Business Context and Reporting Period
Company: Science Applications International Corporation (SAIC)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended January 30, 2026 (Fiscal 2026)
Business Overview: SAIC is a leading provider of technical, engineering, and mission/enterprise IT services primarily to the U.S. government. The company operates through two reportable segments: Defense and Intelligence (serving the Department of War and Intelligence Community) and Civilian (serving federal, state, and local governments). In Fiscal 2026, 98% of revenues were derived from U.S. government contracts.
Key Financial Metrics
| Metric | Fiscal 2026 | Fiscal 2025 | Change |
|---|---|---|---|
| Revenues | $7,262 million | $7,479 million | (3.0%) |
| Operating Income | $521 million | $563 million | (7.5%) |
| Operating Margin | 7.2% | 7.5% | (30 bps) |
| Net Income | $358 million | $362 million | (1.1%) |
| Adjusted Operating Income | $702 million | $705 million | (0.4%) |
| Adjusted EBITDA | $708 million | $710 million | (0.3%) |
| Operating Cash Flow | $609 million | $494 million | +23.3% |
| Total Debt (Principal) | $2,501 million | $2,228 million | +12.3% |
| Cash & Equivalents | $182 million | $56 million | +225.0% |
| Backlog (Total) | $22,622 million | $21,857 million | +3.5% |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased $217 million (3%) primarily due to contract completions and volume ramp-downs on existing contracts, partially offset by new contracts. Approximately $26 million of the decline was attributed to the federal government shutdown in late 2025. The acquisition of SilverEdge contributed $27 million in revenue.
- Operating Income Pressure: Operating income declined 7% due to executive transition costs ($16 million net), costs related to federal tax audit settlements, and the absence of a $13 million favorable resolution from the Assault Amphibious Vehicle (AAV) contract termination that occurred in the prior year. These were partially offset by a $9 million recovery from a patent infringement settlement.
- Tax Rate Reduction: The effective income tax rate dropped significantly to 7.5% from 15.5% in Fiscal 2025. This was driven by a $47 million tax benefit from an IRS audit settlement (covering FY 2016-2019) and the enactment of the "One Big Beautiful Bill Act," which reinstated immediate expensing of R&D expenditures.
- Segment Performance:
- Defense and Intelligence: Revenues decreased 3% to $5,581 million; Adjusted Operating Income decreased 6% to $478 million.
- Civilian: Revenues decreased 4% to $1,681 million; Adjusted Operating Income increased 6% to $228 million due to improved profitability across the portfolio.
- Acquisition: On October 15, 2025, SAIC acquired SilverEdge Government Solutions for approximately $203 million (net of cash acquired) to advance its strategy in mission-focused solutions.
Guidance, Outlook, and Risks
- Government Funding Environment: The company notes that the Department of Homeland Security (DHS) remains the only agency with a delay in approved appropriations for Government Fiscal Year (GFY) 2026 as of the filing date. A prolonged shutdown could adversely impact financial outlook. However, a budget reconciliation package signed in July 2025 added $150 billion in non-border defense spending and $175 billion in border security spending, providing funding through GFY 2029.
- Regulatory and Tax Changes: The "One Big Beautiful Bill Act" enacted in July 2025 permanently reinstated immediate expensing of R&D, favorably impacting cash flows. The company is monitoring executive orders regarding procurement reform, affordability, and potential changes to the Federal Acquisition Regulation (FAR).
- Key Risks:
- Customer Concentration: 98% of revenue is from U.S. government contracts, creating exposure to budget cuts, spending caps, and procurement delays.
- Competition: Intensified competition in multi-award IDIQ contracts and pricing pressure.
- Cybersecurity: Ongoing threats to critical infrastructure and sensitive data, with potential liability for breaches.
- Contract Estimates: Significant judgment is required in estimating costs at completion for long-term contracts; changes in estimates can materially impact results.
- Capital Allocation: The company repurchased approximately 4.0 million shares for $422 million in Fiscal 2026. As of January 30, 2026, approximately $1.2 billion remained available under the share repurchase plan. Quarterly dividends of $0.37 per share were maintained.
Investor Verification Checklist
- Government Shutdown Impact: Verify the duration and financial impact of the DHS funding delay and any potential stop-work orders on active contracts.
- Tax Benefit Realization: Confirm the final administrative approval of the $47 million IRS audit settlement benefit to ensure it is not reversed.
- Backlog Quality: Analyze the composition of the $22.6 billion backlog, specifically the ratio of funded vs. negotiated unfunded backlog, given the reliance on government appropriations.
- Executive Transition Costs: Monitor for any additional one-time costs related to the CEO transition and restructuring activities initiated in Fiscal 2026.
- Debt Covenants: Review the Senior Secured Leverage Ratio compliance, particularly following the $203 million acquisition of SilverEdge and the issuance of new senior notes.