Science Applications International Corp 10-Q for FY2021 Q2

Science Applications International Corp (SAIC)

10-Q 2020-09-03 For: 2020-07-31

Added on April 06, 2026

About this 10-Q

Science Applications International Corp filed this 10-Q on September 3, 2020, covering the quarter ended July 31, 2020 (FY2021 Q2).

Headline figures

Quarter ended July 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.76B; up 10.7% from $1.59B a year earlier
Net income: $51M; down 10.5% from net income of $57M a year earlier
Diluted EPS: $0.87; down 9.4% from $0.96 a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.0001 per share	SAIC	New York Stock Exchange


		Page
Part I	Financial Information

Item 1	Financial Statements	1
	Condensed and Consolidated Statements of Income	1
	Condensed and Consolidated Statements of Comprehensive Income	2
	Condensed and Consolidated Balance Sheets	3
	Condensed and Consolidated Statements of Equity	4
	Condensed and Consolidated Statements of Cash Flows	5
	Notes to Condensed and Consolidated Financial Statements	6
	Note 1—Business Overview and Summary of Significant Accounting Policies	6
	Note 2—Earnings Per Share and Dividends	8
	Note 3—Revenues	8
	Note 4—Acquisitions	11
	Note 5—Goodwill and Intangible Assets	13
	Note 6—Income Taxes	14
	Note 7—Debt Obligations	15
	Note 8—Derivative Instruments Designated as Cash Flow Hedges	16
	Note 9—Changes in Accumulated Other Comprehensive Loss by Component	17
	Note 10—Sales of Receivables	18
	Note 11—Leases	18
	Note 12—Legal Proceedings and Other Commitments and Contingencies	19

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4	Controls and Procedures	29

Part II	Other Information	30

Item 1	Legal Proceedings	30

Item 1A	Risk Factors	30

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3	Defaults Upon Senior Securities	30

Item 4	Mine Safety Disclosures	30

Item 5	Other Information	30

Item 6	Exhibits	31

	Signatures	32


	Three Months Ended						Six Months Ended
	July 31, 2020		August 2, 2019		July 31, 2020		August 2, 2019
	(in millions, except per share amounts)
Revenues	$	1,764	$	1,594	$	3,521	$	3,209
Cost of revenues	1,564		1,409		3,138		2,844
Selling, general and administrative expenses	89		82		165		159
Acquisition and integration costs	15		8		44		18
Other operating income	(4)		—		(4)		—
Operating income	100		95		178		188
Interest expense	32		22		63		47
Other (income) expense, net	(2)		(1)		—		(3)
Income before income taxes	70		74		115		144
Provision for income taxes	(17)		(17)		(25)		(31)
Net income	53		57		90		113
Net income attributable to non-controlling interest	2		—		3		1
Net income attributable to common stockholders	$	51	$	57	$	87	$	112
Earnings per share:
Basic	$	0.88	$	0.97	$	1.50	$	1.90
Diluted	$	0.87	$	0.96	$	1.49	$	1.88


	Three Months Ended						Six Months Ended
	July 31, 2020		August 2, 2019		July 31, 2020		August 2, 2019
	(in millions)
Net income	$	53	$	57	$	90	$	113
Other comprehensive loss, net of tax:
Net unrealized loss on derivative instruments	(1)		(35)		(37)		(45)
Defined benefit obligation adjustment	—		—		—		—
Total other comprehensive loss, net of tax	(1)		(35)		(37)		(45)
Comprehensive income	$	52	$	22	$	53	$	68
Comprehensive income attributable to non-controlling interest	2		—		3		1
Comprehensive income attributable to common stockholders	$	50	$	22	$	50	$	67


	July 31, 2020		January 31, 2020
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	197	$	188
Receivables, net	1,032		1,099
Inventory, prepaid expenses and other current assets	184		143
Total current assets	1,413		1,430
Goodwill	2,789		2,139
Intangible assets, net	1,217		711
Property, plant, and equipment (net of accumulated depreciation of $169 million and $181 million at July 31, 2020 and January 31, 2020, respectively)	103		91
Operating lease right of use assets	251		190
Other assets	174		150
Total assets	$	5,947	$	4,711

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	952	$	814
Accrued payroll and employee benefits	331		244
Long-term debt, current portion	90		70
Total current liabilities	1,373		1,128
Long-term debt, net of current portion	2,657		1,851
Operating lease liabilities	223		172
Other long-term liabilities	244		133
Commitments and contingencies (Note 12)
Equity:
Common stock, $.0001 par value, 1 billion shares authorized, 58 million shares issued and outstanding as of July 31, 2020 and January 31, 2020	—		—
Additional paid-in capital	996		983
Retained earnings	550		506
Accumulated other comprehensive loss	(109)		(72)
Total common stockholders' equity	1,437		1,417
Non-controlling interest	13		10
Total stockholders' equity	1,450		1,427
Total liabilities and stockholders' equity	$	5,947	$	4,711


