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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________ 
FORM 10-Q
 ___________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File No. 001-34972
 ___________________________________
Booz Allen Hamilton Holding Corporation
(Exact name of registrant as specified in its charter)
 ___________________________________
Delaware
 
26-2634160
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
8283 Greensboro Drive,
McLean,
Virginia
 
22102
(Address of principal executive offices)
 
(Zip Code)
(703) 902-5000
Registrant’s telephone number, including area code
(Former name, former address, and former fiscal year if changed since last report.)
___________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Class A Common Stock
BAH
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
  
  
Accelerated Filer
  
Non-Accelerated Filer
  
 
  
Smaller Reporting Company
  
 
 
 
 
Emerging Growth Company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Shares Outstanding
as of October 29, 2019
Class A Common Stock
140,380,260





TABLE OF CONTENTS
 
 
 
 
ITEM 1
 
 
 
ITEM 2
 
 
 
ITEM 3
 
 
 
ITEM 4
 
 
 
 
 
ITEM 1
 
 
 
ITEM 1A
 
 
 
ITEM 2
 
 
 
ITEM 3
 
 
 
ITEM 4
 
 
 
ITEM 5
 
 
 
ITEM 6





PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements
BOOZ ALLEN HAMILTON HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
September 30,
2019
 
March 31,
2019
 
(Unaudited)
 
 
 
(Amounts in thousands, except
share and per share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
781,546

 
$
283,990

Accounts receivable, net of allowance
1,321,111

 
1,330,364

Prepaid expenses and other current assets
60,746

 
84,986

Total current assets
2,163,403

 
1,699,340

Property and equipment, net of accumulated depreciation
187,475

 
172,453

Operating lease right-of-use assets
250,810

 

Intangible assets, net of accumulated amortization
294,300

 
287,051

Goodwill
1,581,160

 
1,581,160

Other long-term assets
91,710

 
91,837

Total assets
$
4,568,858

 
$
3,831,841

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
77,924

 
$
57,924

Accounts payable and other accrued expenses
684,374

 
664,948

Accrued compensation and benefits
290,751

 
325,553

Operating lease liabilities
32,994

 

Other current liabilities
124,526

 
130,814

Total current liabilities
1,210,569

 
1,179,239

Long-term debt, net of current portion
2,044,821

 
1,701,837

Operating lease liabilities, net of current portion
282,718

 

Other long-term liabilities
190,567

 
275,399

Total liabilities
3,728,675

 
3,156,475

Commitments and contingencies (Note 18)


 


Stockholders’ equity:
 
 
 
Common stock, Class A — $0.01 par value — authorized, 600,000,000 shares; issued, 160,400,357 shares at September 30, 2019 and 159,924,825 shares at March 31, 2019; outstanding, 140,373,450 shares at September 30, 2019 and 140,027,853 shares at March 31, 2019
1,604

 
1,599

Treasury stock, at cost — 20,026,907 shares at September 30, 2019 and 19,896,972 shares at March 31, 2019
(719,793
)
 
(711,450
)
Additional paid-in capital
427,817

 
401,596

Retained earnings
1,161,674

 
994,811

Accumulated other comprehensive loss
(31,119
)
 
(11,190
)
Total stockholders’ equity
840,183

 
675,366

Total liabilities and stockholders’ equity
$
4,568,858

 
$
3,831,841

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1



BOOZ ALLEN HAMILTON HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(Amounts in thousands,
except per share data)
 
(Amounts in thousands,
except per share data)
Revenue
$
1,819,577

 
$
1,613,997

 
$
3,644,753

 
$
3,260,845

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
843,942

 
748,570

 
1,684,596

 
1,534,382

Billable expenses
539,846

 
478,349

 
1,091,021

 
955,784

General and administrative expenses
244,122

 
226,901

 
478,402

 
432,737

Depreciation and amortization
19,632

 
16,426

 
39,653

 
32,579

Total operating costs and expenses
1,647,542

 
1,470,246

 
3,293,672

 
2,955,482

Operating income
172,035

 
143,751

 
351,081

 
305,363

Interest expense
(25,863
)
 
(22,247
)
 
(51,050
)
 
(45,321
)
Other income (expense), net
2,005

 
(1,617
)
 
