x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|
|
|
Virginia
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|
54-1013306
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(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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4300 Fair Lakes Court, Fairfax, Virginia
|
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22033
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(Address of Principal Executive Offices)
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(Zip Code)
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Page
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Part I.
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FINANCIAL INFORMATION
|
|
Item 1.
|
Condensed Consolidated Balance Sheets June 30, 2013 and December 31, 2013 (Unaudited)
|
2
|
|
Condensed Consolidated Statements of Operations (Unaudited) Three and six months ended December 31, 2012 and 2013
|
3
|
|
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) Three and six months ended December 31, 2012 and 2013
|
4
|
|
Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended December 31, 2012 and 2013
|
5
|
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
6
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
15
|
|
Overview
|
15
|
|
Forward-Looking Statements
|
15
|
|
Non-GAAP Financial Measures
|
17
|
|
Business Environment and Outlook
|
17
|
|
Key Metrics
|
18
|
|
Seasonality
|
20
|
|
Summary of Financial Results
|
20
|
|
Items Affecting the Comparability of Our Operating Results
|
21
|
|
Results of Operations
|
22
|
|
Liquidity and Capital Resources
|
24
|
|
Off-Balance Sheet Arrangements
|
26
|
|
Description of Critical Accounting Policies and Estimates
|
26
|
|
Recent Accounting Pronouncements
|
26
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
|
27
|
Item 4.
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Controls and Procedures
|
27
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Part II.
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OTHER INFORMATION
|
|
Item 1.
|
Legal Proceedings
|
28
|
Item 1A.
|
Risk Factors
|
28
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
28
|
Item 3.
|
Defaults Upon Senior Securities
|
28
|
Item 4.
|
Mine Safety Disclosures
|
28
|
Item 5.
|
Other Information
|
28
|
Item 6.
|
Exhibits
|
29
|
Signatures
|
30
|
|
|
June 30,
|
|
December 31,
|
|
||
|
|
2013
|
|
2013
|
|
||
|
|
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,050
|
|
$
|
53,886
|
|
Restricted cash
|
|
|
1,389
|
|
|
2,319
|
|
Accounts receivable, net
|
|
|
267,476
|
|
|
255,839
|
|
Prepaid expenses and other
|
|
|
15,422
|
|
|
11,676
|
|
Deferred income taxes
|
|
|
4,371
|
|
|
-
|
|
Total current assets
|
|
|
293,708
|
|
|
323,720
|
|
Property and equipment, net
|
|
|
24,811
|
|
|
22,499
|
|
Goodwill
|
|
|
787,760
|
|
|
783,604
|
|
Trade names
|
|
|
150,200
|
|
|
150,200
|
|
Identified intangibles, net
|
|
|
327,922
|
|
|
290,043
|
|
Other long-term assets
|
|
|
42,552
|
|
|
39,720
|
|
Total assets
|
|
$
|
1,626,953
|
|
$
|
1,609,786
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Current portion of long-term debt and revolving credit facility
|
|
$
|
-
|
|
$
|
45,000
|
|
Accounts payable and accrued expenses
|
|
|
103,321
|
|
|
115,899
|
|
Accrued payroll and employee benefits
|
|
|
85,007
|
|
|
76,722
|
|
Billings in excess of revenue recognized
|
|
|
8,563
|
|
|
10,219
|
|
Deferred income taxes
|
|
|
-
|
|
|
8,414
|
|
Total current liabilities
|
|
|
196,891
|
|
|
256,254
|
|
Long-term debt
|
