Company’s receipt of progress payments. Progress payments received of $82 million and $90 million offset unbilled receivables as of January 31, 2025 and February 2, 2024, respectively. Contract retentions are billed when contract conditions have been met and may relate to uncompleted indirect cost negotiations with the U.S. government. Based on historical experience, the majority of retention balances are expected to be collected beyond one year. Retention is presented in "Other assets" on the consolidated balance sheets, see Note 3—Revenues. Write-offs of retention balances have not been significant.

Receivable balances are written-off in the period during which management determines they are uncollectable, and, at that time, such balances are removed from billed receivables and, if previously reserved, from the allowance.

Inventories

Inventory is substantially comprised of finished goods and is valued at the lower of cost or net realizable value, generally using the average cost method. The Company evaluates current inventory against historical and planned usage to estimate the appropriate provision for obsolete inventory.

Business Combinations

The Company records all tangible and intangible assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date, which is determined using a cost, market or income approach. The excess amount of the aggregated purchase consideration paid over the fair value of the net of assets acquired and liabilities assumed is recorded as goodwill. Acquisition date fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as measured on the acquisition date.

The valuations are based on information that existed as of the acquisition date. During the measurement period that shall not exceed one year from the acquisition date, the Company may adjust provisional amounts recorded for assets acquired and liabilities assumed to reflect new information that the Company has subsequently obtained regarding facts and circumstances that existed as of the acquisition date.

Acquisition and Integration Costs

Acquisition-related costs that are not part of the purchase price consideration are generally expensed as incurred, except for certain costs that are deferred in connection with the issuance of debt. These costs typically include transaction-related costs, such as finder’s fees, legal, accounting and other professional costs. Integration-related

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

costs represent costs directly related to combining the Company and its acquired businesses. Integration-related costs typically include strategic consulting services, facility consolidation, employee related costs, such as retention and severance, costs to integrate information technology infrastructure, enterprise planning systems, processes, and other non-recurring integration-related costs. Acquisition and integration costs are presented within "Other operating (income) expense" on the consolidated statements of income.

The Company's acquisition and integration costs were as follows for the periods presented:

(1) Acquisition costs in fiscal 2025 include a reversal of immaterial costs related to the fiscal 2022 Koverse acquisition. Acquisition costs in fiscal 2023 reflect adjustments to the fair value of the Koverse earnout liability.

Restructuring Costs

The Company periodically initiates restructuring activities to support business strategies, realign resources, and enhance its operational efficiency. Restructuring costs may include severance and other employee related termination costs, costs associated with consolidating or closing facilities and consulting costs.

One-time involuntary employee termination benefits are recognized as a liability and measured at fair value when the plan of termination has been communicated to employees and certain other criteria are met. Ongoing employee termination benefit arrangements are recognized as a liability and measured at fair value when it is probable that amounts will be paid and such amounts are reasonably estimable. Other employee related termination costs include the impact of accelerated stock compensation expense for terminated employees that have a reduction in the requisite service period for their stock-based awards.

Costs to consolidate or close facilities primarily include lease obligation charges for exited facilities, including the impact of accelerated lease expense for right of use assets and accelerated depreciation expense for leasehold improvements with reductions in their estimated useful lives due to exited facilities.

Leases

The Company occupies most of its facilities under operating leases. Certain equipment is also leased under short-term or cancelable operating leases.

The Company recognizes a right of use ("ROU") asset and a lease liability upon the commencement of its operating leases. The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate on a secured basis. The lease term includes option renewal periods and early termination payments when it is reasonably certain that the Company will exercise those rights. The initial measurement of the ROU asset is equal to the initial lease liability plus any initial direct costs and prepayments, less any lease incentives.

The Company recognizes lease costs on a straight-line basis over the remaining lease term, except for variable lease payments that are expensed in the period in which the obligation for those payments is incurred.

For its facility leases, the Company combines and accounts for lease and non-lease components together as a single component. The Company does not recognize lease liabilities and ROU assets for leases with original terms of 12 months or less. ROU assets are evaluated for impairment as a long-lived asset.

The Company leases IT equipment and hardware to its customers. All of the Company’s lessor arrangements are operating leases. Operating lease income is recognized on a straight-line basis over the term of the lease and is presented in "Revenues" on the consolidated statements of income.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill and indefinite-lived intangible assets are not amortized, but rather are tested for potential impairment annually at the beginning of the Company's fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. There wereno impairments during the periods presented.

The goodwill impairment test is performed at the reporting unit level. In the Company’s qualitative assessment, an evaluation is performed to determine whether it is more likely than not that an impairment exists based on qualitative factors. Qualitative factors include macroeconomic, industry and market conditions, cost factors, overall financial performance, relevant entity-specific events, factors affecting the reporting unit, and share price.

The Company may additionally perform a quantitative assessment in which the fair value of the Company’s reporting units are determined using either a market approach, income approach, or a combination of both, which involves the use of estimates and assumptions, including projected future operating results and cash flows, the cost of capital, and financial measures derived from observable market data of comparable public companies. 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.

Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable at the asset group level.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost net of accumulated depreciation and amortization. Purchases of property, plant, and equipment, as well as costs associated with major renewals and betterments, are capitalized. Maintenance, repairs and minor renewals and betterments are expensed as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed and any resulting gain or loss is recognized. See Note 7—Property, Plant, and Equipment for depreciation and amortization methods and estimated useful lives by major asset class.

Impairment of Long-lived Assets

The Company evaluates its long-lived assets (including right of use lease assets) for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable and the carrying amount of the asset exceeds its estimated future undiscounted cash flows (including sublease income) at the asset group level. When the carrying amount of the asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized to reduce the asset’s carrying amount to its estimated fair value based on the present value of its estimated future cash flows.

In circumstances in which the Company has the ability and intent to sublease an exited facility, the Company performs an impairment test of the asset group (mainly consisting of right of use lease assets and leasehold improvements) on the earlier of the cease use date or sublease inception date by comparing the carrying amount of the asset group to the undiscounted cash flows associated with the asset group (mainly sublease income). When the carrying amount of the asset group exceeds its estimated future undiscounted cash flows, an impairment loss is recognized to reduce the asset group’s carrying amount to its estimated fair value based on the present value of estimated future cash flows. In circumstances in which the Company does not have the ability or intent to sublease an exited facility, the Company adjusts the estimated useful life of the facility related assets to end on the cease use date and recognizes accelerated depreciation and amortization.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

Accruals for commitments and loss contingencies are recorded when it is both probable that they will occur and the amounts can be reasonably estimated. In addition, legal fees are accrued for cases where a loss is probable and the related fees can be reasonably estimated. Significant judgment is required to determine both the probability and the estimated amount of loss. The Company reviews these accruals quarterly and adjusts the accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information.

