NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended
December 31, 2017
,
2016
and
2015
|
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1.
|
Description of the Business
|
ManTech International Corporation (depending on the circumstances, “ManTech” “Company” “we” “our” “ours” or “us”) provide mission-focused technology solutions and services for U.S. defense, intelligence community and federal civilian agencies. Now in our 50th year, we excel in full-spectrum cyber, data collection & analytics, enterprise IT, systems engineering and software application development solutions that support national and homeland security.
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|
2.
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Summary of Significant Accounting
Policies
|
Principles of Consolidation
-Our consolidated financial statements include the accounts of ManTech International Corporation, subsidiaries we control and variable interest entities that are required to be consolidated. All intercompany accounts and transactions have been eliminated.
Use of Accounting Estimates
-We prepare our consolidated financial statements in conformity with U.S. GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates involve judgments with respect to, among other things, various future economic factors that are difficult to predict and are beyond the control of us. Therefore, actual amounts could differ from these estimates.
Revenue Recognition
-We derive the majority of our revenues from cost-plus-fixed-fee, cost-plus-award-fee, fixed-price and time-and-materials contracts. Revenues for cost-reimbursable contracts are recorded as reimbursable costs are incurred, including an estimated share of the applicable contractual fees earned. For performance-based fees under cost-reimbursable contracts, we recognize the relevant portion of the expected fee to be awarded by the customer at the time such fee can be reasonably estimated, based on factors such as our prior award experience and communications with the customer regarding performance, or upon approval by the customer. For time-and-materials contracts, revenues are recognized to the extent of billable rates times hours delivered plus materials and other reimbursable costs incurred. For long-term fixed-price contracts, revenues are recognized at a rate per unit as the units are delivered or by other methods to measure services provided. Revenues from other long-term fixed-price contracts are recognized ratably over the contract period or by other appropriate methods to measure services provided. Contract costs are expensed as incurred except for certain limited long-term contracts noted below.
For long-term contracts, specifically described in the scope section of ASC
605-35
,
Revenue Recognition - Construction-Type and Production-Type Contracts
, we apply the percentage of completion method. Under the percentage of completion method, income is recognized at a consistent profit margin over the period of performance based on estimated profit margins at completion of the contract. This method of accounting requires estimating the total revenues and total contract cost at completion of the contract. During the performance of long-term contracts, these estimates are periodically reviewed and revisions are made as required using the cumulative catch-up method of accounting. The impact on revenues and contract profit as a result of these revisions is included in the periods in which the revisions are made. This method can result in the deferral of costs or the deferral of profit on these contracts. Because we assume the risk of performing a fixed-price contract at a set price, the failure to accurately estimate ultimate costs or to control costs during performance of the work could result, and in some instances has resulted, in reduced profits or losses for such contracts. Estimated losses on contracts at completion are recognized when identified. In certain circumstances, revenues are recognized when contract amendments have not been finalized.
Cost of Services
-Cost of services consists primarily of compensation expenses for program personnel, the fringe benefits associated with this compensation and other direct expenses incurred to complete programs, including cost of materials and subcontractor efforts.
General and Administrative Expenses-
General and administrative expenses include the salaries and wages, plus associated fringe benefits of our employees not performing work directly for customers, and associated facilities costs. Among the functions covered by these costs are corporate business development, bid and proposal, contracts administration, finance and accounting, legal, corporate governance and executive and senior management. In addition, we include stock-based compensation, as well as depreciation and amortization expenses related to the general and administrative function. We recognize interest related to unrecognized tax benefits within interest expense and penalties related to unrecognized tax benefits in general and administrative expenses.
We classify indirect costs incurred as cost of services and general and administrative expenses in the same manner as such
costs are defined in our disclosure statements under U.S. Government Cost Accounting Standards.
Cash and Cash Equivalents
-For the purpose of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and short-term investments with maturity dates of
three months
or less at the date of purchase.
Property and Equipment
-Property and equipment are recorded at original cost to us. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss is included in income. Maintenance and repairs are charged to expense as incurred.
Depreciation and Amortization Method
-Furniture and office equipment are depreciated using the straight-line method with estimated useful lives ranging from
one
to
seven years
. Leasehold improvements are amortized using the straight-line method over the shorter of the asset's useful life or the term of the lease.
Goodwill
-The purchase price of an acquired business is allocated to the tangible assets, financial assets and separately recognized intangible assets acquired less liabilities assumed based upon their respective fair values, with the excess recorded as goodwill. We review goodwill at least annually for impairment, or whenever events or circumstances indicate that the carrying value of long-lived assets may not be fully recoverable.
Other Intangible Assets
-Contract rights and other intangible assets are amortized primarily using the pattern of benefits method over periods ranging from
one
to
twenty-five years
.
We account for the cost of computer software developed or obtained for internal use in accordance with ASC
350-985
,
Intangibles - Goodwill and Other - Software
. These capitalized software costs are included in other intangible assets, net.
We account for software development costs related to software products for sale, lease or otherwise marketed in accordance with ASC
985-20
,
Software - Costs of Software to Be Sold, Leased, or Marketed
. For projects fully funded by us, development costs are capitalized from the point of demonstrated technological feasibility until the point in time that the product is available for general release to customers. Once the product is available for general release, capitalized costs are amortized based on units sold or on a straight-line basis over a
five
-year period or other such shorter period as may be required.
Impairment of Long-Lived Assets-
Whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be fully recoverable, we evaluate the probability that future undiscounted net cash flows will be less than the carrying amount of the assets. If any impairment were indicated as a result of this review, we would recognize a loss based on the amount by which the carrying amount exceeds the estimated fair value.
Employee Supplemental Savings Plan (ESSP) Assets
-We maintain several non-qualified defined contribution supplemental retirement plans for certain key employees that are accounted for in accordance with ASC
710-10-05
,
Compensation - General - Deferred Compensation - Rabbi Trust
, as the underlying assets are held in rabbi trusts with investments directed by the respective employee. A rabbi trust is a grantor trust generally set up to fund compensation for a select group of management and the assets of this trust are available to satisfy the claims of general creditors in the event of bankruptcy of us. The assets held by the rabbi trusts are recorded at cash surrender value in our consolidated financial statements as ESSP assets with a related liability to employees recorded as a deferred compensation liability in accrued retirement.
Billings In Excess of Revenue Earned
-We receive advances and milestone payments from customers that exceed the revenues earned to date. We classify such items as current liabilities.
Stock-based Compensation
-We account for stock-based compensation in accordance with ASC
718
,
Compensation - Stock Compensation
, which requires the use of a valuation model to calculate the fair value of stock-based awards. We have elected to use the Black-Scholes-Merton pricing model to determine fair value of stock options on the dates of grant for our stock options. The fair value is included in operating expenses or capitalized, as appropriate, straight-line over the period in which service is provided in exchange for the award. The grant date fair value of the restricted stock is equal to the closing market price of our common stock on the date of grant. The compensation expense for restricted stock is recognized over the service period and is based on the grant date fair value of the shares. The grant date fair value of the restricted stock unit (RSU) is equal to the closing market price of our common stock on the grant date less the present value of dividends expected to be awarded during the service period. We recognize the grant date fair value of RSUs of shares we expect to issue as compensation expense ratably over the requisite service period. We account for forfeitures as they occur.
Income Taxes
-We account for income taxes in accordance with ASC
740
,
Income Taxes
. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year-to-year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would “more likely than not” sustain the position following an audit. For tax positions meeting the “more likely than not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than
50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority.
Foreign-Currency Translation
-All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at fiscal year-end exchange rates. Income and expense items are translated at average monthly exchange rates prevailing during the fiscal year. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss).
Comprehensive Income (Loss)
-Comprehensive income (loss) consists of net income; translation adjustments, net of tax; and actuarial gain (loss) on defined benefit pension plan, net of tax.
Fair Value of Financial Instruments
-The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value because of the short-term nature of these amounts.
Variable Interest Entities (VIEs)
-We determine whether we have a controlling financial interest in a VIE. The reporting entity with a variable interest or interest that provides the reporting entity with a controlling financial interest in a VIE will have both (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. We have
one
entity that has been consolidated as a VIE. The purpose of the entity is to perform on certain U.S. Navy contracts. The maximum amount of loss we are exposed to as of
December 31, 2017
was not material to our consolidated financial statements.
Investments
-Investments where we have the ability to exercise significant influence, but we do not control, are accounted for under the equity method of accounting and are included in other assets on our consolidated balance sheets. Significant influence typically exists if we have a
20%
to
50%
ownership interest in the investee. Under this method of accounting, our share of the net earnings or losses of the investee is included in equity in earnings or losses of unconsolidated subsidiaries on our consolidated statement of income.
