UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 333-145355
VANGENT, INC.
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Delaware
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20-1961427 |
(State or other jurisdiction of
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(IRS Employer |
incorporation or organization)
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Identification No.) |
4250 North Fairfax Drive
Suite 1200
Arlington, Virginia 22203
(703) 284-5600
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. YES o NO þ
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). YES o NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
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 the definitions of large accelerated
filer, accelerated filer, and smaller reporting company, in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). YES o NO þ
There were 100 shares of common stock of Vangent, Inc. issued and outstanding at
December 31, 2010.
VANGENT, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS
2
PART I
ITEM 1. BUSINESS
Unless the context otherwise indicates, references to we, our, the Successor Entity,
Vangent, or the Company refer to Vangent, Inc. and its consolidated subsidiaries.
Company Overview
Vangents history dates back to 1953 with the founding of the Measurement Research Center at
the University of Iowa. We have been serving clients in the U.S. government since 1973. In February
2007, a managed group of entities under Pearson plc known as Pearson Government Solutions became
Vangent, Inc.
We are a global provider of information management and business process outsourcing services
to several U.S. public health care and other civilian government agencies, as well as select U.S.
defense and intelligence agencies, foreign government organizations and private sector entities,
including the U.S. Departments of Health and Human Services, Commerce, Education, Labor, and State,
as well as Fortune 500 companies. We design, build and operate mission-critical systems and
processes to seamlessly deliver vital information, services and programs to our customers and their
constituents. Most of our revenue is generated from long-term contracts that typically have
duration of five years, including option years. At December 31, 2010, our total contract backlog
was $1.9 billion, compared with $2.1 billion at the end of 2009.
We provide integrated services in three distinct areas:
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Systems Integration (Build) |
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Business Process Outsourcing (Operate) |
We have a broad customer and contract base and believe we are well-positioned to capitalize
upon the trend within U.S. government agencies to utilize government contractors to design, build
and operate technologically advanced systems that deliver mission-critical information, services
and programs to citizens.
Acquisitions
In September 2010, Vangent acquired Buccaneer Computer Systems and Service, Inc. (Buccaneer
Acquisition) at a cost of $64.6 million. Buccaneer is a provider of information technology
services, infrastructure, secure data hosting, and data analytics for the government healthcare
market. Buccaneers government customers are the Centers for Medicare and Medicaid Services
(CMS), the Food and Drug Administration, and the Department of Defense. Its data center in
Warrenton, Virginia, is the largest repository of health quality data in the country. The Buccaneer
Acquisition further strengthens our ability to serve government health care customers and greatly
complements and enhances our information technology infrastructure and data analytics capabilities.
In May 2008, Vangent acquired the government health integration group of Aptiv Technology
Partners, a provider of federal and commercial healthcare professional services including broad
experience with InterSystems database, application, and middleware technologies. The acquisition
strengthened Vangents ability to serve government and commercial health customers with the latest
technology and consulting expertise.
On February 14, 2007, The Veritas Capital Fund III, L.P., Vangent Holding LLC and Vangent
Holding Corp. consummated a stock purchase agreement with Pearson and certain other seller entities
under which Vangent Holding Corp. acquired all of the equity interests of Pearson Government
Solutions. Pearson Government Solutions became known as Vangent, Inc.
Our Segments
We manage our business through three business segments. Reference is made to information on
business segments, major customers, geographic area information appearing in the notes to
consolidated financial statements in this annual report on Form 10-K.
3
Government Group 90% of revenue in 2010. The Government Group is our largest segment and
has many years of experience in providing information management and business process outsourcing
to several civilian and defense agencies of the federal government, including a 30-year history
with the Department of Education (DoED), over 10 years with the Defense Information Systems
Agency and eight years with the CMS. The Government Group is also responsible for the development,
management, analysis and dissemination of healthcare information to the public sector and is one of
the largest non-government providers of health information in the United States. The operations of
Buccaneer acquired in September 2010 are part of the Government Group.
International Group 7% of revenue in 2010. The International Group serves government and
commercial customers in the United Kingdom and Canada and provides consulting, systems integration,
and business process outsourcing solutions. Business operations in Argentina, Mexico and Venezuela,
formerly part of the International Group, are classified as discontinued operations in the
consolidated financial statements. Our operations in Argentina and Mexico were sold in 2010 and our
operations in Venezuela were sold in February 2011.
Human Capital Group 3% of revenue in 2010. The Human Capital Group primarily serves the
private sector and provides workforce solutions that automate and improve the recruitment,
assessment, selection, training and development of a customers workforce. We also provide learning
infrastructure development solutions for public sector clients.
Services Offered
We provide high value, end-to-end solutions for our customers. We offer integrated consulting,
systems integration and business process outsourcing services to support the design, build and
operation of mission critical systems and processes for our customers and their programs. Our
solutions are based on an in-depth understanding of each customers unique challenges, objectives
and budgetary constraints.
Consulting (Design)
We design systems to modernize business processes, reduce costs, enhance organizational
effectiveness, and increase operational efficiencies. We apply expertise and methodologies in
business process re-engineering, performance consulting, information technology and organizational
change management. Our ultimate goal is to help customers better manage change and enhance their
delivery of superior, high-value products and services. Our consulting solutions portfolio includes
the following offerings:
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Business process analysis and design |
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System architecture and requirements analysis |
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Enterprise modernization |
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Organizational development and testing |
Systems Integration (Build)
We build large-scale, complex and mission-critical systems for our customers utilizing
industry-wide best practices. Our business processes are predictable, scalable, repeatable and
reliable and support the critical needs of our customers. We provide the following build services:
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Service oriented architecture implementation |
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Application development |
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System integration and testing |
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Learning infrastructure development |
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Business Process Outsourcing (Operate)
We operate entire business processes for our customers. We combine our people, processes and
technologies to manage transaction intensive activities. We offer the following services:
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Multi-channel customer interaction management |
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Eligibility determination |
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Data warehouse management |
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Program management and forecasting |
Our Customers
U.S. government departments and agencies represent our largest customer group. We provide
services and solutions, typically as a prime contractor, to government customers with an average
relationship length of approximately five years. For 2010, our largest customers were the
Department of Health and Human Services, including CMS, the Department of Commerce, including the
U.S. 2010 Census contract, and the Department of Education. We have more than 30 years of
experience in providing information management and strategic business process outsourcing to
several civilian and defense agencies of the federal government. We believe our long-standing
relationships are due in large part to our technical expertise and proven performance on customer
contracts, particularly providing support for our customers mission essential programs.
Additionally, our services build and leverage agency program knowledge to increase efficiencies.
As a result of the Buccaneer Acquisition in September 2010, we added new business
at the Centers for Medicare and Medicaid Services and the Food and Drug Administration.
Internationally, our customers include local governments, central governments and commercial
customers in the United Kingdom and Canada. We provide consulting, systems integration and
business process outsourcing to address a variety of managerial disciplines, including customer
interaction, as well as management of data, identity, revenue and human capital. In the Human
Capital Group, we provide private and public sector entities, including many Fortune 500 companies,
with workforce solutions that automate and improve the recruitment, assessment, selection, training
and development of their employees.
A list of our most significant customers follows:
U.S. Department of Health and Human Services
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Centers for Medicare and Medicaid Services |
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Centers for Disease Control and Prevention |
Food and Drug Administration
U.S. Department of Education
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Office of Federal Student Aid |
U.S. Department of Defense
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U.S. Air Force |
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U.S. Army |
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U.S. Navy |
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U.S. Department of Labor |
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U.S. Department of State |
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U.S. Office of Personnel Management |
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U.S. Department of Commerce |
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U.S. Census Bureau |
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U.S. Intelligence Agencies |
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Canada Post |
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London Borough of Southwark |
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Our Contracts
We provide services under three types of contractual arrangements: cost-plus, fixed-price, and
time and materials, as follows:
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Cost-plus (cost reimbursable). We are reimbursed for costs that are reasonable,
allowable and are allocated to the contract. We are paid a fee representing the profit
margin negotiated at contract award, which may be a fixed amount and/or performance
based. Revenue and profit under cost-plus service contracts is recognized as costs are
incurred based on negotiated rates. Fixed fees on cost-plus service contracts are
recognized ratably as services are performed. Incentive fees on cost-plus service
contracts are recognized when awarded by the customer or, if determinable as of the
reporting date, are recognized ratably as services are performed. |
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Fixed Price. We perform specific tasks or services identified in the contract
statement of work for a fixed price over a defined period of performance. Compared with
time and materials and cost reimbursable contracts, fixed price contracts generally
offer a higher profit margin opportunity but involve higher risks associated with
potential cost overruns. Revenue and profit on fixed-price service contracts are
recognized ratably as services are performed or as units are delivered |
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Time and Materials. We are paid for labor at fixed contracted billing rates and
paid for allowable costs related to materials, travel and other direct charges. Revenue
for time-and-materials contracts is recognized on the basis of allowable labor hours
multiplied by the contracted billing rates, plus costs for items used in the
performance of the contract. Profit on time-and-materials contracts result from the
difference between the cost of services performed and the contracted billing rates for
these services. |
A summary of revenue by contract type follows:
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Years Ended December 31, |
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2010 |
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2009 |
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2008 |
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Cost-plus |
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66 |
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55 |
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51 |
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Fixed-price |
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30 |
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41 |
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43 |
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Time and materials |
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4 |
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6 |
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100 |
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100 |
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100 |
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Most of our revenue is derived from contracts which have duration of approximately five years,
including option years. However, some contracts have a longer duration.
As part of the contract bidding process, we may enter into agreements with subcontractors to
enhance our ability to bid on large, complex assignments or to address more completely a particular
customers requirements. Subcontracting relationships are useful because they permit us, as a prime
contractor, to compete more effectively on a wider range of projects. In addition, we often enter
into subcontract arrangements in order to meet government requirements to award certain categories
of services to small businesses. We use subcontractors primarily for non-core functions, such as to
provide supplemental customer service representatives and to provide specialists with domain
expertise. When we are a prime contractor on an engagement, we are ultimately responsible for the
overall engagement as well as the performance of our subcontractors. We are the prime contractor on
most of our contracts, and revenue from contracts in which we were the prime contractor represented
68% of total revenue for 2010.
Our contracts are typically awarded for an estimated dollar value based on the cost proposal
for the statement of work to be performed under the contract over its maximum life. We earn
additional revenue from increases in program scope beyond that of the original contract. The
government is not obligated to exercise options under a contract after the base period. Toward the
end of a contract, the customer may announce a recompete of the existing contract if services are
still required.
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Many government contracts are indefinite delivery, indefinite quantity (IDIQ) contracts or
government-wide acquisition contracts (GWACs), which are often awarded to multiple contractors.
IDIQ contracts and
GWACs do not represent a firm order for services. We have several GWACs issued by the General
Services Administration and other government agencies. When a customer wishes to order services
under an IDIQ contract or GWAC, it issues a request for proposals. Proposals are submitted by
multiple contract awardees and task orders are typically awarded based on a best-value or lowest
cost approach.
Contract Backlog
We track contract backlog to assess our current business development effectiveness and to
assist us in forecasting financial performance and future business needs. We define total contract
backlog as the amount of revenue we expect to realize over the remaining term of the contract
including the base period and all option years. We do not include contract ceiling values under
GWAC or IDIQ contracts in backlog. We define funded backlog as the portion of our contracts for
which funding has been authorized.
A summary of contract backlog by business segment follows (in millions):
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December 31, 2010 |
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December 31, 2009 |
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Total |
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Funded |
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Total |
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Funded |
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Government Group |
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1,629.2 |
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241.3 |
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$ |
1,782.6 |
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$ |
313.4 |
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International Group |
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251.9 |
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161.8 |
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291.2 |
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196.8 |
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Human Capital Group |
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13.2 |
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13.2 |
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7.1 |
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7.1 |
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Discontinued operations |
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44.9 |
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44.9 |
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$ |
1,894.3 |
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$ |
416.3 |
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$ |
2,125.8 |
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$ |
562.2 |
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Regulatory Matters
Federal government contracts are subject to a number of federal statutes and regulations,
including the Federal Acquisition Regulation (FAR) and agency supplements to the FAR. The FAR
contains several regulations that affect us significantly.
The Anti-Deficiency Act prohibits federal government employees from committing government
funds by contract or otherwise, in excess or in advance of appropriations, unless authorized by a
specific statute. Thus, work on a contract may be limited by the availability of funds. Because
Congress usually appropriates funds on a fiscal year basis, many of our contracts are incrementally
funded by the agency as Congress makes appropriations for future fiscal years. In addition, the
federal government uses FAR clauses, such as the Limitation of Cost and Limitation of Funds
clauses, to limit its liability arising from its employees involving the federal government in
expenditures or liabilities beyond those authorized by contract. In many cases, contracts are
awarded for only one year, with a number of successive option years.
Disappointed bidders and firms excluded from competition for federal government contracts and
task orders can avail themselves of FAR and General Accountability Office bid protest remedies by
submitting an objection to the contracting officer or General Accountability Office within
specified time limits. The U.S. Court of Federal Claims also has bid protest jurisdiction. Contract
performance can be suspended while a protest is pending and the contract can be terminated if found
to have been improperly awarded.
Larger contracts may also be subject to the Truth in Negotiations Act (TINA) and Cost
Accounting Standards. TINA requires us to provide current, accurate and complete cost or pricing
data in connection with the negotiation of a contract, modification or task order over a $650,000
threshold, and in certain other circumstances. Cost Accounting Standards require consistency of
accounting practices over time and compliance with specific cost accounting criteria. FAR sets
forth the rules regarding the allowability and allocability of costs incurred in connection with
cost-reimbursable federal government contracts.
The FAR Changes Clause permits a contracting officer to make unilateral changes within the
general scope of a contract at any time, by written order, in a number of contract areas. If a
change under this clause causes an increase or decrease in the estimated cost of, or the time
required for, performance of any part of the work under a changed contract, or otherwise affects
any other terms and conditions of this contract, the contracting officer must make an equitable
adjustment in the contract price or estimated cost, the delivery or completion schedule, the
amount of any fixed fee and other affected terms of the contract. In the event that the contractor
and the government fail to agree upon such an adjustment, the contractor is obligated to perform
the contract as changed pending resolution of the dispute.
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The federal government strives to avoid awarding contracts to companies that may have an
organizational conflict of interest (OCI). The FAR describes the situations that may result in an
OCI and provides guidance to contracting officers in order to avoid or mitigate an actual or
potential OCI. An OCI involves a situation that arises or might arise because the nature of the
work to be performed by a contractor may, absent some restriction on future activities, result in
an unfair competitive advantage to the contractor, impair the contractors objectivity in
performing the contract work or make the contractor potentially unable to render impartial
assistance or advice to the federal government. The contracting officer is responsible for
resolving any significant potential OCIs before a contract award is made. These types of
restrictions may restrict our ability to obtain additional work beyond tasks that we currently
perform or performed in the past.
To the extent that we fail to comply with procurement requirements, the federal government may
demand an adjustment in contract prices or costs. In addition, changes in cost accounting practices
are subject to a required procedure for determining the cost impact of the change. The federal
government is generally protected from paying increased costs resulting from a contractors
accounting changes.
Our books and records are subject to audit by audit agencies. The Defense Contract Audit
Agency performs audits on behalf of the U.S. government. Negotiations of annual incurred cost
submittals can take from three to five years or longer from the date of submission. Audits of our
incurred cost submissions for 2005 and subsequent years are open. An adverse finding under an audit
could result in the disallowance of costs under a cost-reimbursable contract, termination of
federal government contracts, forfeiture of profits, suspension of payments, fines and suspension
and prohibition from doing business with the federal government. See Risk Factors- Our business
could be adversely affected by a negative audit or other actions, including suspension or
debarment, by the federal government. In the event that an audit results in disallowance of costs
under a contract, we have the right to appeal the findings of the audit under applicable dispute
resolution provisions.
Sales and Marketing
Our sales organization is centralized at the corporate level for the Government
Group. The Government Group sales organization participates in strategy development, setting
priorities and maturing opportunities for account penetration and expansion, and establishing
strategic partnerships. Our marketing efforts are also centralized at the corporate level on a
company-wide basis. Our Corporate Development organization is responsible for coordinating
collaboration among our segments, focusing resources on contract opportunities and identifying and
developing the strategy for future markets and investment. In addition, our Corporate Development
organization is responsible for proposal management and development, capture management, Government
Wide Acquisition Contract (GWAC) Center of Excellence, small business development program, market
research, and sales infrastructure management.
Competition
We compete against well capitalized divisions of large defense, information technology
services and outsourcing prime contractors, as well as a number of smaller federal contractors with
specialized capabilities. Our competitors include Accenture, ACS (a Xerox company), Booz Allen
Hamilton, Computer Sciences Corporation, Electronic Data Systems (a unit of Hewlett Packard), IBM,
Northrop Grumman, and SAIC. We believe that the major competitive factors that affect our ability
to compete are:
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technical expertise and range of service capabilities; |
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knowledge of the customer, their needs, objectives and budget constraints; |
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industry reputation and results of performance on past engagements; |
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key management and personnel; and |
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value and ability to deliver predictable, cost effective solutions to the customer. |
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We believe we significantly differentiate ourselves from our competitors through our ability
to provide end-to-end solutions to our customers through a broad range of capabilities. Most of our
competitors do not have an integrated service offering. As a result, we compete with certain
competitors that individually or in combination
provide consulting, systems integration and business processing outsourcing at various stages of
the design, build and operate continuum. Some of our competitors are attempting to expand their
offerings to become full service providers. To the extent that our competitors are able to
successfully broaden their service capabilities, we expect that competition will increase.
Employees
There were 7,008 employees at December 31, 2010, compared with 8,728 at December 31, 2009. The
reduction of 1,720, or 20%, resulted from completion of the U.S. 2010 Census contract and from
sales of discontinued operations in Latin America in 2010. Labor unions represented 67 employees in
the United Kingdom. We consider our employee relations to be satisfactory.
Intellectual Property
We believe our intellectual property, especially our proprietary methodologies, is of economic
importance to our business. In addition, we rely on trademarks and copyrights related to our
business. We believe we have taken reasonable measures consistent with industry practice to protect
the secrecy, confidentiality and value of our intellectual property.
Forward-Looking Statements
This annual report on Form 10-K contains various forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as expectation or belief concerning future events.
Forward-looking statements are those that do not relate solely to historical fact. They include,
but are not limited to, any statement that may predict, forecast, indicate or imply future results,
performance, achievements or events. Words such as, but not limited to, believe, expect,
anticipate, estimate, intend, plan, targets, projects, likely, will, would,
could and similar expressions or phrases identify forward-looking statements. All forward-looking
statements involve risks and uncertainties. The Company cautions that these statements are further
qualified by important economic, competitive, governmental and technological factors that could
cause our business, strategy or actual results of operations or events to differ materially from
those in the forward-looking statements, including, without limitation, changes in federal
government spending and in the demand for services that the Company provides; our ability to
generate new business in the United States and abroad; activities of competitors; bid protests;
changes in costs or operating expenses; our substantial debt; changes in the availability of and
cost of capital; our ability to successfully integrate acquisitions; general economic and business
conditions and the other factors set forth under Risk Factors in this annual report on Form 10-K.
Accordingly, such forward-looking statements do not purport to be predictions of future events or
circumstances, and there can be no assurance that any forward-looking statement contained herein
will prove to be accurate. The Company undertakes no obligation, and specifically declines any
obligation, to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this annual report on Form 10-K, you should
carefully consider the following risk factors. Any of the following risks could materially and
adversely affect our business, financial condition or results of operations and cash flows.
Risks Relating to Our Business
We rely on sales to federal government entities. A loss or reduction of contracts with the federal
government, a failure to obtain new contracts or a reduction of sales under such contracts could
have a material adverse effect on our business.
We derive a significant portion of our revenue from contracts and subcontracts with U.S.
government departments and agencies, including the Department of Health and Human Services (HHS)
and the Department of Education (DoED). The continuation and renewal of our existing government
contracts and new government contracts are, among other things, contingent upon the availability of
adequate funding for the various federal
government agencies with which we do business. Among the factors that could impact federal
government spending and reduce our federal government contracting business are:
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a reapportioning of or decline in spending by the federal government in general, and
HHS and DoED in particular, as a result of changes in federal policies or spending
priorities, general economic conditions, or increased focus on federal budgets from
concerns over federal deficits; |
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a failure by Congress to appropriate funds for programs in which we participate; |
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changes or delays in or cancellations of federal government programs; |
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the adoption of new laws or regulations that affect companies that provide services
to the federal government; |
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federal government shutdowns or other disruptions or delays in the government
appropriations process; |
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curtailment of the federal governments use of third-party service firms or an
increase in the trend toward insourcing by the federal government; and |
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changes in the political climate that may affect the funding of operations or the
services we provide. |
These or other factors could cause federal government agencies to reduce their purchases under
contracts, to exercise their rights to terminate contracts in whole or in part, to issue temporary
stop work orders, to decline to exercise renewal options or to fail to put new contracts out to bid
or to enter into new contracts. Any of the foregoing could have a material adverse effect on our
business, financial condition and results of operations and cash flows.
Since October 2010, the federal government has been operating under a continuing resolution to
fund operations. A continuing resolution continues funding for most programs but does not allow for
new contracts to be awarded. There have been delays in contract and task order awards. If the
federal government is not able to arrive at a long-term solution, there is the possibility of a
government work stoppage where only essential work would be authorized. The designation of
essential would likely be determined by the federal government on a case by case basis.
Any of the foregoing could have a material adverse effect on our business, financial condition
and results of operations and cash flows.
If our contracts with Centers for Medicare and Medicaid Services (CMS) or Federal Student Aid
were terminated or reduced in value, our business would be adversely affected.
The Department of Health and Human Services (HHS) represented 36% and the Department of
Education (DoED) represented 13% of total revenue for 2010. We are dependent on these agencies
for a substantial portion of our revenue. The loss of a major contract with these agencies or a
significant reduction in the value of a major contract would significantly and adversely affect our
business, financial condition and results of operations and cash flows.
Our federal government contracts may be terminated by the federal government at any time prior to
their completion and contain other unfavorable provisions, which could lead to unexpected loss of
revenue or reduction in contract backlog.
Under the term of our contracts, the federal government may unilaterally:
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terminate or modify existing contracts; |
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reduce the value of existing contracts through partial termination; |
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delay the payment of our invoices by government payment offices; |
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decline to exercise an option to renew a multi-year contract or issue task orders in
connection with indefinite delivery, indefinite quantity (IDIQ) contracts; |
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audit our contract related costs and fees; and |
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suspend us from receiving new contracts pending resolution of alleged violations of
procurement laws or regulations. |
The federal government can terminate or modify any of its contracts with us either for its
convenience or if we default by failing to perform under the terms of the applicable contract. A
termination arising out of our default could expose us to liability and have a material adverse
effect on our ability to compete for future contracts and task orders. If the federal government
terminates and/or materially modifies any of our contracts or if any applicable
option periods are not exercised, our failure to replace revenue generated from such contracts
would result in lower revenue and adversely affect our business, financial condition and results of
operations and cash flows.
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Our federal government contracts are subject to competitive bidding, both upon initial issuance and
recompetition. If we are unable to successfully compete in the bidding process or if we fail to
receive renewal, it could have a material adverse effect on our business, financial condition and
results of operations and cash flows.
Substantially all of our federal government contracts are awarded through a competitive
bidding process, including upon renewal (but not typically upon the exercise of optional periods),
and we expect that this will continue to be the case. There often is significant competition and
pricing pressure as a result of this process. The competitive bidding process presents a number of
risks, including the following:
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we must expend substantial funds and time to prepare bids and proposals for
contracts; |
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we may be unable to estimate accurately the resources and costs that will be
required to perform any contract we win, which could result in substantial cost
overruns; and |
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we may encounter expense and delay if our competitors protest or challenge awards of
contracts to us, and any such protest or challenge could result in a requirement to
resubmit bids with modified specifications, or in termination, reduction or
modification of the awarded contract. |
The federal government contracts for which we compete typically have multiple option periods,
and if we fail to win a contract, we generally will be unable to compete again for that contract
for several years. If we fail to win new contracts or to receive renewal contracts upon
re-competition, such failure could have a material adverse effect on our business, financial
condition and results of operations and cash flows.
Competition in our industry could limit our ability to attract and retain customers, which could
have a material adverse effect on our business.
Given the broad range of services we provide to our customers, we compete with various
entities across geographic and business lines. Some of our competitors have greater financial and
other resources than we do or are better positioned than we are to compete for certain contract
opportunities. For example, we are at a disadvantage when bidding for contracts put up for
re-competition for which we are not the incumbent provider, because incumbent providers frequently
are able to capitalize on customer relationships, technical knowledge and pricing experience gained
from their prior service. In addition, some of our competitors, particularly those located in
regions with lower costs of doing business, may be able to provide services and solutions at lower
cost than we can. We expect that the number of such competitors will grow. In addition, we expect
increasing participation in the federal government services market by traditional consulting and
outsourcing providers that seek to increase their service offerings and/or customer base.
We may never receive any revenue under IDIQ contracts or GWACs.
Many of our federal government contracts are multiple award IDIQ contracts, such as our IDIQ
contract with CMS. The award of an IDIQ contract does not represent a firm order for services.
Generally, under an IDIQ contract, the federal government is not obligated to order a minimum of
services or supplies from a contractor beyond a token amount, irrespective of the total estimated
contract value. Furthermore, under an IDIQ contract, the federal government customer develops
requirements for task orders that are competitively bid against all of the contract awardees,
usually under a best value approach. Many IDIQ contracts also permit the government customer to
direct work to a specific contractor. Additionally, GWACs, like IDIQ contracts, do not guarantee
more than a minimal amount of work for us, but instead provide us access to work generally through
further competitive procedures. Our federal government customers may not award us task orders under
our IDIQ contracts or GWACs, which could have a material adverse effect on our business, financial
condition and results of operations and cash flows. We do not include contract ceiling values for
IDIQ contracts or GWACs in our contract backlog.
Our business could be adversely affected by a negative audit or other actions, including suspension
or debarment, by the federal government.
As a federal government contractor, we must comply with and are affected by laws and
regulations relating to the formation, administration and performance of government contracts.
These laws and regulations affect how we do business with our federal government customers and
impose added costs. Federal government agencies
routinely audit and investigate government contractors. These agencies review contract performance,
cost structure and compliance with applicable laws, regulations and standards. Such agencies also
review the adequacy of, and a contractors compliance with, its internal control systems and
policies, including the contractors purchasing, property, estimating, compensation and management
information systems. Any costs found to be improperly allocated to a specific contract would not be
reimbursed. At any given time, many of our contracts are under review by one or more government
agencies.
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In addition, government contract payments received by us for allowable direct and indirect
costs are subject to adjustment after audit by government auditors and repayment to the government
if the payments exceed allowable costs as defined in the government contracts.
As a federal government contractor, we are subject to an increased risk of investigations,
criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities,
the results of which could have a material adverse effect on our business. If we violate the Civil
False Claims Act or other federal laws in connection with the performance of contracts, we could
face administrative, civil or criminal liabilities, including repayments, fines or penalties. If we
were suspended or prohibited from contracting with the federal government generally, or any
significant federal government agency, if our reputation or relationship with federal government
agencies were impaired or if the federal government otherwise ceased doing business with us or
significantly reduced the amount of business it does with us, our business, financial condition,
and results of operations and cash flows would be adversely affected.
The Office of Management and Budget could reduce or delay federal information technology spending
and cause us to lose business.
The Office of Management and Budget (OMB) supervises spending by federal agencies and
enforces the Government Performance Results Act. This Act requires, among other things, that
federal agencies make an adequate business justification to support capital planning initiatives,
including information technology investments. The factors considered by the OMB include whether the
proposed information technology investment is expected to achieve an appropriate return on
investment, whether related processes are contemporaneously reviewed, whether interoperability with
existing systems and the capacity for these systems to share data across government agencies have
been considered and whether existing commercial off-the-shelf products are being utilized to the
extent possible. If our government customers do not adequately justify proposed information
technology investments, the OMB may refuse funding for their new or continuing information
technology investments, and we may lose business as a result.
Costs of performing under time and materials and fixed price contracts may exceed revenue.
With cost-plus contracts, so long as actual costs incurred are within the contract ceiling and
allowable under the terms of the contract, we are entitled to reimbursement of the costs plus a
stipulated profit amount. We assume financial risk on time-and-materials and fixed price contracts,
because we assume the risk of performing those contracts at the stipulated prices or negotiated
hourly rates. If we do not accurately estimate ultimate costs and control costs during performance
of the work, we could incur losses on a particular contract or have lower than anticipated margins.
We also assume the risk of damage or loss to federal government property and we are responsible for
third party claims under fixed price contracts.
We are exposed to risks associated with operating internationally.
Our operations in the United Kingdom and Canada are reported in continuing operations.
Discontinued operations include our businesses in Argentina and in Mexico that were sold in 2010
and in Venezuela that was sold in February 2011. Our foreign operations are subject to risks
customarily associated with doing business in foreign countries, including fluctuations in foreign
currency exchange rates, labor and economic conditions, political instability, controls on
repatriation of earnings, nationalization, expropriation and other forms of restrictive actions by
local governments. Changes in the political or economic environments in the countries in which we
operate could have a material adverse effect on our business, financial condition and results of
operations and cash flows. Our operations conduct most of their business in their local currency.
Our financial results are reported in U.S. dollars and are affected by changes in the foreign
exchange rates of the local currencies in relation to the U.S. dollar.
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We are subject to certain U.S. laws and regulations which are the subject of rigorous enforcement
by the U.S. government; and noncompliance with such laws and regulations could adversely affect our
future operating performance.
We may be subject to qui tam litigation brought by private individuals on behalf of the
government under the Federal Civil False Claims Act, which could include claims for treble damages.
Government contract violations could result in the imposition of civil and criminal penalties or
sanctions, contract termination, forfeiture of profit, and/or suspension of payment, any of which
could make us lose our status as an eligible government contractor. We could also suffer serious
harm to our reputation. Any interruption or termination of our government contractor status could
significantly reduce our future revenues and profits.
Our corporate policy requires strict compliance with the U.S. Foreign Corrupt Practices Act
and with local laws prohibiting payments to government officials for the purpose of obtaining or
keeping business or otherwise obtaining favorable treatment. Improper actions by our employees or
agents could subject us to civil or criminal penalties, including substantial monetary fines, as
well as disgorgement, and could damage our reputation and, therefore, our ability to do business.
We have net operating tax loss carryforwards that must be used within the carryforward period to
reduce future federal income tax payments, and a 3% tax withholding requirement applicable to
government contractors could adversely affect our operating cash flow.
At December 31, 2010, we had a U.S. net operating tax loss carryforward of $55.5 million
available to offset future taxable income and reduce future federal income taxes during the
carryforward period. The utilization depends on the generation of future taxable income to absorb
the losses. Under U.S. GAAP, we have determined for financial accounting and reporting purposes
that it is more likely than not that we will utilize the available losses to reduce future federal
income taxes during the carryforward period. Adverse changes in circumstances or business
conditions could affect our ability to use available losses within the carryforward period.
A withholding requirement under which government agencies would reduce their cash payments to
government contractors by 3% of the amount billed and remit the withheld funds directly to the
Internal Revenue Service as an advance payment of the government contractors income tax liability
was passed in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L.
109-222). The American Recovery and Reinvestment Act of 2009 delayed the effective implementation
date to January 2012. In view of our net operating tax loss carryforward, we do not expect to make
federal income tax payments for the foreseeable future. If the 3% withholding requirement becomes
effective as scheduled, it could adversely affect our operating cash flow until such time that we
could file for and obtain a refund of the advance tax payments made on our behalf.
We depend on the services of key executives and skilled personnel, the loss of which could
adversely affect our business.
Our senior executives are important to our success because they have been instrumental in
setting our strategic direction, operating our business, identifying, recruiting and training key
personnel, and identifying expansion opportunities. Losing the services of any of these individuals
could adversely affect our business until a suitable replacement could be found. We do not maintain
key-man life insurance on any of our senior executives.
We must also compete to attract the skilled and experienced personnel integral to our
continued operation. We hire from a limited pool of potential employees with specialized technical
skill sets as prerequisites for many positions. Our failure to compete effectively for employees or
excessive attrition among our skilled personnel could reduce our ability to satisfy our customers
needs, and increase the costs and time required to perform our contractual obligations. This could
adversely affect our business, financial condition and results of operations and cash flows.
We may make acquisitions, which present additional risks.
Part of our growth strategy may include pursuing acquisitions. We may not be able to
consummate acquisitions in the future on terms acceptable to us, if at all. The integration of any
future acquisitions may not be successful and the anticipated strategic benefits of any future
acquisitions may not be realized. Future acquisitions may involve a number of special risks,
including, but not limited to:
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an increase in debt levels and reduction in our liquidity; |
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adverse short-term effects on operating results; |
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diversion of managements attention; |
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difficulties assimilating and integrating the operations of the acquired company; and |
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liabilities or contingencies relating to the acquired company. |
If our subcontractors or joint venture partners fail to perform their contractual obligations, we
may be required to incur costs and perform on their behalf and our reputation as a prime contractor
and our ability to obtain future business could be adversely affected.
As a prime contractor, we often rely significantly upon other companies as subcontractors to
perform work we are obligated to perform for our customers. If one or more of our subcontractors
fails to perform satisfactorily the agreed upon services on a timely basis, or violates federal
government contracting policies, laws or regulations, our ability to perform our obligations or
meet our customers expectations as a prime contractor may be compromised. In some cases, we have
limited involvement in the work performed by the subcontractors but are nevertheless responsible
for the work performed. In extreme cases, performance or other deficiencies on the part of our
subcontractors could result in a customer terminating our contract for default. A default
termination could expose us to liability for a federal government agencys costs of re-procurement,
damage our reputation and could hurt our ability to compete for future federal government
contracts.
We may enter into joint ventures so that we can jointly bid and perform on a particular
project. The success of a joint venture depends, in large part, on the satisfactory performance of
the contracted services by the joint venture partners. If joint venture partners do not meet their
obligations, the joint venture may be unable to adequately perform and deliver its contracted
services. We may be required to make additional investments or to provide additional services to
ensure the adequate performance and delivery of the contracted services. In some arrangements, the
extent of the Companys obligations for the performance of others is not expressly specified. These
additional obligations could adversely affect our business, financial condition and results of
operations and cash flows.
Failure to maintain strong relationships with prime contractors could adversely affect our
business.
As a subcontractor, we often lack control over fulfillment of a contract, and poor performance
on the contract could affect our reputation, even when we perform as required. Our business,
financial condition and results of operations and cash flows could be adversely affected if other
contractors eliminate or reduce their subcontract relationships with us or if the federal
government terminates or reduces other prime contractors programs or does not award them new
contracts.
