SEC Filing | Booz Allen Hamilton

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bah-20210630

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 June 30, 2021


☐			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 ☒ 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 July 27, 2021
Class A Common Stock			135,185,617

TABLE OF CONTENTS


		Page
PART I. Financial Information		1
ITEM 1	Financial Statements	1
ITEM 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	40
ITEM 4	Controls and Procedures	40
PART II. Other Information		41
ITEM 1	Legal Proceedings	41
ITEM 1A	Risk Factors	42
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	42
ITEM 3	Defaults Upon Senior Securities	42
ITEM 4	Mine Safety Disclosures	42
ITEM 5	Other Information	42
ITEM 6	Exhibits	43

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEX TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


			Page
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Comprehensive Income			3
Condensed Consolidated Statements of Cash Flows			4
Condensed Consolidated Statement of Stockholders' Equity			5
Notes to Unaudited Condensed Consolidated Financial Statements
1. Business Overview			6
2. Basis of Presentation			6
3. Revenue			6
4. Earnings Per Share			9
5. Acquisition , Goodwill and Intangible Asset s			10

6. Accounts Payable and Other Accrued Expenses			12
7. Accrued Compensation and Benefits			13
8. Debt			13
9. Derivatives			15
10. Income Taxes			16
11. Other Long Term Liabilities			17
12. Employee Benefit Plans			17
1 3 . Accumulated Other Comprehensive Loss			18
1 4 . Stock Based Compensation			19
1 5 . Fair Value Measurements			20
1 6 . Related Party Transactions			21
1 7 . Commitments and Contingencies			21

Table of Contents

BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)


	June 30, 2021		March 31, 2021

	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	621,862	$	990,955
Accounts receivable, net	1,672,772		1,411,894
Prepaid expenses and other current assets	182,181		233,323
Total current assets	2,476,815		2,636,172
Property and equipment, net of accumulated depreciation	195,930		204,642
Operating lease right-of-use assets	237,923		239,374
Intangible assets, net of accumulated amortization	609,762		307,128
Goodwill	1,925,151		1,581,160
Other long-term assets	539,361		531,125
Total assets	$	5,984,942	$	5,499,601
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	77,865	$	77,865
Accounts payable and other accrued expenses	823,178		666,971
Accrued compensation and benefits	337,379		425,615
Operating lease liabilities	55,767		54,956
Other current liabilities	76,724		65,698
Total current liabilities	1,370,913		1,291,105
Long-term debt, net of current portion	2,770,791		2,278,731
Operating lease liabilities, net of current portion	259,707		263,144
Deferred tax liabilities	321,631		364,461
Other long-term liabilities	238,367		230,984
Total liabilities	4,961,409		4,428,425
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common stock, Class A — $0.01 par value — authorized, 600,000,000 shares; issued, 163,464,754 shares at June 30, 2021 and 162,950,606 shares at March 31, 2021; outstanding, 135,429,357 shares at June 30, 2021 and 136,246,029 shares at March 31, 2021	1,635		1,629
Treasury stock, at cost — 28,035,397 shares at June 30, 2021 and 26,704,577 shares at March 31, 2021	(1,327,601)		(1,216,163)
Additional paid-in capital	577,228		557,957
Retained earnings	1,799,029		1,757,524
Accumulated other comprehensive loss	(26,758)		(29,771)
Total stockholders’ equity	1,023,533		1,071,176
Total liabilities and stockholders’ equity	$	5,984,942	$	5,499,601

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

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Amounts in thousands, except per share data)


	Three Months Ended June 30,
		2021		2020

Revenue		$	1,989,066	$	1,956,453
Operating costs and expenses:
Cost of revenue		962,719		948,902
Billable expenses		555,545		549,077
General and administrative expenses		301,800		245,855
Depreciation and amortization		27,745		20,732
Total operating costs and expenses		1,847,809		1,764,566
Operating income		141,257		191,887
Interest expense		(21,270)		(20,235)
Other (expense) income, net		(533)		(836)
Income before income taxes		119,454		170,816
Income tax expense		27,352		41,487
Net income		$	92,102	$	129,329
Earnings per common share (Note 4):
Basic		$	0.68	$	0.93
Diluted		$	0.67	$	0.92

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

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(Amounts in thousands)


	Three Months Ended June 30,
		2021		2020

Net income		$	92,102	$	129,329
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on derivatives designated as cash flow hedges		2,994		(1,439)
Change in postretirement plan costs		19		22
Total other comprehensive income (loss), net of tax		3,013		(1,417)
Comprehensive income		$	95,115	$	127,912

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

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Amounts in thousands)


	Three Months Ended June 30,
	2021		2020

Cash flows from operating activities
Net income	$	92,102	$	129,329
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	27,745		20,732
Noncash lease expense	13,581		13,242
Stock-based compensation expense	12,444		10,833
Amortization of debt issuance costs	1,129		1,070
Loss on debt extinguishment	2,515		—
(Gains) losses on dispositions, and other	(27)		3
Changes in assets and liabilities:
Accounts receivable, net	(220,112)		(62,570)
Deferred income taxes and income taxes receivable / payable	22,323		35,027
Prepaid expenses and other current and long-term assets	(8,874)		(10,381)

