Indiana | 38-3924636 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2424 Garden of the Gods Road, Colorado Springs, Colorado 80919 | ||
(Address of Principal Executive Offices) (Zip Code) | ||
Registrant’s telephone number, including area code: | ||
(719) 591-3600 |
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, Par Value $0.01 Per Share | VEC | New York Stock Exchange |
Large accelerated filer ¨ | Accelerated filer þ | Non-accelerated filer ¨ | |
Smaller reporting company ¨ | Emerging growth company ¨ |
Page No. | |||
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | 331,589 | $ | 321,132 | $ | 657,517 | $ | 641,649 | ||||||||
Cost of revenue | 300,553 | 292,064 | 596,149 | 586,114 | ||||||||||||
Selling, general and administrative expenses | 19,843 | 16,070 | 39,762 | 33,865 | ||||||||||||
Operating income | 11,193 | 12,998 | 21,606 | 21,670 | ||||||||||||
Interest expense, net | (1,329 | ) | (1,140 | ) | (2,904 | ) | (2,305 | ) | ||||||||
Income from operations before income taxes | 9,864 | 11,858 | 18,702 | 19,365 | ||||||||||||
Income tax expense | 2,247 | 2,663 | 3,994 | 4,058 | ||||||||||||
Net income | $ | 7,617 | $ | 9,195 | $ | 14,708 | $ | 15,307 | ||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.66 | $ | 0.82 | $ | 1.29 | $ | 1.37 | ||||||||
Diluted | $ | 0.66 | $ | 0.81 | $ | 1.28 | $ | 1.35 | ||||||||
Weighted average common shares outstanding - basic | 11,455 | 11,235 | 11,376 | 11,191 | ||||||||||||
Weighted average common shares outstanding - diluted | 11,605 | 11,383 | 11,512 | 11,351 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | 7,617 | $ | 9,195 | $ | 14,708 | $ | 15,307 | ||||||||
Other comprehensive income, net of tax | ||||||||||||||||
Changes in derivative instruments: | ||||||||||||||||
Net change in fair value of interest rate swap | (994 | ) | 360 | (1,375 | ) | 881 | ||||||||||
Net change in fair value of foreign currency forward contracts | 183 | (156 | ) | 85 | (161 | ) | ||||||||||
Net gain (loss) reclassified to interest expense | 31 | — | 51 | (1 | ) | |||||||||||
Tax benefit (expense) | 169 | (77 | ) | 268 | (190 | ) | ||||||||||
Net change in derivative instruments | (611 | ) | 127 | (971 | ) | 529 | ||||||||||
Foreign currency translation adjustments, net of tax | 547 | (1,388 | ) | (276 | ) | (900 | ) | |||||||||
Accounting Standards Update (ASU) 2018-02 reclassification of certain tax effects to Retained Earnings | — | — | (259 | ) | — | |||||||||||
Other comprehensive (loss), net of tax | (64 | ) | (1,261 | ) | (1,506 | ) | (371 | ) | ||||||||
Total comprehensive income | $ | 7,553 | $ | 7,934 | $ | 13,202 | $ | 14,936 |
June 28, | December 31, | |||||||
(In thousands, except share information) | 2019 | 2018 | ||||||
Assets | (unaudited) | |||||||
Current assets | ||||||||
Cash | $ | 70,329 | $ | 66,145 | ||||
Receivables | 237,247 | 232,119 | ||||||
Other current assets | 20,907 | 15,063 | ||||||
Total current assets | 328,483 | 313,327 | ||||||
Property, plant, and equipment, net | 16,253 | 13,419 | ||||||
Goodwill | 233,619 | 233,619 | ||||||
Intangible assets, net | 13,853 | 8,630 | ||||||
Right-of-use assets | 17,987 | — | ||||||
Other non-current assets | 4,233 | 3,248 | ||||||
Total non-current assets | 285,945 | 258,916 | ||||||
Total Assets | $ | 614,428 | $ | 572,243 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 157,486 | $ | 156,393 | ||||
Compensation and other employee benefits | 45,577 | 41,790 | ||||||
Short-term debt | 5,500 | 4,500 | ||||||
Other accrued liabilities | 37,217 | 22,303 | ||||||
Total current liabilities | 245,780 | 224,986 | ||||||
Long-term debt, net | 66,338 | 69,137 | ||||||
Deferred tax liability | 52,460 | 55,358 | ||||||
Other non-current liabilities | 10,174 | 1,462 | ||||||
Total non-current liabilities | 128,972 | 125,957 | ||||||
Total liabilities | 374,752 | 350,943 | ||||||
Commitments and contingencies (Note 13) | ||||||||
Shareholders' Equity | ||||||||
Preferred stock; $0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding | — | — | ||||||
Common stock; $0.01 par value; 100,000,000 shares authorized; 11,506,228 and 11,266,906 shares issued and outstanding as of June 28, 2019 and December 31, 2018, respectively | 115 | 113 | ||||||
Additional paid in capital | 76,642 | 71,729 | ||||||
Retained earnings | 167,583 | 152,616 | ||||||
Accumulated other comprehensive loss | (4,664 | ) | (3,158 | ) | ||||
Total shareholders' equity | 239,676 | 221,300 | ||||||
Total Liabilities and Shareholders' Equity | $ | 614,428 | $ | 572,243 |
Six Months Ended | ||||||||
June 28, | June 29, | |||||||
(In thousands) | 2019 | 2018 | ||||||
Operating activities | ||||||||
Net income | $ | 14,708 | $ | 15,307 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation expense | 1,538 | 687 | ||||||
Amortization of intangible assets | 1,277 | 937 | ||||||
Loss on disposal of property, plant, and equipment | 2 | 51 | ||||||
Stock-based compensation | 4,031 | 2,521 | ||||||
Amortization of debt issuance costs | 201 | 213 | ||||||
Changes in assets and liabilities: | ||||||||
Receivables | (224 | ) | (8,820 | ) | ||||
Other assets | (7,128 | ) | (4,518 | ) | ||||
Accounts payable | 2,038 | 693 | ||||||
Deferred taxes | (2,579 | ) | (1,274 | ) | ||||
Compensation and other employee benefits | 3,324 | (1,950 | ) | |||||
Other liabilities | (1,738 | ) | 325 | |||||
Net cash provided by operating activities | 15,450 | 4,172 | ||||||
Investing activities | ||||||||
Purchases of capital assets and intangibles | (11,739 | ) | (764 | ) | ||||
Acquisition of business, net of cash acquired | — | (37,210 | ) | |||||
Net cash used in investing activities | (11,739 | ) | (37,974 | ) | ||||
Financing activities | ||||||||
Repayments of long-term debt | (2,000 | ) | (2,000 | ) | ||||
Proceeds from revolver | 98,000 | 55,000 | ||||||
Repayments of revolver | (98,000 | ) | (55,000 | ) | ||||
Proceeds from exercise of stock options | 3,467 | 1,358 | ||||||
Payments of employee withholding taxes on share-based compensation | (768 | ) | (803 | ) | ||||
Net cash provided by (used in) financing activities | 699 | (1,445 | ) | |||||
Exchange rate effect on cash | (226 | ) | (1,248 | ) | ||||
Net change in cash | 4,184 | (36,495 | ) | |||||
Cash-beginning of year | 66,145 | 77,453 | ||||||
Cash-end of period | $ | 70,329 | $ | 40,958 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | 2,818 | $ | 2,119 | ||||
Income taxes paid | $ | 4,198 | $ | 7,891 | ||||
Non-cash investing activities: | ||||||||
Purchase of capital assets on account | $ | 301 | $ | 481 |
Common Stock Issued | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Total Shareholders' Equity | ||||||||||||||||||||
(In thousands) | Shares | Amount | Retained Earnings | ||||||||||||||||||||
Balance at December 31, 2017 | 11,121 | $ | 111 | $ | 67,526 | $ | 117,415 | $ | (1,680 | ) | $ | 183,372 | |||||||||||
Net income | 6,111 | 6,111 | |||||||||||||||||||||
Cumulative effects of adoption of Accounting Standards Codification (ASC) Topic 606 revenue recognition guidance | (77 | ) | (77 | ) | |||||||||||||||||||
Foreign currency translation adjustments | 487 | 487 | |||||||||||||||||||||
Unrealized gain on cash flow hedge | 403 | 403 | |||||||||||||||||||||
Employee stock awards and stock options | 101 | 1 | 522 | 523 | |||||||||||||||||||
Stock-based compensation | 867 | 867 | |||||||||||||||||||||
Balance at March 30, 2018 | 11,222 | $ | 112 | $ | 68,915 | $ | 123,449 | $ | (790 | ) | $ | 191,686 | |||||||||||
Net income | 9,195 | 9,195 | |||||||||||||||||||||
Foreign currency translation adjustments | (1,388 | ) | (1,388 | ) | |||||||||||||||||||
Unrealized gain on cash flow hedge | 127 | 127 | |||||||||||||||||||||
Employee stock awards and stock options | 26 | 32 | 32 | ||||||||||||||||||||
Stock-based compensation | 908 | 908 | |||||||||||||||||||||
Balance at June 29, 2018 | 11,248 | $ | 112 | $ | 69,855 | $ | 132,644 | $ | (2,051 | ) | $ | 200,560 | |||||||||||
Balance at December 31, 2018 | 11,267 | $ | 113 | $ | 71,729 | $ | 152,616 | $ | (3,158 | ) | $ | 221,300 | |||||||||||
Net income | 7,091 | 7,091 | |||||||||||||||||||||
Cumulative effects of adoption of Accounting Standards Update (ASU) 2018-02 reclassification of certain tax effects from AOCI | 259 | (259 | ) | — | |||||||||||||||||||
Foreign currency translation adjustments | (823 | ) | (823 | ) | |||||||||||||||||||
Unrealized loss on cash flow hedge | (360 | ) | (360 | ) | |||||||||||||||||||
Employee stock awards and stock options | 85 | 1 | (82 | ) | (81 | ) | |||||||||||||||||
Stock-based compensation | 1,117 | 1,117 | |||||||||||||||||||||
Balance at March 29, 2019 | 11,352 | $ | 114 | $ | 72,764 | $ | 159,966 | $ | (4,600 | ) | $ | 228,244 | |||||||||||
Net income | 7,617 | 7,617 | |||||||||||||||||||||
Foreign currency translation adjustments | 547 | 547 | |||||||||||||||||||||
Unrealized loss on cash flow hedge | (611 | ) | (611 | ) | |||||||||||||||||||
Employee stock awards and stock options | 154 | 1 | 2,779 | 2,780 | |||||||||||||||||||
Stock-based compensation | 1,099 | 1,099 | |||||||||||||||||||||
Balance at June 28, 2019 | 11,506 | $ | 115 | $ | 76,642 | $ | 167,583 | $ | (4,664 | ) | $ | 239,676 |
June 28, | December 31, | |||||||
(In millions) | 2019 | 2018 | ||||||
Performance Obligations | $ | 1,160 | $ | 858 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Favorable adjustments | $ | 2,660 | $ | 6,282 | $ | 5,162 | $ | 10,435 | ||||||||
Unfavorable adjustments | (783 | ) | (2,573 | ) | (4,368 | ) | (3,884 | ) | ||||||||
Net favorable adjustments | $ | 1,877 | $ | 3,709 | $ | 794 | $ | 6,551 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Cost-plus and cost-reimbursable ¹ | $ | 256,737 | $ | 242,742 | $ | 508,215 | $ | 472,951 | ||||||||
Firm-fixed-price | 74,852 | 78,390 | 149,302 | 168,698 | ||||||||||||
Total revenue | $ | 331,589 | $ | 321,132 | $ | 657,517 | $ | 641,649 | ||||||||
¹ Includes time and material contracts |
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Middle East | $ | 223,588 | $ | 219,218 | $ | 450,004 | $ | 439,098 | ||||||||
United States | 72,376 | 74,847 | 143,786 | 148,636 | ||||||||||||
Europe | 35,625 | 27,067 | 63,727 | 53,915 | ||||||||||||
Total revenue | $ | 331,589 | $ | 321,132 | $ | 657,517 | $ | 641,649 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Prime contractor | $ | 312,732 | $ | 301,088 | $ | 619,789 | $ | 602,116 | ||||||||
Subcontractor | 18,857 | 20,044 | 37,728 | 39,533 | ||||||||||||
Total revenue | $ | 331,589 | $ | 321,132 | $ | 657,517 | $ | 641,649 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Army | $ | 225,867 | $ | 238,381 | $ | 452,559 | $ | 476,228 | ||||||||