3,976

 
(2,788
)
Income before income taxes
148,177

 
119,887

 
304,007

 
257,254

Income tax expense
33,852

 
27,174

 
72,296

 
60,337

Net income
$
114,325

 
$
92,713

 
$
231,711

 
$
196,917

Earnings per common share (Note 4):
 
 
 
 
 
 
 
Basic
$
0.81

 
$
0.65

 
$
1.64

 
$
1.37

Diluted
$
0.80

 
$
0.64

 
$
1.63

 
$
1.36


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2




BOOZ ALLEN HAMILTON HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(Amounts in thousands)
 
(Amounts in thousands)
Net income
$
114,325

 
$
92,713

 
$
231,711

 
$
196,917

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Change in unrealized (loss) gain on derivatives designated as cash flow hedges
(5,014
)
 
1,038

 
(19,979
)
 
2,958

Change in postretirement plan costs
16

 
424

 
50

 
831

Total other comprehensive income (loss), net of tax
(4,998
)
 
1,462

 
(19,929
)
 
3,789

Comprehensive income
$
109,327

 
$
94,175

 
$
211,782

 
$
200,706


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3



BOOZ ALLEN HAMILTON HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended
September 30,
 
2019
 
2018
 
(Amounts in thousands)
Cash flows from operating activities
 
 
 
Net income
$
231,711

 
$
196,917

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
39,653

 
32,579

Noncash lease expense
27,711

 

Stock-based compensation expense
15,808

 
13,265

Amortization of debt issuance costs and loss on extinguishment
2,459

 
6,920

Losses on dispositions
581

 
408

Changes in assets and liabilities:
 
 
 
Accounts receivable, net of allowance
9,253

 
(31,621
)
Deferred income taxes and income taxes receivable / payable
(30,322
)
 
(14,677
)
Prepaid expenses and other current assets
(16,696
)
 
(17,633
)
Other long-term assets
(95
)
 
(6,217
)
Accrued compensation and benefits
(28,805
)
 
(3,154
)
Accounts payable and other accrued expenses
34,623

 
80,703

Other current liabilities
2,311

 
13,803

Operating lease liabilities
(24,529
)
 

Other long-term liabilities
3,016

 
3,274

Net cash provided by operating activities
266,679

 
274,567

Cash flows from investing activities
 
 
 
Purchases of property, equipment, and software
(59,978
)
 
(39,672
)
Payments for business acquisitions, net of cash acquired

 
(20
)
Net cash used in investing activities
(59,978
)
 
(39,692
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of common stock
7,049

 
5,227

Stock option exercises
3,687

 
8,541

Repurchases of common stock
(14,658
)
 
(98,377
)
Cash dividends paid
(64,848
)
 
(54,659
)
Repayment of debt
(38,962
)
 
(101,550
)
Proceeds from debt issuance
400,000

 
62,072

Other financing activities
(1,413
)
 
(501
)
Net cash provided by (used in) financing activities
290,855

 
(179,247
)
Net increase in cash and cash equivalents
497,556

 
55,628

Cash and cash equivalents––beginning of period
283,990

 
286,958

Cash and cash equivalents––end of period
$
781,546

 
$
342,586

Supplemental disclosures of cash flow information
 
 
 
Net cash paid during the period for:
 
 
 
Interest
$
44,965

 
$
38,140

Income taxes
$
102,151

 
$
74,275

Supplemental disclosures of non-cash investing and financing activities
 
 
 
Noncash financing activities
$
2,110

 
$
2,658

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4



BOOZ ALLEN HAMILTON HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(Amounts in thousands, except
share data)
 
Class A
Common Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
Shares
 
Amount
 
Shares
 
Amount
 
Balance at June 30, 2019
 
160,244,219

 
$
1,602

 
(20,026,100)
 
$
(719,736
)
 
$
413,293

 
$
1,079,785

 
$
(26,121
)
 
$
748,823

Issuance of common stock
 
88,141

 
1

 

 

 
3,670

 

 

 
3,671

Stock options exercised
 
67,997

 
1

 

 

 
1,531

 

 

 
1,532

Repurchase of common stock
 

 

 
(807)

 
(57
)
 

 

 