Accrued compensation and benefits	(75,509)		(36,294)
Accounts payable and other accrued expenses	121,862		50,864
Other current and long-term liabilities	159		(11,437)


Net cash (used in) provided by operating activities	(10,662)		140,418
Cash flows from investing activities
Purchases of property, equipment, and software	(9,008)		(20,058)

Cash paid for acquisition, net of cash acquired	(665,583)		—

Cash paid for cost method investment	(2,000)		—

Net cash used in investing activities	(676,591)		(20,058)
Cash flows from financing activities
Proceeds from issuance of common stock	5,758		4,423
Stock option exercises	1,794		3,125
Repurchases of common stock	(123,805)		(85,899)
Cash dividends paid	(51,641)		(43,832)
Repayments on revolving credit facility and term loan	(60,973)		(119,466)
Net proceeds from debt issuance	487,027		—
Proceeds from revolving credit facility	60,000		—

Net cash provided by (used in) financing activities	318,160		(241,649)
Net decrease in cash and cash equivalents	(369,093)		(121,289)
Cash and cash equivalents––beginning of period	990,955		741,901
Cash and cash equivalents––end of period	$	621,862	$	620,612
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest	$	6,713	$	19,032
Income taxes	$	1,673	$	3,123
Supplemental disclosures of non-cash investing and financing activities
Share repurchases transacted but not settled and paid	$	3,041	$	344

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

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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 March 31, 2021	162,950,606	$	1,629	(26,704,577)	$	(1,216,163)	$	557,957	$	1,757,524	$	(29,771)	$	1,071,176
Issuance of common stock	458,943	5		—	—		4,674		—		—		4,679
Stock options exercised	55,205	1		—	—		1,793		—		—		1,794
Repurchase of common stock (1)	—	—		(1,330,820)	(111,438)		–		—		—		(111,438)
Recognition of liability related to future restricted stock units vesting	—	—		—	—		360		—		—		360
Net income	—	—		—	—		—		92,102		—		92,102

Other comprehensive income (loss), net of tax	—	—		—	—		–		—		3,013		3,013
Dividends declared of $0.37 per share of common stock	—	—		—	—		–		(50,597)		—		(50,597)
Stock-based compensation expense	—	—		—	—		12,444		—		—		12,444
Balance at June 30, 2021	163,464,754	$	1,635	(28,035,397)	$	(1,327,601)	$	577,228	$	1,799,029	$	(26,758)	$	1,023,533

Balance at March 31, 2020	161,333,973	$	1,613	(22,614,052)	$	(898,095)	$	468,027	$	1,330,812	$	(46,001)	$	856,356
Topic 326 adoption impact	—	—		—	—		—		(1,180)		—		(1,180)
Issuance of common stock	361,856	3		—	—		4,420		—		—		4,423
Stock options exercised	160,898	2		—	—		3,123		—		—		3,125
Repurchase of common stock (2)	—	—		(1,045,939)	(75,506)		—		—		—		(75,506)
Recognition of liability related to future restricted stock units vesting	—	—		—	—		339		—		—		339
Net income	—	—		—	—		—		129,329		—		129,329
Other comprehensive income (loss), net of tax	—	—		—	—		—		—		(1,417)		(1,417)
Dividends declared of $0.31 per share of common stock	—	—		—	—		—		(43,832)		—		(43,832)
Stock-based compensation expense	—	—		—	—		10,830		—		—		10,830
Balance at June 30, 2020	161,856,727	$	1,618	(23,659,991)	$	(973,601)	$	486,739	$	1,415,129	$	(47,418)	$	882,467

(1) During the three months ended June 30, 2021, the Company purchased 1.2 million shares of the Company’s Class A Common Stock in a series of open market transactions for $98.2 million. Additionally, the Company repurchased shares for $13.3 million during the three months ended June 30, 2021 to cover the minimum statutory withholding taxes on restricted stock units that vested on various dates during the period.

(2) During the three months ended June 30, 2020, the Company purchased 0.9 million shares of the Company’s Class A Common Stock in a series of open market transactions for $66.4 million. Additionally, the Company repurchased shares for $9.1 million during the three months ended June 30, 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.

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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

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 services 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 28,600 employees as of June 30, 2021.

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, 2021. 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 three months ended June 30, 2021 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.

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 the provision for claimed indirect costs, valuation and lives of tangible and intangible assets, impairment of long-lived assets, accrued liabilities, revenue recognition, including the accrual of indirect costs, bonus and other incentive compensation, stock-based compensation, reserves for uncertain tax positions and valuation allowances on deferred tax assets, provisions for income taxes, postretirement obligations, collectability of receivables, and loss accruals for litigation. Actual results experienced by the Company may differ materially from management's estimates.

Recent Accounting Pronouncements Not Yet Adopted

In November 2020, the SEC issued Release No. 33-10890, Amendments to Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, to simplify, modernize and enhance certain financial disclosure requirements in Regulation S-K. This amendment became effective on February 10, 2021. The Company’s adoption is expected to impact fiscal 2022 Form 10-K disclosures.