Pension and Defined Benefit Plans

The Company measures plan assets and benefit obligations as of the month-end that is closest to its fiscal year-end. Accounting and reporting for the Company's pension and defined benefit plans requires the use of assumptions, including but not limited to, a discount rate and an expected return on assets. These assumptions are reviewed at least annually based on reviews of current plan information and consultation with the Company's independent actuary and the plans’ investment advisor. If these assumptions differ materially from actual results, the Company's obligations under the pension and defined benefit plans could also differ materially, potentially requiring the Company to record an additional liability. The Company's pension and defined benefit plan liabilities are developed from actuarial valuations performed each year.

Fair Value Measurements

The Company utilizes fair value measurement guidance prescribed by GAAP to value its financial instruments. The accounting standard for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than the quoted prices in active markets that are observable either directly or indirectly (Level 2); and unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions (Level 3).

The carrying amounts of cash and cash equivalents, receivables, accounts payable and other amounts included in other current assets and current liabilities that meet the definition of a financial instrument approximate fair value due to the short-term nature of these amounts. The carrying value of the Company’s outstanding debt obligations approximates its fair value, which is calculated using Level 2 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements.

Non-financial assets acquired and liabilities assumed in a business combination are measured at fair value using income, market and cost valuation methodologies.

Marketable Securities

Investments in marketable securities consist of equity securities, which are recorded at fair value using observable inputs such as quoted prices in active markets (Level 1). As of January 31, 2025 and February 2, 2024, the fair value of the Company's investments totaled $36 million and $32 million, respectively, and are primarily included in "Other assets" on the consolidated balance sheets. The Company's investments are primarily held in a custodial account, which includes investments to fund its deferred compensation plan liabilities.

Derivative Instruments Designated as Cash Flow Hedges

Derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Settlement amounts related to derivatives designated as cash flow hedges are presented within operating activities on the consolidated statement of cash flows.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s fixed interest rate swaps are considered over-the-counter derivatives, and their fair value is calculated using a standard pricing model for interest rate swaps with contractual terms for maturities, amortization and interest rates. Level 2, or market observable inputs (such as yield and credit curves), are used within the standard pricing models in order to determine fair value. The fair value is an estimate of the amount that the Company would pay or receive as of a measurement date if the agreements were transferred to a third party. See Note 12—Derivative Instruments Designated as Cash Flow Hedges for further discussion on the Company’s derivative instruments designated as cash flow hedges.

Operating Cycle

The Company’s operating cycle may be greater than one year and is represented by the average time intervening between the inception and the completion of contracts.

Research and Development

The Company conducts research and development activities under customer-funded contracts and with company-funded independent research and development ("IR&D") funds. IR&D efforts consist of projects involving basic research, applied research, development, and systems and other concept formulation studies. Company-funded IR&D expense is included in "Selling, general and administrative expenses" and was $12 million, $4 million and $1 million in fiscal 2025, 2024 and 2023, respectively. Customer-funded research and development activities performed under customer contracts are charged directly to cost of revenues for those particular contracts.

Investments in Equity Securities

The Company invests in certain companies that advance or develop new technologies applicable to its business. The Company also occasionally forms joint ventures as a part of its investment strategy for the purpose of bidding and executing on specific projects. Each investment is evaluated for consolidation under the variable interest entities ("VIEs") model and/or the voting interest model. The results of these investments are not material to the consolidated financial statements for the periods presented.

The Company applies the equity method of accounting to its unconsolidated investments when it has the ability to exercise significant influence over the entity and recognizes its proportionate share of the entities’ net income or loss within "Other operating (income) expense" on the consolidated statements of income. Equity investments in entities over which the Company does not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost or cost net of other-than-temporary impairments.

Sale of Equity Method Investment

On August 30, 2024, Morpheus Data, one of the Company’s unconsolidated venture investments, completed a transaction to sell all its outstanding equity, including the Company's equity investment, to Hewlett Packard Enterprise (NYSE: HPE) for $10 million in cash. The Company recognized the cash as "Proceeds from sale of equity method investments" on the consolidated statements of cash flows. The transaction resulted in a pre-tax gain of $5 million which is included within "Other operating (income) expense" on the consolidated statements of income.

Accounting Standards Updates

Accounting Standards Updates Recently Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Amongst other amendments, the standard requires annual and interim disclosures of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), and interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually. This standard does not change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The standard was effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Company adopted the annual disclosure requirements in fiscal 2025 and will adopt the interim disclosure requirements in fiscal 2026. See Note 16—Business Segments Information for additional information.

Accounting Standards Updates Recently Issued But Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard includes amendments that enhance annual income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The standard is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments can be applied on a prospective or retrospective basis. The Company plans to adopt this standard prospectively in fiscal 2026 and does not expect it to have a material impact on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASUNo. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The standard includes new disclosure requirements relating to specified categories of expenses (purchases of inventory, employee compensation, depreciation, and amortization) that are included in certain expense captions presented on the face of the income statement. Early adoption is permitted. The amendments can be applied on a prospective or retrospective basis. In January 2025, the FASB clarified the effective date of the standard by issuing ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact of adoption of this standard on its financial statement disclosures.

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

Earnings Per Share ("EPS")

Basic EPS is computed by dividing net income attributable to common stockholders by the basic weighted-average number of shares outstanding. Diluted EPS is computed similarly to basic EPS, except the weighted-average number of shares outstanding is increased to include the dilutive effect of outstanding stock options and other stock-based awards. The dilutive effect of outstanding stock options and other stock-based awards is computed using the treasury stock method.

The following table provides a reconciliation of the weighted-average number of shares outstanding used to compute basic and diluted EPS for the periods presented:

Antidilutive stock awards excluded from the weighted-average number of shares outstanding used to compute diluted EPS for fiscal 2025, 2024, and 2023 were immaterial.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Share Repurchases

The Company may repurchase shares in accordance with established repurchase plans. The Company retires its common stock upon repurchase with the excess over par value allocated to additional paid-in capital. When repurchases for the period exceed total additional-paid-in-capital, the excess repurchases are recorded as a reduction to retained earnings. The Company has not made any material purchases of common stock other than in connection with established share repurchase plans.

In December 2024, the Company's Board of Directors authorized the repurchase of up to $1.2 billion of the Company's outstanding common stock under its existing share repurchase plan. This authorization was effective as of December 16, 2024 and has no expiration date. Since the program’s inception in December of 2013, the Company has repurchased approximately 24.5 million shares of its common stock from the open market for approximately $2.1 billion, which included amounts previously authorized under the plan prior to December 2024.

Dividends

The Company declared and paid quarterly dividends of $0.37 per share every quarter for the years presented. Total dividends declared and paid were $1.48 per share during fiscal 2025, 2024 and 2023. Subsequent to the end of fiscal 2025, on March 13, 2025, the Company’s Board of Directors declared a cash dividend of $0.37 per share of the Company’s common stock payable on April 25, 2025 to stockholders of record on April 11, 2025.