Air Force | 72,593 | 60,420 | 140,524 | 125,676 | ||||||||||||
Navy | 16,796 | 9,987 | 31,906 | 18,344 | ||||||||||||
Other | 16,333 | 12,344 | 32,528 | 21,401 | ||||||||||||
Total revenue | $ | 331,589 | $ | 321,132 | $ | 657,517 | $ | 641,649 |
(In thousands) | Allocation of Purchase Price | ||
Receivables | $ | 23,339 | |
Property, plant and equipment | 810 | ||
Goodwill | 16,689 | ||
Intangible assets | 10,500 | ||
Other current assets | 975 | ||
Accounts payable | (10,012 | ) | |
Other current liabilities | (5,446 | ) | |
Purchase price, net of cash acquired | $ | 36,855 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
(In thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | 7,617 | $ | 9,195 | $ | 14,708 | $ | 15,307 | ||||||||
Weighted average common shares outstanding | 11,455 | 11,235 | 11,376 | 11,191 | ||||||||||||
Add: Dilutive impact of stock options | 41 | 68 | 42 | 72 | ||||||||||||
Add: Dilutive impact of restricted stock units | 109 | 80 | 94 | 88 | ||||||||||||
Diluted weighted average common shares outstanding | 11,605 | 11,383 | 11,512 | 11,351 | ||||||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.66 | $ | 0.82 | $ | 1.29 | $ | 1.37 | ||||||||
Diluted | $ | 0.66 | $ | 0.81 | $ | 1.28 | $ | 1.35 |
Three Months Ended | Six Months Ended | |||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||
Anti-dilutive stock options | — | 1 | 1 | 1 | ||||||||
Anti-dilutive restricted stock units | — | — | 2 | — | ||||||||
Total | — | 1 | 3 | 1 |
June 28, | December 31, | |||||||
(In thousands) | 2019 | 2018 | ||||||
Billed receivables | $ | 35,321 | $ | 44,868 | ||||
Unbilled receivables (contract assets) | 190,802 | 181,009 | ||||||
Other | 11,124 | 6,242 | ||||||
Total receivables | $ | 237,247 | $ | 232,119 |
(In thousands) | Payments due | |||
2019 (excluding the six months ended June 28, 2019) | $ | 2,500 | ||
2020 | 6,500 | |||
2021 | 8,600 | |||
2022 | 55,400 | |||
Total | $ | 73,000 |
(In thousands) | Fair Value | |||||
Balance sheet caption | Amount | |||||
Interest rate swap designated as cash flow hedge | Other accrued liabilities | $ | 207 | |||
Interest rate swap designated as cash flow hedge | Other non-current liabilities | $ | 891 |
(In thousands) | Fair Value | |||||
Balance sheet caption | Amount | |||||
Interest rate swap designated as cash flow hedge | Other current assets | $ | 121 | |||
Interest rate swap designated as cash flow hedge | Other non-current assets | $ | 104 |
(In thousands) | Fair Value | |||||
Balance sheet caption | Amount | |||||
Foreign currency forward designated as cash flow hedge | Other accrued liabilities | $ | 285 | |||
Foreign currency forward designated as cash flow hedge | Other non-current assets | $ | 12 |
(In thousands) | Fair Value | |||||
Balance sheet caption | Amount | |||||
Foreign currency forward designated as cash flow hedge | Other accrued liabilities | $ | 351 | |||
Foreign currency forward designated as cash flow hedge | Other non-current liabilities | $ | 7 |
Three Months Ended | Six Months Ended | |||||||
(In thousands) | June 28, 2019 | June 28, 2019 | ||||||
Operating lease expense | $ | 3,647 | $ | 7,063 | ||||
Variable lease expense | 225 | 398 | ||||||
Short-term lease expense | 11,422 | 22,619 | ||||||
Total lease expense | $ | 15,294 | $ | 30,080 |
(In thousands) | June 28, 2019 | ||||
Right-of-use assets | $ | 17,987 | |||
Current lease liabilities (recorded in other accrued liabilities) | $ | 10,112 | |||
Long-term lease liabilities (recorded in other non-current liabilities) | 8,658 | ||||
Total operating lease liabilities | $ | 18,770 |
(In thousands) | ||||
2019 (excluding the six months ended June 28, 2019) | $ | 7,143 | ||
2020 | 5,511 | |||
2021 | 2,076 | |||
2022 | 1,248 | |||
2023 | 1,282 | |||
2024 and beyond | 4,543 | |||
Total lease payments | 21,803 | |||
Less: Imputed interest | 3,033 | |||
Total | $ | 18,770 |
Three Months Ended | Six Months Ended | |||||||||||||||
(In thousands) | June 28, 2019 | June 29, 2018 | June 28, 2019 | June 29, 2018 | ||||||||||||
Compensation costs for equity-based awards | $ | 1,099 | $ | 908 | $ | 2,216 | $ | 1,775 | ||||||||
Compensation costs for liability-based awards | 1,470 | 198 | 1,815 | 746 | ||||||||||||
Total compensation costs, pre-tax | $ | 2,569 | $ | 1,106 | $ | 4,031 | $ | 2,521 | ||||||||
Future tax benefit | $ | 556 | $ | 239 | $ | 872 | $ | 545 |
NQOs | RSUs | |||||||||||||
(In thousands, except per share data) | Shares | Weighted Average Exercise Price Per Share | Shares | Weighted Average Grant Date Fair Value Per Share | ||||||||||
Outstanding at January 1, 2019 | 251 | $ | 23.00 | 257 | $ | 28.90 | ||||||||
Granted | — | — | 195 | $ | 29.40 | |||||||||
Exercised | 152 | $ | 22.89 | — | — | |||||||||
Vested | — | — | 126 | $ | 27.66 | |||||||||
Forfeited or expired | 14 | $ | 24.18 | 20 | $ | 29.12 | ||||||||
Outstanding at June 28, 2019 | 85 | $ | 23.00 | 306 | $ | 29.73 |
% of Total Revenue | ||||
Six Months Ended | ||||
Contract Name | June 28, 2019 | June 29, 2018 | ||
Kuwait Base Operations and Security Support Services (K-BOSSS) | 36.6% | 40.3% | ||
Operations, Maintenance and Defense of Army Communications in Southwest Asia and Central Asia (OMDAC-SWACA) | 15.9% | 14.0% |
June 28, | December 31, | ||||||
(In millions) | 2019 | 2018 | |||||
Funded backlog | $ | 934 | $ | 689 | |||
Unfunded backlog | 2,287 | 2,323 | |||||
Total backlog | $ | 3,221 | $ | 3,012 |
Three Months Ended | Change | ||||||||||||||
(In thousands, except for percentages) | June 28, 2019 | June 29, 2018 | $ | % | |||||||||||
Revenue | $ | 331,589 | $ | 321,132 | $ | 10,457 | 3.3 | % | |||||||
Cost of revenue | 300,553 | 292,064 | 8,489 | 2.9 | % | ||||||||||
% of revenue | 90.6 | % | 90.9 | % | |||||||||||
Selling, general and administrative expenses | 19,843 | 16,070 | 3,773 | 23.5 | % | ||||||||||
% of revenue | 6.0 | % | 5.0 | % | |||||||||||
Operating income | 11,193 | 12,998 | (1,805 | ) | (13.9 | )% | |||||||||
Operating margin | 3.4 | % | 4.0 | % | |||||||||||
Interest expense, net | (1,329 | ) | (1,140 | ) | (189 | ) | 16.6 | % | |||||||
Income before taxes | 9,864 | 11,858 | (1,994 | ) | (16.8 | )% | |||||||||
% of revenue | 3.0 | % | 3.7 | % | |||||||||||
Income tax expense | 2,247 | 2,663 | (416 | ) | (15.6 | )% | |||||||||
Effective income tax rate | 22.8 | % | 22.5 | % | |||||||||||
Net Income | $ | 7,617 | $ | 9,195 | $ | (1,578 | ) | (17.2 | )% |
Six Months Ended | Change | ||||||||||||||
(In thousands, except for percentages) | June 28, 2019 | June 29, 2018 | $ | % | |||||||||||
Revenue | $ | 657,517 | $ | 641,649 | $ | 15,868 | 2.5 | % | |||||||
Cost of revenue | 596,149 | 586,114 | 10,035 | 1.7 | % | ||||||||||
% of revenue | 90.7 | % | 91.3 | % | |||||||||||
Selling, general and administrative expenses | 39,762 | 33,865 | 5,897 | 17.4 | % | ||||||||||
% of revenue | 6.0 | % | 5.3 | % | |||||||||||
Operating income | 21,606 | 21,670 | (64 | ) | (0.3 | )% | |||||||||
Operating margin | 3.3 | % | 3.4 | % | |||||||||||
Interest expense, net | (2,904 | ) | (2,305 | ) | (599 | ) | (26.0 | )% | |||||||
Income before taxes | 18,702 | 19,365 | (663 | ) | (3.4 | )% | |||||||||
% of revenue | 2.8 | % | 3.0 | % | |||||||||||
Income tax expense | 3,994 | 4,058 | (64 | ) | (1.6 | )% | |||||||||
Effective income tax rate | 21.4 | % | 21.0 | % | |||||||||||
Net Income | $ | 14,708 | $ | 15,307 | $ | (599 | ) | (3.9 | )% |
Three Months Ended | Change | Six Months Ended | Change | |||||||||||||||||||||||||||
(In thousands, except for percentages) | June 28, 2019 | June 29, 2018 | $ | % | June 28, 2019 | June 29, 2018 | $ | % | ||||||||||||||||||||||
Interest income | $ | 69 | $ | 23 | $ | 46 | 200.6 | $ | 108 | $ | 39 | $ | 69 | 176.9 | ||||||||||||||||
Interest expense | (1,398 | ) | (1,163 | ) | (235 | ) | (20.2 | ) | (3,012 | ) | (2,344 | ) | (668 | ) | (28.5 | ) | ||||||||||||||
Interest expense, net | $ | (1,329 | ) | $ | (1,140 | ) | $ | (189 | ) | (16.6 | ) | $ | (2,904 | ) | $ | (2,305 | ) | $ | (599 | ) | (26.0 | ) |
Six Months Ended | ||||||||
(In thousands) | June 28, 2019 | June 29, 2018 | ||||||
Operating activities | $ | 15,450 | $ | 4,172 | ||||
Investing activities | (11,739 | ) | (37,974 | ) | ||||
Financing activities | 699 | (1,445 | ) | |||||
Foreign exchange1 | (226 | ) | (1,248 | ) | ||||
Net change in cash | $ | 4,184 | $ | (36,495 | ) | |||
1 Impact on cash balances due to changes in foreign exchange rates. |
3.1 | |
3.2 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101 | The following materials from Vectrus, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Income, (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) Unaudited Condensed Consolidated Balance Sheets, (iv) Unaudited Condensed Consolidated Statements of Cash Flows, (v) Unaudited Condensed Consolidated Statements of Changes to Shareholders' Equity and (vi) Notes to Condensed Consolidated Financial Statements. # |
VECTRUS, INC. | |
/s/ William B. Noon | |
By: William B. Noon | |
Corporate Vice President, Acting Chief Financial Officer and Chief Accounting Officer | |
(Principal Accounting Officer) | |
Date: August 6, 2019 |
1. | SHAREHOLDERS. |
2. | DIRECTORS. |
2.11. | Mandatory Classified Board Structure. The provisions of IC 23-1-33-6(c) shall not apply to the Corporation. |
3. | OFFICERS. |
4. | INDEMNIFICATION. |
(e) | Definitions. For purposes of this Article 4: |
5. | CAPITAL STOCK. |
6. | SECURITIES HELD BY THE CORPORATION. |
7. | DEPOSITARIES AND SIGNATORIES. |
8. | SEAL. |
9. | FISCAL YEAR. |
10. | WAIVER OF OR DISPENSING WITH NOTICE. |
11. | POLITICAL NONPARTISANSHIP OF THE CORPORATION. |
12. | AMENDMENT OF BY-LAWS. |
13. | OFFICES AND AGENT. |
14. | EXCLUSIVE FORUM FOR ADJUDICATION OF CERTAIN DISPUTES. |
1. | I have reviewed this quarterly report on Form 10-Q of Vectrus, Inc.; |
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 registrant as of, and for, the periods presented in this report; |
4. | 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 registrant and have: |
a) | 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 its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | 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; |
c) | 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 |
d) | 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): |
a) | 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 |
b) | 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: August 6, 2019 | |
/s/ Charles L. Prow | |
Charles L. Prow | |
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Vectrus, Inc.; |