Other accounting and reporting pronouncements effective after June 30, 2021 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, mission, 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 contracts, time-and-materials contracts, and fixed-price contracts.

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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)

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 the completion of our 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 revenue and 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 months ended June 30, 2021 and 2020, 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.

The table below presents the total revenue for each type of contract:


	Three Months Ended June 30,
		2021			2020
Cost-reimbursable			$	1,115,426	56	%	$	1,092,048	56	%
Time-and-materials			497,449		25	%	502,546		26	%
Fixed-price			376,191		19	%	361,859		18	%
Total Revenue			$	1,989,066	100	%	$	1,956,453	100	%

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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)

Revenue by Customer Type:


	Three Months Ended June 30,
		2021			2020
U.S. government(1):
Defense Clients			$	975,926	49	%	$	934,699	48	%
Intelligence Clients			376,756		19	%	402,669		20	%
Civil Clients			592,896		30	%	559,201		29	%
Total U.S. government			1,945,578		98	%	1,896,569		97	%
Global Commercial Clients			43,488		2	%	59,884		3	%
Total Revenue			$	1,989,066	100	%	$	1,956,453	100	%

(1) We periodically reassess the composition of our U.S. government business and our internal resources who provide service delivery to our U.S. government customers. On occasion, this reassessment will result in certain contracts being reclassified between the various verticals of our U.S. government business shown in the table above. To the extent this occurs, we reclassify revenue in the comparable prior year period to conform to our current period presentation.

Revenue by Whether the Company Acts as a Prime Contractor or a Sub-Contractor:


	Three Months Ended June 30,
		2021			2020
Prime Contractor			$	1,861,722	94	%	$	1,803,604	92	%
Sub-contractor			127,344		6	%	152,849		8	%
Total Revenue			$	1,989,066	100	%	$	1,956,453	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 exclude negotiated but unexercised options, the unfunded value of expired contracts, and certain variable consideration which the Company does not expect to recognize as revenue.

As of June 30, 2021 and March 31, 2021, the Company had $7.0 billion and $6.7 billion of remaining performance obligations, respectively. We expect to recognize approximately 70% of the remaining performance obligations at June 30, 2021 as revenue over the next 12 months, and approximately 85% 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 result in net contract assets or liabilities being recognized at the end of each reporting period.

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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)

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. Unbilled amounts represent revenues for which billings have not been presented to customers at quarter-end or year-end. These amounts are generally billed and collected within one year subject to various conditions including, without limitation, appropriated and available funding. Long-term unbilled receivables not anticipated to be billed and collected within one year, which are primarily related to retainage, holdbacks, and long-term rate settlements to be billed at contract closeout, are included in other long-term assets in the accompanying condensed consolidated balance sheets. 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 credit losses to provide for an estimate of uncollectible receivables.

The following table summarizes the contract assets and liabilities recognized on the Company’s condensed consolidated balance sheets:


	Contract Balances	June 30, 2021		March 31, 2021
Current assets
Accounts receivable–billed		$	571,326	$	375,383
Accounts receivable–unbilled	Contract assets	1,101,446		1,037,968
Allowance for credit losses		—		(1,457)
Accounts receivable, net		1,672,772		1,411,894
Other long-term assets
Accounts receivable–unbilled	Contract assets	64,054		63,869
Total accounts receivable, net		$	1,736,826	$	1,475,763
Other current liabilities
Advance payments, billings in excess of costs incurred and deferred revenue	Contract liabilities	$	20,340	$	15,906

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 June 30, 2021 and 2020, we recognized revenue of $11.9 million and $19.5 million, respectively, related to our contract liabilities on April 1, 2021 and 2020, 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 quarter of fiscal 2022 and 2021. 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:

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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)


	Three Months Ended June 30,
		2021		2020
Earnings for basic computations (1)		$	91,621	$	128,686
Weighted-average common shares outstanding for basic computations		135,569,968		138,153,464
Earnings for diluted computations (1)		$	91,622	$	128,689
Dilutive stock options and restricted stock		822,375		1,018,990
Weighted-average common shares outstanding for diluted computations		136,392,343		139,172,454
Earnings per common share
Basic		$	0.68	$	0.93
Diluted		$	0.67	$	0.92

(1) During both the three months ended June 30, 2021 and 2020, 0.7 million participating securities were paid dividends totaling $0.3 million and $0.2 million, respectively. For the three months ended June 30, 2021 and 2020, there were undistributed earnings of $0.2 million and $0.4 million, respectively, allocated to the participating class of securities in both basic and diluted EPS. The allocated undistributed earnings and the dividends paid comprise the difference between net income presented on the condensed consolidated statements of operations and earnings for basic and diluted computations for the three months ended June 30, 2021 and 2020.

The EPS calculation for the three months ended June 30, 2021 and 2020 excludes 0.1 million and 0.2 million options, respectively, as their impact was anti-dilutive.

