NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
UNAUDITED
1.Description of the Business
ManTech International Corporation (depending on the circumstances, “ManTech” “Company” “we” “our” “ours” or “us”) provides mission-focused technology solutions and services for U.S. defense, intelligence community and federal civilian agencies. We excel in full-spectrum cyber, data collection & analytics, enterprise information technology (IT) and systems engineering and software application development solutions that support national and homeland security.
2.Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the U.S., have been condensed or omitted pursuant to those rules and regulations. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We recommend that you read these condensed consolidated financial statements in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, previously filed with the SEC. We believe that the condensed consolidated financial statements in this Form 10-Q reflect all adjustments that are necessary to fairly present the financial position, results of operations and cash flows for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results that can be expected for the full year.
3.Proposed Merger
On May 13, 2022 the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Moose Bidco, Inc., a Delaware corporation (Parent), and Moose Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent (Merger Sub). Pursuant to the Merger Agreement, and in accordance with the terms and subject to the conditions thereof, Merger Sub will merge with and into the Company (the Merger), with the Company surviving the Merger as a wholly owned subsidiary of Parent. As a result of the Merger, the Company will be acquired by Parent, which will be controlled by investment funds managed by The Carlyle Group Inc.
ManTech’s Board of Directors has unanimously determined that the transactions contemplated by the Merger Agreement, including the Merger, are in the best interests of the Company and its stockholders, and approved the Merger Agreement and the transactions contemplated by the Merger Agreement. Our Board of Directors has also unanimously resolved to recommend that the Company’s stockholders vote to adopt the Merger Agreement and approve the Merger and other transactions contemplated thereby.
Under the Merger Agreement, in accordance with the terms and subject to the conditions set forth therein, at the effective time of the Merger, each issued and outstanding share of Class A Common Stock, par value $0.01 per share, of the Company and Class B Common Stock, par value $0.01 per share, of the Company will be automatically converted into the right to receive $96.00 in cash, without interest, other than (1) those shares owned by Parent, Merger Sub or the Company (as treasury stock or otherwise) or any of their respective wholly owned subsidiaries (which will be cancelled without any consideration) and (2) any shares as to which appraisal rights have been properly exercised, and not withdrawn, in accordance with the Delaware General Corporation Law.
The consummation of the merger is subject to the satisfaction or waiver of customary closing conditions specified in the Merger Agreement, including, among others, (1) the adoption of the Merger Agreement by the Company’s stockholders, (2) the expiration or termination of any waiting period (and any extension thereof) applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act which expired June 20, 2022), (3) the absence of any law or order by a governmental authority that has the effect of preventing, making illegal or prohibiting the consummation of the Merger or any other transaction contemplated by the Merger Agreement and (4) the absence of a “Company Material Adverse Effect” (as defined in the Merger Agreement). The consummation of the Merger is not subject to a financing condition.
The Merger Agreement provides that the Company or Parent may terminate the Merger Agreement under certain conditions, and in certain specified circumstances, upon termination of the Merger Agreement, the Company will be required to pay Parent a termination fee of $115.9 million or Parent will be required to pay the Company a termination fee of $239.7
million.
We expect the Merger to close during the second half of calendar year 2022.
4.Revenue from Contracts with Customers
We derive revenue from contracts with customers primarily from contracts with the U.S. government in the areas of defense, intelligence, homeland security and other federal civilian agencies. Substantially all of our revenue is derived from services and solutions provided to the U.S. government or to prime contractors supporting the U.S. government, including services by our employees and our subcontractors, and solutions that include third-party hardware and software that we purchase and integrate as a part of our overall solutions. Customer requirements may vary from period-to-period depending on specific contract and customer requirements. We provide our services and solutions under three types of contracts: cost-reimbursable, fixed-price and time-and-materials. Under cost-reimbursable contracts, we are reimbursed for costs that are determined to be reasonable, allowable and allocable to the contract and paid a fee representing the profit margin negotiated between us and the contracting agency, which may be fixed or performance based. Under fixed-price contracts, we perform specific tasks for a fixed price. Fixed-price contracts may include either a product delivery or specific service performance over a defined period. Under time-and-materials contracts, we are reimbursed for labor at fixed hourly rates and are generally reimbursed separately for allowable materials and expenses at cost.
For contracts that do not meet the criteria to measure performance as a right to invoice under the series guidance, we utilize an Estimate at Completion process to measure progress toward completion. We typically estimate progress towards completion based on cost incurred or direct labor incurred. As part of this process, we review information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenue and costs. The risks and opportunities include judgments about the ability and cost to achieve the contract milestones and other technical contract requirements. We make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer and overhead cost rates, among other variables. A significant change in one or more of these estimates could affect the timing in which we recognize revenue on our contracts. For the three months ended June 30, 2022, the aggregate impact of adjustments in contract estimates decreased our revenue by $1.5 million. For the three months ended June 30, 2021, the aggregate impact of adjustments in contract estimates increased our revenue by $5.7 million. For the six months ended June 30, 2022, the aggregate impact of adjustments in contract estimates decreased our revenue by $1.9 million. For the six months ended June 30, 2021, the aggregate impact of adjustments in contract estimates increased our revenue by $6.7 million.