Note 3—Revenues:

Changes in Estimates on Contracts

Aggregate net changes in estimates on contracts accounted for using the cost-to-cost method of accounting were recognized in operating income as follows:

Revenues were $14 million, $2 million and $7 million higher for fiscal 2025, 2024 and 2023, respectively, due to net revenue recognized from performance obligations satisfied in prior periods.

Disaggregation of Revenues

The Company's revenues are generated primarily from long-term contracts with the U.S. government including subcontracts with other contractors engaged in work for the U.S. government. The Company disaggregates revenues by customer, contract type and prime versus subcontractor to the federal government for each of its reportable segments.

Disaggregated revenues by customer were as follows:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated revenues by contract type were as follows:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated revenues by prime versus subcontractor were as follows:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Contract Balances

Contract balances for the periods presented were as follows:

(1) Net of allowance of $3 million as of January 31, 2025 and February 2, 2024.

The changes in the Company's contract assets and contract liabilities during the current period primarily result from timing differences between the Company's performance, invoicing and customer payments. As of January 31, 2025, the Company classified $29 million of unbillable receivables that are expected to be billed and collected beyond one year within "Other assets" on the consolidated balance sheets. During fiscal 2025 and 2024, the Company recognized revenues of $35 million and $40 million relating to amounts that were included in the opening balance of contract liabilities as of February 2, 2024 and February 3, 2023, respectively.

Deferred Costs

Deferred costs for the periods presented were as follows:

Pre-contract costs of $9 million were expensed during fiscal 2025 and 2024. Prepaid contract costs of $36 million and $46 million were amortized during fiscal 2025 and 2024, respectively. Fulfillment costs of $3 millionand $5 million were amortized during fiscal 2025 and 2024, respectively. Costs to obtain of $2 million and $1 million were amortized during fiscal 2025 and 2024, respectively.

Remaining Performance Obligations

Remaining performance obligations ("RPO") represent the transaction price of exercised contracts (both funded and unfunded) less inception to date revenue recognized. RPO does not include unexercised option periods and future task orders expected to be awarded under IDIQ contracts. As of January 31, 2025, the Company had approximately $5.6 billion of RPO. The Company expects to recognize revenue on approximately 82% of the RPO over the next 12 months and approximately 93% over the next 24 months, with the remaining recognized thereafter.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 4—Divestitures:

FSA Amendment

On February 4, 2023, the Company sold 0.1% of its 50.1% majority ownership interest in FSA to its sole joint venture partner for a nominal amount. In conjunction with the sale, the Company remeasured its retained investment in FSA to a fair value of $14 million. As a result of the sale and amendment to the joint venture operating agreement of FSA, the Company no longer controls the joint venture and accounts for its retained interest as an equity method investment as of the date of the transaction.

The equity method investment is included within "Other assets" on the consolidated balance sheets. The remeasurement resulted in a gain of $7 million which is included within "(Gain) loss on divestitures, net of transaction costs" on the consolidated statements of income and is reflected within "Gain on divestitures" on the consolidated statements of cash flows in fiscal 2024. The Company estimated the fair value of its retained investment in FSA based on Level 3 inputs of the fair value hierarchy. The Company used the income approach which involves the use of estimates and assumptions, including revenue growth rates, projected operating margins, discount rates and terminal growth rates.

Sale of Logistics and Supply Chain Management Business

On May 6, 2023, the Company closed the sale of its logistics and supply chain management business ("Supply Chain Business") to ASRC Federal Holding Company, LLC ("ASRC Federal") for $356 million in cash. The sale enables the Company to focus its resources on long-term strategic growth areas. The Company recognized the cash as "Proceeds from divestitures" on the consolidated statements of cash flows in fiscal 2024. The Company recorded a pre-tax gain of $233 million, net of $7 million of transaction costs, which is included within "(Gain) loss on divestitures, net of transaction costs" on the consolidated statements of income in fiscal 2024.

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

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

In connection with the sale, the Company and ASRC Federal entered into certain transition services agreements pursuant to which the Company provided certain services to ASRC Federal through the first quarter of fiscal 2025 on a cost reimbursable basis. The transition services included certain IT, finance and other services necessary to support the transition of the sale.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 5—Restructuring and Impairment:

Restructuring and impairment costs recognized were as follows:

(1)Restructuring costs included in the table above are recorded in Corporate "Selling, general and administrative expenses."

(2)Impairment charges in fiscal 2023 relate to assets associated with exited facilities.

During fiscal 2025 and 2024, the Company incurred costs related to restructuring activities associated with the reorganization of its business sectors into business groups and for the optimization and consolidation of certain facilities. As part of these activities, the Company incurred severance and other employee costs, consulting costs, and costs related to the consolidation and exit of certain facilities. Other employee costs include the impact of accelerated stock compensation expense for terminated employees.

During fiscal 2023, the Company incurred costs related to restructuring activities associated with the optimization of business processes and incurred consulting costs, severance and other employee costs, and other costs related to the consolidation of certain facilities. The Company completed these activities in fiscal 2024. During fiscal 2024 and 2023, cash paid for consulting costs was $2 million and $5 million, respectively, and there was no remaining liability for these costs as of February 2, 2024.

Note 6—Goodwill and Intangible Assets

Goodwill

The following table presents the carrying value of goodwill by reportable segment:

As a result of the internal reorganization on February 3, 2024, the Company reallocated its goodwill to its five new goodwill reporting units. The Company performed a goodwill impairment test immediately before and after the reorganization, both of which resulted inno impairment. For the goodwill impairment test immediately after the reorganization, the Company performed a quantitative assessment of its goodwill as of February 3, 2024 for itsfive new goodwill reporting units. The Company estimated the fair value of each reporting unit using a 50:50 weighting of fair values derived from an income approach and market approach.

Under the income approach, the Company estimated the fair value of its reporting units using a multi-year discounted cash flow model involving assumptions about projected future revenue growth, operating margins, income tax rates, capital expenditures, discount rate, and terminal value. Under the market approach, the Company estimated the fair value of its reporting units based on multiples of earnings derived from observable market data of comparable public companies.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During the fourth quarter of fiscal 2025, the Company completed its annual goodwill impairment testing using a qualitative assessment and determined that it was more likely than not that an impairment did not exist and that a quantitative analysis was not necessary.

Intangible Assets

Intangible assets, all of which were finite-lived, consisted of the following:

Amortization expense related to intangible assets was $115 million for fiscal 2025 and 2024 and $125 million for fiscal 2023. There wereno impairments of intangible assets during the periods presented.