Investments where we have
less than 20%
ownership interest in the investee and lack the ability to exercise significant influence are accounted for under the cost method. Under the cost method, we recognize our investment in the stock of an investee as an asset. The investment is measured initially at cost. We recognize as income dividends received that are distributed from net accumulated earnings. Dividends received in excess of earnings are considered a return of investment and are recorded as reductions of costs of the investment. Impairment is assessed at the individual investment level. An investment is impaired if the fair value of the investment is less than its costs. If it is determined that the impairment is other than temporary, then an impairment loss is recognized in earnings. The fair value of the investment would become the new cost basis of the investment and will not be adjusted for subsequent recoveries in fair value.
Business Combinations-
The accounting for our business combinations consists of allocating the purchase price to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values, with the excess recorded as goodwill. We have up to one year from the acquisition date to use information as of each acquisition date to adjust the fair value of the acquired assets and liabilities, which may result in material changes to their recorded values with an offsetting adjustment to goodwill.
Recently Adopted ASUs
On January 1, 2017, we adopted Accounting Standards Update (ASU) 2016-09,
Compensation - Stock Compensation (Topic 718)
. The changes in the ASU were adopted prospectively. The ASU requires all excess tax benefits or deficiencies to be recognized as income tax expense or benefit in the consolidated statement of income. Previously, excess tax benefits and deficiencies were recorded as a component of paid-in capital. For the years ended December 31, 2016 and 2015, we recorded
$0.1 million
and
$3.0 million
to paid-in capital for the net tax deficiencies related to the exercise of stock options, vested cancellations and the vesting of restricted stock.
For the year ended December 31, 2017
, we recorded a net tax benefit of
$2.7 million
to income tax expense related to the exercise of stock options, vested cancellations and the vesting of restricted stock. The ASU allows a policy election to account for forfeitures as they occur verses requiring a forfeiture estimate. We have elected to account for forfeitures when
they occur. Upon transition we recognized a cumulative-effect adjustment to retained earnings of
$0.2 million
related to previously estimated forfeitures. Under the ASU, excess tax benefits are no longer presented as financing activities in the statement of cash flows. The change in the presentation in the statement of cash flows was applied prospectively beginning January 1, 2017.
Recently Issued But Not Yet Adopted ASUs
On May 10, 2017, Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2017-09,
Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting
, which seeks to provide clarity, reduce diversity in practice and reduce cost and complexity when applying the guidance in ASC 718,
Compensation—Stock Compensation
, regarding a change to the terms or conditions of a share-based payment award. ASU 2017-09 provides guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. Specifically, an entity is to account for the effects of a modification, unless all of the following are satisfied: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or as a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in ASC 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in ASU 2017-09. The amendments are effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.
On January 26, 2017, the FASB has issued ASU 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
, which simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. Finally, this ASU amends the Overview and Background sections of the ASC as part of the FASB’s initiative to unify and improve such sections across Topics and Subtopics. Public entities that are SEC filers should adopt the amendments in this ASU prospectively for their annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. Note that early adoption is permitted for all entities for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We will continue to evaluate the effects of this ASU in conjunction with our goodwill impairment tests.
On January 5, 2017, the FASB has issued ASU 2017-01,
Business Combinations (Topic 805)—Clarifying the Definition of a Business
, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current implementation guidance in Topic 805, there are three elements of a business: inputs, processes and outputs. While an integrated set of assets and activities (collectively, a “set”) that is a business usually has outputs, outputs are not required to be present. Additionally, all of the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs. The amendments in ASU 2017-01 provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If, however, the screen is not met, then the amendments in this ASU (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. Finally, the amendments in this ASU narrow the definition of the term “output” so that the term is consistent with the manner in which outputs are described in Topic 606. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permissible. We do not expect this ASU to have a material effect on our consolidated financial statements.
On August 26, 2016, the FASB issued ASU 2016-15—
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. This ASU addresses the following eight specific cash flow issues: debt prepayment or debt
extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in ASU 2016-15 become effective for fiscal years that start after December 15, 2017. We plan to apply it retrospectively to all periods presented in our quarterly and annual reports on Form 10-Q and Form 10-K. We plan to apply the equity method of accounting for applicable investments. Therefore, we will make an accounting policy election to classify distributions received from equity method investees using the cumulative earnings approach. Distributions received are considered returns on investment and classified as cash inflows from operating activities, unless the investor’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the investor (as adjusted for amortization of basis differences). When such an excess occurs, the current-period distribution up to this excess is considered a return of investment and should be classified as cash inflows from investing. We do not expect this ASU to have a material effect on our consolidated financial statements.
On February 25, 2016, the FASB issued ASU 2016-02—
Leases (Topic 842)
. The amendments in this ASU create Topic
842
,
Leases
, and supersede the leases requirements in Topic 840,
Leases
. The objective of Topic 842 is to establish the principles that lessees and lessors should apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. This ASU is effective for public entities for annual periods after December 15, 2018, and interim periods therein. Early adoption is permitted for all entities. We are currently evaluating methods of adoption as well as the effect on our consolidated financial statements. However, it is expected to increase total assets and total liabilities for current operating leases that are currently recorded off balance sheet.
On May 28, 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers.
ASU 2014-09 supersedes existing revenue recognition guidance, including ASC
605-35
,
Revenue Recognition - Construction-Type and Production-Type Contracts
.
ASU 2014-09 outlines a single set of comprehensive principles for recognizing revenue under GAAP. Among other things, it requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time. These concepts, as well as other aspects of ASU 2014-09, may change the method and/or timing of revenue recognition for certain of our contracts. ASU 2014-09 may be applied either retrospectively or through the use of a modified-retrospective method. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.
The amendments in ASU 2015-14 deferred the effective date of ASU 2014-09 for all entities by one year. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Several related ASUs have been issued since the issuance of ASU 2014-09. These ASUs, which modify certain sections of ASU 2014-09, are intended to promote a more consistent interpretation and application of the principles outlined in the standard.
The adoption of ASU 2014-09 will impact our policies, controls, business processes and information systems. To prepare for the changes in this guidance, we developed a plan for adoption. Based on our plan, we commenced an assessment in 2016 on the impacts of this guidance on a representative sample of our existing contract population. The sample contracts selected covered more than 20% of our existing revenue base and included contracts from all of our various contract types. A majority of the contracts we tested were not impacted by the new guidance. For contracts that were impacted, we identified two primary differences. First, the determination of performance obligations under this ASU has led to a different unit of accounting then we are currently applying. Second, we reassessed whether a contract, or performance obligation, met the definition of a "stand ready to perform" or "series" obligation. Those contracts that do not meet the "stand ready to perform" or "series" definition will be transitioned to revenue recognition model where revenue is recognized over time as the performance obligation is satisfied, primarily based on cost incurred. We expect the impact of these changes to produce a more consistent gross margin period-to-period as the obligations are satisfied.
We developed and substantially completed a detailed implementation plan during 2017, which includes, among other things, an update to our policies, development of disclosures, updates to our controls and application of the guidance across our contract population. We will adopt ASU 2014-09 under the modified retrospective method to contracts not substantially complete at January 1, 2018. Under the modified retrospective transition method, we will record a transition adjustment to retained earnings. We estimate the cumulative-effect adjustment to retained earnings to be less than
$1 million
. Based on the results of our detailed implementation plan, we do not expect the adoption of ASU 2014-09 to have a material effect on our consolidated statement of income or our consolidated statement of cash flows. We do expect a more significant impact from the additional disclosures required under the ASU as well as a change in the presentation of contract assets and liabilities on our consolidated balance sheet.
Other ASUs effective after
December 31, 2017
are not expected to have a material effect on our consolidated financial
statements.
InfoZen LLC (InfoZen)
—On
October 2, 2017
, we completed the acquisition of InfoZen. The results of InfoZen's operations have been included in our consolidated financial statements since that date. The acquisition was completed through an equity purchase agreement dated
September 15, 2017
, by and among InfoZen LLC., IZ Holdings, LLC and other beneficiaries and ManTech Advanced Systems International, Inc. We funded the acquisition with cash on hand and borrowings on our revolving credit facility. InfoZen is a leading IT solution provider, with domain expertise in modernization, agile/DevOps software development, cloud migration and threat monitoring and assessment capabilities in support of critical national and homeland security missions. The purchase agreement did not contain provisions for contingent consideration.
For the year ended December 31, 2017, we incurred approximately
$0.8 million
of acquisition costs related to the InfoZen transaction, which are included in the general and administrative expenses in our consolidated statement of income.
The preliminary purchase price of
$182.6 million
, which includes an estimated working capital adjustment, was preliminarily allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. As we are still in the process of reviewing the fair value of the assets acquired and liabilities assumed and in finalizing the closing working capital adjustment, the purchase price allocation for InfoZen is not complete as of
December 31, 2017
. The goodwill recorded related to this transaction will be deductible for tax purposes over
15 years
. Recognition of goodwill is largely attributed to the value paid for InfoZen's capabilities to support the DHS and NASA customers and specifically in modernization, agile software development, cloud migration and threat monitoring and assessment capabilities.