We have one reportable segment. Our U.S. government customers typically exercise independent decision-making and contracting authority. Offices or divisions within an agency or department of the U.S. government may directly, or through a prime contractor, use our services as a separate customer as long as the customer has independent decision-making and contracting authority within its organization. We treat sales to U.S. government customers as sales within the U.S. regardless of where the services are performed. For the three months ended and six months ended June 30, 2022 and 2021, we generated 100% of our revenue from sales in the U.S.
The following tables disclose revenue (in thousands) by contract type, customer and contractor type for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended
June 30, | | Six months ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Cost-reimbursable | $ | 476,812 | | | $ | 443,950 | | | $ | 942,789 | | | $ | 863,725 | |
| Fixed-price | 100,540 | | | 117,474 | | | 216,284 | | | 249,682 | |
| Time-and-materials | 92,000 | | | 87,154 | | | 185,824 | | | 168,395 | |
| Revenue | $ | 669,352 | | | $ | 648,578 | | | $ | 1,344,897 | | | $ | 1,281,802 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended
June 30, | | Six months ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| U.S. Government | $ | 665,773 | | | $ | 642,755 | | | $ | 1,338,486 | | | $ | 1,271,253 | |
| State agencies, international agencies and commercial entities | 3,579 | | | 5,823 | | | 6,411 | | | 10,549 | |
| Revenue | $ | 669,352 | | | $ | 648,578 | | | $ | 1,344,897 | | | $ | 1,281,802 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended
June 30, | | Six months ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Prime contractor | $ | 622,597 | | | $ | 602,306 | | | $ | 1,245,789 | | | $ | 1,191,380 | |
| Subcontractor | 46,755 | | | 46,272 | | | 99,108 | | | 90,422 | |
| Revenue | $ | 669,352 | | | $ | 648,578 | | | $ | 1,344,897 | | | $ | 1,281,802 | |
The components of our receivables are as follows (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Billed receivables | $ | 364,278 | | | $ | 370,115 | |
| Unbilled receivables | 157,557 | | | 118,387 | |
| Allowance for doubtful accounts | (10,354) | | | (12,467) | |
| Receivables—net | $ | 511,481 | | | $ | 476,035 | |
Receivables at June 30, 2022 are expected to be substantially collected within one year except for approximately $8.2 million, of which 100% is related to U.S. government receivables. We do not believe that we have significant exposure to credit risk as billed receivables and unbilled receivables are primarily due from the U.S. government. The allowance for doubtful accounts represents our estimate for exposure due to compliance, contractual issues and bad debts related to prime contractors.
At June 30, 2022 and December 31, 2021, our contract liabilities were $34.6 million and $36.2 million, respectively. Changes in the balance of contract liabilities are primarily due to the timing difference between our performance and our customers' payments. For the three months ended June 30, 2022, the amount of revenue that was included in the opening contract liabilities balance was $3.4 million. For the six months ended June 30, 2022, the amount of revenue that was included in the opening contract liabilities balance was $23.1 million.
The remaining performance obligation as of June 30, 2022 is $2.3 billion. The following table discloses when we expect to recognize the remaining performance obligation as revenue (in billions):
| | | | | | | | | | | | | | | | | | | | |
| For the remaining six months ending December 31, 2022 | | For the year ending | | |
| December 31, 2023 | | December 31, 2024 | | Thereafter |
| $ | 1.0 | | | $ | 0.6 | | | $ | 0.3 | | | $ | 0.4 | |
5.Acquisitions
Technical and Management Assistance Corporation (TMAC)—On December 30, 2021, we completed the acquisition of TMAC through a share purchase agreement by and among ManTech International Corporation, Technical and Management Assistance Corporation, Project Cipher, Inc, and its Shareholder. TMAC is a leading provider of advanced data engineering services and solutions that ensure the delivery of vital information to the U.S. Intelligence Community.
The acquisition was accounted for as a business combination. The results of TMAC's operations have been included in our consolidated financial statements since that date. We funded the acquisition with cash on hand.
The purchase price was $30.3 million, which includes the finalized working capital adjustment. The purchase price was preliminarily allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The
excess of the purchase price over the fair value of assets acquired and liabilities assumed was recorded as goodwill. As we are still in the process of reviewing the fair value of the assets acquired and liabilities assumed, the purchase price allocation for TMAC is not complete as of June 30, 2022. In accordance with ASC 805, Business Combinations, we expect to finalize our purchase price allocation within one year of the acquisition date.