5. ACQUISITION, GOODWILL AND INTANGIBLE ASSETS

Acquisition

On June 11, 2021, the Company acquired Liberty IT Solutions, LLC ("Liberty") for purchase consideration of approximately $668.7 million, net of adjustments related to working capital, and transaction costs incurred as part of the acquisition, including compensation expenses paid by the Company that were associated with employee retention. As a result of the transaction, Liberty became a wholly owned subsidiary of Booz Allen Hamilton, Inc. Liberty is a leading digital partner driving transformation across the federal IT ecosystem. The acquisition complements the Company’s digital transformation portfolio resulting in a deeper range of advanced technology solutions.

The acquisition of Liberty was accounted for under the acquisition method of accounting, which requires the total acquisition consideration to be allocated to the assets acquired and liabilities assumed based on an estimate of the acquisition date fair value, with the difference reflected in goodwill.

Under the terms of the purchase agreement, the Company has 120 days after closing to provide proposed post-closing working capital adjustments to the sellers which are subject to dispute. The final purchase price allocations will be completed after the underlying information has been finalized and agreed upon by the sellers and the Company.

The following table summarizes the consideration paid and the preliminary fair value of assets acquired and liabilities assumed at the acquisition date:

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)


Cash paid (gross of cash acquired and including net adjustments)	$	668,682

Purchase price allocation:
Cash	3,099
Current assets	42,213
Operating lease right-of-use asset	2,327
Other long-term assets	2,124
Intangible assets	311,000
Current liabilities	(33,745)
Operating lease liabilities-current	(939)
Operating lease liabilities-long term	(1,388)
Total fair value of identifiable net assets acquired	$	324,691

Preliminary goodwill	$	343,991

The intangible assets of $311.0 million consist of programs and contracts assets, and were valued using the excess earnings method discounted cash flow approach, incorporating Level 3 inputs as described under the fair value hierarchy of Accounting Standards Codification (ASC) No. 820, Fair Value Measurement (Topic 820). These unobservable inputs reflect the Company's own judgement about which assumptions market participants would use in pricing an asset on a non-recurring basis. The intangible assets are expected to be amortized over the estimated useful life of 12 years. The goodwill of $344.0 million is primarily attributable to the specialized workforce and the expected synergies between the Company and Liberty. The majority of the goodwill is expected to be deductible for tax purposes.

The fair values of assets acquired and liabilities assumed are preliminary and based on valuation estimates and assumptions. The accounting for business combination requires estimates and judgements regarding expectations of future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets. The estimates and assumptions underlying the preliminary valuations are subject to collection of information necessary to complete the valuations (specifically related to projected financial information) within the measurement periods, which are up to one year from the respective acquisition dates. Although the Company does not currently expect material changes to the initial value of net assets acquired, the Company continues to evaluate assumptions related to the valuation of the assets acquired and liabilities assumed. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. Further, the Company has not finalized the determination of fair values allocated to various assets and liabilities, including, but not limited to, accounts receivable, intangible assets, property, plant, and equipment, other current and long-term assets, accounts payable and accrued liabilities, and goodwill.

Pro forma results of operations for this acquisition are not presented because this acquisition is not material to the Company's condensed consolidated results of operations.

Goodwill

As of June 30, 2021 and March 31, 2021, goodwill was $1,925.2 million and $1,581.2 million, respectively. The increase in the carrying amount of goodwill was attributable to the Company's acquisition of Liberty.

Intangible Assets

Intangible assets consisted of the following:

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)


	June 30, 2021						March 31, 2021
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value

Amortizable intangible assets:
Customer relationships and other amortizable intangible assets(1)	$	393,400	$	55,073	$	338,327	$	82,400	$	50,503	$	31,897
Software	116,948		35,713		81,235		114,972		29,941		85,031
Total amortizable intangible assets	$	510,348	$	90,786	$	419,562	$	197,372	$	80,444	$	116,928
Unamortizable intangible assets:
Trade name	$	190,200	$	—	$	190,200	$	190,200	$	—	$	190,200
Total	$	700,548	$	90,786	$	609,762	$	387,572	$	80,444	$	307,128

(1)The increase in the carrying amount of customer relationships and other amortizable intangible assets was attributable to the Company's acquisition of Liberty.

The following table summarizes the remainder of fiscal 2022 and estimated annual amortization expense for future periods:


Fiscal Year Ending
Remainder of 2022	$	42,583
2023	66,069
2024	56,497
2025	47,595
2026	84,109
Thereafter	122,709
	$	419,562

Amortization expense for the three months ended June 30, 2021 and June 30, 2020 was $10.3 million and $4.8 million, respectively.

6. ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES

Accounts payable and other accrued expenses consisted of the following:


	June 30, 2021		March 31, 2021
Vendor payables	$	478,578	$	371,744
Accrued expenses	344,600		295,227
Total accounts payable and other accrued expenses	$	823,178	$	666,971

Accrued expenses consisted primarily of the Company’s provision for claimed indirect costs, which were approximately $272.0 million and $263.2 million as of June 30, 2021 and March 31, 2021, respectively. See Note 17 for further discussion of this provision.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

7. ACCRUED COMPENSATION AND BENEFITS

Accrued compensation and benefits consisted of the following:


	June 30, 2021		March 31, 2021
Bonus	$	28,448	$	130,565
Retirement	63,233		44,474
Vacation	211,864		202,100
Other	33,834		48,476
Total accrued compensation and benefits	$	337,379	$	425,615

8. DEBT

Debt consisted of the following:


	June 30, 2021				March 31, 2021
	Interest Rate		Outstanding Balance		Interest Rate		Outstanding Balance
Term Loan A	1.59	%	$	1,289,764	1.61	%	$	1,289,764
Term Loan B	1.85	%	383,239		1.86	%	384,212

Senior Notes due 2028	3.88	%	700,000		3.88	%	700,000
Senior Notes due 2029	4.00	%	500,000		—	%	—
Less: Unamortized debt issuance costs and discount on debt			(24,347)				(17,380)
Total			2,848,656				2,356,596
Less: Current portion of long-term debt			(77,865)				(77,865)
Long-term debt, net of current portion			$	2,770,791			$	2,278,731

Credit Agreement

On June 24, 2021 (the "Amendment Effective Date"), Booz Allen Hamilton Inc. ("Booz Allen Hamilton"), Booz Allen Hamilton Investor Corporation ("Investor"), and certain wholly-owned subsidiaries of Booz Allen Hamilton, entered into the eighth amendment (the "Eighth Amendment") to the Credit Agreement dated as of July 31, 2012, as amended (the "Existing Credit Agreement" and, as amended, the "Credit Agreement"), with certain institutional lenders and Bank of America, N.A., as Administrative Agent and Collateral Agent. The Eighth Amendment added an additional tier in the pricing grid and extended the maturity applicable to both the Term Loan A ("Term Loan A") and revolving credit facility (the "Revolving Credit Facility") to June 24, 2026, increased the aggregate principal amount of the Revolving Credit Facility and the letter of credit sublimit thereunder, and made certain other amendments to the financial covenants and other terms under the Existing Credit Agreement. The interest rate and maturity date applicable to Term Loan B ("Term Loan B" and, together with Term Loan A, the "Term Loans") remained unchanged.

Prior to the Eighth Amendment, approximately $1,289.8 million was outstanding under Term Loan A (the "Existing Tranche A Term Loans"). Pursuant to the Eighth Amendment, certain lenders under the Existing Credit Agreement converted their Existing Tranche A Term Loans into a new tranche of tranche A term loans (the “New Refinancing Tranche A Term Loans”) in an aggregate amount, along with the New Refinancing Tranche A Term Loans advanced by certain new lenders, of approximately $1,289.8 million. The proceeds from the new lenders were used to prepay in full all of the Existing Tranche A Term Loans that were not converted into the New Refinancing Tranche A Term Loans. Voluntary prepayments of the New Refinancing Tranche A Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty. The other terms of the New Refinancing Tranche A Term Loans are generally the same as the Existing Tranche A Term Loans prior to the Eighth Amendment.

Prior to the Eighth Amendment, approximately $500.0 million of revolving commitments (the “Existing Revolving Commitments”) were available under the Existing Credit Agreement, with a sublimit for letters of credit of $100.0 million. Pursuant to the Eighth Amendment, certain lenders under the Existing Credit Agreement converted their Existing Revolving Commitments into a new tranche of revolving commitments (the “New Revolving Commitments” and the revolving credit loans made thereunder, the “New Revolving Loans”) in an aggregate amount, along with the New Revolving Commitments of certain new lenders, of $1,000 million, with a sublimit for letters of credit of $200.0 million.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

As of June 30, 2021, the Credit Agreement provided Booz Allen Hamilton with a $1,289.8 million Term Loan A, a $383.2 million Term Loan B, and a $1,000.0 million Revolving Credit Facility, with a sub-limit for letters of credit of $200.0 million (collectively, the "Secured Credit Facility"). As of June 30, 2021, the maturity date of Term Loan B was November 26, 2026. Booz Allen Hamilton’s obligations and the guarantors’ guarantees under the Credit Agreement (the "Guarantee") are secured by a first priority lien on substantially all of the assets (including capital stock of subsidiaries) of Booz Allen Hamilton, Investor, and the subsidiary guarantors, subject to certain exceptions set forth in the Credit Agreement and related documentation. Subject to specified conditions, without the consent of the then-existing lenders (but subject to the receipt of commitments), the Term Loans or the Revolving Credit Facility may be expanded (or a new term loan facility or revolving credit facility added to the existing facilities) by up to (i) the greater of (x) $909 million and (y) 100% of consolidated EBITDA of Booz Allen Hamilton, as of the end of the most recently ended four quarter period for which financial statements have been delivered pursuant to the Credit Agreement plus (ii) the aggregate principal amount under which pro forma consolidated net senior secured leverage remains less than or equal to 3.50:1.00.

