Science Applications International Corp (Form: 10-Q, Received: 12/13/2013 06:01:27)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended November 1, 2013

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

For the transition period from to


Commission File Number	Exact Name of Registrant as Specified in its Charter, Address of Principal Executive Offices and Telephone Number	State or other jurisdiction of incorporation or organization		I.R.S. Employer Identification No.
001-35832	Science Applications International Corporation		Delaware		46-1932921
	1710 SAIC Drive, McLean, Virginia 22102
	703-676-5550

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


		Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


		Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


		Yes ¨ No x

The number of shares issued and outstanding of the registrant’s common stock as of November 22, 2013 was as follows:


		49,012,845 shares of common stock ($.0001 par value per share)

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS

OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended						Nine Months Ended
	November 1, 2013			October 31, 2012			November 1, 2013			October 31, 2012
	(in millions, except per share amounts)
Revenues	$	974		$	1,186		$	3,086		$	3,560
Revenues performed by former Parent (Note 4)		33			27			94			66
Total revenues		1,007			1,213			3,180			3,626
Costs and expenses:
Cost of revenues		892			1,074			2,833			3,241
Cost of revenues performed by former Parent (Note 4)		33			27			94			66
Total cost of revenues		925			1,101			2,927			3,307
Selling, general and administrative expenses		22			28			69			84
Separation transaction and restructuring expenses (Note 1)		23			11			57			15
Operating income		37			73			127			220
Interest expense		3			—			3			—
Income before income taxes		34			73			124			220
Provision for income taxes		(12	)		(28	)		(44	)		(81	)
Net income	$	22		$	45		$	80		$	139
Other comprehensive loss, net of tax		(2	)		—			(2	)		—
Comprehensive income	$	20		$	45		$	78		$	139

Earnings per share (Note 2):
Basic	$	0.45		$	0.92		$	1.63		$	2.84
Diluted	$	0.44		$	0.90		$	1.60		$	2.78
Cash dividends declared and paid per share	$	0.28		$	—		$	0.28		$	—

See accompanying notes to condensed consolidated and combined financial statements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS

(UNAUDITED)


	November 1, 2013			January 31, 2013
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	157		$	1
Receivables, net		748			717
Inventory, prepaid expenses and other current assets		94			117
Total current assets		999			835
Property, plant and equipment (less accumulated depreciation and amortization of $109 million and $49 million at November 1, 2013 and January 31, 2013, respectively)		53			29
Intangible assets, net		4			6
Goodwill		379			379
Deferred income taxes		—			18
Other assets		8			4
Total assets	$	1,443		$	1,271
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	422		$	477
Accrued payroll and employee benefits		165			185
Income taxes payable		5			—
Long-term debt and capital lease obligations, current portion		7			2
Total current liabilities		599			664
Long-term debt and capital lease obligations, net of current portion		495			1
Other long-term liabilities		10			10
Deferred income taxes		4			—
Commitments and contingencies (Notes 10 and 11)
Equity:
Common stock, $.0001 par value, 1 billion shares authorized, 49 million shares issued and outstanding at November 1, 2013. No shares were issued or outstanding as of January 31, 2013.		—			—
Additional paid-in capital		326			—
Retained earnings		11			—
Accumulated other comprehensive loss		(2	)		—
Former parent company investment		—			596
Total equity		335			596
Total liabilities and equity	$	1,443		$	1,271

See accompanying notes to condensed consolidated and combined financial statements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF EQUITY

(UNAUDITED)


	Shares of common stock		Additional paid-in capital			Retained earnings		Accumulated other comprehensive loss			Former parent company investment			Total
	(in millions)
Balance at January 31, 2013		—	$	—		$	—	$	—		$	596		$	596
Net income from February 1, 2013 to September 27, 2013		—		—			—		—			69			69
Net transfers to former Parent (Note 4)		—		—			—		—			(59	)		(59	)
Dividend payment to former Parent (Note 4)		—		—			—		—			(295	)		(295	)
Capital contribution from former Parent (Note 4)		—		—			—		—			26			26
Transfer of former Parent company investment at September 27, 2013		—		337			—		—			(337	)		—
Issuance of common stock in connection with separation		49
Net income from September 28, 2013 to November 1, 2013		—		—			11		—			—			11
Other comprehensive loss, net of tax		—		—			—		(2	)		—			(2	)
Quarterly cash dividends of $0.28 per share		—		(14	)		—		—			—			(14	)
Stock-based compensation		—		3			—		—			—			3
Balance at November 1, 2013		49	$	326		$	11	$	(2	)	$	—		$	335

See accompanying notes to condensed consolidated and combined financial statements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended
	November 1, 2013			October 31, 2012
	(in millions)
Cash flows from operations:
Net income	$	80		$	139
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		10			10
Deferred income taxes		13			—
Stock-based compensation		25			25
Increase (decrease) in cash resulting from changes in:
Receivables		(31	)		64
Inventory, prepaid expenses and other current assets		23			(11	)
Other assets		1			2
Accounts payable and accrued liabilities		(48	)		(29	)
Income taxes payable		5			—
Accrued payroll and employee benefits		(20	)		45
Other long-term liabilities		—			2
Total cash flows provided by operating activities		58			247
Cash flows from investing activities:
Expenditures on property, plant and equipment		(10	)		(6	)
Proceeds from sale of assets		—			1
Total cash flows used in investing activities		(10	)		(5	)
Cash flows from financing activities:
Term loan facility		500			—
Deferred financing costs		(5	)		—
Dividend paid to former Parent (Note 4)		(295	)		—
Capital contribution from former Parent (Note 4)		26			—
Dividend payments to common stockholders		(14	)		—
Payments on capital leases and notes payable		(1	)		(3	)
Net transfers to former Parent (Note 4)		(103	)		(240	)
Total cash flows provided by (used in) financing activities		108			(243	)
Total (decrease) increase in cash		156			(1	)
Cash and cash equivalents at beginning of period		1			1
Cash and cash equivalents at end of period	$	157		$	—
Supplementary cash flow disclosure:
Net transfers of property, plant, and equipment from former Parent (Note 4)	$	22		$	—
Landlord provided tenant improvements	$	—		$	1

See accompanying notes to condensed consolidated and combined financial statements.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Note 1—Summary of Significant Accounting Policies:

Overview

Separation from Parent

Science Applications International Corporation commenced operations on September 27, 2013 (the Distribution Date) following completion of a spin-off transaction from its former parent company, Leidos Holdings, Inc. (formerly SAIC, Inc.) (collectively with its consolidated subsidiaries, “former Parent”). In the spin-off transaction, the former Parent’s technical, engineering and enterprise information technology (IT) services business was separated into an independent, publicly traded company named Science Applications International Corporation (formerly SAIC Gemini, Inc.) (collectively, with its consolidated subsidiaries, the “Company”).

To effect the spin-off transaction, the Company’s common stock was distributed on the Distribution Date to former Parent stockholders of record on a pro-rata basis with each former Parent stockholder receiving one share of the Company’s common stock for every seven shares of former Parent common stock. The Company’s Registration Statement on Form 10 relating to the spin-off transaction was declared effective with the U.S. Securities and Exchange Commission (the “SEC”) on September 10, 2013. The Company’s common stock began trading on the New York Stock Exchange on September 30, 2013 under the symbol “SAIC.” In connection with the separation, the Company obtained debt, paid a dividend to former Parent and received a capital contribution from former Parent. For additional details see Note 4 – Related Party Transactions and Parent Company Investment.

In order to govern certain ongoing relationships between the Company and former Parent following the separation and to provide mechanisms for an orderly transition, the companies executed various agreements that govern the separation. The agreements include the Distribution Agreement, Employee Matters Agreement, Tax Matters Agreement, Master Transition Services Agreement, and Master Transitional Contracting Agreement (MTCA). These agreements generally provide that each party is responsible for its respective assets, liabilities and obligations, including employee benefits, insurance and tax related assets and liabilities. Contingent losses that were unknown at the time of separation and arise from the operation of the Company’s historical business or the former Parent’s corporate losses will be shared between the parties to the extent that losses in any such category exceed $50 million in the aggregate. If they arise and exceed the $50 million threshold, the Company will be responsible for 30% of the former Parent’s incremental contingent losses on corporate claims (and former Parent will be responsible for 70% of the Company’s incremental losses on claims relating to operations that exceed $50 million).

In accordance with the MTCA, former Parent agreed to seek the U.S. Government’s approval to novate all of the contracts with the U.S. Government under which the Company primarily is obligated to fulfill the remaining terms. Under the terms of the MTCA, former Parent is obligated to remit to the Company all proceeds it receives for work performed by the Company until novation occurs, after which the Company may directly bill and collect from the U.S. Government. The MTCA also governs the relationship between the Company and former Parent pending novation and assignment of contracts to the Company and addresses the treatment of existing contracts, proposals, and teaming arrangements where both companies will jointly perform work after separation. Each of the Company and former Parent indemnify the other party for work performed by it under the MTCA.

Description of Business

The Company is a leading provider of technical, engineering and enterprise IT services to the U.S. Government. The Company delivers to the Department of Defense (DoD) and federal civilian agencies systems engineering and integration services for large, complex government projects and offers a broad range of services with a targeted emphasis on higher-end, differentiated technology services.

The Company operates in two segments, which provide comprehensive service offerings across its entire customer base. The Company’s technical and engineering offerings include engineering and maintenance of ground and maritime systems, logistics, training and simulation, as well as operation and program support services. The Company’s enterprise IT offerings include end-to-end enterprise IT services which span the design, development, integration, deployment, management and operations, sustainment and security of its customers’ entire IT infrastructure. As discussed in Note 9 – Business Segment Information, these segments have been aggregated into one reporting segment for financial reporting purposes.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Principles of Combination and Basis of Presentation

Prior to the separation on September 27, 2013, the Company’s financial position, results of operations and cash flows consisted of the technical, engineering and enterprise IT services businesses of former Parent, which represented a combined reporting entity. The assets and liabilities in the Company’s condensed combined balance sheet at January 31, 2013 have been reflected on a historical basis, as immediately prior to the separation all of the assets and liabilities presented were wholly owned by former Parent.

The Company’s unaudited condensed combined statements of income and comprehensive income, and cash flows for the periods ended October 31, 2012 and the Company’s unaudited condensed combined balance sheet at January 31, 2013 consist entirely of the combined results of the technical, engineering and enterprise IT services businesses of former Parent.

Subsequent to the separation, the Company’s unaudited condensed consolidated and combined statements of income and comprehensive income, and cash flows for the periods ended November 1, 2013 consist of both the combined results of the technical, engineering and enterprise IT services businesses of former Parent through the Distribution Date and the Company’s consolidated results subsequent to the Distribution Date. The Company’s unaudited condensed consolidated and combined balance sheet at November 1, 2013 consists of the Company’s consolidated balances.

References to “financial statements” refer to the unaudited condensed consolidated and combined financial statements of the Company, which include the statements of income and comprehensive income, balance sheets, statement of equity and statements of cash flows.

These financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (GAAP). All intercompany transactions and account balances within the Company have been eliminated. The accompanying financial information has been prepared by the Company pursuant to the rules and regulations of the SEC. Certain disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the combined financial statements and combined notes thereto included in the Company’s Registration Statement on Form 10.

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 unaudited financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. 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.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other amounts included in other current assets and current liabilities that meet the definition of a financial instrument approximate fair value because of the short-term nature of these amounts. The fair value of the Company’s outstanding debt obligations approximates its carrying value.

The financial statements are unaudited, but in the opinion of management include all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation thereof. The interim financial results are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2014, or any future period.

Reporting Periods

Unless otherwise noted, references to fiscal years are to fiscal years ended January 31 (for fiscal 2013 and earlier periods), or fiscal years ended the Friday closest to January 31 (for fiscal 2014 and later periods). For fiscal 2013, the Company’s fiscal quarters ended on the last calendar day of each of April, July and October. Effective in fiscal 2014, the Company changed its fiscal year to a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks. Fiscal 2014 began on February 1, 2013 and ends on January 31, 2014. The third quarter of fiscal 2014 ended on November 1, 2013. The Company does not believe that the change in its fiscal year has a material effect on the comparability of the periods presented.

Corporate Allocations

Pre-Separation. The statements of income and comprehensive income reflect allocations of general corporate expenses from former Parent including, but not limited to, costs associated with executive management, finance, legal, IT, human resources, employee benefits administration, treasury, risk management, procurement, and other shared services.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of costs incurred, headcount or other appropriate measures. Management of the Company considers these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to the Company. The allocations may not, however, reflect the expense the Company would have incurred as a stand-alone company prior to the separation. Actual costs that may have been incurred if the Company had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as IT and infrastructure.

The balance sheet of the Company as of January 31, 2013 includes former Parent assets and liabilities that are specifically identifiable or otherwise attributable to the Company. Former Parent’s cash, excluding a minor balance specifically attributable to the Company, has not been assigned to the Company for any of the periods prior to separation because those cash balances are not directly attributable to the Company nor did the Company have a contractual right to acquire that cash in connection with the separation. At separation, former Parent transferred $26 million in cash to the Company, which represents cash generated by the operations of the Company during the period from the initial target separation date to the actual separation date. Former Parent’s senior unsecured notes, and the related interest expense, have not been attributed to the Company for any of the periods presented because former Parent’s borrowings and the related guarantees on such borrowings are not directly attributable to the combined businesses that comprise the Company. The Company did not assume any of former Parent’s borrowings or the related guarantees upon completion of the separation.

Former Parent has historically used a centralized approach to cash management and financing of its operations. Transactions between the Company and former Parent are considered to be effectively settled for cash at the time the transaction is recorded. The net effect of these transactions is included in the statements of cash flows as Net transfers to former Parent.

Post-Separation. Following the separation from former Parent, the Company performs functions that were previously performed by former Parent using internal resources and purchased services, some of which may be provided by former Parent during a transitional period pursuant to the Master Transition Services Agreement.

Receivables

The Company’s accounts receivable include unbilled receivables, which consist of costs and fees billable upon contract completion or the occurrence of a specified event, substantially all of which is expected to be billed and collected within one year. Unbilled receivables are stated at estimated realizable value. Since the Company’s receivables are primarily with the U.S. Government, the Company does not have a material credit risk exposure. Contract retentions are billed when the Company has negotiated final indirect rates with the U.S. Government and, once billed, are subject to audit and approval by government representatives. Based on the Company’s historical experience, the majority of retention balances are expected to be collected beyond one year and uncollectible retention balances have not been significant. Contract claims are anticipated additional costs incurred but not provided for in the executed contract price that the Company seeks to recover from the customer. Such costs are expensed as incurred. Additional revenue related to contract claims is recognized when the amounts are awarded by the customer.

Goodwill and Intangible Assets

The Company evaluates goodwill for potential impairment annually at the beginning of the fourth quarter, or whenever events or circumstances indicate that the carrying value of goodwill may not be recoverable. The goodwill impairment test is a two-step process performed at the reporting unit level. The Company’s reporting units are its two operating segments, technical and engineering services and enterprise IT. The first step consists of estimating the fair values of each of the reporting units based on a market approach. Fair value computed using this method is determined using a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, comparable market data based on industry grouping, and the cost of capital. The estimated fair values are compared with the carrying values of the reporting units. If the fair value is less than the carrying value of a reporting unit, which includes the allocated goodwill, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The implied fair value of goodwill is the residual fair value derived by deducting the fair value of a reporting unit’s identifiable assets and liabilities from its estimated fair value calculated in the first step. The impairment expense represents the excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill.

The Company faces uncertainty in its business environment due to the substantial fiscal and economic challenges facing the U.S. Government, its primary customer. Adverse changes, such as the manner in which budget cuts are implemented, including sequestration, and issues related to the nation’s debt ceiling, could negatively impact the Company’s expected future operating results and result in an impairment of goodwill.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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.

Former Parent Company Investment

Former Parent company investment represents former Parent’s historical investment in the Company, the net effect of cost allocations from transactions with former Parent, net transfers of cash and assets between the Company and former Parent and the Company’s accumulated earnings. See Note 4 – Related Party Transactions and Parent Company Investment for a further description of the transactions between the Company and former Parent.

Separation Transaction and Restructuring Expenses

For the periods presented, separation transaction and restructuring expenses were as follows:


	Three Months Ended				Nine Months Ended
	November 1, 2013		October 31, 2012		November 1, 2013		October 31, 2012
	(in millions)
Strategic advisory services	$	3	$	7	$	15	$	11
Investment banking services		9		3		9		3
Legal and accounting services		2		1		10		1
Severance costs		2		—		4		—
Lease termination and facility consolidation expenses		7		—		19		—
Separation transaction and restructuring expense	$	23	$	11	$	57	$	15

In connection with the separation transaction, the Company obtained strategic advisory services, investment banking services, and legal and accounting services. The Company also reduced headcount in preparation for the separation, which resulted in severance costs. As of November 1, 2013 the Company has expensed substantially all costs associated with announced severance plans. Also, the Company took actions to reduce its real estate footprint by vacating facilities that were not necessary for its future requirements, which resulted in lease termination and facility consolidation expenses.

Stock-Based Compensation

The Company issues stock-based awards, including stock options and vesting stock awards, as compensation to employees and directors. 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. The Company estimates forfeitures using former Parent’s historical data. As discussed in Note 5 – Stock-Based Compensation, at separation all former Parent stock-based awards held by Company employees were converted into awards of the stock-based compensation plans sponsored by the Company.

Derivative Instruments Designated as Cash flow Hedges

The Company uses fixed interest rate swaps to manage risks associated with interest rate fluctuations on its floating rate debt. The Company is party to fixed interest rate swap instruments that have been designated and accounted for as cash flow hedges. Derivative instruments are recorded on the consolidated balance sheet at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive (loss) income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, is recognized immediately in earnings.

The Company’s fixed interest rate swaps are considered over-the-counter derivatives, and 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 or cancelled.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Changes in Estimates on Contracts

Changes in estimates related to contracts accounted for using the cost-to-cost percentage of completion method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes. Changes in these estimates can routinely occur over the contract performance period for a variety of reasons, including changes in contract scope, changes in contract cost estimates due to unanticipated cost growth or retirements of risk for amounts different than estimated, and changes in estimated incentive or award fees. Aggregate changes in contract estimates increased operating income by $1 million for the three months ended November 1, 2013, reduced operating income by $7 million for the nine months ended November 1, 2013, and increased operating income by $2 million for the three months ended October 31, 2012. There was no impact to operating income for the nine months ended October 31, 2012.

Accounting Standards Updates Issued But Not Yet Adopted

Accounting standards and updates issued but not effective for the Company until after November 1, 2013, are not expected to have a material effect on the Company’s financial position or results of operations.

Note 2—Earnings Per Share (EPS):

Basic EPS is computed by dividing income 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.

For periods prior to the separation, basic and diluted EPS were calculated using 49 million shares of the Company’s common stock that were distributed to former Parent shareholders upon separation. The weighted average number of shares outstanding for diluted EPS for the periods prior to separation also include 1 million of diluted common share equivalents for stock options and other stock-based awards (consistent with the number calculated for the quarter ended November 1, 2013) as these stock-based awards were previously issued by former Parent and outstanding at the time of separation and were assumed by the Company following the separation.

A reconciliation of the weighted average number of shares outstanding used to compute basic and diluted EPS for the periods presented was as follows:


	Three Months Ended				Nine Months Ended
	November 1, 2013		October 31, 2012		November 1, 2013		October 31, 2012
	(in millions)
Basic weighted average number of shares outstanding		49		49		49		49
Dilutive common share equivalents—stock options and other stock-based awards		1		1		1		1
Diluted weighted average number of shares outstanding		50		50		50		50

The following stock-based awards were excluded from the weighted average number of shares outstanding used to compute diluted EPS for the periods presented:

Three Months Ended

Nine Months Ended

November 1,
2013

October 31,
2012

November 1,
2013

October 31,
2012

(in millions)

Antidilutive stock options excluded

Note 3—Goodwill and Intangible Assets:

Goodwill had a carrying value of $379 million as of the balance sheet dates and there were no acquisitions or impairments of goodwill during the periods presented.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

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


	November 1, 2013						January 31, 2013
	Gross carrying value		Accumulated amortization		Net carrying value		Gross carrying value		Accumulated amortization		Net carrying value
	(in millions)
Intangible assets:
Customer relationships	$	21	$	18	$	3	$	21	$	16	$	5
Software technology		25		24		1		25		24		1
Total intangible assets	$	46	$	42	$	4	$	46	$	40	$	6

Amortization expense related to intangible assets was $1 million and $2 million for the three and nine months ended November 1, 2013, respectively and $1 million and $2 million for the three and nine months ended October 31, 2012, respectively. There were no intangible asset impairment losses during the nine months ended November 1, 2013 or for the nine months ended October 31, 2012.

The estimated annual amortization expense related to intangible assets as of November 1, 2013 was as follows:


Fiscal Year Ending
	(in millions)
2015	$	2
2016		1
2017		1
	$	4

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

Note 4—Related Party Transactions and Parent Company Investment:

Pre-Separation

Allocation of Corporate Expenses. The statements of income and comprehensive income for the three and nine months ended October 31, 2012 and through September 27, 2013, the date of the separation, reflect an allocation of general corporate expenses from former Parent. These costs are allocated to the Company systematically utilizing a direct usage basis when identifiable, with the remainder allocated on the basis of costs incurred, headcount or other appropriate measures.

Allocations for general corporate expenses, including management costs and corporate support services provided to the Company totaled $23 million and $104 million for the three and nine months ended November 1, 2013, respectively, and $58 million and $130 million for the three and nine months ended October 31, 2012, respectively. These amounts include costs for executive management, finance, legal, IT, human resources, employee benefits administration, treasury, risk management, procurement and other shared services.

Revenues and Cost of Revenues Performed by former Parent. The Company historically was a party to customer transactions in which the services were partially performed by former Parent. These transactions were recorded at zero margin to reflect that no profit will be charged to the customer for work performed by former Parent and are presented separately in the statements of income and comprehensive income.

Net Transfers of Plant, Property, and Equipment from former Parent. In connection with the separation, former Parent transferred to the Company certain equipment necessary to operate its internal IT systems.

Post-Separation

Allocation of Corporate Expenses. In connection with the separation, the Company entered into the Master Transition Services Agreement with former Parent, under which both parties will provide certain services for a limited time to ensure an orderly transition following the separation. The Company performs functions that were previously performed by former Parent using internal resources and purchased services, some of which may be provided by former Parent during a transitional period pursuant to the Master Transition Services Agreement. Subsequent to separation, the Company provided certain IT and telecommunications services to former Parent in the amount of $1 million for the period ended November 1, 2013.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Revenues and Cost of Revenues Performed by former Parent. The Company will continue to be a party to customer transactions in which the services are partially performed by former Parent. As the Company will not charge additional profit to the customer for work performed by former Parent, these transactions are recorded at revenue equal to cost and are presented separately in the statements of income and comprehensive income.