Recognition of goodwill is largely attributed to the value paid for TMAC's capabilities, which will broaden our footprint within the U.S. Intelligence Community. The goodwill recorded for this transaction is valued at $15.0 million and will be deductible for tax purposes over 15 years. The components of other intangible assets associated with the acquisition were customer relationships and backlog valued at $15.0 million and $0.7 million, respectively. The fair values of the customer relationships and backlog were determined using the excess earnings method (income approach) in which the value is derived from an estimation of the after-tax cash flows specifically attributable to backlog and customer relationships. Assumptions used in the analysis included revenue and expense forecasts, contributory asset charges, tax amortization benefit and discount rates. Customer contracts and related relationships represent the underlying relationships and agreements with TMAC's existing customers. Customer relationships are amortized using the pattern of benefits method over their estimated useful lives of approximately 20 years. Backlog is amortized using the pattern of benefits method over its estimated useful life of 1 year. The weighted-average amortization period of other intangibles is 19 years.
Gryphon Technologies, Inc. (Gryphon)—On December 9, 2021, we completed the acquisition of Gryphon through a unit purchase agreement by and among ManTech International Corporation, Gryphon Parent, LLC and Gryphon Finance, LLC. Gryphon will further strengthen our long-term competitive position by adding differentiated digital and systems engineering capabilities across the Department of Defense.
The acquisition was accounted for as a business combination. The results of Gryphon's operations have been included in our consolidated financial statements since that date. We funded the acquisition with cash on hand and borrowing under our credit facilities.
The preliminary purchase price was $358.9 million, which includes an estimated working capital adjustment. The preliminary purchase price was preliminarily allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was recorded as goodwill. As we are still in the process of reviewing the fair value of the assets acquired and liabilities assumed, the purchase price allocation for Gryphon is not complete as of June 30, 2022. In accordance with ASC 805, Business Combinations, we expect to finalize our purchase price allocation within one year of the acquisition date.
Recognition of goodwill is largely attributed to the value paid for Gryphon's capabilities, which will broaden our footprint within the Department of Defense. Pre-existing goodwill recorded for this transaction will be deductible for tax purposes over 13 years. The remainder of goodwill attributable to the acquisition of Gryphon will not be deductible for tax purposes.
The components of other intangible assets associated with the acquisition were customer relationships and backlog valued at $60.7 million and $5.0 million, respectively. The fair values of the customer relationships and backlog were determined using the excess earnings method (income approach) in which the value is derived from an estimation of the after-tax cash flows specifically attributable to backlog and customer relationships. Assumptions used in the analysis included revenue and expense forecasts, contributory asset charges, tax amortization benefit and discount rates. Customer contracts and related relationships represent the underlying relationships and agreements with Gryphon's existing customers. Customer relationships are amortized using the pattern of benefits method over their estimated useful lives of approximately 20 years. Backlog is amortized using the pattern of benefits method over its estimated useful life of 2 years. The weighted-average amortization period of other intangibles is 19 years.
The following table represents the preliminary purchase price allocation for Gryphon (in thousands):
| | | | | |
| Cash and cash equivalents | $ | 20,184 | |
| Receivables | 58,554 | |
| Prepaid expenses | 1,939 | |
| Taxes receivable - current | 1,418 | |
| Other current assets | 2,912 | |
| Goodwill | 257,928 | |
| Other intangible assets | 69,067 | |
| Property and equipment | 2,736 | |
| Operating lease right of use assets | 5,479 | |
| Other assets | 352 | |
| Accounts payable | (12,471) | |
| Accrued salaries and related expenses | (20,411) | |
| Contract liabilities | (4,773) | |
| Operating lease obligations—current | (1,243) | |
| Accrued expenses and other current liabilities | (5,153) | |
| Deferred income taxes | (13,361) | |
| Operating lease obligations—long term | (4,287) | |
| Net assets acquired and liabilities assumed | $ | 358,870 | |
For the three months ended June 30, 2022, we incurred no acquisition costs related to the Gryphon transactions. For the six months ended June 30, 2022, we incurred approximately $0.1 million of acquisition costs related to the Gryphon transaction, which are included in general and administrative expenses in our consolidated statement of income.
6.Earnings Per Share
Under ASC 260, Earnings per Share, the two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared (or accumulated) and participation rights in undistributed earnings. Under that method, basic and diluted earnings per share data are presented for each class of common stock.