If we experience systems or services failures, our reputation could be adversely affected and our
customers could assert claims against us for damages or refunds.
We create, implement and maintain information technology and outsourcing services that are
often critical to our customers operations, some of which involve classified or other sensitive
information. We have experienced and may in the future experience some systems or services
failures, schedule or delivery delays, and other problems in connection with our work. If our
solutions, services, or products have significant defects or errors, are subject to delivery delays
or fail to meet our customers expectations, we may:
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lose revenue due to adverse customer reactions; |
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be required to provide additional services to customers at no charge; |
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receive negative publicity, which could damage our reputation and affect our ability to
attract or retain customers; or |
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suffer claims for substantial damages. |
Our operations may suffer significant disruption as a result of a serious pandemic or other
national emergency.
Substantially all of our revenue is derived from services performed by employees in our
facilities, or those of our customers. In the event of a serious outbreak of a virus other
communicable disease, a serious weather related disruption or other national emergency, our
operations could be disrupted by high levels of absenteeism, and in extreme cases, it may be
necessary to temporarily close facilities. Such disruptions could reduce our service levels
and adversely affect our business, financial condition and results of operations and cash
flows.
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A preference for minority owned, small and small disadvantaged businesses could impact our ability
to be a prime contractor on certain federal governmental procurements.
As a result of the Small Business Administration set-aside program, the federal government may
decide to restrict certain procurements only to bidders that qualify as minority-owned small or
small disadvantaged businesses. As a result, we would not be eligible to perform as a prime
contractor on those programs and would be restricted to a maximum of 49% of the work as a
subcontractor. An increase in the amount of procurements under the Small Business Administration
set-aside program may impact our ability to bid on new procurements as a prime contractor or
restrict our ability to recompete on incumbent work that is placed in the set-aside program.
Our employees may violate company policies and procedures by engaging in misconduct or other
improper activities, which could adversely affect our business.
A significant number of our employees are involved in federal government contracting and
billing processes, which require compliance with a number of procurement laws and regulations. In
addition, in the course of our business, our employees routinely obtain access to sensitive or
classified government information and personal information that is subject to privacy laws. We are
exposed to the risk of employee misconduct that could include intentional or unintentional failures
to comply with federal government procurement regulations, engaging in unauthorized activities, or
falsifying time or expense records. Employee misconduct could also involve the improper use of our
customers or their constituents sensitive or classified information, which could result in
regulatory sanctions against us and adversely affect our reputation. While we have policies and
processes in place, it is not always possible to prevent employee misconduct, and the precautions
we take to prevent and detect this activity may not be effective in controlling risks or losses.
The failure to enforce and maintain our intellectual property rights could adversely affect our
business.
Our success depends, in part, upon our ability to protect our proprietary methodologies and
other intellectual property. We rely upon a combination of trade secrets, confidentiality policies,
nondisclosure and other contractual arrangements, and patent, copyright and trademark laws to
protect our intellectual property rights. However, our methods of protecting this information may
not be adequate, and we might not be able to take appropriate and timely steps to enforce our
intellectual property rights.
Additional Risks Relating to Debt
Our substantial debt could adversely affect our financial health and prevent us from meeting our
debt service obligations.
As of December 31, 2010, we had long-term debt of $406.8 million outstanding, and, subject to
certain limitations including compliance with the maximum allowable limits under the leverage ratio
covenant, we would have been able to borrow an additional $49.8 million under our revolving credit
facility that is scheduled to expire in February 2012. Our substantial debt could have important
consequences. For example, it could:
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make it more difficult for us to satisfy our obligations with respect to the senior
subordinated notes; |
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increase our vulnerability to general adverse economic or industry conditions; |
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require us to dedicate a substantial portion of our cash flow from operations to
debt service payments, thereby reducing the availability of cash flow to fund working
capital, capital expenditures and other general corporate purposes; |
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limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate; |
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place us at a competitive disadvantage compared to our competitors that may have
less debt; and |
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limit our ability to borrow additional funds. |
Long-term
debt amounted to $406.8 million at December 31, 2010 and
consists of a term loan of $216.8 million and senior subordinated
notes of $190.0 million. Long-term debt is scheduled to mature as
follows: (i)
term loan under the senior secured credit facility is scheduled to mature in February 2013, and (ii) the senior
subordinated fixed rate notes are scheduled to mature in February 2015. Debt
repayments will require significant amounts of cash. Our ability to generate sufficient cash flow
from operations to repay long-term debt when it matures, or to refinance our debt when
it matures, depends on numerous factors beyond our control. In view of the credit ratings
assigned to our outstanding debt and corporate credit by credit rating agencies, in the event we
were to refinance the senior secured credit facility or the senior subordinated notes, we would
likely encounter higher interest rates and limited availability of debt financing capacity. In
addition, we are subject to interest rate risk on the unhedged portion of the variable-rate term
loan and the available portion of the revolving credit facility under the senior secured credit
facility.
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Despite current debt levels, we may still be able to incur substantially more debt, which could
further exacerbate the risks associated with our substantial leverage.
The terms of the indenture governing the senior subordinated notes and the senior secured
credit facility allow us to incur additional debt of up to $49.8 million under the senior secured
credit facility, subject to certain limitations. The borrowings would be senior to the senior
subordinated notes. If new debt is added to our current debt levels, the related risks that we now
face would likely increase.
The right to receive debt service payments on the senior subordinated notes is junior to our
existing and future senior debt, including borrowings under the senior secured credit facility.
Further, the guarantees of the senior subordinated notes are junior to all of the guarantors
existing and future senior debt.
The senior subordinated notes rank behind all of our existing and any future senior debt. As a
result of the subordination, upon any distribution to our creditors in a bankruptcy, liquidation,
reorganization or similar proceeding, holders of senior secured debt will be entitled to be paid in
full before any payment will be made on the senior subordinated notes. In the event of bankruptcy,
liquidation or reorganization, holders of the senior subordinated notes will participate with all
other holders of subordinated debt in the assets remaining after all of our senior secured debt has
been paid.
To service our debt, we must generate a significant amount of cash flow. Our ability to generate
cash flow depends on many factors beyond our control.
We depend on the timely collection of our receivables to generate cash flow, provide working
capital and continue business operations. If the U.S. government fails to pay or delays the payment
of our invoices for any reason, our business and financial condition may be materially and
adversely affected. The U.S. government may delay or fail to pay invoices for a number of reasons,
including lack of appropriated funds, lack of an approved budget, or as a result of audit findings
by government regulatory agencies. Our ability to make debt service payments, refinance our debt,
fund working capital needs, and fund planned capital expenditures depends on our ability to
generate cash flow that is subject to general economic, financial, competitive and other factors
that are beyond our control.
Our business may not generate sufficient cash flow from operations and future borrowings may
not be available to us under the senior secured credit facility or otherwise in an amount
sufficient to enable us to make payments on our debt, or to fund other liquidity needs. We may need
to refinance all or a portion of our debt, on or before the maturity thereof. We may not be able
to refinance any of our debt, including the senior secured credit facility and the senior
subordinated notes, on commercially reasonable terms, or at all.
In addition, if for any reason we are unable to meet our debt service obligations, we would be
in default under the terms of the debt agreements. If such a default were to occur, the lenders
under the senior secured credit facility could elect to declare all amounts outstanding under the
facility immediately due and payable, and the lenders would not be obligated to continue to extend
loans under the revolving credit facility. In addition, if such a default were to occur, the senior
subordinated notes would become immediately due and payable. The lenders may also elect to have
the rights to all current and future payments received under certain customer contracts assigned to
them. If the amounts outstanding under these debt agreements are accelerated, our assets may not
be sufficient to repay in full the debt obligations to the debt holders, including holders of the
senior subordinated notes.
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The right to receive payments on the senior subordinated notes is effectively subordinated to the
rights of the existing and future secured creditors.
Holders of the senior secured debt will have claims that are prior to claims of the holders of
the senior subordinated notes to the extent of the value of the assets securing the debt. The
senior secured credit facility is secured by liens on substantially all of our assets and a pledge
of all of our capital stock and all of the capital stock of our domestic subsidiaries. The senior
subordinated notes are effectively subordinated to all of our secured debt. In the event of any
distribution or payment of our assets or any pledged capital stock in any foreclosure, dissolution,
winding-up, liquidation, reorganization or other bankruptcy proceeding, holders of secured debt
will have prior claims to those of our assets and any pledged capital stock that constitute their
collateral. Holders of the senior subordinated notes will participate ratably with all holders of
our unsecured debt that is deemed to be of the same class as the senior subordinated notes, and
potentially with all of our other general creditors, based upon the respective amounts owed to each
holder or creditor, in our remaining assets. In any of the foregoing events, there may not be
sufficient assets to pay amounts due on the senior subordinated notes. As a result, holders of the
senior subordinated notes may receive less, ratably, than holders of secured debt.
If we default on our obligations to pay our other debt, we may not be able to make payments on the
senior subordinated notes.
Any default under the debt agreements, including a default under the senior secured credit
facility that is not waived by the holders, and the remedies sought by the holders of such debt,
could make us unable to pay principal, premium, if any, and interest on the senior subordinated
notes and substantially decrease the market value of the senior subordinated notes. If we are
unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet
required payments of principal, premium, if any, and interest on our debt, or if we otherwise fail
to comply with the various covenants, including financial and operating covenants, in the
instruments governing our debt (including our senior secured credit facility), we could be in
default under the terms of the agreements governing such debt. In the event of such default, the
holders of such debt could elect to declare all the funds borrowed there under to be due and
payable, together with accrued and unpaid interest, the lenders under our senior secured credit
facility could elect to terminate their commitments, cease making further loans and institute
foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.
If our operating performance declines, we may in the future need to seek to obtain waivers from the
required lenders under the senior secured credit facility or other debt we may incur in the future
to avoid being in default. If we breach our covenants under the senior secured credit facility and
seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we
would be in default under the senior secured credit facility, the lenders could exercise their
rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable
to repay debt, lenders having secured obligations, such as the lenders under the senior secured
credit facility, could proceed against the collateral securing the debt. If the debt under the
senior subordinated notes or under the senior secured credit facility or any of our other debt is
accelerated, we may be unable to repay or finance the amounts due because the governing indenture
has customary cross default provisions.
Our substantial debt and the restrictive covenants governing the debt impose significant operating
and financial restrictions which may prevent us from capitalizing on business opportunities and
taking some actions.
The indenture governing the senior subordinated notes and the senior secured credit facility
contain customary restrictions on our activities, including covenants that restrict us from:
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incurring additional debt and issuing preferred stock; |
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creating liens on our assets; |
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making certain investments or other restricted payments; |
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consolidating or merging with, or acquiring, another business; |
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selling or otherwise disposing of our assets; |
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paying dividends and making other distributions with respect to capital stock, or
repurchasing, redeeming or retiring capital stock or subordinated debt; and |
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entering into transactions with our affiliates. |
Our senior secured credit facility requires us to meet certain financial ratios. We may not be
able to maintain these ratios and if we fail to be in compliance with these requirements, we will
not be able to borrow the full amount available under the senior secured revolving credit facility.
These restrictions may prevent us from taking actions that we believe would be in the best
interest of our business and may make it difficult for us to successfully execute our business
strategy or effectively compete with companies that are not similarly restricted. We also may incur
future debt obligations that might subject us to
additional restrictive covenants that could affect our financial and operating flexibility. We may
not be granted waivers or amendments to these agreements if for any reason we are unable to comply
with the debt agreements, and we may not be able to refinance our debt on terms acceptable to us,
or at all. The breach of any of these covenants and restrictions could result in a default. An
event of default under the debt agreements would permit some of our lenders to declare all amounts
borrowed from them to be due and payable.
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We may not have the ability to raise the funds necessary to finance the change of control offer
required by the indenture governing the senior subordinated notes.
Upon the occurrence of certain kinds of change of control events, we will be required to offer
to repurchase the outstanding senior subordinated notes at 101% of the principal amount thereof
plus accrued and unpaid interest to the date of repurchase. However, it is possible that we will
not have sufficient funds at the time of a change of control to make the required repurchase of the
senior subordinated notes or that restrictions in our senior secured credit facility will not allow
such repurchases. Our failure to purchase the tendered senior subordinated notes would constitute
an event of default under the indenture governing the senior subordinated notes which, in turn,
would constitute a default under our senior secured credit facility. In addition, the occurrence of
a change of control would constitute an event of default under the senior secured credit facility.
A default under the senior secured credit facility would result in a default under the senior
subordinated notes indenture if the lenders accelerate the debt under the senior secured credit
facility.
Moreover, the senior secured credit facility restricts, and any future debt we incur may
restrict, our ability to repurchase the senior subordinated notes, including following a change of
control event. As a result, following a change of control event, we would not be able to repurchase
the senior subordinated notes unless we first repay all debt outstanding under the senior secured
credit facility and any of our other debt that contains similar provisions, or obtain a waiver from
the holders of such debt to permit us to repurchase the senior subordinated notes. We may be unable
to repay all of that debt or obtain a waiver of that type. Any requirement to offer to repurchase
the outstanding senior subordinated notes may therefore require us to refinance our other
outstanding debt, which we may not be able to do on commercially reasonable terms, if at all. These
repurchase requirements may also delay or make it more difficult for others to obtain control of
us.
The senior subordinated notes are structurally subordinated to all obligations of our non-guarantor
subsidiaries.
The senior subordinated notes are not guaranteed by any of our current or future foreign
subsidiaries. As a result of this structure, the senior subordinated notes are structurally
subordinated to all debt and other obligations, including trade payables, of our non-guarantor
subsidiaries. The effect of this subordination is that, in the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding involving a non-guarantor subsidiary, the assets
of that subsidiary cannot be used until all other claims against that subsidiary, including trade
payables, have been fully paid.
Our controlling equity holder may take actions that conflict with interests of debt holders.
90% of the voting power of our equity is held by The Veritas Capital Fund III, L.P. (Veritas
Capital). As controlling equity holder, Veritas Capital controls the power to elect directors and
officers, to appoint new management and to approve actions requiring the approval of holders of our
equity, including adopting amendments to constituent documents and approving mergers, acquisitions
or sales of all or substantially all of our assets. The controlling equity holder has the
authority, subject to the terms of our debt agreements, to issue additional debt or equity, declare
dividends and make other decisions about our equity.
In addition, the interests of the controlling equity holder could conflict with interests of
debt holders. For example, if we encounter financial difficulties or are unable to pay our debts
as they mature, the interests of the controlling equity holder might conflict with interests of
debt holders. Our controlling equity holders also may have an interest in pursuing acquisitions,
divestitures, financings or other transactions that could enhance the equity investment, even
though such transactions might involve risks to the debt holders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
18
ITEM 2. PROPERTIES
We lease commercial office facilities in the United States and foreign countries in connection
with the services we provide for customers. Upon expiration of the leases, we do not anticipate
difficulty in obtaining renewals or alternative space. We believe that substantially all of our
property and equipment is in good condition, subject to normal wear and tear, and that our
facilities have sufficient capacity to meet the current and anticipated needs of our business. We
do not own any real estate.
A summary of the locations of leased office facilities, net of subleases, at December 31,
2010, follows:
|
|
|
|
|
|
|
Square |
|
|
|
Feet |
|
United States |
|
|
|
|
Arlington, Virginia (corporate headquarters) |
|
|
68,833 |
|
Chicago, Illinois |
|
|
22,801 |
|
Coralville, Iowa |
|
|
103,947 |
|
Corbin, Kentucky |
|
|
35,270 |
|
Falls Church, Virginia |
|
|
32,680 |
|
Herndon, Virginia |
|
|
18,921 |
|
Lawrence, Kansas |
|
|
174,000 |
|
Owings Mills, Maryland |
|
|
19,278 |
|
Phoenix, Arizona |
|
|
162,343 |
|
Richmond, Virginia |
|
|
123,199 |
|
Tampa, Florida |
|
|
99,039 |
|
Warrenton, Virginia |
|
|
45,585 |
|
West Des Moines, Iowa |
|
|
36,194 |
|
York, Pennsylvania |
|
|
32,200 |
|
All other |
|
|
33,876 |
|
|
|
|
|
|
|
|
1,008,166 |
|
|
|
|
|
Foreign Locations |
|
|
|
|
Canada |
|
|
41,752 |
|
United Kingdom |
|
|
203,971 |
|
|
|
|
|
|
|
|
245,723 |
|
|
|
|
|
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings, investigations and claims arising out of the
ordinary course of business and accrues a liability if an unfavorable outcome is probable. In the
opinion of management, resolution of such matters is not expected to have a material effect on the
Companys results of operations and cash flows or financial position.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
There is no established public trading market for our common stock. All of our outstanding
shares of common stock are held by our parent. We have not declared a dividend on our common stock.
We are generally restricted from paying dividends under the senior secured credit facility
covenants and the indenture for the senior subordinated notes.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Successor Entity for the years ended December 31, 2010, 2009
and 2008, and for the period February 15 to December 31, 2007, have been derived from Vangents
consolidated financial statements. Financial data for the Predecessor Entity for the period January
1 to February 14, 2007 and for the year ended December 31, 2006 have been derived from carve-out
financial statements based on the historical accounting records of Pearson Government Solutions
Business. Prior to the acquisition of Pearson Government Solutions by Veritas Capital and its
affiliates (Vangent Acquisition), there was no direct ownership relationship among the operations
comprising the business.
19
Selected financial data follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Entity (1) |
|
|
|
Predecessor Entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
February 15 to |
|
|
|
January 1 to |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
February 14 |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
2007 |
|
|
2006 |
|
Statements of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
761,841 |
|
|
$ |
583,986 |
|
|
$ |
532,049 |
|
|
$ |
427,129 |
|
|
|
$ |
55,514 |
|
|
$ |
499,387 |
|
Cost of revenue |
|
|
639,377 |
|
|
|
490,500 |
|
|
|
440,495 |
|
|
|
356,241 |
|
|
|
|
45,411 |
|
|
|
394,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
122,464 |
|
|
|
93,486 |
|
|
|
91,554 |
|
|
|
70,888 |
|
|
|
|
10,103 |
|
|
|
105,100 |
|
General and administrative expenses |
|
|
45,354 |
|
|
|
40,387 |
|
|
|
46,440 |
|
|
|
40,267 |
|
|
|
|
9,219 |
|
|
|
43,117 |
|
Selling and marketing expenses |
|
|
19,905 |
|
|
|
18,003 |
|
|
|
14,930 |
|
|
|
13,284 |
|
|
|
|
1,766 |
|
|
|
17,898 |
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
5,320 |
|
|
|
11,227 |
|
|
|
13,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
51,885 |
|
|
|
23,869 |
|
|
|
16,418 |
|
|
|
17,337 |
|
|
|
|
(882 |
) |
|
|
44,085 |
|
Interest expense, net |
|
|
31,140 |
|
|
|
34,289 |
|
|
|
35,244 |
|
|
|
33,418 |
|
|
|
|
6 |
|
|
|
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
20,745 |
|
|
|
(10,420 |
) |
|
|
(18,826 |
) |
|
|
(16,081 |
) |
|
|
|
(888 |
) |
|
|
43,231 |
|
Provision (benefit) for income taxes |
|
|
(31,486 |
) |
|
|
6,794 |
|
|
|
4,939 |
|
|
|
6,151 |
|
|
|
|
(275 |
) |
|
|
16,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
52,231 |
|
|
|
(17,214 |
) |
|
|
(23,765 |
) |
|
|
(22,232 |
) |
|
|
|
(613 |
) |
|
|
27,123 |
|
Income (loss) from discontinued
operations, net of tax |
|
|
(12,228 |
) |
|
|
(16,794 |
) |
|
|
(2,742 |
) |
|
|
183 |
|
|
|
|
238 |
|
|
|
1,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
40,003 |
|
|
|
(34,008 |
) |
|
|
(26,507 |
) |
|
|
(22,049 |
) |
|
|
|
(375 |
) |
|
|
28,615 |
|
Net loss attributed to noncontrolling
interest |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Vangent |
|
$ |
40,029 |
|
|
$ |
(34,008 |
) |
|
$ |
(26,507 |
) |
|
$ |
(22,049 |
) |
|
|
$ |
(375 |
) |
|
$ |
28,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,194 |
|
|
$ |
44,638 |
|
|
$ |
19,446 |
|
|
$ |
23,831 |
|
|
|
$ |
1,478 |
|
|
$ |
9,562 |
|
Working capital |
|
|
63,337 |
|
|
|
76,179 |
|
|
|
75,272 |
|
|
|
69,439 |
|
|
|
|
72,061 |
|
|
|
60,024 |
|
Total assets |
|
|
669,735 |
|
|
|
640,229 |
|
|
|
666,274 |
|
|
|
694,068 |
|
|
|
|
605,087 |
|
|
|
596,776 |
|
Long-term debt |
|
|
406,754 |
|
|
|
420,366 |
|
|
|
420,366 |
|
|
|
420,875 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
157,371 |
|
|
|
109,863 |
|
|
|
144,637 |
|
|
|
180,289 |
|
|
|
|
541,853 |
|
|
|
529,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flow Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
70,891 |
|
|
|
40,387 |
|
|
|
18,410 |
|
|
|
30,847 |
|
|
|
|
(18,896 |
) |
|
|
14,378 |
|
Investing activities |
|
|
(73,118 |
) |
|
|
(15,783 |
) |
|
|
(13,530 |
) |
|
|
(622,612 |
) |
|
|
|
(3,727 |
) |
|
|
(15,885 |
) |
Financing activities |
|
|
(15,804 |
) |
|
|
(188 |
) |
|
|
(8,088 |
) |
|
|
617,803 |
|
|
|
|
13,271 |
|
|
|
9,110 |
|
|
|
|
(1) |
|
As a result of the purchase method of accounting and the valuation of assets and liabilities
at fair value in
connection with the Vangent Acquisition in February 2007, the results of operations for the
Successor Entity are not comparable with the Predecessor Entity. The new basis of accounting and
related financing has a significant effect on the results of operations of the Successor Entity and
reflects: |
|
|
|
Amortization of intangible assets included in cost of revenue. |
|
|
|
Interest expense on long-term debt. |
|
|
|
The effect of a tax valuation allowance on the provision for income taxes. |
20
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of
operations should be read in conjunction with the consolidated financial statements and the notes
thereto contained elsewhere in this annual report on Form 10-K. Refer also to Item 1A Risk
Factors and Forward Looking Statements for a discussion of risks and uncertainties that could
affect our business, financial condition or results of operations.
Overview
We are a leading provider of information management and business process outsourcing services
to several U.S. public health care and other civilian government agencies, as well as selected U.S.
defense and intelligence agencies, foreign governments and private sector entities. We design,
build and operate mission-critical systems and processes to seamlessly deliver vital information,
services and programs to our customers and their constituents. Most of our revenue is generated
from long-term contracts that typically have duration of approximately five years, including option
years. As of December 31, 2010, our total contract backlog was $1.9 billion, compared with $2.1
billion at the end of 2009.
The Department of Health and Human Services (HHS) represented 36%, the Department of
Commerce (DoC) represented 24%, and the Department of Education (DoED) represented 13% of total
revenue for 2010. We manage our business through three segments: the Government Group; the
International Group; and the Human Capital Group.
The Government Group is our largest segment and has many years of experience in providing
information management and business process outsourcing to several civilian and defense agencies of
the federal government, including a 30-year history with the Department of Education, over 10 years
with the Defense Information Systems Agency and nine years with the Centers for Medicare and
Medicaid Services (CMS). The Government Group is also responsible for the development,
management, analysis and dissemination of healthcare information to the public sector and is one of
the largest non-government providers of health information in the United States. The operations of
Buccaneer acquired in mid September 2010 are part of the Government Group. The Government Group
represented 90% of total revenue for 2010.
The International Group serves government customers in the United Kingdom and Canada and
provides consulting, systems integration, business process outsourcing, and the management of data,
identity, revenue and human capital. The International Group continuing operations represented 7%
of total revenue for 2010. Business operations in Latin America, formerly part of the International
Group, are classified as discontinued operations in the consolidated financial statements. Our
operations in Argentina and Mexico were sold in 2010 and our operations in Venezuela were sold in
February 2011.
The Human Capital Group designs, builds, and operates workforce solutions that automate and
improve the recruitment, assessment, selection, training and development of a customers workforce.
We provide solutions that automate pre-employment screening which improves the quality and
retention of new employees and reduces the cost and time associated with workforce planning and
hiring. The Human Capital Group represented 3% of total revenue for 2010.
Buccaneer Acquisition in September 2010
In September 2010, Vangent acquired Buccaneer Computer Systems & Service, Inc. (Buccaneer
Acquisition). Buccaneer is a leading provider of IT services, infrastructure, secure data hosting
and data analytics for the government healthcare market. Vangent acquired all outstanding shares of
Buccaneer stock in exchange for purchase consideration of $64.6 million. Vangent funded the $60.0
million paid at closing with available cash of $44.0 million and a variable-rate borrowing of $16.0
million drawn on its senior secured revolving credit facility. The revolving credit borrowing was
repaid in full in December 2010.
21
The Buccaneer Acquisition has been accounted for under the acquisition method of accounting
which
requires the total purchase consideration to be allocated to the assets acquired and
liabilities assumed based on estimates of fair value. The excess of the purchase consideration over
the amounts assigned to tangible or intangible assets acquired and liabilities assumed is
recognized as goodwill.
Acquisition of Aptiv Technology Partners in 2008
In 2008 Vangent purchased the government health integration group assets of Aptiv Technology
Partners for cash consideration of $3.9 million, including acquisition fees. The acquisition
further strengthens our ability to serve government and commercial health customers with the latest
technology and consulting expertise.
Vangent Acquisition in February 2007
In February 2007, Vangent Holding Corp. consummated the acquisition of all of the equity
interests of Pearson Government Solutions, Inc., a 100%-owned subsidiary of Pearson, and the
domestic and international affiliates of Pearson Government Solutions, Inc. engaged in the
consulting, systems integration and business processing outsourcing business operated by the
Pearson Government Solutions operating unit of Pearson and the other seller entities (Vangent
Acquisition).
The total purchase consideration paid to Pearson for the Vangent Acquisition was $638.5
million and included: (i) $560.0 million in cash; (ii) $35.0 million in Series A preferred stock of
Vangent Holding Corp.; (iii) $5.0 million in Series B preferred stock of Vangent Holding Corp.; and
(iv) 10% of the Class A membership interests in Vangent Holding LLC. Vangent Holding LLC holds 100%
of the common stock, but none of the preferred stock, in Vangent Holding Corp.
Accounting for the Vangent Acquisition was based in part on the portion of Pearsons
(continuing stockholder) basis in Vangent represented by its 10% residual interest assigned to
the assets and liabilities acquired. The remainder of the investment in the assets and liabilities
acquired by Vangent Holding Corp. (the remaining 90%) was recorded at fair value. As a result, the
assets and liabilities were assigned new values which include part carryover basis and part fair
value basis. Goodwill of $301.9 million resulted from the Vangent Acquisition.
Discontinued Operations
At the end of 2009, Vangent completed an evaluation of its international business and made the
determination to sell its business operations in Latin America that are reported as discontinued
operations in the consolidated financial statements. Sales of business operations in Argentina and
Mexico were completed in 2010, and the sale of operations in Venezuela was completed in February
2011 to complete the disposal of discontinued operations.
Factors Affecting Our Results of Operations
Our results of operations are affected by a number of factors, including but not limited to,
the following:
Nature of Our Contracts
Contracts funded by U.S. government agencies represented 88% of total revenue for 2010,
compared with 84% for 2009. Revenue from contracts in which we acted as the prime contractor
represented 68% of total revenue, a reduction from 85% for 2009 due to subcontract work performed
on the U.S. 2010 Census contract. The continuation and renewal of our existing government contracts
and new government contracts are, among other things, contingent upon the availability of adequate
funding for the various federal government agencies with which we do business. Revenue generated by
the Government Group reflects our continuing strategic emphasis on the development of enhanced
information management and business process outsourcing solutions across the U.S. government with a
particular focus in the health, education, national security, and intelligence related fields.
22
We have cost-plus, fixed-price and time and materials contracts. Fixed-priced contracts
generally offer a higher profit margin opportunity but involve higher risks associated with
potential cost overruns. Revenue from each type of contract as a percent of total revenue follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cost-plus |
|
|
66 |
% |
|
|
55 |
% |
|
|
51 |
% |
Fixed-price |
|
|
30 |
% |
|
|
41 |
% |
|
|
43 |
% |
Time and materials |
|
|
4 |
% |
|
|
4 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
The increases in the percentage of revenue from cost-plus contracts for 2010 resulted from the
U.S. 2010 Census contract.
Cost of Revenue
Cost of revenue includes labor, facilities, other direct contract costs, overhead, management
and support, amortization of intangible assets, depreciation of property and equipment, and other
costs attributable to serving our customers. Labor includes salaries, wages and related employee
benefits associated with the professional and customer service staff. Facilities costs include rent
for commercial office space and a portion of headquarters costs. Other direct contract costs
include travel, hardware and software, and costs of subcontractors.
General and Administrative Expenses and Selling and Marketing Expenses
General and administrative expenses are not directly associated with performing work for our
customers and include salaries and wages, associated fringe benefits, facilities, depreciation,
travel, and insurance. Among the functions covered by general and administrative expenses are human
resources, information systems, accounting, general management, legal, finance, contracts, and
purchasing. Selling and marketing expenses for the sales and business development group include
salaries, wages and commissions, associated fringe benefits, facilities, travel, and bid and
proposal expenses. Most of these expenses qualify as allowable costs under the cost accounting
standards for contracting with the federal government.
Income Taxes
In connection with the Buccaneer Acquisition in 2010 and the Vangent Acquisition in 2007,
elections under Section 338(h) (10) of the Internal Revenue Code significantly increased the tax
basis of U.S. assets resulting in tax deductions for the amortization of intangibles and goodwill.
The deductions significantly contribute to the net operating loss carryforward that is available to
reduce future cash taxes.
Contract Backlog
Total contract backlog is the amount of revenue we expect to realize over the remaining term
of the contracts. We include in backlog task orders awarded, but not contract ceiling values, under
government-wide acquisition contracts or indefinite delivery, indefinite quantity contracts. Funded
backlog is the portion for which funding has been authorized. Most of our federal government
contracts allow the customer the option of extending the period of performance for a period of one
or more years. A summary of contract backlog by business segment follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Total |
|
|
Funded |
|
|
Total |
|
|
Funded |
|
Government Group |
|
$ |
1,629.2 |
|
|
$ |
241.3 |
|
|
$ |
1,782.6 |
|
|
$ |
313.4 |
|
International Group |
|
|
251.9 |
|
|
|
161.8 |
|
|
|
291.2 |
|
|
|
196.8 |
|
Human Capital Group |
|
|
13.2 |
|
|
|
13.2 |
|
|
|
7.1 |
|
|
|
7.1 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
44.9 |
|
|
|
44.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,894.3 |
|
|
$ |
416.3 |
|
|
$ |
2,125.8 |
|
|
$ |
562.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The net change in total contract backlog from December 31, 2009, reflects revenue earned on major
contracts awarded in prior years, including contracts with the Centers for Medicare and Medicaid
Services and the U.S. 2010 Census contract, and a slowdown in the level of U.S. government contract
awards, partially offset by the addition of backlog from the Buccaneer Acquisition.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in the notes to the consolidated financial
statements. A number of our accounting policies require the application of significant judgment by
management, and such judgments are reflected in the amounts reported in the consolidated financial
statements. In applying these policies, management uses its judgment to determine the appropriate
assumptions to be used in the determination of estimates. Estimates and assumptions are based upon
what we believe is the best information available, historical experience, the terms of existing
contracts, observations of trends in the industry, information provided by our customers, and
information available from other outside sources. Estimates and assumptions could change materially
as conditions within and beyond our control change. We evaluate the estimates and judgments
relating to critical accounting policies on an ongoing basis, including those related to revenue
recognition, amortization of intangible assets, goodwill, equity-based compensation, and income
taxes. Actual results may differ significantly from the estimates reflected in the consolidated
financial statements. We believe the following are our critical accounting policies.
Revenue Recognition and Cost Estimation on Long-Term Contracts
Revenue is derived primarily from contracts with the U.S. Government. Revenue from service
contracts is recognized when earned, generally as work is performed in accordance with the FASB
Accounting Standards Codification Topic 605-10, Revenue Overall (Securities and Exchange
Commission, Staff Accounting Bulletin No. 104, Revenue Recognition). Revenue is recognized when
persuasive evidence of an arrangement exists, services have been rendered, the contract price is
fixed or determinable, and collectibility is reasonably assured.
Contracts with customers are fixed-price, cost-plus, or time-and-materials contracts. Revenue
and profit on fixed-price service contracts under which the Company is paid a specific amount to
provide services are recognized ratably as services are performed or as units are delivered.
Revenue and profit under cost-plus service contracts is recognized as costs are incurred plus
negotiated fees. Fixed fees on cost-plus service contracts are recognized ratably over the contract
performance period as services are performed. Incentive fees on cost-plus service contracts are
recognized when awarded by the customer or, if based on successful completion of measurable
objectives determinable as of the reporting date, are recognized ratably over the contract
performance period. Revenue for time-and-materials contracts is recognized on the basis of
allowable labor hours multiplied by the contracted billing rates, plus costs for items used in the
performance of the contract. Profit on time-and-materials contracts result from the difference
between the cost of services performed and the contracted billing rates for these services.
Revenue and profit on fixed-price systems development contracts within the scope of the FASB
Accounting Standards Codification Topic 605-35, Revenue Recognition Construction-Type and
Production-Type Contracts (formerly Statement of Position No. 81-1, Accounting for Performance of
Construction Type and Certain Production-Type Contracts), are recognized under the
percentage-of-completion method based on the ratio of actual costs incurred to the total estimated
costs at completion of the contract, multiplied by estimated total contract revenue. Provision for
the full amount of an anticipated loss on a contract is recognized in the period in which the loss
becomes probable and can be reasonably estimated.
Revenue recognition requires significant judgment relative to assessing risks, estimating
contract revenue and costs, and assumptions for schedule and technical issues. Due to the size and
nature of contracts, estimates of revenue and costs are subject to a number of variables. Contract
costs include labor and related employee benefits, subcontracting costs and other direct costs, as
well as allocations of allowable indirect costs. For contract change orders, claims or similar
items, judgment is required for estimating the amounts, assessing the potential for realization,
and determining whether realization is probable. From time to time, facts develop that require
revisions of revenue recognized or cost estimates. To the extent that a revised estimate affects
the current or an earlier period, the cumulative effect of the revision is recognized in the period
in which the facts requiring the revision become known. Contracts may include a combination of one
or more services or deliverables. Judgment is required to determine if a contract with more than
one element should be considered separate units of accounting with revenue allocated to each
element.