Dividend to former Parent. In connection with the separation, the Company paid a cash dividend to former Parent in the amount of $295 million.

Capital Contribution from former Parent. In connection with the separation, former Parent made a capital contribution to the Company in the amount of $26 million.

Net Transfers to Former Parent

A reconciliation of Net transfers to former Parent in the condensed consolidated and combined statement of equity to the corresponding amount presented on the condensed consolidated and combined statements of cash flows for the period presented is as follows:


	Nine Months Ended
	November 1, 2013
	(in millions)
Net transfers to former Parent per statement of equity		($59	)
Stock-based compensation		(22	)
Net transfers of property, plant and equipment from former Parent		(22	)
Total Net transfers to former Parent per statements of cash flows		($103	)

Note 5—Stock-Based Compensation:

2013 Equity Incentive Plan . In connection with the separation, the Company adopted the following stock-based compensation plans: the “2013 Equity Incentive Plan,” the “Management Compensation Plan,” the “Stock Compensation Plan,” and the “Employee Stock Purchase Plan” (ESPP) or referred to together as the “Plans.” The Plans permit the Company to grant stock options, vesting stock awards and performance-based stock awards to employees and directors.

At separation, all unvested stock awards and all outstanding stock options held by the Company’s employees and directors under the former Parent’s Plans converted into awards under the Company’s Plans (referred to as “separation adjustments” in the activity tables below). This conversion was designed to maintain the same intrinsic value of the awards immediately before and after the separation. The converted awards have substantially the same terms and conditions as immediately before the separation under the former Parent’s Plans. Unrecognized compensation expense as of the separation date related to the converted awards will be recognized by the Company over the remaining vesting periods of the awards.

Stock-Based Compensation. Prior to the separation, certain Company employees and directors participated in stock-based compensation plans sponsored by former Parent that were denominated in former Parent’s common shares. Since the Company’s employees directly benefited from participation in these plans and former Parent’s corporate employees receiving such awards provided management and corporate support services to the Company, stock-based compensation expense was allocated to the Company in accordance with former Parent’s disclosure statements under U.S. Government Cost Accounting Standards or another systematic basis.

The following table summarizes stock-based compensation expense recognized during the three and nine month periods ended November 1, 2013 and October 31, 2012:


	Three Months Ended				Nine Months Ended
	November 1, 2013		October 31, 2012		November 1, 2013		October 31, 2012
	(in millions)
Stock-based compensation expense:
Stock options	$	1	$	1	$	3	$	4
Vesting stock awards		9		6		22		21
Total stock-based compensation expense	$	10	$	7	$	25	$	25

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Stock Options . Stock options generally vest over a four year graded vesting schedule and have a seven year term. Stock options are granted with their exercise price equal to the fair market value of common stock on the date of grant, except for those options outstanding as of September 27, 2013, for which the exercise prices (and number of stock options) were adjusted for the conversion at separation.

Stock option activity for the Company’s employees during the nine months ended November 1, 2013 was as follows:


	Shares of stocks under stock options			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
	(in millions)					(in years)		(in millions)
Outstanding at January 31, 2013 (a)		3.6		$	16.95		2.8	$	—
Options granted (a)		1.8			13.59
Options forfeited or expired (a)		(1.3	)		18.50
Transfers from Parent, net (a)(b)		3.0			16.01
Special dividend adjustment (a)		0.4			—
Outstanding at September 27, 2013 (a)		7.5			14.46
Separation adjustment		(4.1	)		—
Post-separation options granted		0.1			33.69
Outstanding at November 1, 2013		3.5			31.87		4.1	$	14
Exercisable at November 1, 2013		1.3			35.30		2.0	$	2

(a)	Amounts disclosed as of and for the periods ended prior to September 27, 2013 are denominated in former Parent common shares and represent the Company’s employees participation in the former Parent’s plans prior to separation.

(b)	Transfers from Parent, net represent the awards of those employees that transferred between the Company and former Parent prior to the separation.

The fair value of stock option awards granted prior to the separation under the former Parent’s Plan were valued using the Black-Scholes option-pricing model based on the following assumptions:

Expected Term —The expected term is derived from former Parent’s historical experience.

Expected Volatility —The expected volatility is based on an average of the historical volatility of former Parent’s common stock and the implied volatility from traded options on former Parent’s common stock.

Risk-Free Interest Rate —The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the stock option on the date of grant.

Dividend Yield —The dividend yield is based on former Parent’s historical dividend yield level.

The fair value of stock option awards granted subsequent to the separation under the Company’s Plan were valued using the Black-Scholes option-pricing model based on the following assumptions:

Expected Term —The expected term is calculated using the SEC “simplified method” as the midpoint between the vesting term and contractual term.

Expected Volatility —The expected volatility is based on a leverage-adjusted daily average volatility of its peer group companies over a period consistent with the expected term. Peer group companies were selected from companies within SAIC’s industry that most closely match the Company’s business, including size, capital structure, and customer base.

Dividend Yield —The dividend yield assumed over the expected term of the option is based on the announced dividend as of the grant date and the three month average stock price as of the grant date (to the extent available).

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The weighted average grant-date fair value and assumptions used to determine the fair value of stock options granted for the periods presented were as follows:


	Nine Months Ended
	November 1, 2013			October 31, 2012
Weighted average grant-date fair value (a)(b)	$	4.12		$	3.71
Expected term (in years)		5.0			5.0
Expected volatility		25.5	%		24.5	%
Risk-free interest rate		0.9	%		1.0	%
Dividend yield		3.8	%		3.7	%

(a)

The weighted average grant date fair values of stock options granted by former Parent prior to June 12, 2013, were adjusted to reflect former Parent’s stock option modification for the $1.00 special dividend. The modification decreased the per share grant date fair value but increased the number of stock options held by the option-holder to preserve the value of the options immediately before and after the $1.00 special dividend. There was no incremental compensation expense resulting from this modification.

(b)	The weighted average grant date fair values of stock options granted by former Parent prior to the separation date were adjusted for the separation conversion on September 27, 2013.

Vesting Stock Awards.

Vesting stock award activity for the nine months ended November 1, 2013 was as follows:


	Shares of stock under stock awards			Weighted average grant-date fair value
	(in millions)
Unvested stock awards at January 31, 2013 (a)		3.7		$	15.32
Awards granted (a)		3.1			13.62
Awards forfeited (a)		(0.4	)		14.88
Awards vested (a)		(1.3	)		16.19
Transfers from Parent, net (a)(b)		0.8			14.98
Unvested stock awards at September 27, 2013 (a)		5.9			14.46
Separation adjustment		(3.1	)
Post-separation awards granted		0.3			33.78
Unvested stock awards at November 1, 2013		3.1			31.09

(a)	Amounts disclosed as of and for the periods ended prior to September 27, 2013 are denominated in former Parent common shares and represent the Company’s employees participation in the former Parent’s plans prior to separation.

(b)	Transfers from Parent, net represent the awards of those employees that transferred between the Company and former Parent prior to the separation.

Note 6—Income Taxes:

Pre-Separation. The Company’s operations have historically been included in former Parent’s U.S. federal and state income tax returns and all income taxes have been paid by former Parent. Income taxes are presented in these financial statements on a separate tax return basis as if the Company filed its own tax returns. Income tax liabilities through the date of separation are assumed to be immediately settled with former Parent against the former Parent company investment account.

Post-Separation. Subsequent to the separation, the Company will file income tax returns in the federal, state, local, and foreign jurisdictions as a separate public company and is subject to routine compliance reviews by the Internal Revenue Service (IRS) and other taxing authorities.

At November 1, 2013, the Company had uncertain tax positions of $24 million, all of which are netted against the related current deferred tax assets. While the Company believes it has 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.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Provision for income taxes as a percentage of income before income taxes was 35.5 percent for the nine months ended November 1, 2013 and 36.8 percent for the nine months ended October 31, 2012. Tax rates for both periods are lower than the combined federal and state statutory rates due to research and developmental tax credits, tax deductibility of dividends paid on shares held by retirement plans (employee stock ownership plans) and other permanent book versus tax differences.

Note 7—Debt Obligations:

The Company’s long-term debt consisted of the following:


	Stated & effective interest rate			November 1, 2013		January 31, 2013
				(in millions)
Term Credit Facility		1.94	%	$	500	$	0
Capital leases and other notes payable due on various dates through fiscal 2016		0.00	%		2		3
Total Long-term Debt and Capital Lease Obligations				$	502	$	3
Less current portion					7		2
Total Long-term Debt and Capital Lease Obligations, net of current portion				$	495	$	1

The fair value of the Company’s outstanding long-term debt obligations approximates their carrying value.

Credit Facilities. On June 27, 2013, the Company entered into a $700 million credit agreement (the “Credit Agreement”) among the Company, as borrower, former Parent, as guarantor and Citibank, N.A. (“Citibank”), as administrative agent. The Credit Agreement consists of (i) a five-year unsecured revolving credit facility in an initial aggregate borrowing capacity of $200 million (the “Revolving Credit Facility”) and (ii) a five-year unsecured term facility with an initial aggregate principal amount of $500 million (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). Borrowings under the Credit Facilities will bear interest at a variable rate of interest based on 1-month LIBOR (or, in the case of borrowings in euro, EURIBOR) or Citibank’s base rate. Interest rate margins with respect to borrowings under the Credit Agreement range from 1.50% to 2.75% for LIBOR or EURIBOR loans and 0.50% to 1.75%, for base rate loans. The Company also pays a commitment fee with respect to undrawn amounts under the Revolving Credit Facility ranging from 0.25% to 0.50%. The margin and commitment fees will vary based on the Company’s leverage ratio.

On September 26, 2013 the Company met the conditions precedent to borrow funds under the Term Loan Facility and drew $500 million. A portion of the borrowings were used to pay a cash dividend to former Parent in the amount of $295 million. The Revolving Credit Facility capacity is available to the Company but no draws have been made.

The Term Loan Facility will amortize beginning at 1.25% of the borrowed amount on October 31, 2014, with additional quarterly amortization payments increasing up to 2.50% on October 31, 2016. Borrowings under the Credit Facilities must be repaid in full on September 26, 2018.

The Company incurred debt issuance costs of approximately $5 million, which were allocated to each debt facility based on their relative borrowing capacity. Debt issuance costs allocated to the Revolving Credit Facility are amortized through interest expense on a straight-line basis over the five year access period. Debt issuance costs allocated to the Term Loan Facility are amortized using the effective interest rate method over the life of the Term Loan Facility.

The Credit Agreement contains certain restrictive covenants applicable to the Company and its subsidiaries, which include limitations on: liens; mergers and consolidations; changes in accounting principles; changes in nature of business; hedging agreements; sale and lease-back transactions; subsidiary indebtedness; dividends and issuances of capital stock; negative pledges; and transactions with affiliates.

The Credit Agreement also includes certain financial covenants, which require the maintenance of a Leverage Ratio (as defined in the Credit Agreement) of not greater than 3.25:1.00 and an Interest Coverage Ratio (as defined in the Credit Agreement) of at least 3.50:1.00.

The Credit Agreement also contains certain customary events of default, including, among others, defaults based on certain bankruptcy and insolvency events, nonpayment, cross-defaults to other debt, breach of specified covenants, ERISA events, material monetary judgments, change of control events and the material inaccuracy of the Company’s representations and warranties. If an event of default occurs and is continuing under the Credit Facilities, the Credit Agreement provides that the administrative agent shall at the request, or may with the consent, of the required lenders, terminate the commitments thereunder, declare amounts outstanding, including principal and accrued interest and fees, payable immediately, and enforce any and all rights and interests.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

As of November 1, 2013, the Company was in compliance with the covenants under the Credit Facilities.

Note 8—Derivative Instruments:

On September 26, 2013, in accordance with the Company’s risk management objectives, the Company entered into fixed interest rate swap agreements that aggregate to the same notional amount and tenor as the Term Loan Facility. These instruments are used to hedge the variability in interest payment cash flows caused by changes in the 1 month LIBOR benchmark interest rate on the floating rate Term Loan Facility and are accounted for as cash flow hedges. Under the swap agreements, the Company pays a fixed rate of 1.41% and the counterparties to the agreement pay a floating interest rate based on 1 month LIBOR, for which measurement and settlement is performed monthly. The counterparties to these agreements are financial institutions.

As of November 1, 2013, the fair value of the fixed interest rate swaps was $3 million, which is included in accounts payable and accrued liabilities. The effective portion of the unrealized change in fair value of these cash flow hedges for the three and nine months ended November 1, 2013 was a loss of $2 million, net of tax benefit, which was reported in other comprehensive loss, net of tax. There was no ineffectiveness for the period.

Note 9—Business Segment Information:

The Company defines its operating segments based on the way the chief operating decision maker, currently its chief executive officer, manages the operations of the Company for purposes of allocating resources and assessing performance. The Company has two operating segments, technical and engineering services and enterprise IT, that are aggregated into one reporting segment because they have similar economic characteristics and meet the other aggregation criteria within the accounting standard on segment reporting, including similarities in the nature of the services provided, methods of service delivery, customers served and the regulatory environment in which they operate.

Substantially all of the Company’s revenues and tangible long-lived assets are generated by or owned by entities located in the United States. As such, financial information by geographic location is not presented. The Company’s total revenues are largely attributable to prime contracts with the U.S. Government or to subcontracts with other contractors engaged in work for the U.S. Government.

Note 10—Legal Proceedings:

Timekeeping Contract with City of New York

In March 2012, in connection with the resolution of certain investigations related to an automated time and attendance and workforce management system (CityTime) that former Parent developed and implemented for certain New York City agencies, former Parent entered into a three year deferred prosecution agreement (DPA) with the U.S. Attorney’s Office for the Southern District of New York. Under the terms of the DPA, the U.S. Attorney’s Office deferred prosecution of a single criminal count against former Parent, and will dismiss the criminal count at the end of a three year period if former Parent complies with the terms of the DPA. Under the DPA, former Parent agreed, among other things, to retain an independent monitor who will report periodically to the U.S. Attorney’s Office and who will have broad authority to monitor and make recommendations on a number of former Parent’s policies and practices. The Company is not subject to the criminal count and the agreement to defer prosecution under the DPA. However, the Company will comply with applicable provisions of the DPA, including retaining an independent monitor and related reporting obligations.

On August 21, 2012, former Parent entered into an administrative agreement with the U.S. Army on behalf of all agencies of the U.S. Government that confirms its continuing eligibility to enter into and perform contracts with the U.S. Government. Under the terms of the administrative agreement, former Parent has agreed, among other things, to maintain a contractor responsibility program having the specific elements described in the administrative agreement, including retaining a monitor and providing certain reports to the Army. The administrative agreement will continue in effect for five years, provided that former Parent may request earlier termination following completion of three years. The Company notified the U.S. Army that it will comply with the obligations set forth in the administrative agreement following the separation. These obligations include retaining an independent monitor and maintaining a similar contractor responsibility program.

Other

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

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Note 11—Other Commitments and Contingencies:

Government Investigations

The Company is routinely subject to investigations and reviews relating to compliance with various laws and regulations with respect 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. Adverse findings in these investigations or reviews can lead to criminal, civil or administrative proceedings, and the Company could face penalties, fines, compensatory damages and suspension or debarment from doing business with governmental agencies. Adverse findings could also have a material adverse effect on the Company’s business, consolidated financial position, results of operations and cash flows due to its reliance on government contracts.

U.S. Regulatory Investigations and Reviews

U.S. Government agencies, including the Defense Contract Audit Agency (DCAA), Defense Contract Management Agency (DCMA) 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, including a contractor’s accounting system, earned value management system, estimating system, materials management system, property management system and purchasing system. A finding of significant control deficiencies in a contractor’s business systems or a finding of noncompliance with U.S. Government Cost Accounting Standards can result in decremented billing rates to U.S. Government customers until the control deficiencies are corrected and their remediation is accepted by the DCMA.

Pursuant to the Distribution Agreement with former Parent and upon the separation date, the former Parent’s recorded liability of $45 million was allocated to the Company in the amount of $18 million and former Parent in the amount of $27 million. This liability represents estimated net amounts to be refunded to customers for potential adjustments for indirect cost audits for fiscal 2006 through 2013. Subsequent to the separation date, any amounts owed in addition to the $45 million liability for periods prior to the separation date will be allocated to former Parent and the Company in proportions determined in accordance with the Distribution Agreement. As of November 1, 2013, the Company has recorded a liability of $18 million for its current best estimate of net amounts to be refunded to customers for potential adjustments from such audits or reviews of contract costs.

Letters of Credit and Surety Bonds

The Company has outstanding letters of credit of $6 million as of November 1, 2013, principally related to guarantees on insurance policies. The Company also has outstanding surety bonds in the amount of $17 million, principally related to performance and payment bonds on the Company’s contracts.

Note 12—Subsequent Events:

Cash Dividend

On December 4, 2013, the Company’s Board of Directors declared a cash dividend of $0.28 per share of the Company’s common stock payable on January 30, 2014 to stockholders of record on January 15, 2014.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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

The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures about market risk should be read in conjunction with our unaudited condensed consolidated and combined financial statements and the related notes. The financial information discussed below and included elsewhere in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flow would have been had we been a stand-alone company during the periods presented or what our financial condition, results of operations and cash flows may be in the future.

The following discussion contains forward-looking statements, 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 and the impact of competition. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “positioned,” “outlook” and similar expressions are used to identify these forward-looking statements. 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. Factors that could cause or contribute to these differences include those discussed below and in the Information Statement included as Exhibit 99.1 to our Registration Statement on Form 10, as amended, filed with the U.S. Securities and Exchange Commission (SEC) on September 9, 2013 (the “Information Statement”), particularly under the headings “Risk Factors” and “Special Note About Forward-Looking Statements.” Due to such uncertainties and risks, 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.

We use the terms “Company,” “we,” “us” and “our” to refer to both (1) Science Applications International Corporation and its consolidated subsidiaries for time periods after the separation and (2) the technical, engineering and enterprise IT services businesses of former Parent, which were contributed to Science Applications International Corporation as part of the separation, for time periods prior to the separation. References herein to “former Parent” refer to Leidos Holdings, Inc. (formerly SAIC, Inc.), collectively with its consolidated subsidiaries.

Unless otherwise noted, references to fiscal years are to fiscal years ended January 31 (for fiscal 2013 and earlier periods) or fiscal years ending the Friday closest to January 31 (for fiscal 2014 and later periods). For example, we refer to the fiscal year ending January 31, 2014 as “fiscal 2014.” Effective in fiscal 2014, we changed our fiscal year to a 52/53 week fiscal year ending on the Friday closest to January 31, with fiscal quarters typically consisting of 13 weeks and ending on the Friday closest to April 30, July 31, and October 31.

Overview

We are a leading provider of technical, engineering and enterprise IT services to the U.S. Government. We deliver to the Department of Defense (DoD) and federal civilian agencies systems engineering and integration offerings for large, complex government projects and offer a broad range of services with a targeted emphasis on higher-end, differentiated technology services.

We operate in two operating segments that provide comprehensive service offerings across our entire customer base. Our technical and engineering offerings include engineering and maintenance of ground and maritime systems, logistics, training and simulation, as well as operation and program support services. Our enterprise IT offerings include end-to-end enterprise IT services, which span the design, development, integration, deployment, management and operations, sustainment and security of our customers’ entire IT infrastructure. These segments have been aggregated into one reporting segment for financial reporting purposes. Substantially all of our revenues and tangible long-lived assets are generated by or owned by entities located in the United States.

The separation from former Parent was completed on September 27, 2013. Prior to separation, the financial information discussed below and included elsewhere in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flow would have been had we been a stand-alone company during the periods presented or what our financial condition, results of operations and cash flows may be in the future. Subsequent to separation, we are incurring additional costs to be able to function as an independent, publicly traded company, including additional costs related to IT.

Executive Summary

Revenue for the quarter was $1.0 billion, a decrease of $206 million compared to the corresponding period in fiscal 2013. The change was driven primarily by a large program ramp down, reduction in overseas contingency operations, and reduced and delayed customer awards resulting from the current U.S. Government budget pressures.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Operating income for the third quarter was $37 million, reflecting a decrease of $36 million compared to the corresponding period in fiscal 2013. The change was driven primarily by higher separation transaction and restructuring costs and lower revenue base.

Additional highlights included the following:

•

Total backlog (funded and unfunded) was $7.3 billion.

•

Net bookings were approximately $1.5 billion for the quarter as compared to $1.6 billion in the corresponding period last year.

•

In connection with the separation, we obtained a $500 million term loan which provided our initial cash balance as well as enabled us to pay a $295 million distribution to former Parent prior to separation.

Economic Opportunities, Challenges, and Risks

In fiscal 2013, we generated 95 percent of our total revenues from contracts with the U.S. Government and 73 percent of our total revenues from contracts with the DoD, including subcontracts where the U.S. Government or the DoD, respectively, is the ultimate purchaser. Our business performance is affected by the overall level of U.S. Government spending (especially defense spending) and the alignment of our offerings and capabilities with the budget priorities of the U.S. Government. While we believe that national security, including defense, will continue to be a priority, the U.S. Government budget deficit and the national U.S. debt has created pressure to examine and reduce spending across all federal agencies. Baseline spending for the DoD for the next 10 years has been reduced and there may be further reductions. Adverse changes in fiscal and economic conditions, such as the manner in which spending reductions are implemented, including sequestration, future government shutdowns, and issues related to the nation’s debt ceiling, could materially impact our business.

Trends in the U.S. Government contracting process, including a shift towards multiple-award contracts (in which certain contractors are preapproved using Indefinite Delivery / Indefinite Quantity (IDIQ) and General Services Administration (GSA) contract vehicles) and awarding contracts on a low price, technically acceptable basis, have increased competition for U.S. Government contracts. The U.S. Government has increasingly relied on contracts that are subject to a competitive bidding process, including IDIQ, GSA Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure. We expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process. For example, during fiscal 2013 we were not awarded the successor contract to the DISN Global Solutions (DGS) program with DISA. Additionally, since 2011, Organizational Conflicts of Interest (OCI) rules have become more restrictive, leading to greater fragmentation of the industry.

Despite the budget and competitive pressures impacting the industry, we believe we are well-positioned to expand customer penetration and benefit from opportunities that we have not previously pursued. Our scale, size and prime contractor leadership position are expected to help differentiate us from our competitors, especially on large contracts. We believe our long-term, trusted customer relationships and deep technical expertise provide us with the sophistication to handle mission-critical contracts. Our current competitive cost structure as well as our strategy to further lower our total delivery cost by centralizing strategic sourcing and developing repeatable offerings are expected to allow us to compete effectively on price in the evolving environment. Additionally, due to the separation and the resulting removal of many OCI restrictions, we believe we have enhanced our ability to expand market share with our existing customers and pursue new growth opportunities.

