Science Applications International Corp

Previous wording

The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K. It contains forward-looking statements (which may be identified by words such as those described in “Risk Factors—Forward-Looking Statement Risks” in Part I, Item 1A of this report), including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations; backlog; our industry; government budgets and spending; market opportunities; the impact of competition; and the impact of acquisitions and divestitures. Such statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. Risks, uncertainties and assumptions that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors” in Part I, Item 1A of this report. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future results or developments.

Current wording

The following discussion and analysis of our financial condition and results of operations, and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-K, as well as Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended January 31, 2025, which provides additional information on comparisons of fiscal 2025 and 2024. It contains forward-looking statements (which may be identified by words such as those described in “Risk Factors—Forward-Looking Statement Risks” in Part I, Item 1A of this report), including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations; backlog; our industry; government budgets and spending; market opportunities; the impact of competition; and the impact of acquisitions and divestitures. Such statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. Risks, uncertainties and assumptions that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors” in Part I, Item 1A of this report. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future results or developments.

Previous wording

We utilize 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 fiscal 2024 each consisted of 52 weeks, and fiscal 2023 consisted of 53 weeks.

Current wording

We utilize a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2026 began on February 1, 2025 and ended on January 30, 2026, fiscal 2025 began on February 3, 2024 and ended on January 31, 2025, and fiscal 2024 began on February 4, 2023 and ended on February 2, 2024.

Previous wording

We are a leading technology integrator providing full life cycle services and solutions in the technical, engineering and enterprise information technology ("IT") markets. We developed our brand by addressing our customers’ mission critical needs and solving their most complex problems for over 50 years. As one of the largest pure-play technology service providers to the U.S. government, we serve markets of significant scale and opportunity. Our primary customers are the departments and agencies of the U.S. government. We serve our customers through approximately 1,700 active contracts and task orders and employ approximately 24,000 individuals who are led by an experienced executive team of proven industry leaders. Our long history of serving the U.S. government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve. Substantially all of our revenues and tangible long-lived assets are generated and located in the United States.

Current wording

We are a leading technology integrator providing full life cycle services and solutions in the technical, engineering and mission and enterprise information technology ("IT") markets. We developed our brand by addressing our customers’ mission critical needs and solving their most complex problems for over 50 years. As one of the largest pure-play technology service providers to the U.S. government, we serve markets of significant scale and opportunity. Our primary customers are the departments and agencies of the U.S. government. We serve our customers through approximately 1,700 active contracts and task orders and employ approximately 23,000 individuals who are led by an experienced executive team of proven industry leaders. Our long history of serving the U.S. government has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve. Substantially all of our revenues and tangible long-lived assets are generated and located in the United States.

Previous wording

In fiscal 2025, we generated 98% of our revenues from contracts with the U.S. government, including subcontracts on which we perform. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. In March 2025, the President signed a continuing resolution ("CR") that extends government funding through the close of government fiscal year ("GFY") 2025. The measure provides budget certainty for agencies through September 30, 2025. The CR also provides flexibility for new starts on programs at the DoD, which are typically not allowed under CRs.

Current wording

In fiscal 2026, we generated 98% of our revenues from contracts with the U.S. government, including subcontracts on which we perform. Our business performance is affected by the overall level of U.S. government spending and the alignment of our offerings and capabilities with the budget priorities of the U.S. government. In March 2025, the President signed a continuing resolution ("CR") that extends government funding through the close of government fiscal year ("GFY") 2025. The measure provides budget certainty for agencies through September 30, 2025. The CR also provides flexibility for new starts on programs at the DoW, which are typically not allowed under CRs.

Previous wording

The Department of Government Efficiency is driving changes in the structure and priorities of Federal agencies. Reductions in personnel, changes in agency alignment, and required reviews of new contracting activity are slowing new awards. In addition, agencies are expected to conduct comprehensive reviews of existing contracting activity to identify potential efficiencies or nonalignment with new Administration priorities. SAIC contracts will be subject to these reviews.