In preliminarily allocating the purchase price, we considered, among other factors, analysis of historical financial performance and estimates of future performance of InfoZen's contracts. The components of other intangible assets associated with the acquisition were customer relationships and backlog valued at
$49.2 million
and
$5.7 million
, respectively. Customer contracts and related relationships represent the underlying relationships and agreements with InfoZen's existing customers. Customer relationships are amortized using the pattern of benefits method over their estimated useful lives of approximately
20 years
. Backlog is amortized straight-line over its estimated useful life of
1 year
. The weighted-average amortization period for the intangible assets is
18 years
.
The following table represents the preliminary purchase price allocation for InfoZen (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,406
|
|
Receivables
|
9,434
|
|
Prepaid expenses and other
|
4,245
|
|
Goodwill
|
128,686
|
|
Other intangible assets
|
54,850
|
|
Property and equipment
|
485
|
|
Other assets
|
112
|
|
Accounts payable and accrued expenses
|
(8,390
|
)
|
Accrued salaries and related expenses
|
(2,893
|
)
|
Unearned revenue
|
(4,297
|
)
|
Billings in excess of revenue earned
|
(1,018
|
)
|
Net assets acquired and liabilities assumed
|
$
|
182,620
|
|
The following unaudited pro forma financial information below represents our results of operations for years ended December 31, 2017 had the InfoZen acquisition occurred on January 1, 2017 (in thousands). The unaudited proforma financial information below is not intended to represent or be indicative of our actual consolidated results had we completed the acquisition at January 1, 2017. This information should not be taken as representative of our future consolidated results of operations. Revenues and earnings were immaterial for the prior comparative year.
|
|
|
|
|
|
Year Ended December 31, 2017
|
Revenues
|
$
|
1,793,752
|
|
Net income
|
$
|
118,564
|
|
Basic earnings per share
|
$
|
3.05
|
|
Diluted earnings per share
|
$
|
3.03
|
|
Edaptive Systems LLC (Edaptive)
—On
December 15, 2016
, we completed the acquisition of Edaptive. The results of Edaptive's operations have been included in our consolidated financial statements since that date. The acquisition was completed through a membership interest purchase agreement dated
December 15, 2016
, by and among Edaptive, Everest Holdco, Inc., and certain members of Edaptive and ManTech Advanced Systems International, Inc. Edaptive provides innovative IT solutions primarily to federal health agencies, with a significant focus on the Centers for Medicare & Medicaid Services. The acquisition strategically expands our reach within the federal health community. We funded the acquisition with cash on hand. The membership interest purchase agreement did not contain provisions for contingent consideration.
For the year ended December 31, 2016, we incurred approximately
$0.3 million
of acquisition costs related to the Edaptive transaction, which are included in the general and administrative expenses in our consolidated statement of income.
The purchase price of
$13.2 million
was allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The goodwill recorded related to this transaction will be deductible for tax purposes over
15 years
. Recognition of goodwill is largely attributed to the value paid for Edaptive's capabilities to support Department of Health and Human Services customers and, specifically, in agile software development, testing and automation and business intelligence.
In allocating the purchase price, we considered, among other factors, analysis of historical financial performance and estimates of future performance of Edaptive's contracts. The components of other intangible assets associated with the acquisition were customer relationships and backlog valued at
$1.1 million
and
$0.3 million
, respectively. Customer contracts and related relationships represent the underlying relationships and agreements with Edaptive's existing customers. Customer relationships are amortized using the pattern of benefits method over their estimated useful lives of approximately
10 years
. Backlog is amortized straight-line over its estimated useful life of
1 year
. The weighted-average amortization period for the intangible assets is
8 years
.
The following table represents the purchase price allocation for Edaptive (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,955
|
|
Receivables
|
10,892
|
|
Prepaid expenses and other
|
261
|
|
Goodwill
|
6,193
|
|
Other intangible assets
|
1,689
|
|
Property and equipment
|
502
|
|
Other assets
|
116
|
|
Accounts payable and accrued expenses
|
(5,777
|
)
|
Accrued salaries and related expenses
|
(2,324
|
)
|
Billings in excess of revenue earned
|
(326
|
)
|
Net assets acquired and liabilities assumed
|
$
|
13,181
|
|
We have not disclosed current period, nor pro forma, revenues and earnings attributable to Edaptive as our integration of these operations post-acquisition and the entity's accounting methods pre-acquisition make it impracticable.
Oceans Edge, Inc, Cyber Division (OEC)
—On
June 10, 2016
, we completed the acquisition of certain assets of OEC which constituted a business. The results of OEC's operations have been included in our consolidated financial statements since that date. The acquisition was completed through an asset purchase agreement dated
June 10, 2016
, by and among Oceans Edge, Inc.,
Oceans Edge Cyber, LLC, certain owners of Ocean's Edge, Inc. and ManTech Advanced Systems International, Inc. OEC provides technical and professional services under government contracts in the defense and intelligence industries, including turnkey system solutions in cyber offense and defense, mission operations support and operations assessment and analysis. The OEC team of computer network operations (CNO) professionals will enhance our advanced CNO tools and research and development offerings with new business across the DoD landscape, including United States Cyber Command. The acquisition strategically strengthens our capabilities to support our federal agency customers and, specifically, to engineer and develop new, advanced solutions for wireless devices, networks, and infrastructures. We funded the acquisition with cash on hand. The asset purchase agreement did not contain provisions for contingent consideration.
For the year ended December 31, 2016, we incurred approximately
$1.2 million
of acquisition costs related to the OEC transaction, which are included in the general and administrative expenses in our consolidated statement of income.
The purchase price of
$47.7 million
was allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The goodwill recorded related to this transaction will be deductible for tax purposes over
15 years
. Recognition of goodwill is largely attributed to the value paid for OEC's capabilities in adding additional vulnerability research, development and analysis capabilities to our existing cyber intelligence business.
In allocating the purchase price, we considered, among other factors, analysis of historical financial performance and estimates of future performance of OEC's contracts. The components of other intangible assets associated with the acquisition were technology, customer relationships and backlog valued at
$3.0 million
,
$14.0 million
and
$1.0 million
, respectively. Technology represents a suite of mobile analysis and exploitation offerings, which is used by customers in support of their missions. Technology is amortized straight-line over its estimated useful life of
5 years
. Customer contracts and related relationships represent the underlying relationships and agreements with OEC's existing customers. Customer relationships are amortized using the pattern of benefits method over their estimated useful lives of approximately
20 years
. Backlog is amortized straight-line over its estimated useful life of
1 year
. The weighted-average amortization period for the intangible assets is
16 years
.
The following table represents the purchase price allocation for OEC (in thousands):
|
|
|
|
|
Receivables
|
$
|
138
|
|
Goodwill
|
30,090
|
|
Other intangible assets
|
18,000
|
|
Property and equipment
|
69
|
|
Accounts payable and accrued expenses
|
(29
|
)
|
Accrued salaries and related expenses
|
(586
|
)
|
Net assets acquired and liabilities assumed
|
$
|
47,682
|
|
We have not disclosed current period, nor pro forma, revenues and earnings attributable to OEC as our integration of these operations post-acquisition and the entity's accounting methods pre-acquisition make it impracticable.
Knowledge Consulting Group, Inc. (KCG)
—On
June 15, 2015
, we completed the acquisition of KCG. The results of KCG's operations have been included in our consolidated financial statements since that date. The acquisition was completed through an agreement and plan of merger dated
June 15, 2015
, by and among ManTech Advanced Systems International, Inc., Knight Acquisitions Corporation and KCG. KCG provides comprehensive cyber security services including cloud security, certification and accreditation and various cyber defense solutions across federal and commercial markets. The acquisition strategically positions us to pursue additional cyber work in the Department of Homeland Security, FBI and the intelligence community by leveraging our enhanced cloud security expertise. We funded the acquisition through a combination of cash on hand and borrowings under our revolving credit facility. The agreement did not contain provisions for contingent consideration.
For the year ended December 31, 2015, we incurred approximately
$0.3 million
of acquisition costs related to the KCG transaction, which are included in the general and administrative expenses in our consolidated statement of income.
The purchase price of
$68.2 million
was allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The goodwill recorded related to this transaction will be deductible for tax purposes over
15 years
. Recognition of goodwill is largely attributed to the value paid for KCG's capabilities in providing comprehensive cyber security services throughout the DoD and intelligence community.
In allocating the purchase price, we considered, among other factors, analysis of historical financial performance and estimates
of future performance of KCG's contracts. The components of other intangible assets associated with the acquisition were customer relationships and backlog valued at
$12.4 million
and
$0.8 million
, respectively. Customer contracts and related relationships represent the underlying relationships and agreements with KCG's existing customers. Customer relationships are amortized using the pattern of benefits method over their estimated useful lives of approximately
15 years
. Backlog is amortized straight-line over its estimated useful life of
1 year
. The weighted-average amortization period for the intangible assets is
14 years
.