Results of Operations

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


	Three Months Ended									Nine Months Ended
	November 1, 2013			Percent change			October 31, 2012			November 1, 2013			Percent change			October 31, 2012
	(dollars in millions)
Revenues	$	1,007			(17	%)	$	1,213		$	3,180			(12	%)	$	3,626
Cost of revenues		925			(16	%)		1,101			2,927			(11	%)		3,307
Selling, general and administrative expenses		22			(21	%)		28			69			(18	%)		84
Separation transaction and restructuring expenses		23			109	%		11			57			280	%		15
Operating income		37			(49	%)		73			127			(42	%)		220
As a percentage of revenues		*3.7*	%					6.0	%		*4.0*	%					6.1	%

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

We classify indirect costs charged to our contracts as overhead (included in cost of revenues) and general and administrative expenses in the same manner as such costs are defined in our disclosure statements under U.S. Government Cost Accounting Standards.

Revenues. Revenues decreased $206 million, or 17 percent, for the three months ended November 1, 2013 as compared to the three months ended October 31, 2012. Revenue contraction was primarily due to the ramp down of the DGS program ($82 million), reduced activity on IT and logistics programs impacted by in-theatre force drawdown ($42 million), lower funding levels for material and subcontracts on Navy contract vehicles ($42 million), and the impact of one less productive day as compared to the prior year period ($16 million). The remainder of the decline was driven by slower U.S. Government contract awards resulting from budget pressures.

Revenues decreased $446 million, or 12 percent, for the nine months ended November 1, 2013 as compared to the nine months ended October 31, 2012, primarily due to the ramp down of the DGS program ($225 million), reduced activity on IT and logistics programs impacted by in-theatre force drawdown ($96 million), and lower funding levels for material and subcontracts on Navy contract vehicles ($94 million). The remainder of the decline was driven by slower U.S. Government contract awards resulting from budget pressures.

Operating Income. Operating income decreased by $36 million to 3.7 percent of revenue for the three months ended November 1, 2013 from 6.0 percent of revenue for the three months ended October 31, 2012, due to lower revenue volume ($15 million), increased separation transaction and restructuring costs ($12 million), the impact of higher indirect costs due to the government shutdown ($4 million), and the ramp down of the DGS program which had relatively higher profit margins ($4 million).

Operating income decreased by $93 million to 4.0 percent of revenue for the nine months ended November 1, 2013 from 6.1 percent of revenue for the nine months ended October 31, 2012, due to increased separation transaction and restructuring costs ($42 million), decreased operating income on lower revenue volume ($29 million), lower revenues on relatively higher profit margin contracts such as DGS ($11 million), an increase in unfavorable changes in estimates on contracts accounted for under the percentage of completion revenue recognition method ($7 million), costs to establish our IT infrastructure ($6 million), and the impact of higher indirect costs due to the government shutdown ($4 million).

Other Key Performance Measures

In addition to the primary financial performance measures discussed above, we also believe that bookings and backlog are useful measures for management and investors to evaluate our potential future revenues. In addition, we consider measures such as contract types and revenue mix to be useful tools for management and investors to evaluate our operating income and margin performance.

Bookings and Backlog. We had net bookings worth an estimated $1.5 billion and $2.8 billion during the three and nine months ended November 1, 2013, respectively. Net bookings represent the estimated amount of revenue to be earned in the future from funded and unfunded contract awards that were received during the period, net of any adjustments to previously awarded backlog amounts. We calculate net bookings as the period’s ending backlog plus the period’s revenues less the prior period’s ending backlog. Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. Backlog related to future revenues to be performed by former Parent is included in the values presented below. We segregate our backlog into two categories as follows:

•

Funded Backlog. Funded backlog for contracts with government agencies primarily represents contracts for which funding is appropriated less revenues previously recognized on these contracts, and does not include the unfunded portion of contracts where 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 agencies 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.

•

Negotiated Unfunded Backlog. Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from (1) negotiated contracts for which funding has not been appropriated or otherwise authorized and (2) unexercised priced contract options. Negotiated unfunded backlog does not include any estimate of future potential task orders expected to be awarded under IDIQ, GSA Schedule or other master agreement contract vehicles.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

The estimated value of our total backlog as of the dates presented was as follows:


	November 1, 2013		January 31, 2013
	(in millions)

Funded backlog	$	1,989	$	1,953
Negotiated unfunded backlog		5,329		5,811
Total backlog	$	7,318	$	7,764

Bookings and backlog fluctuate from period to period depending on the timing of contract awards, renewals, modifications and cancellations.

We expect to recognize a substantial portion of our funded backlog as revenues within 12 months from the end of the reporting period. However, the U.S. Government has the right to cancel contracts at any time. Similarly, certain contracts with commercial customers include provisions that allow the customer to cancel at any time. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed.

Contract Types. Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we generate revenue, see “Business—Contracts—Contract Types” in our Information Statement. The following table summarizes revenues by contract type as a percentage of total revenues for the periods presented:


	Nine Months Ended
	November 1, 2013			October 31, 2012
Cost reimbursement		37	%		38	%
Time and materials (T&M) and fixed-price-level-of-effort (FP-LOE)		31	%		29	%
Firm-fixed-price (FFP)		32	%		33	%
Total		100	%		100	%

Revenue Mix. We generate revenues under our contracts from (1) the efforts of our technical staff, which we refer to as labor-related revenues, and (2) the efforts of our subcontractors and (3) the materials provided on a contract. Our subcontractor-related revenues and materials-related revenues generally have lower margins than our labor-related revenues. The following table presents changes in labor-related revenues, subcontractor-related revenues and materials-related revenues for the periods presented:


	Three Months Ended									Nine Months Ended
	November 1, 2013			Percent change			October 31, 2012			November 1, 2013			Percent change			October 31, 2012
	(dollars in millions)
Labor-related revenues	$	448			(9	%)	$	493		$	1,381			(9	%)	$	1,510
As a percentage of revenues		45	%					40	%		44	%					41	%
Subcontractor-related revenues		375			(8	%)		408			1,186			(16	%)		1,407
As a percentage of revenues		37	%					34	%		37	%					39	%
Materials-related revenues		184			(41	%)		312			613			(14	%)		709
As a percentage of revenues		18	%					26	%		19	%					20	%

Materials-related revenues decreased primarily on DGS and IT and logistics contracts affected by the in-theatre force drawdown for the three and nine months ended November 1, 2013 relative to the respective periods in the prior year.

Liquidity and Capital Resources

Current Liquidity. Our business has low capital intensity because we are primarily a services provider. We expect to fund our ongoing working capital, capital expenditures, commitments and other discretionary investments through cash flows from operations and, if needed, a Revolving Credit Facility. Our cash flows, prior to separation, reflect the cash that was swept to former Parent as part of the central cash management program. In connection with the separation, we raised indebtedness through our Term Loan Facility in the amount of $500 million, of which $295 million was used to fund a cash distribution to former Parent. We also have $200 million of additional funds available under our Revolving Credit Facility.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Future Liquidity. We anticipate that our future cash needs will be for working capital, capital expenditures, commitments and strategic investments. Our ability to fund these needs through cash flows from operations will depend, in part, on our ability to generate cash in the future, which depends on our future financial results, which are subject to general economic, financial, competitive, legislative and regulatory factors. Furthermore, our ability to forecast future cash flows is more limited because we do not have a recent operating history as a stand-alone company.

Our $500 million borrowing under the Term Loan Facility and, if used in the future, the Revolving Credit Facility, will incur interest at a variable rate. On September 26, 2013, in accordance with our risk management objectives, we entered into fixed rate swap agreements for the same notional amount and period as the Term Loan Facility. These instruments are used to hedge the variability in interest payment cash flows and are accounted for as a cash flow hedge. Under the swap agreements, we pay the fixed rate and the counterparties to the agreement pay a floating interest rate, for which measurement and settlement is performed monthly.

The Term Loan Facility will amortize beginning at 1.25% per fiscal quarter of the borrowed amount on October 31, 2014, with additional quarterly amortization payments increasing up to 2.50% on October 31, 2016 and thereafter. Borrowings under the Credit Facilities must be repaid in full on September 26, 2018.

Although we believe that the arrangements in place will permit us to finance our operations on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (1) our credit ratings or absence of a credit rating, (2) the liquidity of the overall capital markets, and (3) overall economic conditions. We cannot assure that such financing will be available to us on acceptable terms or that such financing will be available at all. We believe that our future cash from operations together with our cash on hand, and access to bank financing and capital markets will provide adequate resources to fund our short-term and long-term liquidity and capital needs.

Historical Cash Flow Trends

The following table summarizes cash flow information for the periods presented:


	Nine Months Ended
	November 1, 2013			October 31, 2012
	(in millions)
Total cash flows provided by operations	$	58		$	247
Total cash flows used in investing activities		(10	)		(5	)
Total cash flows provided by (used in) financing activities		108			(243	)
Total (decrease) increase in cash and cash equivalents	$	156		$	(1	)

Cash Provided by Operations . Cash flows provided by operations were $58 million for the nine months ended November 1, 2013, which was a decrease of $189 million as compared to the comparable prior year period. The decrease is due to lower net income, an increase in receivables and a reduction in accrued payroll and employee benefits. Receivables in the current year were impacted by the timing of invoice processing due to the government shutdown as well as anticipated billing delays resulting from the Company’s IT system shutdown related to the separation. The U.S. Government’s accelerated payment initiative encouraged agencies to pay contractors more timely and was discontinued at the end of the prior year, resulting in an increase, during 2013, in the average time to collect. As a result, days sales outstanding were 64 days for the nine months ended November 1, 2013 compared to 56 days for the same period in the prior year. Accrued payroll and employee benefits were lower in the current year because there were fewer accrued payroll days than during the prior year due to the change in reporting periods.

Cash Used in Investing Activities. Cash used in investing activities, principally consisted of expenditures for property, plant and equipment, which increased by $4 million in 2013 primarily due to the acquisition of assets necessary to operate as an independent company.

Cash Provided by (used in) Financing Activities.

Prior to the separation, cash used in financing activities primarily represented net transfers to former Parent. As former Parent has historically used a centralized approach to cash management and financing of its operations, the components of net transfers to former Parent include cash transfers from us to former Parent and payments by former Parent to settle our obligations. These transactions were considered to be effectively settled for cash at the time the transaction was recorded.

For 2013 and prior to separation, financing activities consisted of borrowings under the Term Loan Facility of $495 million (net of $5 million in deferred financing costs), payment of a dividend to former Parent of $295 million, receipt of a capital contribution from former Parent of $26 million as well as net transfers to former Parent using the centralized cash management approach for the portion of the quarter prior to separation.

Subsequent to separation, we paid $14 million in cash dividends to our stockholders.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements.

Contractual Obligations

The table provided below has been included as an update to the contractual obligations table included in our Information Statement. The contractual obligations table is being updated to add an obligation related to borrowings under the Term Credit Facility. The amounts provided in the following table are presented as of November 1, 2013.


	Payments due by period
	Total		Remainder of Fiscal 2014		1-3 years		3-5 years		Thereafter
	(in millions)
November 1, 2013:
Debt—Term Credit Facility (1)	$	500		—	$	75	$	425	$	—
Interest Payments (2)	$	65	$	2	$	36	$	27	$	—

(1)	In connection with the separation, we obtained a term loan in an aggregate principal amount of $500 million.

(2)

Amounts represent an estimate of future variable interest payments on the Term Credit Facility based on scheduled outstanding principal amounts and projected 1-month LIBOR as of November 1, 2013. We have the option to prepay loan principal amounts, in which case interest would not be due and we would not have a contractual obligation. The above table excludes the effects of interest rate swaps used to hedge against changes in 1-month LIBOR.

Significant Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements in accordance 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 unaudited financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current best available information. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions and conditions.

We have several significant accounting policies, which are described in Note 1 of our financial statements included in our Information Statement, that are both important to the portrayal 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. There were no material changes to our existing significant accounting policies during the nine months ended November 1, 2013. In connection with the funding of the Term Loan Facility, we entered into fixed interest rate swap agreements and, accordingly, have added a significant accounting policy related to accounting for derivative instruments designated as cash flow hedges to our disclosure in Note 1.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks in the normal course of business. The following information about our market sensitive financial instruments contains forward-looking statements.

Foreign Currency Risk

From time-to-time, we may enter into foreign currency forward contracts to manage a portion of the exchange rate risk related to receipts from customers and payments to suppliers denominated in foreign currencies. Since the substantial majority of our business is conducted in U.S. dollars, a 10% change in foreign currency exchange rates would not have a material impact to our financial position or results of operations.

Interest Rate Risk

Debt obligations. We have approximately $500 million of variable rate debt. Our financial risk management objective is to reduce variability in earnings from changes in interest rates, which we may manage through operational means or the use of financial instruments, such as interest rate swaps. In connection with the funding of our variable rate Term Loan Facility, we

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

entered into fixed rate interest rate swap agreements with the same aggregate notional amount and tenor as the underlying debt, effectively converting our variable rate debt to fixed rate debt in order to mitigate our exposure to interest rate risk. Accordingly, a hypothetical 50 basis points (bps) change to interest rates would not materially change our results of operations or cash flows. For additional information related to our debt and interest rate swap agreements, see Notes 7 and 8, respectively, of the financial statements.

Derivatives . As of November 1, 2013, the fair value of our fixed interest rate swaps was $3 million (liability). Under the swap agreements, the Company pays a fixed rate of 1.41% and the counterparties to the agreements pay a floating interest rate based on 1 month LIBOR. A hypothetical 50 bps change in the 1 month LIBOR curve would change the fair value of the fixed interest rate swaps up to $10 million (liability or asset). Since the interest rate swaps are accounted for as cash flow hedges, the change in fair value is reported as a component of equity (accumulated other comprehensive income). We do not hold or issue derivative financial instruments for trading or speculative purposes. For additional information related to calculating the fair value of our interest rate swaps, see Note 1 of the financial statements.

Cash equivalents. A 10% unfavorable interest rate movement for interest earned on our cash and cash equivalents would not materially impact the value of the holdings and would have a negligible impact on interest income at current market interest rates.

Inflation Risk

We have generally been able to anticipate increases in costs when pricing our contracts. Bids for longer-term firm fixed-price contracts typically include labor and other cost escalations in amounts that historically have been sufficient to cover cost increases over the period of performance.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of November 1, 2013, and our principal executive officer and principal financial officer have concluded, as of November 1, 2013, that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred in the quarterly period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We have provided information about legal proceedings in which we are involved in Note 10 – Legal Proceedings of the notes to condensed consolidated and combined financial statements for the three months ended November 1, 2013 contained within this Quarterly Report on Form 10-Q.

In addition to the matters disclosed in Note 10, we are routinely subject to investigations and reviews relating to compliance with various laws and regulations. Additional information regarding such investigations and reviews is set forth in Note 11 – Other Commitments and Contingencies, of the notes to condensed consolidated and combined financial statements for the three and nine months ended November 1, 2013 contained within this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors.

Except for the risk factor described below, there were no material changes from the risk factors disclosed in our Information Statement included as Exhibit 99.1 to our Registration Statement on Form 10, as amended, filed with the U.S. Securities and Exchange Commission (SEC) on September 9, 2013.

A decline in the U.S. Government defense budget, changes in spending or budgetary priorities, prolonged U.S. Government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results.

Revenues under contracts with the U.S. Government, either as a prime contractor or subcontractor to other contractors, represented approximately 95% of our total revenues in fiscal 2013 with approximately 73% of our revenues generated from work we perform for the DoD. Our operating results could be adversely affected by spending caps or changes in the budgetary priorities of the U.S. Government or the DoD, as well as delays in program starts or the award of contracts or task orders under contracts. Current U.S. Government spending levels for defense-related programs may not be sustained, and future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of the rapid growth of the federal budget deficit, increasing political pressure and legislation, including the Budget Control Act of 2011, designed to reduce overall levels of government spending, including through sequestration, shifts in spending priorities from defense-related programs as a result of competing demands for federal funds, the number and intensity of military conflicts or other factors.

The Budget Control Act of 2011 enacted 10-year discretionary spending caps which are expected to generate over $1 trillion in savings for the U.S. Government, a substantial portion of which comes from DoD baseline spending reductions. In addition, additional automatic spending cuts (referred to as sequestration) totaling $1.2 trillion over 10 years have begun to be implemented in the U.S. Government fiscal year ended September 30, 2013. These reduction targets will further reduce DoD and other federal agency budgets. The Office of Management and Budget provided guidance to agencies and departments on implementing the sequestration cuts for government fiscal year 2013. However, there remains much uncertainty about the level of cuts that will be required for government fiscal year 2014 and the impact those cuts will have on contractors supporting the government. In light of the current uncertainty, we are not able to predict the potential impact of sequestration on our company or our financial results. However, we expect that implementation of further automatic spending cuts in government fiscal year 2014 will reduce, delay or cancel funding for certain of our contracts—particularly those with unobligated balances—and programs, and could adversely impact our operations and financial results. In addition, Congress failed to approve an interim or full-year budget before the U.S. Government’s fiscal year ended on September 30, 2013, which resulted in a shutdown of non-essential government services. Many U.S. Government personnel, including those working with our employees on certain of our contracts with the U.S. Government, were furloughed following the government shutdown, and certain government facilities were closed, which caused our employees to stop working on impacted contracts. On October 5, 2013, the Secretary of Defense issued an order the effect of which caused most of the government personnel working for the DoD to return to work. Other U.S. Government agencies remained closed until October 18, 2013, following the enactment of legislation that reopened the government with funding at post-sequester fiscal year 2013 levels through January 15, 2014, extended U.S. borrowing authority (commonly referred to as the debt ceiling) through February 7, 2014, and established a House-Senate budget conference committee to deliver budget and debt ceiling related recommendations by December 13, 2013. The failure of Congress to pass an interim or full-year budget or increase the debt ceiling before February 7, 2014 could disrupt our business. The impacts to our business on account of a prolonged government shutdown or failure to increase the debt ceiling are uncertain at this time, but potential impacts include delay in payments owed to us by the U.S. Government, loss of revenue and profit on contracts that did not have government funding in place before a government shutdown or otherwise could not be performed by us during a government shutdown, disruption in our subcontractors’ business that may impact our performance on contracts and other impacts, any of which could adversely affect our operations, cash flow and financial results.

The U.S. Government also conducts periodic reviews of U.S. defense strategies and priorities, which may shift DoD budgetary priorities, reduce overall U.S. Government spending or delay contract or task order awards for defense-related

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

programs, including programs from which we expect to derive a significant portion of our future revenues. In addition, changes to the DoD acquisition system and contracting models could affect whether and how we pursue certain opportunities and the terms under which we are able to do so. A significant decline in overall U.S. Government spending, including in the areas of national security, a significant shift in its spending priorities, the substantial reduction or elimination of particular defense-related programs or significant delays in contract or task order awards for large programs could adversely affect our future revenues and limit our growth prospects.

Our spin-off transaction subjects us to risks relating to the novation and transfer of U.S. Government and other contracts and contract vehicles from former Parent to us that could negatively affect our results of operations and diminish our competitive position.

On September 27, 2013, we completed a spin-off transaction from our former Parent and became an independent, publicly traded company. In connection with the spin-off transaction, former Parent agreed to novate or assign to us, with government approval, those customer contracts and contract vehicles that relate primarily to our business. Prior to novation or assignment, we will continue to perform the work on these contracts and we are dependent on former Parent to fulfill its obligations to us under the separation agreements to, among other things, collect and remit to us customer payments on these contracts. If customers do not pay former Parent or former Parent fails to collect and remit customer payments to us on a timely basis as required under applicable contracts, our cash flow would be negatively impacted. Certain contract vehicles to be novated or assigned to us involve existing or potential task orders, delivery orders and other work that former Parent is performing or may perform in the future. To the extent that former Parent or another large company would be considered to be a subcontractor to us in connection with work performed under these contracts (when they were not considered to be a subcontractor before our separation from Parent), we may face costs and administrative burdens and our ability to achieve small business subcontracting goals established by our government customers may be impaired, which could diminish our competitive position on future contract proposals. Further, our business operations have historically relied on some contract vehicles that will not be novated or assigned to us in the separation transaction. If we are unable to access these contract vehicles through commercial arrangements with former Parent or another prime contractor, or to transition this work to an alternative contract vehicle owned by us on a timely basis, our revenues and results from operations would be negatively affected.

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

(c)	Purchases of Equity Securities by the Company

In October 2013, our board of directors authorized a stock repurchase program under which we may repurchase up to 5 million shares of our common stock. Stock repurchases may be made on the open market or in privately negotiated transactions with third-parties. Whether repurchases are made and the timing and amount of repurchases depends on a variety of factors including market conditions, the Company’s capital position and internal cash generation, and other factors.

The following table presents repurchases of our common stock during the quarter ended November 1, 2013:


Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Repurchase Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)
September 27, 2013—September 30, 2013		—				—		—
October 1, 2013—October 31, 2013		333		33.53		—		5,000,000
November 1, 2013		—				—		5,000,000
Total		333				—

(1)	Includes shares purchased upon surrender by stockholders of previously owned shares to satisfy statutory tax withholding obligations related to vesting of stock awards.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Item 6. Exhibits.


Exhibit Number		Description of Exhibit

	10.1	Master Transitional Contracting Agreement between the Company (formerly SAIC Gemini, Inc.) and Leidos Holdings, Inc. (formerly SAIC, Inc.) dated September 25, 2013 *

	10.2	Form of Restricted Stock Unit Award Agreement (Management)

	10.3	Form of Restricted Stock Unit Award Agreement (3 Year Cliff Vesting)

	10.4	Form of Nonstatutory Stock Option Agreement (3 Year Cliff Vesting)

	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 schedules to this agreement are omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to supplementally furnish to the SEC, upon request, a copy of any omitted schedule.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: December 12, 2013

Science Applications International Corporation

/s/ J OHN R. H ARTLEY

John R. Hartley

Executive Vice President and Chief Financial Officer

Exhibit 10.1

MASTER TRANSITIONAL CONTRACTING AGREEMENT

by and between

SAIC, INC.

and

SAIC GEMINI, INC.

dated as of

September 25, 2013

MASTER TRANSITIONAL CONTRACTING AGREEMENT

MASTER TRANSITIONAL CONTRACTING AGREEMENT (this “ MTC Agreement ”), dated as of September 25, 2013 by and between SAIC, Inc., a Delaware corporation (“ SAIC ” or “ Leidos ”), that will be known as Leidos Holdings, Inc. following the Distribution and SAIC Gemini, Inc, a Delaware corporation (“ New SAIC ”), that will be known as Science Applications International Corporation following the Distribution. Each of SAIC and New SAIC is sometimes referred to herein as a “ Party ” and, collectively, as the “ Parties .” Capitalized terms used in this MTC Agreement shall have the meaning set forth in Section 1.1 .