As of January 31, 2025, the estimated future annual amortization expense related to intangible assets is as follows:

Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments and other factors.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 7—Property, Plant, and Equipment:

Property, plant, and equipment, depreciation and amortization methods, and estimated useful lives by major asset class were as follows:

Depreciation and amortization expense for property, plant, and equipment was $25 million, $26 million and $32 million in fiscal 2025, 2024 and 2023, respectively.

Note 8—Stock-Based Compensation:

Plan Summaries

As of January 31, 2025, the Company had stock-based compensation awards outstanding under the following plans: “2023 Equity Incentive Plan” ("2023 EIP"), “2013 Equity Incentive Plan” ("2013 EIP"), “Management Stock Compensation Plan”, and the “Amended and Restated 2013 Employee Stock Purchase Plan” ("ESPP") which are herein referred to together as the “Plans.” The Company issues new shares on the vesting of stock awards or exercise of stock options under these Plans. During fiscal year 2024, the Company terminated the Third Amended and Restated 2012 Long Term Performance Plan ("LTPP") and deregistered all remaining unissued shares thereunder.

On June 7, 2023, the Company’s stockholders approved the 2023 EIP. The 2023 EIP authorized 2.2 million new shares of the Company’s common stock, par value $0.0001 per share, to be issued as various types of stock-based compensation and cash awards. Awards previously issued and outstanding under the 2013 EIP will continue to remain outstanding and be subject to the terms of the 2013 EIP. After June 7, 2023, no new awards may be issued under the 2013 EIP and any awards that subsequently expire, are forfeited or canceled, are settled in cash, or are used to cover recipient tax obligations, will become available for issuance under the 2023 Plan. As of January 31, 2025, the total authorized shares of common stock for issuance under the 2023 EIP is 1.9 million.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The 2023 EIP and 2013 EIP both provide the Company’s employees and directors the opportunity to receive various types of stock-based compensation and cash awards. The terms of the stock-based awards granted to employees and directors are the same, except that those for directors cliff vest withinone year of the grant date. As of January 31, 2025, the Company has unvested stock and performance share awards under the 2023 EIP and 2013 EIP and outstanding stock options under the 2013 EIP. Vesting stock awards granted in fiscal 2020 and thereafter generally vest equally over three years, while vesting stock awards granted prior to fiscal 2020 generally vest equally over four years. Stock options generally become exercisable evenly over three years. The maximum contractual term for stock options isten years, but historically the Company has granted stock options with aseven-year contractual term. The requisite service period for stock-based awards is accelerated for employees meeting certain retirement eligibility conditions. Certain officers are eligible for continued vesting of previously granted awards upon termination of employment or voluntary retirement, subject to the conditions set forth in the Company’s Executive Severance, Change in Control and Retirement Policy effective July 1, 2020. Stock-based awards generally provide for accelerated vesting if there is a change in control (as defined in the 2023 EIP and 2013 EIP, as applicable). Vesting stock awards and performance share awards have forfeitable rights to dividends.

Performance shares are rights to receive shares of the Company’s stock upon satisfaction of certain requirements. Performance-based stock awards granted prior to fiscal 2022 include service and performance conditions. Performance-based stock awards granted in fiscal 2022 and thereafter also include market conditions. For performance-based stock awards granted prior to fiscal 2023, the performance metrics are based on annual operating cash flows and a three year cumulative measure of earnings. For performance-based stock awards granted in fiscal 2023 and thereafter, the performance metrics are based on three year cumulative operating cash flows and a three year cumulative measure of earnings. The market conditions for awards granted in fiscal 2022 and thereafter are based on the Company's total shareholder return over the three year performance period as compared to the total shareholder return for a specified group of companies over the same period. These awards cliff vest at the end of the third fiscal year following the grant date, subject to meeting the minimum service requirements and the achievement of the Company’s performance metrics and market conditions, with the number of shares ultimately issued, if any, ranging up to 200% of the specified target shares. If performance is below a minimum threshold level of performance, no shares will be issued.

The Management Stock Compensation Plan provides for awards in share units to eligible employees. Benefits are payable in shares of the Company’s stock that are held in a trust for the purpose of funding benefit payments to the participants. During fiscal 2017, all remaining outstanding awards in the Management Stock Compensation Plan vested. The Board of Directors may at any time amend or terminate the Management Stock Compensation Plan. In the event of a change in control of the Company (as defined by the Management Stock Compensation Plan), participant accounts will be immediately distributed, otherwise participant accounts will generally be distributed upon retirement based on the participant’s payout election, or upon termination. The Management Stock Compensation Plan does not provide for a maximum number of shares available for future issuance.

On June 7, 2023, the Company’s stockholders approved an amended and restated ESPP which limits the total number of shares reserved for issuance to 2.0 million and extends the plan’s expiration date from September 26, 2023 to the earlier of its termination by the Board of Directors or the issuance of all shares available for issuance thereunder. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15% of the fair market value on the date of purchase. During the three fiscal years ended January 31, 2025, the ESPP discount was 5% of the fair market value on the date of purchase, thereby resulting in the ESPP being non-compensatory. As of January 31, 2025,1.7 million shares of the Company’s common stock are authorized for issuance under the ESPP.

The LTPP provides certain employees of the Company the opportunity to receive various types of stock-based compensation awards. Vesting stock awards issued under the LTPP generally cliff vest at the end of the third fiscal year following the grant date. Vesting may be accelerated for employees meeting retirement eligibility conditions. Vesting stock awards under the LTPP have forfeitable rights to dividends.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Expense and Related Tax Benefits Recognized

Stock-based compensation expense and related tax benefits recognized under the Plans were:

The Company did not have stock-based compensation expense for stock options for fiscal 2025. Stock-based compensation expense for stock options was not material for fiscal 2024 and 2023.

Vesting Stock Awards

Vesting stock award activity for the year ended January 31, 2025 was:

The grant date fair value of vesting stock awards is based on the closing market price of the Company’s common stock on the last trading day preceding the grant date. The weighted-average grant date fair value of the vesting stock awards granted in fiscal 2025, 2024 and 2023 was $127.33, $108.64 and $95.43, respectively. As of January 31, 2025 there was $40 million of unrecognized compensation cost, net of estimated forfeitures, related to vesting stock awards, which is expected to be recognized over a weighted-average period of 1.8 years. The fair value of vesting stock awards that vested in fiscal 2025, 2024 and 2023 was $61 million, $48 million and $44 million, respectively.

Performance Share Awards

Performance share award activity for the year ended January 31, 2025 was:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The actual number of shares to be issued upon vesting range between 0-200% of the specified target shares. In the table above, the number of performance shares are presented at 100% of the specified target shares, except for awards that vested and the performance adjustment. The vested amount reflects the number of shares to be issued based on the actual achievement of the performance goals for shares that vested during the period. The performance adjustment amount reflects the increase or decrease in the number of performance shares vested compared to the number of performance shares that would have vested at target.

