Basis of Presentation | 9 Months Ended |
Sep. 27, 2013 |
Organization Consolidation And Presentation Of Financial Statements [Abstract] | ' |
Basis of Presentation | ' |
1 | Basis of Presentation. | | | | | | | | | | | | | | | |
Spin-Off from L-3: On July 17, 2012, L-3 Communications Holdings, Inc. completed the spin-off of Engility Holdings, Inc. For the periods prior to July 17, 2012, Engility Holdings and its current subsidiaries were direct or indirect subsidiaries of L-3 Communications Holdings. Unless the context indicates otherwise, (i) references to Engility, the Company, we, us or our refer to Engility Holdings, Inc. and its subsidiaries and (ii) references to L-3 refer to L-3 Communications Holdings, Inc. and its subsidiaries. |
Effective as of 5:00 p.m., New York time, on July 17, 2012 (the Distribution Date), our common stock was distributed, on a pro rata basis, to L-3’s stockholders of record as of the close of business on July 16, 2012 (the Record Date). On the Distribution Date, each holder of L-3 common stock received one share of our common stock for every six shares of L-3 common stock held on the Record Date. The spin-off was completed pursuant to a Distribution Agreement and several other agreements with L-3 related to the spin-off, including an Employee Matters Agreement, a Tax Matters Agreement, a Transition Services Agreement and two Master Supply Agreements. These agreements govern the relationship between us and L-3 following the spin-off and provide for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be provided by L-3 to Engility. For a discussion of each agreement, see the section entitled “Certain Relationships and Related Party Transactions — Agreements with L-3 Related to the Spin-Off” in our Proxy Statement for the Annual Meeting of Stockholders held on May 23, 2013, as filed with the U.S. Securities and Exchange Commission (the SEC) on April 12, 2013. We paid $335 million as a cash dividend to L-3 on the Distribution Date. |
Our Registration Statement on Form 10 was declared effective by the SEC on July 2, 2012, and our common stock began “regular-way” trading on the New York Stock Exchange on July 18, 2012 under the symbol “EGL.” |
Description of Business: Engility, through its predecessors, has provided mission-critical services to the U.S. government for over four decades. Our customers include the U.S. Department of Defense (DoD), U.S. Department of Justice (DoJ), U.S. Agency for International Development (USAID), U.S. Department of State (DoS), Federal Aviation Administration (FAA), Department of Homeland Security (DHS), and allied foreign governments. We attribute the strength of our customer relationships to our singular focus on services, our industry-leading capabilities in program planning and management, superior past performance, and the experience of our people and their commitment to our customers’ missions. As of September 27, 2013, we employed approximately 7,000 individuals globally and operated in over 40 countries. We are led by a seasoned executive team, which is composed of industry and government veterans. |
We provide our service offerings in six key areas: (i) specialized technical consulting; (ii) program and business support services; (iii) engineering and technology lifecycle support; (iv) information technology modernization and sustainment; (v) supply chain services and logistics management; and (vi) training and education. |
Principles of Consolidation and Combination and Basis of Presentation: The unaudited consolidated and combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and in accordance with Article 10 of Regulation S-X of the SEC and reflect the financial position, results of operations and cash flows of our businesses. Accordingly, they do not include all of the disclosures required by U.S. GAAP for a complete set of annual audited financial statements. |
The accompanying financial information should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2012 (2012 Form 10-K). In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. |
Our accompanying unaudited consolidated and combined financial statements, for the periods prior to the spin-off, were derived from the accounting records of L-3 as if we operated on a stand-alone basis. The unaudited combined statements of operations include expense allocations for the corporate functions provided to us by L-3 prior to the Distribution Date, including, but not limited to, executive management, finance, legal, human resources, employee benefits administration, treasury, tax, internal audit, information technology, communications, ethics and compliance, insurance, and stock-based compensation. These expenses were allocated to us on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue or headcount. We believe that these allocations have been made on a consistent basis and are a reasonable reflection of the utilization of the services received by, or benefits provided to, us during the periods presented. |
Following our spin-off from L-3, we perform these functions using internal resources and purchased services, some of which are provided by L-3 during a transitional period pursuant to the Transition Services Agreement. |
Transactions prior to the spin-off between us and L-3 were considered to be effectively settled for cash at the time the transaction was recorded, and therefore are included as financing activities in the unaudited consolidated and combined statements of cash flows. |
Consistent with L-3’s centralized approach to cash management and financing its operations, prior to the spin-off, the majority of our cash receipts were transferred to L-3 daily and L-3 funded our working capital and capital expenditure requirements as needed. Cash transfers to and from L-3’s cash management accounts were reflected as a component of prior parent company investment in the unaudited consolidated and combined balance sheets. Net changes to the prior parent company investment for the period are reflected in the net transfers from prior parent in cash flows from financing activities section of the accompanying statement of cash flows. Following the spin-off, we have financed our operations primarily through operating cash flow and the revolving portion of the 2012 Credit Facility, and currently, the 2013 Credit Facility (each as defined in Note 6 below), as needed. |