Current wording

The U.S. government administration has put in place a number of executive orders and actions which could affect our business. In addition, the U.S government performs an ongoing evaluation of the structure and priorities of Federal agencies. Agencies are conducting comprehensive reviews of existing and new contracting activity to identify potential efficiencies or nonalignment with new Administration priorities. Our contracts have been, and will continue to be, subject to these reviews. We have not experienced a material financial statement impact from recent executive orders or program cancellations across the government. However, ongoing reductions in personnel, changes in agency alignment, required reviews of new contracting activity, decreases or delays in new or existing contract awards and in government spending on the types of programs that we support, and terminations or stop-work-orders and delay in funding on government contracts on which we are currently performing could adversely affect our future revenues, cash flows and profitability.

Previous wording

We evaluate our results of operations by considering the drivers causing changes in revenues, operating income, adjusted operating income(1), adjusted EBITDA(1), and operating cash flows. Given that revenues fluctuate on our contract portfolio over time due to contract awards and completions, changes in customer requirements, and increases or decreases in ordering volume of materials, we evaluate significant trends and fluctuations resulting from these factors. Whether performed by our employees or by our subcontractors, we primarily provide services and, as a result, our cost of revenues are predominantly variable. We also analyze our cost mix (labor, subcontractor and materials) in order to understand operating margin because programs with a higher proportion of SAIC labor are generally more profitable. Changes in cost of revenues as a percentage of revenues other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs, or cumulative revenue adjustments due to changes in estimates.

Current wording

The primary financial measures used to evaluate our consolidated results of operations include revenues, operating income, adjusted operating income(1), adjusted EBITDA(1), and operating cash flows. Given that revenues fluctuate on our contract portfolio over time due to contract awards and completions, changes in customer requirements, and increases or decreases in ordering volume of materials, we evaluate significant trends and fluctuations resulting from these factors. Whether performed by our employees or by our subcontractors, we primarily provide services and, as a result, our cost of revenues are predominantly variable. We also analyze our cost mix (labor, subcontractor and materials) in order to understand operating margin because programs with a higher proportion of SAIC labor are generally more profitable. Changes in cost of revenues as a percentage of revenues other than from revenue volume or cost mix are normally driven by fluctuations in shared or corporate costs, or cumulative revenue adjustments due to changes in estimates.

Previous wording

The primary financial performance measures we use to manage our business and monitor results of operations are revenues, operating income and cash flows from operating activities. The following table summarizes our results of operations:

Current wording

The following table summarizes our results of operations:

Previous wording

Cost of Revenues. Cost of revenues increased $15 million from fiscal 2024 to fiscal 2025 primarily due to ramp up in volume on existing and new contracts. This was partially offset by the sale of the Supply Chain Business ($172 million) in the prior year, and contract completions. Adjusting for the impact of the divestiture, cost of revenues grew approximately 2.9%.

Current wording

Cost of Revenues. Cost of revenues decreased $197 million from fiscal 2025 to fiscal 2026 primarily due to contract completions and ramp down in volume on existing contracts, partially offset by new contracts.

Previous wording

Operating Income. Operating income as a percentage of revenues decreased from fiscal 2024 to fiscal 2025 primarily due to a $233 million gain recognized from the sale of the Supply Chain Business and a $7 million gain recognized from the deconsolidation of FSA in the prior year. This was partially offset by improved profitability across our contract portfolio, the resolution of the Assault Amphibious Vehicle ("AAV") contract termination, lower

Current wording

Operating Income. Operating income as a percentage of revenues decreased from fiscal 2025 to fiscal 2026 primarily due to executive transition costs, net of recoveries, the favorable resolution of the Assault Amphibious Vehicle ("AAV") contract termination in the prior year ($13 million), costs related to the settlement of federal tax audits, and timing and volume mix in our contract portfolio, partially offset by a recovery of costs from the settlement of a patent infringement matter.

Previous wording

In December 2021, the Organisation for Economic Co-operation and Development (OECD) enacted model rules for a new 15% global minimum tax framework (“Pillar Two”) which became effective in certain jurisdictions beginning in fiscal 2024. We do not anticipate Pillar Two to have a significant impact on our effective tax rate or our consolidated results of operations, financial position, and cash flows.

Current wording

In December 2021, the Organisation for Economic Co-operation and Development (OECD) enacted a 15% global minimum tax framework (“Pillar Two”) which became effective in certain jurisdictions beginning in fiscal 2024. While U.S. adoption is uncertain, several countries where we operate have implemented it, and others are in the process of adopting. We do not anticipate Pillar Two to have a significant impact on our effective tax rate or our consolidated results of operations, financial position, and cash flows.