RECITALS:

WHEREAS, SAIC, acting through its direct and indirect Subsidiaries, currently conducts the Leidos Business and the New SAIC Business;

WHEREAS, the Board of Directors of SAIC (the “ Board ”) has determined that it is appropriate, desirable and in the best interests of SAIC and its stockholders to separate, pursuant to and in accordance with the Distribution Agreement, SAIC into two separate, publicly traded companies, one for each of (i) the Leidos Business, which shall be owned and conducted, directly or indirectly, by Leidos and (ii) the New SAIC Business, which shall be owned and conducted, directly or indirectly, by New SAIC;

WHEREAS, prior to Distribution, the sectors, groups, and operations that will form the Leidos Business and the sectors, groups, and operations that will constitute the New SAIC Business are jointly performing certain SAIC Contracts;

WHEREAS, the Parties acknowledge that certain SAIC Contracts must be Novated to New SAIC after the Distribution Date in order to effect the assignment and transfer of such Contracts to New SAIC, and that approval by the cognizant Governmental Entity or other Customer of such Novation will take an unknown period of time following the Distribution;

WHEREAS, each of the Parties desire that New SAIC begin performing such SAIC Contracts immediately upon the Distribution, prior to approval by the cognizant Governmental Entity or other Customer of the Novation of the SAIC Contracts to New SAIC;

WHEREAS, the sectors, groups, and operations that constitute the Leidos Business and the sectors, groups, and operations that constitute the New SAIC Business are also engaged in cooperative business development efforts that may yield new Customer Contract awards to Leidos or New SAIC after the Distribution;

WHEREAS, each of the Parties desire to begin performing new Customer Contracts that are awarded after the Distribution to Leidos or New SAIC immediately upon award, and wish to agree to terms under which the Parties may continue their cooperative business development efforts after the Distribution;

WHEREAS, immediately following the Distribution it will be necessary in order to perform certain Leidos Business, New SAIC Business, and Joint Future Work that Leidos and New SAIC enter into various transitional contractual relationships, as defined in this MTC Agreement;

WHEREAS, it is the intention of the Parties that such contractual relationships be described in this MTC Agreement and be subject to the terms set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained in this MTC Agreement, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1. General . This MTC Agreement contains certain defined terms set forth elsewhere in this MTC Agreement. Capitalized terms used but not otherwise defined in this MTC Agreement shall have the meanings set forth in the Distribution Agreement (as defined below). In addition, as used in this MTC Agreement, the following terms shall have the following meanings:

“ Buyer ” shall mean that Party, either Leidos or New SAIC, that is defined as such in any applicable Subcontract, or as the prime contractor in any applicable Teaming Agreement.

“ Contract ” shall mean any agreement, contract, subcontract, delivery order, task order, work order, obligation, binding understanding, note, indenture, instrument, option, lease, promise, arrangement, release, warranty, license, sublicense, insurance policy, benefit plan, purchase order or legally binding commitment or undertaking of any nature (whether written or oral and whether express or implied).

“ Customer Contract ” shall mean any Contract between a Party and a third party counterpart (“ Customer ”), whether executed before or after the Distribution Date, whereby the Party will provide materials and/or equipment and/or perform services or other work pursuant to such Contract, to, for the benefit of, on behalf of, and/or at the direction of the Customer.

“ Distribution Agreement ” shall mean the Distribution Agreement dated as of September 25, 2013 between SAIC and New SAIC.

“ Distribution Date ” shall mean the date, as shall be determined by the Board, on which the Distribution occurs.

“ Governmental Entity ” shall mean any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission, department, board, bureau or court, whether domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any executive official thereof.

“ Joint Future Work ” shall mean the work performed under Customer Contracts between either Party on one hand, and any Customer on the other, that are executed after the Distribution Date and that (a) have required both Parties’ cooperation and support during the marketing, proposal preparation, and negotiation stage, and (b) will require both Parties’ performance after execution of the Contract.

“ Law ” shall mean any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, income tax treaty, order, requirement or rule of law (including common law) or other binding directives of any Governmental Entity.

“ Novate” and “Novation ” shall have that meaning as set forth in the Federal Acquisition Regulation at Subpart 42.12 wherein a Governmental Entity may, when in its interest, recognize a third party as the successor in interest to a U.S. Government Contract when the third party’s interest in the Contract arises out of the transfer of all of the contractor’s assets, or the portion of the assets involved in performing the Contract. It shall also mean and include

the assignment or other transfer of other Contracts that require the consent of or notice to the applicable counterparty to such Contracts, including without limitation. Customer Contracts to perform work for non-U.S. Government Customers (i.e., when the other contracting party is not a U.S. Governmental Entity), and Contracts to perform and/or procure work for the benefit of U.S. Government Customers or other Customers (e.g., in the case of subcontracts executed by a prime contractor that support performance of a U.S. Government Contract).

“ SAIC Contracts ” shall mean all Customer Contracts held by SAIC and its Subsidiaries immediately prior to the Distribution Date, under which SAIC and/or its Subsidiary is the selling party.

“ Seller ” shall mean that Party, either Leidos or New SAIC, that is defined as such in any applicable Subcontract, or as the subcontractor in any applicable Teaming Agreement.

“ Subcontract ” shall mean any subcontract agreement executed by the Parties pursuant to the provisions of this MTC Agreement for the provision of support by one Party, either Leidos or New SAIC, under a Customer Contract of the other Party.

“ Teaming Agreement ” shall mean an arrangement or agreement in which a potential prime contractor, here either Leidos or New SAIC, agrees with one or more Persons to have them act as its subcontractors, here either Leidos, New SAIC, or others, in connection with the competition or marketing for a specified contract, procurement or acquisition program.

ARTICLE II

SCOPE OF AGREEMENT

Section 2.1. General . Subject to the terms and conditions of this MTC Agreement, the Parties shall use, and shall cause their respective Affiliates to use the level of effort specified herein, but in no case less than commercially reasonable efforts, to consummate the transactions contemplated hereby, a portion of which may be implemented simultaneously with the execution of this MTC Agreement. This MTC Agreement is intended to address categories of certain Leidos Business, New SAIC Business, and Joint Future Work that the Parties will perform following the Distribution.

Section 2.2. Categories of Contracts Within Scope of this MTC Agreement

(a) SAIC Contracts Currently Being Performed . This category includes the following two types:

(i) “ Category A .” For SAIC Contracts that are Leidos Contracts, but will require ongoing performance by New SAIC after the Distribution Date, Leidos and New SAIC will enter into Subcontracts that become effective on the Distribution Date. Under these Subcontracts, New SAIC will perform work in support of Leidos, which will continue to be the prime contractor after the Distribution Date. Attachment A identifies the Subcontracts that are within this Category A and contains the Subcontracts executed pursuant to Article V of this MTC Agreement, which governs the process for entering into these Subcontracts.

(ii) “ Category B .” For SAIC Contracts that are New SAIC Contracts and that require Novation to New SAIC following the Distribution Date, the Parties will use best efforts to cause the prompt Novation of those SAIC Contracts from Leidos to New SAIC after the Distribution Date. Further, Leidos and New SAIC have entered into the Pending Novation Agreement set forth in Attachment B that becomes effective on the Distribution Date. Under this Pending Novation Agreement, New SAIC will perform work on behalf of

Leidos, which will continue to be the prime contractor until Novation of each Contract. For any particular SAIC Contract within this Category B, New SAIC may or may not require support of Leidos to perform work under such Contract pending Novation or thereafter. Leidos and New SAIC will enter into Subcontracts that become effective upon Novation of the SAIC Contracts within this Category B. Attachment B identities the SAIC Contracts covered by the Pending Novation Agreement and identifies the Subcontracts that must be executed as the SAIC Contracts are Novated to New SAIC. As these Subcontracts are executed by the Parties, they will automatically be incorporated into Attachment B . Article V governs the process for entering into Subcontracts following Novation.

(b) Joint Future Work . This category includes the following four types:

(i) “ Category C .” For new Customer Contracts awarded to Leidos following the Distribution Date based on quotations, bids, and proposals jointly supported by the Parties and submitted before the Distribution, and provided that the Parties intend for such new Contracts to remain Leidos Contracts with support to be provided by New SAIC, Leidos and New SAIC will enter into Subcontracts that become effective on the dates that the new Contracts are awarded to Leidos. Under these Subcontracts, New SAIC will perform work in support of Leidos, which will be the prime contractor for such Contracts. Attachment C identifies the potential Subcontracts that are within this Category C. If and as these Subcontracts are executed by the Parties, they will automatically be incorporated into Attachment C . Article V governs the process for entering into these Subcontracts.

(ii) “ Category D .” For new Customer Contracts awarded to Leidos following the Distribution Date based on quotations, bids, and proposals submitted before the Distribution, and provided that the Parties intend for such new Contracts to be New SAIC Contracts that require Novation to New SAIC, the Parties will use best efforts to cause the prompt Novation of those Contracts from Leidos to New SAIC after Contract award. Further, the Pending Novation Agreement set forth in Attachment B shall govern these Contracts effective as of the date of their award to Leidos. Under the Pending Novation Agreement, New SAIC will perform work on behalf of Leidos, which will continue to be the prime contractor until Novation of each such Contract. Attachment D identifies the potential new Contracts that will be covered by the Pending Novation Agreement. For any particular new Customer Contract within this Category D, New SAIC may or may not require the support of Leidos to perform work under such Contract pending Novation or thereafter. Following each Novation of a particular new Customer Contract within this Category D, Leidos and New SAIC will enter into a new Subcontract to the extent that New SAIC requires the support of Leidos in the performance of that particular new Contract. Attachment D identifies the potential Subcontracts that must be executed as new Contracts are Novated to New SAIC. As these Subcontracts are executed by the Parties, they will automatically be incorporated into Attachment D . Article V governs the process for entering into Subcontracts following Novation.

(iii) “ Category E .” For joint business development efforts that the Parties intend to pursue or continue to pursue as of the Distribution Date, as identified in Attachment E , Leidos and New SAIC have executed a Teaming Agreement that governs the identified efforts, which is also set forth in Attachment E , The efforts identified in Attachment E , among other things, indicate which Party is anticipated to be the prime contractor and which is anticipated to be the subcontractor, the anticipated scope of work or work share that shall be performed by each Party should the business development efforts result in a Contract award, any specific financial terms governing the future relationship of the Parties, and the business development responsibilities of Leidos and New SAIC concerning the pursuit of the work and the submission of a proposal. Attachment E does not include business development efforts that have resulted in the submission of a quotation, bid, or proposal as of the Distribution Date.

(iv) “ Category F .” To ensure uninterrupted performance and enable the Parties to jointly access and market their services under selected government-wide acquisition contracts, blanket purchase agreements, indefinite quantity indefinite delivery contracts, and General Services Administration schedule contracts (collectively, “ Identified Contract Vehicles” ) that were already awarded to SAIC as of the Distribution Date, or that are awarded to Leidos or New SAIC after the Distribution Date based on quotations, bids, and proposals submitted prior to the Distribution Date, Leidos and New SAIC have executed the Contract Performance Continuation Agreement set forth in Attachment F . The Contract Performance Continuation Agreement governs the Parties’ joint use of the Identified Contract Vehicles listed in Attachment F , which Attachment, among other things, identifies whether each such Identified Contract Vehicle is a Leidos Contract or a New SAIC Contract and includes any unique requirements governing the use of that Identified Contract Vehicle. Attachment F also identifies certain existing and potential task orders, delivery orders, work orders, and other work (collectively, “Orders”) that have been issued under the Identified Contract Vehicles as of the Distribution Date, or are the subject of proposals submitted as of the Distribution Date and are pending award, along with the Party that is responsible for the continued performance of those Orders until their completion. Each such Order shall be performed exclusively and entirely by the Party indicated in Attachment F under the terms of the Contract Performance Continuation Agreement.

ARTICLE III

MASTER TERMS OF SUBCONTRACTS

Section 3.1. General . Each of the Subcontracts executed pursuant to this MTC Agreement and pertaining specifically to Categories A, B, C, and D, shall be governed by the following terms and conditions (the “ Subcontract Master Terms ”), which shall be deemed incorporated into those Subcontracts. In the event of any conflict between the Subcontract Master Terms and the specific terms of any Subcontract entered into pursuant to this MTC Agreement, including without limitation the specific terms set forth in the Subcontract templates in Attachment G , the specific terms shall govern. In the terms and conditions that follow, the terms Buyer and Seller are as set forth in Article I above.

(a) Billing Rates – Cost Reimbursement . This section is applicable only to the extent that a Subcontract is of a cost reimbursement type. Seller may include as allowable indirect costs such overhead rates as established by either (i) for Federal Subcontracts, the cognizant Government agency in accordance with the principles of FAR Part 31 and any applicable agency supplements thereto, or (ii) for Government Subcontracts, as established by Subcontract Schedule C, entitled “Indirect Cost Rates.” Pending establishment of final indirect overhead rates for any period, Seller shall be reimbursed at billing rates approved by the cognizant Government agency, which billing rates may be revised from time to time, subject to such agency approval and subject further to appropriate adjustment when the final rates for that period are established.

(b) Fixed Fee – Cost Reimbursement . This section is applicable only to the extent that a Subcontract is of a cost reimbursement type. Buyer shall pay the Seller for performing the individual Subcontract the specified fixed fee.

(c) Final Indirect Cost Rates – Cost Reimbursement . This section is applicable only to the extent that a Subcontract is of a cost reimbursement type. Buyer shall reimburse Seller on the basis of final annual indirect cost rates and the appropriate bases established by Seller and the Government in effect for the period covered by the indirect cost rate proposal. Such rates and bases shall not change any monetary ceiling, funding amount, contract obligation, or specific cost allowance or disallowance provided for in this Subcontract. The rates and bases shall be automatically deemed incorporated into this Subcontract upon their effective dates.

(d) Minimum Labor Category Qualification Requirements . This section is applicable only to the extent that minimum labor category qualification requirements are applicable to the prime contract and/or the Subcontract. The following statement shall be included in all invoices that include costs for labor categories that are subject to minimum labor category qualification requirements for education, employment, licensing, and/or professional certification for Seller personnel:

“Seller has reviewed the qualifications of the individuals whose labor costs are being invoiced hereunder and hereby certifies that all individuals meet the minimum labor category qualification requirements for education, employment, licensing and/ or professional certification for the specific labor categories for which his or her work is being billed.”

Seller agrees that if this Subcontract includes minimum labor category qualification requirements, Seller shall not invoice Buyer for any labor until Seller first verifies that each individual proposed to work satisfies the minimum labor category qualification requirements for each labor category. In instances where an individual does not meet all the minimum labor category qualification requirements, but Seller believes the individual is qualified to perform the work, Seller must request and receive a written approval from Buyer waiving some or all of the minimum labor category qualification requirements prior to permitting the individual to start work.

Seller agrees to promptly notify Buyer if it discovers, subsequent to assigning an individual to perform on the Subcontract, that a Seller employee does not meet one or more of the applicable minimum labor category qualification requirements.

Seller agrees to refund to Buyer all monies paid for any individual performing on the Subcontract where it is determined that the individual does not meet one or more of the applicable minimum labor category qualification requirements.

(e) Payment – Cost Reimbursement . This section is applicable only to the extent that a Subcontract is of a cost reimbursement type. Upon receipt and approval by Buyer of invoices that comply with the INVOICES provision of the Subcontract under which the invoice is submitted. Buyer shall pay costs that are allowable under the Subcontract on a Net 45 day basis.

(i) Federal . Payments shall be made in accordance with FAR 52.216-7 (Allowable Cost and Payment) and any applicable agency supplements thereto. Seller shall adjust its allowable indirect costs under the Subcontract simultaneously with Seller’s submittal of its final indirect cost rate proposal in accordance with FAR 52.216-7(d)(2)(i). In the event that Seller’s final indirect cost rates, as determined by the Government in accordance with FAR 52.216-7(d)(2)(ii). vary from Seller’s proposed rates, Seller shall adjust its allowable indirect costs within thirty (30) days of such determination. In the event Seller fails to timely make such adjustments, or to certify to Buyer that no adjustments are required to Seller’s allowable indirect costs, Buyer shall be under no obligation to consider subsequent requests by Seller to increase its allowable indirect costs under this Subcontract. Seller shall comply with FAR 52.232-20 (Limitation of Cost) and FAR 52.232-22 (Limitation of Funds), which are hereby incorporated by reference.

(ii) Government . Each payment made shall not be subject to setoff but shall be subject to reduction to the extent of amounts which are found by Buyer or Seller not to have been properly payable, and shall also be subject to reduction for overpayments. Seller shall promptly notify Buyer of any such overpayments found by Seller.

(f) Payment – Time and Materials . This section is applicable only to the extent that a Subcontract is of a time and materials type. Buyer shall make payment, without any setoff, but subject to reduction in the event of and to the extent of amounts found by Buyer or Seller not to be properly payable or to the extent they have been overpaid, within 45 days after receipt of a proper invoice. Buyer shall pay Seller upon the submission of invoices approved by Buyer as follows:

(i) Overtime. Unless specifically authorized in writing by Buyer, Seller is not authorized to perform and Buyer is not obligated to reimburse Seller for work performed on an overtime, extended work week, shift premium, or uncompensated time basis.

(ii) Materials and other direct costs (ODCs). Authorized material and other direct costs, such as travel, will be reimbursed on an actual cost basis in accordance with the Federal Acquisition Regulation and Cost Accounting Standards, as applicable, and applied on a consistent basis.

(1) Federal . Payment for materials and ODCs are subject to the Allowable Cost and Payment clause, FAR 52.216-7, and the Payments Under Time-and-Materials and Labor-Hour Contracts clause, FAR 52.232-7.

(2) Commercial Items . In addition to the Federal terms in Paragraph (1) above, for Seller-furnished direct material and “incidental services” that meet the definition of commercial items in FAR 2.201, the price paid will be the established catalog or market price, adjusted to reflect the quantities being purchased and any modifications required under the Agreement. If the direct materials or incidental services do not meet the commercial item definition, the price paid will be the cost to the Seller, which shall not include profit or G&A. Where materials are withdrawn from inventories, the cost must be determined in accordance with proper accounting practices consistently followed by Seller. Seller shall support its material cost claims by submitting invoices, storeroom requisitions, expense reports, or other substantiation acceptable to Buyer. This Subcontract is not subject to FAR Part 31 and final indirect rates. Accordingly, indirect rates shall not be applied to any costs billed under this Subcontract.

(3) Government . Seller may apply appropriate indirect burdens if 1) allowable as provided in the individual Subcontract and 2) Seller’s accounting and billing systems are acceptable on the basis of Government audits or reviews. Absent Buyer’s determination of adequacy of Seller’s accounting and billing systems, Seller shall be reimbursed only for the actual direct costs of material, travel and other direct costs.

(g) Payment – Firm, Fixed Price . This section is applicable only to the extent that a Subcontract is of a firm, fixed price type. Payment shall be made in accordance with the milestone schedule provided in the individual Subcontract. Payment terms are Net 45 Days after acceptance of the delivered items or services and receipt of a proper invoice, unless otherwise specified in this Subcontract. Buyer shall not make any setoff, but may make any adjustments in Seller’s invoices due to shortages, late delivery, rejections, or other failure to

comply with the requirements of this Subcontract before payment. Cash Discounts will be taken from date of acceptance of delivered items, or date of a proper invoice, whichever is later. Progress, interim, or milestone payments shall not constitute final acceptance. Goods and services shall be delivered in accordance with the Subcontract statement of work and milestone schedule. Time is of the essence. All goods furnished under this Subcontract shall be delivered FOB Destination. Delivery shall not be deemed complete until all goods have been received and accepted by the Buyer, notwithstanding delivery to any carrier. Services shall be deemed delivered after they have been performed, received, and accepted by the Buyer.

(h) Manner of Payment . Seller may select Automated Clearing House Credits (“ACH funds transfer”), as the means of settlement. With regard to such ACH funds transfer, a payment from Buyer to Seller shall be considered timely with respect to any payment due date contained herein if the ACH funds transfer is completed no later than four (4) business days after such payment due date. Buyer shall not be in breach of these terms and conditions, or suffer any loss of discount or other penalty, with respect to an ACH funds transfer that was initiated properly and timely by Buyer to the extent its completion is delayed because of failure or delay by the ACH funds transfer system the operation of an ACH funds transfer system rule which could not be anticipated by Buyer, or rejection by the Seller’s bank.

(i) Audit . This section is applicable only to the extent that a Subcontract is of a cost reimbursement or time and material type. At any time before final payment. Buyer may request audit of the invoices or vouchers and supporting documentation. Seller shall accommodate any such Buyer request, and the confidentiality provisions of the Distribution Agreement shall govern the exchange of all Confidential Information in connection with the audit. Each payment previously made shall be subject to reduction to the extent of amounts, on preceding vouchers, that are found by the Buyer not to have been properly made and shall also be subject to reduction for overpayments or to increase for underpayments. Upon receipt and approval of the voucher designated by Seller as the “completion voucher” and supporting documentation, and upon compliance by Seller with all terms of the individual Subcontract, Buyer shall pay any balance due Seller.

(i) For cost reimbursement and time-and-material Subcontracts: The Seller agrees to promptly notify Buyer of any changes to its Accounting System, Billing System and/or related internal control structure or business system(s), and/or any Cost Accounting Standard practice changes, that would affect its ability to report costs incurred or hours delivered accurately and completely, and bill costs as certified in the Supplier’s Representations and Certifications

(j) Warranty . In addition to any other warranties specified or provided by a manufacturer or lower tier vendor, Seller warrants that; (1) the services provided shall be performed with that degree of skill and judgment normally exercised by recognized professional firms performing services of the same or substantially similar nature: and (2) that any goods delivered under the Subcontract will be new. unless otherwise specified, and for a period of one (1) year following acceptance be free from defects in design, material and workmanship. All goods and services will conform to applicable specifications, drawings, and standards of quality and performance. In the event of any breach of the foregoing warranties. Seller shall, at its own expense, at Buyer’s election either: (A) re-perform the non-conforming services and/or correct the non-confoiming goods to conform to this standard; or (B) refund to Buyer that portion of the amounts received by Seller attributable to the non-conforming services and/or goods. All warranties of Seller shall inure to the benefit of both Buyer and Buyer’s customers. The foregoing warranties shall survive any delivery, inspection, acceptance or payment by Buyer.

(k) Insurance . Without prejudice to Seller’s liability to indemnify Buyer as stated in any indemnification provision. Seller shall procure at its expense and maintain for as long as it is performing work under Subcontracts, and ensure that any of its subcontractors used in connection with the work procure and maintain, the insurance policies required below.