The following table represents the purchase price allocation for KCG (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
658
|
|
Receivables
|
6,532
|
|
Prepaid expenses and other
|
460
|
|
Goodwill
|
47,487
|
|
Other intangible assets
|
13,219
|
|
Property and equipment
|
1,419
|
|
Investments
|
15
|
|
Other assets
|
31
|
|
Accounts payable and accrued expenses
|
(1,269
|
)
|
Accrued salaries and related expenses
|
(336
|
)
|
Billings in excess of revenue earned
|
(2
|
)
|
Net assets acquired and liabilities assumed
|
$
|
68,214
|
|
We have not disclosed current period, nor pro forma, revenues and earnings attributable to KCG as our integration of these operations post-acquisition and the entity's accounting methods pre-acquisition make it impracticable.
Welkin Associates, Ltd. (Welkin)
—On
April 27, 2015
, we completed the acquisition of Welkin, formerly a wholly-owned subsidiary of Computer Sciences Corporation (CSC). The results of Welkin's operations have been included in our consolidated financial statements since that date. The acquisition was completed through a stock purchase agreement dated
April 27, 2015
, by and among ManTech International Corporation, CSC and Welkin. Welkin delivers mission-centric services in high-end systems engineering and advanced national security technology and business services. The acquisition strategically positions us to pursue large engineering and support opportunities throughout the intelligence community and DoD. We funded the acquisition with cash on hand. The stock purchase agreement did not contain provisions for contingent consideration.
For the year ended December 31, 2015, we incurred approximately
$0.7 million
of acquisition costs related to the Welkin transaction, which are included in the general and administrative expenses in our consolidated statement of income.
The purchase price of
$34.0 million
was allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The goodwill recorded related to this transaction will be deductible for tax purposes over
15 years
. Recognition of goodwill is largely attributed to the value paid for Welkin's capabilities in providing high-end systems engineering and support services throughout the intelligence community and DoD.
In allocating the purchase price, we considered, among other factors, analysis of historical financial performance and estimates of future performance of Welkin's contracts. The components of other intangible assets associated with the acquisition were customer relationships and backlog valued at
$6.0 million
and
$0.4 million
, respectively. Customer contracts and related relationships represent the underlying relationships and agreements with Welkin's existing customers. Customer relationships are amortized using the pattern of benefits method over their estimated useful lives of approximately
15 years
. Backlog is amortized straight-line over its estimated useful life of
1 year
. The weighted-average amortization period for the intangible assets is
14 years
.
The following table represents the purchase price allocation for Welkin (in thousands):
|
|
|
|
|
Receivables
|
$
|
3,901
|
|
Prepaid expenses and other
|
141
|
|
Goodwill
|
24,436
|
|
Other intangible assets
|
6,350
|
|
Property and equipment
|
100
|
|
Accounts payable and accrued expenses
|
(436
|
)
|
Accrued salaries and related expenses
|
(492
|
)
|
Net assets acquired and liabilities assumed
|
$
|
34,000
|
|
We have not disclosed current period, nor pro forma, revenues and earnings attributable to Welkin as our integration of these operations post-acquisition and the entity's accounting methods pre-acquisition make it impracticable.
Under ASC
260
,
Earnings per Share
, the two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared (or accumulated) and participation rights in undistributed earnings. Under that method, basic and diluted earnings per share data are presented for each class of common stock.
In applying the two-class method, we determined that undistributed earnings should be allocated equally on a per share basis between Class A and Class B common stock. Under our Certificate of Incorporation, the holders of the common stock are entitled to participate ratably, on a share-for-share basis as if all shares of common stock were of a single class, in such dividends, as may be declared by the Board of Directors. During the years ended
December 31, 2017
,
2016
and
2015
, we declared and paid quarterly dividends, each in the amount of
$0.21
per share on both classes of common stock.
Basic earnings per share has been computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period in which the shares were outstanding. Diluted earnings per share have been computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during each period.
The net income available to common stockholders and weighted average number of common shares outstanding used to compute basic and diluted earnings per share for each class of common stock are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Distributed earnings
|
$
|
32,709
|
|
|
$
|
32,138
|
|
|
$
|
31,543
|
|
Undistributed earnings
|
81,432
|
|
|
24,253
|
|
|
19,584
|
|
Net income
|
$
|
114,141
|
|
|
$
|
56,391
|
|
|
$
|
51,127
|
|
|
|
|
|
|
|
Class A common stock:
|
|
|
|
|
|
Basic net income available to common stockholders
|
$
|
75,413
|
|
|
$
|
36,885
|
|
|
$
|
33,145
|
|
Basic weighted average common shares outstanding
|
25,685
|
|
|
24,944
|
|
|
24,317
|
|
Basic earnings per share
|
$
|
2.94
|
|
|
$
|
1.48
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
Diluted net income available to common stockholders
|
$
|
75,698
|
|
|
$
|
36,988
|
|
|
$
|
33,197
|
|
Effect of potential exercise of stock options
|
288
|
|
|
202
|
|
|
109
|
|
Diluted weighted average common shares outstanding
|
25,973
|
|
|
25,146
|
|
|
24,426
|
|
Diluted earnings per share
|
$
|
2.91
|
|
|
$
|
1.47
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
Class B common stock:
|
|
|
|
|
|
Basic net income available to common stockholders
|
$
|
38,728
|
|
|
$
|
19,506
|
|
|
$
|
17,982
|
|
Basic weighted average common shares outstanding
|
13,190
|
|
|
13,192
|
|
|
13,193
|
|
Basic earnings per share
|
$
|
2.94
|
|
|
$
|
1.48
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
Diluted net income available to common stockholders
|
$
|
38,443
|
|
|
$
|
19,403
|
|
|
$
|
17,930
|
|
Effect of potential exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
Diluted weighted average common shares outstanding
|
13,190
|
|
|
13,192
|
|
|
13,193
|
|
Diluted earnings per share
|
$
|
2.91
|
|
|
$
|
1.47
|
|
|
$
|
1.36
|
|
For the years ended
December 31, 2017
,
2016
and
2015
, options to purchase
265,866
,
369,300
and
1,780,222
shares, respectively, were outstanding but not included in the computation of diluted earnings per share because the options' effect would have been anti-dilutive. For the years ended
December 31, 2017
,
2016
and
2015
, there were
463,800
shares,
1,045,789
shares, and
284,320
shares, respectively, issued from the exercise of stock options.
We deliver a broad array of IT and technical services solutions under contracts with the U.S. government, state and local governments and commercial customers. The components of contract receivables are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Billed receivables
|
$
|
236,113
|
|
|
$
|
247,114
|
|
Unbilled receivables:
|
|
|
|
Amounts billable
|
52,745
|
|
|
52,640
|
|
Revenues recorded in excess of funding
|
12,397
|
|
|
20,078
|
|
Retainage
|
16,312
|
|
|
8,353
|
|
Allowance for doubtful accounts
|
(6,157
|
)
|
|
(7,508
|
)
|
Receivables-net
|
$
|
311,410
|
|
|
$
|
320,677
|
|
Amounts billable consist principally of amounts to be billed within the next month. Revenues recorded in excess of funding are billable upon receipt of contractual amendments or other modifications. The retainage is billable upon completion of the contract performance and approval of final indirect expense rates by the government. Accounts receivable at
December 31, 2017
are expected to be substantially collected within one year except for approximately
$1.3 million
, of which
97.7%
is related to receivables from sales to the U.S. government. The remainder is related to receivables from contracts in which we acted as a subcontractor to other contractors.
We do not believe that we have significant exposure to credit risk as accounts receivable and the related unbilled amounts are primarily due from the U.S. government. The allowance for doubtful accounts represents our estimate for exposure to compliance, contractual issues and bad debts related to prime contractors.
|
|
6.
|
Property and Equipment
|
Major classes of property and equipment are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Furniture and equipment
|
$
|
79,218
|
|
|
$
|
51,806
|
|
Leasehold improvements
|
39,022
|
|
|
36,439
|
|
Property and equipment-gross
|
118,240
|
|
|
88,245
|
|
Accumulated depreciation and amortization
|
(72,158
|
)
|
|
(65,124
|
)
|
Property and equipment-net
|
$
|
46,082
|
|
|
$
|
23,121
|
|
Depreciation and amortization expense related to property and equipment for the years ended
December 31, 2017
,
2016
and
2015
was
$9.5 million
,
$7.8 million
and
$8.5 million
, respectively.
|
|
7.
|
Goodwill and Other Intangible Assets
|
Under ASC
350
,
Intangibles - Goodwill and Other
, goodwill is to be reviewed at least annually for impairment and whenever events or circumstances indicate that the carrying value of goodwill may not be fully recoverable. We have elected to perform this annual review as of October 31st of each calendar year.
In reviewing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test (described below), otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test.
The goodwill impairment test is a two-step process performed at the reporting unit level. The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount (including goodwill). If the reporting unit's fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit's fair value is less than its carrying value, an impairment of goodwill may exist, requiring a second step to be performed. Step two of this test measures the amount of the impairment loss, if any. Step two of this test requires the allocation of the reporting unit's fair value to its assets and liabilities, including any unrecognized intangible assets in a hypothetical analysis that calculates the implied fair value of goodwill as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill is less than the carrying value, the difference is recorded as a goodwill impairment charge in operations.