|
|
1,108,667
|
|
|
1,064,264
|
|
Deferred income taxes
|
|
|
133,462
|
|
|
112,979
|
|
Other long-term liabilities
|
|
|
26,764
|
|
|
24,764
|
|
Total liabilities
|
|
|
1,465,784
|
|
|
1,458,261
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholder's equity:
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share; 1,000 shares authorized, issued and
oustanding as of June 30, 2013 and December 31, 2013 |
|
|
-
|
|
|
-
|
|
Additional paid-in capital
|
|
|
519,590
|
|
|
521,703
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(12,183)
|
|
|
(12,231)
|
|
Accumulated deficit
|
|
|
(346,238)
|
|
|
(357,947)
|
|
Total stockholder's equity
|
|
|
161,169
|
|
|
151,525
|
|
Total liabilities and stockholder's equity
|
|
$
|
1,626,953
|
|
$
|
1,609,786
|
|
2 | ||
|
|
Three months ended December 31,
|
|
Six months ended December 31,
|
|
||||||||
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
376,699
|
|
$
|
333,713
|
|
$
|
766,548
|
|
$
|
683,536
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
285,421
|
|
|
260,050
|
|
|
582,402
|
|
|
524,187
|
|
Selling, general and administrative
|
|
|
50,194
|
|
|
40,207
|
|
|
103,527
|
|
|
85,748
|
|
Depreciation and amortization of property and
equipment |
|
|
3,171
|
|
|
2,323
|
|
|
6,370
|
|
|
4,908
|
|
Amortization of intangible assets
|
|
|
21,577
|
|
|
18,064
|
|
|
43,723
|
|
|
36,584
|
|
Gain on the sale of a portion of the Health &
Civil business |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,564)
|
|
Total operating costs and expenses
|
|
|
360,363
|
|
|
320,644
|
|
|
736,022
|
|
|
649,863
|
|
Operating income
|
|
|
16,336
|
|
|
13,069
|
|
|
30,526
|
|
|
33,673
|
|
Interest expense
|
|
|
(25,241)
|
|
|
(26,356)
|
|
|
(50,722)
|
|
|
(52,527)
|
|
Interest income
|
|
|
9
|
|
|
24
|
|
|
21
|
|
|
34
|
|
Loss before income taxes
|
|
|
(8,896)
|
|
|
(13,263)
|
|
|
(20,175)
|
|
|
(18,820)
|
|
Benefit from income taxes
|
|
|
(3,345)
|
|
|
(5,095)
|
|
|
(7,241)
|
|
|
(7,111)
|
|
Net loss
|
|
$
|
(5,551)
|
|
$
|
(8,168)
|
|
$
|
(12,934)
|
|
$
|
(11,709)
|
|
3 | ||
|
|
Three months ended December 31,
|
|
Six months ended December 31,
|
|
||||||||
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,551)
|
|
$
|
(8,168)
|
|
$
|
(12,934)
|
|
$
|
(11,709)
|
|
Unrealized gain (loss) on interest rate swaps, net of tax
|
|
|
202
|
|
|
47
|
|
|
(898)
|
|
|
(48)
|
|
Comprehensive loss
|
|
$
|
(5,349)
|
|
$
|
(8,121)
|
|
$
|
(13,832)
|
|
$
|
(11,757)
|
|
4 | ||
|
|
Six months ended December 31,
|
|
||||
|
|
2012
|
|
2013
|
|
||
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,934)
|
|
$
|
(11,709)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
7,038
|
|
|
5,619
|
|
Amortization of intangible assets
|
|
|
43,723
|
|
|
36,584
|
|
Stock-based compensation
|
|
|
2,034
|
|
|
2,130
|
|
Deferred income taxes
|
|
|
(7,963)
|
|
|
(7,618)
|
|
Amortization of original issue discount and debt issuance costs
|
|
|
3,658
|
|
|
3,747
|
|
Gain on the sale of a portion of the Health & Civil business
|
|
|
-
|
|
|
(1,564)
|
|
Changes in assets and liabilities, net of the effect of acquisitions and divestitures
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
41,987
|
|
|
11,399
|
|
Prepaid expenses and other
|
|
|
(1,391)
|
|
|
3,697
|
|
Accounts payable and accrued expenses
|
|
|
(12,002)
|
|
|
10,624
|
|
Accrued payroll and employee benefits
|
|
|
(20,899)
|
|
|
(7,899)
|
|
Billings in excess of revenue recognized
|
|
|
(552)
|
|
|
2,217
|
|
Other
|
|
|
(2,708)
|
|
|
878
|
|
Net cash provided by operating activities
|
|
|
39,991
|
|
|
48,105