(i) Workers’ Compensation: Coverage for statutory obligations imposed by laws of any State in which the work is to be performed. Where applicable, Seller shall provide evidence of coverage for the United States Longshore & Harborworkers’ Act (USL&H) for employees engaged in work on or near navigable waters of the United States, and the Defense Base Act for employees working on U.S. Government contracts outside of the United States. Such policy(ies) shall be endorsed to provide a waiver of subrogation in favor of Buyer, its directors, officers and employees, and Buyer’s customer where required by Buyer’s Prime Contract with its customer. Employer’s Liability coverage of $1,000,000 each accident shall also be maintained.

(ii) Commercial General Liability: Coverage for third party bodily injury and property damage, including products and completed operations, contractual liability, and independent contractors’ liability with limits not less than $1,000,000 per occurrence and $2,000,000 in the aggregate. Such policy(ies) shall be endorsed to name Buyer, its directors, officers and employees, and Buyer’s customer where required by Buyer’s Prime Contract with its customer, as Additional Insureds.

(iii) Business Automobile Liability: Coverage for use of all owned, non-owned, and hired vehicles with limits of not less than $ 1,000,000 per accident combined single limit for bodily injury and property damage liability. Such policy(ies) shall be endorsed to name Buyer, its directors, officers and employees, and Buyer’s customer where required by Buyer’s Prime Contract with its customer, as Additional Insureds.

(iv) Professional Liability/Errors and Omissions: If Seller is performing any professional services, coverage for damages (including financial loss) caused by any acts, errors and omissions arising out of Seller’s performance or failure to perform professional services with limits of not less than $5,000,000 per claim.

(v) The Additional Insured coverages above shall be primary and non-contributing with respect to any other insurance that may be maintained by Buyer and notwithstanding any provision contained herein, the Seller, and its employees, agents, representatives, consultants, subcontractors and suppliers, are not insured by Buyer, and are not covered under any policy of insurance that Buyer has obtained or has in place.

(vi) Any self-insured retentions, deductibles and exclusions in coverage in the policies required under this Article shall be assumed by, for the account of, and at the sole risk of Seller. In no event shall the liability of Seller or any subcontractors be limited to the extent of any of insurance or the minimum limits required herein.

(vii) Prior to commencement of any work, and within 15 days of any policy renewal that occurs while any work is on-going under this Subcontract, Seller shall provide Buyer evidence of the insurance coverage required above, including evidence of additional insured status and waivers of subrogation where required. Failure of Buyer to demand such evidence or to identify any deficiency in the insurance provided shall not be construed as or deemed to be a waiver of Seller’s, or its subcontractors’, obligations to maintain the above insurance coverages.

(l) Buyer Furnished Items and Intellectual Property - Federal Subcontracts . This section is applicable only to the extent that a Subcontract is in support of a federal prime contract.

(i) All items furnished, loaned or bailed by the Buyer to Seller hereunder, or purchased, or otherwise acquired by Seller for the performance of and specifically charged to the Buyer under this Subcontract (collectively, the “Items”), are the property of the Buyer (or, as directed by the Buyer pursuant to the terms of its prime contract, the U.S. Government). Upon completion, expiration or termination of this Subcontract, Seller shall return all Items in good condition (reasonable wear only accepted) together with all spoiled and surplus Items to the Buyer. In lieu of the return of Items to Buyer, Seller shall make such other disposition of all Items as directed in writing by the Buyer. Seller agrees to replace, at its expense, all such Items not returned in accordance with this Section or returned in other than good condition. Seller shall not charge Buyer for any storage, maintenance or return of any Items. Except as provided for in any flow down clauses, Seller shall bear all risk of loss for all Items in Seller’s possession or for which Seller is responsible. Seller also agrees to use any designs, data or other things contained or embodied in Items provided to or utilized under this Subcontract in accordance with any restrictive legends placed on such Items by the Buyer or any third party. If the Buyer furnishes any material (including but not limited to any computer software or other data) for fabrication pursuant to this Subcontract, Seller agrees: (i) not to substitute any other material for such fabrication without the Buyer’s prior written consent, and (ii) that title to such material shall not be affected by incorporation in or attachment to any other property.

(ii) Seller understands and agrees that each of the intellectual property-related clauses specified in any Schedule B incorporated into the Subcontract, which may include, but are not limited to, FAR 52.227-1, 52.227-11, 52.227-14, 52.227-15 and 52.227-16 (and/or DFARS 252.227-7013, 252.227-7014 and 252.227-7015 if the Buyer’s prime contract is with the Department of Defense), are incorporated herein as though fully set forth and shall take precedence over any other terms in this Subcontract. For the avoidance of any doubt, Seller hereby grants to the Buyer such intellectual property rights as the Buyer needs in order to perform its obligations to the Buyer’s U.S. Government customers. Seller shall not assert any intellectual property right in a manner inconsistent with the Buyer’s contract obligations to the Buyer’s U.S. Government customers.

(iii) To the extent that Seller provides any commercial computer software under this Subcontract, the Parties agree that any standard commercial terms governing such commercial items shall govern use of such commercial items, except to the extent that such standard commercial terms shall conflict or be inconsistent with applicable federal law or regulation. In the case of any conflict or inconsistency, the applicable federal law or regulation shall take precedence over any conflicting or inconsistent commercial term. The Parties further agree that the use of any commercial terms shall be contingent upon the acceptance of any commercial computer software by the U.S. Government. In addition, the Parties agree that to the extent that the U.S. Government is the end user of any commercial computer software provided by Seller, Buyer shall have the right to perform the Buyer’s contract obligations to its U.S. Government Customers using that commercial computer software.

(m) Buyer Furnished Items and Intellectual Property – Government Subcontracts . This section is applicable only to the extent that a Subcontract is in support of a state or local government prime contract.

utilized under this Subcontract in accordance with any restrictive legends placed on such Items by the Buyer or any third party. If the Buyer furnishes any material (including but not limited to any computer software of other data) for fabrication pursuant to this Subcontract. Seller agrees: (i) not to substitute any other material for such fabrication without the Buyer’s prior written consent and (ii) that title to such material shall not be affected by incorporation in or attachment to any other property.

(ii) To the extent that Seller provides any commercial items (including commercial computer software) under this Subcontract, the Parties agree that any standard commercial terms governing such commercial items shall govern the use of such commercial items, except to the extent that such standard commercial terms shall conflict or be inconsistent with terms of this Subcontract. In the case of any conflict or inconsistency, the applicable terms of this Subcontract shall take precedence over any conflicting or inconsistent commercial term.

(iii) The Parties agree that all provisions of the prime contract between the Buyer and its Customer regarding intellectual property rights shall be incorporated into this Subcontract with the same force and effect as if they were written in full text herein and shall govern the performance of this Subcontract. To the extent that any conflict exists between the intellectual property provisions of the prime contract between the Buyer and its Customer and any normal commercial terms governing commercial items provided by Seller, the intellectual property provisions of the prime contract shall govern.

(iv) To the extent applicable, the Parties shall apply the intellectual property provisions of the prime contract between the Buyer and its Customer in a manner that reflects Seller’s position as a subcontractor to the Buyer. Seller shall grant to the Buyer such intellectual property rights necessary for the Buyer to perform its contractual obligations to Seller.

(n) Disclosure . For a period of three (3) years after completion of the work, Seller shall not disclose information concerning work under this Subcontract to any third party, unless such disclosure is required by law, is disclosed at a summary level solely for purposes of past performance submissions, or is necessary for the performance of this Subcontract. No news releases, public announcement, denial or confirmation of any part of the subject matter of the work or any phase of any program hereunder shall be made without prior written consent of Buyer which shall not be unreasonably withheld.

(o) Counterfeit Products .

(i) For purposes of this provision, Goods are any tangible items delivered, including without limitation the lowest level of separately identifiable items, such as parts, articles, components, and assemblies. “Counterfeit Goods” are Goods that are or contain items misrepresented as having been designed, produced, and/or sold by an authorized manufacturer and seller, including without limitation unauthorized copies, replicas, or substitutes. The term also includes authorized Goods that have reached a design life limit or have been damaged beyond possible repair, but are altered and misrepresented as acceptable.

(ii) Seller agrees and shall ensure that Counterfeit Goods are not delivered to Buyer. Goods delivered to Buyer or incorporated into other Goods and delivered to Buyer shall be new and shall be procured directly from the Original Component Manufacturer (OCM)/Original Equipment Manufacturer (OEM), or through an OCM/OEM authorized distributor chain. Work shall not be acquired from independent distributors or brokers unless approved in advance in writing by Buyer. When requested by Buyer, Seller shall provide OCM/OEM documentation that authenticates traceability of the affected items to the applicable OCM/OEM.

(iii) In the event that work delivered constitutes or includes Counterfeit Goods, Seller shall, at its expense, promptly replace such Counterfeit Goods with authentic Goods conforming to the requirements. Notwithstanding any other provision, Seller shall be liable for all costs relating to the removal and replacement of Counterfeit Goods, including without limitation Buyer’s costs of removing Counterfeit Goods, of reinserting replacement Goods, and of any testing necessitated by the reinstallation of Goods after Counterfeit Goods have been exchanged. Seller shall include equivalent provisions in lower tier subcontracts for the delivery of items that will be included in or furnished as Goods to Buyer.

(p) Export Control Compliance . Seller shall comply with all applicable U.S. export laws and regulations, including International Traffic in Arms Regulations (“ITAR”) and the Export Administration Regulations (“EAR”). The subject technology of this Subcontract (including data, services, software and hardware provided hereunder, defined as “Controlled Technology”) may be controlled under these laws and regulations and may not be exported or re-exported without prior authorization in accordance with ITAR and EAR. Access to Controlled Technology by Foreign Persons as defined by 22 CFR 120.16 may require an export authorization. Seller shall have full responsibility for obtaining any export licenses or authorization required to fulfill its obligations hereunder.

(q) Changes - Federal Subcontracts . This section is applicable only to the extent that a Subcontract is in support of a federal prime contract. Any changes shall be made in accordance with FAR 52.243-1 (for fixed price Subcontracts), FAR 52.243-2 (Alternative I, II, III or V, as designated in the prime contract) (for cost reimbursement Subcontracts), or FAR 52.243-3 (for time-and-materials Subcontracts), as if the applicable FAR clause were incorporated into this Subcontract, except that: a) as used in these clauses the term “Contractor” shall be defined as Seller and the term “Contracting Officer” shall be defined as the Buyer; and b) Seller shall assert its right to an adjustment under this clause within 20 days from the date of receipt of the written order. Failure to agree to any adjustment will be a dispute under the Disputes clause of this Subcontract, provided, however, that nothing in this clause excuses the Seller from proceeding with the work as changed without interruption and without awaiting settlement of any such dispute.

(r) Changes – Government Subcontracts . This section is applicable only to the extent that a Subcontract is in support of a state or local government prime contract.

(i) The Buyer may at any time, by written order, make changes within the general scope of this Subcontract in any one or more of the following: (1) drawings designs, quantities, or specifications when the supplies or services to be furnished are to be provided under this Subcontract in accordance with such drawings, designs, quantities, or specifications, (2) method of shipment or packing, or (3) place of delivery or performance.

(ii) Seller shall assert its right to an adjustment under this clause within 20 days from the date of receipt of the written order.

(iii) Failure to agree to any adjustment will be a dispute under the Disputes clause of this Subcontract, provided, however, that nothing in this clause excuses the Seller from proceeding with the work as changed without interruption and without awaiting settlement of any such dispute.

(s) Termination - Federal Subcontracts . This section is applicable only to the extent that a Subcontract is in support of a federal prime contract.

(i) The Buyer may terminate this Subcontract in whole or in part, for its convenience in accordance with FAR 52.249-2 (for fixed price Subcontracts), FAR 52.249-6 (Alternative I, II, or III as designated in the prime contract) (for cost reimbursement Subcontracts), or FAR 52.249-6 Alt IV (for time-and-material Subcontracts) , as if the applicable FAR clause were incorporated into this Subcontract, except that as used in these clauses, the term “Contractor” shall be defined as Seller and the terms “Government” and “Contracting Officer” shall be defined as the Buyer.

(ii) The Buyer may terminate this Subcontract for default in accordance with FAR 52.249-8 — Default, as if that FAR clause were incorporated into this Subcontract, except that as used in this clause the term “Contractor” shall be defined as Seller and the terms “Government” and “Contracting Officer” shall be defined as the Buyer.

(t) Termination for Convenience – Government Subcontracts. This section is applicable only to the extent that a Subcontract is in support of a state or local government prime contract.

(i) The Buyer shall have the right to terminate this Subcontract or any order issued hereunder, in whole or in part, at any time, without cause, by providing written notice to Seller. Upon receiving notice of such termination, Seller shall (1) stop all work on this Order on the date and to the extent specified; (2) place no further contracts hereunder except as may be necessary for completing such portions of the work as have not been terminated; (3) terminate all contracts to the extent that they may relate to portions of the work that have been terminated; and (4) protect all property in which Buyer has or may acquire an interest and deliver such property to Buyer.

(ii) Within twenty (20) days from such termination, Seller may submit to the Buyer its written claim for termination charges in the form prescribed by the Buyer. Failure to submit such claim within such time shall constitute a waiver of all claims and a release of all Buyer liability arising out of such termination. Under no circumstance shall Seller be entitled to anticipatory or lost profits.

(iii) The Buyer reserves the right to verify claims hereunder and Seller shall make available to the Buyer, upon its request, all relevant, non-proprietary books and records for inspection and audit (e.g., time cards and receipts). If Seller fails to afford the Buyer its rights hereunder, Seller shall be deemed to have relinquished its claim.

(u) Termination for Default – Government Subcontracts . This section is applicable only to the extent that a Subcontract is in support of a state or local government prime contract.

(i) The Buyer may, by written notice of default to Seller, terminate the whole or any part of this Subcontract in any one of the following circumstances: (1) Seller fails to make delivery of the goods or services within the time specified herein or any extension thereof; or (2) Seller fails to perform any of the other provisions of the Subcontract or so fails to make progress as to endanger performance of the Subcontract in accordance with its terms, and does not cure such failure within a period of ten (10) days after receipt of notice from the Buyer specifying such failure; or (3) Seller becomes insolvent or the subject of proceedings under any law relating to the relief of debtors or admits in writing its inability to pay its debts as they become due.

(ii) If this Subcontract is so terminated, the Buyer may procure or otherwise obtain, upon such terms and in such manner as the Buyer may deem appropriate, goods similar to those terminated. Seller shall be liable to the Buyer for any excess costs of such similar goods.

(iii) Seller shall transfer title and deliver to the Buyer, in the manner and to the extent requested in writing by the Buyer at or after termination, such complete or partially completed deliverables, articles, property, materials, parts, tools, fixtures, plans, drawings, information and contract rights as Seller has produced or acquired for the performance of the terminated part of this Subcontract and the Buyer will pay Seller the contract price for such completed items delivered to and accepted by the Buyer and the fair value of the other property of Seller so requested and delivered.

(iv) Seller shall continue performance of this Subcontract to the extent not terminated. the Buyer shall have no obligation to Seller in respect to the terminated part of this Subcontract except as herein provided.

(v) DPAS Priority Rating – Federal . This section is applicable only to the extent that a Subcontract is in support of a federal prime contract. If so identified, this Subcontract is a “rated order” certified for national defense use, and Seller’s signature constitutes acceptance of requirements under the Defense Priorities and Allocation System Regulation (15 C.F.R. Part 700).

(w) Subcontract Closeout . If indirect rates do not apply (e.g. for firm fixed price or labor hour Subcontracts), Seller agrees to submit within thirty (30) days after the end of each Subcontract period of performance, the Closeout Package provided in Attachment G of this MTC Agreement. Seller shall submit a final invoice bearing the statement, “ FINAL INVOICE .” Buyer may unilaterally close-out this Subcontract if the Seller fails to submit the close-out documentation within the specified time period.

(i) Cost Reimbursement . Seller agrees to submit within sixty (60) days after receipt of final indirect rates, the Closeout Package provided in Attachment G of this MTC Agreement. The Seller shall submit a final invoice, reflecting any audited rate adjustments for the individual Subcontract period of performance, bearing the statement, “ This FINAL INVOICE was prepared using final audited rates .”

(ii) Time and Materials : If Seller has applied indirect rates to any material, travel and/or other direct cost, Seller agrees to submit within sixty (60) days after receipt of final indirect rates, the Closeout Package. Seller shall submit a FINAL invoice reflecting any audited rate adjustments for the period(s) of performance bearing the statement, “ This FINAL INVOICE was prepared using final audited rates as applicable to material, travel and/or other direct costs .” Buyer may unilaterally close-out this Subcontract if the Seller fails to submit the close-out documentation within the specified time period. If indirect rates do not apply, Seller agrees to submit within thirty days after end of the period of performance the Closeout Package in Attachment IV. Seller shall submit a FINAL invoice bearing the statement, “ FINAL INVOICE ” as required by the Subcontract Closeout Package. Buyer may unilaterally close-out this Subcontract if the Seller fails to submit the close-out documentation within the specified time period.

(x) Assignments and Subcontracts . For the purposes of this provision, “Subcontract” means any “contract”, agreement, or purchase order, entered into by Buyer and any supplier, distributor, vendor, or firm that furnishes supplies or services to or for Buyer to furnish supplies or services in support of a Buyer contract. The MTC Agreement and each Subcontract entered into by the Parties under or pursuant to the MTC Agreement may not be assigned, novated or otherwise transferred by operation of law or otherwise by Seller without prior written consent from Buyer, which consent shall not be unreasonably withheld. Seller agrees to obtain Buyer’s written approval before subcontracting this Subcontract or any substantial portion thereof. Seller shall notify the Buyer’s Contractual POC in writing if the Seller changes the amount of a lower-tier subcontract effort after award such

that it exceeds 70 percent of the total cost of work to be performed by Seller under the Subcontract. The notification shall identify the revised percentage of Seller’s effort and shall include verification that the Seller will provide added value as related to the work to be performed by the lower-tier subcontractor(s).

(y) General Relationship . Unless Buyer provides otherwise in writing, Buyer shall be solely responsible for all liaison and coordination with Buyer’s customer as it affects the applicable Buyer prime contract and the supporting Subcontract. Seller’s communications with Buyer’s customer shall be limited to those necessary for the Seller’s performance. Any other communications between Seller and Buyer’s customer requires the prior written approval of Buyer. Seller is an independent contractor in all respects. Nothing contained in any Subcontract shall be deemed or construed to create a partnership, joint venture, or other relationship other than that of contractor and customer.

(z) Non-Waiver of Rights . The failure of either party to insist upon strict performance of any of the terms and conditions, or to exercise any rights or remedies, shall not be construed as a waiver of its rights to assert any of the same or to rely on any such terms or conditions at any time thereafter. The invalidity in whole or in part of any term or condition of this Subcontract shall not affect the validity of other parts hereof.

(aa) Survival . These Subcontract Master Terms shall survive any expiration, completion, or termination of the Subcontracts into which they are incorporated.

ARTICLE IV

INCORPORATED AGREEMENTS

Section 4.1. General . This MTC Agreement incorporates the following agreements, each of which constitutes a separate, fully effective and enforceable Contact. Subject to Section 3.1 above, to the extent that any of the following Contracts conflict with any Article or provision of this MTC Agreement, the MTC Agreement shall govern.

(a) Subcontracts executed by Leidos and New SAIC set forth in Attachments A, B, C, and D which correspond to the Contracts identified Categories A, B, C, and D as described in Article II hereof.

(b) Pending Novation Agreement executed by Leidos and New SAIC set forth in Attachment B which corresponds to the Contracts identified in Categories B and D as described in Article II hereof.

(c) The Teaming Agreement executed by Leidos and New SAIC set forth in Attachment E which corresponds to the joint business development efforts identified in Category E as described in Article II hereof.

(d) The Contract Performance Continuation Agreement executed by Leidos and New SAIC set forth in Attachment F which corresponds to the Contracts identified in Category F as described in Article II hereof.

ARTICLE V

CONTRACTING PROCEDURES

Section 5.1. Types of Subcontracts . Attachments A through D contain and/or identify Subcontracts between Leidos and New SAIC in support of the following types of Contracts: (a) SAIC Contracts that are Leidos Contracts and that New SAIC will support as a subcontractor (Category A): (b) SAIC Contracts that are New SAIC Contracts and that will be Novated to New SAIC upon or after the Distribution, after which Leidos will support as a subcontractor if so indicated in Attachment B (Category B): (c) new Customer Contracts awarded to Leidos after the Distribution Date that are Leidos Contracts and that New SAIC will support as a subcontractor (Category C); and (d) new Customer Contracts awarded to Leidos after the Distribution Date that are New SAIC Contracts and that will be subsequently Novated to New SAIC. after which Leidos will support as a subcontractor if so indicated in Attachment D (Category D). In general, each SAIC Contract or new Customer Contract under which the support of a Party is required will be the subject of a separate Subcontract between the Parties. The effective dates for these Subcontracts will be as set forth in each Subcontract, however, the Parties will use commercially reasonable efforts to execute Subcontracts in accordance with the following schedule:

(a) Subcontracts in Category A . Each Subcontract in Category A will be made effective on the Distribution Date and included in Attachment A . The Parties agree to include in Attachment A any Subcontracts relating to Category A that are executed after the effective date of this MTC Agreement.

(b) Subcontracts in Category B . Each Subcontract in Category B will be made effective upon the date that the applicable SAIC Contract is Novated to New SAIC. The Parties agree to include in Attachment B any Subcontracts relating to Category B that are executed after the effective date of this MTC Agreement.

(c) Subcontracts in Category C . Each Subcontract in Category C will be made effective on the date that the applicable new Customer Contract is awarded to Leidos. The Parties agree to include in Attachment C any Subcontracts relating to Category C that are executed after the effective date of this MTC Agreement.

(d) Subcontracts in Category D . Each Subcontract in Category D will be made effective upon the date that the applicable new Customer Contract is Novated to New SAIC or thereafter. The Parties agree to include in Attachment D any Subcontracts relating to Category D that are executed after the effective date of this MTC Agreement.

Section 5.2. Subcontracting Process . The Parties agree that Subcontracts entered into pursuant to this MTC Agreement shall be based on the Subcontract templates described in Section 5.4 below and shall expressly incorporate by reference the Subcontract Master Terms in Article III of this MTC Agreement. Any deviations from the Subcontract templates, and/or any inclusion of additional Subcontract terms and conditions, shall be by mutual agreement of the Parties, following good faith negotiations for a reasonable period of time. Any other Contracts between the Parties not relating to Categories A through D shall be by mutual agreement of the Parties without obligation to utilize the Subcontract Master Terms or the subcontract templates.

Section 5.3. Duty to Proceed .