 
(57
)
Recognition of liability related to future restricted stock units vesting
 

 

 

 

 
(41
)
 

 

 
(41
)
Net income
 

 

 

 

 

 
114,325

 

 
114,325

Other comprehensive income (loss), net of tax
 

 

 

 

 

 

 
(4,998
)
 
(4,998
)
Dividends paid of $0.23 per common share
 

 

 

 

 

 
(32,436
)
 

 
(32,436
)
Stock-based compensation expense
 

 

 

 

 
9,364

 

 

 
9,364

Balance at September 30, 2019
 
160,400,357

 
$
1,604

 
(20,026,907)
 
$
(719,793
)
 
$
427,817

 
$
1,161,674

 
$
(31,119
)
 
$
840,183

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
 
159,924,825

 
$
1,599

 
(19,896,972)
 
$
(711,450
)
 
$
401,596

 
$
994,811

 
$
(11,190
)
 
$
675,366

Issuance of common stock
 
246,233

 
3

 

 

 
7,046

 

 

 
7,049

Stock options exercised
 
229,299

 
2

 

 

 
3,685

 

 

 
3,687

Repurchase of common stock (1)
 

 

 
(129,935)

 
(8,343
)
 

 

 

 
(8,343
)
Recognition of liability related to future restricted stock units vesting
 

 

 

 

 
(318
)
 

 

 
(318
)
Net income
 

 

 

 

 

 
231,711

 

 
231,711

Other comprehensive income (loss), net of tax
 

 

 

 

 

 

 
(19,929
)
 
(19,929
)
Dividends paid of $0.46 per common share
 

 

 

 

 

 
(64,848
)
 

 
(64,848
)
Stock-based compensation expense
 

 

 

 

 
15,808

 

 

 
15,808

Balance at September 30, 2019
 
160,400,357

 
$
1,604

 
(20,026,907)
 
$
(719,793
)
 
$
427,817

 
$
1,161,674

 
$
(31,119
)
 
$
840,183


(1) During the six months ended September 30, 2019, the Company purchased 93 thousand shares of the Company’s Class A Common Stock in a series of open market transactions for $5.9 million. Additionally, the Company repurchased shares during the first and second quarters of fiscal 2020 to cover the minimum statutory withholding taxes on restricted stock units that vested on various dates during the period.











The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5



BOOZ ALLEN HAMILTON HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) [CONTINUED]
(Amounts in thousands, except
share data)
 
Class A
Common Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
Shares
 
Amount
 
Shares
 
Amount
 
Balance at June 30, 2018
 
158,794,015

 
$
1,588

 
(15,672,079)
 
$
(509,521
)
 
$
360,915

 
$
767,278

 
$
(12,779
)
 
$
607,481

Issuance of common stock
 
97,091

 
1

 

 

 
2,641

 

 

 
2,642

Stock options exercised
 
233,106

 
2

 

 

 
3,274

 

 

 
3,276

Repurchase of common stock
 

 

 
(901,354)

 
(41,167
)
 

 

 

 
(41,167
)
Net income
 

 

 

 

 

 
92,713

 

 
92,713

Other comprehensive income (loss), net of tax
 

 

 

 

 

 

 
1,462

 
1,462

Dividends paid of $0.19 per common share
 

 

 

 

 

 
(27,217
)
 

 
(27,217
)
Stock-based compensation expense
 

 

 

 

 
7,150

 

 

 
7,150

Balance at September 30, 2018
 
159,124,212

 
$
1,591

 
(16,573,433)
 
$
(550,688
)
 
$
373,980

 
$
832,774

 
$
(11,317
)
 
$
646,340

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
 
158,028,673

 
$
1,580

 
(14,582,134)
 
$
(461,457
)
 
$
346,958

 
$
690,516

 
$
(15,106
)
 
$
562,491

Issuance of common stock
 
417,366

 
5

 

 

 
5,222

 

 

 
5,227

Stock options exercised
 
678,173

 
6

 

 

 
8,535

 

 

 
8,541

Repurchase of common stock (2)
 

 

 
(1,991,299)

 
(89,231
)
 

 

 

 
(89,231
)
Net income
 

 

 

 

 

 
196,917

 

 
196,917

Other comprehensive income (loss), net of tax
 

 

 