24
Invoices to customers are prepared in accordance with the terms of the contract which may not
be directly related to the performance of services or the recognition of revenue. Unbilled
receivables are invoiced to customers based upon the achievement of specific criteria defined by
the contract including deliverables, milestones, timetables, or the incurrence of certain costs.
Payments received from customers in advance of delivery or the performances of services are
classified as deferred revenue. Reimbursements of certain costs, including certain hardware costs
or out-of-pocket expenses are included in revenue with corresponding costs included in cost of
revenue as costs are incurred.
Definite-Life Intangible Assets
Definite-life intangible assets are amortized over their estimated useful lives. The
intangible asset for customer relationships resulting from the Buccaneer Acquisition in 2010 is
amortized based on an accelerated method. Amortization of intangible assets is included in cost of
revenue in the consolidated statements of operations. The carrying amount of definite-life
intangible assets is evaluated when events and circumstances indicate a potential impairment. The
carrying amount is considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying amount. A loss is recognized based on the
amount by which the carrying amount exceeds fair value. Fair value is determined primarily using
estimated cash flows associated with the asset, discounted at a rate commensurate with the risk
involved. Changes in estimates of future cash flows could result in impairment in a future period.
Goodwill and Indefinite-Life Intangible Asset
Goodwill is that amount by which the cost of an acquired business exceeds the fair value of
assets acquired and liabilities assumed. In connection with the Vangent Acquisition in February
2007, goodwill was initially allocated to the business segments as follows: Government Group $247.7
million, International Group $22.7 million and Human Capital Group $19.2 million; in addition, an
indefinite-life intangible asset amounting to $11.2 million was initially recorded for the Human
Capital Group. In 2010 the Buccaneer Acquisition added goodwill of $30.5 million for the Government
Group.
The Company tests goodwill and the indefinite-life intangible asset for each reporting unit,
or segment, on an annual basis in the fourth quarter of each year or more frequently if indicators
of impairment exist. If the fair value of the indefinite-life intangible asset exceeds its carrying
amount, the asset is not considered impaired. The impairment test for goodwill is a two-step
process. The first step compares the fair value of the reporting unit with its carrying amount,
including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is
not considered impaired. If the carrying amount for a reporting unit exceeds its fair value, the
second step of the impairment test is performed to determine the amount of the impairment loss by
comparing the fair values of goodwill with the carrying amount. Fair values are determined using an
income approach based on a discounted cash flow methodology. The Company considers and relies, in
part, on reports of a third-party expert to determine the fair values.
In the fourth quarter of 2010, the Company performed the annual impairment tests and recorded
impairment charges totaling $5.3 million for the Human Capital group. The indefinite-life
intangible asset and goodwill were impaired by $3.8 million and $1.5 million, respectively, as a
result of the recession in the United States and continuing high unemployment levels that have
reduced hiring and processing needs of human resource departments of commercial customers in the
Human Capital Group. As a result of impairment charges, the balance of goodwill for the
International Group has been reduced to $9.2 million, and for the Human Capital Group goodwill has
been reduced to $7.0 million and the indefinite-life intangible asset reduced to $6.5 million at
December 31, 2010.
The process of evaluating the impairment of goodwill and the indefinite-life intangible asset
is subjective and requires significant judgment at many points during the analysis. In estimating
fair values of the reporting units for the annual evaluation, estimates and judgments are developed
about the future cash flows for each of the reporting units, including estimated long-term growth
rates, the level and timing of future cash flows, discount rates and assumptions about the future
economic and operating environment. Although cash-flow forecasts are based on assumptions that are
consistent with plans and estimates that are used to manage the business segments, there is
significant judgment in determining the cash flows attributable to reporting units over the
forecast period. We cannot be certain that a future downturn in any of our businesses or adverse
changes in market conditions compared with
our estimates and assumptions will not result in future impairment charges. Failure to achieve
forecast operating results due to further weakness in the economic environment or other factors
could result in future impairment charges.
25
Equity-Based Compensation
Vangent charges equity-based compensation expense for awards of Class B or B-1 membership
interests in Vangent Holding LLC granted to certain employees and independent directors. Vangent
Holding LLC holds 100% of the common stock, but none of the preferred stock, of Vangent Holding
Corp. which in turn owns 100% of Vangents common stock. The Class B or B-1 membership interests
represent net profits interests in Vangent Holding LLC and are considered equity-based awards.
Holders of Class B or B-1 membership interests are entitled to receive their respective
proportional interest in distributions made by Vangent Holding LLC, provided the holders of the
Class A membership interests have received an 8% per annum internal rate of return on their
invested capital. Equity-based compensation expense is amortized on a straight line basis over the
total requisite service period for the award. The fair value of grants of Class B or B-1membership
interests is determined by management using an income approach based on a cash flow methodology,
less a discount for lack of liquidity. The Company considers and relies, in part, on reports of
third-party experts in the determination of fair value of grants of Class B or B-1 membership
interests.
Income Taxes and Tax Valuation Allowance
The Company accounts for income taxes based on an asset and liability approach that is used
for the recognition of deferred tax assets and liabilities for the expected future tax consequences
attributable to differences between the carrying amounts of assets and liabilities for financial
reporting purposes and their respective tax bases, including net operating loss carryforwards.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences of
temporary differences and are measured using enacted statutory tax rates applicable to the future
years in which the deferred amounts are expected to be settled or realized. The effect of a change
in tax rates is recognized in the provision for income tax in the period the change in rates is
enacted.
A purchase accounting tax valuation allowance was established in 2007 in connection with the
Vangent Acquisition, and a full valuation allowance was provided against U.S. deferred tax assets
at December 31, 2008 and 2009. A valuation allowance is recorded against deferred tax assets when
it is more likely than not that a tax benefit will not be realized in the future. The assessment
for a valuation allowance requires judgment on the part of management with respect to tax benefits
that may be realized. The Company considers all available positive and negative evidence, including
future reversals of temporary differences, projected future taxable income, tax planning
strategies, and recent financial results. The Company has recently experienced positive trends in
its continuing operating performance, and the positive trends are likely to continue in future
periods. The Company has concluded at December 31, 2010, based upon all available evidence, that it
is more likely than not that U.S. deferred tax assets will be realizable, except for the portion
relating to a net capital loss carryforward resulting from the sales of discontinued operations in
Latin America. Accordingly, the tax valuation allowance against deferred tax assets was reversed in
2010 since realization is believed to be more likely than not. The reduction to the tax valuation
allowance is recorded as an adjustment to the provision for income taxes for 2010.
Discontinued Operations
Vangent completed an evaluation of its international business and made the determination to
sell its business operations in Latin America that are reported as discontinued operations in the
consolidated financial statements. Charges for expected losses on sale or disposal were recorded
based on a comparison of estimates of fair values for each of the discontinued operations with the
related carrying amounts. Fair values were initially determined using an income approach based on a
discounted cash flow methodology. The Company considered and relied, in part, on reports of a
third-party expert to determine the initial estimates of fair values. Fair value estimates were
revised and additional charges for expected losses on sale or disposal were recorded based on bids
and letters of intent received from market participants in the Latin American countries. Expected
losses were adjusted to actual as a result of sales of business operations in Argentina and Mexico
that were completed in 2010, and the sale of operations in Venezuela that was completed in February
2011.
26
Results of Operations
Statements of operations data follow (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase |
|
|
December 31. |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
Statements of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
761,841 |
|
|
$ |
583,986 |
|
|
$ |
177,855 |
|
|
$ |
583,986 |
|
|
$ |
532,049 |
|
|
$ |
51,937 |
|
Cost of revenue |
|
|
639,377 |
|
|
|
490,500 |
|
|
|
148,877 |
|
|
|
490,500 |
|
|
|
440,495 |
|
|
|
50,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
122,464 |
|
|
|
93,486 |
|
|
|
28,978 |
|
|
|
93,486 |
|
|
|
91,554 |
|
|
|
1,932 |
|
General and administrative expenses |
|
|
45,354 |
|
|
|
40,387 |
|
|
|
4,967 |
|
|
|
40,387 |
|
|
|
46,440 |
|
|
|
(6,053 |
) |
Selling and marketing expenses |
|
|
19,905 |
|
|
|
18,003 |
|
|
|
1,902 |
|
|
|
18,003 |
|
|
|
14,930 |
|
|
|
3,073 |
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
5,320 |
|
|
|
11,227 |
|
|
|
(5,907 |
) |
|
|
11,227 |
|
|
|
13,766 |
|
|
|
(2,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
51,885 |
|
|
|
23,869 |
|
|
|
28,016 |
|
|
|
23,869 |
|
|
|
16,418 |
|
|
|
7,451 |
|
Interest expense, net |
|
|
31,140 |
|
|
|
34,289 |
|
|
|
(3,149 |
) |
|
|
34,289 |
|
|
|
35,244 |
|
|
|
(955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes |
|
|
20,745 |
|
|
|
(10,420 |
) |
|
|
31,165 |
|
|
|
(10,420 |
) |
|
|
(18,826 |
) |
|
|
8,406 |
|
Provision (benefit) for income taxes |
|
|
(31,486 |
) |
|
|
6,794 |
|
|
|
(38,280 |
) |
|
|
6,794 |
|
|
|
4,939 |
|
|
|
1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
52,231 |
|
|
|
(17,214 |
) |
|
|
69,445 |
|
|
|
(17,214 |
) |
|
|
(23,765 |
) |
|
|
6,551 |
|
Loss from discontinued operations, net of tax |
|
|
(12,228 |
) |
|
|
(16,794 |
) |
|
|
4,566 |
|
|
|
(16,794 |
) |
|
|
(2,742 |
) |
|
|
(14,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
40,003 |
|
|
|
(34,008 |
) |
|
|
74,011 |
|
|
|
(34,008 |
) |
|
|
(26,507 |
) |
|
|
(7,501 |
) |
Net loss attributed to noncontrolling interest |
|
|
(26 |
) |
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Vangent |
|
$ |
40,029 |
|
|
$ |
(34,008 |
) |
|
$ |
74,037 |
|
|
$ |
(34,008 |
) |
|
$ |
(26,507 |
) |
|
$ |
(7,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations Data as a Percent of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
Cost of revenue |
|
|
83.9 |
|
|
|
84.0 |
|
|
|
|
|
|
|
84.0 |
|
|
|
82.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
|
16.1 |
|
|
|
16.0 |
|
|
|
|
|
|
|
16.0 |
|
|
|
17.2 |
|
|
|
|
|
General and administrative expenses |
|
|
6.0 |
|
|
|
6.9 |
|
|
|
|
|
|
|
6.9 |
|
|
|
8.7 |
|
|
|
|
|
Selling and marketing expenses |
|
|
2.6 |
|
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
|
|
2.8 |
|
|
|
|
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
0.7 |
|
|
|
1.9 |
|
|
|
|
|
|
|
1.9 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income margin |
|
|
6.8 |
|
|
|
4.1 |
|
|
|
|
|
|
|
4.1 |
|
|
|
3.1 |
|
|
|
|
|
Interest expense, net |
|
|
4.1 |
|
|
|
5.9 |
|
|
|
|
|
|
|
5.9 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes |
|
|
2.7 |
|
|
|
(1.8 |
) |
|
|
|
|
|
|
(1.8 |
) |
|
|
(3.5 |
) |
|
|
|
|
Provision (benefit) for income taxes |
|
|
(4.2 |
) |
|
|
1.1 |
|
|
|
|
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
6.9 |
|
|
|
(2.9 |
) |
|
|
|
|
|
|
(2.9 |
) |
|
|
(4.5 |
) |
|
|
|
|
Loss from discontinued operations, net of tax |
|
|
(1.6 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
(2.9 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
5.3 |
|
|
|
(5.8 |
) |
|
|
|
|
|
|
(5.8 |
) |
|
|
(5.0 |
) |
|
|
|
|
Net loss attributed to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Vangent |
|
|
5.3 |
% |
|
|
(5.8 |
)% |
|
|
|
|
|
|
(5.8 |
)% |
|
|
(5.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Years Ended December 31, 2010 and 2009
Buccaneer Acquisition
On September 15, 2010, Vangent completed the Buccaneer Acquisition. The results of operations
of Buccaneer for the period September 15 to December 31, 2010, are included in the consolidated
statements of operations and cash flows for the periods ended December 31, 2010. The results of
operations for Buccaneer reflect amortization of acquired intangible assets on an accelerated
method.
Revenue
A summary of revenue by business segment follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
Revenue by business segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
$ |
688,270 |
|
|
$ |
511,482 |
|
|
$ |
176,788 |
|
|
|
35 |
% |
International Group |
|
|
50,435 |
|
|
|
44,194 |
|
|
|
6,241 |
|
|
|
14 |
% |
Human Capital Group |
|
|
25,420 |
|
|
|
33,487 |
|
|
|
(8,067 |
) |
|
|
(24 |
)% |
Elimination |
|
|
(2,284 |
) |
|
|
(5,177 |
) |
|
|
2,893 |
|
|
|
56 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
761,841 |
|
|
$ |
583,986 |
|
|
$ |
177,855 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment revenue as a
percent of total revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
|
90.3 |
% |
|
|
87.6 |
% |
|
|
|
|
|
|
|
|
International Group |
|
|
6.6 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
Human Capital Group |
|
|
3.3 |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
Elimination |
|
|
(0.2 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Department of Health and Human Services (HHS) represented 36%, the Department of
Commerce (DoC) represented 24%, and the Department of Education (DoED) represented 13% of total
revenue for 2010.
Government Group Revenue
The Buccaneer Acquisition completed in mid September 2010 contributed revenue of $34.9 million
for 2010 from the date of acquisition. Revenue from HHS contracts, primarily Centers for Medicare
and Medicaid Services (CMS), represented 83% of Buccaneer revenue for the period.
Other increases in Government Group revenue for 2010 compared with 2009 include: (i) revenue
from DoC contracts increased $152.4 million from the processing of census forms and data capture
under the U.S. 2010 Census contract that was completed in 2010, and (ii) revenue from DoED
increased $13.1 million from additional contract work with the Office of Federal Student Aid.
Revenue from DoD contracts increased $2.0 million for 2010 including an increase of $10.4 million
in revenue from the Single Sign On contract with the Defense Health Information Management System
that was offset by a reduction of $10.5 million in revenue from the Traumatic Brain Injury contract
with the Military Health System.
The increase of 35% in Government Group revenue for 2010 was partially offset by, (i) a
reduction of $9.1 million resulting from the one-time cash-for-clunkers program for the Department
of Transportation in 2009, (ii) a reduction of $7.2 million resulting from the transition to
automated processing of ERISA filings under contracts with the Department of Labor (DoL), and
(iii) a reduction of $7.0 million from HHS contracts, primarily Centers for Medicare and Medicaid
Services (CMS).
28
International Group Revenue
The increase of 14% in International Group revenue for 2010 reflects an increase of $4.4
million from the start up of a major one-year contract in the United Kingdom, partly offset by
reductions from a completed contract and lower volume in Canada. Changes in foreign currency
exchange rates increased revenue by $2.0 million, compared with the average exchange rates
prevailing during 2009.
Human Capital Group Revenue
The reduction of 24% in Human Capital Group revenue reflects a reduction of $12.9 million from
the completion in 2009 of a foreign military sales contract with the U.S. Air Force to modernize
the Royal Saudi Air Force learning infrastructure.
Cost of Revenue
The increase in cost of revenue of $148.9 million, or 30%, primarily reflects costs incurred
for contract work performed under the U.S. 2010 Census contract with DoC that was completed in
2010. Costs for salaries and wages, including incentive compensation costs, increased $67.8
million, or 40%. Costs for employee benefits increased $20.5 million, or 26%. The average number
of employees increased 43% primarily for work performed on the U.S. 2010 Census contract. Incentive
compensation costs increased; incentive compensation costs were minimal for 2009. The Buccaneer
Acquisition completed in mid September 2010 increased costs by $32.4 million for 2010 for
operations from the date of acquisition, including amortization of $1.7 million for acquired
intangible assets, primarily customer relationships, on an accelerated method. Changes in foreign
exchange rates increased costs of the International Group by $1.7 million, compared with the
average exchange rates prevailing during 2009.
General and Administrative Expenses
The increase in general and administrative expenses reflects increased incentive compensation
expense of $5.8 million. Incentive compensation expense is accrued based upon the level of
operating results compared to established targets; there was no incentive compensation expense
accrued for 2009. The Buccaneer Acquisition completed in mid September 2010 increased expenses by
$1.4 million for 2010 for operations from the date of acquisition. Acquisition-related cost and
expenses of $0.6 million from the Buccaneer Acquisition increased expenses for 2010. Legal and
consulting fees increased for 2010.
General and administrative expenses were 6.0% of revenue, compared with 6.9% for 2009. The
reduction reflects revenue earned on the U.S. 2010 Census contract for which there was minimal
incremental general and administrative expenses.
Selling and Marketing Expenses
The increase in selling and marketing expenses reflects higher commission and incentive
compensation expenses and an increase in the number of new business development employees in the
Government Group.
Impairment Charges for Goodwill and Indefinite-Life Intangible Asset
Impairment charges for goodwill and an indefinite-life intangible asset totaled $5.3 million
for 2010 and $11.2 million for 2009. The Company performs the annual impairment test in the fourth
quarter of each year. Goodwill and an indefinite-life intangible asset for the Human Capital Group
were impaired by $5.3 million for 2010 and $3.3 million for 2009 as a result of continuing high
unemployment levels that have reduced hiring and processing needs of human resource departments of
commercial customers. Goodwill for the International Group was impaired by $7.9 million for 2009 as
a result of adverse business conditions and reduced expectations of future operating performance.
29
Operating Income
A summary of operating income by business segment follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2010 |
|
|
2009 |
|
|
Amount |
|
|
Percent |
|
Operating income (loss) by
business segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
$ |
58,399 |
|
|
$ |
36,380 |
|
|
$ |
22,019 |
|
|
|
61 |
% |
International Group |
|
|
1,206 |
|
|
|
(7,379 |
) |
|
|
8,585 |
|
|
|
|
% |
Human Capital Group |
|
|
(7,694 |
) |
|
|
(5,111 |
) |
|
|
(2,583 |
) |
|
|
(51 |
)% |
Corporate |
|
|
(26 |
) |
|
|
(21 |
) |
|
|
(5 |
) |
|
|
(24 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,885 |
|
|
$ |
23,869 |
|
|
$ |
28,016 |
|
|
|
117 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin by business segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
|
8.5 |
% |
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
International Group |
|
|
2.4 |
% |
|
|
(16.7 |
)% |
|
|
|
|
|
|
|
|
Human Capital Group |
|
|
(30.3 |
)% |
|
|
(15.3 |
)% |
|
|
|
|
|
|
|
|
The increase in Government Group operating income primarily reflects work on the U.S. 2010
Census contract with DoC that was completed in 2010. Award fees earned under cost-plus contracts,
including the U.S. 2010 Census contract, increased $14.4 million compared with 2009. Higher revenue
earned on DoED contracts contributed to the increase in operating income for 2010. The Buccaneer
Acquisition completed mid-September 2010 contributed $1.1 million to operating income and reflects
charges for amortization of intangible assets on an accelerated method. The increase in operating
income for 2010 was partly offset by (i) a reduction of $4.9 million from contracts with DoL
resulting from the transition to automated processing of ERISA filings, and (ii) higher accrued
expenses of $6.3 million for incentive compensation compared with 2009 when no incentive
compensation was earned or accrued.
International Group operating income for 2010 reflects the start up of a major one-year
contract in the United Kingdom, partly offset with lower income from Canada. The operating loss for
2009 reflects a goodwill impairment charge of $7.9 million.
The Human Capital Group operating losses reflect impairment charges for goodwill and the
indefinite-life intangible asset of $5.3 million for 2010 and $3.3 million for 2009. Operating
results for 2010 also reflect the adverse impact of lower revenue from completion in 2009 of sales
contract with the U.S. Air Force to modernize the Royal Saudi Air Force learning infrastructure and
lower revenue from reductions in training needs and customer hiring patterns from continued high
unemployment levels.
Interest Expense, Net
The reduction in interest expense, net, of $3.1 million resulted from lower average variable
interest rates on the unhedged portion of the term loan. The average variable rate was 2.4% for
2010, compared with 3.4% for 2009. A portion of the interest rate swap on the hedged portion of the
term loan, under which we pay a fixed rate and receive a variable rate, matured in February 2010;
the increase in the unhedged portion of the term loan benefitted from lower variable rates for
2010, compared with the fixed rate for 2009. The remaining balance of the interest rate swap with a
notional amount of $150.0 million is scheduled to mature in February 2011.
30
Provision for Income Taxes
A summary of the provision for income taxes follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Provision for income taxes before change in
tax valuation allowance |
|
$ |
4,076 |
|
|
$ |
220 |
|
|
$ |
3,856 |
|
Change in tax valuation allowance |
|
|
(35,562 |
) |
|
|
6,574 |
|
|
|
(42,136 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes |
|
$ |
(31,486 |
) |
|
$ |
6,794 |
|
|
$ |
(38,280 |
) |
|
|
|
|
|
|
|
|
|
|
The provision for income taxes is composed of U.S. federal, state and local and foreign income
taxes. The provision for income taxes for 2010 is net of the reversal of the tax valuation
allowance for deferred tax assets. The Company considers all available positive and negative
evidence, including future reversals of temporary differences, projected future taxable income, tax
planning strategies, and recent financial results. The Company has recently experienced positive
trends in its continuing operating performance, and the positive trends are likely to continue in
future periods. The Company has concluded at December 31, 2010, based upon all available evidence,
that it is more likely than not that U.S. deferred tax assets will be realizable, except for the
portion relating to a net capital loss carryforward resulting from the sales of discontinued
operations in Latin America. Accordingly, the tax valuation allowance against deferred tax assets
was reversed in 2010 since realization is believed to be more likely than not. The reduction to the
tax valuation allowance is recorded as an adjustment to the provision for income taxes for 2010.
Discontinued Operations
A summary of revenue and cost and expenses for discontinued operations in Latin America that
are segregated and reported separately in the consolidated financial statements follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Revenue |
|
$ |
24,697 |
|
|
$ |
22,803 |
|
|
$ |
1,894 |
|
Costs and expenses |
|
|
23,600 |
|
|
|
29,894 |
|
|
|
(6,294 |
) |
Losses on sales or disposal and impairment charges |
|
|
22,151 |
|
|
|
9,218 |
|
|
|
12,933 |
|
Other (income) expense, net |
|
|
(1,020 |
) |
|
|
525 |
|
|
|
(1,545 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income
taxes |
|
|
(20,034 |
) |
|
|
(16,834 |
) |
|
|
(3,200 |
) |
Provision (benefit) for income taxes |
|
|
(7,806 |
) |
|
|
(40 |
) |
|
|
(7,766 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
$ |
(12,228 |
) |
|
$ |
(16,794 |
) |
|
$ |
4,566 |
|
|
|
|
|
|
|
|
|
|
|
Revenue and costs and expenses for discontinued operations for 2010 were
affected by the sale of operations in Argentina completed in the third quarter of 2010 and the sale
of operations in Mexico completed in the fourth quarter of 2010. Revenue from a contract with
Mexicos social security agency increased for 2010. However, low member enrollments under the
social security contract resulted in revenue that was below expectations. The social security
contract was in the start up phase and had experienced operational delays in 2009. An increase in
revenue from Mexico was partially offset by the completion of a contract with the Mexican tax
authority in March 2010.
Revenue and costs and expenses are denominated in multiple foreign currencies and are affected
by foreign currency exchange rate changes. Changes in rates, primarily the Mexican Peso, reduced
revenue by $1.1 million, compared with the average rates for 2009.
The reduction in costs and expenses for discontinued operations resulted from sales of
operations in Argentina and Mexico in 2010, the completion of a contract in Mexico in March 2010,
and high costs incurred in 2009 under the contract with Mexicos social security agency that was in
the start up phase and experienced operational delays. Under the accounting for discontinued
operations, there is no depreciation and amortization expense for 2010, compared with $2.1 million
for 2009.
31
Losses on sales or disposal amounted to $22.2 million for 2010 and resulted from reduced
expectations and the completion of sales of operations in Argentina in the third quarter and Mexico
in the fourth quarter of 2010. The valuation of the businesses by market participants was
substantially below expectations as a result of lack of potential buyers and limited competition in
the bidding process. Charges for expected loss on disposal and goodwill impairment totaled $9.2
million for 2009.
Other income from discontinued operations for 2010 includes equity in net income of $1.1
million from a joint venture in Argentina that began operating in the second quarter of 2009.
Years Ended December 31, 2009 and 2008
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Revenue by business segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
$ |
511,482 |
|
|
$ |
454,094 |
|
|
$ |
57,388 |
|
|
|
13 |
% |
International Group |
|
|
44,194 |
|
|
|
48,703 |
|
|
|
(4,509 |
) |
|
|
(9 |
)% |
Human Capital Group |
|
|
33,487 |
|
|
|
29,252 |
|
|
|
4,235 |
|
|
|
14 |
% |
Elimination |
|
|
(5,177 |
) |
|
|
|
|
|
|
(5,177 |
) |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
583,986 |
|
|
$ |
532,049 |
|
|
$ |
51,937 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment revenue as a
percent of total revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
|
87.6 |
% |
|
|
85.3 |
% |
|
|
|
|
|
|
|
|
International Group |
|
|
7.6 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
Human Capital Group |
|
|
5.7 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
Elimination |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Department of Health and Human Services (HHS) represented 44%, the Department of
Education (DoED) represented 15%, and the Department of Defense (DoD) represented 9% of total
revenue for 2009.
The increase in Government Group revenue for 2009 resulted primarily from the following:
|
|
|
Revenue from DoC contracts increased $26.0 million from initial work on the U.S.
2010 Census contract. |
|
|
|
Revenue from DoD contracts increased $18.0 million, primarily from the Military
Health System including a new contract for traumatic brain injury. |
|
|
|
A short-term contract with DoT under the cash-for-clunkers program generated
revenue of $9.1 million for 2009. |
|
|
|
Revenue from a new contract with the Department of State (DoS) generated $9.0
million for initial work on the National Passport Information Center. |
The increases for the Government Group were partially offset by a reduction of $8.0 million in
revenue in the commercial health business as a result of the completion of a major contract and a
reduction of $4.4 million in revenue from HHS contracts from lower call volumes.
The reduction of 9% in International Group revenue reflects the impact of foreign currency
exchange rate changes that reduced revenue by $6.4 million compared with the average exchange rates
prevailing during 2008 and lower volume on Canadian contracts, partially offset by the startup of
two contracts in the United Kingdom.
32
The increase of 14% in Human Capital Group revenue reflects a new foreign military contract
with the U.S. Air Force to modernize the Royal Saudi Air Force learning infrastructure, offset in
part by lower assessment product revenue and training services for various commercial customers due
to reductions in customer hiring patterns and overall economic conditions.
Cost of Revenue
Cost of revenue increased $50.0 million, or 11%, for 2009. The increase reflects additional
contract work performed under U.S. government contracts, partly offset by the effect of changes in
foreign exchange rates that reduced costs of the International Group segment by $5.5 million and
the use of our own employees in lieu of subcontractors on certain contracts. The average number of
employees increased 16% and fringe benefit costs, primarily medical costs, increased for 2009.
The gross profit margin, or the ratio of gross profit to revenue, was 16% for 2009, compared
with 17% for 2008. The reduction resulted primarily from higher costs on fixed price contracts in
the Government Group, and lower assessment product revenue that typically generates a higher gross
profit margin in the Human Capital Group.
General and Administrative Expenses
General and administrative expenses were $6.1 million, or 13%, lower for 2009 compared with
2008. Expenses represented 7% of revenue, compared with 9% for 2008. Expenses for 2008 included a
net charge of $2.0 million resulting from the settlement of a customer contract dispute. There were
no expenses accrued for annual incentive compensation awards for 2009, compared with $6.3 million
accrued for 2008. Incentive compensation expense is accrued based upon the level of operating
results compared to established targets.
Selling and Marketing Expenses
Selling and marketing expenses increased $3.1 million, or 21%, for 2009 and reflect an
increase of 50% in the number of new business development employees primarily within the Government
Group.
Impairment Charges for Goodwill and Indefinite-Life Intangible Asset
Impairment charges for goodwill and an indefinite-life intangible asset totaled $11.2 million
for 2009. In the fourth quarter of 2009, the Company performed its annual impairment test and
determined that goodwill was impaired. Goodwill for the International Group was impaired by $7.9
million as a result of continuing adverse business conditions and reduced expectations of future
operating performance. Goodwill and an indefinite-life intangible asset for the Human Capital Group
were impaired by $2.5 million and $0.8 million, respectively, as a result of high and continuing
unemployment levels that have reduced hiring and processing needs of human resource departments of
commercial customers.
The goodwill impairment charge was $13.8 million for 2008, consisting of $5.6 million for the
International Group and $8.2 million for the Human Capital Group. The International Group was
adversely affected by changes in foreign currency exchange rates vs. the U.S. dollar, lower
operating margins, and the effects of the global recession. The recession and overall economic
weakness coupled with a slowdown in customer orders relating to screening, testing and hiring
adversely affected the Human Capital Group.
33
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase (Decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
Operating income (loss) by business segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
$ |
36,380 |
|
|
$ |
28,987 |
|
|
$ |
7,393 |
|
|
|
26 |
% |
International Group |
|
|
(7,379 |
) |
|
|
(4,163 |
) |
|
|
(3,216 |
) |
|
|
(77 |
)% |
Human Capital Group |
|
|
(5,111 |
) |
|
|
(8,348 |
) |
|
|
3,237 |
|
|
|
39 |
% |
Corporate |
|
|
(21 |
) |
|
|
(58 |
) |
|
|
37 |
|
|
|
64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,869 |
|
|
$ |
16,418 |
|
|
$ |
7,451 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin by business segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
|
7.1 |
% |
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
International Group |
|
|
(16.7) |
% |
|
|
(8.6 |
)% |
|
|
|
|
|
|
|
|
Human Capital Group |
|
|
(15.3) |
% |
|
|
(28.5 |
)% |
|
|
|
|
|
|
|
|
Government Group operating income increased $7.4 million, or 26%, and operating margin
increased to 7.1% for 2009, compared with 6.4% for 2008. Operating income for 2008 was reduced by a
net charge of $2.0 million resulting from the settlement of a customer contract dispute. The net
increase in operating income also reflects initial work on the U.S. 2010 Census contract with DoC,
the new national passport contract with DoS, and increased work on the ERISA contract with DoL. In
addition, incentive compensation expense for 2009 was lower by $6.3 million in 2009 compared to
2008, and award fees earned under cost-plus contracts increased $4.1 million for 2009. The increase
in operating income from these factors was partly offset by higher call volume on student loan
programs that resulted in increased costs and lower operating income under DoED fixed-priced
contracts. Income from the commercial health business declined as a result of completion of a major
contract.
The International Group operating losses reflect goodwill impairment charges of $7.9 million
for 2009 and $5.6 million for 2008. In addition, operating results for 2009 were adversely
affected by lower volume on Canadian contracts.
The Human Capital Group operating losses reflect impairment charges for goodwill and an
indefinite-life intangible asset of $3.3 million for 2009 and $8.2 million for 2008. Operating
results for 2009 also reflect the adverse impact of lower assessment product revenue that typically
generates a higher gross profit margin and lower revenue from training services for various
commercial customers due to reductions in customer hiring patterns from continuing high
unemployment levels.
Interest Expense, Net
Interest expense, net, was $34.3 million for 2009, a reduction of $1.0 million from 2008. A
decline of 1.84% (184 basis points) in the average variable interest rates on the unhedged portion
of the term loan reduced interest expense by $0.8 million for 2009.
Provision for Income Taxes
A summary of the provision for income taxes follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
Provision (benefit) for income taxes before change
in tax valuation allowance |
|
$ |
220 |
|
|
$ |
(5,204 |
) |
|
$ |
5,424 |
|
Change in tax valuation allowance |
|
|
6,574 |
|
|
|
10,143 |
|
|
|
(3,569 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
6,794 |
|
|
$ |
4,939 |
|
|
$ |
1,855 |
|
|
|
|
|
|
|
|
|
|
|
34
The provision for income taxes is composed of U.S. federal, state and local and foreign income
taxes and reflects a tax valuation allowance against U.S. deferred tax assets. The Company has
concluded, based upon available evidence, that it is more likely than not that the U.S. deferred
tax assets at December 31, 2009, will not be realizable. Therefore, a valuation allowance has been
provided. The valuation allowance results primarily from the effect on U.S. net operating losses
from the tax amortization of goodwill. Goodwill is an indefinite life asset that is amortized for
tax purposes, but is not amortized for financial accounting and reporting purposes. Goodwill is
subject to impairment under U.S. GAAP.
Discontinued Operations
A summary of revenue, cost and expenses for discontinued operations that are segregated and
reported separately in the consolidated financial statements follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
22,803 |
|
|
$ |
26,222 |
|
|
$ |
(3,419 |
) |
Costs and expenses |
|
|
30,419 |
|
|
|
25,364 |
|
|
|
5,055 |
|
Impairment charges for goodwill |
|
|
4,253 |
|
|
|
2,985 |
|
|
|
1,268 |
|
Expected loss on disposal |
|
|
4,965 |
|
|
|
|
|
|
|
4,965 |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes |
|
|
(16,834 |
) |
|
|
(2,127 |
) |
|
|
(14,707 |
) |
Provision (benefit) for income taxes |
|
|
(40 |
) |
|
|
615 |
|
|
|
(655 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
$ |
(16,794 |
) |
|
$ |
(2,742 |
) |
|
$ |
(14,052 |
) |
|
|
|
|
|
|
|
|
|
|
Revenue and costs and expenses for discontinued operations are denominated in multiple foreign
currencies, primarily the Mexican Peso, and are affected by foreign currency exchange rate changes.
Revenue from discontinued operations declined $3.4 million, or 13%. Changes in foreign currency
exchange rates reduced revenue by $4.5 million, or 17%, compared with the average exchange rates
prevailing during 2008. Revenue for 2009 reflects a new contract with Mexicos social security
agency, offset by lower revenue from a contract in Venezuela that terminated in December 2008.
The net loss from discontinued operations for 2009 was adversely affected by start-up costs,
operational delays and low member enrollments on a new contract with Mexicos social security
agency that resulted in an operating loss of $6.5 million. Other factors included the effect of the
contract termination in Venezuela in December 2008 and a foreign currency loss of $0.5 million from
adoption of the market rate as opposed to the official exchange rate in Venezuela for translation
of operating results beginning in the fourth quarter of 2009. The Company performed its
annual goodwill impairment assessment during the fourth quarter of 2009. As a result, a charge of
$4.3 million was recorded for Latin American operations prior to the decision to sell. An
additional charge of $5.0 million for an expected loss on disposal was recorded in 2009 as a result
of the decision to sell the business, which was primarily recorded as a reduction of the remaining
goodwill and intangible assets. An impairment charge of $3.0 million was recorded for Latin
America in 2008.