The weighted-average grant date fair value of the performance share awards granted in fiscal 2025, 2024 and 2023 was $128.17, $116.25 and $100.94, respectively. The grant date fair value of performance shares was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the Company's expected total shareholder return relative to a specified group of companies defined within the award agreement. The primary assumptions included an expected volatility of 24.16%,27.35%, and 38.02% for fiscal 2025, 2024 and 2023, respectively, and a risk-free interest rate of 4.46%,3.68% and 2.44% for fiscal 2025, 2024 and 2023, respectively. The expected volatility was based on the historical volatility of the Company over a period commensurate with the expected term of the award as of the date of grant. The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the award on the date of grant.

The fair value of performance share awards that vested in fiscal 2025 was $18 million. As of January 31, 2025 there was $19 million of unrecognized compensation cost, net of estimated forfeitures, related to performance share awards, which is expected to be recognized over a weighted-average period of 1.7 years.

Stock Options

Stock options are granted with their exercise price equal to the closing market price of the Company’s common stock on the last trading day preceding the grant date.

Stock option activity for the year ended January 31, 2025 was:

As of January 31, 2025, the unrecognized compensation cost, net of estimated forfeitures, related to stock options wasnot material.

The following table summarizes activity related to exercises of stock options:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 9—Retirement Plans:

Defined Contribution Plans

The Company sponsors the Science Applications International Corporation Retirement Plan (a qualified defined contribution 401(k) plan) and an employee stock ownership plan, in which most employees are eligible to participate. There are a variety of investment options available, including the Company's stock.

The Science Applications International Corporation Retirement Plan allows eligible participants to contribute a portion of their income through payroll deductions and the Company makes matching company contributions and may also make discretionary contributions. The Company contributions expensed for defined contribution plans were $86 million, $82 million and $80 million in fiscal 2025, 2024 and 2023, respectively.

Deferred Compensation Plans

The Company maintains the Science Applications International Corporation Deferred Compensation Plan ("DCP") which provides certain eligible employees and directors an opportunity to defer some or all of their compensation on an unfunded, nonqualified basis. Participant deferrals are fully vested and diversified at the participant’s direction among the investment options offered under the DCP. Participant accounts are credited with a rate of return based on the performance of the investment options selected. Distributions are made in cash. Deferred balances are paid on retirement based on the participant’s payout election, or upon termination. The Company may provide discretionary contributions to participants, but no Company contributions have been made.

The Science Applications International Corporation Key Executive Stock Deferral Plan ("KESDP") was closed on December 31, 2014, and no further deferrals are allowed. Benefits from the KESDP are payable in shares of the Company’s stock that may be held in trust for the purpose of funding benefit payments to KESDP participants. Vested deferred balances are paid on retirement based on the participant’s payout election, or upon termination.

The Science Applications International Corporation 401(k) Excess Deferral Plan ("Excess Plan") was also closed on December 31, 2014, and no further deferrals are allowed. Participant deferrals are fully vested and diversified at the participant’s direction among the investment options offered under the Excess Plan. Deferred balances are paid on retirement or termination.

Defined Benefit Plans

In connection with the acquisition of Engility Holdings, Inc. ("Engility") in fiscal 2019, the Company assumed two defined benefit plans sponsored by Engility for certain current and former employees: a Defined Benefit Pension Plan ("Pension Plan") and a Retiree Health Reimbursement Account Plan ("RHRA Benefit Plan"). Membership and participants' calculated pension benefit are frozen in the Pension Plan and membership in the RHRA Benefit Plan is frozen.

The Company's funding policy is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974. Additional amounts are contributed to assure that plan assets will be adequate to provide retirement benefits. During fiscal 2026, the Company expects to contribute $3 million to fund the Pension Plan and $1 million to fund the RHRA Benefit Plan, respectively.

During fiscal 2025 and 2024, the Company recognized a net gain of $3 million and $1 million, respectively, on its retirement plans within other comprehensive income primarily due to an increase in discount rates and the difference between actual investment return and expected return.

During fiscal 2023, the Company recognized a net gain of $4 million on its retirement plans within other comprehensive income. The gain was comprised of a $10 million gain due to an increase in discount rates, partially offset by a $6 million loss due to the difference between actual investment return and expected return.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Net Periodic Benefit Cost

The net periodic benefit (income) cost was as follows:

Obligations and Funded Status

The projected benefit obligation, fair value of plan assets and funded status for each plan are as follows:

Amounts recognized in the consolidated balance sheets consist of:

Assumptions

The Company uses the spot rate approach to measure liabilities and interest costs for defined benefit obligations. Under the spot rate approach, the Company uses individual spot rates along the yield curve that correspond with the timing of each benefit payment.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The discount rates represent the estimated rate at which the Company could effectively settle its defined benefit obligations using a high quality bond yield curve.

The assumed long-term rate of return on plan assets, which is the average return expected on the funds invested or to be invested to provide future benefits to pension plan participants, is determined by an annual review of historical returns on plan assets. In selecting the expected long-term rate of return on assets used for the Pension Plan, the Company considered its investment return goals stated in the Pension Plan's investment policy. This process included determining expected returns for the various asset classes that comprise the Pension Plan's target asset allocation.

The following assumptions were used to determine the benefit obligations and net periodic benefit costs:

Pension Plan Assets

The Company's investment policy includes a periodic review of the Pension Plan's investment in the various asset classes. During fiscal 2025, the Company's overall investment strategy was for plan assets to achieve a long-term rate of return of 5.25%, with a wide diversification of asset types, fund strategies and fund managers. The target allocation for the plan assets is 44% in domestic equity securities,20% international equity securities,31% in fixed income securities and 5% in cash and cash equivalents. The risk management practices include regular evaluations of fund managers to ensure the risk assumed is commensurate with the given investment style and objectives. According to the plan's investment policy, performance will be evaluated across all time periods, with a particular emphasis on longer-term returns relative to associated peers and benchmarks.

The fair value measurement of plan assets by category is as follows:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurement Using Significant Unobservable Inputs (Level 3)

A reconciliation of the beginning and ending balances of the Guaranteed Deposit Account ("GDA") is as follows:

The GDA is designed to provide liquidity and safety of principal with a competitive guaranteed rate of return. The fair value of the GDA approximates the market value of underlying investments by discounting expected future investment cash flow from both investment income and repayment of principal for each investment purchased directly for the defined benefit segment of the General Account. Principal and accumulated interest are fully guaranteed by Prudential Retirement Insurance and Annuity Company ("PRIAC"). The declared interest rate is announced each year in advance and is determined by PRIAC. The GDA invests in a broadly diversified, fixed-income portfolio within PRIAC's general account. The portfolio is invested in public bonds, commercial mortgages and private placement bonds.