Previous wording

The primary financial performance measures we use to manage our reportable segments and monitor results of operations are revenues and adjusted operating income. The following tables summarize our results of operations by reportable segment:

Current wording

The primary financial performance measures we use to manage our reportable segments and monitor results of operations are revenues and adjusted operating income. Adjusted operating income is calculated by taking operating income and excluding depreciation and amortization, acquisition, integration, restructuring, and impairment costs, and any other material non-recurring costs.

Previous wording

Operating and adjusted operating income. Operating and adjusted operating income as a percentage of revenues increased from fiscal 2024 to fiscal 2025 primarily due to ramp up in volume on existing and new contracts, and the resolution of the AAV contract termination, partially offset by contract completions and the gain on sale of the Supply Chain Business in the prior year.

Current wording

Adjusted operating income. Adjusted operating income as a percentage of revenues decreased from fiscal 2025 to fiscal 2026 primarily due to contract completions and ramp down in volume on existing contracts and the favorable resolution of the AAV contract termination in the prior year ($13 million), partially offset by new contracts.

Previous wording

Adjusted operating income, earnings before interest, taxes, depreciation and amortization ("EBITDA"), and adjusted EBITDA are non-GAAP financial measures. While we believe that these non-GAAP financial measures are also useful for management and investors in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Reconciliations, definitions, and how we believe these measures are useful to management and investors are provided below. Other companies may define similar measures differently.

Current wording

Consolidated adjusted operating income, earnings before interest, taxes, depreciation and amortization ("EBITDA"), and adjusted EBITDA are non-GAAP financial measures. While we believe that these non-GAAP financial measures are also useful for management and investors in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Reconciliations, definitions, and how we believe these measures are useful to management and investors are provided below. Other companies may define similar measures differently.

Previous wording

Adjusted operating income. Adjusted operating income is a performance measure that primarily excludes the impact of non-recurring transactions that we do not consider to be indicative of our ongoing operating performance. Adjusted operating income is calculated by taking operating income and excluding depreciation and amortization, acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring costs. The acquisition and integration costs relate to our acquisitions. The restructuring and impairment costs represent the reorganization and facilities optimization costs or impairments of long-lived assets, along with associated depreciation included in those restructuring and impairment costs. The recovery of acquisition and integration costs and restructuring and impairment costs relate to costs recovered through our indirect rates in accordance with Cost Accounting Standards. Depreciation of property, plant, and equipment relates to property, plant, and equipment specifically identifiable for each segment. Adjusted operating income also excludes amortization of intangible assets because we do not have a history of significant acquisition activity, we do not acquire businesses on a predictable cycle, and the amount of an acquisition's purchase price allocated to intangible assets and the related amortization term are unique to each acquisition. We believe that these performance measures provide management and investors with useful information in assessing trends in our ongoing operating performance and may provide greater visibility in understanding the long-term financial performance of our Company. Refer to "Segment and Corporate Results" section above for the reconciliation of the GAAP financial measure to the non-GAAP financial measure.

Current wording

Adjusted operating income. Adjusted operating income is a performance measure that primarily excludes the impact of non-recurring transactions and activities that we do not consider to be indicative of our ongoing operating performance. Adjusted operating income is calculated by taking operating income and excluding depreciation and amortization, acquisition, integration, restructuring, and impairment costs, and any other material non-recurring costs. Acquisition, integration, restructuring and impairment costs represent costs incurred related to acquisitions, reorganizations, facilities optimization efforts, and impairments of long-lived assets, along with associated depreciation. Recovery of acquisition, integration, restructuring and impairment costs represents costs recovered through our indirect rates in accordance with Cost Accounting Standards. Depreciation of property, plant, and equipment relates to property, plant, and equipment specifically identifiable for each segment and Corporate. Adjusted operating income also excludes amortization of intangible assets because we do not have a history of significant acquisition activity, and therefore consider acquisitions to be a non-recurring activity, and the amount of an acquisition's purchase price allocated to intangible assets and the related amortization term are unique to each acquisition. Executive transition costs, net of recoveries, represent costs associated with the departure of our CEO and other executives in the third quarter of the fiscal year 2026, net of the portion recovered through our indirect rates in accordance with Cost Accounting Standards. Costs related to the settlement of federal tax audits represent costs related to the IRS audit settlement for fiscal years 2016 through 2019. The (Gain) loss on divestitures, net of transaction costs includes gains associated with the deconsolidation of FSA and the sale of the Supply Chain Business.