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(5,824)
|
|
|
(4,761)
|
|
Acquisition of MorganFranklin Corporation's National Security Solutions division
|
|
|
(34,198)
|
|
|
-
|
|
Proceeds from the sale of a portion of the Health business
|
|
|
-
|
|
|
5,492
|
|
Net cash (used in) provided by investing activities
|
|
|
(40,022)
|
|
|
731
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Repayments of Term Loan B Facility
|
|
|
(20,000)
|
|
|
-
|
|
Borrowings under revolving credit facility
|
|
|
50,000
|
|
|
100,000
|
|
Repayments under revolving credit facility
|
|
|
(30,000)
|
|
|
(100,000)
|
|
Net cash used in financing activities
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(31)
|
|
|
48,836
|
|
Cash and cash equivalents, beginning of period
|
|
|
3,647
|
|
|
5,050
|
|
Cash and cash equivalents, end of period
|
|
$
|
3,616
|
|
$
|
53,886
|
|
|
|
|
|
|
|
|
|
Supplementary Cash Flow Information
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
47,175
|
|
|
49,114
|
|
Cash paid (refunds received) for income taxes
|
|
|
268
|
|
|
(680)
|
|
5 | ||
|
⋅
|
Level 1 Quoted prices for identical instruments in active markets;
|
|
⋅
|
Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
|
|
⋅
|
Level 3 Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
6 | ||
Service Options:
|
|
|
|
Shares under option at June 30, 2013
|
|
25,210
|
|
Options granted
|
|
4,922
|
|
Options forfeited or cancelled
|
|
(2,342)
|
|
Shares under option at December 31, 2013
|
|
27,790
|
|
Options exercisable at December 31, 2013
|
|
8,684
|
|
|
|
|
|
Performance Options:
|
|
|
|
Shared under option at June 30, 2013
|
|
25,488
|
|
Options granted
|
|
4,922
|
|
Options forfeited or cancelled
|
|
(2,306)
|
|
Shares under option at December 31, 2013
|
|
28,104
|
|
7 | ||
Nonvested restricted shares at June 30, 2013
|
|
12,165
|
|
Restricted shares granted
|
|
3,309
|
|
Restricted shares vested
|
|
(200)
|
|
Restricted shares forfeited
|
|
(1,470)
|
|
Nonvested restricted shares at December 31, 2013
|
|
13,804
|
|
|
|
June 30,
|
|
December 31,
|
|
||
|
|
2013
|
|
2013
|
|
||
Billed and billable, net of allowance of $773 and $792 as of June 30,
2013 and December 31, 2013, respectively |
|
$
|
250,079
|
|
$
|
231,221
|
|
Unbilled:
|
|
|
|
|
|
|
|
Retainages
|
|
|
3,465
|
|
|
3,824
|
|
Revenue recorded in excess of milestone billings on fixed-price
contracts |
|
|
16,947
|
|
|
20,713
|
|
Revenue recorded in excess of contractual authorization, billable
upon receipt of contractual documents |
|
|
2,208
|
|
|
5,523
|
|
Allowance for unbillable amounts
|
|
|
(5,223)
|
|
|
(5,442)
|
|
Total unbilled
|
|
|
17,397
|
|
|
24,618
|
|
Accounts receivable, net
|
|
$
|
267,476
|
|
$
|
255,839
|
|
8 | ||
|
|
June 30,
|
|
December 31,
|
|
||
|
|
2013
|
|
2013
|
|
||
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
Taxes and taxes receivable
|
|
$
|
3,353
|
|
$
|
2,183
|
|
Maintenance and software
|
|
|
2,447
|
|
|
2,532
|
|
Rent
|
|
|
2,634
|
|
|
2,585
|
|
Other
|
|
|
6,988
|
|
|
4,376
|
|
Total prepaid expenses and other
|
|
$
|
15,422
|
|
$
|
11,676
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
22,491
|
|
$
|
23,369
|
|
Furniture, equipment and software
|
|
|
29,996
|
|
|
32,042
|
|
Total property and equipment
|
|
|
52,487
|
|
|
55,411
|
|
Less: Accumulated depreciation and amortization
|
|
|
(27,676)
|
|
|
(32,912)
|
|
Total property and equipment, net
|
|
$
|
24,811
|
|
$
|
22,499
|
|
|
|
|
|
|
|
|
|
Identified intangibles
|
|
|
|
|
|
|
|
Acquired intangible assets
|
|
$
|
504,690
|
|
$
|
501,699
|
|
Software development costs