Liquidity and Capital Resources
Our primary sources of liquidity are available cash and cash equivalents, a line of credit
under the revolving credit facility, and cash flows from operating activities. Cash and cash
equivalents amounted to $27.2 million at December 31, 2010, of which $20.5 million, or 75%, was
held by Vangent in the United States and the remaining $6.7 million, or 25%, was held by foreign
subsidiaries or consolidated joint ventures. Cash held by foreign subsidiaries would be subject to
U. S. federal income taxes in the event the funds were repatriated to the United States. Subject to
certain limitations, including compliance with the maximum allowable limits under the leverage
ratio under the senior secured credit facility, the amount available under the revolving credit
facility was $49.8 million at December 31, 2010. The revolving credit facility is scheduled to
expire in February 2012. Based on our current planned level of operations, we believe our cash and
cash equivalents, cash flow from operations, and available line of credit will be adequate to meet
our liquidity needs for at least the next twelve months, including
scheduled debt and interest payments,
scheduled lease payments, noncancelable purchase and other contractual commitments, and planned
capital expenditures.
35
In September 2010, Vangent completed the Buccaneer Acquisition and funded the $60.0
million paid at closing with available cash of $44.0 million and a variable-rate borrowing of $16.0
million drawn on its senior secured revolving credit facility. The revolving credit borrowing was
repaid in full in December 2010.
Cash and cash equivalents are composed of cash in banks and highly liquid instruments with
original maturities of 90 days or less. Cash equivalents or marketable securities are comprised of
repurchase agreements and institutional money market funds with major commercial banks under which
cash is primarily invested in U.S. Treasury and U.S. government agency securities. The Company
does not invest in high yield or high risk securities. Cash in bank accounts at times may exceed
federally insured limits.
Short-Term Borrowings
The Company has access to short-term borrowings under the revolving credit facility. At
December 31, 2010, there were no short-term borrowings outstanding. In September 2010, a
short-term revolving credit borrowing of $16.0 million was drawn to fund a portion of the Buccaneer
Acquisition; the borrowing was repaid in full in the fourth quarter of 2010. Short-term revolving
credit borrowings bear interest at a rate equal to, at the Companys option, either: (i) the base
rate, as defined, plus an applicable margin of 1.00-1.50%, or (ii) the adjusted LIBOR, as defined,
plus an applicable margin of 2.00-2.50%. A summary of short-term borrowings including the amount,
average, and maximum outstanding follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount outstanding at end of year |
|
$ |
|
|
|
|
|
|
|
|
|
|
Average amount outstanding during the year |
|
|
3,605 |
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
2.59 |
% |
|
|
|
|
|
|
|
|
Maximum amount outstanding during the year |
|
$ |
16,000 |
|
|
|
|
|
|
|
|
|
Long-Term Debt
Refer to the notes to the consolidated financial statements for information on long-term debt,
revolving credit facility, scheduled maturities of long-term debt, affirmative and negative
covenants including the maximum allowable consolidated leverage ratio, interest rate swap
agreements on variable-rate term loan, and the fair value of the interest rate swap liability.
Long-term debt
amounted to $406.8 million at December 31, 2010, and consists of a term loan of
$216.8 million and senior subordinated notes of $190.0 million. Long-term debt is scheduled to mature as
follows: (i) term loan under the senior secured credit facility is scheduled to mature in February 2013, and (ii) the senior
subordinated fixed rate notes are scheduled to mature in February 2015. Our
ability to generate sufficient cash flow from operations to repay long-term debt when it matures,
or to refinance debt when it matures, depends on numerous factors beyond our control, including
those discussed under Risk Factors reported elsewhere in this annual report on Form 10-K. In view
of current credit market conditions and the credit ratings assigned to our outstanding debt and
corporate credit by credit rating agencies, in the event we were to refinance the senior secured
credit facility or the senior subordinated notes, we would likely encounter higher interest rates.
Debt Covenants
Borrowings are secured by accounts receivable, cash, intellectual property and other assets
and are guaranteed jointly and severally, by all existing and future domestic subsidiaries.
Foreign subsidiaries do not guarantee the borrowings. The senior secured credit facility contains
various customary affirmative and negative covenants and events of default, including, but not
limited to, restrictions on the disposal of assets, incurring additional indebtedness or
guaranteeing obligations, paying dividends, creating liens on assets, making investments, loans or
advances, and compliance with a maximum consolidated leverage ratio. As of December 31, 2010, the
Company was in compliance with all of the affirmative and negative covenants.
36
The more restrictive debt covenants relate to compliance with a maximum allowable consolidated
leverage ratio. The consolidated leverage ratio, as defined in the senior secured credit facility,
is based on consolidated indebtedness, as defined, reduced by unrestricted cash and cash
equivalents in excess of $5.0 million, divided by adjusted EBITDA (earnings before interest, taxes,
depreciation and amortization, and adjusted for certain unusual and non-recurring items, as
defined) for a twelve-month period. At December 31, 2010, the consolidated leverage ratio
was 3.78
to 1, compared with the maximum allowable ratio of 5.50 to 1 applicable to the period. The maximum
allowable consolidated leverage ratio steps down to 5.25 at June 30, 2011, and to 5.00 at March 31,
2012.
EBITDA is defined as net income (loss) before interest, income taxes, and depreciation and
amortization. Management uses this measure as an indicator of operating performance. EBITDA is
not an indicator of financial performance under U.S. generally accepted accounting principles or a
measure of liquidity and may not be comparable to similarly captioned information reported by other
companies. In addition, it should not be considered as an alternative to, or more meaningful than,
income (loss) before income taxes, cash flows from operating activities, or other traditional
indicators of operating performance.
Adjusted EBITDA is a financial measure used to calculate the consolidated leverage ratio, one
of the more restrictive financial covenants under the senior secured credit facility. Adjusted
EBITDA, as defined in the senior secured credit facility, excludes (i) discontinued operations,
(ii) impairment charges, (iii) equity-based compensation expense, (iv) management fee and expenses
paid to Veritas Capital, (v) net transition and contract settlement costs for 2008, and (vi) other
items as defined in the senior secured credit facility, including an adjustment to include the
pre-acquisition EBITDA results of the acquired company for the calculation of the consolidated
leverage ratio. The adjustment to EBITDA for the pre-acquisition results of Buccaneer was $6,574
for the year ended December 31, 2010, resulting in Adjusted EBITDA, including the pro forma
results of Buccaneer, of $101,646 for the year ended December 31, 2010. A reconciliation of
net income (loss) as
reported under U.S. generally accepted accounting principles to EBITDA and Adjusted EBITDA follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
40,003 |
|
|
$ |
(34,008 |
) |
|
$ |
(26,507 |
) |
Provision (benefit) for income taxes |
|
|
(31,486 |
) |
|
|
6,794 |
|
|
|
4,939 |
|
Interest expense, net of interest income |
|
|
31,246 |
|
|
|
34,281 |
|
|
|
35,243 |
|
Depreciation and amortization |
|
|
34,798 |
|
|
|
31,883 |
|
|
|
33,558 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
74,561 |
|
|
|
38,950 |
|
|
|
47,233 |
|
Loss from discontinued operations, net of tax |
|
|
12,228 |
|
|
|
16,794 |
|
|
|
2,742 |
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
5,320 |
|
|
|
11,227 |
|
|
|
13,766 |
|
Equity-based compensation expense |
|
|
896 |
|
|
|
1,048 |
|
|
|
1,053 |
|
Net transition and contract settlement costs |
|
|
|
|
|
|
|
|
|
|
4,514 |
|
Management fee |
|
|
1,278 |
|
|
|
1,289 |
|
|
|
1,164 |
|
Other |
|
|
789 |
|
|
|
810 |
|
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA, excluding pro forma results
of acquisition |
|
$ |
95,072 |
|
|
$ |
70,118 |
|
|
$ |
71,060 |
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps on Variable-Rate Term Loan under Senior Secured Credit Facility
The Company has entered into interest rate swap agreements to hedge fluctuations in LIBOR
interest rates on a portion of the term loan borrowing under the senior secured credit facility.
The Company exchanged its variable LIBOR interest rate for a fixed interest rate. At December 31,
2010, the total notional amount of the pay-fixed/receive-variable interest rate swap agreements was
$150.0 million scheduled to mature in February 2011.
37
The fair value of the net interest rate swap liability was $0.6 million at December 31, 2010,
all of which represents an unrealized loss that is reported, net of tax, in accumulated other
comprehensive loss in the consolidated statement of equity. The fair value is based on quoted
prices for swaps in active markets adjusted for non-performance risks. The Company does not hold or
issue derivative financial instruments for speculative purposes.
Working Capital
A summary of working capital follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Cash and cash equivalents |
|
$ |
27,194 |
|
|
$ |
44,638 |
|
|
$ |
(17,444 |
) |
Trade receivables, net |
|
|
122,940 |
|
|
|
109,846 |
|
|
|
13,094 |
|
Prepaid expenses and other |
|
|
12,572 |
|
|
|
10,353 |
|
|
|
2,219 |
|
Current portion of long-term debt |
|
|
(1,401 |
) |
|
|
(13,534 |
) |
|
|
12,133 |
|
Accounts payable and accrued liabilities |
|
|
(80,672 |
) |
|
|
(64,849 |
) |
|
|
(15,823 |
) |
Accrued interest payable |
|
|
(7,781 |
) |
|
|
(8,186 |
) |
|
|
405 |
|
Deferred revenue |
|
|
(7,964 |
) |
|
|
(3,976 |
) |
|
|
(3,988 |
) |
Deferred tax liability |
|
|
|
|
|
|
(5,628 |
) |
|
|
5,628 |
|
Discontinued operations, net |
|
|
(1,551 |
) |
|
|
7,515 |
|
|
|
(9,066 |
) |
|
|
|
|
|
|
|
|
|
|
Net working capital |
|
$ |
63,337 |
|
|
$ |
76,179 |
|
|
$ |
(12,842 |
) |
|
|
|
|
|
|
|
|
|
|
The increases in trade receivables and accounts payable and accrued liabilities resulted
primarily from the Buccaneer Acquisition completed in September 2010. Trade receivables at
December 31, 2010, reflect DSO (days sales outstanding) of 62 days, compared with 57 days at
December 31, 2009.
Cash Flows
A summary of net cash flows follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
Increase |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
Net cash provided by (used in) |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
72,783 |
|
|
$ |
49,428 |
|
|
$ |
23,355 |
|
Discontinued operations |
|
|
(1,892 |
) |
|
|
(9,041 |
) |
|
|
7,149 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(72,602 |
) |
|
|
(10,682 |
) |
|
|
(61,920 |
) |
Discontinued operations |
|
|
(516 |
) |
|
|
(5,101 |
) |
|
|
4,585 |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(15,804 |
) |
|
|
(188 |
) |
|
|
(15,594 |
) |
Net Cash Provided by (Used in) Operating Activities
In assessing cash flows from operating activities for continuing operations, we consider
several principal factors: (i) income or loss from continuing operations, (ii) adjustments for
non-cash charges, primarily impairment charges, amortization of intangible assets, depreciation and
amortization of property and equipment, and deferred income taxes including the reversal of a tax
valuation allowance for 2010, and (iii) the extent to which trade receivables, accounts payable and
other liabilities, or other working capital components increase or decrease.
38
Net cash provided by operating activities for continuing operations was $72.8 million for
2010, compared with $49.4 million for 2009. Income/loss from continuing operations adjusted for
non-cash charges generated operating cash flows of $63.2 million for 2010, compared with $34.9
million for 2009.
A net reduction in operating trade receivables of $5.2 million for 2010, excluding the effect
of the Buccaneer Acquisition, and a net reduction of $14.4 million for 2009 contributed to cash
flows from operating activities for continuing operations. The reductions primarily reflect the
timing of collections from customers.
A net increase in
operating accounts payable and other liabilities of $4.8 million for 2010,
excluding the effect of the Buccaneer Acquisition, contributed to cash flow from operating
activities for continuing operations, compared with a net reduction of $2.8 million for 2009 that
reduced cash flow from operating activities. The changes primarily reflect the timing of payments
to vendors. The timing of payments to vendors affects the level of accounts payable and the effect
on operating cash flow, including the level of activities with small-business vendors and
subcontractors that require more frequent cash payments.
Discontinued operations had negative cash flow from operating activities of $1.9 million for
2010, compared with negative cash flow of $9.0 million for 2009. The reduction in the use of
operating cash primarily reflects higher revenue and collections from Mexico for 2010.
Net Cash Used in Investing Activities
In September 2010, Vangent completed the Buccaneer Acquisition and paid cash of $60.0 million
at closing. Other purchase consideration paid amounted to $1.1 million and cash acquired was $0.9
million.
Capital expenditures for continuing operations were $12.4 million for 2010 and $10.7 million
for 2009. Capital expenditures of $12.0 million for continuing operations are expected for 2011.
Net cash used in investing activities for discontinued operations for 2010 consists of capital
expenditures of $2.7 million reduced by proceeds from sales of discontinued operations in Argentina
and Mexico of $2.2 million. Capital expenditures for discontinued operations were $5.1 million for
2009
Net Cash Used in Financing Activities
Net cash used in financing activities for continuing operations for 2010 reflects a
variable-rate borrowing of $16.0 million drawn on the senior secured revolving credit facility to
fund a portion of the purchase consideration paid for the Buccaneer Acquisition. The borrowing was
repaid in the fourth quarter of 2010. Cash flow for 2010 was reduced by a mandatory term loan
repayment of $13.6 million under the senior secured credit facility resulting from excess cash
flow, as defined, for 2009. Based on excess cash flow, as defined, for 2008, there was no excess
cash flow payment required in 2009. Cash flow was also reduced by
debt financing costs of $2.0
million resulting from amendments to the senior secured credit facility.
39
Contractual Obligations
Contractual
commitments to make future cash payments under long-term debt
agreements, leases, contracts, and other commitments at December 31, 2010, follow (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year |
|
|
|
Total |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan under senior secured credit facility due February 2013 (1) |
|
$ |
216.8 |
|
|
$ |
1.4 |
|
|
$ |
0.3 |
|
|
$ |
215.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Senior subordinated notes due February 2015 |
|
|
190.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190.0 |
|
|
|
|
|
Interest relating to debt (2) |
|
|
94.9 |
|
|
|
24.7 |
|
|
|
23.4 |
|
|
|
19.4 |
|
|
|
18.3 |
|
|
|
9.1 |
|
|
|
|
|
Operating leases (3) |
|
|
71.1 |
|
|
|
18.2 |
|
|
|
15.6 |
|
|
|
12.1 |
|
|
|
6.5 |
|
|
|
4.6 |
|
|
|
14.1 |
|
Purchase and other contractual
commitments (4) |
|
|
20.3 |
|
|
|
14.6 |
|
|
|
4.7 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
593.1 |
|
|
$ |
58.9 |
|
|
$ |
44.0 |
|
|
$ |
247.3 |
|
|
$ |
25.1 |
|
|
$ |
203.7 |
|
|
$ |
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Scheduled payments for the term loan under the senior secured credit facility do not give
effect to a possible future mandatory prepayment in March 2012 that could result from excess
cash flow, if any, for the year ended December 31, 2011. |
|
(2) |
|
Future interest payments consist of interest on the variable-rate term-loan borrowing under
the senior secured credit facility based on the prevailing rate at December 31, 2010,
estimated future payments based on fair value of the related interest rate swaps that mature
in February 2011, and interest based on the fixed rate of 9 5/8% for the senior subordinated
notes. |
|
(3) |
|
Future contractual obligations for leases represent future minimum payments under
noncancelable operating leases primarily for office space, reduced by sublease income under
contract. |
|
(4) |
|
Purchase and other contractual commitments include minimum noncancelable obligations under
service and other agreements, primarily for information technology and telecommunications
services. |
Off-Balance Sheet Arrangements
As of December 31, 2010, there were no off-balance sheet arrangements other than operating
leases for office facilities and equipment for which future minimum lease payments aggregated $71.1
million.
Transactions with Related Parties
Reference is made to the notes to the consolidated financial statements for information on
transactions with related parties.
40
Recent Accounting Pronouncements
Reference is made to the notes to the consolidated financial statements for information on
recent accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Instruments
The fair values of financial instruments at December 31, 2010, follow (in millions):
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Amount |
|
|
Fair Value |
|
Long-term debt |
|
|
|
|
|
|
|
|
Variable-rate term loan under senior secured credit facility |
|
$ |
216.8 |
|
|
$ |
216.8 |
|
9 5/8% senior subordinated notes, due February 15, 2015 |
|
|
190.0 |
|
|
|
172.4 |
|
|
|
|
|
|
|
|
|
|
$ |
406.8 |
|
|
$ |
389.2 |
|
|
|
|
|
|
|
|
Interest rate swaps to pay fixed and receive variable |
|
|
|
|
|
|
|
|
Short-term liabilities |
|
$ |
0.6 |
|
|
$ |
0.6 |
|
|
|
|
|
|
|
|
The carrying amount of the variable-rate term loan under the senior secured credit facility
approximates fair value. The fair value of the 9 5/8% senior subordinated notes is based on the
quoted market price of $90.75 per $100 reflecting a yield of 12.8% at December 31, 2010; the fair
value changes based on market conditions and changes in interest rates. The fair value of the
interest rate swap liability is based on quoted prices for similar liabilities in active markets
adjusted for non-performance risk. The fair value of other financial instruments, including cash
and cash equivalents, trade accounts receivable and accounts payable and accrued liabilities,
approximate fair value due to their short term nature.
Interest Rate Risk
The Company is subject to interest rate risk in connection with cash and cash equivalents, the
available portion of the revolving credit facility under the senior secured credit facility, and
unhedged portion of the variable-rate term loan. Cash and cash equivalents amounted to $27.2
million and, subject to certain limitations, $49.8 million was available under the revolving credit
facility at December 31, 2010. The interest rate swap agreement covering $150.0 million of the
senior secured term loan matured in February 2011 and the full amount of the term loan amounting to
$216.8 million will be subject to variable interest rate risk.
Foreign Currency Risks
Our operations in the United Kingdom and Canada conduct most of their business in local
currency. Our financial results are reported in U.S. dollars and are affected by changes in the
foreign exchange rates of the local currencies in relation to the U.S. dollar.
Discontinued operations include our business in Venezuela that was sold in February 2011.
The Venezuelan economy was determined to be highly inflationary causing a change in 2010 in the
functional currency for accounting purposes to the U.S. dollar.
Inflation Risk
We have generally been able to anticipate increases in costs when pricing our contracts. Bids
for longer-term fixed-unit price and time and materials contracts typically include labor and other
cost escalations in amounts that historically have been sufficient to cover cost increases over the
period of performance. Consequently, since costs and revenue include an inflationary increase that
has been commensurate with the general economy where we operate, gross margin expressed as a
percentage of revenue has not been significantly impacted by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the consolidated financial statements appearing elsewhere in this annual
report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
41
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial
Officer, has evaluated our disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the
end of the period covered by this report, our disclosure controls and procedures were effective to
ensure that information required to be disclosed in reports that we file or submit under the
Securities Exchange Act are: (i) recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms; and (ii) accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
Managements Report on Internal Control over Financial Reporting
Vangents management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles in the United States. Internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that our receipts and expenditures are being made only in accordance with the authorization of
our management and/or board of directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of any
unauthorized acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate due to changes in conditions, or that the
degree of compliance with existing policies or procedures may deteriorate.
The Company completed the Buccaneer Acquisition in mid September 2010. Since the Company has
not yet fully incorporated the internal controls and procedures of this business into its internal
controls over financial reporting, management excluded this business from its assessment of the
effectiveness of the Companys internal control over financial reporting as of December 31, 2010.
Buccaneer represented $81.5 million, or 12%, of consolidated total assets at December 31, 2010, and
$34.9 million, or 5%, of total consolidated revenue for the year ended December 31, 2010.
Under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, our management conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the criteria set forth in Internal Control Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on its evaluation, our management concluded that our internal control over financial reporting was
effective as of December 31, 2010.
Pursuant to the rules and regulations of the Securities and Exchange Commission applicable to
non-accelerated filers, this annual report on Form 10-K does not include an attestation report of
an independent registered public accounting firm regarding the effectiveness of the Companys
internal control over financial reporting.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2010, there have been no changes in the internal control
over financial reporting that have materially affected, or are reasonably likely to materially
affect, internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
42
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the board of directors and senior
management of Vangent, Inc. and the board of directors of Vangent Holding Corp. Vangent, Inc. is a
100%-owned subsidiary of Vangent Holding Corp. Vangent Holding LLC owns all of the common stock of
Vangent Holding Corp. Veritas Capital Fund III, L.P. is the manager of Vangent Holding LLC.
|
|
|
|
|
|
|
Name |
|
Age |
|
|
Position |
Robert B. McKeon
|
|
|
56 |
|
|
Director of Vangent Holding Corp. and sole
member of the board of directors of Vangent, Inc. |
John M. Curtis
|
|
|
53 |
|
|
President and Chief Executive Officer and director
of Vangent Holding Corp. |
James C. Reagan
|
|
|
52 |
|
|
Senior Vice President and Chief Financial Officer |
Jeffrey Bohling
|
|
|
40 |
|
|
Senior Vice President and General Manager |
Kevin T. Boyle
|
|
|
41 |
|
|
Senior Vice President, General Counsel and Secretary |
David J. Fabianski
|
|
|
48 |
|
|
Senior Vice President and General Manager |
Kerry Weems
|
|
|
54 |
|
|
Senior Vice President and General Manager |
Michael J. Bayer
|
|
|
63 |
|
|
Director of Vangent Holding Corp. |
Ambassador R. Nicholas Burns
|
|
|
54 |
|
|
Director of Vangent Holding Corp. |
Paul V. Lombardi
|
|
|
69 |
|
|
Director of Vangent Holding Corp. |
Ramzi M. Musallam
|
|
|
42 |
|
|
Director of Vangent Holding Corp. |
Charles S. Ream
|
|
|
67 |
|
|
Director of Vangent Holding Corp. |
Robert B. McKeon has been a member of the board of directors of Vangent Holding Corp. and the
sole member of the board of directors of Vangent, Inc. since February 2007. Mr. McKeon is the
President of Veritas Capital, a New York-based private equity investment firm he founded in 1992.
Mr. McKeon is on the Board of Trustees of Fordham University, is a member of the Council on Foreign
Relations and is a member of the board of directors of Aeroflex Holding Corp., Aeroflex
Incorporated, and several private companies and served as the chairman of the board of DynCorp
International Inc. from 2005 to July 2010. Mr. McKeon holds a Bachelors degree from Fordham
University and a Masters degree in business administration from Harvard Business School. Mr.
McKeons position of President of Veritas Capital Partners III, LLC, which is the beneficial owner
of 90% of the Class A membership interests in Vangent Holding LLC, his experience on other public
and private company boards and his extensive experience with Vangent, Inc. as its sole director
qualifies him to be on the board of directors of Vangent, Inc.
John M. Curtis is our President and Chief Executive Officer and a member of the board of
directors of Vangent Holding Corp. He joined the company in 1999 as Vice President and General
Manager of the Government Services division of the predecessor. He became President and Chief
Executive Officer in 2002 upon the acquisition of the predecessor company by Pearson. Prior to
joining the company, Mr. Curtis served seven years as Senior Vice President of the Information &
Enterprise Technology Group of DynCorp. He also served as President of TechServ, LLC from 1990 to
1992. Mr. Curtis holds a Bachelors degree in Civil Engineering from the Virginia Military
Institute. He serves as Chairman of the Professional Services Council and on the boards of George
Mason Universitys School of Information Technology and Engineering, the Fairfax County Chamber of
Commerce, and the Conference Board Executive Council.
James C. Reagan has served as Senior Vice President and Chief Financial Officer since
September 2008. Prior to joining Vangent, Mr. Reagan served as Executive Vice President and Chief
Financial Officer of Deltek, Inc. from October 2005 to May 2008. From December 2004 to September
2005, Mr. Reagan served as Executive Vice President and Chief Financial Officer of Aspect
Communications Corporation. Prior to joining Aspect, from May 2002 to May 2004, Mr. Reagan held
various senior financial positions at American Management Systems, Inc. Prior to May 2002, Mr.
Reagan served as Vice President, Finance and Administration at Nextel Communications. Mr. Reagan
has a Bachelor of Business Administration degree from the College of William and Mary and Master of
Business Administration degree from Loyola College in Baltimore. Mr. Reagan is a Certified
Public Accountant in the Commonwealth of Virginia.
43
Jeffrey Bohling has served as Senior Vice President and General Manager Civilian, Defense &
National Security Group since January 2011 and Vice President Civilian, Defense & National Security
Group since February 2008. He joined the company in 2001 as the Functional Manager of the Mainframe
Development team and served in several roles including the Vice President responsible for the
transition from Pearson to Vangent. Prior to joining the company, Mr. Bohling served as Senior
Manager for McLeodUSA and worked for MCI. Mr. Bohling has a Bachelor of Science degree in
Electrical Engineering and a Minor in Computer Science from Iowa State University and a Masters of
Business Administration degree from Georgetown University.
Kevin T. Boyle has served as our Senior Vice President, General Counsel & Secretary since June
2007. From 2002 to May 2007, he served as Assistant General Counsel for General Dynamics
Information Technology, Inc., following its acquisition of Anteon International Corporation in June
2006. Mr. Boyle also served as Vice President and General Counsel for Interworld Corporation from
2000 to 2002. Prior to 2000, he held similar positions with Visual Networks, Cambridge Technology
Partners and BMG Entertainment. Mr. Boyle received his Juris Doctor degree from Tulane Law School
and his Bachelor of Arts degree in history from Yale University.
David J. Fabianski has served as Senior Vice President and General Manager of the Human
Capital Group since February 2007. Prior to the Acquisition, he served as the President of the
Pearson Performance Solutions division of the predecessor company since 2003. From 2001 to 2003,
Mr. Fabianski was with The Forum Corporation, where he served as the Senior Vice President of Sales
before assuming the role of President of the Corporate Training and Development practice.
Previously, he spent 11 years at Anteon/A&T where he served in multiple Operations and Sales
Management roles. He has more than 15 years experience in the Human Capital Development field. In
addition, he has ten years of honorable service in the United States Naval Submarine Force. He
holds a Bachelors degree in education from Southern Illinois University.
Kerry Weems joined Vangent in August 2009 and has served as Senior Vice President and General
Manager of the Health Solutions Group since December 2009. In January 2009, Mr. Weems ended a
28-year career with the federal government and held the position of acting Administrator of the
Centers for Medicare and Medicaid Services and was also Vice Chairman of the American Health
Information Community. Prior thereto, he served in a number of senior positions at the Department
of Health and Human Services, including Deputy Chief of Staff, Chief Financial Officer, and Chief
Budget Officer. Mr. Weems holds a Masters of Business Administration degree from the University of
New Mexico and Bachelor degrees in philosophy and management from New Mexico State University.
Michael J. Bayer has been a director of Vangent Holding Corp. since December 2007. Since 2003
he has been a private consultant in the energy and national security sectors and, since 2006, the
President and Chief Executive Officer of Dumbarton Strategies LLC, an energy and national security
consulting firm. Mr. Bayer is the Chairman of the U.S. Department of Defenses Business Board, and
a member of the Sandia National Laboratorys National Security Advisory Panel, the U.S. Department
of Defenses Science Board and the Chief of Naval Operations Executive Panel. He is a director of
Willbros Group, Inc. and SIGA Technologies and served a director of DynCorp International, Inc.
from 2006 to 2010. He holds a Bachelor of Science degree and a Master of Business Administration
degree from Ohio State University and a Juris Doctor degree from Capital University School of Law.
Ambassador R. Nicholas Burns has been a director of Vangent Holding Corp. since July 2009. He
is Professor of Diplomacy and International Politics at the Harvard Kennedy School of Government.
He has been a Senior Counselor at the Cohen Group since July 2009. He served as Under Secretary of
State for Political Affairs from 2005-2008 until his retirement after 27 years in the United States
Foreign Service. He also served as U.S. Ambassador to NATO (2001-2005), U.S. Ambassador to Greece
(1997-2001) and as State Department Spokesman for Secretaries of State Madeleine Albright and
Warren Christopher (1995-1997). He holds a Masters degree in international business from Johns
Hopkins University and a Bachelor of Arts degree in history from Boston College.
Paul V. Lombardi has been director of Vangent Holding Corp. since February 2008. Mr.
Lombardi has been President of INpower, a corporate consulting firm, since March 2003. From
September 1992 to March 2003, he served in a variety of executive level positions with DynCorp,
including as President and Chief Executive Officer from February 1997 until its acquisition by CSC
in March 2003. Prior to DynCorp, Mr. Lombardi was employed at PRC Inc. from 1981 to 1992, where he
served in a variety of senior executive positions. In addition to serving on the boards of NCI,
Inc. and CGI Federal, Inc., he serves on the Executive Committee of the Board of the Northern
Virginia Technology Council and the George Mason Universitys School of Engineering and Information
Technology. He also served on the Commonwealth of Virginia
Governors Commission of Information Technology, and was a previous past Chairman of the
Professional Services Council. Mr. Lombardi earned a Bachelor of Science degree in mechanical
engineering from the New York State Maritime College and studied business at George Washington
University.
44
Ramzi M. Musallam has been director of Vangent Holding Corp. since February 2007. Mr.
Musallam is a partner at Veritas Capital, which he has been associated with since 1997. He is a
member of the board of directors of Aeroflex Holding Corp., Aeroflex Incorporated, and several
private companies and was a member of the board of directors of DynCorp International Inc. from
2005 to July 2010. Mr. Musallam holds a Bachelors degree from Colgate University with a double
major in Economics and Mathematics and a Masters degree in Business Administration from the
University of Chicago Graduate School of Business.
Charles S. Ream has been director of Vangent Holding Corp. since February 2007. Mr. Ream was
Executive Vice President and Chief Financial Officer of Anteon International Corporation from April
2003 to June 2006. From October 2000 to December 2001, he served as Senior Vice President and Chief
Financial Officer of Newport News Shipbuilding, Inc. From January 1998 to September 2000, Mr. Ream
served as Senior Vice President, Finance of Raytheon Systems Company. From January 1994 to December
1997, he served as Chief Financial Officer of Hughes Aircraft Company. Prior to joining Hughes, Mr.
Ream was a Partner with Deloitte & Touche LLP. Mr. Ream is also a member of the board of directors
of Allied Defense Group, Inc. and Aeroflex Holding Corp. He served as a director of Stanley, Inc.
and DynCorp International, Inc. from 2006 to 2010. Mr. Ream received a Bachelors degree in
accounting and a Master of Accountancy degree from the University of Arizona and is a Certified
Public Accountant (inactive).
CORPORATE GOVERNANCE
Meetings of the Board
Our Board has an active role in overseeing management. Directors are expected to attend all
Board meetings and meetings of committees on which they serve. Our directors are also consulted
for advice and counsel between formal meetings. The Board met nine times in 2010. All the
directors attended at least 75% of the aggregate meetings of the Board and the committees to which
they are assigned.
Audit Committee
The audit committee of Vangent Holding Corp. functions as the audit committee of Vangent, Inc.
The audit committee consists of Mr. Ream and Mr. Bayer. The board of directors of Vangent Holding
Corp. has not yet determined if any members of the audit committee qualify as an audit committee
financial expert as defined in Item 407(d) (5) (ii) and (iii) of Regulation S-K.
Code of Ethics
The Company has adopted a code of ethics that applies to our directors, officers and
employees, including our principal executive officer, principal finance officer and principal
accounting officer. The code of ethics is delivered to all employees at the time of hire and
periodically thereafter, is the subject of mandatory annual training programs. The Company has
also adopted a code of ethics that applies to the Companys principal executive officer and certain
senior financial officers which requires such officers to certify annually their compliance with
such code of ethics. The code of ethics and the code of ethics for the principal executive officer
and senior financial officers are posted on our website, http://www.vangent.com, under the
headings Investors Code of Ethics and Investors Code of Ethics for the Principal Executive
Officer and Senior Financial Officers. The Company has also established a hotline where employees,
vendors or customers can communicate, on an anonymous basis, any concerns involving business
ethics, personnel issues, internal controls, accounting or auditing matters.
Policies and Procedures for Related Person Transactions
Any material transaction involving our directors, nominees for director, executive officers
and their immediate family members (related persons) and the Company or an affiliate of the
Company is reviewed and approved by management to determine whether the transaction is in the best
interests of the Company. In addition, related-person transactions involving directors and nominees
are subsequently reviewed by the audit committee in connection with its review of the independence
of the directors. The policies and procedures for related-persons transactions are not in writing,
but the proceedings are documented in the minutes of the audit committee. Refer to Item 13 for a
description of related party transactions.
45
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Philosophy
Our compensation program is designed to attract, retain and motivate highly qualified
executives and drive sustainable growth. We compensate our executives named in the summary
compensation table, which we refer to as named executive officers or NEOs, through a
combination of base salary, incentive and discretionary cash bonuses, and membership interests in
Vangent Holding LLC. This compensation program is designed to be competitive with comparable
companies and to align executive compensation with the long-term interests of our shareholder. Base
salary and incentive compensation (cash bonuses) are designed to reward current performance.
Incentive compensation is earned on the basis of achieving Company and operating performance
objectives, personal performance objectives, and the executives adherence to our core values. Data
to determine the competitive position of our NEOs for 2010 was obtained from the proxy statements
of a custom peer group of companies, including SRA International, Inc., Stanley, Inc., IFC
International, Inc., and NCI, Inc.
Our compensation philosophy also is guided by the nature of our business. As a federal government
contractor, Vangent is subject to the Federal Acquisition Regulation that governs the billing of
allowable costs for senior executive compensation to a benchmark compensation cap. The benchmark
cap includes cash compensation and deferred compensation and applies to the five most highly
compensated employees in management positions. The benchmark compensation cap as published in the
Federal Register was $693,951 for 2010. Any amounts over the cap are considered unallowable and are
not recoverable under federal government contracts.
Compensation Committee
The Compensation Committee was formed in July 2009. The Compensation Committee had one meeting
in 2010 and did not have a role in setting the 2010 compensation of our chief executive officer or
any of the other NEOs. For 2010, compensation decisions regarding our chief executive officer were
made by our principal stockholder, Veritas Capital. For other NEOs, our chief executive officer
made compensation recommendations to Veritas Capital based on a collective evaluation of all
components of executive pay. In reviewing the compensation of our NEOs, we and the board considered
our knowledge of compensation practices within our industry, as well as the NEOs background and
experience within our industry, to determine appropriate market-based compensation levels for base
annual salary, target annual incentive, and long-term incentives. We used externally generated
benchmarking data during 2010 to provide additional objective market support for the compensation
of NEOs and our broader employee base.