(a) New SAIC agrees to begin performing the subcontract scopes of work identified in Attachment A immediately following Distribution, and Attachment C immediately following award of a new Customer Contract to Leidos after Distribution, even if the Parties have not yet executed a subcontract, and even if Government or other consents are not obtained.

(b) Before Novation and to the extent required by New SAIC, Leidos shall support New SAIC’s performance of New SAIC Contracts under the Pending Novation Agreement immediately upon the Distribution Date in the case of New SAIC Contracts under Category B, and immediately upon award of New SAIC Contracts under Category D.

(c) Leidos also agrees to continue performing (as subcontractor) the Subcontract scopes of work listed in Attachment B and Attachment D immediately following Novations of the SAIC Contracts and New Customer Contracts those Subcontracts support, even if the Parties have not yet executed Subcontracts as of the effective date of the Novations of those Contracts, and even if Government or other consents are not obtained.

Section 5.4. Subcontract Templates . Attachment G contains Subcontract templates for use by the Parties in executing Subcontracts. The template types include cost plus fixed fee (CPFF), time-and-material (T&M), and firm fixed price (FFP), and variations for federal and non-federal governmental Customers. The Parties may not deviate from the Subcontract templates absent the mutual written agreement of the Parties.

Section 5.5. Failure to Obtain Consent to Subcontract . The Parties acknowledge that certain Contracts require Leidos or New SAIC to obtain Government or Customer consent to subcontract a portion of the work. If the Government or other Customer decides not to grant its consent to a Subcontract entered into pursuant to this MTC Agreement, the Party that is the prime contractor shall promptly present to the Government or other Customer its grounds for reversal of such decision, and the subcontractor Party shall provide assistance in connection with such presentation while continuing to perform the Subcontract. If the Government or Customer refuses to reverse its decision, the Parties shall promptly meet to discuss alternative means to obtain the work to be performed under that Subcontract. Following the Government’s or Customer’s refusal to reverse its decision, unless the prime contractor Party agrees in writing to guarantee payments to the subcontractor Party, the subcontractor Party shall have the right to suspend its performance of the Subcontract seven (7) days after providing notice of same, but shall have the obligation to use best efforts to reach an accommodation with the prime contractor Party that allows that Party to fulfill its obligations under said Contract, including but not limited to seconding subcontractor Party employees to the prime contractor party, allowing the prime contractor party to directly hire subcontractor Party employees on a temporary basis or indirectly hire them through a staffing agency or similar entity, and/or allowing subcontractor employees to be directly hired by a third party that is acceptable to the Government or Customer as a subcontractor. Such accommodations shall remain in effect for the duration of the Contract under which Government or Customer consent was not obtained, unless otherwise agreed by the Parties.

Section 5.6. Pending Novation Agreement . Attachment B includes a Pending Novation Agreement that governs the Contracts identified in Categories B and D. The Parties will use best efforts to Novate the Contracts in Categories B and D to New SAIC. Further detail on these two agreements is as follows:

(a) Category B contains a list of SAIC Contracts awarded to SAIC before the Distribution Date that are New SAIC Contracts. Should the Parties agree to modify the list of SAIC Contracts in Attachment B after the effective date of this MTC Agreement, the Pending Novation Agreement shall automatically be deemed to govern the updated list of SAIC Contracts in Attachment B without further action by the Parties.

(b) Category D contains a list of new Customer Contracts that may be awarded to Leidos after the Distribution Date and that are New SAIC Contracts. Should the Parties agree to modify the list of new Customer Contracts in Attachment D after the effective date of this MTC Agreement, the Pending Novation Agreement shall automatically be deemed to govern the updated list of new Customer Contracts in Attachment D without further action by the Parties.

(c) After the Distribution Date, the Parties agree to use commercially reasonable efforts to minimize the potential size of Category D by informing the Government or other Customers, as and if appropriate, and as the Parties may mutually agree, that New SAIC is the intended awardee of certain pending proposals submitted by SAIC before the Distribution Date. Attachment D identifies the pending proposals where New SAIC is intended by the Parties to be the awardee. If a new Customer Contract award is made directly to New SAIC in connection with a pending proposal, the Parties shall have no obligation to obtain Novation of that Contract, and New SAIC shall have no obligation to perform on Leidos’ behalf under the Pending Novation Agreement. New SAIC still shall have an obligation to award a Subcontract to Leidos in support of such a new Customer Contract, if Attachment D so provides.

Section 5.7. Teaming Agreement . Attachment E includes a Teaming Agreement that governs the joint business development efforts of the Parties as of the Distribution Date. Attachment E identifies the joint business development efforts of the Parties in the form of specific solicitations and requests for proposals that the Parties are aware of and intend to jointly pursue. Should the Parties agree to modify Attachment E after the effective date of this MTC Agreement, the Teaming Agreement in Attachment E shall automatically be deemed to govern the updated list of opportunities in Attachment E without further action by the Parties.

Section 5.8. Contract Performance Continuation Agreement . Attachment F includes a Contract Performance Continuation Agreement (“ CPC Agreement ”) that governs the Parties’ joint access and use of certain Identified Contract Vehicles, as defined in the CPC Agreement. Attachment F describes and lists Identified Contract Vehicles that have already been awarded to SAIC as of the Distribution Date, as well as possible additional Identified Contract Vehicles that may be awarded to Leidos or New SAIC after the Distribution Date on the basis of proposals already submitted to the Government. Should the Parties agree to modify Attachment F after the effective date of this MTC Agreement, the CPC Agreement in Attachment F shall automatically be deemed to govern the updated list of Identified Contract Vehicles in Attachment F without further action by the Parties.

Section 5.9. Other New Leidos Contracts . The Parties acknowledge that SAIC has submitted quotations, bids, and proposals that remain pending before certain Customers as of the Distribution Date. Category C, as set forth in Attachment C , contains those potential new Customer Contracts that, if awarded, are Leidos Contracts that will require New SAIC to perform as a subcontractor to Leidos. Category D, as set forth in Attachment D , contains those potential new Customer Contracts that, if awarded to Leidos, will be Novated to New SAIC. Attachment H contains a list of potential new Customer Contracts that, if awarded, are Leidos Contracts that will not require New SAIC to perform as a subcontractor to Leidos. The list in Attachment H is provided to memorialize the Parties’ intent concerning which Party will hold Customer Contracts resulting from quotations, bids, and proposals that are pending as of the Distribution Date. Except to memorialize said intent of the Parties, this MTC Agreement shall not govern any other aspect of the potential new Leidos Contracts listed in Attachment H .

Section 5.10. Description of Attachments . The Parties agree to the following description and ongoing administration of each Attachment to this MTC Agreement:

(a) Attachment A :

(i) Shall include a list of existing SAIC contracts that are Leidos Contracts and that require New SAIC’s support as a subcontractor to Leidos (Category A);

(ii) The Parties will attach each Subcontract that has been executed in support of a listed SAIC Contract;

(iii) The Parties shall update Attachment A should additional SAIC Contracts be identified that require New SAIC support under a Subcontract; and

(iv) The Parties shall update Attachment A to notate SAIC Contracts that have expired, terminated, or where all obligations thereunder have been completed or discharged.

(b) Attachment B :

(i) Shall include a list of SAIC Contracts that are New SAIC Contracts to be Novated to New SAIC, and the extent to which Leidos will be a subcontractor to New SAIC after Novation (Category B);

(ii) For the pre-Novation period, the Parties will attach the executed Pending Novation Agreement;

(iii) For the post-Novation period if and when Leidos will be a subcontractor to New SAIC under certain of the SAIC Contracts, the Parties will attach each executed Subcontract;

(iv) The Parties shall update Attachment B should additional SAIC Contracts be identified that require Novation to New SAIC, and shall indicate the extent to which Leidos support under a Subcontract is required; and

(v) The Parties shall update Attachment B as SAIC Contracts are Novated or expire, terminate, or where all obligations thereunder have been completed or discharged.

(i) Shall include a list that identifies potential new Customer Contracts that – if awarded – are Leidos Contracts and that will require New SAIC’s support as a subcontractor to Leidos (Category C);

(ii) The Parties will attach each Subcontract in support of a listed potential new Contract, as it is executed;

(iii) The Parties shall update Attachment C as additional potential new Leidos Contracts are identified, and as additional Leidos Contracts are awarded;

(iv) The Parties shall update Attachment C as potential new Leidos Contracts are lost in competitions or as the result of no-bid decisions or cancelled procurements; and

(v) The Parties shall update Attachment C as Contracts and Subcontracts terminate, expire, or where all obligations thereunder have been completed or discharged.

(d) Attachment D :

(i) Shall include a list of potential new Customer Contracts that – if awarded to Leidos – are New SAIC Contracts to be Novated to New SAIC, and the extent to which Leidos will be a Subcontractor to New SAIC, both before and after Novation (Category D);

(ii) For the pre-Novation period, the Parties will attach the executed Pending Novation Agreement;

(iii) For the post-Novation period if and when Leidos will be a subcontractor to New SAIC under certain of the potential new Contracts, the Parties will attach each executed Subcontract;

(iv) The Parties shall update Attachment D as Contracts are awarded or potential new Contracts are lost in competitions or as the result of no-bid decisions or cancelled procurements; and

(v) The Parties shall update Attachment D as awarded Contracts are Novated or terminate, expire, or where all obligations thereunder have been completed or discharged.

(e) Attachment E :

(i) Shall include a list of the Parties’ joint business development efforts as of the Distribution Date (Category E);

(ii) The list will indicate which Party is the anticipated prime contractor and which Party is the anticipated subcontractor, the anticipated work share, and the financial terms of the teaming arrangement;

(iii) The Parties will attach the executed Teaming Agreement covering these efforts; and

(iv) The Parties will update Attachment E as contracts are not awarded to Leidos or New SAIC following a competition, a no-bid decision, or should the procurement be cancelled.

(f) Attachment F :

(i) Shall include a list of the Identified Contract Vehicles the Parties will share (Category F);

(ii) The list will include both existing Identified Contract Vehicles and potential new Identified Contract Vehicles that may be awarded after the Distribution Date based on proposals submitted before the Distribution Date;

(iii) The list will indicate which Party will be the Identified Contract Vehicle owner (whether it is a Leidos Contract or a New SAIC Contract) and which Party will have certain rights to share the Identified Contract Vehicle;

(iv) The list will indicate which Identified Contract Vehicles are New SAIC Contracts that will be Novated to New SAIC, and which ones will be the subject of a Leidos name change request;

(v) The list will indicate any special rules for the operation of the Identified Contract Vehicles, whether imposed by the Government or by agreement of the Parties;

(vi) The list will initially include certain existing task orders, delivery orders, work orders, and other work (collectively, “Orders”) issued under the Identified Contract Vehicles as of the Distribution Date; potential Orders that may be issued under the Identified Contract Vehicles that are the subject of proposals submitted as of the Distribution Date and pending award; and the Party that will serve as prime contractor for the Order (said designated prime contractor for each such Order shall be exclusively and entirely responsible for performance of the Order under the terms of the Contract Performance Continuation Agreement);

(vii) The Parties will attach the executed Contract Performance Continuation Agreement that governs the Identified Contract Vehicles;

(viii) The Parties will update Attachment F as new Identified Contract Vehicles are awarded and new Orders are awarded pursuant to the Contract Performance Continuation Agreement, or as either Identified Contract Vehicles and Orders are not awarded following a competition, a no-bid decision, or a cancelled procurement;

(ix) The Parties shall update Attachment F as Leidos or New SAIC is awarded or obtains its own contract vehicle as a replacement to a listed Identified Contract Vehicle; and

(x) The Parties shall update Attachment F as an existing Identified Contract Vehicle terminates, expires, or all obligations there under have been completed or discharged.

(g) Attachment G :

(i) Shall include Subcontract templates for Categories A, B, C, and D; and

(ii) The Parties shall update Attachment G should additional Subcontract templates or changes to Subcontract templates be agreed upon by the Parties.

(h) Attachment H :

(i) Shall include a list that identifies those potential new Customer Contracts that – if awarded based on proposals submitted before the Distribution Date – are Leidos Contracts, but will not require New SAIC to perform as a subcontractor to Leidos.

Section 5.11. Novation of Other Agreements . The Parties acknowledge that following Distribution there shall exist other Contracts between Leidos and third parties that are not Customer Contract, but nevertheless directly pertain to New SAIC Business, such as teaming agreements, non-disclosure agreements, vendor agreements, consulting agreements, mentor-protégé agreements, reseller agreements, and representative agreements (collectively, “ Incidental Project Management Agreements ”). Upon the request of New SAIC. Leidos and New SAIC shall work cooperatively to Novate the requested Incidental Project Management Agreement(s) to New SAIC. Except in the case of exclusive teaming agreements executed before the Distribution Date by SAIC which are governed by Section 5.12 below, should Leidos reasonably determine that it has a need for the same Incidental Project Management Agreement requested by New SAIC, the Parties shall have no obligation to seek Novation, and shall instead work cooperatively to assist New SAIC in entering into a similar Contract.

Section 5.12. Exclusive Teaming Agreement Procedures . After the Distribution Date, Leidos and New SAIC shall follow the procedures in Section 5.11 in Novating to New SAIC the exclusive teaming agreements that New SAIC requests. Exclusive teaming agreements not requested by New SAIC shall remain Leidos Contracts. The Parties shall, in good faith, abide by the following procedures in the event that a Party desires to compete in any manner in procurement, including as a prime contractor, subcontractor, or otherwise, that is the subject of an exclusive teaming agreement held by the other Party:

(a) The Party seeking to enter the competition shall notify each Co-Chairman of the MTC Agreement Governance Committee;

(b) The MTC Agreement Governance Committee shall investigate whether the Party seeking to enter the competition has been exposed to any confidential, proprietary, or privileged information of the other Party or other information that would make it ineligible to participate in the procurement in accordance with applicable Law;

(c) If the MTC Agreement Governance Committee does not authorize the Party to enter the competition, the matter shall be deemed finally resolved, and such Party shall take no action to enter into or participate in the procurement in any way;

(d) If the MTC Agreement Governance Committee authorizes the Party seeking to enter the competition to proceed, the Party holding the exclusive teaming agreement shall request the consent of its teaming partner as to whether the other Party may enter the competition independent of the efforts undertaken in the teaming agreement; and

(e) Said teaming partner decision on the matter shall be final and binding on both Parties.

ARTICLE VI

MISCELLANEOUS

Section 6.1. Complete Agreement; Construction . This MTC Agreement, including all Attachments, and the Distribution Agreement shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter. In the event of any conflict between this MTC Agreement and the Distribution Agreement, the MTC Agreement shall govern.

Section 6.2. Counterparts . This MTC Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to each of the Parties.

Section 6.3. Survival of Agreement . Except as otherwise stated in this MTC Agreement, all covenants and agreements of the Parties contained in this MTC Agreement shall survive the Effective Time and remain in full force and effect in accordance with their applicable terms until such time as both Parties have fully discharged their obligations hereunder.

Section 6.4. Expenses . Except as otherwise provided in this MTC Agreement, the Parties agree that all costs, fees, and expenses incurred, or to be incurred, and directly or indirectly related to the transactions contemplated hereby shall be paid by the Party generating and/or incurring such expenses. For the avoidance of doubt, except as expressly set forth in this MTC Agreement, each Party shall be responsible for its own internal costs, fees, and expenses (e.g., salaries of personnel working in its respective Business) incurred following execution of this MTC Agreement.

Section 6.5. Notices . All notices, requests, claims, demands and other communications under this MTC Agreement shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section):

To Leidos:

Leidos Corporation

11951 Freedom Drive

5 ^th Floor, M/S FS2-5-2

Reston, VA 20190

Attn: General Counsel

To New SAIC:

Science Applications International Corporation

1710 SAIC Drive

McLean, VA 22102

Attn: General Counsel

Section 6.6. Indemnification . The following indemnification provision shall apply to the Parties’ respective execution, performance, and administration of the MTC Agreement, including without limitation all agreements arising under or relating to the MTC Agreement, and specifically including the agreements described in Article IV hereof.

(a) Where either Leidos or New SAIC is providing goods, equipment, or services or otherwise selling (hereafter in this Section 6.6(a) , the “ Seller ”) to the other Party (hereafter in this Section 6.6(a) , the “ Buyer ”), the following terms apply:

(i) Selling Party’s Indemnity . Seller shall indemnify, defend and hold Buyer harmless from and against any and all damages, losses, liabilities and expenses (including reasonable attorneys’ fees) arising out of or relating to any claims, causes of action, lawsuits or other proceedings, regardless of legal theory, to the extent resulting from Seller’s (or any of Seller’s subcontractors, suppliers, employees, agents or representatives): (i) intentional misconduct, negligence, or fraud, (ii) breach of any representation, warranty or covenant made herein; (iii) breach of the confidentiality or disclosure provisions herein: or (iv) violation of any law or regulation, in performance of the work under this Subcontract. Buyer shall promptly notify Seller of any claim that is covered by this indemnification provision and shall authorize representatives of Seller to settle or defend any such claim or suit and to take charge of any litigation in connection therewith.

(ii) Infringement Indemnification . Seller shall indemnify, defend and hold Buyer harmless from and against any and all damages, losses, liabilities and expenses (including reasonable attorneys’ fees) arising out of or relating to any claims, causes of action, lawsuits or other proceedings asserting that goods or services furnished under this Subcontract, or the use (including resale) thereof, constitutes an infringement of any U.S. patent, trademark, trade secret, or copyright. In the event such goods or services or use thereof are enjoined in whole or in part, Seller shall at its expense undertake one of the following to the extent commercially reasonable: (i) obtain for Buyer and its customer the right to continue the use of such goods or services; (ii) in a manner acceptable to Buyer and its customer, substitute equivalent goods or services or make modifications thereto so as to avoid such infringement and extend this indemnity thereto; or (iii) refund to Buyer an amount equal to the purchase price for such goods or services plus any excess costs or expenses incurred in obtaining

substitute goods or services from another source. Buyer shall promptly notify Seller of any claim that is covered by this indemnification provision and shall authorize representatives of Seller to settle or defend any such claim or suit and to take charge of any litigation in connection therewith.

(b) Under the Pending Novation Agreement in Attachment B or the Contract Performance Continuation Agreement in Attachment F . where either Leidos or New SAIC act as the agent (hereafter in this Section 6.6(b) , the “ Agent ”) of the other Party (hereafter in this Section 6.6(b) , the “ Principal ”), the following terms apply:

(i) Agent Indemnification . To the extent permitted by law, Agent agrees that it shall indemnify and be fully responsible and liable for any cost, damage, claim or other charge (including reasonable attorney fees) suffered by Principal to the extent that it arises out of, is caused by, or results from the acts or omissions of Agent or its officers, directors, trustees, employees, attorneys or agents in the course of performing its obligations under this MTC Agreement. Agent shall defend Principal from and against all third party claims or demands at its own expense and shall have the right to sole control of the defense of any action involving such claims or demands and of all negotiations for their settlement or compromise. Principal shall promptly notify Agent of any claim that is covered by this indemnification provision and shall authorize representatives of Agent to settle or defend any such claim or suit and to take charge of any litigation in connection therewith.

(c) General Indemnification . In addition to the indemnification provisions that may be applicable to a Party under paragraphs (b) and (c) above, each Party agrees to indemnify, defend, and hold harmless the other Party from and against any claims, liabilities, losses, damages, and expenses asserted against the other Party, to the extent arising out of the indemnifying party’s negligence, willful misconduct, or breach of, or failure to perform, any of its duties or obligations under this MTC Agreement. The provisions of this indemnification are solely for the benefit of the Parties hereto and not intended to create or grant any rights, contractual or otherwise, to another person or entity. The Party to be indemnified shall promptly notify the indemnifying Party of any claim that is covered by this indemnification provision and shall authorize representatives the indemnifying Party to settle or defend any such claim or suit and to take charge of any litigation in connection therewith.

Section 6.7. Disputes .

(a) Subject to paragraph (b) below, any and all controversies, disputes, or claims (collectively, “ Disputes ”) arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this MTC Agreement, shall be resolved in accordance with the Dispute Resolution provisions set forth in the Distribution Agreement. Unless otherwise agreed in writing, the Parties shall continue to provide delivery and service and honor all other commitments and obligations under this MTC Agreement during the course of any dispute resolution pursuant to the provisions of this Section. Each Party irrevocably submits to the exclusive jurisdiction of (a) the Fairfax County, Virginia Circuit Court and any appeals courts thereof or (b) the United States District Court for the Eastern District of Virginia and any appeals courts thereof (the courts referred to in clauses (a) and (b), the “ Virginia Courts ”), for the purposes of any suit, action or other proceeding to compel arbitration or for provisional relief in aid of arbitration or to prevent irreparable harm, and to the non-exclusive jurisdiction of the Virginia Courts for the enforcement of any award issued thereunder.

(b) Neither Party may initiate the Dispute resolution process set forth above before the initiating Party provides written notice and a brief summary of the Dispute to each Co-Chairman of the MTC Agreement Governance Committee described in Section 6.13 hereof. Following the provision of such notice, the Parties, acting through the MTC Agreement Governance Committee, shall negotiate in good faith for a period of not less than ten (10) working days with the objective of resolving the Dispute by mutual agreement. Only upon failing to reach a resolution within such time period, may either Party proceed with the Dispute resolution process set forth in paragraph (a) above.

Section 6.8. Consents . Any consent required or permitted to be given by a Party to the other Parties under this MTC Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party.

Section 6.9. Assignment . This MTC Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party hereto without the prior written consent of the other Party (not to be unreasonably withheld or delayed), and any attempt to assign any rights or obligations arising under this MTC Agreement without such consent shall be void. Notwithstanding the foregoing, this Agreement shall be assignable in connection with a merger or consolidation or the sale of all or substantially all the assets of a Party hereto so long as the resulting, surviving or transferee entity assumes all the obligations of the relevant Party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party to this MTC Agreement. No assignment permitted by this Section shall release the assigning Party from liability for the full performance of its obligations under this MTC Agreement.

Section 6.10. Successors and Assigns . The provisions of this MTC Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and then respective successors and permitted transferees and assigns.

Section 6.11. Termination and Amendment . This MTC Agreement may not be terminated, modified or amended except by an agreement in writing signed by Leidos and New SAIC.

Section 6.12. Payment Terms . Any amount to be paid or reimbursed by a Party, on the one hand, to the other Party, on the other hand, under this MTC Agreement shall be paid or reimbursed hereunder in accordance with the terms and conditions of the applicable Contract between the Parties without any right of setoff. Any amount arising under or pursuant to this MTC Agreement and/or an applicable Contract between the Parties that is not paid when due shall bear interest at a rate per annum equal to LIBOR, from time to time in effect, calculated for the actual number of days elapsed, accrued from the date on winch such payment was due up to the date of the actual receipt of payment.