|
|
|
2,930
|
|
|
2,930
|
|
Total identified intangibles
|
|
|
507,620
|
|
|
504,629
|
|
Less: Accumulated amortization
|
|
|
(179,698)
|
|
|
(214,586)
|
|
Total identified intangibles, net
|
|
$
|
327,922
|
|
$
|
290,043
|
|
|
|
|
|
|
|
|
|
Other long-term assets
|
|
|
|
|
|
|
|
Debt issuance costs, net
|
|
$
|
38,123
|
|
$
|
34,973
|
|
Other
|
|
|
4,429
|
|
|
4,747
|
|
Total other long-term assets
|
|
$
|
42,552
|
|
$
|
39,720
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
Vendor obligations
|
|
$
|
78,364
|
|
$
|
89,174
|
|
Accrued interest
|
|
|
11,059
|
|
|
10,718
|
|
Interest rate derivative liability
|
|
|
4,484
|
|
|
7,664
|
|
Facility exit charge
|
|
|
1,398
|
|
|
1,175
|
|
Other
|
|
|
8,016
|
|
|
7,168
|
|
Total accounts payable and accrued expenses
|
|
$
|
103,321
|
|
$
|
115,899
|
|
|
|
|
|
|
|
|
|
Accrued payroll and employee benefits
|
|
|
|
|
|
|
|
Accrued salaries and incentive compensation
|
|
$
|
25,183
|
|
$
|
29,677
|
|
Accrued leave
|
|
|
49,928
|
|
|
36,784
|
|
Other
|
|
|
9,896
|
|
|
10,261
|
|
Total accrued payroll and employee benefits
|
|
$
|
85,007
|
|
$
|
76,722
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
Interest rate derivative liability
|
|
$
|
15,563
|
|
$
|
12,460
|
|
Deferred rent
|
|
|
8,094
|
|
|
9,279
|
|
Facility exit charge
|
|
|
2,140
|
|
|
1,991
|
|
Other
|
|
|
967
|
|
|
1,034
|
|
Total other long-term liabilities
|
|
$
|
26,764
|
|
$
|
24,764
|
|
9 | ||
|
|
June 30,
|
|
December 31,
|
|
||
|
|
2013
|
|
2013
|
|
||
|
|
|
|
|
|
|
|
Secured Term Loan B Facility
|
|
$
|
715,000
|
|
$
|
715,000
|
|
Less: Unamortized Discount
|
|
|
(6,333)
|
|
|
(5,736)
|
|
Secured Term Loan B Facility, net
|
|
|
708,667
|
|
|
709,264
|
|
Senior Notes due 2019 at 11%
|
|
|
400,000
|
|
|
400,000
|
|
Total debt
|
|
|
1,108,667
|
|
|
1,109,264
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
-
|
|
|
(45,000)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,108,667
|
|
$
|
1,064,264
|
|
10 | ||
11 | ||
|
|
Three months ended December 31,
|
|
Six months ended December 31,
|
|
||||||||
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of quarter
|
|
$
|
(13,127)
|
|
$
|
(12,278)
|
|
$
|
(12,027)
|
|
$
|
(12,183)
|
|
Other comprehensive loss before
reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before tax
|
|
|
(53)
|
|
|
(1,064)
|
|
|
(2,260)
|
|
|
(2,413)
|
|
Tax effect
|
|
|
21
|
|
|
417
|
|
|
887
|
|
|
946
|
|
Net of tax
|
|
|
(32)
|
|
|
(647)
|
|
|
(1,373)
|
|
|
(1,467)
|
|
Amounts reclassified from accumulated
other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before tax
|
|
|
386
|
|
|
1,141
|
|
|
783
|
|
|
2,334
|
|
Tax effect
|
|
|
(152)
|
|
|
(447)
|
|
|
(308)
|
|
|
(915)
|
|
Net of tax
|
|
|
234
|
|
|
694
|
|
|
475
|
|
|
1,419
|
|
Net other comprehensive income (loss)
|
|
|
202
|
|
|
47
|
|
|
(898)
|
|
|
(48)
|
|
End of quarter
|
|
$
|
(12,925)
|
|
$
|
(12,231)
|
|
$
|
(12,925)
|
|
$
|
(12,231)
|
|
12 | ||
Balance as of June 30, 2013
|
|
$
|
3,538
|
|
Facility exit costs accrued
|
|
|
503
|
|
Cash payments
|
|
|
(629)
|
|
Other
|
|
|
(246)
|
|
Balance as of December 31, 2013
|
|
|
3,166
|
|
Current portion of facility exit charge liability
|
|
|
(1,175)
|
|
Long-term facility exit charge liability
|
|
$
|
1,991
|
|
13 | ||
14 | ||
· |
provide an overview of our business;
|
|
· |
describe selected key metrics evaluated by management;
|
|
· |
explain the year-over-year trends in our results of operations;
|
|
· |
describe our liquidity and capital resources; and
|
|
· |
explain our critical accounting policies and estimates.