Previous wording

EBITDA and Adjusted EBITDA. The performance measure EBITDA is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing performance. Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition and integration costs, impairments, restructuring costs, and any other material non-recurring costs. Integration costs are costs to integrate acquired companies including costs of strategic consulting services, facility consolidation and employee related costs such as retention and severance costs. The acquisition and integration costs relate to our acquisitions. See Note 1—Business Overview and Summary of Significant Accounting Policies and Note 5—Restructuring and Impairment to the consolidated financial statements contained within this report for information related to our restructuring and impairment costs.

Current wording

EBITDA and Adjusted EBITDA. The performance measure EBITDA is calculated by taking net income and excluding interest and loss on sale of receivables, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is a performance measure that excludes the impact of non-recurring transactions and activities that we do not consider to be indicative of our ongoing operating performance. Adjusted EBITDA is calculated by taking EBITDA and excluding acquisition, integration, restructuring and impairment costs, and any other material non-recurring costs. Acquisition, integration, restructuring and impairment costs represent costs incurred related to acquisitions, reorganizations, facilities optimization efforts, and impairments of long-lived assets, along with associated depreciation. Recovery of acquisition, integration, restructuring and impairment costs represents costs recovered through our indirect rates in accordance with Cost Accounting Standards. Executive transition costs, net of recoveries, represent costs associated with the departure of our CEO and other executives in the third quarter of the fiscal year 2026, net of the portion recovered through our indirect rates in accordance with Cost Accounting Standards. Costs related to the settlement of federal tax audits represent costs related to the IRS audit settlement for fiscal years 2016 through 2019. The (Gain) loss on divestitures, net of transaction costs includes gains associated with the deconsolidation of FSA and the sale of the Supply Chain Business.

Previous wording

•Funded Backlog. Funded backlog for contracts with government agencies primarily represents estimated amounts of revenue to be earned in the future from contracts for which funding is appropriated less revenues previously recognized on these contracts. It does not include the unfunded portion of contracts in which funding is incrementally appropriated or authorized on a quarterly or annual basis by the U.S. government and other customers even though the contract may call for performance over a number of years. Funded backlog for contracts with non-government customers represents the estimated value on contracts, which may cover multiple future years, under which we are obligated to perform, less revenues previously recognized on these contracts.

Current wording

•Funded Backlog. Funded backlog for contracts with government agencies primarily represents estimated amounts of revenue to be earned in the future from contracts for which funding is appropriated less revenues previously recognized on these contracts. It does not include the unfunded portion of contracts in which funding is incrementally appropriated or authorized on a quarterly or annual basis by the U.S. government and other customers even though the contract may call for performance over a number of years. Funded backlog for contracts with non-government customers represents the estimated value on

Previous wording

We had net bookings worth an estimated $6.6 billion and $6.7 billion during fiscal 2025 and 2024, respectively.

Current wording

We had net bookings worth an estimated $7.8 billion and $6.6 billion during fiscal 2026 and 2025, respectively.

Previous wording

As a services provider, our business generally requires minimal infrastructure investment. We expect to fund our ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under our $1.0 billion Revolving Credit Facility and $300 million Master Accounts Receivable Purchase Agreement ("MARPA Facility") (see Note 14—Sale of Receivables to the consolidated financial statements contained within this report for additional information).

Current wording

As a services provider, our business currently requires minimal infrastructure investment. We expect to fund our ongoing working capital, commitments and any other discretionary investments with cash on hand, future operating cash flows and, if needed, borrowings under our $1.0 billion Revolving Credit Facility and $300 million Master Accounts Receivable Purchase Agreement ("MARPA Facility") (see Note 14—Sale of Receivables to the consolidated financial statements contained within this report for additional information).

Previous wording

Borrowings under our Term Loan Facilities, our MARPA Facility, and our Revolving Credit Facility incur interest at a variable rate. In accordance with our risk management objectives, we hold fixed interest rate swap agreements to hedge the variability in interest payment cash flows on a substantial portion of our outstanding variable rate debt. These instruments are accounted for as cash flow hedges. Under the swap agreements, we pay the fixed rate and the counterparties to the agreement pay a floating interest rate.