 

 

 

 
3,789

 
3,789

Dividends paid of $.38 per common share
 

 

 

 

 

 
(54,659
)
 

 
(54,659
)
Stock-based compensation expense
 

 

 

 

 
13,265

 

 

 
13,265

Balance at September 30, 2018
 
159,124,212

 
$
1,591

 
(16,573,433)
 
$
(550,688
)
 
$
373,980

 
$
832,774

 
$
(11,317
)
 
$
646,340

(2) During the six months ended September 30, 2018, the Company purchased 1.9 million shares of the Company’s Class A Common Stock in a series of open market transactions for $85.4 million. Additionally, the Company repurchased shares during the first quarter of fiscal 2019 to cover the minimum statutory withholding taxes on restricted stock units that vested on June 30, 2018.












The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6



BOOZ ALLEN HAMILTON HOLDING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in thousands, except share and per share data or unless otherwise noted)
1. BUSINESS OVERVIEW
Organization
Booz Allen Hamilton Holding Corporation, including its wholly owned subsidiaries, or the Company, we, us, and our, was incorporated in Delaware in May 2008. The Company provides management and technology consulting, analytics, engineering, digital solutions, mission operations, and cyber expertise to U.S. and international governments, major corporations, and not-for-profit organizations. The Company reports operating results and financial data in one reportable segment. The Company is headquartered in McLean, Virginia, with approximately 27,000 employees as of September 30, 2019.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, or SEC, and should be read in conjunction with the information contained in the Company's Annual Report on Form 10-K for the year ended March 31, 2019. The interim period unaudited condensed consolidated financial statements are presented as described below. Certain information and disclosures normally required for annual financial statements have been condensed or omitted pursuant to GAAP and SEC rules and regulations. In the opinion of management, all adjustments considered necessary for fair presentation of the results of the interim period presented have been included. The Company’s fiscal year ends on March 31 and unless otherwise noted, references to fiscal year or fiscal are for fiscal years ended March 31. The results of operations for the six months ended September 30, 2019 are not necessarily indicative of results to be expected for the full fiscal year.
The condensed consolidated financial statements and notes of the Company include its subsidiaries, and the joint ventures and partnerships over which the Company has a controlling financial interest. The Company uses the equity method to account for investments in entities that it does not control if it is otherwise able to exert significant influence over the entities' operating and financial policies.
Effective April 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), using the modified retrospective transition approach and, as a result, comparative information for the prior fiscal year has not been retrospectively adjusted.
Certain amounts reported in the Company's prior year condensed consolidated financial statements have been reclassified to conform to the current year presentation.
Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Areas of the financial statements where estimates may have the most significant effect include contractual and regulatory reserves, valuation and lives of tangible and intangible assets, contingent consideration related to business acquisitions, impairment of long-lived assets, accrued liabilities, revenue recognition, including the accrual of indirect costs, bonus and other incentive compensation, lease incremental borrowing rates, stock-based compensation, reserves for tax benefits and valuation allowances on deferred tax assets, provisions for income taxes, postretirement obligations, certain deferred costs, collectability of receivables, and loss accruals for litigation. Actual results experienced by the Company may differ materially from management's estimates.
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability of accounting for lease transactions. The new leasing standard requires lessees to recognize lease assets and lease liabilities on their balance sheet for all leases with a lease term greater than 12 months. Topic 842 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB provided an alternative transition method of adoption through ASU 2018-11, Targeted Improvements, which permits the recognition of a cumulative-effect adjustment to retained earnings on the date of adoption. 
The Company adopted the standard on April 1, 2019 using the modified retrospective transition approach provided by ASU 2018-11, and, as a result, did not recast comparative prior period information. In addition, the Company elected certain practical expedients permitted under Topic 842, including the option not to apply lease recognition for short-term leases; an

7



election to not separate lease from non-lease components; and a package of practical expedients such that, upon the initial adoption of Topic 842, the Company did not reassess whether expired or existing contracts contain leases, nor did the Company reassess the lease classification for expired or existing leases. The Company did not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment of right-of-use (ROU) assets.
Upon the adoption of Topic 842, the Company recognized ROU assets of $268.8 million and lease liabilities of $330.6 million on the condensed consolidated balance sheets, inclusive of required conforming balance sheet reclassifications pertaining to accounts such as deferred rent, tenant allowances, and lease receivables. As required under Topic 842 transition guidance, the lease liabilities recognized were measured at the present value of remaining minimum rental payments pursuant to Topic 840 which include executory costs.
The impact to the condensed consolidated balance sheet at April 1 for the adoption of Topic 842 is as follows:
 