The fair values of the reporting units are determined based on a weighting of the income approach, market approach and market transaction approach. The income approach is a valuation technique in which fair value is based from forecasted future cash flow discounted at the appropriate rate of return commensurate with the risk as well as current rates of return for equity and debt capital as of the valuation date. The forecast used in our estimation of fair value was developed by management based on a contract basis, incorporating adjustments to reflect known contract and market considerations (such as reductions and uncertainty in government spending, pricing pressure and opportunities). The discount rate utilizes a risk adjusted weighted average cost of capital. The market approach is a valuation technique in which the fair value is calculated based on market prices realized in an actual arm's length transaction. The technique consists of undertaking a detailed market analysis of publicly traded companies that provides a reasonable basis for comparison to us. Valuation ratios, which relate market prices to selected financial statistics derived from comparable companies, are selected and applied to us after consideration of adjustments for financial position, growth, market, profitability and other factors. The market transaction approach is a valuation technique in which the fair value is calculated based on market prices realized in actual arm's length transactions. The technique consists of undertaking a detailed market analysis of merged and acquired companies that provides a reasonable basis for comparison to us. Valuation ratios, which relate market prices to selected financial statistics derived from comparable companies, are selected and applied to us after consideration of adjustments for financial position, growth, market, profitability and other factors. To assess the reasonableness of the calculated reporting unit fair values, we compare the sum of the reporting units' fair values to our market capitalization (per share stock price times the number of shares outstanding) and calculate an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization) and then assess the reasonableness of our implied control premium.
The changes in the carrying amounts of goodwill during fiscal years
2017
and
2016
were as follows (in thousands):
|
|
|
|
|
|
Goodwill Balance
|
Goodwill at December 31, 2015
|
$
|
919,591
|
|
Acquisitions
|
36,283
|
|
Goodwill at December 31, 2016
|
955,874
|
|
Acquisitions
|
128,686
|
|
Goodwill at December 31, 2017
|
$
|
1,084,560
|
|
Other intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Contract and program intangible assets
|
$
|
355,932
|
|
|
$
|
179,049
|
|
|
$
|
176,883
|
|
|
$
|
301,082
|
|
|
$
|
158,671
|
|
|
$
|
142,411
|
|
Capitalized software cost for internal use
|
46,937
|
|
|
29,472
|
|
|
17,465
|
|
|
39,332
|
|
|
26,815
|
|
|
12,517
|
|
Other
|
58
|
|
|
58
|
|
|
—
|
|
|
58
|
|
|
55
|
|
|
3
|
|
Total other intangible assets-net
|
$
|
402,927
|
|
|
$
|
208,579
|
|
|
$
|
194,348
|
|
|
$
|
340,472
|
|
|
$
|
185,541
|
|
|
$
|
154,931
|
|
Amortization expense relating to intangible assets for the years ended
December 31, 2017
,
2016
and
2015
was
$23.5 million
,
$21.8 million
and
$21.2 million
, respectively. We estimate that we will have the following amortization expense for the future periods indicated below (in thousands):
|
|
|
|
|
Year ending:
|
|
December 31, 2018
|
$
|
25,472
|
|
December 31, 2019
|
$
|
21,013
|
|
December 31, 2020
|
$
|
20,172
|
|
December 31, 2021
|
$
|
17,443
|
|
December 31, 2022
|
$
|
14,843
|
|
Revolving Credit Facility
-We maintain a credit agreement with a syndicate of lenders led by Bank of America, N.A., as sole administrative agent. The credit agreement provides for a
$500 million
revolving credit facility, with a
$75 million
letter of credit sublimit and a
$30 million
swing line loan sublimit. The credit agreement also includes an accordion feature that permits us to arrange with the lenders for the provision of additional commitments. The maturity date is
August 17, 2022
. On
August 17, 2017
, we amended the credit agreement, which among other things increased the letter of credit sublimit to
$75 million
. We deferred
$2.2 million
in debt issuance costs, cumulatively over the agreement, which are amortized over the term of the credit agreement.
Borrowings under our credit agreement are collateralized by substantially all of our assets and our Material Subsidiaries (as defined in the credit agreement) and bear interest at one of the following variable rates as selected by us at the time of borrowing: a LIBOR based rate plus market spreads (
1.25%
to
2.25%
based on our consolidated total leverage ratio) or Bank of America's base rate plus market spreads (
0.25%
to
1.25%
based on our consolidated total leverage ratio). The aggregate annual weighted average interest rates were
2.99%
and
3.75%
for the years ended
December 31, 2017
and
2016
, respectively.
The terms of the credit agreement permit prepayment and termination of the loan commitments at any time, subject to certain conditions. The credit agreement requires us to comply with specified financial covenants, including the maintenance of certain leverage ratios and a certain consolidated coverage ratio. The credit agreement also contains various covenants, including affirmative covenants with respect to certain reporting requirements and maintaining certain business activities, and negative covenants that, among other things, may limit or impose restrictions on our ability to incur liens, incur additional indebtedness, make investments, make acquisitions and undertake certain other actions. As of, and during the fiscal years ending,
December 31, 2017
and
2016
, we were in compliance with our financial covenants under the credit agreement.
There was
$31.0 million
and
$0
outstanding on our revolving credit facility at
December 31, 2017
and
2016
, respectively. The weighted average borrowings under the revolving portion of the facility during the years ended
December 31, 2017
and
2016
were
$2.7 million
and
$0
, respectively. The maximum available borrowing under the revolving credit facility at
December 31, 2017
was
$453.7 million
. At
December 31, 2017
and
2016
, we were contingently liable under letters of credit totaling
$15.3 million
and
$23.1 million
, respectively, which reduces our availability to borrow under our revolving credit facility.
|
|
9.
|
Commitments and Contingencies
|
Contracts with the U.S. government, including subcontracts, are subject to extensive legal and regulatory requirements and, from time-to-time, agencies of the U.S. government, in the ordinary course of business, investigate whether our operations are conducted in accordance with these requirements and the terms of the relevant contracts. U.S. government investigations of us, whether related to our U.S. government contracts or conducted for other reasons, could result in administrative, civil, or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting activities. Management believes it has adequately reserved for any losses that may be experienced from any investigation of which it is aware. The Defense Contract Audit Agency has substantially completed our incurred cost audits through 2012 with no material adjustments. The remaining audits for 2013 through 2016 are not expected to have a material effect on our financial position, results of operations or cash flow and management believes it has adequately reserved for any losses.
In the normal course of business, we are involved in certain governmental and legal proceedings, claims and disputes and have litigation pending under several suits. We believe that the ultimate resolution of these matters will not have a material effect on our financial position, results of operations or cash flows, except for the matter noted below.
We are a defendant in a lawsuit filed by two former employees alleging retaliation under both the False Claims Act (FCA) and the Defense Contractor Whistleblower Protection Act (DCWPA). In November 2016, we went to trial and the jury returned a verdict in favor of both plaintiffs, finding us liable for retaliation under both the FCA and the DCWPA, and awarded
$0.8 million
in compensatory damages for emotional distress. As a result of the jury's verdict, these plaintiffs are also entitled to awards of (i) back pay, (ii) front pay and (iii) attorneys' fees and costs. We challenged the jury’s verdict at the trial court level - both in terms of liability and in terms of the amount of the compensatory damages awarded. Specifically, we have asked the trial judge to: (i) grant us judgment as a matter of law and dismiss the retaliation claims under both the FCA and the DCWPA, and (ii) vacate the jury’s awards of compensatory damages. On May 19, 2017, the court, by a Memorandum Opinion and Order, vacated the jury's verdict with respect to the awards of
$0.8 million
in compensatory damages for emotional distress and awarded damages in the total amount of
$1.8 million
for back pay and front pay. On August 30, 2017, the judge awarded attorneys' fees and costs and the judgment entered on May 19, 2017 in favor of both plaintiffs was amended as follows: (i) to plaintiff #1,
$0.3 million
in attorneys' fees and costs;
$0.9 million
in back pay with interest at the rate of
$16.92
per diem from November 18, 2016 through the date of the amended judgment, and
$0.3 million
in front pay; and (ii) to plaintiff #2,
$0.3 million
in attorneys’ fees and costs;
$0.5 million
in back pay with interest at the rate of
$9.79
per diem from November 18, 2016 through the date of the amended judgment, and
$0.2 million
in front pay. We have filed an appeal in the Fourth Circuit Court of Appeals. As of
December 31, 2017
, we accrued a liability for
$2.3 million
and recorded a receivable for
$2.8 million
. Through the appeals process, our liability could be further reduced or, if the plaintiffs are successful, increased an additional
$0.8 million
. We have an insurance policy that covers the amount of the liability, therefore,
no
loss was recognized as of the year ended
December 31, 2017
. The impact of future events in connection with this matter are not expected to have a material effect on our financial position, results of operations or cash flow.