Current wording

Borrowings under our Term Loan Facilities and our Revolving Credit Facility ("Credit Facility") incur interest at a variable rate.

Previous wording

During fiscal 2023 and fiscal 2025, we amended our Credit Facility. See Note 11—Debt Obligations to the consolidated financial statements contained within this report for additional information.

Current wording

During fiscal 2026, we issued unsecured senior notes through a private offering and amended our Credit Facility. See Note 11—Debt Obligations to the consolidated financial statements contained within this report for additional information.

Previous wording

In December 2024, our Board of Directors authorized the repurchase of up to $1.2 billion of our outstanding common stock under our existing share repurchase plan. This authorization was effective December 16, 2024 and has no expiration date. During fiscal 2025, we repurchased approximately 4.2 million shares of our common stock from the open market for approximately $527 million in connection with our share purchase plan. Since the plan's inception in December of 2013, we have repurchased approximately 24.5 million shares of our common stock from the open market for approximately $2.1 billion.

Current wording

During fiscal 2026, we repurchased approximately 4.0 million shares of our common stock from the open market under our existing share repurchase plan for approximately $422 million. In December 2024, our Board of Directors authorized the repurchase of up to $1.2 billion of our outstanding common stock under our existing share repurchase plan. As of January 30, 2026, we have repurchased approximately 28.5 million shares of our common stock under the plan for approximately $2.5 billion, which included amounts previously authorized under the plan prior to December 2024.

Previous wording

(1)Amounts include an estimate of future variable interest payments on the Term Loan Facilities based on scheduled outstanding principal amounts, current applicable margin and projected 1-month Term SOFR as of January 31, 2025. The amounts presented in this table exclude the effects of interest rate swaps used to hedge against changes in 1-month Term SOFR.

Current wording

(1)Amounts include an estimate of future variable interest payments on the Term Loan Facilities based on scheduled outstanding principal amounts, current applicable margin and projected 1-month and 3-month Term SOFR as of January 30, 2026.

Previous wording

Cash flows provided by operating activities decreased $136 million from fiscal 2023 to fiscal 2024. The decrease was primarily due to lower cash provided by the MARPA Facility and higher tax payments in fiscal 2024 from the sale of the Supply Chain Business, partially offset by lower incentive-based compensation payments and other changes in working capital.

Current wording

Cash Flows Provided by Operating Activities. Cash flows provided by operating activities were $609 million for fiscal 2026, which represented an increase of $115 million from fiscal 2025. The increase was primarily due to timing of customer collections, lower cash outflows from the usage of the MARPA Facility, lower cash taxes paid, net of tax refunds received in the current year, and other changes in working capital, partially offset by timing of vendor payments.

Previous wording

Cash (Used in) Provided by Investing Activities. Cash used in investing activities was $35 million in fiscal 2025 compared to cash provided by investing activities of $314 million in the prior year primarily due to the $356 million of cash proceeds from the sale of the Supply Chain Business in the prior year (see Note 4—Divestitures to the consolidated financial statements contained within this report for additional information).

Current wording

Cash (Used in) Provided by Investing Activities. Cash used in investing activities increased by $213 million in fiscal 2026 compared to the prior year period primarily due to $203 million of cash paid in the current year for the acquisition of SilverEdge, net of cash acquired and proceeds from the sale of equity method investments in the prior year.

Previous wording

Cash Used in Financing Activities. Cash used in financing activities decreased in fiscal 2025 compared to the prior year period primarily due to higher proceeds from borrowings, net of principal payments of $399 million, partially offset by higher plan share repurchases of $170 million in the current year.

Current wording

Cash Used in Financing Activities. Cash used in financing activities decreased by $263 million in fiscal 2026 compared to the prior year period primarily due to higher proceeds from borrowings, net of principal payments and debt issuance costs, and a decrease in stock repurchases in the current year.

Previous wording

Management believes that our critical accounting policies and estimates are those that are both material to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments difficult, subjective and complex have to do with making estimates about the effect of matters that are inherently uncertain. These policies are described below.