|
15 | ||
· |
reduced spending levels including impacts of any government shut down and changing budget priorities of our largest customer, the United States federal government, which accounts for approximately 97% of our revenue;
|
· |
failure of our customer to fund a contract or exercise options to extend contracts, or our inability to successfully execute awarded contracts;
|
|
· |
limitations as a result of our substantial indebtedness which could adversely affect our financial health, operational flexibility and strategic plans;
|
|
· |
failure to generate cash sufficient to pay the principal of, interest on, or other amounts due on our debt;
|
|
· |
failure to comply with complex laws and regulations, including but not limited to, the False Claims Act, the Federal Acquisition Regulation, the Defense Federal Acquisition Regulation Supplement and the U.S. Government Cost Accounting Standards;
|
|
· |
possible delays or overturning of our government contract awards due to bid protests, loss of contract revenue or diminished opportunities based on the existence of organizational conflicts of interest or failure to perform by other companies on which we depend to deliver products and services;
|
|
· |
security threats, attacks or other disruptions on our information infrastructure, and failure to comply with complex network security and data privacy legal and contractual obligations or to protect sensitive information;
|
|
· |
inability or failure to adequately protect our proprietary information or intellectual property rights or violation of third party intellectual rights;
|
|
· |
potential for significant economic or personal liabilities resulting from failures, errors, delays or defects associated with products, services and systems we supply;
|
|
· |
adverse changes in federal government practices;
|
|
· |
pricing pressure on new work, reduced profitability or loss of market share due to intense competition and commoditization of services we offer;
|
|
· |
adverse results of audits and investigations conducted by the Defense Contract Audit Agency, Internal Revenue Service or any of the Inspectors General for various agencies with which we contract, including, without limitation, any determination that our purchasing, property, estimating, cost accounting, labor, billing, compensation, management information systems or contractor internal control systems are deficient;
|
|
· |
difficulties accurately estimating contract costs and contract performance requirements;
|
|
· |
possible further impairment of goodwill, trade names and other assets as a result of customer budget pressures and reduced U.S. federal government spending;
|
|
· |
challenges attracting and retaining key personnel or high-quality employees, particularly those with security clearances;
|
|
· |
failure to manage acquisitions or divestitures successfully, including identifying, evaluating, and valuing acquisition targets, integrating acquired companies, losses associated with divestitures, and the inability to effect divestitures at attractive prices and on a desired timeline;
|
|
· |
possible future losses that exceed our insurance coverage;
|
|
· |
pending litigation and any resulting expenses, payments or sanctions, including but not limited to penalties, compensatory damages or suspension or debarment from future government contracting; and
|
|
· |
the effect of our acquisition by entities affiliated with Providence on our business relationships, operating results and business generally.
|
16 | ||
17 | ||
|
|
Three months
|
|
Six months
|
|
||
|
|
ended
|
|
ended
|
|
||
(in millions)
|
|
December 31, 2013
|
|
December 31, 2013
|
|
||
|
|
|
|
|
|
|
|
Beginning backlog
|
|
$
|
3,686.4
|
|
$
|
3,284.5
|
|
|
|
|
|
|
|
|
|
New contact awards
|
|
|
287.1
|
|
|
917.1
|
|
Ceiling increases
|
|
|
108.0
|
|
|
300.9
|
|
Total contract awards
|
|
|
395.1
|
|
|
1,218.0
|
|
De-obligations and removals
|
|
|
(68.8)
|
|
|
(140.0)
|
|
Net orders
|
|
|
326.3
|
|
|
1,078.0
|
|
Revenue recognized
|
|
|
(333.7)
|
|
|
(683.5)
|
|
Ending backlog
|
|
$
|
3,679.0
|
|
$
|
3,679.0
|
|
|
|
|
|
|
|
|
|
Funded
|
|
$
|
791.7
|
|
$
|
791.7
|
|
Unfunded
|
|
|
2,887.3
|
|
|
2,887.3
|
|
Total backlog
|
|
$
|
3,679.0
|
|
$
|
3,679.0
|
|
18 | ||
· |
Cost-plus-fee contracts. Cost-plus-fee contracts provide for reimbursement of allowable costs and the payment of a fee, which is our profit. In addition, some cost-plus-fee contracts provide for an award fee or incentive fee for meeting the requirements of the contract.
|
|
· |
Time-and-materials contracts. Time-and-materials contracts provide for a fixed hourly rate for each direct labor hour expended plus reimbursement of allowable material costs and out-of-pocket expenses.
|
|
· |
Fixed-price contracts. Fixed-price contracts provide for a pre-determined fixed price for specified products and/or services. Fixed-price-level-of-effort contracts are similar to time-and-materials contracts except they require a specified level of effort over a stated period of time. To the extent our actual costs vary from the estimates upon which the price of the fixed-price contract was negotiated, we will generate more or less than the anticipated amount of profit or could incur a loss.