None of our NEOs have employment agreements. As a result, our compensation decisions are not
determined or constrained by contractual arrangements.
Salary and Incentive Compensation
Risk Consideration in our Compensation Program
We have reviewed our material compensation policies and practices and have concluded that
these policies and practices are not reasonably likely to have a material adverse effect on the
Company. We believe we have allocated our compensation among base salary and short and long-term
compensation target opportunities in such a way as to not encourage excessive risk-taking. The
financial performance elements of our annual incentive compensation plan that NEOs and other
executives are eligible to participate in balance growth in revenue and income with cash management
objectives. Our equity-based compensation plan for management has a five-year vesting schedule and
is designed to promote retention. We have a management review and control process where business
decisions are reviewed and approved to mitigate the likelihood of any excessive risk-taking
behavior. We have adopted a Code of Ethics that applies to all employees and is the subject of
mandatory annual training programs that educate our employees on appropriate behaviors and the
consequences of taking inappropriate actions. We have adopted an additional Code of Ethics that
applies to our principal executive officer and certain senior financial officers.
46
Salary
Salary is an important element in attracting highly qualified executives and provides a base
level of compensation. At the end of the year, each executives performance is evaluated by our
Chief Executive Officer for an increase, which is not fixed, but takes into account the
individuals performance, responsibilities of the position, adherence to our core values,
experience, and external market conditions and practices. The salary of our Chief Executive Officer
is evaluated annually by Veritas Capital.
Incentive Compensation
We have established the Vangent Incentive Compensation Plan (VIC Plan) in which our
NEOs and other executives are eligible to participate. The purpose of the VIC Plan is to provide
additional compensation to eligible participants for their contribution to the achievement of our
objectives, to encourage and stimulate superior performance and to assist in attracting and
retaining highly qualified executives. Under the VIC Plan, target bonus amounts for 2010 were based
on a percentage of base salary varying by the executives level and overall job responsibilities.
Bonuses may be earned under the VIC Plan based on the attainment of certain financial
performance criteria approved by the Board. For purposes of determining performance against our
objectives, we established earnings before interest, tax, depreciation and amortization (EBITDA)
as a key financial measure to assess our operating performance for 2010 and we utilized Adjusted
EBITDA, as defined, for purposes of determining incentive compensation targets for the NEOs. The
second financial performance criteria used for the VIC Plan for 2010 was days sales outstanding
(DSO). Effective management of DSO is part of our bonus criteria because of its impact on cash
flow. The third was revenue as growth in revenue is consistent with our long-term strategic plan.
Each financial performance element is weighted and is determined by achieving profit, cash
flow and revenue targets. The profit target is based on Adjusted EBITDA and the cash flow target is
based on days sales outstanding. For 2010, the total weight of the financial objectives was 75%
and the non-financial performance element was 25%. For 2010, the Company achieved the Adjusted
EBITDA target and as a result target incentive bonuses were earned. It is not necessary to achieve
the revenue target for bonuses to be earned. The target incentive bonus level for our CEO was 75%
of base salary and the maximum was 100% of base salary. For other NEOs, the target level was 60%
and the maximum was 80% of base salary. In 2010, the Company achieved 100% of the Adjusted EBITDA
target and 100% of the DSO target but did not achieve the revenue target. Bonuses that were earned
under the VIC Plan for 2010 are included in the bonus column of the Summary Compensation Table. A
summary of the financial performance elements, their weighting, and actual results for 2010 follow
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance |
|
|
|
|
|
|
Actual |
|
Financial Performance Criteria |
|
Target |
|
|
Weighting |
|
|
Results |
|
Adjusted EBITDA, excluding pro forma effects of acquisition (1) |
|
$ |
93,000 |
|
|
|
50 |
% |
|
$ |
95,072 |
|
Days Sales Outstanding (2) |
|
|
72 Days |
|
|
|
30 |
% |
|
|
62 Days |
|
Revenue (3) |
|
$ |
787,120 |
|
|
|
20 |
% |
|
$ |
761,841 |
|
|
|
|
(1) |
|
EBITDA is defined as net income (loss) before interest, income taxes, and depreciation and
amortization. Management uses this measure as an indicator of operating performance. EBITDA
is not an indicator of financial performance under U.S. generally accepted accounting
principles or a measure of liquidity and may not be comparable to similarly captioned
information reported by other companies. In addition, it should not be considered as an
alternative to, or more meaningful than, income (loss) before income taxes, cash flows from
operating activities, or other traditional indicators of operating performance. |
47
|
|
|
|
|
Adjusted EBITDA is a financial measure used to calculate the consolidated leverage ratio, one of
the more restrictive financial covenants under the senior secured credit facility. Adjusted
EBITDA, as defined in the senior secured credit facility, excludes (i) discontinued operations,
(ii) impairment charges, (iii) equity-based compensation expense, (iv) management fee and
expenses paid to Veritas Capital, and (v) other items as defined in the senior secured credit
facility. |
|
|
|
Reference is made to the liquidity and capital resources section of Managements Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in this annual
report on Form 10-K for additional information on the determination of Adjusted EBITDA. |
|
(2) |
|
Days Sales Outstanding (DSO) applies to trade receivables and is a measure of liquidity and
the ability to convert receivables into cash. |
|
(3) |
|
Actual results for revenue represent revenue from continuing operations including revenue
from the Buccaneer Acquisition from the date of the acquisition in September 2010. |
Discretionary and Sign-On Bonuses
The Company may also award discretionary cash bonuses to NEOs, and may award sign-on bonuses
in connection with employment. Discretionary bonuses are primarily used to reward employees in
special situations. For 2010, the Companys financial performance exceeded the minimum target
under the VIC Plan, and discretionary incentive bonuses were awarded to certain NEOs in addition to
their target incentive bonus under the VIC Plan. Discretionary and sign-on bonuses are reflected
in the bonus column of the Summary Compensation Table.
Long-Term Compensation
We believe it is a customary and competitive practice to include an equity-based element of
compensation to the overall compensation package for NEOs. In addition, we believe that a
significant portion of the compensation of our executives, which is the level of management with
the greatest ability to influence our performance, should be performance-based.
Vangent Holding LLC has implemented a management equity-based plan that is designed to
motivate executives to encourage and reward behavior that will protect and enhance the corporate
interests and increase shareholder value. The equity-based element provides the eligible executive
with a percentage of Class B or B-1 membership interests representing a net profits interest in
Vangent Holding LLC. Grants of Class B or B-1 membership interests are limited to 7.5% in the
aggregate, of which 5.9% had been granted and were outstanding at December 31, 2010. The remaining
1.6% of Class B or B-1 membership interests is available for grant primarily in connection with the
hiring of new executive officers and at the discretion of the chief executive officer. Awards of
Class B or B-1 membership interests are subject to a five-year vesting schedule which accelerates
to 100% based upon a qualifying change-of-control transaction. The vesting schedule is 20% per
year. Awards of Class B or B-1 membership interests granted in 2010, 2009 and 2008 are reflected in
the table, Grants of Other Equity-Based Awards.
Severance and Change in Control Benefits
None of our NEOs have employment agreements. Therefore, we are not obligated to pay severance
on a termination with or without cause by the Company, with or without good reason by the NEO, or
upon death, disability or a change of control, and any severance paid in connection with separation
from the Company would be at the discretion of the board of Vangent Holding Corp. However, the
operating agreement pertaining to Class B membership interests provides for accelerated vesting
upon a change of control. We believe that this helps to align the interests of our NEOs with those
of our stockholder for completing a transaction that might be in the best interests of our
stockholder but might otherwise be detrimental to our NEOs.
Other Benefits
NEOs participate in a 401(k) plan and various health and welfare benefit plans, all on
the same basis as other salaried employees. Our objective is to offer all salaried employees,
including NEOs, a benefits package that is competitive within our industry and labor markets.
48
Report of Board of Directors
The sole member of Vangents board of directors has reviewed and discussed with management the
Compensation Discussion and Analysis included in this annual report on Form 10-K. Based on that
review and discussion, the sole member of the board of directors recommends that the Compensation
Discussion and Analysis be included in this annual report on Form 10-K.
Board of Directors of Vangent
Robert B. McKeon
SUMMARY COMPENSATION TABLE
The following table summarizes compensation awarded or paid for 2010, 2009 and 2008 to NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Equity) |
|
|
Compen- |
|
|
|
|
Name and Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus (1) |
|
|
Awards (2) |
|
|
sation |
|
|
Total |
|
John M. Curtis |
|
|
2010 |
|
|
$ |
550,000 |
|
|
$ |
550,000 |
|
|
$ |
|
|
|
$ |
12,932 |
|
|
$ |
1,112,932 |
|
President and Chief Executive Officer |
|
|
2009 |
|
|
|
550,000 |
|
|
|
|
|
|
|
|
|
|
|
12,932 |
|
|
|
562,932 |
|
|
|
|
2008 |
|
|
|
519,423 |
|
|
|
414,595 |
|
|
|
|
|
|
|
12,257 |
|
|
|
946,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James C. Reagan (3) |
|
|
2010 |
|
|
|
340,068 |
|
|
|
273,686 |
|
|
|
|
|
|
|
11,025 |
|
|
|
624,779 |
|
Senior Vice President and Chief Financial Officer |
|
|
2009 |
|
|
|
328,500 |
|
|
|
|
|
|
|
|
|
|
|
11,025 |
|
|
|
339,525 |
|
|
|
|
2008 |
|
|
|
98,750 |
|
|
|
97,995 |
|
|
|
335,095 |
|
|
|
|
|
|
|
531,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Bottorff (4) |
|
|
2010 |
|
|
|
193,746 |
|
|
|
161,432 |
|
|
|
|
|
|
|
171,261 |
|
|
|
526,439 |
|
Former Senior Vice President and General Manager |
|
|
2009 |
|
|
|
231,307 |
|
|
|
|
|
|
|
|
|
|
|
10,409 |
|
|
|
241,716 |
|
|
|
|
2008 |
|
|
|
223,960 |
|
|
|
136,236 |
|
|
|
|
|
|
|
10,350 |
|
|
|
370,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin T. Boyle |
|
|
2010 |
|
|
|
251,589 |
|
|
|
170,000 |
|
|
|
|
|
|
|
9,800 |
|
|
|
431,389 |
|
Senior Vice President, General Counsel & Secretary |
|
|
2009 |
|
|
|
243,877 |
|
|
|
|
|
|
|
|
|
|
|
10,974 |
|
|
|
254,851 |
|
|
|
|
2008 |
|
|
|
234,985 |
|
|
|
155,469 |
|
|
|
|
|
|
|
10,061 |
|
|
|
400,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig A. Janus (5) |
|
|
2010 |
|
|
|
334,499 |
|
|
|
208,488 |
|
|
|
|
|
|
|
2,450 |
|
|
|
545,437 |
|
Former Senior Vice President of Civilian, Defense and |
|
|
2009 |
|
|
|
321,716 |
|
|
|
|
|
|
|
35,882 |
|
|
|
11,025 |
|
|
|
368,623 |
|
National Security |
|
|
2008 |
|
|
|
302,077 |
|
|
|
176,316 |
|
|
|
260,630 |
|
|
|
10,211 |
|
|
|
749,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kerry Weems (3) |
|
|
2010 |
|
|
|
375,000 |
|
|
|
325,000 |
|
|
|
342,446 |
|
|
|
11,025 |
|
|
|
1,053,471 |
|
Senior Vice President and General Manager, Health |
|
|
2009 |
|
|
|
115,385 |
|
|
|
75,000 |
|
|
|
|
|
|
|
8,567 |
|
|
|
198,952 |
|
Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Bonus amounts consist of (i) VIC Plan incentive bonuses earned for 2010 and for 2008, (ii)
discretionary bonuses awarded for 2010, (iii) other discretionary bonuses, and (iv) sign-on
bonuses. |
|
|
|
Discretionary bonuses awarded based on an assessment of overall performance that exceeded the
Companys financial plan for 2010 include: Mr. Curtis, $137,500; Mr. Reagan, $68,421; Mr.
Boyle, $18,150; and Mr. Weems $75,000. |
|
|
|
Other discretionary bonuses include: $65,000 paid to Mr. Janus in 2010, $50,000 paid to Mr.
Bottorff in 2010, and $15,000 paid to Mr. Boyle in 2008. |
|
|
|
A sign-on bonus of $100,000 was paid to Mr. Weems in connection with his employment, of which
$25,000 paid in 2010 and $75,000 was paid in 2009. |
49
|
|
|
(2) |
|
Stock (equity) awards represent the grant date fair value resulting from awards of Class B or
B-1 membership interests in Vangent Holding LLC in accordance with the Financial Accounting
Standards Board Accounting Standards Codification Topic 718, Compensation Stock
Compensation. |
|
(3) |
|
The date of hire for Mr. Reagan was in September 2008 and for Mr. Weems was in August 2009.
The compensation table reflects their compensation since such dates. |
|
(4) |
|
Mr. Bottorff served as Senior Vice President and General Manager until October 2010. |
|
(5) |
|
Mr. Janus served as Senior Vice President of Civilian, Defense and National Security until
January 2011. As of February 2011, Mr. Janus ceased to be a member of Vangent Holding LLC and
ceased to hold any Class B or Class B-1 membership interests in Vangent Holding LLC. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Compensation |
|
|
|
|
|
|
|
|
|
|
|
Employer |
|
|
|
|
|
|
|
|
|
|
|
|
|
Separation |
|
|
401(k) Matching |
|
|
|
|
|
|
|
Name |
|
Year |
|
|
Payments |
|
|
Contributions |
|
|
Other |
|
|
Total |
|
John M. Curtis |
|
|
2010 |
|
|
$ |
|
|
|
$ |
11,025 |
|
|
$ |
1,907 |
(1) |
|
$ |
12,932 |
|
|
|
|
2009 |
|
|
|
|
|
|
|
11,025 |
|
|
|
1,907 |
(1) |
|
|
12,932 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
10,350 |
|
|
|
1,907 |
(1) |
|
|
12,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James C. Reagan |
|
|
2010 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
2009 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Bottorff |
|
|
2010 |
|
|
|
160,403 |
(2) |
|
|
10,858 |
|
|
|
|
|
|
|
171,261 |
|
|
|
|
2009 |
|
|
|
|
|
|
|
10,409 |
|
|
|
|
|
|
|
10,409 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
10,350 |
|
|
|
|
|
|
|
10,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin T. Boyle |
|
|
2010 |
|
|
|
|
|
|
|
9,800 |
|
|
|
|
|
|
|
9,800 |
|
|
|
|
2009 |
|
|
|
|
|
|
|
10,974 |
|
|
|
|
|
|
|
10,974 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
10,061 |
|
|
|
|
|
|
|
10,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig A. Janus |
|
|
2010 |
|
|
|
|
|
|
|
2,450 |
|
|
|
|
|
|
|
2,450 |
|
|
|
|
2009 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
2008 |
|
|
|
|
|
|
|
10,211 |
|
|
|
|
|
|
|
10,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kerry Weems |
|
|
2010 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
|
|
|
11,025 |
|
|
|
|
2009 |
|
|
|
|
|
|
|
8,567 |
|
|
|
|
|
|
|
8,567 |
|
|
|
|
(1) |
|
Other for Mr. Curtis represents reimbursement of commuter parking. |
|
(2) |
|
In connection with his separation from service in October 2010, separation payments to Mr.
Bottorff amounted to $160,403, including the estimated cost of temporary post-employment group
health insurance. |
50
GRANTS OF PLAN-BASED AWARDS
The following table summarizes the range of incentive bonus awards for plan-based non-equity
awards granted under the VIC Plan to the NEOs for 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of VIC Plan Incentive Bonus Awards |
|
|
Actual |
|
|
|
Under Plan-Based Non-Equity Awards (1) |
|
|
VIC Plan Bonus |
|
Name |
|
Year |
|
|
Target |
|
|
Maximum |
|
|
Awarded (2) |
|
John M. Curtis |
|
|
2010 |
|
|
$ |
412,500 |
|
|
$ |
550,000 |
|
|
$ |
412,500 |
|
James C. Reagan |
|
|
2010 |
|
|
|
205,265 |
|
|
|
273,686 |
|
|
|
205,265 |
|
Richard J. Bottorff |
|
|
2010 |
|
|
|
111,432 |
|
|
|
187,674 |
|
|
|
111,432 |
|
Kevin T. Boyle |
|
|
2010 |
|
|
|
151,859 |
|
|
|
202,479 |
|
|
|
151,859 |
|
Craig A. Janus |
|
|
2010 |
|
|
|
201,940 |
|
|
|
269,253 |
|
|
|
143,488 |
|
Kerry Weems |
|
|
2010 |
|
|
|
225,000 |
|
|
|
300,000 |
|
|
|
225,000 |
|
|
|
|
(1) |
|
Target and maximum incentive bonus amounts are based on the weighted average of the
respective performance measures as defined under the VIC Plan and discussed under Compensation
Discussion and Analysis, Salary and Incentive Compensation. |
|
(2) |
|
VIC Plan bonuses were awarded at the target level for 2010. |
GRANTS OF OTHER EQUITY-BASED AWARDS
Class B or B-1 Membership Interests in Vangent Holding LLC
Grants of Class B or B-1 membership interests in Vangent Holding LLC have been awarded to NEOs
and certain members of management and independent directors. Vangent Holding LLC holds 100% of the
common stock, but none of the preferred stock, of Vangent Holding Corp. who in turn owns 100% of
Vangents common stock. Grants of Class B or B-1 membership interests are similar in nature to
grants of equity-based awards under an equity-based compensation plan. Pursuant to the terms of the
limited liability company operating agreement governing Vangent Holding LLC, the holders of Class B
or B-1 membership interests are entitled to receive a percentage of all distributions made by
Vangent Holding LLC after the holders of the Class A membership interests have received a return of
their invested capital, provided that the holders of the Class A membership interests have received
an 8% per annum internal rate of return (compounded annually) on their invested capital. Class B
membership interests are granted with no exercise price, no threshold or floor value, and no
expiration date. Class B-1 membership interests are granted with a threshold or floor value and
earn a proportional interest in distributions above the floor valuation. The Class B or B-1
membership interests are subject to a straight-line five-year vesting schedule based on the grant
date, or earlier upon a change of control, with any unvested interests reverting to the holders of
Class A membership interests in the event they are forfeited or repurchased.
Information with respect to Class B or B-1 membership interests in Vangent Holdings LLC
granted to the NEOs for 2010, 2009 and 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Equity-Based Awards (1) |
|
|
|
|
|
|
|
Grants of Membership |
|
|
|
|
|
|
|
|
|
|
Interests in Vangent |
|
|
Grant Date |
|
Name |
|
Grant Date |
|
Class |
|
Holding LLC |
|
|
Fair Value (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James C. Reagan |
|
September 2008 |
|
B |
|
|
0.45 |
% |
|
$ |
335,095 |
|
Craig A. Janus |
|
January 2009 |
|
B |
|
|
0.04 |
% |
|
|
35,882 |
|
Craig A. Janus |
|
January 2008 |
|
B |
|
|
0.35 |
% |
|
|
260,630 |
|
Kerry Weems |
|
December 2010 |
|
B-1 |
|
|
0.35 |
% |
|
|
342,446 |
|
|
|
|
(1) |
|
Percentages represent Class B or B-1 membership interests in Vangent Holding LLC awarded to
the NEOs. Class B or B-1 membership interests vest over a five-year period or earlier upon a
change of control. |
|
(2) |
|
The grant-date fair value of Class B or B-1 membership interests is determined by management
using an income approach based on a cash flow methodology, the ownership percentage in Vangent
Holding LLC, the preference of the Class A membership interests, and a discount for lack of
liquidity of 15% for 2010, 25% for 2009, and 35% for 2008. The Company considers and relies,
in part, on reports of third-party experts in the determination of fair value. |
51
Information with respect to vested and unvested Class B or B-1 membership interests in
Vangent Holding LLC granted to the NEOs and outstanding as of December 31, 2010, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 (1) |
|
|
December 31, 2010 (1) |
|
|
|
|
|
Vested |
|
|
Vested |
|
|
Market Value |
|
|
Vested |
|
|
|
|
|
|
Market Value |
|
|
|
|
|
December 31, |
|
|
During |
|
|
of Vested |
|
|
December 31, |
|
|
|
|
|
|
of Unvested |
|
Name |
|
Class |
|
2009 |
|
|
2010 |
|
|
During 2010 |
|
|
2010 |
|
|
Unvested |
|
|
(2) |
|
John M. Curtis |
|
B |
|
|
0.60 |
% |
|
|
0.30 |
% |
|
$ |
457,500 |
|
|
|
0.90 |
% |
|
|
0.60 |
% |
|
$ |
915,000 |
|
James C. Reagan |
|
B |
|
|
0.09 |
% |
|
|
0.09 |
% |
|
|
137,250 |
|
|
|
0.18 |
% |
|
|
0.27 |
% |
|
|
411,750 |
|
Richard J. Bottorff |
|
B |
|
|
0.12 |
% |
|
|
0.06 |
% |
|
|
91,500 |
|
|
|
0.18 |
% |
|
|
|
|
|
|
|
|
Kevin T. Boyle |
|
B |
|
|
0.04 |
% |
|
|
0.02 |
% |
|
|
30,500 |
|
|
|
0.06 |
% |
|
|
0.04 |
% |
|
|
61,000 |
|
Craig A. Janus |
|
B |
|
|
0.14 |
% |
|
|
0.07 |
% |
|
|
106,750 |
|
|
|
0.21 |
% |
|
|
0.18 |
% |
|
|
274,500 |
|
Kerry Weems |
|
B-1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.35 |
% |
|
|
342,446 |
|
|
|
|
(1) |
|
Percentages represent Class B or B-1 membership interests in Vangent Holdings LLC that vest
ratably over a five-year period or earlier upon a change of control. |
|
(2) |
|
The market values of Class B or B-1 membership interests that vested during 2010 and the
market values of Class B or B-1 membership interests that were unvested at December 31, 2010,
were determined by management using an income approach based on a cash flow methodology, the
ownership percentage in Vangent Holding LLC, the preference of the Class A membership
interests, and a discount of for lack of liquidity. The Company considers and relies, in part,
on reports of third-party experts in the determination of fair value. |
DIRECTOR COMPENSATION
In 2010, the directors of Vangent Holding Corp. who were neither members of our management nor
employees of Veritas Capital were paid an annual fee of $25,000 and a fee of $2,500 for each
meeting attended. The directors of Vangent Holding Corp. who serve on our audit committee were paid
$2,500 quarterly, except for the chairman of the audit committee, who was paid $5,000 quarterly.
The remaining directors were not separately compensated for their services as directors although
they are reimbursed for expenses for attending board and committee meetings.
Information with respect to director compensation for 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees |
|
|
Stock |
|
|
|
|
|
|
Earned or |
|
|
(Equity) |
|
|
|
|
Name |
|
Paid in Cash |
|
|
Awards (1) |
|
|
Total |
|
Robert B. McKeon (2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Michael J. Bayer |
|
|
42,500 |
|
|
|
|
|
|
|
42,500 |
|
Ambassador R. Nicholas Burns |
|
|
40,000 |
|
|
|
|
|
|
|
40,000 |
|
Paul V. Lombardi |
|
|
37,500 |
|
|
|
|
|
|
|
37,500 |
|
Ramzi M. Musallam (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Charles S. Ream |
|
|
55,000 |
|
|
|
|
|
|
|
55,000 |
|
|
|
|
(1) |
|
There were no grants of Class B or B-1 membership interests in Vangent Holdings LLC to
independent directors for 2010. |
|
(2) |
|
Mr. McKeon and Mr. Musallam are associated with Veritas Capital and are not paid by Vangent
for their services as directors. Vangent is a 100%-owned subsidiary of Vangent Holding Corp.,
Vangent Holding LLC holds 100% of the common stock, but none of the preferred stock, in
Vangent Holding Corp. and is 90% owned by The Veritas Capital Fund III, L.P. Mr. McKeon is
the president of Veritas Capital Partners III, LLC, and Mr. Musallam is a partner at Veritas
Capital. Vangent pays an annual management fee of $1.0 million to Veritas Capital. |
52
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity or insider participation in
compensation decisions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Vangent, Inc. is a 100%-owned subsidiary of Vangent Holding Corp., and an indirect subsidiary
of Vangent Holding LLC. Vangent Holding LLC owns all of the common stock of Vangent Holding Corp.
Pearson owns Series A preferred stock of Vangent Holding Corp. having a stated value of $35.0
million and Series B preferred stock of Vangent Holding Corp. having a stated value of $5.0
million.
The following table sets forth information as of March 15, 2011, with respect to the
beneficial ownership of the Class A and Class B or B-1 membership interests in Vangent Holding LLC
by:
|
|
each person who is known by us to beneficially own 5% or more of Vangent Holding LLC
outstanding equity; |
|
|
each member of our board of directors, the board of directors of Vangent Holding Corp., and
the manager of Vangent Holding LLC; |
|
|
each of the NEOs in the Summary Compensation Table; and |
|
|
all executive officers and directors as a group. |
To the Companys knowledge, each of the holders of Class A and Class B or B-1 membership
interests in Vangent Holding LLC listed below has sole voting and investment power as to the
interests owned unless otherwise noted.
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
Percent of |
|
|
|
Class A |
|
|
Class B or B-1 |
|
Name of Beneficial Owner(1) |
|
Interests(2) |
|
|
Interests(2) |
|
Veritas Capital Partners III, L.L.C.(3)(4)(5) |
|
|
90 |
% |
|
|
|
|
Pearson Inc.(6) |
|
|
10 |
% |
|
|
|
|
Robert B. McKeon(3)(7) |
|
|
90 |
% |
|
|
|
|
John M. Curtis |
|
|
* |
|
|
|
24 |
% |
James C. Reagan |
|
|
|
|
|
|
7 |
% |
Richard J. Bottorff |
|
|
|
|
|
|
3 |
% |
Kevin T. Boyle |
|
|
|
|
|
|
3 |
% |
Craig A. Janus |
|
|
|
|
|
|
|
|
Kerry Weems |
|
|
|
|
|
|
6 |
% |
David Fabianski |
|
|
|
|
|
|
5 |
% |
Jeff Bohling |
|
|
|
|
|
|
* |
|
Michael J. Bayer |
|
|
|
|
|
|
|
|
Ambassador R. Nicholas Burns |
|
|
|
|
|
|
|
|
Paul V. Lombardi |
|
|
|
|
|
|
|
|
Ramzi M. Musallam(3) |
|
|
|
|
|
|
|
|
Charles S. Ream |
|
|
|
|
|
|
|
|
All executive officers and directors as a group (14 persons)(8) |
|
|
90 |
% |
|
|
48 |
% |
|
|
|
* |
|
Denotes beneficial ownership of less than 1%. |
|
(1) |
|
Except as otherwise indicated, the address for each of the named beneficial owners is 4250
North Fairfax Drive, Suite 1200, Arlington, Virginia 22203. |
53
|
|
|
(2) |
|
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission. Class A and Class B or B-1 membership interests represent 93.7% and 6.3% of Vangent
Holding LLC membership interests, respectively. |
|
(3) |
|
The address for Veritas Capital Partners III, L.L.C. and Messrs. McKeon and Musallam is c/o
The Veritas Capital Fund III, L.P., and the address for The Veritas Capital Fund III, L.P. is 590
Madison Avenue, New York, New York, 10022. |
|
(4) |
|
Veritas Capital Partners III, L.L.C.s interest in Vangent, Inc. is held indirectly through
Vangent Holding LLC. The Veritas Capital Fund III, L.P., a Delaware limited partnership of which
Veritas Capital Partners III, L.L.C. is the general partner, is the manager of Vangent Holding LLC. |
|
(5) |
|
Through the provisions of the limited liability company agreement governing Vangent Holding
LLC, The Veritas Capital Fund III, L.P. controls the vote of all of the interests of Vangent
Holding LLC. |
|
(6) |
|
The address for Pearson Inc. is 1330 Avenue of the Americas, New York, New York 10019. |
|
(7) |
|
Robert B. McKeon, Chairman of the board of directors of Vangent Holding Corp., is the
President of Veritas Capital Partners III, LLC, and as such may be deemed a beneficial owner of the
Class A membership interests owned by Veritas Capital Partners III, L.L.C. or voted under the
direction of Veritas Capital Partners III, LLC Mr. McKeon disclaims this beneficial ownership
except to the extent of his pecuniary interest in The Veritas Capital Fund III, L.P. and Vangent
Holding LLC. |
|
(8) |
|
Includes Class A membership interests held by The Veritas Capital Fund III, L.P. and its
affiliates and a third party investor, beneficial ownership of which may be deemed to be held by
Mr. McKeon, as the President of Veritas Capital Partners III, L.L.C. See footnote 7 above. Mr.
McKeon disclaims this beneficial ownership except to the extent of his pecuniary interest in The
Veritas Capital Fund III, L.P. and Vangent Holding LLC. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Transactions with Related Parties
A summary of transactions with related parties follows:
|
|
|
Vangent is a 100%-owned subsidiary of Vangent Holding Corp. Vangent Holding LLC holds
100% of the common stock, but none of the preferred stock, in Vangent Holding Corp. and is
90% owned by The Veritas Capital Fund III, L.P. |
|
|
|
Robert B. McKeon is the sole member of the board of directors of Vangent, is chairman of
the board of Vangent Holding Corp., and is the president of Veritas Capital Partners III,
LLC. Mr. Musallam is a director of Vangent Holding Corp. and is a partner at Veritas
Capital. |
|
|
|
Certain members of management of Vangent and independent directors of Vangent Holding
Corp. have been granted Class B or B-1 membership interests in Vangent Holding LLC. |
|
|
|
Vangent paid an annual management fee of $1.0 million to Veritas Capital for 2010, plus
fees of $0.1 million for advisory services. |
|
|
|
Vangent purchased administrative services under contracts and leases with Pearson,
amounting to $7.4 million for 2010. Pearson holds $35.0 million of Series A preferred stock
and $5.0 million of Series B preferred stock in Vangent Holding Corp., and holds 10% of the
Class A membership interests in Vangent Holding LLC. |
Independent Directors
In accordance with the definition of independent director under the New York Stock Exchange
listing standards, the following directors have no direct or indirect material relationship with
us: Michael J. Bayer, Ambassador R. Nicholas Burns, Paul V. Lombardi, and Charles S.
Ream.
54
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
For services rendered for 2010 and 2009 by PricewaterhouseCoopers LLP, our independent
registered public accounting firm, we incurred fees as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Audit fees (1) |
|
$ |
1,306 |
|
|
$ |
1,441 |
|
Audit-related fees (2) |
|
|
257 |
|
|
|
164 |
|
Tax fees (3) |
|
|
52 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
$ |
1,615 |
|
|
$ |
1,685 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees are for services relating to the annual audits of the consolidated financial
statements, quarterly reviews of interim financial statements, consultations on accounting
matters, and international statutory audits. |
|
(2) |
|
Audit-related fees include acquisition due diligence, consultations on acquisitions, and
employee benefit plans. |
|
(3) |
|
Tax fees are for consultations on discontinued operations. |
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements. The consolidated financial statements begin on page F-1 of this annual report
on Form 10-K.
Financial Statement Schedules. None
Exhibits.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
1.1 |
* |
|
Purchase Agreement, dated as of February 7, 2007, by and among Vangent, Inc., Blueprint Technologies,
Inc. and PAS, Inc. and Wachovia Capital Markets, LLC and Goldman, Sachs & Co. |
|
2.1 |
* |
|
Agreement and Plan of Merger, dated August 5, 2010, by and among Vangent, Inc., VBSCC Acquisition
Corp., and Buccaneer Computer Systems & Service, Inc. (incorporated by reference to Exhibit 2.1 to
current report on Form 8-K filed September 21, 2010). |
|
3.1 |
* |
|
Certificate of Incorporation of Vangent, Inc. |
|
4.1 |
* |
|
Indenture, dated February 14, 2007, by and among Vangent, Inc., PAS, Inc., Blueprint Technologies,
Inc. and The Bank of New York, as Trustee. |
|
4.2 |
* |
|
Form of 95¤8% Senior Subordinated Notes due 2015 (included in Exhibit 4.1) |
|
4.3 |
* |
|
Registration Rights Agreement, dated as of February 14, 2007, by and among Vangent, Inc., PAS, Inc.,
Blueprint Technologies, Inc. and Wachovia Capital Markets, LLC and Goldman, Sachs & Co. |
|
4.4 |
* |
|
Form of Guarantee (included in Exhibit 4.1). |
|
10.1 |
* |
|
Stock Purchase Agreement, dated as of December 8, 2006, by and among Pearson Inc., the other Seller
entities listed on Attachment A thereto, Vangent Holding Corp., and, solely for the purposes of
Section 10.2(b) and Article XII thereof, The Veritas Capital Fund III, L.P. |
|
10.2 |
* |
|
Credit Agreement, dated as of February 14, 2007, by and among Vangent, Inc., Vangent Holding Corp.,
the subsidiaries of Vangent, Inc. named therein and Wachovia Bank, National Association, as agent. |
|
10.3 |
|
|
Amendment No. 1, dated July 28, 2010, to the Credit Agreement, dated February 14, 2007, by and among
Vangent, Inc., Vangent Holding Corp., Wells Fargo Securities, LLC, Goldman Sachs Credit Partners L.P,
Wells Fargo Bank, N.A. (successor to Wachovia Bank, National Association), and the lenders that are
party (incorporated by reference to Exhibit 10.3 to current report on Form 8-K filed August 3, 2010). |
|
21.1 |
** |
|
Subsidiaries of Vangent, Inc. |
|
31.1 |
** |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
** |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
** |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
** |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Previously filed as an exhibit to the Companys registration statement on Form S-4 (File No.
333-145355) filed August 13, 2007. |
|
** |
|
Filed herewith. |
55
SIGNATURES
Pursuant to the requirements of the Section 13 or 15 (d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
Vangent, Inc.
|
|
|
/s/ John M. Curtis
|
|
March 22, 2011 |
John M. Curtis |
|
|
President and Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
date indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ John M. Curtis
John M. Curtis
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
March 22, 2011 |
|
|
|
|
|
/s/ James C. Reagan
James C. Reagan
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
|
|
March 22, 2011 |
|
|
|
|
|
/s/ Robert B. McKeon
|
|
Director
|
|
March 22, 2011 |
Robert B. McKeon |
|
|
|
|
56
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
21.1 |
|
|
Subsidiaries of Vangent, Inc. |
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
57
Vangent, Inc.