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 registrant as of, and for, the periods presented in this report; |
4. | 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 registrant and have: |
a) | 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 its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | 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; |
c) | 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 |
d) | 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): |
a) | 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 |
b) | 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: August 6, 2019 | |
/s/ William B. Noon | |
William B. Noon | |
Corporate Vice President, Acting Chief Financial Officer and Chief Accounting Officer | |
(Principal Accounting Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; 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: August 6, 2019 | |
/s/ Charles L. Prow | |
Charles L. Prow | |
President and Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; 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: August 6, 2019 | |
/s/ William B. Noon | |
William B. Noon | |
Corporate Vice President, Acting Chief Financial Officer and Chief Accounting Officer | |
(Principal Accounting Officer) |
Document and Entity Information - shares |
6 Months Ended | |
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Jun. 28, 2019 |
Aug. 02, 2019 |
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 28, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Entity Registrant Name | Vectrus, Inc. | |
Entity Central Index Key | 0001601548 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Shell | false | |
Entity Common Stock, Shares Outstanding | 11,506,228 | |
Entity Current Reporting Status | Yes | |
Entity Emerging Growth Company | false | |
Entity Small Business | false |
Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|
Income Statement [Abstract] | ||||
Revenue | $ 331,589 | $ 321,132 | $ 657,517 | $ 641,649 |
Cost of revenue | 300,553 | 292,064 | 596,149 | 586,114 |
Selling, general and administrative expenses | 19,843 | 16,070 | 39,762 | 33,865 |
Operating income | 11,193 | 12,998 | 21,606 | 21,670 |
Interest expense, net | (1,329) | (1,140) | (2,904) | (2,305) |
Income from operations before income taxes | 9,864 | 11,858 | 18,702 | 19,365 |
Income tax expense | 2,247 | 2,663 | 3,994 | 4,058 |
Net income | $ 7,617 | $ 9,195 | $ 14,708 | $ 15,307 |
Earnings per share | ||||
Basic (in dollars per share) | $ 0.66 | $ 0.82 | $ 1.29 | $ 1.37 |
Diluted (in dollars per share) | $ 0.66 | $ 0.81 | $ 1.28 | $ 1.35 |
Weighted average common shares outstanding - basic (in shares) | 11,455 | 11,235 | 11,376 | 11,191 |
Diluted weighted average common shares outstanding - diluted (in shares) | 11,605 | 11,383 | 11,512 | 11,351 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 28, 2019 |
Dec. 31, 2018 |
---|---|---|
Stockholders' Equity Attributable to Parent [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 11,506,228 | 11,266,906 |
Common stock, shares outstanding (in shares) | 11,506,228 | 11,266,906 |
Description of Business and Summary of Significant Accounting Policies |
6 Months Ended |
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Jun. 28, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business and Summary of Significant Accounting Policies | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business and Basis of Presentation Our Business Vectrus, Inc. is a leading provider of services to the United States (U.S.) government worldwide. We operate as one segment and offer facility and logistics services and information technology and network communications services. Vectrus was incorporated in the State of Indiana on February 4, 2014. On September 27, 2014, Exelis Inc. (Exelis) completed a spin-off (the Spin-off) of Vectrus, and Vectrus became an independent, publicly traded company. Unless the context otherwise requires, references in these notes to "Vectrus", "we," "us," "our," "the Company" and "our Company" refer to Vectrus, Inc. References in these notes to Exelis or "Former Parent" refer to Exelis Inc. and its consolidated subsidiaries (other than Vectrus). Basis of Presentation Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (June 28, 2019 for the second quarter of 2019 and June 29, 2018 for the second quarter of 2018), except for the last quarter of the fiscal year, which ends on December 31. For ease of presentation, the quarterly financial statements included herein are described as three months ended. The unaudited interim Condensed Consolidated Financial Statements of Vectrus have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the U.S. (GAAP) have been omitted. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and operating results. Net sales and net earnings for any interim period are not necessarily indicative of future or annual results. Leases Beginning with our January 1, 2019 adoption of the new lease accounting standard, operating leases are included on our Condensed Consolidated Balance Sheets as right-of-use (“ROU”) assets, other accrued liabilities and other non-current liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate as of January 1, 2019 was applied to operating leases in effect as of that date. The operating lease ROU asset also includes any prepaid lease payments and excludes lease incentives. Many of our leases include one or more options to renew or terminate the lease, solely at our discretion. Such options are factored into the lease term when it is reasonably certain that we will exercise the option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. As allowed under ASC Topic 842, we elected the package of practical expedients permitted under the transition guidance which allowed us to carry forward the historical lease classification, assessment of whether a contract was or contained a lease and assessment of initial direct costs. In addition, we have made policy elections to apply the short-term leases practical expedient, whereby leases with a term of 12 months or less are not capitalized and recorded on our balance sheet, and the practical expedient to not separate lease components from non-lease components. The latter expedient is applied to all of our leases. We did not elect to apply the hindsight practical expedient in determining lease terms and assessing impairment of ROU assets. See Note 2, "Recent Accounting Pronouncements" and Note 10, "Leases" for further information. Reclassifications Certain reclassifications have been made to the presentation of amounts in our Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2018 to conform to the current year presentation. Specifically, depreciation and amortization, which were combined and disclosed as one amount are now presented separately. |
Recent Accounting Pronouncements |
6 Months Ended |
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Jun. 28, 2019 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Recent Accounting Pronouncements | RECENT ACCOUNTING PRONOUNCEMENTS Accounting Standards Issued But Not Yet Effective In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15 to provide guidance on accounting for implementation costs incurred in a cloud computing arrangement (CCA) hosted by the vendor - that is a service contract. Under the new guidance, a customer will apply the same criteria for capitalizing implementation costs of a CCA as it would for an on-premises internal-use software license. Presentation of such costs, however, will vary from those required for licensed internal-use software. ASU 2018-15 is effective January 1, 2020 and can be adopted prospectively or retrospectively. Early adoption is permitted. The standard is not expected to have a material impact on our consolidated financial statements. ASU 2016-13 was issued in June 2016 with the intent of providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Current treatment uses the incurred loss methodology for recognizing credit losses that delays the recognition until it is probable a loss has been incurred. The accounting update adds a new impairment model, known as the current expected credit loss model, which is based on expected losses rather than incurred losses. Under the new guidance, an entity will recognize as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The standard is not expected to have a material impact on our consolidated financial statements. For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the Accounting Standards Updates section in our Annual Report on Form 10-K for the year ended December 31, 2018. These standards are not expected to have a material impact on our results of operations or cash flows. Accounting Standards That Were Adopted In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (Tax Act). We adopted the provisions of ASU 2018-02 during the first quarter of 2019 and recorded a $0.3 million decrease to accumulated other comprehensive income and a corresponding increase to beginning retained earnings to reflect the changes in the U.S. federal corporate income tax rate as a result of the Tax Act. As a result of the adoption of ASU 2018-02, our policy to release income tax effects in accumulated other comprehensive income is consistent with the underlying book method. In February 2016, the FASB issued ASU 2016-02, with amendments issued in 2018. The objective of ASU 2016-02 is to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The standard requires lessees to recognize most leases on the Condensed Consolidated Balance Sheets but does not change the manner in which expenses are recorded in the income statement. We adopted the standard during the first quarter of 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting comparative periods presented. See Note 1, "Description of Business and Summary of Significant Accounting Policies" and Note 10,"Leases" for further information. No other accounting standards newly issued or adopted as of January 1, 2019, had a material impact on our financial statements or disclosures. |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | REVENUE Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. To determine the proper revenue recognition method, consideration is given as to whether a single contract should be accounted for as more than one performance obligation. For most of our contracts, the customer contracts with us to perform an integrated set of tasks and deliverables as a single service solution, whereby each service is not separately identifiable from other promises in the contract. As a result, when this integrated set of tasks exists, the contract is accounted for as one performance obligation. The vast majority of our contracts have a single performance obligation. Unexercised contract options and indefinite delivery and indefinite quantity (IDIQ) contracts are considered to be separate contracts when the option or IDIQ task order is exercised or awarded. Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and therefore, are accounted for as part of the existing contract. Our performance obligations are satisfied over time as services are provided throughout the contract term. We recognize revenue over time using the input method (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Our over time recognition is reinforced by the fact that our customers simultaneously receive and consume the benefits of our services as they are performed. This continuous transfer of control requires that we track progress towards completion of performance obligations in order to measure and recognize revenue. Determining progress on performance obligations requires us to make judgments that affect the timing of revenue recognition. Remaining performance obligations represent firm orders by the customer and exclude potential orders under IDIQ contracts, unexercised contract options and contracts awarded to us that are being protested by competitors with the U.S. Government Accountability Office (GAO) or in the U.S. Court of Federal Claims. The level of order activity related to programs can be affected by the timing of government funding authorizations and their project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others. Our contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year (or less) option periods. The number of option periods varies by contract, and there is no guarantee that an option period will be exercised. The right to exercise an option period is at the sole discretion of the U.S. government when we are the prime contractor or of the prime contractor when we are a subcontractor. We expect to recognize a substantial portion of our performance obligations as revenue within the next 12 months. However, the U.S. government or the prime contractor may cancel any contract at any time through a termination for convenience or for cause. Most of our contracts have terms that would permit us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience. Remaining performance obligations increased by $302.3 million as of June 28, 2019 as compared to December 31, 2018. We expect to recognize approximately 47% of the remaining performance obligations as of June 28, 2019 as revenue in 2019, and the remaining 53% during 2020. Remaining performance obligations as of June 28, 2019 and December 31, 2018 are presented in the following table:
Contract Estimates Accounting for contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability; the complexity of the services being performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer. The impact of adjustments in contract estimates on our operating income can be reflected in either revenue or cost of revenue. Cumulative adjustments for the three and six months ended June 28, 2019 and June 29, 2018 are presented in the following table:
For the three and six months ended June 28, 2019, the net favorable adjustments to operating income increased revenue by $0.6 million and $0.2 million, respectively, and for the three and six months ended June 29, 2018, the net favorable adjustments to operating income increased revenue by $3.3 million and $6.6 million, respectively. Revenue by Category Generally, the sales price elements for our contracts are cost-plus, cost-reimbursable or firm-fixed-price. We commonly have elements of cost-plus, cost-reimbursable and firm-fixed-price contracts on a single contract. On a cost-plus type contract, we are paid our allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement, up to funding levels predetermined by our customers. On cost-plus type contracts, we do not bear the risks of unexpected cost overruns, provided that we do not incur costs that exceed the predetermined funded amounts. Most of our cost-plus contracts also contain a firm-fixed-price element. Cost-plus type contracts with award and incentive fee provisions are our primary variable contract fee arrangement. Award fees provide for a fee based on actual performance relative to contractually specified performance criteria. Incentive fees provide for a fee based on the relationship between total allowable and target cost. On most of our contracts, a cost-reimbursable element captures consumable materials required for the program. Typically, these costs do not bear fees. On a firm-fixed-price type contract, we agree to perform the contractual statement of work for a predetermined contract price. A firm-fixed-price type contract typically offers higher profit margin potential than a cost-plus type contract, which is commensurate with the greater levels of risk we assume on a firm-fixed-price type contract. Although a firm-fixed-price type contract generally permits us to retain profits if the total actual contract costs are less than the estimated contract costs, we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on the contract. Although the overall scope of work required under the contract may not change, profit may be adjusted as experience is gained and as efficiencies are realized or costs are incurred. The following tables present our revenue disaggregated by several categories. Revenue by contract type for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
Revenue by geographic region in which the contract is performed for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
Revenue by contract relationship for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
Revenue by customer for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
Contract Balances The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable (contract assets) and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we may receive advances or deposits from our customers, before revenue is recognized, resulting in contract liabilities. These advance billings and payments are not considered significant financing components because they are frequently intended to ensure that both parties are in conformance with the primary contract terms. These assets and liabilities are reported on the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. As of June 28, 2019, we had contract assets of $190.8 million. Refer to Note 7, "Receivables" for additional information regarding the composition of our receivables balances. As of June 28, 2019, our contract liabilities were insignificant. |
SENTEL Acquisition |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
SENTEL Acquisition | SENTEL ACQUISITION On January 23, 2018, we acquired 100% of the outstanding common stock of SENTEL Corporation (SENTEL). In accordance with ASC Topic 805, Business Combinations, we accounted for this transaction using the acquisition method. We conducted valuations of certain acquired assets and liabilities for inclusion in our Condensed Consolidated Balance Sheets as of the date of acquisition. Assets that normally would not be recorded in ordinary operations (i.e., intangibles related to contractual relationships) were recorded at their estimated fair values. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill. The total net consideration paid for the acquisition was $36.9 million, consisting of the purchase price of $36.0 million and $0.9 million in excess of the working capital requirement agreed upon in the stock purchase agreement entered into among our wholly-owned subsidiary Vectrus Systems Corporation (VSC), SENTEL, R&R Enterprises, Inc. and Russell T. Wright. The acquisition was funded by utilizing cash on hand and available capacity from our Amended Revolver (as defined in Note 8, "Debt"). A breakdown of the purchase price allocation, net of cash acquired, is as follows:
With the acquisition of SENTEL, we recognized two intangible assets related to customer contracts, the backlog and the contract re-competes arising from the acquisition. The fair value of the backlog was $6.5 million, and the fair value of the contract re-competes was $4.0 million with an amortization period of 4.0 years and 8.0 years, respectively. Additionally, we recognized goodwill of $16.7 million arising from the acquisition, which relates primarily to growth opportunities based on a broader service offering in the converging physical and digital infrastructure market, and enhancing our information technology, technical solutions and logistics capabilities, while expanding our client base to customers in the U.S. intelligence community. The goodwill recognized for the SENTEL acquisition is fully deductible for income tax purposes. SENTEL’s operating results have been included in our reported results since the date of acquisition. |
Income Taxes |
6 Months Ended |
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Jun. 28, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | INCOME TAXES Effective Tax Rate Our quarterly income tax expense is measured using an estimated annual effective income tax rate. The comparison of effective income tax rates between periods may be significantly affected by discrete items recognized during the periods, the level and mix of earnings by tax jurisdiction and permanent differences. For the three months ended June 28, 2019 and June 29, 2018, we recorded income tax provisions of $2.2 million and $2.7 million, respectively, representing effective income tax rates of 22.8% and 22.5%, respectively. For the six months ended June 28, 2019 and June 29, 2018, we recorded income tax provisions of $4.0 million and $4.1 million, respectively, representing effective income tax rates of 21.4% and 21.0%, respectively. The higher effective income tax rates for the 2019 periods are the result of one-time discretionary items. The effective income tax rates vary from the federal statutory rate of 21.0% due to state taxes, required tax income exclusions, nondeductible expenses and available deductions not reflected in book income. Uncertain Tax Provisions As of June 28, 2019 and December 31, 2018, unrecognized tax benefits from uncertain tax positions were $2.3 million and $1.8 million, respectively. |
Earnings Per Share |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | EARNINGS PER SHARE Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects potential dilution that could occur if securities to issue common stock were exercised or converted into common stock. Diluted EPS includes the dilutive effect of stock-based compensation outstanding after application of the treasury stock method.