|
|
|
Three months ended December 31,
|
|
|||
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Cost-plus-fee
|
|
32
|
%
|
|
32
|
%
|
Time-and-materials
|
|
34
|
%
|
|
34
|
%
|
Fixed-price (a)
|
|
34
|
%
|
|
34
|
%
|
|
|
Six months ended December 31,
|
|
|||
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
|
|
Cost-plus-fee
|
|
31
|
%
|
|
31
|
%
|
Time-and-materials
|
|
36
|
%
|
|
34
|
%
|
Fixed-price (a)
|
|
33
|
%
|
|
35
|
%
|
19 | ||
|
|
Three months ended December 31,
|
|
Six months ended December 31,
|
|
||||||||
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
||||
Revenue
|
|
$
|
376,699
|
|
$
|
333,713
|
|
$
|
766,548
|
|
$
|
683,536
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
285,421
|
|
|
260,050
|
|
|
582,402
|
|
|
524,187
|
|
Selling, general and administrative
|
|
|
50,194
|
|
|
40,207
|
|
|
103,527
|
|
|
85,748
|
|
Depreciation and amortization of property
and equipment |
|
|
3,171
|
|
|
2,323
|
|
|
6,370
|
|
|
4,908
|
|
Amortization of intangible assets
|
|
|
21,577
|
|
|
18,064
|
|
|
43,723
|
|
|
36,584
|
|
Gain on the sale of a portion of the Health &
Civil business |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,564)
|
|
Total operating costs and expenses
|
|
|
360,363
|
|
|
320,644
|
|
|
736,022
|
|
|
649,863
|
|
Operating income
|
|
|
16,336
|
|
|
13,069
|
|
|
30,526
|
|
|
33,673
|
|
Interest expense
|
|
|
(25,241)
|
|
|
(26,356)
|
|
|
(50,722)
|
|
|
(52,527)
|
|
Interest income
|
|
|
9
|
|
|
24
|
|
|
21
|
|
|
34
|
|
Loss before income taxes
|
|
|
(8,896)
|
|
|
(13,263)
|
|
|
(20,175)
|
|
|
(18,820)
|
|
Benefit from income taxes
|
|
|
(3,345)
|
|
|
(5,095)
|
|
|
(7,241)
|
|
|
(7,111)
|
|
Net loss
|
|
$
|
(5,551)
|
|
$
|
(8,168)
|
|
$
|
(12,934)
|
|
$
|
(11,709)
|
|
|
|
Six months ended December 31,
|
|
||||
|
|
2012
|
|
2013
|
|
||
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
39,991
|
|
$
|
48,105
|
|
Net cash (used in) provided by investing activities
|
|
|
(40,022)
|
|
|
731
|
|
Net cash used in financing activities
|
|
|
-
|
|
|
-
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(31)
|
|
$
|
48,836
|
|
20 | ||
|
|
Three months ended December 31,
|
|
Six months ended December 31,
|
|
||||||||
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
||||
Loss from continuing operations
|
|
$
|
(5,551)
|
|
$
|
(8,168)
|
|
$
|
(12,934)
|
|
$
|
(11,709)
|
|
Benefit from income taxes
|
|
|
(3,345)
|
|
|
(5,095)
|
|
|
(7,241)
|
|
|
(7,111)
|
|
Interest expense, net
|
|
|
25,232
|
|
|
26,332
|
|
|
50,701
|
|
|
52,493
|
|
Depreciation and amortization of property and
equipment |
|
|
3,508
|
|
|
2,711
|
|
|
7,038
|
|
|
5,619
|
|
Amortization of intangible assets
|
|
|
21,577
|
|
|
18,064
|
|
|
43,723
|
|
|
36,584
|
|
Stock compensation
|
|
|
825
|
|
|
796
|
|
|
2,034
|
|
|
2,130
|
|
Severance
|
|
|
950
|
|
|
1,196
|
|
|
1,235
|
|
|
1,151
|
|
Facility exit charge
|
|
|
1,018
|
|
|
392
|
|
|
1,281
|
|
|
503
|
|
Other, net
|
|
|
2,049
|
|
|
704
|
|
|
3,940
|
|
|
1,500
|
|
Gain on the sale of a portion of our Health &
Civil business |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,564)
|
|
Subtotal - Adjusted EBITDA before
certain items |
|
|
46,263
|
|
|
36,932
|
|
|
89,777
|
|
|
79,596
|
|
EBITDA impact of acquisitions
|
|
|
2,025
|
|
|
-
|
|
|
4,344
|
|
|
-
|
|
EBITDA impact of cost savings
|
|
|
444
|
|
|
2,103
|
|
|
972
|
|
|
4,794
|
|
Adjusted EBITDA
|
|
$
|
48,732
|
|
$
|
39,035
|
|
$
|
95,093
|
|
$
|
84,390
|
|
|
|
Twelve months ended December 31,
|
|
||||
|
|
2012
|
|
2013
|
|
||
Loss from continuing operations
|
|
$
|
(26,570)
|
|
$
|
(316,069)
|
|
Benefit from income taxes
|
|
|
(16,331)
|
|
|
(60,039)
|
|
Interest expense, net
|
|
|
103,444
|
|
|
102,526
|
|
Depreciation and amortization of property and
equipment |
|
|
15,287
|
|
|
12,065
|
|
Amortization of intangible assets
|
|
|
92,120
|
|
|
81,008
|
|
Stock compensation
|
|
|
3,841
|
|
|
2,932
|
|
Severance
|
|
|
4,159
|
|
|
1,639
|
|
Facility exit charge
|
|
|
5,698
|
|
|
3,033
|
|
Other, net
|
|
|
9,644
|
|
|
3,914
|
|
Transaction costs
|
|
|
471
|
|
|
-
|
|
Impairment of goodwill and other assets
|
|
|
-
|
|
|
345,753
|
|
Gain on the sale of a portion of our Health &
Civil business |
|
|
-
|
|
|
(1,564)
|
|
Subtotal - Adjusted EBITDA before certain
items |
|
|
191,763
|
|
|
175,198
|
|
EBITDA impact of acquisitions
|
|
|
8,177
|
|
|
-
|
|
EBITDA impact of cost savings
|
|
|
3,117
|
|
|
11,785
|
|
Adjusted EBITDA
|
|
$
|
203,057
|
|
$
|
186,983
|
|
21 | ||
|
·
|
Stock compensation expense related to the stock incentive plans. The charges are included in SG&A expenses in the condensed consolidated statement of operations.