Estimated Future Benefit Payments

The following table sets forth the expected timing of benefit payments by fiscal year:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 10—Income Taxes:

Substantially all of the Company’s income before income taxes for the fiscal year ended January 31, 2025 and the two preceding fiscal years is subject to taxation in the United States. The provision for income taxes for each of the periods presented include the following:

A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes for each of the periods presented was as follows:

The effective income tax rate for fiscal 2025 is lower than the rate in fiscal 2024 primarily due to the gain from the divestiture of the Supply Chain Business and the associated non-deductible goodwill in the prior year.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes are recorded for differences in the basis of assets and liabilities for financial reporting purposes and tax reporting purposes. Deferred tax assets (liabilities) were comprised of:

Deferred tax assets for both periods include state tax credit carryforwards for which the Company has set up a valuation allowance.

The changes in the unrecognized tax benefits were:

The Company includes net interest and penalties as a component of income tax expense.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company has filed income tax returns in the U.S. and in various foreign jurisdictions, which may be subject to routine compliance reviews by the IRS and other taxing authorities. While the Company believes it has recorded adequate accruals for uncertain tax positions, the tax authorities may determine that the Company owes taxes in excess of recorded accruals or the recorded accruals may be in excess of the final settlement amounts agreed to by tax authorities. The Company’s tax returns for fiscal years 2016 through 2019 and 2022 through 2024 remain subject to examination by the IRS and various other tax jurisdictions. The Company is currently under examination by the IRS for fiscal years 2016 through 2019.

As of January 31, 2025, the Company has approximately $47 million of tax effected federal loss carryforwards, $6 million of tax effected state loss carryforwards and approximately $8 million of state credit carryforwards that will begin to expire in fiscal 2026. The valuation allowance of $7 million at January 31, 2025 relates to these state credit carryforwards.

Note 11—Debt Obligations:

The Company’s debt as of the periods presented was as follows:

(1) The stated interest rate for the Revolving Credit Facility due June 2027 reflects the weighted-average interest rate for the outstanding borrowings as of January 31, 2025.

As of January 31, 2025, the Company has a $2.6 billion secured credit facility (the "Credit Facility") consisting of a Term Loan A Facility due June 2027, a Term Loan B3 Facility due February 2031 (together, the "Term Loan Facilities"), and a $1.0 billion secured Revolving Credit Facility due June 2027 (the "Revolving Credit Facility").

The Company's Third Amended and Restated Credit Agreement ("Third Amended Credit Agreement") contains certain restrictive covenants applicable to the Company and its subsidiaries including a requirement to maintain a Senior Secured Leverage Ratio (as defined in the Third Amended Credit Agreement) of not greater than 4.00 to 1.00, unless a Permitted Acquisition (as defined in the Third Amended Credit Agreement) occurs in which case not greater than 4.25 to 1.00 for three consecutive quarters following such a transaction.

Prior to being paid off in fiscal 2025, borrowings under the Term Loan B Facility due October 2025 and the Term Loan B2 Facility due March 2027 amortized quarterly at 0.25% of the original borrowed amounts.

On March 1, 2021, the Company executed the Third Amendment to the Third Amended and Restated Credit Agreement, which reduced the applicable margin for the Term Loan B2 Facility due March 2027 for LIBOR loans from 2.25% to 1.875% and for base rate loans from 1.25% to 0.875%.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On July 2, 2021, the Company executed the Fourth Amendment to the Third Amended and Restated Credit Agreement, which established a new senior secured incremental term loan credit facility commitment in the amount of $100 million (the "Term Loan A2 Facility due October 2023").

On June 30, 2022, the Company executed the Fifth Amendment to the Third Amended and Restated Credit Agreement ("Fifth Amendment"), which established, among other things, a $1,230 million senior secured term loan credit facility ("Term Loan A Facility due June 2027") and increased the Revolving Credit Facility commitment from $400 million to $1,000 million. The entire Term Loan A Facility due June 2027 was immediately borrowed by the Company and the proceeds were used to pay in full the outstanding principal balances under the Term Loan A Facility due October 2023 and Term Loan A2 Facility due October 2023 and to prepay $400 million of principal on the Term Loan B Facility due October 2025.

Borrowings under the Term Loan A Facility due June 2027 amortize quarterly beginning on October 31, 2023 at 1.250% of the original borrowed amount thereunder, with such quarterly amortization increasing to 1.875% on October 31, 2024 and to 2.500% on October 31, 2025. The Term Loan A Facility due June 2027 may be prepaid at any time without penalty and is subject to the same mandatory prepayments, including from excess cash flow, as the Company’s existing term loans under the Credit Facility.

As a result of the Fifth Amendment, the maturity date for the Revolving Credit Facility was extended to, and the maturity date of the Term Loan A Facility due June 2027 is, the earlier of June 30, 2027 or 91 days prior to the earliest term loan “B” facility maturity date (subject to acceleration in certain circumstances). The Term Loan A Facility due June 2027 is secured by substantially all of the assets of the Company and the Company’s wholly owned domestic subsidiaries, and is guaranteed by each of the Company’s wholly owned domestic subsidiaries. The Term Loan A Facility due June 2027 is subject to the same covenants and events of default as the Company’s existing term loans under the Credit Facility.

Effective with the Fifth Amendment, all interest rates under the Credit Facility transitioned from LIBOR to Term Secured Overnight Financing Rate ("Term SOFR") plus 0.10% for US dollar denominated loans, Sterling Overnight Index Average ("SONIA") for UK pound sterling denominated loans, and Euro Interbank Offered Rate ("EURIBOR") for Euro denominated loans. The applicable interest rate margins under the Term Loan A Facility due June 2027 and the Revolving Credit Facility were reduced to a range from 0.75% to 1.75% per annum for Term SOFR, SONIA and EURIBOR loans, and from 0% to 0.75% per annum for base rate loans, in each case based on the Company’s leverage ratio. Commitment fees for undrawn amounts under the Revolving Credit Facility were also reduced to a range of 0.125% to 0.25% per annum based on the Company’s leverage ratio.

During fiscal 2024, the Company incurred $8 million of debt issuance costs associated with the Fifth Amendment, of which $2 million was recognized in interest expense, with the remaining $6 million deferred and amortized to interest expense through the maturity dates of the facilities utilizing the effective interest rate method.

On February 8, 2024, the Company executed the Sixth Amendment to the Third Amended and Restated Credit Agreement ("Sixth Amendment"), which established a $510 million senior secured term loan credit facility ("Term Loan B3 Facility due February 2031"). The entire Term Loan B3 Facility due February 2031 was immediately borrowed by the Company and the proceeds were used to pay in full the outstanding principal balances under the Term Loan B Facility due October 2025 and Term Loan B2 Facility due March 2027. The Tranche B3 Facility due February 2031 is subject to the same covenants and events of default as the Company's existing Term Loan Facilities. Borrowings under the Term Loan B3 Facility due February 2031 amortize quarterly beginning on July 31, 2024 at 0.25% of the original borrowed amount with the remaining unamortized balance due in full upon its maturity on February 8, 2031.