The following table provides a summary of securities that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented:
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Receivables |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables | RECEIVABLES Receivables were comprised of the following:
As of June 28, 2019 and December 31, 2018, all billed receivables are due from the U.S. government, either directly as prime contractor to the U.S. government or as subcontractor to another prime contractor to the U.S. government. Because our billed receivables are with the U.S. government, we do not believe they represent a material credit risk exposure. Unbilled receivables are contract assets that represent revenue recognized on long-term contracts in excess of amounts billed as of the balance sheet date. We estimate that approximately $5.2 million of our unbilled receivables as of June 28, 2019 may not be collected within the next 12 months. These amounts relate to the timing of the U.S. government review of indirect rates and contract line item realignments with our customers. Changes in the balance of receivables are primarily due to the timing differences between our performance and customers' payments. |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Debt | DEBT Senior Secured Credit Facilities Term Loan and Revolver. In September 2014, we and our wholly-owned subsidiary, VSC, entered into a credit agreement with a group of lenders, including JPMorgan Chase Bank, N.A. as administrative agent. The credit agreement was subsequently amended in November 2017 by the Amendment and Restatement Agreement (the Amendment Agreement) with a group of lenders, including JPMorgan Chase Bank, N.A., as administrative agent. The Amendment Agreement provides for $200.0 million in senior secured financing, consisting of a $80.0 million five-year term loan facility (the Amended Term Loan) and a $120.0 million five-year senior secured revolving credit facility (the Amended Revolver, and together with the Amended Term Loan, the Amended Credit Facilities). The Amended Revolver is available for working capital, capital expenditures, and other general corporate purposes. Up to $25.0 million of the Amended Revolver is available for the issuance of letters of credit. There were no outstanding borrowings under the Amended Revolver at June 28, 2019. As of June 28, 2019, there were seven letters of credit outstanding in the aggregate amount of $8.1 million, which reduced our borrowing availability to $111.9 million under the Amended Revolver. The Amended Revolver will mature and the commitments thereunder will terminate on November 15, 2022. The aggregate scheduled maturities of the Amended Term Loan are as follows:
We may voluntarily prepay the Amended Term Loan in whole or in part at any time without premium or penalty, subject to the payment of customary breakage costs under certain conditions. Amounts borrowed under the Amended Term Loan that are repaid or prepaid may not be re-borrowed. The Amended Credit Facilities contain customary covenants, including covenants that, under certain circumstances and subject to certain qualifications and exceptions: limit or restrict our ability to incur additional indebtedness; merge, dissolve, liquidate or consolidate; make acquisitions, investments, advances or loans; dispose of or transfer assets; pay dividends; redeem or repurchase certain debt; and enter into certain restrictive agreements. As of June 28, 2019, the maximum amount of dividends we could pay was $19.3 million. For further discussion on dividends, please refer to "Liquidity and Capital Resources - Dividends" in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. In addition, we are required to comply with (a) a maximum ratio of total consolidated indebtedness to consolidated earnings before interest, tax, depreciation and amortization (EBITDA) of 3.00 to 1.00 (3.25 to 1.00 for the 12 months following a qualified acquisition), and (b) a minimum ratio of consolidated EBITDA to consolidated interest expense (net of cash interest income) of 4.50 to 1.00. As of June 28, 2019, we had a ratio of total consolidated indebtedness to EBITDA of 1.17 to 1.00 and a ratio of consolidated EBITDA to consolidated interest expense of 10.84 to 1.00. We were in compliance with all covenants related to the Amended Credit Facilities as of June 28, 2019. Interest Rates and Fees. Outstanding borrowings under the Amended Credit Facilities accrue interest, at our option, at a per annum rate of (i) LIBOR plus the applicable margin, which ranges from 1.75% to 2.50% depending on the leverage ratio, or (ii) a base rate plus the applicable margin, which ranges from 0.75% to 1.50% depending on the leverage ratio. The interest rate under the Amended Credit Facilities at June 28, 2019 was 4.41%. Carrying Value and Fair Value. As of June 28, 2019 and December 31, 2018, the fair value of the Amended Credit Facilities approximated the carrying value because the debt bears interest at a floating rate of interest. The fair value is based on observable inputs of interest rates that are currently available to us for debt with similar terms and maturities for non-public debt. |
Derivative Instruments |
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Derivative Instruments | DERIVATIVE INSTRUMENTS During the periods covered by this report, we have made no changes to our policies or strategies for the use of derivative instruments and there has been no change in our related accounting methods. Interest Rate Derivative Instruments Our interest rate swaps are designated and qualify as effective cash flow hedges. The contracts, with expiration dates through November 2022 and notional amounts totaling $54.9 million at June 28, 2019, are recorded at fair value. The following table summarizes the amount at fair value and location of the derivative instruments used for our interest rate hedges in the Condensed Consolidated Balance Sheets as of June 28, 2019:
The following table summarizes the amount at fair value and location of the derivative instruments used for our interest rate hedges in the Condensed Consolidated Balance Sheets as of December 31, 2018:
We regularly assess the creditworthiness of the counterparty. As of June 28, 2019, the counterparty to the interest rate swaps had performed in accordance with its contractual obligations. Both the counterparty credit risk and our credit risk were considered in the fair value determination. Foreign Currency Derivative Instruments The following table summarizes the amount at fair value and location of the derivative instruments used for our forward contract hedges in the Condensed Consolidated Balance Sheets as of June 28, 2019:
The following table summarizes the amount at fair value and location of the derivative instruments used for our forward contract hedges in the Condensed Consolidated Balance Sheets as of December 31, 2018:
At June 28, 2019, we had outstanding foreign currency forward contracts, for the exchange of U.S. dollars and Euros, with a notional amount of $7.9 million and expiration dates through December 2020. Counterparty default risk is considered low because the forward contracts that we entered into are over-the-counter instruments transacted with highly-rated financial institutions. We were not required to, and did not, post collateral as of June 28, 2019. The current estimated value of net losses for the above derivative instruments anticipated to be transferred from accumulated other comprehensive income into earnings over the next 12 months is $0.5 million. |
Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | Leases We determine whether an arrangement contains a lease at inception. We have operating leases for office space, apartments, vehicles, and machinery and equipment. Our operating leases have lease terms of less than one year to ten years. We do not separate lease components (e.g., fixed payments for rent) from non-lease components (e.g., common area maintenance) but account for the non-lease components and non-components (e.g., property taxes and insurance) in a contract as part of the single lease component to which they are related. The components of lease expense are as follows:
Supplemental balance sheet information related to our operating leases is as follows:
Initial ROU assets of $19.2 million were recognized as non-cash asset additions when the new lease accounting standard was adopted on January 1, 2019. Additional ROU assets of $5.2 million were recognized as non-cash asset additions that resulted from new operating lease liabilities during the first half of 2019. The weighted average remaining lease term and discount rate for our operating leases at June 28, 2019 were 3.9 years and 6.0%, respectively. Maturities of lease liabilities at June 28, 2019 were as follows:
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Goodwill and Intangible Assets |
6 Months Ended |
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Jun. 28, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Intangible Assets | GOODWILL AND INTANGIBLE ASSETS As of both June 28, 2019 and December 31, 2018, the carrying amount of goodwill was $233.6 million. There was no related activity during the first six months of 2019. As of June 28, 2019 and December 31, 2018, the carrying amount of intangible assets was approximately $13.9 million and $8.6 million, respectively. The increase during the first six months of 2019 was due to $6.5 million of new amortizable intangible assets purchased during the first quarter of 2019. This increase was offset by intangible amortization expense of approximately $0.7 million and $1.3 million for the three and six months ended June 28, 2019, respectively. Intangible amortization expense for the three and six months ended June 29, 2018 was $0.5 million and $0.9 million, respectively. Amortizing intangible assets, which carry a remaining average life of approximately 6 years, are principally composed of customer contracts, related backlogs and re-competes. |
Stock-Based Compensation |
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Stock-Based Compensation | STOCK-BASED COMPENSATION We maintain an equity incentive plan (the 2014 Omnibus Plan) to govern awards granted to Vectrus employees and directors, including nonqualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards and other awards. We account for NQOs and stock-settled RSUs as equity-based compensation awards. TSR awards, described below, and cash-settled RSUs are accounted for as liability-based compensation awards. Stock-based compensation expense and the associated tax benefits impacting our Condensed Consolidated Statements of Income were as follows:
Liability-based awards are revalued at the end of each reporting period to reflect changes in fair value. As of June 28, 2019, total unrecognized compensation costs related to equity-based awards and liability-based awards were $6.4 million and $4.1 million, respectively, which are expected to be recognized ratably over a weighted average period of 1.95 years and 2.15 years, respectively. The following table provides a summary of the activities for NQOs and RSUs for the six months ended June 28, 2019:
During the six months ended June 28, 2019, we granted long term incentive awards to employees consisting of 170,361 RSUs with a weighted average grant date fair value per share of $28.06 and to our directors consisting of 25,246 RSUs with a weighted average grant date fair value per share of $38.42. For employee RSUs, one-third of the award vests on each of the three anniversary dates following the grant date. Director RSUs are granted on the date of an annual meeting of shareholders and vest on the business day immediately prior to the next annual meeting. The fair value of each RSU grant was determined based on the closing price of Vectrus common stock on the date of grant. Stock compensation expense will be recognized ratably over the vesting period of the awards. Total Shareholder Return Awards TSR awards are performance-based cash awards that are subject to a three-year performance period. Any payments earned are made in cash following completion of the performance period according to the achievement of specified performance goals. During the six months ended June 28, 2019, we granted TSR awards with an aggregate target TSR value of $2.3 million. The fair value of TSR awards is measured quarterly and is based on the Company’s performance relative to the performance of the Aerospace and Defense Companies in the S&P 1500 Index. Depending on the Company’s performance during the three-year performance period, payments can range from 0% to 200% of the target value. |
Commitments and Contingencies |
6 Months Ended |
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Jun. 28, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES General From time to time, we are involved in legal proceedings that are incidental to the operation of our business. Some of these proceedings seek remedies relating to employment matters, matters in connection with our contracts and matters arising under laws relating to the protection of the environment. Additionally, U.S. government customers periodically advise the Company of claims and penalties concerning certain potential disallowed costs. When such findings are presented, Vectrus and the U.S. government representatives engage in discussions to enable Vectrus to evaluate the merits of these claims as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect probable losses related to the matters raised by the U.S. government representatives. Such assessments, along with any assessments regarding provisions for legal proceedings, are reviewed on a quarterly basis for sufficiency based on the most recent information available to us. We have estimated and accrued $11.3 million and $7.8 million as of June 28, 2019 and December 31, 2018, respectively, in "Other accrued liabilities" in the Condensed Consolidated Balance Sheets for legal proceedings and for claims with respect to our government contracts as discussed below, including open years subject to audit. Although the ultimate outcome of any legal matter or claim cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claim, we do not expect that any asserted or unasserted legal or contractual claims or proceedings, individually or in the aggregate, including the lawsuit discussed below, will have a material adverse effect on our cash flow, results of operations or financial condition. U.S. Government Contracts, Investigations and Claims We have U.S. government contracts that are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could have a material adverse effect on our financial condition or results of operations. Furthermore, our contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause. Such contract suspensions or terminations could result in unreimbursable expenses or charges or otherwise adversely affect our financial condition and results of operations. Departments and agencies of the U.S. government have the authority to investigate various transactions and operations of the Company, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on the Company because of its reliance on U.S. government contracts. U.S. government agencies, including the Defense Contract Audit Agency, the Defense Contract Management Agency and others, routinely audit and review our performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. Accordingly, costs billed or billable to U.S. government customers are subject to potential adjustment upon audit by such agencies. The U.S. government agencies also review the adequacy of our compliance with government standards for our business systems, including our accounting, earned value management, estimating, materials management and accounting, purchasing, and property management systems. As a result of final indirect rate negotiations between the U.S. government and our Former Parent, we may be subject to potential adjustments to costs previously allocated by our Former Parent to our business, which was formerly Exelis’ Mission Systems Business, from 2007 through September 2014. Because we do not participate in indirect rate negotiations between the U.S. government and our Former Parent, we cannot reasonably predict the likelihood of such adjustments or the ultimate responsible party. We have recently been in discussions with our Former Parent regarding the negotiated adjustments for 2007-2014 and believe that our potential cumulative liability for these years is insignificant. In June 2019, the U.S. government provided us with the Contracting Officer's Final Decision for the years 2007 - 2010 related to Former Parent costs. We believe we are fully indemnified under our Distribution Agreement with our Former Parent. We have notified our Former Parent of the U.S. government's decision in this matter. |
Subsequent Events |
6 Months Ended |
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Jun. 28, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | SUBSEQUENT EVENTS On July 8, 2019, we acquired Advantor Systems Corporation and Advantor Systems, LLC (collectively, "Advantor") from Infrasafe Holding, Inc. and Infrasafe, LLC (collectively, "Infrasafe"). Advantor, a leading provider of integrated electronic security systems to the U.S. government, was acquired for cash consideration of $44 million, subject to customary adjustments at and following the closing. The transaction was funded with cash on hand and from our credit facility. |
Description of Business and Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
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Jun. 28, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Our Business and Basis of Presentation | Basis of Presentation Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (June 28, 2019 for the second quarter of 2019 and June 29, 2018 for the second quarter of 2018), except for the last quarter of the fiscal year, which ends on December 31. For ease of presentation, the quarterly financial statements included herein are described as three months ended. The unaudited interim Condensed Consolidated Financial Statements of Vectrus have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the U.S. (GAAP) have been omitted. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and operating results. Net sales and net earnings for any interim period are not necessarily indicative of future or annual results. Our Business Vectrus, Inc. is a leading provider of services to the United States (U.S.) government worldwide. We operate as one segment and offer facility and logistics services and information technology and network communications services. Vectrus was incorporated in the State of Indiana on February 4, 2014. On September 27, 2014, Exelis Inc. (Exelis) completed a spin-off (the Spin-off) of Vectrus, and Vectrus became an independent, publicly traded company. |
Leases | Leases Beginning with our January 1, 2019 adoption of the new lease accounting standard, operating leases are included on our Condensed Consolidated Balance Sheets as right-of-use (“ROU”) assets, other accrued liabilities and other non-current liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate as of January 1, 2019 was applied to operating leases in effect as of that date. The operating lease ROU asset also includes any prepaid lease payments and excludes lease incentives. Many of our leases include one or more options to renew or terminate the lease, solely at our discretion. Such options are factored into the lease term when it is reasonably certain that we will exercise the option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. As allowed under ASC Topic 842, we elected the package of practical expedients permitted under the transition guidance which allowed us to carry forward the historical lease classification, assessment of whether a contract was or contained a lease and assessment of initial direct costs. In addition, we have made policy elections to apply the short-term leases practical expedient, whereby leases with a term of 12 months or less are not capitalized and recorded on our balance sheet, and the practical expedient to not separate lease components from non-lease components. The latter expedient is applied to all of our leases. We did not elect to apply the hindsight practical expedient in determining lease terms and assessing impairment of ROU assets. |
Reclassifications | Reclassifications Certain reclassifications have been made to the presentation of amounts in our Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2018 to conform to the current year presentation. Specifically, depreciation and amortization, which were combined and disclosed as one amount are now presented separately |