|
|
|
|
|
·
|
Severance charges incurred to primarily reduce our indirect labor force. The gross charges are included in SG&A expenses in the condensed consolidated statement of operations.
|
|
|
|
|
·
|
Facility exit charges related to the exit of underutilized space in certain of our leased facilities. The charges are included in SG&A expenses in the condensed consolidated statement of operations.
|
|
|
|
|
·
|
Certain other non-recurring items including the following:
|
|
|
Three months ended December 31,
|
|
Six months ended December 31,
|
|
||||||||
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
||||
Signing and retention bonuses of certain
executive officers |
|
$
|
64
|
|
$
|
-
|
|
$
|
1,057
|
|
$
|
-
|
|
PEP management fees
|
|
|
438
|
|
|
438
|
|
|
876
|
|
|
875
|
|
Merger and acquisition costs
|
|
|
1,018
|
|
|
230
|
|
|
1,211
|
|
|
477
|
|
Other
|
|
|
529
|
|
|
36
|
|
|
796
|
|
|
148
|
|
Other, net
|
|
$
|
2,049
|
|
$
|
704
|
|
$
|
3,940
|
|
$
|
1,500
|
|
|
|
Twelve months ended December 31,
|
|
||||
|
|
2012
|
|
2013
|
|
||
Signing and retention bonuses of certain
executive officers |
|
$
|
4,967
|
|
$
|
84
|
|
PEP management fees
|
|
|
1,752
|
|
|
1,750
|
|
Merger and acquisition costs
|
|
|
1,319
|
|
|
1,480
|
|
Other
|
|
|
1,606
|
|
|
600
|
|
Other, net
|
|
$
|
9,644
|
|
$
|
3,914
|
|
|
·
|
Transaction costs for accelerated stock compensation expense, accounting, investment banking, legal, severance, and other services related to the Transaction;
|
|
|
|
|
·
|
Impairment of goodwill and trade names as a result of the annual impairment analysis during fiscal 2013;
|
|
|
|
|
·
|
Gain on the sale of a portion of our Health and Civil business in the first quarter of fiscal 2014;
|
|
|
|
|
·
|
The acquisition of MorganFranklin Corporation’s National Security Solutions division, or NSS, in December 2012. In calculating Adjusted EBITDA, we add the estimated EBITDA impact of acquisitions as if the businesses had been acquired on the first day of the respective period in which an adjustment is recorded.
|
|
|
|
|
·
|
As defined in our credit agreement, cost savings represents the EBITDA impact of quantifiable run-rate cost savings for actions taken or expected to be taken within 12 months of the reporting date as if they had been realized on the first day of the relevant period. Specifically, for the periods presented, the cost savings adjustment represents the estimated EBITDA impact of actions taken to exit underutilized space in certain of our leased facilities, the run-rate cost savings associated with indirect labor reductions, and savings associated with certain fringe benefit changes.