On October 18, 2024, the Company executed the Seventh Amendment to the Third Amended and Restated Credit Agreement ("Seventh Amendment"), which lowered the applicable margin for the Term Loan B3 Facility due February 2031 from 1.875% to 1.750% for Term SOFR loans and from 0.875% to 0.750% for base rate loans. In the event any portion of the Term Loan B3 Facility due February 2031 is repaid prior to April 18, 2025 as a result of a repricing event, the Company will be required to pay a 1.00% fee of the amount repaid. After April 18, 2025, the Term Loan B3 Facility due February 2031 may be prepaid at any time without penalty and is subject to the same mandatory prepayments, including from excess cash flow, as the Company’s existing term loans under the Credit Facility.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During fiscal 2025, the Company incurred $6 million of debt issuance costs associated with the Sixth and Seventh Amendments, of which $4 million was recognized in interest expense and the remaining $2 million deferred and amortized to interest expense through the maturity date of the facility utilizing the effective interest rate method.

The scheduled principal repayments for the Term Loan Facilities may be reduced or eliminated by annual mandatory prepayments of a portion of the Company’s Excess Cash Flow (as defined in the Third Amended Credit Agreement). Mandatory prepayments are allocated to the Term Loan Facilities on a pro rata basis and reduce the remaining scheduled principal installments for each facility. During fiscal 2025, the Company made scheduled principal repayments of $77 million and $4 million on the Term Loan A Facility due June 2027 and the Term Loan B3 Facility due February 2031, respectively. During fiscal 2024, the Company made scheduled principal repayments of $31 million on the Term Loan A Facility due June 2027 and voluntary principal prepayments of $160 million and $90 million on the Term Loan B Facility due October 2025 and the Term Loan B2 Facility due March 2027, respectively. During fiscal 2024, the Company wrote off deferred debt issuance costs of $2 million associated with the voluntary principal prepayments which were recognized in interest expense.

During fiscal 2025 and fiscal 2024, the Company borrowed $1.4 billion and $160 million and repaid $1.2 billion and $160 million under the Revolving Credit Facility, respectively. As of January 31, 2025, the outstanding principal under the Revolving Credit Facility was classified as current portion of debt on the consolidated balance sheets. Subsequent to year end, the Company repaid $100 million of the outstanding principal under the Revolving Credit Facility. Any obligations under the Credit Facility are secured by liens on substantially all of the assets of the Company and its subsidiaries. The Revolving Credit Facility is available to the Company through June 2027.

As of January 31, 2025, the Company was in compliance with the covenants under its Credit Facility.

The Company's Senior Notes due 2028 (the "Senior Notes") have 4.875% interest payable semi-annually on April 1 and October 1 of each year, and the principal is due April 2028.

Maturities of debt as of January 31, 2025 are:

Note 12—Derivative Instruments Designated as Cash Flow Hedges:

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

(1)The fair value of the fixed interest rate swap asset is included in "Other assets" on the consolidated balance sheets.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company is party to fixed interest rate swap instruments that are designated and accounted for as cash flow hedges to manage risks associated with interest rate fluctuations on a portion of the Company’s floating rate debt within the Credit Facility. The counterparties to all swap agreements are financial institutions. See Note 13—Changes in Accumulated Other Comprehensive Income by Component for the unrealized change in fair values on cash flow hedges recognized in other comprehensive income (loss) and the amounts reclassified from accumulated other comprehensive income (loss) into earnings for the current and comparative periods presented. During fiscal 2024, Interest Rate Swaps due October 31, 2023 matured which had a notional value of $450 million upon maturity. The Company estimates that it will reclassify $6 million of unrealized gains from accumulated other comprehensive income into earnings from January 31, 2025 until the remaining interest rate swaps mature on October 31, 2025.

On June 30, 2022 and in conjunction with the Fifth Amendment, the Company transitioned the variable rate on its interest rate swaps from 1-month LIBOR to 1-month Term SOFR. Effective with the transition, the Company will pay a fixed rate of 2.96% on the group of interest rate swaps maturing on October 31, 2025 and paid a fixed rate of 2.36% on the group interest rate swaps that matured October 31, 2023. The Company elected to apply the optional expedient in ASC 848, Reference Rate Reform, in connection with transitioning its interest rate swaps from LIBOR to Term SOFR that enabled it to consider the new swaps a continuation of the existing contracts. As a result, the transition did not have an impact on the Company’s hedge accounting or a material impact to the Company’s consolidated financial statements.

Note 13—Changes in Accumulated Other Comprehensive Income by Component:

The following table presents the changes in accumulated other comprehensive income (loss) attributable to the Company’s defined benefit plans and fixed interest rate swap cash flow hedges that are discussed in Note 9—Retirement Plans and Note 12—Derivative Instruments Designated as Cash Flow Hedges, respectively.

(1)The amount reclassified from accumulated other comprehensive income (loss) is included in "Interest expense, net."

(2)The amount reclassified from accumulated other comprehensive income (loss) is included in "Other (income) expense, net."

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 14—Sale of Receivables:

The Company has a Master Accounts Receivable Purchase Agreement ("MARPA Facility") with MUFG Bank, Ltd. (the "Purchaser") for the sale of up to a maximum amount of $300 million of certain designated eligible receivables with the U.S. government. Effective March 31, 2022, the Company amended the MARPA Facility to transition the purchase discount rate defined within the facility agreement from using LIBOR to Term SOFR. The amendment did not have a material impact on the Company's financial statements. The receivables sold under the MARPA Facility are without recourse for any U.S. government credit risk. The MARPA Facility automatically renews each year unless one of the parties gives prior notice to terminate.

The receivable transfers under the MARPA Facility have been recognized as sales, as the receivables had been legally isolated from the Company, the financial institution had a right to pledge or exchange the assets received and we do not maintain effective control over the transferred receivables. The fair value of the sold receivables approximated their book value due to their short-term nature.

The Company does not retain an ongoing financial interest in the transferred receivables other than cash collection and administrative services. The Company estimated that its servicing fee was at fair value and therefore has not recognized a servicing asset or liability as of January 31, 2025 and February 2, 2024. Proceeds from the sale of receivables are reflected as cash flows from operating activities on the consolidated statements of cash flows.

During fiscal 2025, 2024 and 2023, the Company incurred purchase discount fees of $14 million, $9 million and $8 million, respectively, which are presented in "Other (income) expense, net" on the consolidated statements of income.

MARPA Facility activity consisted of the following:

(1) For fiscal 2025 and 2024, the Company recorded a net decrease of $41 million and $45 million to cash flows from operating activities, respectively, from sold receivables.