We have
$15.3 million
outstanding on our letter of credit, of which
$15.2 million
is related to an outstanding performance bond in connection with a contract between ManTech MENA, LLC and Jadwalean International Operations and Management Company to fulfill technical support requirements for the Royal Saudi Air Force.
We lease office space and equipment under long-term operating leases. A number of the leases contain renewal options and escalation clauses. Office space and equipment rent expense totaled approximately
$36.9 million
,
$37.4 million
and
$37.2 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. We had
$10.6 million
and
$11.1 million
of deferred rent liabilities resulting from recording rent expense on a straight-line basis over the life of the respective lease for the years ended
December 31, 2017
and
2016
, respectively. At
December 31, 2017
, aggregate future minimum rental commitments under these leases are as follows (in thousands):
|
|
|
|
|
|
|
|
Total
|
Year ending:
|
|
|
December 31, 2018
|
|
$
|
32,353
|
|
December 31, 2019
|
|
29,252
|
|
December 31, 2020
|
|
23,048
|
|
December 31, 2021
|
|
19,964
|
|
December 31, 2022
|
|
16,793
|
|
Thereafter
|
|
18,692
|
|
Total
|
|
$
|
140,102
|
|
|
|
10.
|
Stockholders' Equity and Stock-Based Compensation
|
Common Stock
-We have
150,000,000
shares of authorized Class A common stock, par value
$0.01
per share. We have
50,000,000
shares of authorized Class B common stock, par value
$0.01
per share. On
December 31, 2017
, there were
26,041,660
shares of Class A common stock outstanding,
244,113
shares of Class A common stock recorded as treasury stock and
13,189,245
shares of Class B common stock outstanding.
Holders of Class A common stock are entitled to
one
vote for each share held of record and holders of Class B common stock are entitled to
ten
votes for each share held of record, except with respect to any “going private transaction” (generally, a transaction in which George J. Pedersen (our Executive Chairman and Chairman of the Board), his affiliates, his direct and indirect permitted transferees or a group, generally including Mr. Pedersen, such affiliates and permitted transferees, seek to buy all outstanding shares), as to which each share of Class A common stock and Class B common stock are entitled to
one
vote per share. The Class A common stock and the Class B common stock vote together as a single class on all matters submitted to a vote of stockholders, including the election of directors, except as required by law. Holders of common stock do not have cumulative voting rights in the election of directors.
Stockholders are entitled to receive, when and if declared by the Board of Directors from time-to-time, such dividends and other distributions in cash, stock or property from our assets or funds legally and contractually available for such purposes subject to any dividend preferences that may be attributable to preferred stock that may be authorized. Each share of Class A common stock and Class B common stock is equal in respect to dividends and other distributions in cash, stock or property, except that in the case of stock dividends, only shares of Class A common stock will be distributed with respect to the Class A common stock and only shares of Class B common stock will be distributed with respect to Class B common stock. In no event will either Class A common stock or Class B common stock be split, divided or combined unless the other class is proportionately split, divided or combined.
The shares of Class A common stock are not convertible into any other series or class of securities. Each share of Class B common stock, however, is freely convertible into
one
share of Class A common stock at the option of the Class B stockholder. Upon the death of Mr. Pedersen, all outstanding shares of Class B common stock automatically convert to Class A common stock.
Preferred Stock
-We are authorized to issue an aggregate of
20,000,000
shares of preferred stock,
$0.01
par value per share, the terms and conditions of which are determined by our Board of Directors upon issuance. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of holders of any shares of preferred stock that we may designate and issue in the future. At
December 31, 2017
and
2016
,
no
shares of preferred stock were outstanding and the Board of Directors currently has no plans to issue a series of preferred stock.
Accounting for Stock-Based Compensation:
Our 2016 Management Incentive Plan (the Plan) was designed to attract, retain and motivate key employees. The types of awards available under the Plan include stock options, restricted stock and RSUs. Equity awards granted under the Plan are settled in shares of Class A common stock. At the beginning of each year, the Plan provides that the number of shares available for issuance automatically increases by an amount equal to
1.5%
of the total number of shares of Class A and Class B common stock outstanding on December 31st of the previous year. On
January 2, 2018
, there were
588,464
additional shares made available for issuance under the Plan. Through
December 31, 2017
, the Board of Directors has authorized the issuance of up to
13,963,435
shares under this Plan. Through
December 31, 2017
, the remaining aggregate number of shares of our common stock available for future grants under the Plan was
5,980,594
. The Plan expires in
March 2026
.
The Plan is administered by the compensation committee of our Board of Directors, along with its delegates. Subject to the express provisions of the Plan, the committee has the Board of Directors' authority to administer and interpret the Plan, including the discretion to determine the exercise price, vesting schedule, contractual life and the number of shares to be issued.
Stock Compensation Expense
-For the years ended
December 31, 2017
,
2016
and
2015
, we recorded
$6.3 million
,
$3.3 million
and
$4.4 million
of stock-based compensation expense, respectively.
No
compensation expense of employees with stock awards, including stock-based compensation expense, was capitalized during the periods. For the year ended
December 31, 2017
, we recorded
$2.7 million
to income tax expense for tax benefits related to the exercise of stock options, vested cancellations and the vesting of restricted stock. For the year ended
December 31, 2016
and
2015
, we recorded
$0.1 million
and
$3.0 million
, respectively, to paid in capital related to tax deficiencies from the exercise of stock options, vested cancellations and the vesting of restricted stock.
Stock Options-
Under the Plan, we have issued stock options. A stock option granted gives the holder the right, but not the obligation to purchase a certain number of shares at a predetermined price for a specific period of time. We typically issue options that vest over
three years
in equal installments beginning on the first anniversary of the date of grant. Under the terms of the Plan, the contractual life of the option grants may not exceed
eight years
. During the years ended
December 31, 2017
,
2016
and
2015
, we issued options that expire
five years
from the date of grant.
Fair Value Determination
-We have used the Black-Scholes-Merton option pricing model to determine fair value of our stock option awards on the date of grant. We will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.
The following weighted-average assumptions were used for option grants during the years ended
December 31, 2017
,
2016
and
2015
:
|
|
•
|
Volatility
-The expected volatility of the options granted was estimated based upon historical volatility of our share price through weekly observations of our trading history.
|
|
|
•
|
Expected life of options
-The expected life of options granted to employees was determined from historical exercises of the grantee population. The options had graded vesting over
three years
in equal installments beginning on the first anniversary of the date of the grant and a contractual term of
five years
.
|
|
|
•
|
Risk-free interest rate
-The yield on zero-coupon U.S. Treasury strips was used to extrapolate a forward-yield curve. This “term structure” of future interest rates was then input into a numeric model to provide the equivalent risk-free rate to be used in the Black-Scholes-Merton model based on the expected term of the underlying grants.
|
|
|
•
|
Dividend yield
-The Black-Scholes-Merton valuation model requires an expected dividend yield as an input. We have calculated our expected dividend yield based on an expected annual cash dividend of
$0.84
per share.
|
The following table summarizes weighted-average assumptions used in our calculations of fair value for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Volatility
|
25.59
|
%
|
|
23.70
|
%
|
|
26.16
|
%
|
Expected life of options
|
3 years
|
|
|
3 years
|
|
|
3 years
|
|
Risk-free interest rate
|
1.72
|
%
|
|
1.10
|
%
|
|
1.15
|
%
|
Dividend yield
|
2.75
|
%
|
|
2.88
|
%
|
|
3.00
|
%
|
Stock Option Activity
-The weighted-average fair value of options granted during the years ended
December 31, 2017
,
2016
and
2015
, as determined under the Black-Scholes-Merton valuation model, was
$6.75
,
$4.60
and
$4.59
, respectively. Option grants that vested during the years ended
December 31, 2017
,
2016
and
2015
had a combined fair value of
$1.7 million
,
$2.6 million
and
$3.6 million
, respectively.