Section 6.13. No Circumvention and Duty of Cooperation

(a) The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any employee of a Party to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this MTC Agreement.

(b) Each Party agrees at its own expense to execute all further instruments and documents, to provide access to or copies of such documentation, records, data, and files in the possession of a Party as may be needed by the other Party, and to take any and all additional actions as the other Party may reasonably require in order to effectuate the terms and purposes of this MTC Agreement. Any Confidential Information exchanged by the Parties in connection this Section 6.13 shall be governed by the non-disclosure provisions of the Distribution Agreement.

(c) Upon execution of this MTC Agreement, the Parties shall form and establish a charter for a MTC Agreement Governance Committee. The Committee shall be responsible for the following:

(i) Governance of the execution and administration of the MTC Agreement, including tracking progress on key contractual events, maintaining the Attachments to the MTC Agreement, and coordinating the Parties’ performance of their respective obligations;

(ii) Efforts to prevent Disputes and should they arise, attempting to resolve them informally without resort to the formal Dispute resolution process;

(iii) Periodic communications with Customers and ensuring that Customers receive uninterrupted support with minimal disruption; and

(iv) Taking such actions as are appropriate and necessary to allow each Party to utilize certain accounting practices approved by the Government.

The MTC Agreement Governance Committee will commence operation on the Distribution Date and continue until the MTC Agreement is fully performed and the parties’ obligations are fully discharged. The membership and frequency of meetings of the MTC Agreement Governance Committee shall be as agreed by the Parties; provided, however, that the MTC Agreement Governance Committee shall have at least one member from each Party who is authorized to bind that Party. Each Party, when acting through the MTC Agreement Governance Committee, shall act diligently and in good faith.

Section 6.14. System Access . Strictly to the extent necessary to perform this MTC Agreement, each Party shall grant certain expressly authorized personnel of the other Party access to their billing, compliance, small business reporting, past performance, and employee time reporting systems. These systems include, without limitation, the WAWF system (CAGE code specific), SAM, FFATA compliance systems, ARRA compliance systems, CPARS, PPIRS, and contractor manpower systems. Any Confidential Information exchanged by the Parties in connection this Section 6.14 shall be governed by the non-disclosure provisions of the Distribution Agreement.

Section 6.15. Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party at and after the Effective Time, to the extent such Subsidiary remains a Subsidiary of the applicable Party.

Section 6.16. Third Party Beneficiaries . This MTC Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this MTC Agreement.

Section 6.17. Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this MTC Agreement.

Section 6.18. Attachments .

(a) The Attachments shall be construed with and as an integral part of this MTC Agreement to the same extent as if the same had been set forth verbatim herein. Nothing in the Attachments constitutes an admission of any liability or obligation of any Party or any of their respective Affiliates to any third party, nor, with respect to any third party, an admission against the interests of any Party or any of their respective Affiliates. The inclusion of any item or liability or category of item or liability on any Attachment is made solely for purposes of allocating potential liabilities between the Parties and shall not be deemed as or construed to be an admission that any such liability exists.

(b) Subject to the prior written consent of the other Party (not to be unreasonably withheld or delayed), each Party shall be entitled to update the Attachments.

Section 6.19. Governing Law . This MTC Agreement shall be governed by and construed in accordance with the Laws of the Commonwealth of Virginia without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.

Section 6.20. Severability . In the event any one or more of the provisions contained in this MTC Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

Section 6.21. Force Majeure . No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this MTC Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this MTC Agreement as soon as feasible.

Section 6.22. Interpretation . The Parties have participated jointly in the negotiation and drafting of this MTC Agreement. This MTC Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.

Section 6.23. No Duplication; No Double Recovery . Nothing in this MTC Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstance.

Section 6.24. Commercial Agreement . This MTC Agreement is intended to be a commercial agreement between the Parties as private parties. It is not intended to, nor does it, bind the U.S. Government or any other Person.

Section 6.25. Compliance with Laws . Each Party shall comply with all Laws, rules, and regulations applicable to the performance of its obligations under this MTC Agreement, and shall procure and maintain all licenses and permits necessary for the performance of its obligations under this MTC Agreement.

Section 6.26. No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

[Signature Page Follows]

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.


SAIC, INC.

By:		/s/ John P. Jumper
Name:		John P. Jumper
Title:		Chief Executive Officer


SAIC GEMINI, INC.

By:		/s/ Anthony J. Moraco
Name:		Anthony J. Moraco
Title:		Chief Executive Officer

Exhibit 10.2

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

2013 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

(Management)

BY ACCEPTING THIS AWARD, YOU VOLUNTARILY AGREE TO ALL OF THE

TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT AND IN THE PLAN.

Science Applications International Corporation, a Delaware corporation (the “ Company ”), hereby grants to the participant named in the Grant Summary (as defined below) (“ Recipient ”), who is affiliated with the Company or an Affiliate as an employee, director or consultant, restricted stock units (“ RSUs ”) representing the right to receive one share of its Common Stock, $0.0001 par value per share (“ Common Stock ”) for each RSU. Certain specific details of this award, including the number of RSUs and the Grant Date, may be found in the Grant Summary and are hereby incorporated by reference into this Agreement. The RSUs shall be forfeited if certain performance conditions set forth below are not met. The terms and conditions of the grant of RSUs (this “ Award ”) are set forth in this Agreement and in the Company’s 2013 Equity Incentive Plan (the “ Plan ”).

1. DEFINITIONS. The following terms shall have the meanings as defined below. Capitalized terms used herein and not defined shall have the meanings attributed to them in the Plan.

“ Affiliate ” shall mean a “parent” or “subsidiary” (as each is defined in Section 424 of the Code) of the Company and any other entity that the Board or Committee designates as an “Affiliate” for purposes of this Plan.

“ Award Letter ” shall mean the award notice delivered to Recipient concurrently with this Agreement and which is hereby made a part hereof and incorporated by reference into this Agreement.

“ Committee ” shall have the meaning as defined in the Plan.

“ Determination Date ” means the date on which the Committee certifies whether and to what extent the Performance Goals have been achieved.

“ Executive Officer ” shall mean an officer of the Company designated as such for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.

“ Grant Date ” shall mean the date of the award of the RSUs as set forth in the Grant Summary.

“ Grant Summary ” shall mean the summary of this award as reflected in the electronic stock plan award administration system maintained by the Company or its designee that contains a link to this Agreement (which summary information is set forth in the appropriate records of the Company authorizing such award).


September 2013

“ Performance Goals ” means the goals set forth in the Award Letter that will determine whether, and to what extent, the RSUs shall be earned.

“ Permanent Disability ” shall mean the status of disability determined conclusively by the Committee based upon certification of disability by the Social Security Administration or, to the extent compliant with Section 409A, upon such other proof as the Committee may require, effective upon receipt of such certification or other proof by the Committee.

“ Special Retirement ” shall mean: (i) retirement by the Recipient after reaching age 59 ¹ ⁄ ₂ with at least ten (10) years of service with the Company or an Affiliate; or (ii) retirement by the Recipient after reaching age 59 ¹ ⁄ ₂ and Recipient’s age plus years of service with the Company or an Affiliate equals at least 70; or (iii) if Recipient is an Executive Officer at the time of retirement, retirement after reaching the applicable mandatory retirement age, regardless of years of service with the Company or (iv) if the Recipient is a director of the Company, retirement either (A) after reaching the applicable mandatory retirement age at retirement or (B) at the end of a term of office if Recipient is not nominated for a successive term of office on account of the fact that Recipient would have reached the applicable mandatory retirement age during such successive term of office, regardless of years of service with the Company. For Special Retirement purposes, years of service shall mean the period of service determined conclusively by the Committee.

2. RIGHTS OF THE RECIPIENT WITH RESPECT TO THE RSUs.

a) No Stockholder Rights . The RSUs granted pursuant to this Award do not and shall not entitle Recipient to any rights of a stockholder. The rights of Recipient with respect to the RSUs shall remain forfeitable at all times prior to the date on which such rights become vested, and the restrictions with respect to the RSUs lapse, in accordance with Section 3, 4 or 5.

b) Additional RSUs as Dividend Equivalents . If the Company pays any cash dividends on its Common Stock, the Company shall credit to Recipient, on each dividend payment date, a number of additional RSUs (“Dividend Equivalents”) equal in value to the cash dividends that would have been paid on the shares of Common Stock underlying the unvested RSUs covered by this Agreement assuming that: (i) such underlying shares had been outstanding as of the record date for such dividends declared on or after the Grant Date and prior to the issuance date of the underlying shares; and (ii) the amount of the Dividend Equivalents had been reinvested in additional shares of Common Stock as of the payment date of such dividends. The number of additional RSUs representing Dividend Equivalents shall be determined by (a) multiplying the dollar amount of the cash dividends paid per share of Common Stock by the number of RSUs subject to this Award that remain unvested as of the applicable dividend payment date (including additional RSUs attributable to prior Dividend Equivalents) and (b) dividing such amount by the Fair Market Value (as defined in the Plan) of a share of Common Stock on the dividend payment date. Dividend Equivalents so credited shall be subject to the same terms and conditions as the RSUs to which such Dividend Equivalents relate, shall be distributed in shares of Common Stock when, and if, and to the extent that the RSUs to which they related are vested and settled as provided below, but shall be forfeited in the event that the


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RSUs with respect to which such Dividend Equivalents were credited are forfeited (including RSUs that are forfeited due to failure to meet the Performance Goals). For the avoidance of doubt, no Dividend Equivalents shall be credited or distributed with respect to any RSUs that have vested and for which the underlying shares have been issued prior to the applicable dividend payment date.

c) Conversion of RSUs; Issuance of Common Stock. No shares of Common Stock shall be issued to Recipient prior to the date on which the RSUs vest in accordance with Section 3, 4 or 5. On the date that any RSUs vest pursuant to Section 3, 4 or 5 (or as promptly as administratively practicable thereafter), the Company shall cause to be issued in book-entry form, registered in Recipient’s name or in the name of Recipient’s legal representatives, beneficiaries or heirs, as the case may be, the underlying shares in payment of such vested whole RSUs (including additional RSUs credited as Dividend Equivalents), unless such payment is deferred in accordance with the terms and conditions of the Company’s non-qualified compensation deferral plans.

3. VESTING SCHEDULE; RSUs SUBJECT TO FORFEITURE.

a) If the Performance Goals are met, 100% of the RSUs shall be earned and eligible for vesting in accordance with clause (b) below. If the Performance Goals are not met, the RSUs shall be forfeited as of the Determination Date, and no RSUs hereunder shall become vested.

b) Subject to the terms and conditions of this Award, to the extent the RSUs are earned under clause (a) above, the RSUs shall vest in accordance with the following vesting schedule:

1) On the later of the Determination Date or first-year anniversary of the Grant Date, 20% of the RSUs shall vest.

2) On the second-year anniversary of the Grant Date, an additional 20% of the RSUs shall vest.

3) On the third-year anniversary of the Grant Date, an additional 20% of the RSUs shall vest.

4) On the fourth-year anniversary of the Grant Date, the remaining 40% of the RSUs shall vest.

If the application of the foregoing vesting schedule results in a fraction of a RSU being vested, such fractional RSU shall be deemed not to be vested and shall continue to be subject to forfeiture, as described below. Notwithstanding the foregoing, additional RSUs credited to Recipient as Dividend Equivalents shall vest on the same vesting schedule as the RSUs to which such Dividend Equivalents relate. Recipient shall not sell, transfer, assign, hypothecate, pledge, grant a security interest in, or in any other way alienate, any of the RSUs, or any interest or right therein.


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c) Except in the event of death, Permanent Disability or Special Retirement or as set forth below, any unvested RSUs automatically shall be immediately and irrevocably forfeited without compensation on the date that Recipient’s affiliation with the Company or any Affiliate as an employee, director or consultant terminates, or if Recipient is an employee or director of an Affiliate and such entity ceases to be an Affiliate, whether by Committee action or otherwise, on the date such entity ceases to be an Affiliate.

4. ACCELERATION OF VESTING UPON DEATH OR PERMANENT DISABILITY. If Recipient is an employee, director or consultant of the Company or an Affiliate and ceases to be affiliated with the Company or any Affiliate as a result of Recipient’s death or Permanent Disability, or if Recipient’s death or Permanent Disability occurs following a Special Retirement, all of the RSUs shall become fully vested whether or not earned under Section 3(a).

5. CONTINUATION OF VESTING UPON SPECIAL RETIREMENT.

a) If Recipient is an Executive Officer and Recipient’s affiliation with the Company or any Affiliate terminates as a result of Recipient’s Special Retirement in accordance with the provisions of subsection (iii) of the definition of the term “Special Retirement” in Section 1 above, or if Recipient is a director of the Company and Recipient’s affiliation with the Company or any Affiliate terminates as a result of Recipient’s Special Retirement in accordance with the provisions of subsection (iv) of the definition of the term “Special Retirement” in Section 1 above, any unvested RSUs shall continue to vest in accordance with the vesting schedule set forth in Section 3 above to the extent the RSUs are earned under Section 3(a).

b) If, after the first anniversary of the Grant Date, Recipient’s affiliation with the Company or an Affiliate terminates as a result of Recipient’s Special Retirement in accordance with the provisions of subsection (i) or (ii) of the definition of the term “Special Retirement” in Section 1 above, the remaining unvested RSUs shall continue to vest in accordance with the vesting schedule set forth in Section 3 above, to the extent the RSUs are earned under Section 3(a). With respect to the first vesting event under Section 3(b)(1), shares shall be issued, if earned under Section 3(a), no later than ninety (90) days following the first anniversary of the Grant Date.

c) Notwithstanding the foregoing clauses (a) and (b), all unvested RSUs shall be immediately and irrevocably forfeited in the event that Recipient violates the terms of his or her inventions, copyright and confidentiality agreement with the Company or an Affiliate or breaches his or her other contractual or legal obligations to the Company or an Affiliate, including the non-solicitation obligations set forth in Section 13 of this Agreement.

d) If Recipient is eligible for Special Retirement at the time of a Fundamental Transaction or is continuing to vest following Special Retirement under the foregoing clause (a) or (b), any unvested RSUs shall be treated as provided in the Plan, but the resulting consideration shall only be paid on the date the RSUs would have vested if a Fundamental Transaction had not occurred, unless the RSUs are terminated in a manner compliant with Section 409A.


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6. TAX MATTERS

a) Tax Withholding. If the Company or an Affiliate is required to withhold any federal, state, local or other taxes upon the vesting or any acceleration of vesting of the RSUs, or any issuance of Common Stock or otherwise under this Agreement, the Company shall withhold a sufficient number of shares of Common Stock issuable upon settlement of the RSUs at the then current Fair Market Value (as defined in the Plan) to meet the withholding obligation based on the minimum rates required by law; provided, however, that the Company may, in its sole discretion, sell a sufficient number of shares of Common Stock on behalf of Recipient to satisfy such obligations, accept payment to satisfy such obligations in the form of cash or delivery to the Company of shares of Company stock already owned by Recipient, withhold amounts from Recipient’s compensation, or any combination of the foregoing or other actions as may be necessary or appropriate to satisfy any such tax withholding obligations.

b) Section 409A .

(i) This Award is intended to qualify for the short-term deferral exception to Section 409A of the Code (“ Section 409A ”) described in the regulations promulgated under Section 409A to the maximum extent possible. To the extent Section 409A is applicable to this Award, this Award is intended to comply with Section 409A and to be interpreted and construed consistent with such intent.

(ii) With respect to any Recipient who is eligible for Special Retirement, this Award is intended to be paid on fixed payment dates under Sections 3 and 5 of this Agreement and such payments may not be accelerated except as set forth in Section 5(b) hereof or otherwise to the extent permitted under Section 409A.

(iii) Without limiting the generality of the foregoing, if Recipient is a “specified employee” within the meaning of Section 409A, as determined under the Company’s established methodology for determining specified employees, on the date of Recipient’s termination of service at a time when this Award pursuant its terms would be settled, then to the extent required in order to comply with Section 409A, shares of Common Stock that would be issued under this Award (or any other amount due hereunder) at such termination of service shall not be issued before the earlier of (x) the date that is six months following the Recipient’s termination of employment and (y) the date of the Recipient’s death.

(iii) For purposes of this Agreement, the terms “terminate,” “terminated” and “termination” mean a termination of the Recipient’s employment that constitutes a “separation from service” within the meaning of the default rules of Section 409A.

7. RIGHTS, RESTRICTIONS AND LIMITATIONS. All shares of Common Stock issued to Recipient pursuant to this Agreement are subject to the rights, restrictions and limitations set forth in the Company’s Restated Certificate of Incorporation. Recipient shall not have the rights of a stockholder until Shares, if any, are issued on or following the applicable vesting date.

8. RESTRICTIONS UNDER SECURITIES LAW. The issuance of RSUs and the shares of Common Stock covered by this Agreement are subject to any restrictions which may be imposed under applicable state and federal securities laws and are subject to obtaining all necessary consents which may be required by, or any condition which may be imposed in accordance with, applicable state and federal securities laws or regulations.


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9. EMPLOYMENT AT WILL.

a) If Recipient is an employee or consultant of the Company or an Affiliate, such employment or affiliation is not for any specified term and may be terminated by employee or by the Company or an Affiliate at any time, for any reason, with or without cause and with or without notice. Nothing in this Agreement (including, but not limited to, the vesting of the RSUs pursuant to the schedule set forth in Section 3 herein), the Plan or any covenant of good faith and fair dealing that may be found implicit in this Agreement or the Plan shall: (i) confer upon Recipient any right to continue in the employ of, or affiliation with, the Company or an Affiliate; (ii) constitute any promise or commitment by the Company or an Affiliate regarding the fact or nature of future positions, future work assignments, future compensation or any other term or condition of employment or affiliation; (iii) confer any right or benefit under this Agreement or the Plan unless such right or benefit has specifically accrued under the terms of this Agreement or Plan; or (iv) deprive the Company of the right to terminate Recipient at will and without regard to any future vesting opportunity that Recipient may have.

b) Recipient acknowledges and agrees that the right to continue vesting in the RSUs pursuant to the schedule set forth in Section 3 is earned only by continuing as an employee or consultant at the will of the Company or as a director (not through the act of being hired, being granted RSUs or any other award or benefit) and that the Company has the right to reorganize, sell, spin-out or otherwise restructure one or more of its businesses or Affiliates at any time or from time to time, as it deems appropriate (a “reorganization”). Recipient acknowledges and agrees that such a reorganization could result in the termination of Recipient’s relationship as an employee or consultant to the Company or an Affiliate, or the termination of Affiliate status of Recipient’s employer and the loss of benefits available to Recipient under this Agreement, including but not limited to, the termination of the right to continue vesting the RSUs under this Agreement.

10. INCORPORATION OF PLAN. The RSUs granted hereby are granted pursuant to the Plan, all the terms and conditions of which are hereby made a part hereof and are incorporated herein by reference. In the event of any inconsistency between the terms and conditions contained herein and those set forth in the Plan, the terms and conditions of the Plan shall prevail.

11. RECOUPMENT OF AWARDS. The Human Resources and Compensation Committee of the Company’s Board of Directors intends to adopt a recoupment policy (the “Policy”), that may require members of senior management to return incentive compensation if there is a material restatement of the financial results upon which the compensation was originally based. By accepting the RSUs granted hereunder, Recipient expressly agrees to be bound by the Policy when adopted without payment of any additional consideration by Recipient. The Policy will also provide for recovery of incentive compensation from any employee involved in fraud or intentional misconduct, whether or not it results in a restatement of the Company’s financial results. Recipient acknowledges and agrees that the Policy will be treated as though it had been incorporated into this Agreement ab initio and that any payments or issuances of Common Stock in respect of the RSUs will be subject to recoupment pursuant to the Policy, including any amendments to the Policy and any additional recoupment obligations imposed by the Human Resources and Compensation Committee or by applicable law or regulation.


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12. COPIES OF PLAN AND OTHER MATERIALS. Recipient acknowledges that Recipient has received copies of the Plan and the Plan prospectus from the Company and agrees to receive stockholder information, including copies of any annual report, proxy statement and periodic report, electronically from the Company. Recipient acknowledges that copies of the Plan, Plan prospectus, Plan information and stockholder information are also available upon written or telephonic request to the Company. Recipient acknowledges that a copy of the Policy referenced in Section 11 will be available on the Company’s intranet, and will also be available upon written or telephonic request to the Company, if such Policy is adopted.

13. NON-SOLICITATION.

a) Solicitation of Employees . Recipient agrees that, both while employed by the Company or an Affiliate and for one year afterward, Recipient will not solicit or attempt to solicit any employee of the Company or an Affiliate to leave his or her employment or to violate the terms of any agreement or understanding that employee may have with the Company or an Affiliate. The foregoing obligations apply to both the Recipient’s direct and indirect actions, and apply to actions intended to benefit Recipient or any other person, business or entity.

b) Solicitation of Customers . Recipient agrees that, for one year after termination of employment with the Company or an Affiliate, Recipient will not participate in any solicitation of any customer or prospective customer of the Company or an Affiliate concerning any business that:

(i) involves the same programs or projects for that customer in which Recipient was personally and substantially involved during the 12 months prior to termination of employment; or

(ii) has been, at any time during the 12 months prior to termination of employment, the subject of any bid, offer or proposal activity by the Company or an Affiliate in respect of that customer or prospective customer, or any negotiations or discussions about the possible performance of services by the Company or an Affiliate to that customer or potential customer, in which Recipient was personally and substantially involved.

In the case of a governmental, regulatory or administrative agency, commission, department or other governmental authority, the customer or prospective customer will be determined by reference to the specific program offices or activities for which the Company or an Affiliate provides (or may reasonably provide) goods or services.

c) Remedies . Recipient acknowledges and agrees that a breach of any of the promises or agreements contained in this Section 13 will result in immediate, irreparable and continuing damage to the Company for which there is no adequate remedy at law, and the Company or an Affiliate will be entitled to injunctive relief, a decree for specific performance, and other relief as may be proper, including money damages.

14. MISCELLANEOUS. This Agreement contains the entire agreement of the parties with respect to its subject matter, provided, however, that if Recipient and the Company are parties to an existing written agreement addressing the subject matter of Section 13, such agreement shall control with respect to such subject matter until the termination thereof, at which time Section 13 shall control. This Agreement shall be binding upon and shall inure to the benefit of the


September 2013		7

respective parties, the successors and assigns of the Company, and the heirs, legatees and personal representatives of Recipient. The parties hereby agree that should any portion of this Agreement be judicially held to be invalid, unenforceable, or void, such portion shall be construed by limiting and reducing it, so as to be enforceable to the maximum extent compatible with the applicable law as is then in effect.

15. GOVERNING LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Delaware without reference to such state’s principles of conflict of laws.