At Booz Allen Hamilton’s option, borrowings under the Term Loan A and the Revolving Credit Facility bear interest based either at LIBOR (adjusted for maximum reserves, and subject to a floor of zero) for the applicable interest period or a base rate (equal to the highest of (i) the administrative agent’s prime corporate rate, (ii) the overnight federal funds rate plus 0.50%, and (iii) three-month LIBOR (adjusted for maximum reserves, and subject to a floor of zero) plus 1.00%), in each case plus an applicable margin as determined by the pricing grid, payable at the end of the applicable interest period and in any event at least quarterly. The applicable margin for Term Loan A and borrowings under the Revolving Credit Facility ranges from 1.125% to 2.00% for LIBOR loans and 0.125% to 1.00% for base rate loans, in each case based on Booz Allen Hamilton’s consolidated total net leverage ratio. Unused commitments under the Revolving Credit Facility are subject to a quarterly fee ranging from 0.175% to 0.35% based on Booz Allen Hamilton’s consolidated total net leverage ratio. Booz Allen Hamilton also agreed to pay customary letter of credit and agency fees. The applicable margin for Term Loan B is 1.75% for LIBOR loans and 0.75% for base rate loans.

Booz Allen Hamilton occasionally borrows under the Revolving Credit Facility in anticipation of cash demands. For the three months ended June 30, 2021, Booz Allen Hamilton accessed $60.0 million of its Revolving Credit Facility, which was repaid in full during the period. For the three months ended June 30, 2020, Booz Allen Hamilton did not access its Revolving Credit Facility. As of June 30, 2021 and March 31, 2021, there was no outstanding balance on the Revolving Credit Facility.

The Credit Agreement requires quarterly principal payments of 1.25% of the stated principal amount of Term Loan A until maturity, and quarterly principal payments of 0.25% of the stated principal amount of Term Loan B until maturity.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants include limitations on the following, in each case subject to certain exceptions: (i) indebtedness and liens; (ii) mergers, consolidations or amalgamations, liquidations, wind-ups or dissolutions, and disposition of all or substantially all assets; (iii) dispositions of property; (iv) restricted payments; (v) investments; (vi) transactions with affiliates; (vii) change in fiscal periods; (viii) negative pledges; (ix) restrictive agreements; (x) line of business; and (xi) speculative hedging. The events of default include the following, in each case subject to certain exceptions: (a) failure to make required payments under the Secured Credit Facility; (b) material breaches of representations or warranties under the Secured Credit Facility; (c) failure to observe covenants or agreements under the Secured Credit Facility; (d) failure to pay or default under certain other material indebtedness; (e) bankruptcy or insolvency; (f) certain Employee Retirement Income Security Act, or ERISA, events; (g) certain material judgments; (h) actual or asserted invalidity of the Guarantee and collateral agreements or the other security documents or failure of the guarantees or perfected liens thereunder; and (i) a change of control. In addition, Booz Allen Hamilton is required to meet certain financial covenants at each quarter end, namely consolidated net total leverage and consolidated net interest coverage ratios. As of June 30, 2021 and March 31, 2021, Booz Allen Hamilton was in compliance with all financial covenants associated with its debt and debt-like instruments.

For the three months ended June 30, 2021 and 2020, interest payments of $4.9 million and $6.9 million were made for Term Loan A and $1.8 million and $2.2 million were made for Term Loan B, respectively.

Borrowings under the Term Loans, and if used, the Revolving Credit Facility, incur interest at a variable rate. In accordance with Booz Allen Hamilton’s risk management strategy, between April 6, 2017 and April 4, 2019, Booz Allen Hamilton executed a series of interest rate swaps. As of June 30, 2021, Booz Allen Hamilton had interest rate swaps with an aggregate notional amount of $700.0 million. These instruments hedge the variability of cash outflows for interest payments on the Term Loans and Revolving Credit Facility. The Company's objectives in using cash flow hedges are to reduce volatility due to interest rate movements and to add stability to interest expense (see Note 9 to our condensed consolidated financial statements).

Senior Notes

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

On June 17, 2021, Booz Allen Hamilton issued $500.0 million aggregate principal amounts of its 4.000% Senior Notes due July 1, 2029 (the “Senior Notes due 2029”) under an Indenture, dated as of June 17, 2021 among Booz Allen Hamilton, certain subsidiaries of Booz Allen Hamilton, as guarantors (the “Subsidiary Guarantors”), and Wilmington Trust, National Association (in such capacity, the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of June 17, 2021, among Booz Allen Hamilton, the Subsidiary Guarantors and the Trustee. The Senior Notes due 2029 and the related guarantees are Booz Allen Hamilton’s and each Subsidiary Guarantors’ senior unsecured obligations and rank equally in right of payment with all of Booz Allen Hamilton’s and the Subsidiary Guarantors’ existing and future senior indebtedness and rank senior in right of payment to any of Booz Allen Hamilton’s and the Subsidiary Guarantors’ future subordinated indebtedness. The net proceeds from the sale of the Senior Notes due 2029 were used to fund the acquisition of Liberty and to pay related fees and expenses.