The following table summarizes stock option activity for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Weighted Average Remaining Contractual Life
|
Stock options outstanding at December 31, 2014
|
3,391,032
|
|
|
$
|
32.76
|
|
|
$
|
4,722
|
|
|
|
Granted
|
237,853
|
|
|
$
|
30.87
|
|
|
|
|
|
Exercised
|
(284,320
|
)
|
|
$
|
27.51
|
|
|
$
|
1,348
|
|
|
|
Cancelled and expired
|
(849,255
|
)
|
|
$
|
39.56
|
|
|
|
|
|
Stock options outstanding at December 31, 2015
|
2,495,310
|
|
|
$
|
30.86
|
|
|
$
|
3,583
|
|
|
|
Granted
|
199,938
|
|
|
$
|
34.22
|
|
|
|
|
|
Exercised
|
(1,045,789
|
)
|
|
$
|
29.24
|
|
|
$
|
8,858
|
|
|
|
Cancelled and expired
|
(489,040
|
)
|
|
$
|
37.91
|
|
|
|
|
|
Stock options outstanding at December 31, 2016
|
1,160,419
|
|
|
$
|
29.93
|
|
|
$
|
14,299
|
|
|
|
Granted
|
534,030
|
|
|
$
|
42.90
|
|
|
|
|
|
Exercised
|
(463,800
|
)
|
|
$
|
29.34
|
|
|
$
|
7,203
|
|
|
|
Cancelled and expired
|
(61,241
|
)
|
|
$
|
33.80
|
|
|
|
|
|
Stock options outstanding at December 31, 2017
|
1,169,408
|
|
|
$
|
35.88
|
|
|
$
|
16,731
|
|
|
3 years
|
|
|
|
|
|
|
|
|
Stock options exercisable at December 31, 2017
|
484,429
|
|
|
$
|
29.22
|
|
|
$
|
10,156
|
|
|
2 years
|
The following table summarizes non-vested stock options for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Fair Value
|
Non-vested stock options at December 31, 2016
|
562,927
|
|
|
$
|
4.66
|
|
Granted
|
534,030
|
|
|
$
|
6.75
|
|
Vested
|
(367,729
|
)
|
|
$
|
4.71
|
|
Cancelled
|
(44,249
|
)
|
|
$
|
5.11
|
|
Non-vested stock options at December 31, 2017
|
684,979
|
|
|
$
|
6.23
|
|
Unrecognized compensation expense related to outstanding stock options was
$3.6 million
as of
December 31, 2017
, which is expected to be recognized over a weighted-average period of
3 years
and will be adjusted for forfeitures as they occur.
Restricted Stock
-Under the Plan, we have issued restricted stock. A restricted stock award is an issuance of shares that cannot be sold or transferred by the recipient until the vesting period lapses. Restricted stock issued to members of our Board of Directors vest in
one year
. The related compensation expense is recognized over the service period and is based on the grant date fair value of the stock and the number of shares expected to vest. The grant date fair value of the restricted stock is equal to the closing market price of our common stock on the date of grant.
Restricted Stock Activity
-The following table summarizes the restricted stock activity during the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Fair Value
|
Non-vested restricted stock at December 31, 2015
|
21,000
|
|
|
$
|
28.98
|
|
Granted
|
18,000
|
|
|
$
|
33.84
|
|
Vested
|
(21,000
|
)
|
|
$
|
28.98
|
|
Non-vested restricted stock at December 31, 2016
|
18,000
|
|
|
$
|
33.84
|
|
Granted
|
24,000
|
|
|
$
|
37.90
|
|
Vested
|
(18,000
|
)
|
|
$
|
33.84
|
|
Non-vested restricted stock at December 31, 2017
|
24,000
|
|
|
$
|
37.90
|
|
RSUs-
Under the Plan, we issued RSUs. RSUs are not actual shares, but rather a right to receive shares in the future. The shares are not issued and the employee cannot sell or transfer shares prior to vesting and has no voting rights until the RSUs vest. Employees who are granted RSUs do not receive dividend payments during the vesting period. The employees' RSUs will result in the delivery of shares if (a) performance criteria is met and (b) the employee remains employed, in good standing, through the date of the performance period or death. The performance period is
2 years
. During the year ended December 31, 2016, we granted
26,788
time-based RSUs to an officer which did not contain additional performance criteria (half will vest
four years
after the date of grant and the other half will vest
five years
after the date of grant). The grant date fair value of the RSUs is equal to the closing market price of our common stock on the grant date less the present value of dividends expected to be awarded during the service period. We recognize the grant date fair value of RSUs of shares we expect to issue as compensation expense ratably over the requisite service period.
RSU Activity-
The following table summarizes the RSU activity during the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted Average Fair Value
|
RSUs at December 31, 2015
|
93,450
|
|
|
$
|
30.84
|
|
Granted
|
132,988
|
|
|
$
|
29.50
|
|
Forfeited
|
(20,100
|
)
|
|
$
|
29.56
|
|
RSUs at December 31, 2016
|
206,338
|
|
|
$
|
30.10
|
|
Granted
|
55,830
|
|
|
$
|
35.34
|
|
Vested
|
(3,300
|
)
|
|
$
|
30.60
|
|
Forfeited
|
(97,525
|
)
|
|
$
|
31.00
|
|
RSUs at December 31, 2017
|
161,343
|
|
|
$
|
31.36
|
|
As of
December 31, 2017
, we maintained a qualified defined contribution plan. Our qualified defined contribution plan covers substantially all employees and complies with Section 401 of the Internal Revenue Code. Under this plan, we stipulated a basic matching contribution that matches a portion of the participants' contribution based upon a defined schedule. Additionally, this plan contains a discretionary contribution component where we may contribute additional amounts based on a percentage of eligible employees' compensation. Contributions are invested by an independent investment company. The choice of investment alternatives is at the election of each participating employee. Our contributions to the plan were approximately
$20.6 million
,
$19.8 million
and
$18.5 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
As of
December 31, 2017
, we also maintained an Employee Supplemental Savings Plan (ESSP), which is a nonqualified deferred compensation plan for certain key employees. Under this plan, eligible employees may defer up to
75%
of qualified annual base compensation and
100%
of bonus. In the ESSP, participant deferral accounts are credited with a rate of return based on investment elections as selected by the participant. The assets related to the ESSP are held in a rabbi trust owned by us for benefit of the participating employees. The trust investments are in the form of variable universal life insurance products, which are owned by us. These investments seek to replicate the return of the participant investment elections. Employee contributions
to this plan were approximately
$3.0 million
,
$2.6 million
and
$2.8 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
We maintained a nonqualified supplemental defined benefit pension plan for certain retired employees of an acquired company as of
December 31, 2017
. These plans were informally and partially funded beginning in 1999 through a rabbi trust. Assets held in a rabbi trust are not eligible to be included in the calculation of plan status. At both
December 31, 2017
and
2016
,
100%
of the rabbi trust assets were invested in a money market account with a commercial bank. All covered employees retired prior to 1998. Our benefit obligation was
$1.2 million
and
$1.1 million
at
December 31, 2017
and
2016
, respectively.
The domestic and foreign components of income operations before income taxes and equity method investments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
$
|
97,718
|
|
|
$
|
89,988
|
|
|
$
|
85,665
|
|
Foreign
|
(476
|
)
|
|
82
|
|
|
(311
|
)
|
Income from operations before income taxes and equity method investments
|
$
|
97,242
|
|
|
$
|
90,070
|
|
|
$
|
85,354
|
|
The provision for income taxes was comprised of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Current provision:
|
|
|
|
|
|
Federal
|
$
|
5,340
|
|
|
$
|
13,454
|
|
|
$
|
2,714
|
|
State
|
2,523
|
|
|
2,394
|
|
|
1,247
|
|
Foreign
|
38
|
|
|
(45
|
)
|
|
77
|
|
|
7,901
|
|
|
15,803
|
|
|
4,038
|
|
Deferred (benefit) provision:
|
|
|
|
|
|
Federal
|
(28,013
|
)
|
|
17,170
|
|
|
27,817
|
|
State
|
3,313
|
|
|
2,831
|
|
|
5,825
|
|
|
(24,700
|
)
|
|
20,001
|
|
|
33,642
|
|
Non-current (benefit) resulting from allocating tax benefits directly to additional paid in capital and changes in liabilities:
|
|
|
|
|
|
Federal
|
(60
|
)
|
|
(1,573
|
)
|
|
(2,568
|
)
|
State
|
—
|
|
|
(445
|
)
|
|
(746
|
)
|
|
(60
|
)
|
|
(2,018
|
)
|
|
(3,314
|
)
|
(Benefit) provision for income taxes
|
$
|
(16,859
|
)
|
|
$
|
33,786
|
|
|
$
|
34,366
|
|
For the years ended December 31, 2017, 2016 and 2015 the non-current benefits related to liabilities for uncertain tax positions was
$0.1 million
,
$0.2 million
and
$0.3 million
, respectively.