Accounting Standards Issued But Not Yet Effective and Accounting Standards That Were Adopted | RECENT ACCOUNTING PRONOUNCEMENTS Accounting Standards Issued But Not Yet Effective In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15 to provide guidance on accounting for implementation costs incurred in a cloud computing arrangement (CCA) hosted by the vendor - that is a service contract. Under the new guidance, a customer will apply the same criteria for capitalizing implementation costs of a CCA as it would for an on-premises internal-use software license. Presentation of such costs, however, will vary from those required for licensed internal-use software. ASU 2018-15 is effective January 1, 2020 and can be adopted prospectively or retrospectively. Early adoption is permitted. The standard is not expected to have a material impact on our consolidated financial statements. ASU 2016-13 was issued in June 2016 with the intent of providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Current treatment uses the incurred loss methodology for recognizing credit losses that delays the recognition until it is probable a loss has been incurred. The accounting update adds a new impairment model, known as the current expected credit loss model, which is based on expected losses rather than incurred losses. Under the new guidance, an entity will recognize as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The standard is not expected to have a material impact on our consolidated financial statements. For a discussion of other accounting standards that have been issued by the FASB but are not yet effective, refer to the Accounting Standards Updates section in our Annual Report on Form 10-K for the year ended December 31, 2018. These standards are not expected to have a material impact on our results of operations or cash flows. Accounting Standards That Were Adopted In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (Tax Act). We adopted the provisions of ASU 2018-02 during the first quarter of 2019 and recorded a $0.3 million decrease to accumulated other comprehensive income and a corresponding increase to beginning retained earnings to reflect the changes in the U.S. federal corporate income tax rate as a result of the Tax Act. As a result of the adoption of ASU 2018-02, our policy to release income tax effects in accumulated other comprehensive income is consistent with the underlying book method. In February 2016, the FASB issued ASU 2016-02, with amendments issued in 2018. The objective of ASU 2016-02 is to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The standard requires lessees to recognize most leases on the Condensed Consolidated Balance Sheets but does not change the manner in which expenses are recorded in the income statement. We adopted the standard during the first quarter of 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting comparative periods presented. See Note 1, "Description of Business and Summary of Significant Accounting Policies" and Note 10,"Leases" for further information. No other accounting standards newly issued or adopted as of January 1, 2019, had a material impact on our financial statements or disclosures. |
Revenue (Tables) |
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Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Remaining Performance Obligation | Remaining performance obligations as of June 28, 2019 and December 31, 2018 are presented in the following table:
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Contract with Customer, Asset and Liability | Cumulative adjustments for the three and six months ended June 28, 2019 and June 29, 2018 are presented in the following table:
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Disaggregation of Revenue | The following tables present our revenue disaggregated by several categories. Revenue by contract type for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
Revenue by geographic region in which the contract is performed for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
Revenue by contract relationship for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
Revenue by customer for the three and six months ended June 28, 2019 and June 29, 2018 is as follows:
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SENTEL Acquisition (Tables) |
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Jun. 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
Purchase Price Allocation | A breakdown of the purchase price allocation, net of cash acquired, is as follows:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Basic and Diluted Weighted Average Shares Outstanding | Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects potential dilution that could occur if securities to issue common stock were exercised or converted into common stock. Diluted EPS includes the dilutive effect of stock-based compensation outstanding after application of the treasury stock method.
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | The following table provides a summary of securities that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented:
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Receivables (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Receivables | Receivables were comprised of the following:
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Debt (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Schedule of Maturities of Long-term Debt | The aggregate scheduled maturities of the Amended Term Loan are as follows:
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Derivative Instruments (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Liabilities at Fair Value | The following table summarizes the amount at fair value and location of the derivative instruments used for our interest rate hedges in the Condensed Consolidated Balance Sheets as of June 28, 2019:
The following table summarizes the amount at fair value and location of the derivative instruments used for our interest rate hedges in the Condensed Consolidated Balance Sheets as of December 31, 2018:
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Schedule of Foreign Exchange Contracts, Statement of Financial Position | The following table summarizes the amount at fair value and location of the derivative instruments used for our forward contract hedges in the Condensed Consolidated Balance Sheets as of June 28, 2019:
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Schedule of Notional Amounts of Outstanding Derivative Positions | The following table summarizes the amount at fair value and location of the derivative instruments used for our forward contract hedges in the Condensed Consolidated Balance Sheets as of December 31, 2018:
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Leases (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of lease expense | The components of lease expense are as follows:
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Balance sheet information related to leases | Supplemental balance sheet information related to our operating leases is as follows:
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Maturity of lease liabilities | Maturities of lease liabilities at June 28, 2019 were as follows:
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Stock-Based Compensation (Tables) |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Impact of Stock-Based Compensation in Consolidation and Combined Statements of Income | Stock-based compensation expense and the associated tax benefits impacting our Condensed Consolidated Statements of Income were as follows:
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Schedule of Non-Qualified Stock Options, Activity | The following table provides a summary of the activities for NQOs and RSUs for the six months ended June 28, 2019:
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Description of Business and Summary of Significant Accounting Policies - Additional Information (Details) |
6 Months Ended |
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Jun. 28, 2019
segment
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Number of reportable segments | 1 |
Recent Accounting Pronouncements - Additional Information (Details) - USD ($) $ in Thousands |
Jan. 01, 2019 |
Jan. 01, 2018 |
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New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Impact of adoption of ASU | $ 0 | $ (77) |
Accumulated Other Comprehensive Income | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Impact of adoption of ASU | (259) | |
Accumulated Other Comprehensive Income | ASU 2018-02 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Impact of adoption of ASU | (300) | |
Retained Earnings | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Impact of adoption of ASU | 259 | $ (77) |
Retained Earnings | ASU 2018-02 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Impact of adoption of ASU | $ 300 |
Revenue - Revenue Performance Obligations (Details) - USD ($) $ in Millions |
6 Months Ended | |
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Jun. 28, 2019 |
Dec. 31, 2018 |
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Revenue from Contract with Customer [Abstract] | ||
Increase in remaining performance obligations | $ 302.3 | |
Performance Obligations | $ 1,160.0 | $ 858.0 |
Revenue - Revenue Contract Estimates (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
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Revenue from Contract with Customer [Abstract] | ||||
Favorable adjustments | $ 2,660 | $ 6,282 | $ 5,162 | $ 10,435 |
Unfavorable adjustments | (783) | (2,573) | (4,368) | (3,884) |
Net favorable adjustments | 1,877 | 3,709 | 794 | 6,551 |
Net favorable adjustment to operating income | $ 600 | $ 3,300 | $ 200 | $ 6,600 |
Revenue - Revenue by Contract Type (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
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Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 331,589 | $ 321,132 | $ 657,517 | $ 641,649 |
Cost-plus and cost-reimbursable | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | 256,737 | 242,742 | 508,215 | 472,951 |
Firm-fixed-price | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 74,852 | $ 78,390 | $ 149,302 | $ 168,698 |
Revenue - Revenue by Geographic Region (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
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Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 331,589 | $ 321,132 | $ 657,517 | $ 641,649 |
Middle East | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | 223,588 | 219,218 | 450,004 | 439,098 |
United States | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | 72,376 | 74,847 | 143,786 | 148,636 |