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)


	Shares of common stock	Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total
	(in millions)
Balance at May 1, 2020	58	$	983	$	520	$	(108)	$	13	$	1,408
Net income	—	—		51		—		2		53
Issuances of stock	—	3		—		—		—		3
Other comprehensive loss, net of tax	—	—		—		(1)		—		(1)
Cash dividends of $0.37 per share	—	—		(21)		—		—		(21)
Stock-based compensation	—	11		—		—		—		11
Repurchases of stock	—	(1)		—		—		—		(1)
Distributions to non-controlling interest	—	—		—		—		(2)		(2)
Balance at July 31, 2020	58	$	996	$	550	$	(109)	$	13	$	1,450

Balance at January 31, 2020	58	$	983	$	506	$	(72)	$	10	$	1,427
Net income	—	—		87		—		3		90
Issuances of stock	—	6		—		—		—		6
Other comprehensive loss, net of tax	—	—		—		(37)		—		(37)
Cash dividends of $0.74 per share	—	—		(43)		—		—		(43)
Stock-based compensation	—	9		—		—		—		9
Repurchases of stock	—	(2)		—		—		—		(2)
Distributions to non-controlling interest	—	—		—		—		—		—
Balance at July 31, 2020	58	$	996	$	550	$	(109)	$	13	$	1,450

Balance at May 3, 2019	59	$	1,086	$	400	$	(24)	$	11	$	1,473
Net income	—	—		57		—		—		57
Issuances of stock	—	3		—		—		—		3
Other comprehensive loss, net of tax	—	—		—		(35)		—		(35)
Cash dividends of $0.37 per share	—	—		(22)		—		—		(22)
Stock-based compensation	—	9		—		—		—		9
Repurchases of stock	(1)	(135)		—		—		—		(135)
Distributions to non-controlling interest	—	—		—		—		(1)		(1)
Balance at August 2, 2019	58	$	963	$	435	$	(59)	$	10	$	1,349

Balance at February 1, 2019	60	$	1,132	$	367	$	(14)	$	14	$	1,499
Net income	—	—		112		—		1		113
Issuances of stock	—	6		—		—		—		6
Other comprehensive loss, net of tax	—	—		—		(45)		—		(45)
Cash dividends of $0.74 per share	—	—		(44)		—		—		(44)
Stock-based compensation	—	5		—		—		—		5
Repurchases of stock	(2)	(180)		—		—		—		(180)
Distributions to non-controlling interest	—	—		—		—		(5)		(5)
Balance at August 2, 2019	58	$	963	$	435	$	(59)	$	10	$	1,349


	Balance Sheet line item	July 31, 2020		January 31, 2020
		(in millions)
Billed and billable receivables, net⁽¹⁾	Receivables, net	$	649	$	720
Contract assets - unbillable receivables	Receivables, net	383		379
Contract assets - contract retentions	Other assets	18		17
Contract liabilities - current	Accounts payable and accrued liabilities	96		41
Contract liabilities - non-current	Other long-term liabilities	$	13	$	10


	(in millions)
Receivables	$	114
Inventory, prepaid expenses and other current assets	14
Goodwill	656
Intangible assets	574
Property, plant, and equipment	4
Operating lease right of use assets	43
Other assets	7
Total assets acquired	1,412
Accounts payable and accrued liabilities	105
Accrued payroll and employee benefits	7
Operating lease liabilities	30
Other long-term liabilities	68
Total liabilities assumed	210
Net assets acquired	$	1,202
Amount of tax deductible goodwill	$	595


	Amount		Weighted-Average Amortization Period
	(in millions)		(in years)
Customer relationships	$	520	13
Backlog	47		1
Developed technology	7		1
Total intangible assets	$	574	12


	July 31, 2020										January 31, 2020
	Gross carrying value		Accumulated amortization		Net carrying value		Gross carrying value		Accumulated amortization		Net carrying value
	(in millions)
Customer relationships	$	1,371	$	(189)	$	1,182	$	851	$	(142)	$	709
Backlog	47		(18)		29		—		—		—
Developed technology	9		(3)		6		2		—		2
Total intangible assets	$	1,427	$	(210)	$	1,217	$	853	$	(142)	$	711


Fiscal Year Ending	(in millions)
Remainder of 2021	$	79
2022	110
2023	106
2024	103
2025	103
Thereafter	716
Total	$	1,217