16. NOTICE OF RESTRICTION. The parties agree that any book entry representing the RSUs granted hereunder may contain a legend, or notation as the case may be, indicating that such RSUs are subject to the restrictions of this Agreement.

17. ACKNOWLEDGMENT. Recipient acknowledges that the RSUs constitute full and adequate consideration for Recipient’s obligations under this Agreement, the acceptance of the RSUs constitutes an unequivocal acceptance of this Agreement and any attempted modification or deletion will have no force or effect on the Company’s right to enforce the terms and conditions stated herein.

By accepting the RSUs, you agree to all of the terms and conditions set forth above and in the Plan.


September 2013		8

Exhibit 10.3

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

2013 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

BY ACCEPTING THIS AWARD, YOU VOLUNTARILY AGREE TO ALL OF THE

TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT AND IN THE PLAN.

Science Applications International Corporation, a Delaware corporation (the “ Company ”), hereby grants to the participant named in the Grant Summary (as defined below) (“ Recipient ”), who is affiliated with the Company or an Affiliate as an employee, director or consultant, restricted stock units (“ RSUs ”) representing the right to receive one share of its Common Stock, $0.0001 par value per share (“ Common Stock ”) for each RSU. Certain specific details of this award, including the number of RSUs and the Grant Date, may be found in the Grant Summary and are hereby incorporated by reference into this Agreement. The terms and conditions of the grant of RSUs (this “ Award ”) are set forth in this Agreement and in the Company’s 2013 Equity Incentive Plan (the “ Plan ”).

1. DEFINITIONS. The following terms shall have the meanings as defined below. Capitalized terms used herein and not defined shall have the meanings attributed to them in the Plan.

“ Committee ” shall have the meaning as defined in the Plan.

“ Executive Officer ” shall mean an officer of the Company designated as such for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.

“ Grant Date ” shall mean the date of the award of the RSUs as set forth in the Grant Summary.

September 2013

2. RIGHTS OF THE RECIPIENT WITH RESPECT TO THE RSUs.

c) Conversion of RSUs; Issuance of Common Stock. No shares of Common Stock shall be issued to Recipient prior to the date on which the RSUs vest in accordance with Section 3 or 4. On the date that any RSUs vest pursuant to Section 3 or 4 (or as promptly as administratively practicable thereafter), the Company shall cause to be issued in book-entry form, registered in Recipient’s name or in the name of Recipient’s legal representatives, beneficiaries or heirs, as the case may be, the underlying shares in payment of such vested whole RSUs (including additional RSUs credited as Dividend Equivalents), unless such payment is deferred in accordance with the terms and conditions of the Company’s non-qualified compensation deferral plans.

3. VESTING SCHEDULE; RSUs SUBJECT TO FORFEITURE.

a) Subject to the terms and conditions of this Award, 100% of the RSUs, including any additional RSUs credited to Recipient as Dividend Equivalents, shall vest on the third-year anniversary of the Grant Date.

b) Recipient shall not sell, transfer, assign, hypothecate, pledge, grant a security interest in, or in any other way alienate, any of the RSUs, or any interest or right therein.


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c) Except in the event of death or Permanent Disability or as set forth below, any unvested RSUs automatically shall be immediately and irrevocably forfeited without compensation on the date that Recipient’s affiliation with the Company or any Affiliate as an employee, director or consultant terminates, or if Recipient is an employee or director of an Affiliate and such entity ceases to be an Affiliate, whether by Committee action or otherwise, on the date such entity ceases to be an Affiliate.

5. TAX MATTERS

b) Section 409A .

(ii) Without limiting the generality of the foregoing, if Recipient is a “specified employee” within the meaning of Section 409A, as determined under the Company’s established methodology for determining specified employees, on the date of Recipient’s termination of service at a time when this Award pursuant its terms would be settled, then to the extent required in order to comply with Section 409A, shares of Common Stock that would be issued under this Award (or any other amount due hereunder) at such termination of service shall not be issued before the earlier of (x) the date that is six months following the Recipient’s termination of employment and (y) the date of the Recipient’s death.

September 2013

6. RIGHTS, RESTRICTIONS AND LIMITATIONS. All shares of Common Stock issued to Recipient pursuant to this Agreement are subject to the rights, restrictions and limitations set forth in the Company’s Restated Certificate of Incorporation. Recipient shall not have the rights of a stockholder until Shares, if any, are issued on or following the applicable vesting date.

7. RESTRICTIONS UNDER SECURITIES LAW. The issuance of RSUs and the shares of Common Stock covered by this Agreement are subject to any restrictions which may be imposed under applicable state and federal securities laws and are subject to obtaining all necessary consents which may be required by, or any condition which may be imposed in accordance with, applicable state and federal securities laws or regulations.

8. EMPLOYMENT AT WILL.

9. INCORPORATION OF PLAN. The RSUs granted hereby are granted pursuant to the Plan, all the terms and conditions of which are hereby made a part hereof and are incorporated herein by reference. In the event of any inconsistency between the terms and conditions contained herein and those set forth in the Plan, the terms and conditions of the Plan shall prevail.

10. RECOUPMENT OF AWARDS. The Human Resources and Compensation Committee of the Company’s Board of Directors intends to adopt a recoupment policy (the “ Policy ”), that may require members of senior management to return incentive compensation if there is a


September 2013		4

material restatement of the financial results upon which the compensation was originally based. By accepting the RSUs granted hereunder, Recipient expressly agrees to be bound by the Policy when adopted without payment of any additional consideration by Recipient. The Policy will also provide for recovery of incentive compensation from any employee involved in fraud or intentional misconduct, whether or not it results in a restatement of the Company’s financial results. Recipient acknowledges and agrees that the Policy will be treated as though it had been incorporated into this Agreement ab initio and that any payments or issuances of Common Stock in respect of the RSUs will be subject to recoupment pursuant to the Policy, including any amendments to the Policy and any additional recoupment obligations imposed by the Human Resources and Compensation Committee or by applicable law or regulation.

11. COPIES OF PLAN AND OTHER MATERIALS. Recipient acknowledges that Recipient has received copies of the Plan and the Plan prospectus from the Company and agrees to receive stockholder information, including copies of any annual report, proxy statement and periodic report, electronically from the Company. Recipient acknowledges that copies of the Plan, Plan prospectus, Plan information and stockholder information are also available upon written or telephonic request to the Company. Recipient acknowledges that a copy of the Policy referenced in Section 10 will be available on the Company’s intranet, and will also be available upon written or telephonic request to the Company, if such Policy is adopted.

12. NON-SOLICITATION.

(i) involves the same programs or projects for that customer in which Recipient was personally and substantially involved during the 12 months prior to termination of employment; or


September 2013		5

c) Remedies . Recipient acknowledges and agrees that a breach of any of the promises or agreements contained in this Section 12 will result in immediate, irreparable and continuing damage to the Company for which there is no adequate remedy at law, and the Company or an Affiliate will be entitled to injunctive relief, a decree for specific performance, and other relief as may be proper, including money damages.

13. MISCELLANEOUS. This Agreement contains the entire agreement of the parties with respect to its subject matter, provided, however, that if Recipient and the Company are parties to an existing written agreement addressing the subject matter of Section 12, such agreement shall control with respect to such subject matter until the termination thereof, at which time Section 12 shall control. This Agreement shall be binding upon and shall inure to the benefit of the respective parties, the successors and assigns of the Company, and the heirs, legatees and personal representatives of Recipient. The parties hereby agree that should any portion of this Agreement be judicially held to be invalid, unenforceable, or void, such portion shall be construed by limiting and reducing it, so as to be enforceable to the maximum extent compatible with the applicable law as is then in effect.

14. GOVERNING LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Delaware without reference to such state’s principles of conflict of laws.

15. NOTICE OF RESTRICTION. The parties agree that any book entry representing the RSUs granted hereunder may contain a legend, or notation as the case may be, indicating that such RSUs are subject to the restrictions of this Agreement.

16. ACKNOWLEDGMENT. Recipient acknowledges that the RSUs constitute full and adequate consideration for Recipient’s obligations under this Agreement, the acceptance of the RSUs constitutes an unequivocal acceptance of this Agreement and any attempted modification or deletion will have no force or effect on the Company’s right to enforce the terms and conditions stated herein.

By accepting the RSUs, you agree to all of the terms and conditions set forth above and in the Plan.


September 2013		6

Exhibit 10.4

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

2013 EQUITY INCENTIVE PLAN

NONSTATUTORY STOCK OPTION AGREEMENT

BY ACCEPTING THE OPTION DESCRIBED IN THIS AGREEMENT, YOU

VOLUNTARILY AGREE TO ALL OF THE TERMS AND CONDITIONS SET FORTH

IN THIS AGREEMENT AND IN THE PLAN.

Science Applications International Corporation, a Delaware corporation (the “ Company ”), hereby grants an option (the “ Option ”) to purchase shares of its Common Stock, $0.0001 par value per share, (“ Stock ”), to the participant named in the Grant Summary (as defined below) (“ Optionee ”). Certain specific details of the award of this Option, including Option Shares, Option Price and Grant Date, may be found in the Grant Summary and are hereby incorporated by reference into this Agreement. The terms and conditions of the Option are set forth in this Agreement and in the Company’s 2013 Equity Incentive Plan, as amended (the “ Plan ”).

1. DEFINITIONS. The following terms shall have the meanings as defined below. Capitalized terms used herein and not defined shall have the meanings attributed to them in the Plan.

“ Administrator ” shall have the meaning as defined in the Plan.

“ Cause ” shall have the meaning as defined in the Plan.

“ Committee ” shall have the meaning as defined in the Plan.

“ Executive Officer ” shall mean an officer of the Company designated as such for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.

“ Expiration Date ” shall have the meaning as defined in Section 3 below.

“ Fair Market Value ” shall have the meaning as defined in the Plan.

“ Grant Date ” shall mean the date of the award of this Option as set forth in the Grant Summary.


September 2013

“ Option Price ” shall mean the exercise price per Option Share applicable to this Option set forth in the Grant Summary.

“ Option Shares ” shall mean the number of shares of Stock issuable upon exercise of the Option as set forth in the Grant Summary.

“ Permanent Disability ” shall mean the status of disability determined conclusively by the Committee based upon certification of disability by the Social Security Administration or upon such other proof as the Committee may require, effective upon receipt of such certification or other proof by the Committee.

2. GRANT OF OPTION; NUMBER OF SHARES; OPTION PRICE. The Company hereby grants to Optionee an Option to purchase all or any part of the Option Shares at the Option Price.

3. TERM OF OPTION. This Option shall terminate upon the earlier to occur of: (i) seven (7) years from the Grant Date (the “ Expiration Date ”); or (ii) the expiration of the applicable period following the occurrence of any of the events specified in Section 5 hereof. The Company shall have no obligation to provide Optionee with notice of termination or expiration of this Option.

4. EXERCISE OF OPTION.

4.1 General Schedule of Vesting and Exercisability . Subject to the terms of the Plan and this Agreement, this Option shall vest and become exercisable as to 100% of the Option Shares on the third-year anniversary of the Grant Date. Optionee may purchase all, or from time to time, any part of the maximum number of Option Shares which are then exercisable. Except as set forth in Section 4.4 below, this Option shall be exercisable only by Optionee.

4.2 General Terms of Exercise . Subject to the terms of the Plan and this Agreement, the Option shall be exercised pursuant to procedures established by the Committee, which may include electronic or voice procedures as may be specified by the Committee and which may include a requirement to acknowledge this Agreement prior to exercise. Acceptable forms and methods of payment to exercise the Option may include (i) by cashier’s check, money order or wire transfer; (ii) by a cashless exercise procedure; or (iii) by tendering shares of Common Stock of the Company acceptable to the Committee valued at their Fair Market Value as of the date of exercise.

4.3 Treatment of Death or Permanent Disability . Notwithstanding anything to the contrary herein, if Optionee is an employee, director or consultant of the Company or an Affiliate and ceases to be affiliated with the Company or any Affiliate as a result of Optionee’s death or Permanent Disability, any unvested portion of this Option shall accelerate and become fully exercisable. Following Optionee’s death, this Option may be exercised only by the executor or administrator of the Optionee’s estate or, if there is none, the person entitled to exercise the Option under Optionee’s will or the laws of descent and distribution. Following


September 2013		2

Optionee’s termination of affiliation as a result of Optionee’s Permanent Disability, if a guardian or conservator has been appointed to act for Optionee and been granted this authority as part of that appointment, that guardian or conservator may exercise this Option on behalf of Optionee.

4.4 Treatment of Leave of Absence . If Optionee is an employee of the Company or an Affiliate and is on a leave of absence pursuant to the terms of the Company’s Administrative Policy No. SH-1 “Working Hours and Absences” or similar policy maintained by an Affiliate, as such policies may be revised from time to time, Optionee shall not, during the period of such absence be deemed, by virtue of such absence alone, to have terminated Optionee’s employment. Optionee shall continue to vest in this Option during any approved medical or military leave of absence. Medical leave shall include family or medical leaves, workers’ compensation leave, or pregnancy disability leave. For all other leaves of absence, this Option will vest only during active employment and shall not vest during a leave of absence, unless required under local law. However, if Optionee returns to active employment with the Company or an Affiliate following such a leave, this Option will be construed to vest as if there had been no break in active employment. During any leave of absence, Optionee shall have the right to exercise the vested portion of this Option provided that such exercise occurs prior to the Expiration Date.

5. TERMINATION OF OPTION; EVENTS IMPACTING ABILITY TO EXERCISE OPTION.

5.1 Termination of Affiliation . If Optionee is an employee, director or consultant of the Company or an Affiliate and ceases to be affiliated with the Company or an Affiliate for any reason other than death, Permanent Disability or Cause, Optionee may exercise this Option within the ninety (90) day period following such cessation of affiliation, but only to the extent that this Option was exercisable at the date of such cessation of affiliation and Optionee’s rights to exercise the Option have not been suspended as of the date of such cessation of affiliation. This Option shall terminate on the earlier to occur of the expiration of such ninety (90) day period or the Expiration Date.

5.2 Termination for Cause . If Optionee is an employee, director or consultant of the Company or an Affiliate and is terminated for Cause as determined by the Administrator of the Plan, this Option and all of Optionee’s rights with respect thereto shall immediately terminate on the date of such termination.

5.3 Termination for Breach of Obligation . The Company shall have the right to terminate the unvested portion of this Option at any time if Optionee violates the terms of his or her inventions, copyright and confidentiality agreement with the Company or an Affiliate or breaches his or her other contractual or legal obligations to the Company or an Affiliate, including the non-solicitation obligations set forth in Section 12 of this Agreement (“ Breach of Obligation ”).

5.4 Termination of Unexercised Options . If any portion of the Option is not exercised by the earlier of: (i) the end of the applicable period specified in Sections 5.1, 5.2 or 5.3 or (ii) the Expiration Date, any such unexercised portion and all of Optionee’s rights with respect thereto shall terminate.


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6. TAX WITHHOLDING. If the Company or any Affiliate is required to withhold any federal, state, local or other taxes upon the exercise of this Option, Optionee shall remit an amount sufficient to satisfy any applicable tax withholding requirement in a form of payment satisfactory to the Administrator or the Committee, which may include by cashier’s check, money order or wire transfer or by the Company’s withholding Stock issued upon exercise of this Option to pay the required withholding. If the Company withholds Stock, the Fair Market Value of the Stock withheld, as determined as of the date of withholding, shall not exceed the minimum rates required by law.

7. RESTRICTIONS UNDER SECURITIES LAW. All shares of Stock covered by this Agreement are subject to any restrictions which may be imposed under applicable state and federal securities laws and are subject to obtaining all necessary consents which may be required by, or any condition which may be imposed in accordance with, applicable state and federal securities laws or regulations.

8. INCORPORATION OF PLAN. The Option granted hereby is granted pursuant to the Plan, all the terms and conditions of which are hereby made a part hereof and are incorporated herein by reference. In the event of any inconsistency between the terms and conditions contained herein and those set forth in the Plan, the terms and conditions of the Plan shall prevail.

9. RECOUPMENT OF AWARDS. The Human Resources and Compensation Committee of the Company’s Board of Directors intends to adopt a recoupment policy (the “ Policy ”), that may require members of senior management to return incentive compensation if there is a material restatement of the financial results upon which the compensation was originally based. By accepting the Option granted hereunder, Optionee expressly agrees to be bound by the Policy when adopted without payment of any additional consideration by Optionee. The Policy will also provide for recovery of incentive compensation from any employee involved in fraud or intentional misconduct, whether or not it results in a restatement of the Company’s financial results. Optionee acknowledges and agrees that the Policy will be treated as though it had been incorporated into this Agreement ab initio and that any payments or issuances of Stock with respect to the Option will be subject to recoupment pursuant to the Policy, including any amendments to the Policy and any recoupment obligations imposed by the Human Resources and Compensation Committee or by applicable law or regulation.

10. EMPLOYMENT AT WILL.

10.1 If Optionee is an employee or consultant of the Company or an Affiliate, such employment or affiliation is not for any specified term and may be terminated by employee or by the Company or an Affiliate at any time, for any reason, with or without cause and with or without notice. Nothing in this Agreement (including, but not limited to, the right to exercise this Option pursuant to the schedule set forth in Section 4 herein), the Plan or any covenant of good faith and fair dealing that may be found implicit in this Agreement or the Plan shall (i) confer upon Optionee any right to continue in the employ of, or affiliation with, the Company or an Affiliate, (ii) constitute any promise or commitment by the Company or an Affiliate regarding the fact or nature of future positions, future work assignments, future compensation or any other term or condition of employment or affiliation, (iii) confer any right or benefit under this Agreement or the Plan unless such right or benefit has specifically accrued under the terms of this Agreement or Plan or (iv) deprive the Company of the right to terminate Optionee at will and without regard to any future vesting opportunity that Optionee may have.


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10.2 Optionee acknowledges and agrees that the right to exercise this Option pursuant to the schedule set forth in Section 4 is earned only by continuing as an employee or consultant at the will of the Company or as a director (not through the act of being hired, being granted this Option or any other Option, award or benefit or acquiring shares hereunder) and that the Company has the right to reorganize, sell, spin-out or otherwise restructure one or more of its businesses or Affiliates at any time or from time to time, as it deems appropriate (a “reorganization”). Optionee acknowledges and agrees that such a reorganization could result in the termination of Optionee’s relationship as an employee or consultant to the Company or an Affiliate, or the termination of Affiliate status of Optionee’s employer and the loss of benefits available to Optionee under this Agreement, including but not limited to, the termination of the right to exercise the Options under this Agreement.

11. COPIES OF PLAN AND OTHER MATERIALS. Optionee acknowledges that Optionee has received copies of the Plan and the Plan prospectus from the Company and agrees to receive stockholder information, including copies of any annual report, proxy statement and periodic report, electronically from the Company. Optionee acknowledges that copies of the Plan, Plan prospectus, Plan information and stockholder information are also available upon written or telephonic request to the Company. Optionee acknowledges that copies of the Company’s policies referenced in this Agreement, including the Policy when adopted, are or will be available on ISSAIC, the Company’s intranet, and are or will be also available upon written or telephonic request to the Company.

12. NON-SOLICITATION.

12.1 Solicitation of Employees . Optionee agrees that, both while employed by the Company or an Affiliate and for one year afterward, Optionee will not solicit or attempt to solicit any employee of the Company or an Affiliate to leave his or her employment or to violate the terms of any agreement or understanding that employee may have with the Company or an Affiliate. The foregoing obligations apply to both the Optionee’s direct and indirect actions, and apply to actions intended to benefit Optionee or any other person, business or entity.

12.2 Solicitation of Customers . Optionee agrees that, for one year after termination of employment with the Company or an Affiliate, Optionee will not participate in any solicitation of any customer or prospective customer of the Company or an Affiliate concerning any business that:

involves the same programs or projects for that customer in which Optionee was personally and substantially involved during the 12 months prior to termination of employment; or

has been, at any time during the 12 months prior to termination of employment, the subject of any bid, offer or proposal activity by the Company or an Affiliate in respect of that customer or prospective customer, or any negotiations or discussions about the possible performance of services by the Company or an Affiliate to that customer or potential customer, in which Optionee was personally and substantially involved.


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12.3 Remedies . Optionee acknowledges and agrees that a breach of any of the promises or agreements contained in this Section 12 will result in immediate, irreparable and continuing damage to the Company for which there is no adequate remedy at law, and the Company or an Affiliate will be entitled to injunctive relief, a decree for specific performance, and other relief as may be proper, including money damages.

13. MISCELLANEOUS. This Agreement contains the entire agreement between the parties with respect to its subject matter, provided, however, that if Optionee and the Company are parties to an existing written agreement addressing the subject matter of Section 12, such agreement shall control with respect to such subject matter until the termination thereof, at which time Section 12 shall control. This Agreement shall be binding upon and shall inure to the benefit of the respective parties, the successors and assigns of the Company, and the heirs, legatees, and personal representatives of Optionee. The parties hereby agree that should any portion of this Agreement be judicially held to be invalid, unenforceable, or void, such portion shall be construed by limiting and reducing it, so as to be enforceable to the maximum extent compatible with the applicable law as is then in effect.

14. ACKNOWLEDGMENT . Optionee acknowledges that the Option constitutes full and adequate consideration for Optionee’s obligations under this Agreement, accepting the Option constitutes an unequivocal acceptance of this Agreement and any attempted modifications or deletions will have no force or effect upon the Company’s right to enforce the terms and conditions stated herein.

16. FEDERAL TAXES . The Option is not intended to be treated as an “incentive stock option,” as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended. Optionee should consult his or her personal tax advisor for more information concerning the tax treatment of the Option.

By accepting the Option, you agree to all of the terms and conditions set forth above and in the Plan.


September 2013		6

Exhibit 31.1

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony J. Moraco, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the period ended November 1, 2013 of Science Applications International Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including the registrant’s consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 12, 2013

/ S / A NTHONY J. M ORACO

Anthony J. Moraco

Chief Executive Officer

Exhibit 31.2

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John R. Hartley, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the period ended November 1, 2013 of Science Applications International Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report;

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including each registrant’s consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 12, 2013

/ S / J OHN R. H ARTLEY

John R. Hartley

Chief Financial Officer

Exhibit 32.1

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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

In connection with the Quarterly Report of Science Applications International Corporation (the “Company”) on Form 10-Q for the period ended November 1, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony J. Moraco, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 12, 2013

/s/ A NTHONY J. M ORACO

Anthony J. Moraco

Chief Executive Officer

Exhibit 32.2

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

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

In connection with the Quarterly Report of Science Applications International Corporation (the “Company”) on Form 10-Q for the period ended November 1, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John R. Hartley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 12, 2013

/ S / J OHN R. H ARTLEY

John R. Hartley

Chief Financial Officer