Europe | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 35,625 | $ 27,067 | $ 63,727 | $ 53,915 |
Revenue - Revenue by Contract Relationship (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|
Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 331,589 | $ 321,132 | $ 657,517 | $ 641,649 |
Prime contractor | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | 312,732 | 301,088 | 619,789 | 602,116 |
Subcontractor | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 18,857 | $ 20,044 | $ 37,728 | $ 39,533 |
Revenue - Revenue by Customer (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|
Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 331,589 | $ 321,132 | $ 657,517 | $ 641,649 |
Army | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | 225,867 | 238,381 | 452,559 | 476,228 |
Air Force | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | 72,593 | 60,420 | 140,524 | 125,676 |
Navy | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | 16,796 | 9,987 | 31,906 | 18,344 |
Other | ||||
Disaggregation of Revenue [Line Items] | ||||
Total revenue | $ 16,333 | $ 12,344 | $ 32,528 | $ 21,401 |
Revenue - Revenue Contract Balances (Details) $ in Millions |
Jun. 28, 2019
USD ($)
|
---|---|
Revenue from Contract with Customer [Abstract] | |
Contract assets | $ 190.8 |
Contract liability | $ 0.0 |
SENTAL Acquisition - Additional Information (Details) - USD ($) $ in Thousands |
6 Months Ended | |||
---|---|---|---|---|
Jan. 23, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
Dec. 31, 2018 |
|
Acquired Finite-Lived Intangible Assets [Line Items] | ||||
Preliminary purchase price, net of cash acquired | $ 0 | $ 37,210 | ||
Consideration transferred | $ 36,000 | |||
Working capital adjustments | $ 900 | |||
Goodwill | $ 233,619 | $ 233,619 | ||
SENTEL | ||||
Acquired Finite-Lived Intangible Assets [Line Items] | ||||
Percentage of outstanding common stock acquired | 100.00% | |||
Preliminary purchase price, net of cash acquired | $ 36,900 | |||
Goodwill | 16,689 | |||
SENTEL | Backlog | ||||
Acquired Finite-Lived Intangible Assets [Line Items] | ||||
Intangible assets | $ 6,500 | |||
Amortization period | 4 years | |||
SENTEL | Re-competes | ||||
Acquired Finite-Lived Intangible Assets [Line Items] | ||||
Intangible assets | $ 4,000 | |||
Amortization period | 8 years |
SENTAL Acquisition - Business Acquisition (Details) - USD ($) $ in Thousands |
Jun. 28, 2019 |
Dec. 31, 2018 |
Jan. 23, 2018 |
---|---|---|---|
Business Acquisition [Line Items] | |||
Goodwill | $ 233,619 | $ 233,619 | |
SENTEL | |||
Business Acquisition [Line Items] | |||
Receivables | $ 23,339 | ||
Property, plant and equipment | 810 | ||
Goodwill | 16,689 | ||
Intangible assets | 10,500 | ||
Other current assets | 975 | ||
Accounts payable | (10,012) | ||
Other current liabilities | (5,446) | ||
Price, net of cash acquired | $ 36,855 |
Income Taxes - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
Dec. 31, 2018 |
|
Income Tax Disclosure [Abstract] | |||||
Provision for income taxes | $ 2,247 | $ 2,663 | $ 3,994 | $ 4,058 | |
Effective income tax rate | 22.80% | 22.50% | 21.40% | 21.00% | |
Unrecognized tax benefits | $ 2,300 | $ 2,300 | $ 1,800 |
Earnings Per Share - Reconciliation of Basic and Diluted Weighted Average Shares Outstanding (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 28, 2019 |
Mar. 29, 2019 |
Jun. 29, 2018 |
Mar. 30, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|
Earnings Per Share [Abstract] | ||||||
Net income | $ 7,617 | $ 7,091 | $ 9,195 | $ 6,111 | $ 14,708 | $ 15,307 |
Weighted average common shares outstanding (in shares) | 11,455 | 11,235 | 11,376 | 11,191 | ||
Add: Dilutive impact of stock options (in shares) | 41 | 68 | 42 | 72 | ||
Add: Dilutive impact of restricted stock units (in shares) | 109 | 80 | 94 | 88 | ||
Diluted weighted average common shares outstanding (in shares) | 11,605 | 11,383 | 11,512 | 11,351 | ||
Earnings per share | ||||||
Basic (in dollars per share) | $ 0.66 | $ 0.82 | $ 1.29 | $ 1.37 | ||
Diluted (in dollars per share) | $ 0.66 | $ 0.81 | $ 1.28 | $ 1.35 |
Earnings Per Share - Anti-dilutive Options (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive stock options (in shares) | 0 | 1 | 3 | 1 |
Anti-dilutive stock options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive stock options (in shares) | 0 | 1 | 1 | 1 |
Anti-dilutive restricted stock units | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive stock options (in shares) | 0 | 0 | 2 | 0 |
Receivables - Schedule of Receivables (Details) - USD ($) $ in Thousands |
Jun. 28, 2019 |
Dec. 31, 2018 |
---|---|---|
Receivables [Abstract] | ||
Billed receivables | $ 35,321 | $ 44,868 |
Unbilled receivables (contract assets) | 190,802 | 181,009 |
Other | 11,124 | 6,242 |
Total receivables | 237,247 | $ 232,119 |
Estimate of unbilled contract receivables | $ 5,200 |
Debt - Schedule of Maturities (Details) - Term facility $ in Thousands |
Jun. 28, 2019
USD ($)
|
---|---|
Payments due | |
2019 (excluding the six months ended June 28, 2019) | $ 2,500 |
2020 | 6,500 |
2021 | 8,600 |
2022 | 55,400 |
Total | $ 73,000 |
Derivative Instruments - Additional Information (Details) $ in Millions |
6 Months Ended |
---|---|
Jun. 28, 2019
USD ($)
| |
Derivative [Line Items] | |
Derivative instruments anticipated to be transferred from AOCI over the next twelve months | $ 0.5 |
Cash Flow Hedging | Interest Rate Swap | Designated as hedging instrument | |
Derivative [Line Items] | |
Derivative, notional amount | 54.9 |
Cash Flow Hedging | Foreign Exchange Forward | Designated as hedging instrument | |
Derivative [Line Items] | |
Derivative, notional amount | $ 7.9 |
Derivative Instruments - Interest Rate Hedges in the Condensed Consolidated Balance Sheets (Details) - Cash Flow Hedging - Designated as hedging instrument - Interest Rate Swap - USD ($) $ in Thousands |
Jun. 28, 2019 |
Dec. 31, 2018 |
---|---|---|
Other current assets | ||
Derivative [Line Items] | ||
Interest rate swap designated as cash flow hedge, assets | $ 121 | |
Other accrued liabilities | ||
Derivative [Line Items] | ||
Interest rate swap designated as cash flow hedge, liability | $ 207 | |
Other non-current liabilities | ||
Derivative [Line Items] | ||
Interest rate swap designated as cash flow hedge, liability | $ 891 | |
Other non-current assets | ||
Derivative [Line Items] | ||
Interest rate swap designated as cash flow hedge, assets | $ 104 |
Derivative Instruments - Forward Contract Hedges in the Consolidated Condensed Balance Sheets (Details) - Cash Flow Hedging - Designated as hedging instrument - Foreign Exchange Forward - USD ($) $ in Thousands |
Jun. 28, 2019 |
Dec. 31, 2018 |
---|---|---|
Other accrued liabilities | ||
Derivative [Line Items] | ||
Foreign currency forward designated as cash flow hedge, liability | $ 285 | $ 351 |
Other non-current assets | ||
Derivative [Line Items] | ||
Foreign currency forward designated as cash flow hedge, asset | $ 12 | |
Other non-current liabilities | ||
Derivative [Line Items] | ||
Foreign currency forward designated as cash flow hedge, liability | $ 7 |
Leases - Additional Information (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 28, 2019 |
Jan. 01, 2019 |
|
Lessee, Lease, Description [Line Items] | ||
Right-of-use assets | $ 17,987 | |
Right-of-use assets resulting from new operating lease liabilities | $ 5,200 | |
Weighted average remaining lease term | 3 years 10 months 20 days | |
Weighted average remaining discount rate | 6.00% | |
ASU 2016-02 | ||
Lessee, Lease, Description [Line Items] | ||
Right-of-use assets | $ 19,200 | |
Minimum | ||
Lessee, Lease, Description [Line Items] | ||
Operating lease terms | 1 year | |
Maximum | ||
Lessee, Lease, Description [Line Items] | ||
Operating lease terms | 10 years |
Leases - Components of Lease Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 28, 2019 |
Jun. 28, 2019 |
|
Leases [Abstract] | ||
Operating lease expense | $ 3,647 | $ 7,063 |
Variable lease expense | 225 | 398 |
Short-term lease expense | 11,422 | 22,619 |
Total lease expense | $ 15,294 | $ 30,080 |
Leases - Balance Sheet Information Related to Leases (Details) $ in Thousands |
Jun. 28, 2019
USD ($)
|
---|---|
Leases [Abstract] | |
Right-of-use assets | $ 17,987 |
Current lease liabilities (recorded in other accrued liabilities) | 10,112 |
Long-term lease liabilities (recorded in other non-current liabilities) | 8,658 |
Total operating lease liabilities | $ 18,770 |
Leases - Maturities of Lease Liabilities (Details) $ in Thousands |
Jun. 28, 2019
USD ($)
|
---|---|
Leases [Abstract] | |
2019 (excluding the six months ended June 28, 2019) | $ 7,143 |
2020 | 5,511 |
2021 | 2,076 |
2022 | 1,248 |
2023 | 1,282 |
2024 and beyond | 4,543 |
Total lease payments | 21,803 |
Less: Imputed interest | 3,033 |
Total operating lease liabilities | $ 18,770 |
Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
Dec. 31, 2018 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | |||||
Goodwill | $ 233,619 | $ 233,619 | $ 233,619 | ||
Intangible assets | 13,900 | 13,900 | $ 8,600 | ||
Intangible assets acquired | 6,500 | ||||
Amortization of intangible assets | $ 700 | $ 500 | $ 1,277 | $ 937 | |
Remaining average life | 6 years |
Stock-Based Compensation - Schedule of Impact of Stock-Based Compensation in Condensed Consolidated Statements of Income (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 28, 2019 |
Jun. 29, 2018 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
Compensation cost for awards | $ 2,569 | $ 1,106 | $ 4,031 | $ 2,521 |
Future tax benefit | 556 | 239 | 872 | 545 |
Compensation costs for equity-based awards | ||||
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
Compensation cost for awards | 1,099 | 908 | 2,216 | 1,775 |
Compensation costs for liability-based awards | ||||
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
Compensation cost for awards | $ 1,470 | $ 198 | $ 1,815 | $ 746 |
Commitments and Contingencies - Additional Information (Details) - USD ($) $ in Millions |
Jun. 28, 2019 |
Dec. 31, 2018 |
---|---|---|
Contract compliance | ||
Loss Contingencies [Line Items] | ||
Contracts loss contingency accrual | $ 11.3 | $ 7.8 |
Subsequent Events (Details) - USD ($) $ in Thousands |
6 Months Ended | ||
---|---|---|---|
Jul. 08, 2019 |
Jun. 28, 2019 |
Jun. 29, 2018 |
|
Subsequent Event [Line Items] | |||
Acquisition cash purchase price | $ 0 | $ 37,210 | |
Advantor Systems Corporation | Subsequent event | |||
Subsequent Event [Line Items] | |||
Acquisition cash purchase price | $ 44,000 |
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