The schedule of effective income tax rate reconciliation is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Statutory U.S. Federal tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase (decrease) in tax rate resulting from:
|
|
|
|
|
|
Net deferred tax liability remeasurement
|
(52.0
|
)%
|
|
—
|
%
|
|
—
|
%
|
State taxes—net of Federal benefit
|
3.9
|
%
|
|
3.4
|
%
|
|
4.8
|
%
|
Stock-based compensation
|
(2.8
|
)%
|
|
—
|
%
|
|
—
|
%
|
ESSP
|
(1.5
|
)%
|
|
(0.7
|
)%
|
|
0.2
|
%
|
Excess executive compensation
|
0.4
|
%
|
|
0.7
|
%
|
|
0.5
|
%
|
Section 199 deductions
|
(0.4
|
)%
|
|
(0.4
|
)%
|
|
(0.4
|
)%
|
Other, net
|
0.1
|
%
|
|
(0.5
|
)%
|
|
0.1
|
%
|
Effective tax rate
|
(17.3
|
)%
|
|
37.5
|
%
|
|
40.2
|
%
|
We paid income taxes, net of refunds, of
$15.9 million
,
$18.1 million
and
$6.4 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. A summary of the tax effect of the significant components of deferred income taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Gross deferred tax liabilities:
|
|
|
|
Goodwill and other assets
|
$
|
100,967
|
|
|
$
|
131,367
|
|
Unbilled receivables
|
11,693
|
|
|
18,608
|
|
Property and equipment
|
7,303
|
|
|
2,657
|
|
Total
|
119,963
|
|
|
152,632
|
|
|
|
|
|
Gross deferred tax assets:
|
|
|
|
Retirement and other liabilities
|
(20,636
|
)
|
|
(27,258
|
)
|
Allowance for potential contract losses and other contract reserves
|
(1,598
|
)
|
|
(3,005
|
)
|
Federal and state operating loss carryforwards
|
(1,252
|
)
|
|
(560
|
)
|
Less: Valuation allowance
|
717
|
|
|
272
|
|
Total
|
(22,769
|
)
|
|
(30,551
|
)
|
Net deferred tax liabilities
|
$
|
97,194
|
|
|
$
|
122,081
|
|
In connection with our initial analysis of the impact of the Tax Cuts and Jobs Act, our income tax expense was reduced by
$50.6 million
for the year ended December 31, 2017 from a re-measurement of our existing deferred tax assets and liabilities. We have not completed our accounting for the income tax effects of certain elements of the Tax Cuts and Jobs Act, specifically related to the future deductibility of certain executive compensation expenses, acquisition accounting for InfoZen, and a detailed review of capitalized assets that qualify for immediate deduction. We have recorded provisional adjustments for these matters for the year ended
December 31, 2017
.
At
December 31, 2017
, we had state and foreign net operating losses of approximately
$9.9 million
and
$3.5 million
, respectively. The state net operating losses expire beginning
2019
through
2035
. We recorded a valuation allowance against the foreign net operating losses as we do not believe the loss will be fully utilized in the future.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
2015
|
Gross unrecognized tax benefits at beginning of year
|
$
|
293
|
|
|
$
|
519
|
|
|
$
|
785
|
|
Lapse in statute of limitations
|
(105
|
)
|
|
(285
|
)
|
|
(266
|
)
|
Increases in tax positions for current year
|
32
|
|
|
59
|
|
|
—
|
|
Gross unrecognized tax benefits at end of year
|
$
|
220
|
|
|
$
|
293
|
|
|
$
|
519
|
|
The total liability for gross unrecognized tax benefits as of
December 31, 2017
,
2016
and
2015
includes
$0.2 million
,
$0.2 million
and
$0.4 million
, respectively, of unrecognized net tax benefits which, if ultimately recognized, would reduce our annual effective tax rate in a future period.
We are subject to income taxes in the U.S., various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require significant judgment to apply. We are no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for the years before 2013. We are no longer subject to U.S. state tax examinations by tax authorities for the years before 2012. We believe it is reasonably possible that
$0.1 million
of gross unrecognized tax benefits will be settled within the next year due to expirations of statute of limitations.
|
|
13.
|
Business Segment and Geographic Area Information
|
We have
one
reportable segment. We deliver a broad array of IT and technical services solutions under contracts with the U.S. government. Our U.S. government customers typically exercise independent contracting authority, and even offices or divisions within an agency or department may directly, or through a prime contractor, use our services as a separate customer so long as that customer has independent decision-making and contracting authority within its organization. Revenues from the U.S. government under prime contracts and subcontracts were approximately
98%
,
98%
and
99%
of our total revenues for the years ended
December 31, 2017
,
2016
and
2015
, respectively. We treat sales to U.S. government customers as sales within the U.S. regardless of where the services are performed. U.S. revenues were approximately
98%
,
98%
and
100%
of our total revenues for the years ended
December 31, 2017
,
2016
and
2015
, respectively. International revenues were approximately
2%
,
2%
and
0%
of our total revenues for the years ended
December 31, 2017
,
2016
and
2015
, respectively. Furthermore, substantially all assets from continuing operations were held in the U.S. for the years ended
December 31, 2017
,
2016
and
2015
.
|
|
14.
|
Divestiture of ManTech Cyber Solutions International (MCSI) and Investment in CounterTack Inc. (CounterTack)
|
On July 13, 2015, we divested MCSI, which was engaged in the business of providing commercial cyber products. We received consideration of preferred stock in CounterTack that has a fair value of
$6.7 million
. The fair value is based on the quoted price for the identical item held by another party (Level 3). We recorded a gain on the sale of
$1.7 million
, which is included in the other income (expense), net line item on the consolidated statement of income for the year ended December 31, 2015. We recorded transaction costs associated with the divestiture of
$1.2 million
. The divestiture did not qualify to be presented as discontinued operations as it did not represent a strategic shift that would have a major effect on our operations and financial results. On July 13, 2015, we purchased additional preferred stock in CounterTack for
$3.8 million
. We account for our investment in CounterTack preferred stock under the cost method of accounting for investments.
|
|
15.
|
Quarterly Financial Information (Unaudited)
|
The quarterly financial data reflects, in our opinion, all normal and recurring adjustments to present fairly the results of operations for such periods. Results of any one or more quarters are not necessarily indicative of annual results or continuing trends. The following tables set forth selected unaudited quarterly financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
(in thousands, except per share data)
|
Revenues
|
$
|
418,374
|
|
|
$
|
413,694
|
|
|
$
|
422,665
|
|
|
$
|
462,285
|
|
Operating income
|
$
|
24,390
|
|
|
$
|
24,935
|
|
|
$
|
23,140
|
|
|
$
|
25,729
|
|
Income from operations before income taxes and equity method investments
|
$
|
24,159
|
|
|
$
|
24,651
|
|
|
$
|
23,114
|
|
|
$
|
25,318
|
|
Net income
|
$
|
15,028
|
|
|
$
|
15,561
|
|
|
$
|
15,182
|
|
|
$
|
68,370
|
|
|
|
|
|
|
|
|
|
Class A common stock:
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
25,547
|
|
|
25,618
|
|
|
25,684
|
|
|
25,886
|
|
Basic earnings per share
|
$
|
0.39
|
|
|
$
|
0.40
|
|
|
$
|
0.39
|
|
|
$
|
1.75
|
|
Diluted weighted average common shares outstanding
|
25,778
|
|
|
25,827
|
|
|
25,929
|
|
|
26,353
|
|
Diluted earnings per share
|
$
|
0.39
|
|
|
$
|
0.40
|
|
|
$
|
0.39
|
|
|
$
|
1.73
|
|
Class B common stock:
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
13,191
|
|
|
13,191
|
|
|
13,191
|
|
|
13,189
|
|
Basic earnings per share
|
$
|
0.39
|
|
|
$
|
0.40
|
|
|
$
|
0.39
|
|
|
$
|
1.75
|
|
Diluted weighted average common shares outstanding
|
13,191
|
|
|
13,191
|
|
|
13,191
|
|
|
13,189
|
|
Diluted earnings per share
|
$
|
0.39
|
|
|
$
|
0.40
|
|
|
$
|
0.39
|
|
|
$
|
1.73
|
|
|
|
|
2016
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
(in thousands, except per share data)
|
Revenues
|
$
|
390,662
|
|
|
$
|
401,354
|
|
|
$
|
415,402
|
|
|
$
|
394,178
|
|
Operating income
|
$
|
21,945
|
|
|
$
|
24,214
|
|
|
$
|
23,500
|
|
|
$
|
21,304
|
|
Income from operations before income taxes and equity method investments
|
$
|
21,708
|
|
|
$
|
23,972
|
|
|
$
|
23,365
|
|
|
$
|
21,025
|
|
Net income
|
$
|
13,216
|
|
|
$
|
14,782
|
|
|
$
|
14,664
|
|
|
$
|
13,729
|
|
|
|
|
|
|
|
|
|
Class A common stock:
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
24,476
|
|
|
24,707
|
|
|
25,164
|
|
|
25,423
|
|
Basic earnings per share
|
$
|
0.35
|
|
|
$
|
0.39
|
|
|
$
|
0.38
|
|
|
$
|
0.36
|
|
Diluted weighted average common shares outstanding
|
24,567
|
|
|
24,916
|
|
|
25,429
|
|
|
25,667
|
|
Diluted earnings per share
|
$
|
0.35
|
|
|
$
|
0.39
|
|
|
$
|
0.38
|
|
|
$
|
0.35
|
|
Class B common stock:
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
13,192
|
|
|
13,192
|
|
|
13,192
|
|
|
13,191
|
|
Basic earnings per share
|
$
|
0.35
|
|
|
$
|
0.39
|
|
|
$
|
0.38
|
|
|
$
|
0.36
|
|
Diluted weighted average common shares outstanding
|
13,192
|
|
|
13,192
|
|
|
13,192
|
|
|
13,191
|
|
Diluted earnings per share
|
$
|
0.35
|
|
|
$
|
0.39
|
|
|
$
|
0.38
|
|
|
$
|
0.35
|
|