Booz Allen Hamilton may redeem some or all of the Senior Notes due 2029 at any time prior to July 1, 2024, at a price equal to 100% of the principal amount of the Senior Notes due 2029 redeemed, plus accrued and unpaid interest, if any, to (but not including) the redemption date, plus an applicable “make-whole premium.” Booz Allen Hamilton may redeem the Senior Notes due 2029 at its option, in whole at any time or in part from time to time, upon certain required notice, at any time (i) on and after July 1, 2024, at a price equal to 102.00% of the principal amount of the Senior Notes due 2029 redeemed, (ii) on or after July 1, 2025, at a price equal to 101.00% of the principal amount of the Senior Notes due 2029 redeemed, and (iii) on July 1, 2026 and thereafter, at a price equal to 100.00% of the principal amount of the Senior Notes due 2029 redeemed, in each case, plus accrued and unpaid interest, if any, to (but not including) the applicable redemption date. In addition, at any time on or prior to July 1, 2024, Booz Allen Hamilton may redeem up to 40.00% of the Senior Notes due 2029 with an amount equal to the net cash proceeds of certain equity offerings at a redemption price equal to 104.00%, plus accrued and unpaid interest, if any, to (but not including) the redemption date, provided, however, that at least 50.00% of the original aggregate principal amount of the Senior Notes due 2029 must remain outstanding after each such redemption; and provided, further, that such redemption shall occur within 180 days after the date on which any such equity offering is consummated.

Interest is payable on the Senior Notes due 2029 semi-annually in cash in arrears on July 1 and January 1 of each year, beginning on January 1, 2022. In connection with the issuance of the Senior Notes due 2029, the Company recognized $6.5 million of issuance costs, which were recorded as an offset against the carrying value of debt and will be amortized to interest expense over the term of the Senior Notes due 2029.

Interest on debt and debt-like instruments consisted of the following:


	Three Months Ended June 30,
		2021		2020
	(In thousands)
Term Loan A Interest Expense		$	5,229	$	6,918
Term Loan B Interest Expense		1,801		2,214
Interest on Revolving Credit Facility		25		799
Senior Notes Interest Expense		7,559		4,484
Amortization of Debt Issuance Cost (DIC) and Original Issue Discount (OID) (1)		1,128		1,070
Interest Swap Expense		5,443		4,441
Other		85		309
Total Interest Expense		$	21,270	$	20,235

(1) DIC and OID on the Term Loans and senior notes are recorded as a reduction of long-term debt in the condensed consolidated balance sheet and are amortized ratably over the life of the related debt using the effective rate method. DIC on the Revolving Credit Facility is recorded as a long-term asset on the condensed consolidated balance sheet and amortized ratably over the term of the Revolving Credit Facility.

9. DERIVATIVES

The Company utilizes derivative financial instruments to manage interest rate risk related to its variable rate debt. The Company’s objectives in using these interest rate derivatives, which were designated as cash flow hedges, are to manage its exposure to interest rate movements and reduce volatility of interest expense. The aggregate notional amount of all interest rate swap agreements was $700.0 million as of June 30, 2021. The swaps have staggered maturities, ranging from June 30, 2022 to June 30, 2025. These swaps mature within the last tranche of the Company's floating rate debt (November 26, 2026).

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

The floating-to-fixed interest rate swaps involve the exchange of variable interest amounts from a counterparty for the Company making fixed-rate interest payments over the life of the agreements without exchange of the underlying notional amount and effectively convert a portion of the variable rate debt into fixed interest rate debt.

Derivative instruments are recorded in the condensed consolidated balance sheet on a gross basis at estimated fair value. As of June 30, 2021, $15.8 million and $18.3 million were classified as other current liabilities and other long-term liabilities, respectively, on the condensed consolidated balance sheet. As of March 31, 2021, $17.2 million and $21.0 million were classified as other current liabilities, and other long-term liabilities, respectively, on the condensed consolidated balance sheet.

For interest rate swaps designated as cash flow hedges, the changes in the fair value of derivatives is recorded in Accumulated Other Comprehensive Loss, or AOCL, net of taxes, and is subsequently reclassified into interest expense in the period that the hedged forecasted interest payments are made on the Company's variable-rate debt. The effect of derivative instruments on the accompanying condensed consolidated financial statements for the three months ended June 30, 2021 and 2020 is as follows:


		Three Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships	Location of Gain or Loss Recognized in Income on Derivatives	Amount of (Loss) or Gain Recognized in AOCL on Derivatives				Amount of (Loss) or Gain Reclassified from AOCL into Income
		2021		2020		2021		2020
Interest rate swaps	Interest expense	$	(1,394)	$	(6,387)	$	(5,443)	$	(4,441)

Over the next 12 months, the Company estimates that $15.9 million will be reclassified as an increase to interest expense. Cash flows associated with periodic settlements of interest rate swaps will be classified as operating activities in the condensed consolidated statement of cash flows.

The Company is subject to counterparty risk in connection with its interest rate swap derivative contracts. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The Company mitigates this credit risk by entering into agreements with credit-worthy counterparties and regularly reviews its credit exposure and the creditworthiness of the counterparties.

10. INCOME TAXES

The Company’s effective income tax rates were 22.9% and 24.3% for the three months ended June 30, 2021 and 2020. Our effective tax rates for these periods differ from the federal statutory rate of 21.0% primarily due to the inclusion of state and foreign income taxes and permanent rate differences, which are predominantly related to certain executive compensation and the accrual of reserves for uncertain tax positions, offset by research and development tax credits, excess tax benefits for employee share-based compensation, and the Foreign Derived Intangible Income deduction.