See Note 4 for a further description of the transactions between us and L-3. |
Non-controlling Interest: Engility holds a 50.1% majority interest in Forfeiture Support Associates J.V. (FSA). The results of operations of FSA are included in Engility’s Consolidated and Combined Statements of Operations from the date control was obtained. The non-controlling interest reported on the Consolidated and Combined Balance Sheets represents the portion of FSA’s equity that is attributable to the non-controlling interest. |
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Accounting Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates using assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The most significant of these estimates relate to the recoverability, useful lives and valuation of identifiable intangible assets and goodwill, income tax contingencies and revenue and expenses for certain revenue arrangements. Actual amounts will differ from these estimates and could differ materially. |
Change in Operating and Reportable Segments: Prior to 2013, we operated in two segments. Effective January 1, 2013, we operate as one segment. Accordingly, all segment disclosure has been eliminated as it is no longer relevant based on the Company’s current operating and reporting structure. |
Reporting Periods: Our fiscal year begins on January 1 and ends on December 31. Our first three fiscal quarters end on the 13th Friday after the first day of the quarter and the fourth quarter ends on December 31. |
Revision to Costs and Expenses: As previously disclosed, during the process of finalizing the financial statements for the fiscal year ended December 31, 2012, we determined that during the three months ended March 30, 2012, June 29, 2012 and September 28, 2012, we improperly classified certain amounts in cost of revenue that were selling, general and administrative in nature. We have therefore adjusted the presentation in this Form 10-Q to correctly present these amounts as selling, general and administrative expenses. We have assessed the impact of the adjustments on the statements of operations and determined that the periods were not materially misstated. These changes did not impact the balance sheets or statements of cash flows. The revision decreased cost of revenue, with a corresponding increase to selling, general and administrative expenses of $2,498, $2,195 and $2,084 for the three months ended March 30, 2012, June 29, 2012 and September 28, 2012, respectively. There was no impact to operating income due to this revision. |
Earnings per Share: For periods prior to the spin-off, basic and diluted earnings per share (EPS) was calculated using 16 million shares of our common stock that were distributed to L-3 shareholders on July 17, 2012. For periods after the spin-off, basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects potential dilution that could occur if securities to issue common stock were exercised or converted into common stock. Diluted EPS includes the effect of the employee stock purchase plan, restricted stock units, and stock options calculated using the treasury stock method. For the three and nine months ended September 27, 2013, 0 shares and 12,355 shares, respectively, were not included in diluted EPS due to their anti-dilutive effects. For the three and nine months ended September 28, 2012, 552,667 shares and 184,222 shares, respectively, were not included in diluted EPS due to their anti-dilutive effects. |
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| | Three Months Ended | | | Nine Months Ended | |
| | September 27, | | | September 28, | | | September 27, | | | September 28, | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | (amounts in thousands, except per share amounts) | |
Net income (loss) attributable to Engility from continuing operations less noncontrolling interest | | $ | 12,008 | | | $ | (419,997 | ) | | $ | 38,848 | | | $ | (390,696 | ) |
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Net loss attributable to Engility from discontinued operations | | | — | | | | (308 | ) | | | — | | | | (626 | ) |
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Net income (loss) attributable to Engility | | $ | 12,008 | | | $ | (420,305 | ) | | $ | 38,848 | | | $ | (391,322 | ) |
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Weighted average number of shares outstanding – Basic | | | 16,915 | | | | 16,291 | | | | 16,855 | | | | 16,176 | |
Dilutive effect of share-based compensation outstanding after application of the treasury stock method | | | 855 | | | | — | | | | 737 | | | | — | |
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Weighted average number of shares – Diluted | | | 17,770 | | | | 16,291 | | | | 17,592 | | | | 16,176 | |
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Earnings (loss) per share allocable to Engility Holdings, Inc. common shareholders – Basic | | | | | | | | | | | | | | | | |
Net income (loss) per share from continuing operations less noncontrolling interest | | $ | 0.71 | | | $ | (25.78 | ) | | $ | 2.3 | | | $ | (24.15 | ) |
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Net loss per share from discontinued operations | | $ | — | | | $ | (0.02 | ) | | $ | — | | | $ | (0.04 | ) |
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Net income (loss) per share attributable to Engility | | $ | 0.71 | | | $ | (25.80 | ) | | $ | 2.3 | | | $ | (24.19 | ) |
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Earnings (loss) per share allocable to Engility Holdings, Inc. common shareholders – Diluted | | | | | | | | | | | | | | | | |
Net income (loss) per share from continuing operations less noncontrolling interest | | $ | 0.68 | | | $ | (25.78 | ) | | $ | 2.21 | | | $ | (24.15 | ) |
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Net loss per share from discontinued operations | | $ | — | | | $ | (0.02 | ) | | $ | — | | | $ | (0.04 | ) |
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Net income (loss) per share attributable to Engility | | $ | 0.68 | | | $ | (25.80 | ) | | $ | 2.21 | | | $ | (24.19 | ) |
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