(2) Primarily represents the cash collected on behalf of but not yet remitted to the Purchaser as of January 31, 2025 and February 2, 2024. This balance is included in "Accounts payable" on the consolidated balance sheets.

Note 15—Operating Leases:

Total operating lease cost is comprised of the following:

Lease cost is included primarily in "Cost of revenues" and "Selling, general and administrative expenses" on the consolidated statements of income.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company's ROU assets and lease liabilities consisted of the following:

Other supplemental operating lease information consists of the following:

Maturities of operating lease liabilities as of January 31, 2025 were as follows:

The weighted-average remaining lease term and the weighted-average discount rate was 7 years and 5.2% as of January 31, 2025, respectively, and 5 years and 4.3% as of February 2, 2024, respectively.

As of January 31, 2025, the Company had rental commitments of $30 million for facility leases that have not yet commenced. These operating leases have a weighted-average lease term of approximately 9 years.

During fiscal 2025, the Company did not recognize any operating lease income or revenue from the exercise of purchase options under lessor arrangements. During fiscal 2024, operating lease income and revenue recognized from the exercise of purchase options under lessor arrangements wasimmaterial. During fiscal 2023, operating lease income was $2 million, and revenue recognized from the exercise of purchase options under certain lessor arrangements was $23 million.

Note 16—Business Segments Information:

Effective February 3, 2024, the first day of fiscal 2025, the Company completed a business reorganization which replaced its previous two customer facing operating sectors with five customer facing business groups supported by the enterprise organizations, including the Innovation Factory. Thefive business groups represent the Company’s operating segments and have been aggregated intotwo reportable segments (Defense and Intelligence, and Civilian) given the similarity in economic and qualitative characteristics, and based on the nature of the customers they serve. The Company defines its operating segments based on the way the CODM, currently the Company's CEO, manages the operations for the purpose of allocating resources and assessing performance.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Civilian segment provides solutions to the civilian markets, encompassing federal, state, and local governments, in order to deliver services for citizen well-being, border security, and protecting lives. This includes integrating solutions into a spectrum of public service missions that impact travel, trade, health and the economy.

The offerings of both reportable segments entail the integration of emerging technologies into mission critical operations that modernize and enable national imperatives, including IT modernization, digital engineering, AI, mission systems support, training and simulation, and ground vehicles support. These services include end-to-end solutions spanning the design, development, integration, deployment, management and operations, sustainment and security of the customers’ entire IT infrastructure.

Costs associated with corporate functions that are not allocable to the reportable segments are presented as Corporate.

The CODM reviews and evaluates segment operating performance using segment "Revenues" and "Adjusted operating income (loss)". Adjusted operating income is a performance measure that primarily excludes the impact of non-recurring transactions that the Company does not consider to be indicative of the Company's ongoing operating performance.

In fiscal 2025, the Company adopted ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Amongst other amendments, the standard requires disclosure of significant segment expenses that are regularly provided to the CODM. Labor base is the significant expense that is regularly provided to the Company's CODM, and primarily includes direct labor on customer contracts.

The segment information for the periods presented was as follows:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(1) "Other operating expenses" includes cost of revenues, selling, general and administrative expenses, and other operating income or loss which are not regularly provided to the CODM. This excludes labor base which is presented separately.

The table below includes a reconciliation of total "Adjusted operating income" to "Income before income taxes" for the years ended January 31, 2025, February 2, 2024, and February 3, 2023.

(1) Fiscal 2025 adjustment consists of a reversal of immaterial costs related to the fiscal 2022 Koverse acquisition.

(2) Adjustment reflects the portion of acquisition and integration costs and restructuring and impairment costs recovered through our indirect rates in accordance with U.S. government Cost Accounting Standards.

Asset information by segment is not a key measure of performance used by the CODM.

Substantially all of the Company’s revenues and tangible long-lived assets are generated and located in the United States. As such, financial information by geographic location is not presented.

In each of fiscal 2025, 2024 and 2023,98% of the Company's 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.

Note 17—Legal Proceedings and Other Commitments and Contingencies:

Legal Proceedings

The Company is involved in various claims and lawsuits arising in the normal conduct of its business, none of which the Company’s management believes, based on current information, is expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

In April 2022 and October 2023, the Company received Federal Grand Jury Subpoenas in connection with a criminal investigation being conducted by the U.S. Department of Justice, Antitrust Division ("DOJ"). As required by the subpoenas, the Company has provided the DOJ with a broad range of documents related to the investigation,

SCIENCE APPLICATIONS INTERNATIONAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

and the Company’s collection and production process remains ongoing. The Company is fully cooperating with the investigation. At this time, it is not possible to determine whether the Company will incur, or to reasonably estimate the amount of, any fines, penalties or further liabilities in connection with the investigation pursuant to which the subpoenas were issued.

AAV Termination for Convenience

On August 27, 2018, the Company received a stop-work order from the United States Marine Corps on the Assault Amphibious Vehicle ("AAV") contract and on October 3, 2018 the program was terminated for convenience by the customer. In fiscal 2025, the Company entered into a $21 million termination settlement agreement with the customer to recover the contract costs associated with the termination, which resulted in an increase to "Revenues" of $13 million on the Company's consolidated statements of income in fiscal 2025. The settlement agreement releases the customer from all obligation and claims from the Company. Proceeds for the full settlement amount were received in the first quarter of fiscal 2026.

Government Investigations, Audits and Reviews

The Company is routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect, in particular, to its role as a contractor to federal, state and local government customers and in connection with performing services in countries outside of the United States. U.S. government agencies, including the DCAA, the Defense Contract Management Agency and others, routinely audit and review a contractor’s performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. They also review the adequacy of the contractor’s compliance with government standards for its business systems. Adverse findings in these investigations, audits, or reviews can lead to criminal, civil or administrative proceedings, and the Company could face disallowance of previously billed costs, penalties, fines, compensatory damages, and suspension or debarment from doing business with governmental agencies. Due to the Company’s reliance on government contracts, adverse findings could also have a material impact on the Company’s business, including its financial position, results of operations and cash flows.

The indirect cost audits by the DCAA of the Company’s business remain open for certain prior years and the current year. Although the Company has recorded contract revenues based on an estimate of costs that the Company believes will be approved on final audit, the Company does not know the outcome of any ongoing or future audits. If future completed audit adjustments exceed the Company’s reserves for potential adjustments, the Company’s profitability could be materially adversely affected.

As of January 31, 2025, the Company believes it has adequately reserved for estimated net amounts to be refunded to customers for potential adjustments for indirect cost audits and compliance with CAS.

Letters of Credit and Surety Bonds

The Company has outstanding obligations relating to letters of credit of $8 million as of January 31, 2025, principally related to guarantees on insurance policies. The Company also has outstanding obligations relating to surety bonds in the amount of $19 million, principally related to performance and payment bonds on the Company’s contracts.