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Page |
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder of Vangent, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations, of equity and comprehensive income (loss), and of cash flows present
fairly, in all material respects, the financial position of Vangent, Inc. and its subsidiaries (the
Company) at December 31, 2010 and 2009 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
McLean, Virginia
March 22, 2011
F-2
Vangent, Inc.
Consolidated Balance Sheets
(in thousands, except share and per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,194 |
|
|
$ |
44,638 |
|
Trade receivables, net |
|
|
122,940 |
|
|
|
109,846 |
|
Prepaid expenses and other assets |
|
|
12,572 |
|
|
|
10,353 |
|
Assets of discontinued operations |
|
|
329 |
|
|
|
15,036 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
163,035 |
|
|
|
179,873 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
28,031 |
|
|
|
25,124 |
|
Intangible assets, net |
|
|
150,847 |
|
|
|
151,860 |
|
Goodwill |
|
|
297,076 |
|
|
|
268,212 |
|
Deferred tax asset |
|
|
21,923 |
|
|
|
|
|
Deferred debt financing costs and other |
|
|
8,823 |
|
|
|
8,433 |
|
Assets of discontinued operations |
|
|
|
|
|
|
6,727 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
669,735 |
|
|
$ |
640,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
1,401 |
|
|
$ |
13,534 |
|
Accounts payable and accrued liabilities |
|
|
80,672 |
|
|
|
64,849 |
|
Accrued interest payable |
|
|
7,781 |
|
|
|
8,186 |
|
Deferred tax liability |
|
|
|
|
|
|
5,628 |
|
Deferred revenue |
|
|
7,964 |
|
|
|
3,976 |
|
Liabilities of discontinued operations |
|
|
1,880 |
|
|
|
7,521 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
99,698 |
|
|
|
103,694 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
405,353 |
|
|
|
406,832 |
|
Other long-term liabilities |
|
|
5,453 |
|
|
|
7,194 |
|
Deferred tax liability |
|
|
1,860 |
|
|
|
12,144 |
|
Liabilities of discontinued operations |
|
|
|
|
|
|
502 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
512,364 |
|
|
|
530,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 1,000 shares authorized,
100 shares issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
208,272 |
|
|
|
207,376 |
|
Accumulated other comprehensive loss |
|
|
(8,917 |
) |
|
|
(14,949 |
) |
Accumulated deficit |
|
|
(42,535 |
) |
|
|
(82,564 |
) |
|
|
|
|
|
|
|
Total Vangent stockholders equity |
|
|
156,820 |
|
|
|
109,863 |
|
Noncontrolling interest |
|
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
157,371 |
|
|
|
109,863 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
669,735 |
|
|
$ |
640,229 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-3
Vangent, Inc.
Consolidated Statements of Operations
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
761,841 |
|
|
$ |
583,986 |
|
|
$ |
532,049 |
|
Cost of revenue |
|
|
639,377 |
|
|
|
490,500 |
|
|
|
440,495 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
122,464 |
|
|
|
93,486 |
|
|
|
91,554 |
|
General and administrative expenses |
|
|
45,354 |
|
|
|
40,387 |
|
|
|
46,440 |
|
Selling and marketing expenses |
|
|
19,905 |
|
|
|
18,003 |
|
|
|
14,930 |
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
5,320 |
|
|
|
11,227 |
|
|
|
13,766 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
51,885 |
|
|
|
23,869 |
|
|
|
16,418 |
|
Interest expense |
|
|
31,570 |
|
|
|
34,414 |
|
|
|
35,954 |
|
Interest and other income |
|
|
(430 |
) |
|
|
(125 |
) |
|
|
(710 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
20,745 |
|
|
|
(10,420 |
) |
|
|
(18,826 |
) |
Provision (benefit) for income taxes |
|
|
(31,486 |
) |
|
|
6,794 |
|
|
|
4,939 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
52,231 |
|
|
|
(17,214 |
) |
|
|
(23,765 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, including loss on sale
or disposal of $22,151 in 2010 and $4,965 in 2009 |
|
|
(20,034 |
) |
|
|
(16,834 |
) |
|
|
(2,127 |
) |
Provision (benefit) for income taxes |
|
|
(7,806 |
) |
|
|
(40 |
) |
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
|
(12,228 |
) |
|
|
(16,794 |
) |
|
|
(2,742 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
40,003 |
|
|
|
(34,008 |
) |
|
|
(26,507 |
) |
Net loss attributed to noncontrolling interest |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Vangent |
|
$ |
40,029 |
|
|
$ |
(34,008 |
) |
|
$ |
(26,507 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-4
Vangent, Inc.
Consolidated Statements of Equity and Comprehensive Income (Loss)
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accum- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ulated |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Vangent |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Compre- |
|
|
Accum- |
|
|
Stock- |
|
|
Non- |
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
hensive |
|
|
ulated |
|
|
holders |
|
|
controlling |
|
|
Total |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Equity |
|
|
Interest |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
100 |
|
|
$ |
205,275 |
|
|
$ |
(2,937 |
) |
|
$ |
(22,049 |
) |
|
$ |
180,289 |
|
|
$ |
|
|
|
$ |
180,289 |
|
Effect of hedging activities, net of tax |
|
|
|
|
|
|
|
|
|
|
(5,413 |
) |
|
|
|
|
|
|
(5,413 |
) |
|
|
|
|
|
|
(5,413 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
(4,785 |
) |
|
|
|
|
|
|
(4,785 |
) |
|
|
|
|
|
|
(4,785 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,507 |
) |
|
|
(26,507 |
) |
|
|
|
|
|
|
(26,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,705 |
) |
|
|
|
|
|
|
(36,705 |
) |
Equity-based compensation |
|
|
|
|
|
|
1,053 |
|
|
|
|
|
|
|
|
|
|
|
1,053 |
|
|
|
|
|
|
|
1,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
100 |
|
|
|
206,328 |
|
|
|
(13,135 |
) |
|
|
(48,556 |
) |
|
|
144,637 |
|
|
|
|
|
|
|
144,637 |
|
Effect of hedging activities, net of tax |
|
|
|
|
|
|
|
|
|
|
3,748 |
|
|
|
|
|
|
|
3,748 |
|
|
|
|
|
|
|
3,748 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
(5,562 |
) |
|
|
|
|
|
|
(5,562 |
) |
|
|
|
|
|
|
(5,562 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,008 |
) |
|
|
(34,008 |
) |
|
|
|
|
|
|
(34,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,822 |
) |
|
|
|
|
|
|
(35,822 |
) |
Equity-based compensation |
|
|
|
|
|
|
1,048 |
|
|
|
|
|
|
|
|
|
|
|
1,048 |
|
|
|
|
|
|
|
1,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
100 |
|
|
|
207,376 |
|
|
|
(14,949 |
) |
|
|
(82,564 |
) |
|
|
109,863 |
|
|
|
|
|
|
|
109,863 |
|
Effect of hedging activities, net of tax |
|
|
|
|
|
|
|
|
|
|
3,021 |
|
|
|
|
|
|
|
3,021 |
|
|
|
|
|
|
|
3,021 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
2,835 |
|
|
|
|
|
|
|
2,835 |
|
|
|
|
|
|
|
2,835 |
|
Defined benefit plan overfunding, net of tax |
|
|
|
|
|
|
|
|
|
|
176 |
|
|
|
|
|
|
|
176 |
|
|
|
|
|
|
|
176 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,029 |
|
|
|
40,029 |
|
|
|
(26 |
) |
|
|
40,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,061 |
|
|
|
(26 |
) |
|
|
46,035 |
|
Buccaneer acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
727 |
|
|
|
727 |
|
Distribution to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150 |
) |
|
|
(150 |
) |
Equity-based compensation |
|
|
|
|
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
896 |
|
|
|
|
|
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
100 |
|
|
$ |
208,272 |
|
|
$ |
(8,917 |
) |
|
$ |
(42,535 |
) |
|
$ |
156,820 |
|
|
$ |
551 |
|
|
$ |
157,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-5
Vangent, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
40,003 |
|
|
$ |
(34,008 |
) |
|
$ |
(26,507 |
) |
Loss from discontinued operations, net of tax |
|
|
(12,228 |
) |
|
|
(16,794 |
) |
|
|
(2,742 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
52,231 |
|
|
|
(17,214 |
) |
|
|
(23,765 |
) |
Adjustments to reconcile income (loss) from continuing
operations to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
5,320 |
|
|
|
11,227 |
|
|
|
13,766 |
|
Amortization of intangible assets |
|
|
22,823 |
|
|
|
21,083 |
|
|
|
21,031 |
|
Depreciation and amortization of property and equipment |
|
|
11,975 |
|
|
|
10,800 |
|
|
|
12,527 |
|
Amortization of deferred debt financing costs |
|
|
2,502 |
|
|
|
2,160 |
|
|
|
2,251 |
|
Equity-based compensation expense |
|
|
896 |
|
|
|
1,048 |
|
|
|
1,053 |
|
Deferred income taxes |
|
|
(32,591 |
) |
|
|
5,822 |
|
|
|
3,806 |
|
Changes in operating assets and liabilities, excluding effect
of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
5,177 |
|
|
|
14,401 |
|
|
|
(18,942 |
) |
Prepaid expenses and other assets |
|
|
(338 |
) |
|
|
2,852 |
|
|
|
1,287 |
|
Accounts payable and other liabilities |
|
|
4,788 |
|
|
|
(2,751 |
) |
|
|
5,396 |
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
|
72,783 |
|
|
|
49,428 |
|
|
|
18,410 |
|
Discontinued operations, net |
|
|
(1,892 |
) |
|
|
(9,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
70,891 |
|
|
|
40,387 |
|
|
|
18,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition, net of cash acquired |
|
|
(60,153 |
) |
|
|
|
|
|
|
(3,892 |
) |
Capital expenditures |
|
|
(12,449 |
) |
|
|
(10,682 |
) |
|
|
(9,053 |
) |
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
|
(72,602 |
) |
|
|
(10,682 |
) |
|
|
(12,945 |
) |
Discontinued operations, net |
|
|
(516 |
) |
|
|
(5,101 |
) |
|
|
(585 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(73,118 |
) |
|
|
(15,783 |
) |
|
|
(13,530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing under revolving credit facility |
|
|
16,000 |
|
|
|
|
|
|
|
|
|
Repayment of borrowing under revolving credit facility |
|
|
(16,000 |
) |
|
|
|
|
|
|
|
|
Repayment of senior secured term loan |
|
|
(13,612 |
) |
|
|
|
|
|
|
(7,834 |
) |
Deferred debt financing costs and other |
|
|
(2,192 |
) |
|
|
(188 |
) |
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities, continuing operations |
|
|
(15,804 |
) |
|
|
(188 |
) |
|
|
(8,088 |
) |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(38 |
) |
|
|
34 |
|
|
|
(1,751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(18,069 |
) |
|
|
24,450 |
|
|
|
(4,959 |
) |
Total cash and cash equivalents, beginning of year |
|
|
45,584 |
|
|
|
21,134 |
|
|
|
26,093 |
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, end of year |
|
|
27,515 |
|
|
|
45,584 |
|
|
|
21,134 |
|
Less: Cash and cash equivalents, discontinued operations |
|
|
321 |
|
|
|
946 |
|
|
|
1,688 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, continuing operations |
|
$ |
27,194 |
|
|
$ |
44,638 |
|
|
$ |
19,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements provided by lessor under operating leases |
|
$ |
870 |
|
|
$ |
855 |
|
|
$ |
2,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, continuing operations |
|
$ |
29,448 |
|
|
$ |
32,713 |
|
|
$ |
34,133 |
|
Income taxes paid: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
1,040 |
|
|
|
831 |
|
|
|
585 |
|
Discontinued operations |
|
|
554 |
|
|
|
398 |
|
|
|
501 |
|
The accompanying notes are an integral part of these financial statements.
F-6
Vangent, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
1. Organization and Basis of Presentation
Basis of Presentation
Vangent, Inc. (Vangent or Company) is a 100%-owned subsidiary of Vangent Holding Corp.
Vangent Holding LLC holds 100% of the common stock, but none of the preferred stock, in Vangent
Holding Corp. and is 90% owned by The Veritas Capital Fund III, L.P. and 10% owned by Pearson plc.
Nature of Operations
Vangent is a global provider of consulting, systems integration, human capital management and
business process services to the U.S. federal and international governments, higher education
institutions and corporations.
The Companys primary customer focus is U.S. governmental agencies. The Department of Health and
Human Services (HHS) represented 36%, the Department of Commerce (DoC) represented 24%, and the
Department of Education (DoED) represented 13% of total revenue for the year ended December 31,
2010.
2. Summary of Significant Accounting Policies
Fiscal Year and Quarterly Periods
The Companys fiscal year begins on January 1 and ends on December 31. Quarterly periods are
based on a four-week, four-week, five-week methodology ending on the Saturday nearest to the end of
the quarter to align with the Companys domestic business processes. Foreign subsidiaries are
consolidated based on the calendar quarter.
Principles of Consolidation
The consolidated financial statements include the balance sheet accounts and the results of
operations and cash flows of Vangent, its domestic and foreign subsidiaries, and variable interest
entities for which the Company has determined it is the primary beneficiary. Business operations in
Latin America are segregated and reported as discontinued operations. All intercompany balances and
transactions have been eliminated.
The Company has interests in three joint ventures that provide government contract services in
the United States, United Kingdom and the United Arab Emirates. The Company has guaranteed
performance under contracts for which the joint ventures earn revenue from government customers.
The three joint ventures are fully consolidated in the financial statements; the consolidated
balance sheet includes joint-venture assets of $12,129 and liabilities of $8,419 at December 31,
2010. The Company holds less than a majority ownership interest in the two foreign joint ventures;
however, the Company is entitled to a majority of the income and losses and has determined that it
is the primary beneficiary of each of the joint ventures. The Company holds a 70% interest in the
domestic joint venture; the remaining ownership share is reported as noncontrolling interest in the
consolidated financial statements.
Revenue Recognition
Revenue is derived primarily from contracts with the U.S. Government. Revenue from service
contracts is recognized when earned, generally as work is performed in accordance with the FASB
Accounting Standards Codification Topic 605-10, Revenue Overall (Securities and Exchange
Commission Staff Accounting Bulletin No. 104, Revenue Recognition). Revenue is recognized when
persuasive evidence of an arrangement exists, services have been rendered, the contract price is
fixed or determinable, and collectibility is reasonably assured.
Contracts with customers are fixed-price, cost-plus, or time-and-materials contracts. Revenue
and profit on fixed-price service contracts under which the Company is paid a specific amount to
provide services are recognized ratably as services are performed or as units are delivered.
Revenue and profit under cost-plus service contracts is recognized as costs are incurred plus
negotiated fees. Fixed fees on cost-plus service contracts are recognized ratably as services are
performed. Incentive fees on cost-plus service contracts are recognized when awarded by the
customer or, if determinable as of the reporting date, are recognized ratably as services are
performed. Revenue for time-and-materials
contracts is recognized on the basis of allowable labor hours multiplied by the contracted
billing rates, plus costs for items used in the performance of the contract. Profit on
time-and-materials contracts result from the difference between the cost of services performed and
the contracted billing rates for the services.
F-7
Revenue and profit on fixed-price systems development contracts within the scope of the FASB
Accounting Standards Codification Topic 605-35, Revenue Recognition Construction-Type and
Production-Type Contracts (formerly Statement of Position No. 81-1, Accounting for Performance of
Construction Type and Certain Production-Type Contracts), are recognized under the
percentage-of-completion method based on the ratio of actual costs incurred to the total estimated
costs at completion of the contract, multiplied by estimated total contract revenue. Provision for
the full amount of an anticipated loss on a contract is recognized in the period in which the loss
becomes probable and can be reasonably estimated.
Revenue recognition requires significant judgment relative to assessing risks, estimating
contract revenue and costs, and assumptions for schedule and technical issues. Due to the size and
nature of contracts, estimates of revenue and costs are subject to a number of variables. Contract
costs include labor and related employee benefits, subcontracting costs and other direct costs, as
well as allocations of allowable indirect costs. For contract change orders, claims or similar
items, judgment is required for estimating the amounts, assessing the potential for realization,
and determining whether realization is probable. From time to time, facts develop that require
revisions of revenue recognized or cost estimates. To the extent that a revised estimate affects
the current or an earlier period, the cumulative effect of the revision is recognized in the period
in which the facts requiring the revision become known. Contracts may include a combination of one
or more of services or deliverables. Judgment is required to determine if a contract with more than
one element should be considered separate units of accounting with revenue allocated to each
element.
Invoices to customers are prepared in accordance with the terms of the contract which may not
be directly related to the performance of services or the recognition of revenue. Unbilled
receivables are invoiced to customers based upon the achievement of specific criteria defined by
the contract including deliverables, milestones, timetables, or the incurrence of certain costs.
Payments received from customers in advance of delivery or the performances of services are
classified as deferred revenue. Reimbursements of certain costs, including certain hardware costs
or out-of-pocket expenses are included in revenue with corresponding costs included in cost of
revenue as costs are incurred.
Cost of Revenue
Cost of revenue includes labor, facilities, other direct contract costs, overhead, management
and support, amortization of intangible assets, depreciation of property and equipment, and other
costs attributable to serving our customers. Labor includes salaries, wages and related employee
benefits associated with the professional and customer service staff. Facilities costs include rent
for commercial office space and a portion of headquarters costs. Other direct contract costs
include travel, hardware and software, and costs of subcontractors. The number and types of
personnel, including their salaries and other costs, have a significant impact on cost of revenue.
Equity-Based Compensation
Vangent charges equity-based compensation expense for awards of Class B or B-1membership
interests in Vangent Holdings LLC granted to certain employees and independent directors based on
the grant-date fair value. Class B or B-1membership interests represent a net profits interest in
Vangent Holdings LLC and are granted with no exercise price and no expiration date. Equity-based
compensation expense is amortized on a straight line basis over the total requisite service period
for the award.
Derivative Financial Instruments
The Company uses derivatives as hedge instruments to manage interest rate risk and certain
foreign currency exchange rate risks and does not enter into derivative transactions for trading or
speculative purposes. The fair value of derivatives is based on quoted prices for similar assets or
liabilities in active markets adjusted for nonperformance risk.
The effective portion of the gain/loss on derivatives that qualify as cash flow hedges is
reported as a component of other comprehensive income/loss and is subsequently reclassified to the
statement of operations in the period or periods in which the hedged transaction affects the
statement of operations. The ineffective portion of the gain/loss on
derivatives and the amount excluded from effectiveness testing are recognized in the statement
of operations. Cash flows relating to derivative financial instruments are classified in the same
category as the hedged transaction.
F-8
Cash and Cash Equivalents
Cash and cash equivalents are composed of highly liquid instruments with original maturities
of 90 days or less. Cash in bank accounts at times may exceed federally insured limits. Cash
equivalents or marketable securities are comprised primarily of repurchase agreements and
institutional money market funds with major commercial banks under which cash is invested in U.S.
Treasury and U.S. government agency securities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist principally of cash equivalents and trade receivables. The Company believes its credit
risks on trade receivables are limited since revenue and receivables are derived primarily from
U.S. government agencies. The Company does not have any off balance sheet credit exposure related
to its trade receivables.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable include amounts billed or billable to customers and unbilled receivables
representing recoverable costs incurred and accrued profit relating to amounts that are not
contractually billable pending the completion of milestones, contract authorizations or retainage.
An allowance for doubtful accounts is maintained for trade accounts receivable as necessary
for amounts not deemed probable of collection. In determining the allowance, management considers
the probability of recoverability based on past experience and general economic conditions. The
Company believes that the allowance is adequate and does not anticipate incurring significant
losses on accounts receivable in excess of the allowance.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation and amortization.
Major improvements are capitalized, and maintenance and repairs and minor improvements are charged
to expense as incurred. Depreciation and amortization is based on the straight-line method over
estimated useful lives and begins in the month the asset is put into service. Amortization of
leasehold improvements is based on the straight-line method over the shorter of the lease term or
estimated useful lives. When assets are retired or otherwise disposed of, the asset cost and
related accumulated depreciation and amortization are eliminated from the accounts and any
resulting gain or loss is reflected in the statement of operations. A summary of property and
equipment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life |
|
|
December 31, |
|
|
|
(in years) |
|
|
2010 |
|
|
2009 |
|
Software |
|
|
3 to 5 |
|
|
$ |
21,141 |
|
|
$ |
21,024 |
|
Equipment and furniture |
|
|
3 to 10 |
|
|
|
35,091 |
|
|
|
27,109 |
|
Leasehold improvements |
|
|
3 to 15 |
|
|
|
14,168 |
|
|
|
10,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,400 |
|
|
|
58,251 |
|
Accumulated depreciation and amortization |
|
|
|
|
|
|
(42,369 |
) |
|
|
(33,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
$ |
28,031 |
|
|
$ |
25,124 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
Intangible assets are amortized over their estimated useful lives unless the useful life is
determined to be indefinite. Amortization of definite-life intangible assets resulting from the
Vangent acquisition in 2007 is based on the straight-line method.
Amortization of a definite-life
intangible asset for customer relationships resulting from the Buccaneer Acquisition in September 2010 is based on an
accelerated method. Amortization is included in cost of revenue in the consolidated statements of
operations.
F-9
Impairment of Long-Lived Assets
The carrying amounts of long-lived assets, consisting of property and equipment and
definite-life intangible assets are evaluated when events and circumstances indicate a potential
impairment. The carrying amount is considered impaired when the anticipated undiscounted cash flow
from such asset or asset group is separately identifiable and is less than its carrying amount. A
loss is recognized based on the amount by which the carrying amount exceeds fair value. Fair value
is determined primarily using estimated cash flows associated with the asset, discounted at a rate
commensurate with the risk involved. Changes in estimates of future cash flows could result in
impairment in a future period.
Goodwill and Indefinite Life Intangible Asset
Goodwill is the amount by which the cost of an acquired business exceeds the fair value of
assets acquired and liabilities assumed. The Company tests goodwill and the indefinite-life
intangible asset on an annual basis in the fourth quarter of each year or more frequently if
indicators of impairment exist. If the fair value of the indefinite-life intangible asset exceeds
its carrying amount, the asset is not considered impaired. The impairment test for goodwill is a
two-step process. The first step compares the fair value of each reporting unit with the carrying
amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount,
goodwill is not considered impaired. If the carrying amount for a reporting unit exceeds its fair
value, the second step of the impairment test is performed to determine the amount of the
impairment loss by comparing the fair value of goodwill with the carrying amounts. Fair values are
determined using an income approach based on a discounted cash flow methodology and a market
approach. The Company considers and relies, in part, on reports of a third-party expert to
determine the fair values.
Income Taxes
The Company accounts for income taxes based on an asset and liability approach that is used
for the recognition of deferred tax assets and liabilities for the expected future tax consequences
attributable to differences between the carrying amounts of assets and liabilities for financial
reporting purposes and their respective tax bases, including net operating loss carryforwards.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences of
temporary differences and are measured using enacted statutory tax rates applicable to the future
years in which the deferred amounts are expected to be settled or realized. The effect of a change
in tax rates is recognized in the provision for income tax in the period the change in rates is
enacted.
A purchase accounting tax valuation allowance was established in 2007 in connection with the
Vangent Acquisition, and a full valuation allowance was provided against U.S. deferred tax assets
at December 31, 2008 and 2009. A valuation allowance is recorded against deferred tax assets when
it is more likely than not that a tax benefit will not be realized in the future. The assessment
for a valuation allowance requires judgment on the part of management with respect to tax benefits
that may be realized. The Company considers all available positive and negative evidence, including
future reversals of temporary differences, projected future taxable income, tax planning
strategies, and recent financial results. The Company has recently experienced positive trends in
its continuing operating performance, and the positive trends are likely to continue in future
periods. The Company has concluded at December 31, 2010, based upon all available evidence, that it
is more likely than not that U.S. deferred tax assets will be realizable, except for the portion
relating to a net capital loss carryforward resulting from the sales of discontinued operations in
Latin America. Accordingly, the tax valuation allowance against deferred tax assets was reversed
for the year ended December 31, 2010, since realization is believed to be more likely than not. The
reduction to the tax valuation allowance is recorded as an adjustment to the provision for income
taxes.
Litigation and Contingencies
Amounts associated with litigation and contingencies are recorded as charges to
costs and expenses when management, after taking into consideration the facts and circumstances of
each matter, including any settlement offers, has determined that it is probable that a liability
has been incurred and the amount of the loss can be reasonably estimated. Legal fees are charged
to expense as incurred.
F-10
Foreign Currency Translation
For operations outside the United States with functional currencies other than the U.S.
dollar, results of operations and cash flows are translated at weighted average exchange rates
during the period, and assets and liabilities are translated at exchange rates in effect at the
balance sheet dates. The cumulative effect of these translation adjustments is reported in
accumulated other comprehensive loss.
Other Comprehensive Income (Loss)
Vangent reports total comprehensive income (loss) that consists of net income (loss), the
effect of hedging activities including an additional deferred tax
effect resulting from the reversal of a tax valuation allowance, and the effect of foreign currency translation adjustments. No income
taxes are provided on the cumulative translation adjustment since it is considered to be a
component of a permanent investment.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Such estimates include but
are not limited to revenue recognition, unbilled receivables, allowance for doubtful accounts, cost
estimates to complete for customer contracts, liabilities for contingencies, accrued liabilities
and expenses, incentive compensation, amortization and useful lives of intangible assets,
depreciation and amortization, fair value estimates to test for goodwill impairment, and
realization of deferred tax assets. Estimates have been prepared on the basis of the most current
and best available information and actual results could differ materially from those estimates.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but
before financial statements are issued. Financial statements reflect the effects of subsequent
events that provide additional evidence about conditions at the balance-sheet date (recognized
subsequent events). The effects of subsequent events that provide evidence about conditions that
arose after the balance sheet date (nonrecognized subsequent events) are not reflected in the
financial statements but are disclosed if the financial statements would otherwise be misleading.
3. Acquisitions
Buccaneer Acquisition
On September 15, 2010, Vangent completed the acquisition (Buccaneer Acquisition) of
Buccaneer Computer Systems & Service, Inc. (Buccaneer). Buccaneer is a leading provider of
information technology services, infrastructure, secure data hosting and data analytics for the
government healthcare market. The financial position of Buccaneer is included in the consolidated
balance sheet as of December 31, 2010, and the results of operations and cash flows of Buccaneer
for the period September 15 to December 31, 2010, are included in the consolidated statements of
operations and cash flows for the year ended December 31, 2010.
Vangent acquired all outstanding shares of Buccaneer stock in exchange for total purchase
consideration of $64,635. The amount of the purchase consideration paid at closing was $60,000, of
which $44,000 was paid with available cash and $16,000 was funded with a variable-rate borrowing
drawn on the senior secured revolving credit facility. The revolving credit borrowing was
repaid in full in December 2010. Other cash purchase
consideration paid amounted to $1,050.
A wholly-owned consolidated subsidiary of Buccaneer that owns and leases real property to
Buccaneer was not included in the Buccaneer Acquisition. The capital stock of the subsidiary was
spun off as a dividend prior to closing.
The Buccaneer Acquisition has been accounted for under the acquisition method of accounting
which requires the total purchase consideration to be allocated to the assets acquired and
liabilities assumed based on estimates of fair value. The excess of the purchase consideration over
the amounts assigned to tangible or intangible assets acquired and liabilities assumed is
recognized as goodwill. Acquisition-related costs and expenses amounted to $629 and were charged to
general and administrative expense.
F-11
The allocation of the purchase price is provisional pending, among other things, final
agreement of the
adjustment to the purchase price based upon the level of net working capital transferred at
closing. A summary of the total purchase consideration and the allocation of the purchase
consideration based on estimates of fair value for the assets acquired and the liabilities assumed
follows:
|
|
|
|
|
Purchase Consideration |
|
|
|
|
Cash paid |
|
$ |
61,050 |
|
Other purchase consideration |
|
|
3,585 |
|
|
|
|
|
|
|
$ |
64,635 |
|
|
|
|
|
Other purchase consideration represents estimated future payments relating to the Companys
election under Section 338 (h) (10) of the Internal Revenue Code and the working capital
adjustment.
|
|
|
|
|
Allocation of Purchase Consideration |
|
|
|
|
Cash |
|
$ |
897 |
|
Accounts receivable |
|
|
18,224 |
|
Property and equipment |
|
|
2,055 |
|
Definite-life intangible assets |
|
|
25,792 |
|
Goodwill |
|
|
30,457 |
|
Other assets |
|
|
2,009 |
|
Less: Liabilities assumed |
|
|
(14,072 |
) |
|
|
|
|
Net assets acquired |
|
|
65,362 |
|
Less: Noncontrolling interest |
|
|
(727 |
) |
|
|
|
|
|
|
$ |
64,635 |
|
|
|
|
|
Allocation of Definite-Life Intangible Assets Acquired |
|
|
|
|
Customer relationships (eight-year life) |
|
$ |
23,809 |
|
Non-compete agreements (three-year life) |
|
|
1,983 |
|
|
|
|
|
|
|
$ |
25,792 |
|
|
|
|
|
The fair value of the definite-life intangible asset for customer relationships is based on
customer contracts and relationships with existing customers and is expected to have an eight-year
life. Amortization of the definite-life intangible asset for customer relationships is based on an
accelerated method, and amortization of the definite-life intangible asset for non-compete
agreements is based on the straight-line method. Amortization expense is included in cost of
revenue.
Goodwill represents the excess of purchase consideration over the amounts assigned to tangible
and intangible assets acquired and liabilities assumed. As a result of the election under Section
338(h) (10) of the Internal Revenue Code, the amount allocated to intangible assets and goodwill
for tax purposes is expected to be tax deductible.
Buccaneer has a 70% ownership interest in Buccaneer Data Services, LLC, a joint venture that
provides computer technical and other consulting services to an agency of the U.S. government.
Buccaneer is entitled to a majority of the income and losses of the joint venture and has
determined that it is the primary beneficiary. The joint venture is fully consolidated in the
financial statements. Noncontrolling interest represents the remaining 30%.
Revenue from Buccaneer for the period September 15 to December 31, 2010, amounted to $34,949
and is reported as part of the Government Group business segment. Operating income was $1,132 and
includes charges for the amortization of acquired intangible assets based on an accelerated method.
F-12
Unaudited Pro Forma Information
The following unaudited pro forma results of operations data are presented as if the Buccaneer
Acquisition had occurred on January 1, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
844,939 |
|
|
$ |
647,791 |
|
Income (loss) from continuing operations |
|
$ |
53,744 |
|
|
$ |
(17,886 |
) |
The unaudited pro forma results of operations data are derived from the consolidated financial
statements of Vangent and Buccaneer and reflect pro forma adjustments as if the Buccaneer
Acquisition had occurred on January 1, 2009 and 2010. The unaudited pro forma data are being furnished solely for informational
purposes and are not intended to represent or be indicative of the consolidated results of
operations that the Company would have reported had the Buccaneer Acquisition been completed as of
the dates and for the periods presented, nor are they necessarily indicative of future results.
Acquisition of Aptiv Technology Partners
In 2008, Vangent purchased the government health integration group assets of Aptiv Technology
Partners for cash consideration of $3,892, including acquisition fees. In accordance with the
purchase method of accounting, the assets and liabilities acquired were recorded at their estimated
fair values at the date of the acquisition, and the results of operations of the acquired business
have been included in the consolidated financial statements from the date of the acquisition. The
allocation of the purchase consideration resulted in intangible assets of $1,154 that are being
amortized over a three-year period and goodwill of $2,703.
4. Discontinued Operations
In 2009, Vangent completed an evaluation of its international business and committed to a plan
to sell its business operations in Latin America that are segregated and reported as discontinued
operations. Vangent completed the sales of its operations in Argentina in the third quarter of 2010
and Mexico in the fourth quarter of 2010. The sale of operations in Venezuela was completed in
February 2011. Summarized financial information for discontinued operations follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Discontinued Operations |
|
2010 |
|
|
2009 |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
Cash |
|
$ |
321 |
|
|
$ |
946 |
|
Trade receivables and other |
|
|
8 |
|
|
|
14,090 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
329 |
|
|
|
15,036 |
|
Property and equipment, net |
|
|
|
|
|
|
4,744 |
|
Deferred income taxes and other |
|
|
|
|
|
|
1,983 |
|
|
|
|
|
|
|
|
Total assets |
|
|
329 |
|
|
|
21,763 |
|
Current liabilities |
|
|
1,880 |
|
|
|
7,521 |
|
Long-term liabilities |
|
|
|
|
|
|
502 |
|
|
|
|
|
|
|
|
Net assets (deficit) of discontinued operations |
|
$ |
(1,551 |
) |
|
$ |
13,740 |
|
|
|
|
|
|
|
|
F-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
Discontinued Operations |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Statements of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
24,697 |
|
|
$ |
22,803 |
|
|
$ |
26,222 |
|
Costs and expenses |
|
|
23,600 |
|
|
|
29,894 |
|
|
|
25,364 |
|
Impairment charges for goodwill |
|
|
|
|
|
|
4,253 |
|
|
|
2,985 |
|
Loss on sale or disposal |
|
|
22,151 |
|
|
|
4,965 |
|
|
|
|
|
Other (income) expense, net |
|
|
(1,020 |
) |
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes |
|
|
(20,034 |
) |
|
|
(16,834 |
) |
|
|
(2,127 |
) |
Provision (benefit) for income taxes |
|
|
(7,806 |
) |
|
|
(40 |
) |
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
$ |
(12,228 |
) |
|
$ |
(16,794 |
) |
|
$ |
(2,742 |
) |
|
|
|
|
|
|
|
|
|
|
Discontinued Operations in Venezuela Designation of Venezuelan Economy as Highly Inflationary
The sale of operations in Venezuela was completed in February 2011. Discontinued operations
include revenue of $2,349 from Venezuela for the year ended December 31, 2010. Effective January
2010, the Venezuelan economy was determined to be highly inflationary under U. S. generally
accepted accounting principles. An economy is considered highly inflationary when cumulative
three-year inflation exceeds 100% which occurred in the fourth quarter of 2009. As a result of
accounting guidance, Vangents operations in Venezuela used the U.S. dollar as the functional
currency effective January 2010, and net monetary assets held in bolivar fuertes are translated
into U.S. dollars at each balance sheet date with remeasurement adjustments and any foreign
currency transaction gains or losses recognized in income or expense. In June 2010, the Venezuelan
government instituted foreign exchange controls that replaced the parallel or market rate, and
Vangent began to use the foreign currency exchange rate controlled and regulated by the Central
Bank of Venezuela under a system referred to as Sistema de Transacciones con Titulos en Moneda
Extranjera, or SITME, in place of the parallel rate to consolidate operations in Venezuela. Other
income and expense, net, for discontinued operations includes a net foreign currency gain of $60
from Venezuela for the year ended December 31, 2010.