Balance at March 31, 2019
 
Adoption adjustments for Topic 842
 
Balance at April 1, 2019
Current assets:
 
 
 
 
 
Prepaid expenses and other current assets
$
84,986

 
$
(27,515
)
 
$
57,471

 
 
 
 
 
 
Non-current assets:
 
 
 
 
 
Operating lease right-of-use assets
$

 
$
268,840

 
$
268,840

Other long-term assets
91,837

 
(4,619
)
 
87,218

 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable and other accrued expenses
$
664,948

 
$
(15,197
)
 
$
649,751

Operating lease liabilities

 
34,645

 
34,645

 
 
 
 
 
 
Non-current liabilities:
 
 
 
 
 
Operating lease liabilities, net of current portion
$

 
$
295,915

 
$
295,915

Other long-term liabilities
275,399

 
(78,657
)
 
196,742


Further, at the adoption of Topic 842, the Company recognized a deferred tax liability corresponding to the operating lease right-of-use assets of $69 million and a deferred tax asset corresponding to the operating lease liabilities of $93 million, inclusive of a decrease to deferred tax assets for the deferred rent and tenant allowances of $24 million as of March 31, 2019. There was no cumulative impact to retained earnings and the April 1, 2019 adoption of Topic 842 did not have a material impact to either of the condensed consolidated statements of operations or cash flows.
In March 2019, the SEC issued Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, amending certain disclosure requirements in Regulation S-K, with the intent of improving the readability of filed documents and simplifying registrants' compliance efforts. The Company adopted certain aspects of this final rule in the fourth quarter of fiscal 2019 which did not have a material impact on the condensed consolidated financial statements. Other aspects not yet adopted are still being evaluated but are not expected to be material.
In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. This analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The amendments became effective on November 5, 2018; however the SEC allows the filer’s first presentation of the changes in stockholders’ equity to be included in its Form 10-Q for the quarter that begins after the effective date of the amendments. Accordingly, the Company first presented the condensed consolidated statement of stockholders' equity in the Form 10-Q in the first quarter of fiscal 2020. The Company's adoption of this final rule did not have a material effect on the condensed consolidated financial statements.

8



Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This guidance requires a customer in a cloud computing arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with that of implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license. ASU 2018-15 is effective for interim reporting periods for fiscal years beginning after December 15, 2019. Early adoption is permitted. The standard may be adopted either retrospectively or prospectively. The Company is currently assessing the future impact of this update on its consolidated financial statements and related disclosures.
Other accounting and reporting pronouncements effective after September 30, 2019 and issued through the filing date are not expected to have a material impact on the Company's condensed consolidated financial statements.
3. REVENUE
The Company's revenues from contracts with customers (clients) are derived from offerings that include consulting, analytics, digital solutions, engineering, and cyber services, substantially with the U.S. government and its agencies and, to a lesser extent, subcontractors. The Company also serves foreign governments, as well as domestic and international commercial clients. The Company performs under various types of contracts, which include cost-reimbursable-plus-fee contracts, time-and-materials contracts, and fixed-price contracts.
Contract Estimates
Many of our contracts recognize revenue under a contract cost-based input method and require an Estimate-at-Completion (EAC) process, which management uses to review and monitor the progress towards the completion of our performance obligations. Under this process, management considers various inputs and assumptions related to the EAC, including, but not limited to, progress towards completion, labor costs and productivity, material and subcontractor costs, and identified risks. Estimating the total cost at completion of performance obligations is subjective and requires management to make assumptions about future activity and cost drivers under the contract. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the profitability of the Company’s contracts. Changes in estimates related to contracts accounted for under the EAC process are recognized on a cumulative catch-up basis in the period when such changes are determinable and reasonably estimable. If the estimate of contract profitability indicates an anticipated loss on a contract, the Company recognizes the total loss at the time it is identified. For each of the three and six months ended September 30, 2019 and 2018, the aggregate impact of adjustments in contract estimates was not material.
Disaggregation of Revenue
We disaggregate our revenue from contracts with customers by contract type, customer, as well as whether the Company acts as prime contractor or sub-contractor, as we believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following series of tables presents our revenue disaggregated by these categories.
Revenue by Contract Type:
We generate revenue under the following three basic types of contracts:
Cost-Reimbursable Contracts: Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract, up to a ceiling based on the amount that has been funded, plus a fixed fee or award fee.
Time-and-Materials Contracts: Under contracts in this category, we are paid a fixed hourly rate for each direct labor hour expended, and we are reimbursed for billable material costs and billable out-of-pocket expenses inclusive of allocable indirect costs. We assume the financial risk on time-and-materials contracts because our costs of performance may exceed negotiated hourly rates.
Fixed-Price Contracts: Under a fixed-price contract, we agree to perform the specified work for a predetermined price. To the extent our actual direct and allocated indirect costs decrease or increase from the estimates upon which the price was negotiated, we will generate more or less profit, respectively, or could incur a loss.