Current wording

and complex judgments. Typically, the circumstances that make these judgments difficult, subjective and complex have to do with making estimates about the effect of matters that are inherently uncertain. These policies are described below.

Previous wording

Revenue Recognition. We generate our revenues primarily from long-term contracts in which we provide technical, engineering and enterprise IT services directly for the U.S. government and as a subcontractor with other contractors engaged in work for the U.S. government. We evaluate the nature of the contract and the services provided when determining the accounting method utilized for each contract. We recognize a significant portion of our revenues using a cost input measure of progress that requires us to rely on the skill and expertise of our engineers, program managers and business management professionals in the many areas of cost estimation. These estimates of costs can span several years and take into account many factors including the availability, productivity and cost of labor, potential delays in our performance and the level of future indirect cost allocations.

Current wording

Revenue Recognition. We generate our revenues primarily from long-term contracts in which we provide technical, engineering and mission and enterprise IT services directly for the U.S. government and as a subcontractor with other contractors engaged in work for the U.S. government. We evaluate the nature of the contract and the services provided when determining the accounting method utilized for each contract. We recognize a significant portion of our revenues using a cost input measure of progress that requires us to rely on the skill and expertise of our engineers, program managers and business management professionals in the many areas of cost estimation. These estimates of costs can span several years and take into account many factors including the availability, productivity and cost of labor, potential delays in our performance and the level of future indirect cost allocations.

Previous wording

A significant portion of our contracts recognize revenue 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 our subcontractors, overhead cost rates, and other variables. For contracts using a cost input measure, when total expected contract costs exceed total estimated contract revenues, we recognize 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. Aggregate net changes in contract estimates increased operating income by $15 million and $4 million for fiscal 2025 and 2023, respectively. Aggregate net changes in contract estimates were immaterial in fiscal 2024. For additional information related to changes in estimates on contracts, including gross favorable and unfavorable adjustments as well as the impact to earnings per share, see Note 3—Revenues to the consolidated financial statements contained within this report.

Current wording

A significant portion of our contracts recognize revenue 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 our subcontractors, overhead cost rates, and other variables. For contracts using a cost input measure, when total expected contract costs exceed total estimated contract revenues, we recognize 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. Aggregate net changes in contract estimates increased operating income by $1 million and $15 million for fiscal 2026 and 2025, respectively. Aggregate net changes in contract estimates were immaterial in fiscal 2024. For additional information related to changes in estimates on contracts, including gross favorable and unfavorable adjustments as well as the impact to earnings per share, see Note 3—Revenues to the consolidated financial statements contained within this report.

Previous wording

Business Combinations. We record all tangible and intangible assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date. 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.

Current wording

Business Combinations. We record substantially all assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date. 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.

Previous wording

Under the income approach, fair value is based on the present value of future cash flows to be generated over the remaining economic life of an asset or liability being measured. This method includes estimates for projections of revenues and expenses, royalty rates, tax rates, contributory asset charges, discount rates, and tax amortization benefits. Under the cost approach, fair value is measured by determining the replacement cost of an asset. Under the market approach, the fair value reflects the price and other relevant information of market transactions for comparable assets, liabilities or groups of assets and liabilities. Valuation techniques consistent with the market approach often use market multiples derived from a set of comparables.

Current wording

benefits. Under the cost approach, fair value is measured by determining the replacement cost of an asset. Under the market approach, the fair value reflects the price and other relevant information of market transactions for comparable assets, liabilities or groups of assets and liabilities. Valuation techniques consistent with the market approach often use market multiples derived from a set of comparables.

Previous wording

Goodwill and Intangible Assets. Goodwill is recorded as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for potential impairment annually at the beginning of the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Current wording

Goodwill and Intangible Assets. Goodwill is recorded as the difference between the aggregate consideration paid for an acquisition and the fair value of the assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for potential impairment annually at the beginning of the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Previous wording

existing taxable temporary differences, projected future taxable income, tax planning strategies and recent operating results. If we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount or would no longer be able to realize our deferred income tax assets in the future as currently recorded, we would make an adjustment to the valuation allowance, which would either decrease or increase, respectively, the provision for income taxes.

Current wording

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent operating results. If we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount or would no longer be able to realize our deferred income tax assets in the future as currently recorded, we would make an adjustment to the valuation allowance, which would either decrease or increase, respectively, the provision for income taxes.