|
22 | ||
|
|
Three months ended December 31,
|
|
|
|
|||
|
|
2012
|
|
2013
|
|
% Change
|
|
|
Cost of services
|
|
$
|
285,421
|
$
|
260,050
|
|
(8.9)
|
%
|
Selling, general and administrative
|
|
|
50,194
|
|
40,207
|
|
(19.9)
|
%
|
Depreciation and amortization of property and equipment
|
|
|
3,171
|
|
2,323
|
|
(26.7)
|
%
|
Amortization of intangible assets
|
|
|
21,577
|
|
18,064
|
|
(16.3)
|
%
|
|
(as a percentage of revenue)
|
|
|||
Cost of services
|
75.8
|
%
|
|
77.9
|
%
|
Selling, general and administrative
|
13.3
|
%
|
|
12.0
|
%
|
Depreciation and amortization of property and equipment
|
0.8
|
%
|
|
0.7
|
%
|
Amortization of intangible assets
|
5.7
|
%
|
|
5.4
|
%
|
|
|
Six months ended December 31,
|
|
|
|
||||
|
|
2012
|
|
2013
|
|
% Change
|
|
||
Cost of services
|
|
$
|
582,402
|
|
$
|
524,187
|
|
(10.0)
|
%
|
Selling, general and administrative
|
|
|
103,527
|
|
|
85,748
|
|
(17.2)
|
%
|
Depreciation and amortization of property and equipment
|
|
|
6,370
|
|
|
4,908
|
|
(23.0)
|
%
|
Amortization of intangible assets
|
|
|
43,723
|
|
|
36,584
|
|
(16.3)
|
%
|
Gain on the sale of a portion of the Health & Civil business
|
|
|
-
|
|
|
(1,564)
|
|
NMF
|
|
|
|
(as a percentage of revenue)
|
|
|||
Cost of services
|
|
76.0
|
%
|
|
76.7
|
%
|
Selling, general and administrative
|
|
13.5
|
%
|
|
12.5
|
%
|
Depreciation and amortization of property and equipment
|
|
0.8
|
%
|
|
0.7
|
%
|
Amortization of intangible assets
|
|
5.7
|
%
|
|
5.4
|
%
|
Gain on the sale of a portion of the Health & Civil business
|
|
0.0
|
%
|
|
(0.2)
|
%
|
|
|
Three months
ended December 31, 2012 |
|
% of total
|
|
|
Three months
ended December 31, 2013 |
|
% of total
|
|
||
Direct labor and related overhead
|
|
$
|
137,840
|
|
48.3
|
%
|
|
$
|
128,742
|
|
49.5
|
%
|
Subcontractor labor
|
|
|
88,713
|
|
31.1
|
%
|
|
|
80,320
|
|
30.9
|
%
|
Materials and other reimbursable costs
|
|
|
58,868
|
|
20.6
|
%
|
|
|
50,988
|
|
19.6
|
%
|
Total cost of services
|
|
$
|
285,421
|
|
|
|
|
$
|
260,050
|
|
|
|
|
|
Six months
ended December 31, 2012 |
|
% of total
|
|
|
Six months
ended December 31, 2013 |
|
% of total
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct labor and related overhead
|
|
$
|
287,850
|
|
49.4
|
%
|
|
$
|
263,018
|
|
50.2
|
%
|
Subcontractor labor
|
|
|
184,189
|
|
31.6
|
%
|
|
|
166,891
|
|
31.8
|
%
|
Materials and other reimbursable costs
|
|
|
110,363
|
|
19.0
|
%
|
|
|
94,278
|
|
18.0
|
%
|
Total cost of services
|
|
$
|
582,402
|
|
|
|
|
$
|
524,187
|
|
|
|
23 | ||
|
|
Three months ended December 31,
|
|
Six months ended December 31,
|
|
||||||||
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
||||
Interest expense
|
|
$
|
(25,241)
|
|
$
|
(26,356)
|
|
$
|
(50,722)
|
|
$
|
(52,527)
|
|
Interest income
|
|
|
9
|
|
|
24
|
|
|
21
|
|
|
34
|
|
Interest, net
|
|
$
|
(25,232)
|
|
$
|
(26,332)
|
|
$
|
(50,701)
|
|
$
|
(52,493)
|
|
24 | ||
|
|
Six months ended December 31,
|
|
||||
|
|
2012
|
|
2013
|
|
||
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
39,991
|
|
$
|
48,105
|
|
Net cash (used in) provided by investing activities
|
|
|
(40,022)
|
|
|
731
|
|
Net cash used in financing activities
|
|
|
-
|
|
|
-
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(31)
|
|
$
|
48,836
|
|
25 | ||
26 | ||
27 | ||
28 | ||
Exhibit
No. |
|
Description
|
|
|
|
31.1
|
+
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
|
|
|
|
31.2
|
+
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
|
|
|
|
32.1
|
+
|
Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
|
|
|
|
32.2
|
+
|
Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
|
|
+
|
Filed herewith
|
29 | ||
|
|
|
|
|
SRA INTERNATIONAL, INC.
|
||
|
|
|
|
|
By:
|
|
/S/ WILLIAM L. BALLHAUS
|
|
|
|
William L. Ballhaus
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
By:
|
|
/S/ RICHARD J. NADEAU
|
|
|
|
Richard J. Nadeau
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
30 | ||