9



The table below presents the total revenue for each type of contract:
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Cost-reimbursable
$
1,026,055

57
%
 
$
851,394

53
%
 
$
2,052,648

56
%
 
$
1,711,278

53
%
Time-and-materials
423,605

23
%
 
390,509

24
%
 
844,200

23
%
 
796,093

24
%
Fixed-price
369,917

20
%
 
372,094

23
%
 
747,905

21
%
 
753,474

23
%
Total Revenue
$
1,819,577

100
%
 
$
1,613,997

100
%
 
$
3,644,753

100
%
 
$
3,260,845

100
%
Revenue by Customer Type:
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
U.S. government:
 
 
 
 
 
 
 
 
 
 
 
Defense Clients
$
845,270

47
%
 
$
755,570

47
%
 
$
1,704,206

47
%
 
$
1,513,552

47
%
Intelligence Clients
405,220

22
%
 
385,733

24
%
 
824,287

22
%
 
783,213

24
%
Civil Clients
511,012

28
%
 
417,636

26
%
 
1,003,045

28
%
 
853,162

26
%
Total U.S. government
1,761,502

97
%
 
1,558,939

97
%
 
3,531,538

97
%
 
3,149,927

97
%
Global Commercial Clients
58,075

3
%
 
55,058

3
%
 
113,215

3
%
 
110,918

3
%
Total Revenue
$
1,819,577

100
%
 
$
1,613,997

100
%
 
$
3,644,753

100
%
 
$
3,260,845

100
%
Revenue by Whether the Company Acts as a Prime Contractor or a Sub-Contractor:
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Prime Contractor
$
1,676,522

92
%
 
$
1,482,153

92
%
 
$
3,349,952

92
%
 
$
2,989,335

92
%
Sub-contractor
143,055

8
%
 
131,844

8
%
 
294,801

8
%
 
271,510

8
%
Total Revenue
$
1,819,577

100
%
 
$
1,613,997

100
%
 
$
3,644,753

100
%
 
$
3,260,845

100
%

Performance Obligations
Remaining performance obligations represent the transaction price of exercised contracts for which work has not yet been performed, irrespective of whether funding has or has not been authorized and appropriated as of the date of exercise. Remaining performance obligations do not include negotiated but unexercised options or the unfunded value of expired contracts.
As of September 30, 2019 and March 31, 2019, the Company had $7.6 billion and $5.8 billion, respectively, of remaining performance obligations and we expect to recognize more than half of the remaining performance obligations as revenue over the next 12 months, and approximately three quarters over the next 24 months. The remainder is expected to be recognized thereafter.
Contract Balances
The Company's performance obligations are typically satisfied over time and revenue is generally recognized using a cost-based input method. Fixed-price contracts are typically billed to the customer using milestone or fixed monthly payments, while cost-reimbursable-plus-fee and time-and-material contracts are typically billed to the customer at periodic intervals (e.g. monthly or weekly) as indicated by the terms of the contract. Disparities between the timing of revenue recognition and customer billings and cash collections results in net contract assets or liabilities being recognized at the end of each reporting period.
Contract assets primarily consist of unbilled receivables typically resulting from revenue recognized exceeding the amount billed to the customer and right to payment is not just subject to the passage of time. Contract liabilities primarily consist of advance payments, billings in excess of costs incurred and deferred revenue. Contract assets and liabilities are reported on a net contract basis at the end of each reporting period. The Company maintains an allowance for doubtful accounts to provide for an estimate of uncollected receivables. Refer to Note 5 for more information on receivables recognized from contracts accounted for under Topic 606.