Discontinued Operations in Argentina Variable Interest Entity
The sale of operations in Argentina was completed in the third quarter of 2010. Vangent
Argentina, S.A. held less than a majority ownership interest in a joint venture and was entitled to
50% of the income and losses. Vangent Argentina determined that it did not have the power to direct
matters that most significantly impact the activities of the joint venture and that it was not the
primary beneficiary. The joint venture was accounted for under the equity method of accounting as
part of discontinued operations. Equity in net income of the joint venture amounted to $1,054 for
the year ended December 31, 2010.
5. Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued an Accounting Standards
Update (ASU) that is now part of the topic on Consolidations dealing with the consolidation of
variable interest entities. The new requirements change how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated and requires a reporting entity to provide additional disclosures about its
involvement with variable interest entities and any significant changes in risk exposure due to
that involvement. The new requirements became effective on January 1, 2010. Adoption did not have a
material effect on the Companys results of operations and cash flows or financial position.
In October 2009, the FASB issued ASU, Multiple-Deliverable Revenue Arrangements, to (i)
provide guidance on whether multiple deliverables exist, how the arrangement should be separated,
and the consideration allocated; (ii) require an allocation of revenue using estimated selling
prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party
evidence of the selling price; and (iii) eliminate the residual method. The update becomes
effective on a prospective basis in fiscal years beginning on or after June 15, 2010, with earlier
application permitted. The Company does not expect that adoption will have a material effect on its
results of operations and cash flows or financial position.
F-14
In October 2009, the FASB issued an ASU, Certain Revenue Arrangements that Include
Software Elements, that amends existing requirements to exclude from its scope tangible products
that contain both software and non-software components that function together to deliver a
products essential functionality. The update becomes effective on a prospective basis in fiscal
years beginning on or after June 15, 2010, with earlier application permitted. The Company does not
expect that adoption will have a material effect on its results of operations and cash flows or
financial position.
In January 2010, the FASB issued an ASU, Improving Disclosures about Fair Value Measurements,
requiring additional disclosures on fair value measurements. Disclosure requirements for transfers
in and out of levels 1 and 2 of the hierarchy for fair value measurements, that became effective
January 1, 2010, did not have a material effect on the Companys results of operations or financial
position. Disclosures about purchases, sales, issuance, and settlements in a rollforward of
activity for level 3 fair value measurements are deferred until fiscal years beginning after
December 15, 2010. The Company does not expect that adoption will have a material effect on its
results of operations and cash flows or financial position.
In April 2010, the FASB issued an ASU, Revenue Recognition Milestone Method, to provide
guidance on (i) defining a milestone, and (ii) determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development transactions. The guidance
becomes effective on a prospective basis for research and development milestones achieved in fiscal
years beginning on or after June 15, 2010, with early adoption and retrospective application
permitted. The Company does not expect that adoption will have a material effect on its results of
operations and cash flows or financial position.
In July 2010, the FASB issued an ASU, Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses, to expand disclosures for exposure to credit
losses from lending arrangements, including credit risks involved in financing receivables and
allowances for credit losses. Adoption did not have a material effect on the Companys results of
operations and cash flows or financial position.
In December 2010, the FASB issued an ASU, Disclosure of Supplementary Pro Forma Information
for Business Combinations, effective for business combinations
occurring after December 15, 2010, and an ASU, When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts, effective for
fiscal years beginning after December 15, 2010. The Company does not expect that adoption
will have a material effect on its results of operations and cash flows or financial position.
6. Trade Accounts Receivable
A summary of trade accounts receivable, customers that represented 10% or more of trade
accounts receivable, and the allowance for doubtful accounts follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Billed trade receivables |
|
$ |
91,126 |
|
|
$ |
74,929 |
|
Billable trade receivables |
|
|
22,391 |
|
|
|
26,798 |
|
Unbilled trade receivables pending completion of milestones,
contract authorizations, or retainage |
|
|
8,794 |
|
|
|
7,432 |
|
Other |
|
|
806 |
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
123,117 |
|
|
|
109,999 |
|
Allowance for doubtful accounts |
|
|
(177 |
) |
|
|
(153 |
) |
|
|
|
|
|
|
|
Trade receivables, net |
|
$ |
122,940 |
|
|
$ |
109,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable from major customers |
|
|
|
|
|
|
|
|
Department of Health and Human Services |
|
|
46 |
% |
|
|
34 |
% |
Department of Education |
|
|
17 |
% |
|
|
16 |
% |
Department of Defense |
|
|
11 |
% |
|
|
18 |
% |
F-15
7. Accounts Payable and Accrued Liabilities and Other Long-Term Liabilities
A summary of accounts payable and accrued liabilities and other long-term liabilities follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
|
|
Trade accounts payable and accrued liabilities |
|
$ |
45,834 |
|
|
$ |
39,440 |
|
Accrued compensation and employee benefits |
|
|
31,795 |
|
|
|
20,585 |
|
Fair value of liability derivative |
|
|
646 |
|
|
|
2,447 |
|
Accrued taxes |
|
|
2,397 |
|
|
|
2,377 |
|
|
|
|
|
|
|
|
|
|
$ |
80,672 |
|
|
$ |
64,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
Deferred rent |
|
$ |
4,742 |
|
|
$ |
4,458 |
|
Fair value of liability derivative |
|
|
|
|
|
|
2,210 |
|
Other |
|
|
711 |
|
|
|
526 |
|
|
|
|
|
|
|
|
|
|
$ |
5,453 |
|
|
$ |
7,194 |
|
|
|
|
|
|
|
|
8. Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average Life |
|
|
December 31, |
|
|
|
(in years) |
|
|
2010 |
|
|
2009 |
|
Indefinite-life intangible asset |
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property of Human Capital Group |
|
Indefinite |
|
$ |
11,178 |
|
|
$ |
11,178 |
|
Accumulated impairment |
|
|
|
|
|
|
(4,686 |
) |
|
|
(850 |
) |
|
|
|
|
|
|
|
|
|
|
|
Indefinite-life intangible asset, net |
|
|
|
|
|
|
6,492 |
|
|
|
10,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-life intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
10 |
|
|
|
224,762 |
|
|
|
201,101 |
|
Other |
|
|
3 |
|
|
|
2,641 |
|
|
|
658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,403 |
|
|
|
201,759 |
|
Accumulated amortization |
|
|
|
|
|
|
(83,048 |
) |
|
|
(60,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
Definite-life intangible assets, net |
|
|
|
|
|
|
144,355 |
|
|
|
141,532 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
$ |
150,847 |
|
|
$ |
151,860 |
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated impairment of $4,686 for the indefinite-life intangible asset of the Human
Capital Group resulted from the recession and continuing high unemployment levels that have reduced
hiring and processing needs of human resource departments of commercial customers.
The increase in definite-life intangible assets resulted from the Buccaneer Acquisition
completed in September 2010. Estimates of the amortization of the unamortized balance of
definite-life intangible assets for each of the next five years and thereafter follows:
|
|
|
|
|
Years Ending December 31 |
|
|
|
|
2011 |
|
$ |
26,337 |
|
2012 |
|
|
25,513 |
|
2013 |
|
|
24,658 |
|
2014 |
|
|
14,887 |
|
2015 |
|
|
12,991 |
|
Thereafter |
|
|
39,969 |
|
|
|
|
|
|
|
$ |
144,355 |
|
|
|
|
|
F-16
9. Goodwill
Goodwill is recorded in connection with acquisitions representing the excess of the cost of
the acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets
acquired less liabilities assumed. A summary of activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Human |
|
|
|
|
|
|
Government |
|
|
International |
|
|
Capital |
|
|
Total |
|
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Goodwill |
|
Balance, December 31, 2007 |
|
$ |
247,678 |
|
|
$ |
22,698 |
|
|
$ |
19,159 |
|
|
$ |
289,535 |
|
Acquisition of Aptiv Technology Partners |
|
|
2,703 |
|
|
|
|
|
|
|
|
|
|
|
2,703 |
|
Impairment charges |
|
|
|
|
|
|
(5,553 |
) |
|
|
(8,213 |
) |
|
|
(13,766 |
) |
Other |
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
250,381 |
|
|
|
16,904 |
|
|
|
10,946 |
|
|
|
278,231 |
|
Impairment charges |
|
|
|
|
|
|
(7,912 |
) |
|
|
(2,465 |
) |
|
|
(10,377 |
) |
Other |
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
250,381 |
|
|
|
9,350 |
|
|
|
8,481 |
|
|
|
268,212 |
|
Buccanneer Acquisition |
|
|
30,457 |
|
|
|
|
|
|
|
|
|
|
|
30,457 |
|
Impairment charge |
|
|
|
|
|
|
|
|
|
|
(1,484 |
) |
|
|
(1,484 |
) |
Other |
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
280,838 |
|
|
$ |
9,241 |
|
|
$ |
6,997 |
|
|
$ |
297,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
280,838 |
|
|
$ |
22,706 |
|
|
$ |
19,159 |
|
|
$ |
322,703 |
|
Accumulated impairment |
|
|
|
|
|
|
(13,465 |
) |
|
|
(12,162 |
) |
|
|
(25,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
280,838 |
|
|
$ |
9,241 |
|
|
$ |
6,997 |
|
|
$ |
297,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
250,381 |
|
|
$ |
22,815 |
|
|
$ |
19,159 |
|
|
$ |
292,355 |
|
Accumulated impairment |
|
|
|
|
|
|
(13,465 |
) |
|
|
(10,678 |
) |
|
|
(24,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250,381 |
|
|
$ |
9,350 |
|
|
$ |
8,481 |
|
|
$ |
268,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The goodwill impairment charges of $1,484, $2,465, and $8,213 for the Human Capital Group for
the years ended December 31, 2010, 2009 and 2008, respectively, resulted from the recession in the
United States and continuing high unemployment levels that have to reduced hiring and processing
needs of human resource departments of commercial customers. Continuing adverse changes in expected operating results and/or unfavorable changes in
economic factors used to estimate fair values could result in non-cash impairment charges for the
Human Capital Group in a future period.
The goodwill impairment charges of $7,912 and $5,553 for the International Group for the years
ended December 31, 2009 and 2008, respectively, resulted from continuing adverse business
conditions and reduced expectations of future operating performance.
There have been no impairment charges for the Government Group and we do not expect the
Government Group to be at risk for impairment charges.
The process of evaluating impairment charges is subjective and requires significant judgment
at many points during the analysis. In estimating fair values of the reporting units for the annual
evaluation, estimates and judgments are developed about the future cash flows, including estimated
growth rates and assumptions about the future economic and operating environment. Although
cash-flow forecasts are based on assumptions that are consistent with plans and estimates that are
used to manage the business segments, there is significant judgment in determining the cash flows
attributable to reporting units over the forecast period. We cannot be certain that a future downturn in any of our businesses or adverse changes in
market conditions compared with our estimates and assumptions will not result in future impairment
charges. Failure to achieve forecast operating results due to further weakness in the economic
environment or other factors could result in future impairment charges.
F-17
10. Long-Term Debt
A summary of long-term debt follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Long-term debt |
|
|
|
|
|
|
|
|
Term loan under senior secured credit facility with interest at variable
rates (2.29% at December 31, 2010), maturing February 15, 2013 |
|
$ |
216,754 |
|
|
$ |
230,366 |
|
9 5/8%
Senior subordinated fixed rate notes, due February 15, 2015 |
|
|
190,000 |
|
|
|
190,000 |
|
|
|
|
|
|
|
|
|
|
|
406,754 |
|
|
|
420,366 |
|
Less: Current portion of long-term debt |
|
|
1,401 |
|
|
|
13,534 |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
$ |
405,353 |
|
|
$ |
406,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled maturities of long-term debt |
|
|
|
|
|
|
|
|
2011 |
|
$ |
1,401 |
|
|
|
|
|
2012 |
|
|
310 |
|
|
|
|
|
2013 |
|
|
215,043 |
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
2015 |
|
|
190,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
406,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Credit Facility
At December 31, 2010, the senior secured credit facility consisted of a term loan of $216,754,
and, subject to certain limitations, an available revolving credit facility of up to $49,758 that
is scheduled to expire February 14, 2012. At December 31, 2010, there was a letter of credit of
$242 outstanding under the revolving credit facility. There were no borrowings outstanding under
the revolving credit facility at December 31, 2010 or 2009. A commitment fee of 0.5% per year is
paid on the available unused portion of the revolving credit facility.
In July 2010, Vangent and the banks that are party to the senior secured credit facility
entered into an amendment that allows for the sale of Vangents Latin American operations, expands
the amounts allowed for acquisitions to $75,000 per acquisition and to $175,000 in the aggregate,
and reduces the mandatory prepayment requirement from net cash proceeds of equity offerings to 25%
from 50% as long as the consolidated leverage ratio, as defined, is below 4.00 to 1. Lender fees
and expenses paid in connection with the amendment amounted to $1,957 all of which were capitalized
as part of deferred debt financing costs that are amortized to interest expense over the remaining
life of the loan.
Borrowings under the senior secured credit facility bear interest at a rate equal to, at the
Companys option, either: (i) the base rate, as defined, plus an applicable margin of 1.00-1.50%,
or (ii) the adjusted LIBOR, as defined, plus an applicable margin of 2.00-2.50%. The applicable margin ranged from 2.0 to 2.25% at December
31, 2010. Borrowings are subject to mandatory prepayment with (i) 100% of the net cash proceeds
of certain asset sales; (ii) 25% of the net cash proceeds of equity offerings as long as the
consolidated leverage ratio, as defined, is below 4.00 to 1. and 25% of capital contributions
subject to certain conditions; (iii) 100% of the net cash proceeds of additional debt; and (iv) a
percentage of annual excess cash flow, as defined. Payments resulting from the annual excess cash
flow requirement are due 90 days following the year end. Based
on excess cash flow, 1,401
a mandatory repayment of $13,612 was made March 31, 2010, and a
mandatory repayment of $1,401 is scheduled to be paid March 31, 2011.
Since the excess cash flow requirement
is based on annual cash flow, it is not possible to determine the amount, if any, that would become
payable in March 2012.
Borrowings are secured by accounts receivable, cash, intellectual property and other
assets and are guaranteed jointly and severally, by all existing and future domestic subsidiaries.
Foreign subsidiaries do not guarantee the borrowings. The senior secured credit facility contains
various customary affirmative and negative covenants and events of default, including, but not
limited to, restrictions on the disposal of assets, incurring additional indebtedness or
guaranteeing obligations, paying dividends, creating liens on assets, making investments, loans or
advances, and compliance with a maximum consolidated leverage ratio. As of December 31, 2010, the
Company was in compliance with all of the affirmative and negative covenants.
F-18
The more restrictive covenants relate to compliance with a maximum allowable consolidated
leverage ratio, as defined in the senior secured credit facility, based on consolidated
indebtedness, as defined, reduced by unrestricted cash and cash equivalents in excess of $5,000,
divided by adjusted EBITDA (earnings before interest, taxes, depreciation and amortization,
adjusted for certain unusual and non-recurring items, as defined) for a twelve-month period. At
December 31, 2010, the consolidated leverage ratio was 3.78 to 1, compared with the maximum
allowable ratio of 5.50 to 1 applicable to the period. The maximum allowable consolidated leverage
ratio steps down to 5.25 at June 30, 2011 and to 5.00 at March 31, 2012.
9 5/8% Senior Subordinated Notes
In February 2007, the Company completed an offering of $190,000 principal amount of 9 5/8%
senior subordinated notes due February 15, 2015. Interest accrues at the fixed rate of 9 5/8% and
is paid semi-annually. The notes are general unsecured obligations of the Company and are
subordinated to all existing and future senior loans including borrowings under the senior secured
credit facility. The notes are guaranteed, jointly and severally, by all existing and future
domestic subsidiaries. Joint ventures and foreign subsidiaries do not guarantee the notes.
The Company may redeem all or part of the notes at any time prior to February 15, 2011, at a
redemption price of 100% of the principal amount plus an applicable premium, as defined and
additional interest, as defined. The notes are redeemable at the option of the Company at the
redemption price of 104.8125% of the principal amount on or after February 15, 2011, 102.4063% on
or after February 15, 2012, and 100% on or after February 15, 2013.
11. Leases
The Company leases office facilities and equipment primarily under operating leases.
The costs of leasehold improvements funded by or reimbursed by the lessor are capitalized and
amortized as leasehold improvements along with a corresponding deferred rent liability. Rent
expense is accrued for rent holidays and abatements along with a corresponding deferred rent
liability. Future minimum lease payments under noncancelable leases with initial terms of one year
or more follow:
|
|
|
|
|
|
|
Operating |
|
|
|
Leases |
|
Years Ending December 31 |
|
|
|
|
2011 |
|
$ |
19,561 |
|
2012 |
|
|
16,810 |
|
2013 |
|
|
13,011 |
|
2014 |
|
|
6,707 |
|
2015 |
|
|
4,659 |
|
Thereafter |
|
|
13,956 |
|
|
|
|
|
Total future minimum lease payments |
|
|
74,704 |
|
Less: Subleases |
|
|
(3,823 |
) |
|
|
|
|
Net future minimum lease payments |
|
$ |
70,881 |
|
|
|
|
|
Rent expense amounted to $20,410, $17,609, and $16,736 for the years ended December 31, 2010,
2009, and 2008, respectively.
F-19
12. Income Taxes
A
summary
of the provision for income taxes follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Income (loss) from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
18,964 |
|
|
$ |
(4,304 |
) |
|
$ |
(15,936 |
) |
Foreign |
|
|
1,781 |
|
|
|
(6,116 |
) |
|
|
(2,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,745 |
|
|
$ |
(10,420 |
) |
|
$ |
(18,826 |
) |
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income tax |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal and state |
|
$ |
170 |
|
|
$ |
|
|
|
$ |
|
|
Foreign |
|
|
567 |
|
|
|
1,025 |
|
|
|
1,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
737 |
|
|
|
1,025 |
|
|
|
1,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal and state |
|
|
(32,049 |
) |
|
|
6,110 |
|
|
|
3,929 |
|
Foreign |
|
|
(174 |
) |
|
|
(341 |
) |
|
|
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,223 |
) |
|
|
5,769 |
|
|
|
3,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(31,486 |
) |
|
$ |
6,794 |
|
|
$ |
4,939 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the U.S. federal statutory rate to the effective income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
U.S. Federal statutory tax rate |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
State income tax, net of federal benefit |
|
|
4 |
|
|
|
1 |
|
|
|
4 |
|
Foreign operations |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
Non-deductible portion of goodwill impairment charge |
|
|
|
|
|
|
(24 |
) |
|
|
(9 |
) |
Equity-based compensation |
|
|
2 |
|
|
|
(11 |
) |
|
|
|
|
Other |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
Change in tax valuation allowance |
|
|
(190 |
) |
|
|
(61 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
(152 |
)% |
|
|
(65 |
)% |
|
|
(26 |
)% |
|
|
|
|
|
|
|
|
|
|
F-20
A summary of deferred tax assets (liabilities) and changes to the tax valuation allowance
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Net operating loss carryforward |
|
$ |
21,971 |
|
|
$ |
21,280 |
|
Net capital loss carryforward |
|
|
3,355 |
|
|
|
|
|
Intangible assets |
|
|
17,840 |
|
|
|
13,207 |
|
Deferred transaction costs |
|
|
1,289 |
|
|
|
1,412 |
|
Depreciation |
|
|
|
|
|
|
1,271 |
|
Interest rate swaps |
|
|
255 |
|
|
|
1,929 |
|
Accrued liabilities |
|
|
5,109 |
|
|
|
1,402 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
49,819 |
|
|
|
40,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Goodwill and intangible assets |
|
|
(21,743 |
) |
|
|
(17,773 |
) |
Other |
|
|
(2,593 |
) |
|
|
(790 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(24,336 |
) |
|
|
(18,563 |
) |
Tax valuation allowance |
|
|
3,714 |
|
|
|
39,276 |
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
|
$ |
21,769 |
|
|
$ |
(17,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet presentation |
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Current |
|
$ |
1,706 |
|
|
$ |
434 |
|
Noncurrent |
|
|
21,923 |
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
(5,628 |
) |
Noncurrent |
|
|
(1,860 |
) |
|
|
(12,144 |
) |
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
|
$ |
21,769 |
|
|
$ |
(17,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Tax valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
39,276 |
|
|
$ |
34,594 |
|
|
$ |
24,908 |
|
Purchase accounting adjustment |
|
|
|
|
|
|
|
|
|
|
(3,742 |
) |
Provision (benefit) for income taxes |
|
|
(35,562 |
) |
|
|
6,574 |
|
|
|
10,143 |
|
True-ups to tax returns |
|
|
|
|
|
|
(327 |
) |
|
|
1,087 |
|
Other comprehensive loss |
|
|
|
|
|
|
(1,565 |
) |
|
|
2,198 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
3,714 |
|
|
$ |
39,276 |
|
|
$ |
34,594 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes is composed of U.S. federal, state and local and foreign
income taxes. The provision for income taxes for the year ended December 31, 2010, is net of the
reversal of the tax valuation allowance against deferred tax assets.
A purchase accounting tax valuation allowance was established in 2007 in connection with the
Vangent Acquisition, and a full valuation allowance was provided against U.S. deferred tax assets
at December 31, 2008 and 2009. A valuation allowance is recorded against deferred tax assets when
it is more likely than not that a tax benefit will not be realized in the future. The assessment
for a valuation allowance requires judgment on the part of management with respect to tax benefits
that may be realized. The Company considers all available positive and negative evidence, including
future reversals of temporary differences, projected future taxable income, tax planning
strategies, and recent financial results. The Company has recently experienced positive trends in
its continuing operating performance, and the positive trends are likely to continue in future
periods. The Company has concluded at December 31, 2010, based upon all available evidence, that
it is more likely than not that U.S. deferred tax assets will be realizable except for the portion
relating to a net capital loss carryforward relating to the sales of discontinued operations in
Latin America. The tax valuation allowance was reversed for 2010 since realization is believed to
be more likely than not. The reduction to the tax valuation allowance is recorded as an adjustment
to the provision for income taxes.
F-21
At December 31, 2010, Vangent had a U.S. net operating loss carryforward of $55,532 scheduled
to begin to expire in 2027. The Company has not accrued a provision for income taxes on
undistributed earnings of its foreign subsidiaries, since such earnings are considered to be
reinvested indefinitely. If the earnings were distributed, federal income and foreign withholding
taxes would apply. The amount of the unrecognized income tax associated with the undistributed
earnings was not material at December 31, 2010.
ASC Topic 740, Income Taxes, prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of tax positions taken, or expected to be
taken, in a tax return. Vangent is indemnified and is not liable for any income taxes for periods
prior to February 15, 2007, the date Veritas Capital acquired Vangent. There was no liability for
unrecognized tax benefits at December 31, 2010 or 2009. Vangent does not expect changes in
unrecognized tax benefits, if any, within the next twelve months to have a material impact on the
provision for income taxes or the effective tax rate.
Vangent and its subsidiaries conduct business and are subject to income taxes in the United
States and certain foreign countries. Vangents income tax returns for 2007 and subsequent years
are subject to examination by federal, state, local, or foreign tax authorities. Interest and
penalties relating to income taxes are charged to the provision for income taxes.
13. Commitments and Contingencies
Federal government agencies routinely audit the Companys books and records. These agencies
review contract performance, cost structure and compliance with applicable laws, regulations and
standards. Such agencies also review the adequacy of, and compliance with, internal control
systems and policies, including purchasing, property, estimating, compensation and management
information systems. Audits of the Companys incurred cost submissions for 2005 and subsequent
years are open. The Company is also subject to audits, legal proceedings, investigations and claims
arising out of the ordinary course of business and accrues a liability if an unfavorable outcome is
probable. In the opinion of management, resolution of such matters is not expected to have a
material effect on the Companys results of operations and cash flows or financial position.
Contract with the University of California
In 2007, the Company received a notice from the University of California that it deemed the
Company to be in breach of a contract. The Company recorded an expense of $1.0 million relating to
the issue for the year ended December 31, 2007. For the year ended December 31, 2008, the Company
paid $4,995 to the University under a settlement agreement and recorded a charge of $3,995 to
general and administrative expense and a reduction of $1,998 to expense for proceeds of $1,998
received from the Companys insurance carrier.
14. Equity-Based Compensation
No stock options are authorized and no stock options have been granted by Vangent.
Certain members of management of Vangent and independent directors of Vangent Holding Corp.
have been granted Class B or B-1membership interests in Vangent Holding LLC. Vangent Holding LLC
holds 100% of the common stock, but none of the preferred stock, in Vangent Holding Corp., which in
turn owns all of Vangents common stock. At December 31, 2010, the outstanding balance of grants
of Class B or B-1 membership interests represented 5.9% of the net profit interests in Vangent
Holding LLC. Pursuant to the terms of the operating agreement governing Vangent Holding LLC, the
Class B or B-1 membership interests are subject to a five-year vesting schedule, except in the
event of a change of control. The unvested portion of Class B or B-1 membership interests resulting
from forfeitures reverts to the holders of Class A membership interests in Vangent Holding LLC.
Holders of Class B or B-1 membership interests are entitled to receive their respective
proportional interest in all distributions made by Vangent Holding LLC, provided the holders of the
Class A membership interests have received an 8% per annum internal rate of return on their
invested capital. Class B membership interests are granted with no exercise price, no threshold or
floor value, and no expiration date. Class B-1 membership interests are granted with a threshold or
floor value and earn a proportional interest in distributions above the floor valuation. Grants of
Class B or B-1 membership interests are limited in the aggregate to 7.5% of the net profits
interests in Vangent Holding LLC.
F-22
A summary of activity for grants and the outstanding balance of Class B or B-1 membership
interests in Vangent Holding LLC follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B or B-1 |
|
|
|
Membership Interests in Vangent Holding LLC |
|
|
|
Available for |
|
|
|
|
|
|
Fair Value at |
|
|
|
Grant |
|
|
Outstanding |
|
|
Date of Grant |
|
Balance, December 31, 2007 |
|
|
2.6 |
% |
|
|
4.9 |
% |
|
$ |
5,492 |
|
Granted |
|
|
(1.5 |
) |
|
|
1.5 |
|
|
|
1,127 |
|
Forfeited |
|
|
0.8 |
|
|
|
(0.8 |
) |
|
|
(940 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
1.9 |
|
|
|
5.6 |
% |
|
|
5,679 |
|
Granted |
|
|
(0.4 |
) |
|
|
0.4 |
|
|
|
329 |
|
Forfeited |
|
|
0.4 |
|
|
|
(0.4 |
) |
|
|
(406 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
1.9 |
|
|
|
5.6 |
% |
|
|
5,602 |
|
Granted |
|
|
(0.8 |
) |
|
|
0.8 |
|
|
|
798 |
|
Forfeited |
|
|
0.5 |
|
|
|
(0.5 |
) |
|
|
(413 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
1.6 |
% |
|
|
5.9 |
% |
|
$ |
5,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
3.1 |
% |
|
|
|
|
Not yet vested |
|
|
|
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vangent charges equity-based compensation expense for awards of Class B or B-1 membership
interests in Vangent Holding LLC granted to certain employees and independent directors.
Equity-based compensation expense is amortized on a straight-line basis over the total requisite
service period for the award.
The fair value of grants of Class B or B-1 membership interests is determined by management
using an income approach based on a cash flow methodology, the ownership percentage in Vangent
holding LLC, the preference of the Class A membership interests, and a discount for lack of
liquidity. The Company considers and relies, in part, on reports of third-party experts in the
determination of fair value of grants of Class B or B-1 membership interests. The discount for lack
of liquidity was 15% for 2010, 25% for 2009, and 35% for 2008. The discount is estimated based on
the Black-Scholes put-call parity ratio, and the weighted average assumptions for 2010 are risk
free rate of 0.4%, expected volatility of 36%, expected life of 2.0 years, and no dividend yield.
Charges for equity-based compensation expense amounted to $896, $1,048, and $1,053 for the
years ended December 31, 2010, 2009, and 2008, respectively. The unamortized amount of equity-based
compensation was $2,057 at December 31, 2010, and is scheduled to be charged to expense as follows:
|
|
|
|
|
Years Ending December 31 |
|
|
|
|
2011 |
|
|
1,022 |
|
2012 |
|
|
459 |
|
2013 |
|
|
272 |
|
2014 |
|
|
166 |
|
2015 |
|
|
138 |
|
|
|
|
|
|
|
$ |
2,057 |
|
|
|
|
|
F-23
15. Retirement Plans
Defined Contribution Plans
The Company maintains a tax-qualified 401(k) retirement plan that provides eligible U.S.
employees with an opportunity to save for retirement on a tax advantaged basis. Costs representing
the Companys matching contributions were $6,047, $6,257, and $4,126 for the years ended December
31, 2010, 2009, and 2008, respectively.
Defined Benefit Plan
A defined benefit plan covers certain employees in the United Kingdom. Pension costs were
$259, $145 and $192 for the years ended December 31, 2010, 2009, and 2008, respectively. The fair
value of plan assets was $1,884 and $1,317, and the present value of defined benefit obligations
was $1,708 and $1,359 at December 31, 2010 and 2009, respectively. Accumulated other comprehensive
loss at December 31, 2010, reflects income of $176 representing the overfunded status.
16. Related Party Transactions
Vangent is a 100%-owned subsidiary of Vangent Holding Corp. Vangent Holding LLC holds 100% of
the common stock, but none of the preferred stock, in Vangent Holding Corp. and is 90% owned by The
Veritas Capital Fund III, L.P.
Robert B. McKeon is the sole member of the board of directors of Vangent, is chairman of the
board of Vangent Holding Corp., and is the president of Veritas Capital Partners III, LLC. Mr.
Ramzi Musallam is a director of Vangent Holding Corp. and is a partner at Veritas Capital.
Certain members of management of Vangent and independent directors of Vangent Holding Corp.
have been granted Class B or B-1membership interests in Vangent Holding LLC.
Vangent paid an annual management fee of $1,000 to Veritas Capital for each the years ended
December 31, 2010, 2009 and 2008, and paid advisory fees of $119 to Veritas Capital for the year
ended December 31, 2010.
Vangent purchased administrative services under contracts and leases with Pearson amounting to
$7,370 for the year ended December 31, 2010. Pearson holds
$35,000 of Series A preferred
stock and $5,000 of Series B preferred stock in Vangent Holding Corp., and holds 10% of the
Class A membership interests in Vangent Holding LLC.
17. Derivative Instruments, Hedging Activities and Financial Instruments
Vangent, Inc. uses derivative financial instruments to manage interest rate risk and Vangent
Mexico, S.A. de C.V., a 100%-owned subsidiary included as part of discontinued operations, has used
derivative instruments to manage certain foreign currency exchange rate risks. Interest rate swap
agreements are used as cash-flow hedges of interest rate risk associated with variable-rate
borrowings under the senior secured credit facility. Foreign currency contracts have been used to
hedge exchange rate risks associated with purchase commitments and obligations in currencies other
than the Mexican peso. Derivatives can involve credit risk from possible non-performance by the
parties. At December 31, 2010, the fair values of the derivatives resulted in a derivative
liability, and the fair value liability reflects the Companys credit adjusted discount rate. The
Company does not enter into derivative transactions for trading or speculative purposes.
For derivative financial instruments that qualify as a cash-flow hedge, the effective portion
of the gain/loss is reported, net of tax, as a component of other comprehensive income/loss (OCI)
and is subsequently reclassified to the statements of operations in the period or periods in which
the hedged transaction affects the statement of operations.
Interest Rate Swap Agreements on Variable-Rate Term Loan
The Company has entered into interest rate swap agreements with a commercial bank to hedge
fluctuations in LIBOR interest rates on a portion of the term loan borrowing under the senior
secured credit facility. The Company exchanged its variable LIBOR interest rate for a fixed
interest rate. At December 31, 2010, an interest rate swap agreement at the notional amount of
$150,000 to pay fixed interest at the rate of 3.28% and to receive variable interest based on
three-month LIBOR was outstanding and scheduled to mature in February 2011.
F-24
The Company designated the interest rate swaps as cash flow hedges at inception of the
agreements. The Company performs a quarterly analysis of the effectiveness of the hedge
transactions and has concluded that the hedging relationship is highly effective due to the
consistency of critical terms of the interest rate swap agreements and related term loan under the
senior secured credit facility. The fair value of the interest rate swap liability was $646 at
December 31, 2010, and $4,657 at December 31, 2009. The unrealized loss on interest rate swaps, net
of tax and including an additional deferred tax effect resulting
from the reversal of the tax valuation allowance, was $2,005 at December 31, 2010, and is reported in accumulated OCI in the consolidated
statement of equity and is expected to be reclassified to operations by February 2011.
Discontinued Operations Foreign Currency Contracts
In
2009, Vangent Mexico entered into foreign currency forward exchange contracts with a
commercial bank to hedge fluctuations in the Mexican peso exchange rates. At December 31, 2010,
there were no foreign currency forward exchange contracts outstanding. At inception the foreign
currency contracts qualified as cash flow hedges; subsequently certain hedge contracts no longer
qualified as cash flow hedges since forecasted transactions were no longer likely to occur.
Accordingly, cost of revenue for discontinued operations for the year ended December 31, 2010,
includes a loss of $89 reclassified from OCI for contracts that no longer qualified.