	July 31, 2020																January 31, 2020
	Stated interest rate		Effective interest rate		Principal		Unamortized debt issuance costs		Net		Principal		Unamortized debt issuance costs		Net
					(in millions)
Term Loan A Facility due October 2023	1.91	%	2.24	%	$	878	$	(8)	$	870	$	904	$	(9)	$	895
Term Loan B Facility due October 2025	2.04	%	2.23	%	1,032		(10)		1,022		1,037		(11)		1,026
Term Loan B2 Facility due March 2027	2.41	%	2.84	%	473		(12)		461		—		—		—
Senior Notes due April 2028	4.88	%	5.04	%	400		(6)		394		—		—		—
Total long-term debt					$	2,783	$	(36)	$	2,747	$	1,941	$	(20)	$	1,921
Less current portion					90		—		90		70		—		70
Total long-term debt, net of current portion					$	2,693	$	(36)	$	2,657	$	1,871	$	(20)	$	1,851


(Mark One)


							Liability Fair Value⁽¹⁾ at
	Notional Amount at July 31, 2020		Pay Fixed Rate		Receive Variable Rate	Settlement and Termination	July 31, 2020		January 31, 2020
	(in millions)						(in millions)
Interest rate swaps #1	$	262	2.78	%	1-month LIBOR	Monthly through July 30, 2021	$	(6)	$	(6)
Interest rate swaps #2	500		3.07	%	1-month LIBOR	Monthly through October 31, 2025	(94)		(62)
Interest rate swaps #3	550		2.49	%	1-month LIBOR	Monthly through October 31, 2023	(40)		(24)
Total	$	1,312					$	(140)	$	(92)


	Unrealized Gains (Losses) on Fixed Interest Rate Swap Cash Flow Hedges⁽¹⁾		Defined Benefit Obligation Adjustment		Total
	(in millions)
Three months ended July 31, 2020
Balance at May 1, 2020	$	(103)	$	(5)	$	(108)
Other comprehensive loss before reclassifications	(10)		—		(10)
Amounts reclassified from accumulated other comprehensive loss	8		—		8
Income tax impact	1		—		1
Net other comprehensive loss	(1)		—		(1)
Balance at July 31, 2020	$	(104)	$	(5)	$	(109)

Three months ended August 2, 2019
Balance at May 3, 2019	$	(24)	$	—	$	(24)
Other comprehensive loss before reclassifications	(47)		—		(47)
Amounts reclassified from accumulated other comprehensive loss	—		—		—
Income tax impact	12		—		12
Net other comprehensive loss	(35)		—		(35)
Balance at August 2, 2019	$	(59)	$	—	$	(59)

Six months ended July 31, 2020
Balance at January 31, 2020	$	(67)	$	(5)	$	(72)
Other comprehensive loss before reclassifications	(62)		—		(62)
Amounts reclassified from accumulated other comprehensive loss	12		—		12
Income tax impact	13		—		13
Net other comprehensive loss	(37)		—		(37)
Balance at July 31, 2020	$	(104)	$	(5)	$	(109)

Six months ended August 2, 2019
Balance at February 1, 2019	$	(14)	$	—	$	(14)
Other comprehensive loss before reclassifications	(61)		—		(61)
Amounts reclassified from accumulated other comprehensive loss	—		—		—
Income tax impact	16		—		16
Net other comprehensive loss	(45)		—		(45)
Balance at August 2, 2019	$	(59)	$	—	$	(59)


		Three Months Ended						Six Months Ended
	Statement of Income line item(s)	July 31, 2020		August 2, 2019		July 31, 2020		August 2, 2019
		(in millions)
Operating lease cost	Cost of revenues and Selling, general and administrative expenses	$	18	$	17	$	35	$	33
Variable lease cost	Cost of revenues and Selling, general and administrative expenses	6		3		11		7
Short-term lease cost	Cost of revenues and Selling, general and administrative expenses	9		1		15		2
Sublease income	Selling, general and administrative expenses	(1)		(1)		(2)		(2)
Total lease cost		$	32	$	20	$	59	$	40


	Payments Due by Fiscal Year
	Total		Remainder of fiscal 2021		2022- 2023		2024- 2025		2026 and thereafter
	(in millions)
Contractual obligations:
Long-term debt including current portion⁽¹⁾	$	2,783	$	42	$	226	$	684	$	1,831
Interest payments on long-term debt⁽²⁾	392		36		132		113		111
Operating lease obligations	302		18		125		79		80
Total contractual obligations	$	3,477	$	96	$	483	$	876	$	2,022


Period⁽¹⁾	Total Number of Shares (or Units) Purchased⁽²⁾	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs⁽³⁾
May 2, 2020 - June 5, 2020	2,937	$	83.01	—	4,650,939
June 6, 2020 - July 3, 2020	—	—		—	4,650,939
July 4, 2020 - July 31, 2020	—	—		—	4,650,939
Total	2,937	$	83.01	—


Exhibit Number			Description of Exhibit

31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			Interactive Data File. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

104			The cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL.


Science Applications International Corporation

/s/ Charles A. Mathis
Charles A. Mathis Executive Vice President and Chief Financial Officer