The Company is currently contesting tax assessments from the District of Columbia Office of Tax and Revenue for fiscal years 2013 through 2015 at various stages of applicable administrative and judicial processes, with a combined amount at issue of approximately $11.7 million, net of associated federal tax benefits as of June 30, 2021. The Company has taken similar tax positions with respect to subsequent fiscal years, with approximately $38.6 million, net of federal tax benefits, of total potential future tax expense that would arise from an adverse final resolution. As of June 30, 2021, the Company does not maintain reserves for any uncertain tax positions related to the contested tax benefits or the similar tax positions taken in the subsequent fiscal years. Given the recoverable nature of the state tax expense, the Company does not believe that the resolution of these matters will have a material adverse effect on its results of operations, cash flows or financial condition.

The Company maintained reserves for uncertain tax positions of $66.3 million and $62.9 million as of June 30, 2021 and March 31, 2021, respectively, $11.1 million of which is reflected as a reduction to deferred taxes with the remaining balance included in other long-term liabilities in the accompanying condensed consolidated balance sheets. As of June 30, 2021, the Company's reserves for uncertain tax positions are related entirely to research and development tax credits.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

11. OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following:


	June 30, 2021		March 31, 2021

Postretirement benefit obligations	127,154		126,054
Reserves for uncertain tax positions	56,576		53,203
Other(1)	54,637		51,727
Total other long-term liabilities	$	238,367	$	230,984

(1)Because of the condensed financial statement presentation, components of other long-term liabilities at June 30, 2021 and March 31, 2021 primarily include the Company's long-term liability portion of the Company's derivative instruments, and the long-term disability obligation.

12. EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

The Company sponsors the Employees’ Capital Accumulation Plan, or ECAP, which is a qualified defined contribution plan that covers eligible U.S. and certain international employees. ECAP provides for distributions to participants by reason of retirement, death, disability, or termination of employment. The Company provides an annual matching contribution of up to 6% of eligible annual compensation. Total expenses recognized under ECAP were $43.2 million and $41.1 million for the three months ended June 30, 2021 and 2020, respectively.

Defined Benefit Plan

The Company provides postretirement healthcare benefits to former officers under a medical indemnity insurance plan, with premiums paid by the Company. This plan is referred to as the Officer Medical Plan.

The components of net postretirement medical expense for the Officer Medical Plan were as follows:


	Three Months Ended June 30,
		2021		2020
Service cost		$	1,626	$	1,414
Interest cost		1,016		1,059

Total postretirement medical expense		$	2,642	$	2,473

The service cost component of net periodic benefit cost is included in cost of revenue and general and administrative expenses, and the non-service cost components of net periodic benefit cost (interest cost and net actuarial loss) is included as part of Other (expense) income, net in the accompanying condensed consolidated statements of operations.

As of June 30, 2021 and March 31, 2021, the unfunded status of the post-retirement medical plan was $122.7 million and $121.5 million, respectively, which is included in other long-term liabilities in the accompanying condensed consolidated balance sheets.

Long-term Disability Benefits

The Company offers medical and dental benefits to inactive employees (and their eligible dependents) on long-term disability. These benefits do not vary with an employee's years of service; therefore, the Company is required to accrue the costs of the benefits at the date the inactive employee becomes disability eligible and elects to participate in the benefit. The accrued cost for such benefits is calculated using an actuarial estimate. The accrued cost for these benefits was $10.9 million at both June 30, 2021 and March 31, 2021, and is presented in other long-term liabilities in the accompanying condensed consolidated balance sheets.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

Deferred Compensation Plan

The Company established a non-qualified deferred compensation plan (the "Plan") for certain executives and other highly compensated employees that was effective in fiscal 2018. The fair values of plan investments and obligations as of June 30, 2021 and March 31, 2021 were $19.7 million and $14.1 million, respectively, and were recorded in other long-term assets and in other long-term liabilities, respectively, in the condensed consolidated balance sheets. Adjustments to the fair value of the plan investments and obligations are recorded in operating expenses.

13. ACCUMULATED OTHER COMPREHENSIVE LOSS

All amounts recorded in other comprehensive loss are related to the Company's post-retirement plans and interest rate swaps designated as cash flow hedges. The following table shows the changes in accumulated other comprehensive loss, net of tax:


	Three Months Ended June 30, 2021
		Post-retirement plans		Derivatives designated as cash flow hedges		Totals
Beginning of period		$	(1,562)	$	(28,209)	$	(29,771)
Other comprehensive loss before reclassifications(1)		—		(1,031)		(1,031)
Amounts reclassified from accumulated other comprehensive loss		19		4,025		4,044
Net current-period other comprehensive income (loss)		19		2,994		3,013
End of period		$	(1,543)	$	(25,215)	$	(26,758)

(1) Changes in other comprehensive income (loss) before reclassification for derivatives designated as cash flow hedges are recorded net of tax benefits of $0.4 million for the three months ended June 30, 2021.

Three Months Ended June 30, 2020

Post-retirement plans

Derivatives designated as cash flow he