10



The following table summarizes the contract balances recognized on the Company’s condensed consolidated balance sheets:
 
September 30,
2019
 
March 31,
2019
Contract assets:
 
 
 
Current
$
873,968

 
$
846,372

Long-term
61,503

 
61,391

Total
$
935,471

 
$
907,763

Contract liabilities:
 
 
 
Advance payments, billings in excess of costs incurred and deferred revenue
$
22,822

 
$
21,316


Changes in contract assets and contract liabilities are primarily due to the timing difference between the Company’s performance of services and payments from customers. For the three months ended September 30, 2019 and 2018, we recognized revenue of $1.7 million and $2.1 million, respectively, and for the six months ended September 30, 2019 and 2018, we recognized revenue of $18.4 million and $21.9 million related to our contract liabilities on April 1, 2019 and 2018, respectively. To determine revenue recognized from contract liabilities during the reporting periods, the Company allocates revenue to individual contract liability balances and applies revenue recognized during the reporting periods first to the beginning balances of contract liabilities until the revenue exceeds the balances.

4. EARNINGS PER SHARE
The Company computes basic and diluted earnings per share amounts based on net income for the periods presented. The Company uses the weighted-average number of common shares outstanding during the period to calculate basic earnings per share, or EPS. Diluted EPS adjusts the weighted average number of shares outstanding to include the dilutive effect of outstanding common stock options and other stock-based awards.
The Company currently has outstanding shares of Class A Common Stock. Unvested Class A Restricted Common Stock holders are entitled to participate in non-forfeitable dividends or other distributions. These unvested restricted shares participated in the Company's dividends declared and were paid in the first and second quarters of fiscal 2020 and 2019. As such, EPS is calculated using the two-class method whereby earnings are reduced by distributed earnings as well as any available undistributed earnings allocable to holders of unvested restricted shares. A reconciliation of the income used to compute basic and diluted EPS for the periods presented are as follows:
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Earnings for basic computations (1)
$
113,725

 
$
92,127

 
$
230,492

 
$
195,681

Weighted-average common shares outstanding for basic computations
140,245,038

 
142,443,058

 
140,125,779

 
142,861,491

Earnings for diluted computations (1)
$
113,728

 
$
92,130

 
$
230,499

 
$
195,690

Dilutive stock options and restricted stock
1,117,098

 
1,265,851

 
1,127,138

 
1,353,582

Weighted-average common shares outstanding for diluted computations
141,362,136

 
143,708,909

 
141,252,917

 
144,215,073

Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.81

 
$
0.65

 
$
1.64

 
$
1.37

Diluted
$
0.80

 
$
0.64

 
$
1.63

 
$
1.36

(1) During the three months ended September 30, 2019 and 2018, approximately 0.7 million and 0.9 million participating securities, respectively, were paid dividends totaling $0.2 million in both periods. During the six months ended September 30, 2019 and 2018, approximately 0.7 million and 0.9 million participating securities, respectively, were paid dividends totaling $0.3 million in both periods. For the three months ended September 30, 2019 and 2018, there were undistributed earnings of $0.4 million allocated to the participating class of securities in both basic and diluted EPS in both periods. For the six months ended September 30, 2019 and 2018, there were undistributed earnings of $0.9 million allocated to the participating class of securities in both basic and diluted EPS in both periods. The allocated undistributed earnings and the dividends paid comprise the difference between net income presented on the condensed consolidated

11



statements of operations and earnings for basic and diluted computations for the three and six months ended September 30, 2019 and 2018.
The EPS calculation for the three and six months ended September 30, 2019 and 2018 excludes 0.2 million options as their impact was anti-dilutive.
5. ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
Accounts receivable, net of allowance consisted of the following: 
 
September 30,
2019