Derivative Instruments and Hedging Activities
A tabular disclosure of the fair values of derivative instruments reported in the balance
sheet and the effect of derivative instruments on the statements of operations follows:
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Recognized |
|
|
|
Amount of |
|
|
|
|
Amount of Gain |
|
|
Location of Gain |
|
in Income on |
|
|
|
Gain (Loss) |
|
|
|
|
(Loss) |
|
|
(Loss) Recognized in |
|
Derivative |
|
|
|
Recognized in |
|
|
Location of Gain (Loss) |
|
Reclassified from |
|
|
Income on Derivative |
|
(Ineffective |
|
|
|
OCI on |
|
|
Reclassified from |
|
Accumulated |
|
|
(Ineffective Portion |
|
Portion and |
|
|
|
Derivative |
|
|
Accumulated OCI into |
|
OCI into Income |
|
|
and Amount Excluded |
|
Amount Excluded |
|
|
|
(Effective |
|
|
Income (Effective |
|
(Effective |
|
|
from Effectiveness |
|
from Effectiveness |
|
Derivative Contracts |
|
Portion) |
|
|
Portion) |
|
Portion) |
|
|
Testing) |
|
Testing) |
|
Year Ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives that qualify as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
$ |
(730 |
) |
|
Interest expense |
|
$ |
4,973 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional deferred tax effect relating to interest rate swap agreements |
|
|
(1,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
|
|
|
|
Discontinued operations |
|
|
392 |
|
|
|
|
|
|
|
|
|
Derivatives that do not qualify as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives that qualify as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
(2,476 |
) |
|
Interest expense |
|
|
(6,616 |
) |
|
Interest expense |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
|
(937 |
) |
|
Discontinued operations |
|
|
(545 |
) |
|
|
|
|
|
|
|
|
Derivatives that do not qualify as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(88 |
) |
F-25
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of |
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
December 31, |
|
Derivative Contracts |
|
Balance Sheet Location |
|
2010 |
|
|
2009 |
|
Derivatives that qualify as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
Accrued liabilities |
|
$ |
646 |
|
|
$ |
4,657 |
|
Foreign currency forward contracts |
|
Discontinued operations |
|
|
|
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives that do not qualify as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Discontinued operations |
|
|
|
|
|
|
88 |
|
Fair Value Measurements
Fair value is the price that would be received to sell an asset or to transfer a liability in
an orderly transaction between market participants at the measurement date. A summary of the bases
used to measure financial assets and financial liabilities reported at fair value on a recurring
basis in the consolidated balance sheets follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Liabilities |
|
|
|
|
|
|
|
|
Level 1 Quoted prices in active markets for identical items |
|
$ |
|
|
|
$ |
|
|
Level 2 Significant other observable inputs: |
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
646 |
|
|
|
4,657 |
|
Foreign currency forward contracts |
|
|
|
|
|
|
339 |
|
Level 3 Significant unobservable inputs |
|
|
|
|
|
|
|
|
The fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Observable inputs such as quoted prices (unadjusted) in active markets for identical assets
or liabilities. |
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
Inputs, other than quoted prices that are observable for the asset or liability, either
directly or indirectly, including quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets that are not active; inputs
other than quoted prices that are observable for the asset or liability; and inputs that are derived
principally from or corroborated by observable market data by correlation or other means. |
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
Unobservable inputs that reflect the reporting entitys own assumptions. |
F-26
Financial Instruments
The fair values of financial instruments at December 31, 2010, follow:
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Amounts |
|
|
Fair Value |
|
Long-term debt |
|
|
|
|
|
|
|
|
Variable-rate term loan under the senior secured credit facility |
|
$ |
216,754 |
|
|
$ |
216,754 |
|
9 5/8% senior subordinated notes, due February 15, 2015 |
|
|
190,000 |
|
|
|
172,425 |
|
|
|
|
|
|
|
|
|
|
$ |
406,754 |
|
|
$ |
389,179 |
|
|
|
|
|
|
|
|
Interest rate swap agreements to pay fixed and receive variable |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
646 |
|
|
$ |
646 |
|
|
|
|
|
|
|
|
The carrying amount of the variable-rate term loan under the senior secured credit facility
approximates fair value. The fair value of the 9 5/8% senior subordinated notes is based on quoted
market prices. At December 31, 2010, the quoted market price was $90.75 per $100 reflecting a yield
of 12.8%. The fair value of interest rate swap agreements and foreign currency forward contracts is
based on quoted prices for similar assets or liabilities in active markets adjusted for
non-performance risk. The carrying amounts of other financial instruments, including cash and cash
equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate fair
value due to their short term nature.
18. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss and a summary of changes in accumulated
other comprehensive loss for hedging activities follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
Effect of hedging activities, net of tax: |
|
|
|
|
|
|
|
|
Interest rate swap agreements, net of tax |
|
$ |
(391 |
) |
|
$ |
(4,634 |
) |
Additional deferred tax effect relating to interest rate swap agreement |
|
|
(1,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net of tax |
|
|
(2,005 |
) |
|
|
(4,634 |
) |
Discontinued operations Foreign currency forward contracts |
|
|
|
|
|
|
(392 |
) |
|
|
|
|
|
|
|
|
|
|
(2,005 |
) |
|
|
(5,026 |
) |
|
|
|
|
|
|
|
Foreign currency cumulative translation adjustments: |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(5,359 |
) |
|
|
(5,287 |
) |
Discontinued operations |
|
|
(1,729 |
) |
|
|
(4,636 |
) |
|
|
|
|
|
|
|
|
|
|
(7,088 |
) |
|
|
(9,923 |
) |
|
|
|
|
|
|
|
Defined benefit plan overfunding, net of tax |
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(8,917 |
) |
|
$ |
(14,949 |
) |
|
|
|
|
|
|
|
The additional deferred tax effect of $1,614 at December 31, 2010, relates to the interest
rate swap agreement scheduled to expire in 2011 and resulted from the reversal of the tax valuation
allowance for the year ended December 31, 2010. The reduction of $2,907 in the foreign currency
translation adjustment for discontinued operations for the year ended December 31, 2010, resulted
from sales of business operations in Argentina and Mexico.
F-27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Activities |
|
|
|
Continuing |
|
|
Discontinued |
|
|
|
|
|
|
Operations |
|
|
Operations |
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Interest |
|
|
Currency |
|
|
|
|
|
|
Rate |
|
|
Forward |
|
|
|
|
|
|
Swaps |
|
|
Contracts |
|
|
Total |
|
Summary of changes in accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
(4,634 |
) |
|
$ |
(392 |
) |
|
$ |
(5,026 |
) |
Change in fair value |
|
|
(730 |
) |
|
|
|
|
|
|
(730 |
) |
Reclassification of loss to interest expense |
|
|
4,973 |
|
|
|
|
|
|
|
4,973 |
|
Additional deferred tax effect |
|
|
(1,614 |
) |
|
|
|
|
|
|
(1,614 |
) |
Reclassification of loss to discontinued operations |
|
|
|
|
|
|
392 |
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
(2,005 |
) |
|
$ |
|
|
|
$ |
(2,005 |
) |
|
|
|
|
|
|
|
|
|
|
19. Business Segment, Major Customers and Geographic Area Information
Business Segment Information
Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Vangent reports operating results
and financial data for three business segments: the Government Group, the International Group, and
the Human Capital Group.
Government Group customers are primarily U.S. federal agencies. The Government Group assists
civilian, defense and intelligence agencies as well as government related entities with the design
and execution of information and technology strategy, helps develop and maintain their complex,
mission critical systems and delivers a wide range of business process outsourcing solutions. The
operations of Buccaneer acquired in mid September 2010 are part of the Government Group.
The International Group serves government and commercial customers in the United Kingdom and
Canada and provides consulting, systems integration and business process outsourcing solutions.
The Human Capital Group primarily serves the private sector and provides workforce solutions
that automate and improve the recruitment, assessment, selection, training and development of a
customers workforce.
F-28
Summarized financial information for business segments and for major customers representing
10% more of total revenue follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenue by business segment (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
$ |
688,270 |
|
|
$ |
511,482 |
|
|
$ |
454,094 |
|
International Group |
|
|
50,435 |
|
|
|
44,194 |
|
|
|
48,703 |
|
Human Capital Group |
|
|
25,420 |
|
|
|
33,487 |
|
|
|
29,252 |
|
Elimination |
|
|
(2,284 |
) |
|
|
(5,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
761,841 |
|
|
$ |
583,986 |
|
|
$ |
532,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) by business segment |
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
$ |
58,399 |
|
|
$ |
36,380 |
|
|
$ |
28,987 |
|
International Group |
|
|
1,206 |
|
|
|
(7,379 |
)(2) |
|
|
(4,163 |
)(2) |
Human Capital Group |
|
|
(7,694 |
)(3) |
|
|
(5,111 |
) (3) |
|
|
(8,348 |
)(3) |
Corporate |
|
|
(26 |
) |
|
|
(21 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
51,885 |
|
|
$ |
23,869 |
|
|
$ |
16,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization by business segment (4) |
|
|
|
|
|
|
|
|
|
|
|
|
Government Group |
|
$ |
30,884 |
|
|
$ |
27,486 |
|
|
$ |
28,283 |
|
International Group |
|
|
2,653 |
|
|
|
2,978 |
|
|
|
3,612 |
|
Human Capital Group |
|
|
1,261 |
|
|
|
1,419 |
|
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
34,798 |
|
|
$ |
31,883 |
|
|
$ |
33,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from major customers |
|
|
|
|
|
|
|
|
|
|
|
|
Department of Health and Human Services |
|
|
36 |
% |
|
|
44 |
% |
|
|
49 |
% |
Department of Commerce |
|
|
24 |
% |
|
|
* |
|
|
|
* |
|
Department of Education |
|
|
13 |
% |
|
|
15 |
% |
|
|
17 |
% |
|
|
|
(1) |
|
Revenue from sales of product represented less than 10% of total revenue. |
|
(2) |
|
Reflects goodwill impairment charges of $7,912 and $5,553 for the International Group for the
years ended December 31, 2009 and 2008, respectively. |
|
(3) |
|
Reflects impairment charges for goodwill and indefinite-life intangible asset of $5,320, $3,315
and $8,213 for the Human Capital Group for the years ended December 31, 2010, 2009 and 2008, respectively. |
|
(4) |
|
Includes amortization of definite-life intangible assets. |
|
* |
|
Percent of revenue is less than 10%. |
F-29
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Property and equipment, net, by business segment |
|
|
|
|
|
|
|
|
Government Group |
|
$ |
22,721 |
|
|
$ |
21,878 |
|
International Group |
|
|
5,001 |
|
|
|
2,636 |
|
Human Capital Group |
|
|
309 |
|
|
|
610 |
|
|
|
|
|
|
|
|
Total property and equipment |
|
$ |
28,031 |
|
|
$ |
25,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill by business segment |
|
|
|
|
|
|
|
|
Government Group |
|
$ |
280,838 |
|
|
$ |
250,381 |
|
International Group |
|
|
9,241 |
|
|
|
9,350 |
|
Human Capital Group |
|
|
6,997 |
|
|
|
8,481 |
|
|
|
|
|
|
|
|
Total goodwill |
|
$ |
297,076 |
|
|
$ |
268,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets by business segment |
|
|
|
|
|
|
|
|
Government Group |
|
$ |
572,155 |
|
|
$ |
539,208 |
|
International Group |
|
|
40,007 |
|
|
|
33,084 |
|
Human Capital Group |
|
|
26,238 |
|
|
|
38,137 |
|
Corporate |
|
|
31,006 |
|
|
|
8,037 |
|
Discontinued operations |
|
|
329 |
|
|
|
21,763 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
669,735 |
|
|
$ |
640,229 |
|
|
|
|
|
|
|
|
Geographic Area Information
Revenue and long-lived assets by the geographic location of the entity performing the service
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenue by geographic area |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
711,406 |
|
|
$ |
539,792 |
|
|
$ |
483,346 |
|
International |
|
|
50,435 |
|
|
|
44,194 |
|
|
|
48,703 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
761,841 |
|
|
$ |
583,986 |
|
|
$ |
532,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Long-lived assets (property and equipment, net) by geographic area |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
23,030 |
|
|
$ |
22,488 |
|
International |
|
|
5,001 |
|
|
|
2,636 |
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
28,031 |
|
|
$ |
25,124 |
|
|
|
|
|
|
|
|
20. Condensed Issuer, Guarantor, and Non-Guarantor Financial Information
Debt issued by Vangent Inc. (Issuer) includes the term loan under the senior secured credit
facility, borrowings drawn from time to time under the revolving credit facility, and the senior
subordinated notes. The debt of the Issuer is unconditionally guaranteed on a joint and several
bases by its domestic subsidiaries (Guarantor Subsidiaries). Joint ventures and foreign
subsidiaries do not guarantee the debt (Non-Guarantor Subsidiaries). Condensed combining balance
sheets, statements of operations, and statements of cash flows for the Issuer, Guarantor
Subsidiaries, and Non-Guarantor Subsidiaries follow:
F-30
Condensed Combining Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
December 31, 2010 |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,477 |
|
|
$ |
|
|
|
$ |
6,717 |
|
|
$ |
|
|
|
$ |
27,194 |
|
Trade receivables, net |
|
|
90,879 |
|
|
|
20,504 |
|
|
|
11,557 |
|
|
|
|
|
|
|
122,940 |
|
Prepaid expenses and other |
|
|
9,140 |
|
|
|
1,227 |
|
|
|
2,205 |
|
|
|
|
|
|
|
12,572 |
|
Assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
329 |
|
|
|
|
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
120,496 |
|
|
|
21,731 |
|
|
|
20,808 |
|
|
|
|
|
|
|
163,035 |
|
Property and equipment, net |
|
|
20,640 |
|
|
|
2,393 |
|
|
|
4,998 |
|
|
|
|
|
|
|
28,031 |
|
Intangible assets, net |
|
|
120,300 |
|
|
|
21,618 |
|
|
|
8,929 |
|
|
|
|
|
|
|
150,847 |
|
Goodwill |
|
|
257,421 |
|
|
|
30,457 |
|
|
|
9,198 |
|
|
|
|
|
|
|
297,076 |
|
Deferred debt financing costs and other |
|
|
30,014 |
|
|
|
471 |
|
|
|
261 |
|
|
|
|
|
|
|
30,746 |
|
Investment in and advances to subsidiaries |
|
|
94,738 |
|
|
|
|
|
|
|
|
|
|
|
(94,738 |
) |
|
|
|
|
Assets of discontinued operations |
|
|
(2 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
643,607 |
|
|
$ |
76,670 |
|
|
$ |
44,196 |
|
|
$ |
(94,738 |
) |
|
$ |
669,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
1,401 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,401 |
|
Accounts payable and other liabilities |
|
|
74,787 |
|
|
|
12,572 |
|
|
|
14,159 |
|
|
|
(5,101 |
) |
|
|
96,417 |
|
Liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
1,880 |
|
|
|
|
|
|
|
1,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
76,188 |
|
|
|
12,572 |
|
|
|
16,039 |
|
|
|
(5,101 |
) |
|
|
99,698 |
|
Long-term debt, net of current portion |
|
|
405,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405,353 |
|
Other long-term liabilities |
|
|
4,695 |
|
|
|
711 |
|
|
|
47 |
|
|
|
|
|
|
|
5,453 |
|
Deferred tax liability |
|
|
|
|
|
|
|
|
|
|
1,860 |
|
|
|
|
|
|
|
1,860 |
|
Liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
486,236 |
|
|
|
13,283 |
|
|
|
17,946 |
|
|
|
(5,101 |
) |
|
|
512,364 |
|
Total equity |
|
|
157,371 |
|
|
|
63,387 |
|
|
|
26,250 |
|
|
|
(89,637 |
) |
|
|
157,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
643,607 |
|
|
$ |
76,670 |
|
|
$ |
44,196 |
|
|
$ |
(94,738 |
) |
|
$ |
669,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
41,098 |
|
|
$ |
|
|
|
$ |
3,540 |
|
|
$ |
|
|
|
$ |
44,638 |
|
Trade receivables, net |
|
|
101,410 |
|
|
|
|
|
|
|
8,436 |
|
|
|
|
|
|
|
109,846 |
|
Prepaid expenses and other |
|
|
8,594 |
|
|
|
|
|
|
|
1,759 |
|
|
|
|
|
|
|
10,353 |
|
Assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
15,036 |
|
|
|
|
|
|
|
15,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
151,102 |
|
|
|
|
|
|
|
28,771 |
|
|
|
|
|
|
|
179,873 |
|
Property and equipment, net |
|
|
22,499 |
|
|
|
|
|
|
|
2,625 |
|
|
|
|
|
|
|
25,124 |
|
Intangible assets, net |
|
|
144,764 |
|
|
|
|
|
|
|
7,096 |
|
|
|
|
|
|
|
151,860 |
|
Goodwill |
|
|
258,905 |
|
|
|
|
|
|
|
9,307 |
|
|
|
|
|
|
|
268,212 |
|
Deferred debt financing costs and other |
|
|
8,379 |
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
8,433 |
|
Investment in and advances to subsidiaries |
|
|
37,299 |
|
|
|
|
|
|
|
|
|
|
|
(37,299 |
) |
|
|
|
|
Assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
6,727 |
|
|
|
|
|
|
|
6,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
622,948 |
|
|
$ |
|
|
|
$ |
54,580 |
|
|
$ |
(37,299 |
) |
|
$ |
640,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
13,534 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,534 |
|
Accounts payable and other liabilities |
|
|
74,655 |
|
|
|
|
|
|
|
8,154 |
|
|
|
(170 |
) |
|
|
82,639 |
|
Liabilities of discontinued operations |
|
|
1,230 |
|
|
|
|
|
|
|
9,564 |
|
|
|
(3,273 |
) |
|
|
7,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
89,419 |
|
|
|
|
|
|
|
17,718 |
|
|
|
(3,443 |
) |
|
|
103,694 |
|
Long-term debt, net of current portion |
|
|
406,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406,832 |
|
Other long-term liabilities |
|
|
7,132 |
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
7,194 |
|
Deferred tax liability |
|
|
9,702 |
|
|
|
|
|
|
|
2,442 |
|
|
|
|
|
|
|
12,144 |
|
Liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
502 |
|
|
|
|
|
|
|
502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
513,085 |
|
|
|
|
|
|
|
20,724 |
|
|
|
(3,443 |
) |
|
|
530,366 |
|
Total equity |
|
|
109,863 |
|
|
|
|
|
|
|
33,856 |
|
|
|
(33,856 |
) |
|
|
109,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
622,948 |
|
|
$ |
|
|
|
$ |
54,580 |
|
|
$ |
(37,299 |
) |
|
$ |
640,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
Condensed Combining Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
Year Ended December 31, 2010 |
|
Revenue |
|
$ |
676,866 |
|
|
$ |
32,267 |
|
|
$ |
52,893 |
|
|
$ |
(185 |
) |
|
$ |
761,841 |
|
Cost of revenue |
|
|
564,331 |
|
|
|
29,686 |
|
|
|
45,545 |
|
|
|
(185 |
) |
|
|
639,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
112,535 |
|
|
|
2,581 |
|
|
|
7,348 |
|
|
|
|
|
|
|
122,464 |
|
General and administrative expenses |
|
|
40,098 |
|
|
|
1,339 |
|
|
|
3,917 |
|
|
|
|
|
|
|
45,354 |
|
Selling and marketing expenses |
|
|
17,937 |
|
|
|
22 |
|
|
|
1,946 |
|
|
|
|
|
|
|
19,905 |
|
Impairment charges for goodwill and intangibles |
|
|
5,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
49,180 |
|
|
|
1,220 |
|
|
|
1,485 |
|
|
|
|
|
|
|
51,885 |
|
Interest expense, net |
|
|
31,351 |
|
|
|
(1 |
) |
|
|
(210 |
) |
|
|
|
|
|
|
31,140 |
|
Equity in net income (loss) of subsidiaries |
|
|
(18,209 |
) |
|
|
|
|
|
|
|
|
|
|
18,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
(380 |
) |
|
|
1,221 |
|
|
|
1,695 |
|
|
|
18,209 |
|
|
|
20,745 |
|
Provision (benefit) for income taxes |
|
|
(32,395 |
) |
|
|
516 |
|
|
|
393 |
|
|
|
|
|
|
|
(31,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
32,015 |
|
|
|
705 |
|
|
|
1,302 |
|
|
|
18,209 |
|
|
|
52,231 |
|
Income (loss) from discontinued operations,
net of tax |
|
|
7,988 |
|
|
|
|
|
|
|
(20,216 |
) |
|
|
|
|
|
|
(12,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
40,003 |
|
|
|
705 |
|
|
|
(18,914 |
) |
|
|
18,209 |
|
|
|
40,003 |
|
Net loss attributable to noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Vangent |
|
$ |
40,003 |
|
|
$ |
705 |
|
|
$ |
(18,888 |
) |
|
$ |
18,209 |
|
|
$ |
40,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
Revenue |
|
$ |
540,217 |
|
|
$ |
|
|
|
$ |
43,769 |
|
|
$ |
|
|
|
$ |
583,986 |
|
Cost of revenue |
|
|
451,870 |
|
|
|
|
|
|
|
38,630 |
|
|
|
|
|
|
|
490,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
88,347 |
|
|
|
|
|
|
|
5,139 |
|
|
|
|
|
|
|
93,486 |
|
General and administrative expenses |
|
|
38,898 |
|
|
|
|
|
|
|
1,489 |
|
|
|
|
|
|
|
40,387 |
|
Selling and marketing expenses |
|
|
15,997 |
|
|
|
|
|
|
|
2,006 |
|
|
|
|
|
|
|
18,003 |
|
Impairment charges for goodwill and intangibles |
|
|
3,351 |
|
|
|
|
|
|
|
7,876 |
|
|
|
|
|
|
|
11,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
30,101 |
|
|
|
|
|
|
|
(6,232 |
) |
|
|
|
|
|
|
23,869 |
|
Interest expense, net |
|
|
34,405 |
|
|
|
|
|
|
|
(116 |
) |
|
|
|
|
|
|
34,289 |
|
Equity in net income (loss) of subsidiaries |
|
|
(21,267 |
) |
|
|
|
|
|
|
|
|
|
|
21,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income
taxes |
|
|
(25,571 |
) |
|
|
|
|
|
|
(6,116 |
) |
|
|
21,267 |
|
|
|
(10,420 |
) |
Provision for income taxes |
|
|
6,110 |
|
|
|
|
|
|
|
684 |
|
|
|
|
|
|
|
6,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(31,681 |
) |
|
|
|
|
|
|
(6,800 |
) |
|
|
21,267 |
|
|
|
(17,214 |
) |
Loss from discontinued operations, net of tax |
|
|
(2,327 |
) |
|
|
|
|
|
|
(14,467 |
) |
|
|
|
|
|
|
(16,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(34,008 |
) |
|
$ |
|
|
|
$ |
(21,267 |
) |
|
$ |
21,267 |
|
|
$ |
(34,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
Revenue |
|
$ |
483,836 |
|
|
$ |
|
|
|
$ |
48,213 |
|
|
$ |
|
|
|
$ |
532,049 |
|
Cost of revenue |
|
|
398,713 |
|
|
|
|
|
|
|
41,782 |
|
|
|
|
|
|
|
440,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
85,123 |
|
|
|
|
|
|
|
6,431 |
|
|
|
|
|
|
|
91,554 |
|
General and administrative expenses |
|
|
44,729 |
|
|
|
|
|
|
|
1,711 |
|
|
|
|
|
|
|
46,440 |
|
Selling and marketing expenses |
|
|
12,823 |
|
|
|
|
|
|
|
2,107 |
|
|
|
|
|
|
|
14,930 |
|
Impairment charges for goodwill and intangibles |
|
|
8,213 |
|
|
|
|
|
|
|
5,553 |
|
|
|
|
|
|
|
13,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
19,358 |
|
|
|
|
|
|
|
(2,940 |
) |
|
|
|
|
|
|
16,418 |
|
Interest expense, net |
|
|
35,296 |
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
35,244 |
|
Equity in net loss of subsidiaries |
|
|
(5,886 |
) |
|
|
|
|
|
|
|
|
|
|
5,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income
taxes |
|
|
(21,824 |
) |
|
|
|
|
|
|
(2,888 |
) |
|
|
5,886 |
|
|
|
(18,826 |
) |
Provision for income taxes |
|
|
3,929 |
|
|
|
|
|
|
|
1,010 |
|
|
|
|
|
|
|
4,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(25,753 |
) |
|
|
|
|
|
|
(3,898 |
) |
|
|
5,886 |
|
|
|
(23,765 |
) |
Loss from discontinued operations, net of tax |
|
|
(754 |
) |
|
|
|
|
|
|
(1,988 |
) |
|
|
|
|
|
|
(2,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(26,507 |
) |
|
$ |
|
|
|
$ |
(5,886 |
) |
|
$ |
5,886 |
|
|
$ |
(26,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
Condensed Combining Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elim- |
|
|
|
|
|
|
Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
inations |
|
|
Consolidated |
|
|
|
Year Ended December 31, 2010 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
$ |
68,571 |
|
|
$ |
(3,809 |
) |
|
$ |
8,021 |
|
|
$ |
|
|
|
|
72,783 |
|
Discontinued operations, net |
|
|
(864 |
) |
|
|
|
|
|
|
(1,028 |
) |
|
|
|
|
|
|
(1,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
67,707 |
|
|
|
(3,809 |
) |
|
|
6,993 |
|
|
|
|
|
|
|
70,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition, net of cash acquired |
|
|
(61,050 |
) |
|
|
|
|
|
|
897 |
|
|
|
|
|
|
|
(60,153 |
) |
Loans to Guarantor Subsidiaries |
|
|
(3,893 |
) |
|
|
|
|
|
|
|
|
|
|
3,893 |
|
|
|
|
|
Capital expenditures |
|
|
(7,733 |
) |
|
|
(84 |
) |
|
|
(4,632 |
) |
|
|
|
|
|
|
(12,449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
|
(72,676 |
) |
|
|
(84 |
) |
|
|
(3,735 |
) |
|
|
3,893 |
|
|
|
(72,602 |
) |
Discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
(516 |
) |
|
|
|
|
|
|
(516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(72,676 |
) |
|
|
(84 |
) |
|
|
(4,251 |
) |
|
|
3,893 |
|
|
|
(73,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from Vangent, Inc. |
|
|
|
|
|
|
3,893 |
|
|
|
|
|
|
|
(3,893 |
) |
|
|
|
|
Repayment of senior secured loan |
|
|
(13,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,612 |
) |
Deferred debt financing fees and other |
|
|
(1,692 |
) |
|
|
|
|
|
|
(500 |
) |
|
|
|
|
|
|
(2,192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(15,304 |
) |
|
|
3,893 |
|
|
|
(500 |
) |
|
|
(3,893 |
) |
|
|
(15,804 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
(349 |
) |
|
|
|
|
|
|
311 |
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(20,622 |
) |
|
|
|
|
|
|
2,553 |
|
|
|
|
|
|
|
(18,069 |
) |
Total cash and cash equivalents, beginning of year |
|
|
41,099 |
|
|
|
|
|
|
|
4,485 |
|
|
|
|
|
|
|
45,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, end of year |
|
|
20,477 |
|
|
|
|
|
|
|
7,038 |
|
|
|
|
|
|
|
27,515 |
|
Less: Cash and cash equivalents, discontinued operations |
|
|
|
|
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, continuing operations |
|
$ |
20,477 |
|
|
$ |
|
|
|
$ |
6,717 |
|
|
$ |
|
|
|
$ |
27,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
$ |
43,253 |
|
|
$ |
|
|
|
$ |
6,175 |
|
|
$ |
|
|
|
$ |
49,428 |
|
Discontinued operations, net |
|
|
1,230 |
|
|
|
|
|
|
|
(10,271 |
) |
|
|
|
|
|
|
(9,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
44,483 |
|
|
|
|
|
|
|
(4,096 |
) |
|
|
|
|
|
|
40,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to Non-Guarantor Subsidiary, net |
|
|
(8,275 |
) |
|
|
|
|
|
|
|
|
|
|
8,275 |
|
|
|
|
|
Capital expenditures |
|
|
(10,440 |
) |
|
|
|
|
|
|
(242 |
) |
|
|
|
|
|
|
(10,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
|
(18,715 |
) |
|
|
|
|
|
|
(242 |
) |
|
|
8,275 |
|
|
|
(10,682 |
) |
Discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
(5,101 |
) |
|
|
|
|
|
|
(5,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(18,715 |
) |
|
|
|
|
|
|
(5,343 |
) |
|
|
8,275 |
|
|
|
(15,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188 |
) |
Discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
8,275 |
|
|
|
(8,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(188 |
) |
|
|
|
|
|
|
8,275 |
|
|
|
(8,275 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
25,580 |
|
|
|
|
|
|
|
(1,130 |
) |
|
|
|
|
|
|
24,450 |
|
Total cash and cash equivalents, beginning of year |
|
|
15,519 |
|
|
|
|
|
|
|
5,615 |
|
|
|
|
|
|
|
21,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, end of year |
|
|
41,099 |
|
|
|
|
|
|
|
4,485 |
|
|
|
|
|
|
|
45,584 |
|
Less: Cash and cash equivalents, discontinued operations |
|
|
|
|
|
|
|
|
|
|
946 |
|
|
|
|
|
|
|
946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, continuing operations |
|
$ |
41,099 |
|
|
$ |
|
|
|
$ |
3,539 |
|
|
$ |
|
|
|
$ |
44,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
Condensed Combining Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elim- |
|
|
|
|
|
|
Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
inations |
|
|
Consolidated |
|
|
|
Year Ended December 31, 2008 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
$ |
14,594 |
|
|
$ |
|
|
|
$ |
3,816 |
|
|
$ |
|
|
|
$ |
18,410 |
|
Discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
14,594 |
|
|
|
|
|
|
|
3,816 |
|
|
|
|
|
|
|
18,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan repayments from Vangent Mexico |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
(600 |
) |
|
|
|
|
Loan repayment from Vangent, Ltd. |
|
|
1,806 |
|
|
|
|
|
|
|
|
|
|
|
(1,806 |
) |
|
|
|
|
Acquisition, net of cash acquired |
|
|
(3,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,892 |
) |
Capital expenditures |
|
|
(8,502 |
) |
|
|
|
|
|
|
(551 |
) |
|
|
|
|
|
|
(9,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
|
(9,988 |
) |
|
|
|
|
|
|
(551 |
) |
|
|
(2,406 |
) |
|
|
(12,945 |
) |
Discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
(585 |
) |
|
|
|
|
|
|
(585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,988 |
) |
|
|
|
|
|
|
(1,136 |
) |
|
|
(2,406 |
) |
|
|
(13,530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of loan to Vangent, Inc. from Vangent, Ltd |
|
|
|
|
|
|
|
|
|
|
(1,806 |
) |
|
|
1,806 |
|
|
|
|
|
Repayment of senior secured loan |
|
|
(7,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,834 |
) |
Other |
|
|
(275 |
) |
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations, net |
|
|
(8,109 |
) |
|
|
|
|
|
|
(1,785 |
) |
|
|
1,806 |
|
|
|
(8,088 |
) |
Discontinued operations, net |
|
|
|
|
|
|
|
|
|
|
(600 |
) |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(8,109 |
) |
|
|
|
|
|
|
(2,385 |
) |
|
|
2,406 |
|
|
|
(8,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(1,751 |
) |
|
|
|
|
|
|
(1,751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(3,503 |
) |
|
|
|
|
|
|
(1,456 |
) |
|
|
|
|
|
|
(4,959 |
) |
Total cash and cash equivalents, beginning of year |
|
|
19,022 |
|
|
|
|
|
|
|
7,071 |
|
|
|
|
|
|
|
26,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, end of year |
|
|
15,519 |
|
|
|
|
|
|
|
5,615 |
|
|
|
|
|
|
|
21,134 |
|
Less: Cash and cash equivalents, discontinued operations |
|
|
|
|
|
|
|
|
|
|
1,688 |
|
|
|
|
|
|
|
1,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, continuing operations |
|
$ |
15,519 |
|
|
$ |
|
|
|
$ |
3,927 |
|
|
$ |
|
|
|
$ |
19,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
21. Quarterly Results of Operations
(Unaudited)
The unaudited quarterly results of operations data have been prepared on the same
basis as the audited consolidated financial statements. Quarterly results include all
adjustments consisting only of normal recurring adjustments that are considered necessary
for fair statement of operating results for the quarters presented. Operating results
for any one quarter are not necessarily indicative of results for any future quarters or
for a full year. Unaudited quarterly results of operations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, |
|
|
July 3, |
|
|
October 2, |
|
|
December 31, |
|
Consolidated Statements of Operations Data |
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
Revenue |
|
$ |
194,197 |
|
|
$ |
214,846 |
|
|
$ |
176,406 |
|
|
$ |
176,392 |
|
Cost of revenue |
|
|
158,226 |
|
|
|
182,459 |
|
|
|
146,678 |
|
|
|
152,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
35,971 |
|
|
|
32,387 |
|
|
|
29,728 |
|
|
|
24,378 |
|
General and administrative expenses |
|
|
12,190 |
|
|
|
11,494 |
|
|
|
11,208 |
|
|
|
10,462 |
|
Selling and marketing expenses |
|
|
5,675 |
|
|
|
5,447 |
|
|
|
4,762 |
|
|
|
4,021 |
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
18,106 |
|
|
|
15,446 |
|
|
|
13,758 |
|
|
|
4,575 |
|
Interest expense, net |
|
|
8,236 |
|
|
|
7,362 |
|
|
|
7,703 |
|
|
|
7,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes |
|
|
9,870 |
|
|
|
8,084 |
|
|
|
6,055 |
|
|
|
(3,264 |
) |
Provision (benefit) for income taxes |
|
|
1,834 |
|
|
|
1,851 |
|
|
|
1,913 |
|
|
|
(37,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
8,036 |
|
|
|
6,233 |
|
|
|
4,142 |
|
|
|
33,820 |
|
Income (loss) from discontinued operations, net of tax |
|
|
(2,437 |
) |
|
|
(14,348 |
) |
|
|
(171 |
) |
|
|
4,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
5,599 |
|
|
|
(8,115 |
) |
|
|
3,971 |
|
|
|
38,548 |
|
Less: Net income (loss) attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Vangent |
|
$ |
5,599 |
|
|
$ |
(8,115 |
) |
|
$ |
3,962 |
|
|
$ |
38,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 28, |
|
|
June 27, |
|
|
September 26, |
|
|
December 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Revenue |
|
$ |
132,873 |
|
|
$ |
135,115 |
|
|
$ |
143,454 |
|
|
$ |
172,544 |
|
Cost of revenue |
|
|
107,365 |
|
|
|
115,918 |
|
|
|
121,132 |
|
|
|
146,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
25,508 |
|
|
|
19,197 |
|
|
|
22,322 |
|
|
|
26,459 |
|
General and administrative expenses |
|
|
9,691 |
|
|
|
9,547 |
|
|
|
10,275 |
|
|
|
10,874 |
|
Selling and marketing expenses |
|
|
4,143 |
|
|
|
4,386 |
|
|
|
4,790 |
|
|
|
4,684 |
|
Impairment of goodwill and indefinite-life intangible asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
11,674 |
|
|
|
5,264 |
|
|
|
7,257 |
|
|
|
(326 |
) |
Interest expense and other, net |
|
|
8,351 |
|
|
|
8,533 |
|
|
|
8,502 |
|
|
|
8,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes |
|
|
3,323 |
|
|
|
(3,269 |
) |
|
|
(1,245 |
) |
|
|
(9,229 |
) |
Provision for income taxes |
|
|
1,744 |
|
|
|
1,694 |
|
|
|
1,629 |
|
|
|
1,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
1,579 |
|
|
|
(4,963 |
) |
|
|
(2,874 |
) |
|
|
(10,956 |
) |
Loss from discontinued operations, net of tax |
|
|
(615 |
) |
|
|
(1,148 |
) |
|
|
(2,395 |
) |
|
|
(12,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
964 |
|
|
$ |
(6,111 |
) |
|
$ |
(5,269 |
) |
|
$ |
(23,592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35