In applying the two-class method, we determined that undistributed earnings should be allocated equally on a per share basis between Class A and Class B common stock. Under our Certificate of Incorporation, the holders of the common stock are entitled to participate ratably, on a share-for-share basis as if all shares of common stock were of a single class, in such dividends as may be declared by the Board of Directors. During the six months ended June 30, 2022 and 2021, we declared and paid quarterly dividends in the amounts of $0.41 per share and $0.38 per share, respectively, on both classes of common stock.
Basic earnings per share has been computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period in which the shares were outstanding. Diluted earnings per share have been computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during each period.
The net income available to common stockholders and weighted average number of common shares outstanding used to compute basic and diluted earnings per share for each class of common stock are as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended
June 30, | | Six months ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Distributed earnings | $ | 16,795 | | | $ | 15,455 | | | $ | 33,546 | | | $ | 30,851 | |
| Undistributed earnings | 6,042 | | | 21,154 | | | 20,632 | | | 38,086 | |
| Net income | $ | 22,837 | | | $ | 36,609 | | | $ | 54,178 | | | $ | 68,937 | |
| | | | | | | |
| Class A common stock: | | | | | | | |
| Basic net income available to common stockholders | $ | 21,948 | | | $ | 24,730 | | | $ | 44,771 | | | $ | 46,537 | |
| Basic weighted average common shares outstanding | 39,344 | | | 27,434 | | | 33,778 | | | 27,376 | |
| Basic earnings per share | $ | 0.56 | | | $ | 0.90 | | | $ | 1.33 | | | $ | 1.70 | |
| | | | | | | |
| Diluted net income available to common stockholders | $ | 21,954 | | | $ | 24,830 | | | $ | 44,834 | | | $ | 46,741 | |
| Effect of potential exercise of stock options | 277 | | | 345 | | | 275 | | | 373 | |
| Diluted weighted average common shares outstanding | 39,621 | | | 27,779 | | | 34,053 | | | 27,749 | |
| Diluted earnings per share | $ | 0.55 | | | $ | 0.89 | | | $ | 1.32 | | | $ | 1.68 | |
| | | | | | | |
| Class B common stock: | | | | | | | |
| Basic net income available to common stockholders | $ | 889 | | | $ | 11,879 | | | $ | 9,407 | | | $ | 22,400 | |
| Basic weighted average common shares outstanding | 1,593 | | | 13,177 | | | 7,097 | | | 13,177 | |
| Basic earnings per share | $ | 0.56 | | | $ | 0.90 | | | $ | 1.33 | | | $ | 1.70 | |
| | | | | | | |
| Diluted net income available to common stockholders | $ | 883 | | | $ | 11,779 | | | $ | 9,344 | | | $ | 22,196 | |
| Diluted weighted average common shares outstanding | 1,593 | | | 13,177 | | | 7,097 | | | 13,177 | |
| Diluted earnings per share | $ | 0.55 | | | $ | 0.89 | | | $ | 1.32 | | | $ | 1.68 | |
For the three months ended June 30, 2022 and 2021, options to purchase 1,505 shares and 428 shares, respectively, were outstanding but not included in the computation of diluted earnings per share because the options' effect would have been anti-dilutive. For the six months ended June 30, 2022 and 2021, options to purchase 11,235 shares and 411 shares, respectively, were outstanding but not included in the computation of diluted earnings per share because the options' effect would have been anti-dilutive. For the six months ended June 30, 2022 and 2021, there were 99,286 shares and 125,534 shares, respectively, issued from the exercise of stock options. For the six months ended June 30, 2022 and 2021 there were 139,082 shares and 117,129 shares, respectively, issued from the vesting of restricted stock units.
7.Property and Equipment
Major classes of property and equipment are summarized as follows (in thousands):
| | | | | | | | | | | |
| June 30,
2022 | | December 31,
2021 |
| Furniture and equipment | $ | 248,513 | | | $ | 234,169 | |
| Leasehold improvements | 76,361 | | | 70,932 | |
| Finance leases | 797 | | | 797 | |
| Property and equipment—gross | 325,671 | | | 305,898 | |
| Accumulated depreciation and amortization | (192,693) | | | (172,601) | |
| Property and equipment—net | $ | 132,978 | | | $ | 133,297 | |
Depreciation and amortization expense related to property and equipment for the three months ended June 30, 2022 and 2021 was $10.7 million and $11.7 million, respectively. Depreciation and amortization expense related to property and equipment for the six months ended June 30, 2022 and 2021 was $23.5 million and $23.2 million, respectively.
8.Goodwill and Other Intangible Assets
The change in the carrying amount of goodwill during the year ended December 31, 2021 and six months ended June 30, 2022 are as follows (in thousands):
| | | | | |
| Goodwill Balance |
| Goodwill at December 31, 2020 | $ | 1,237,894 | |
| Acquisitions | 260,863 | |
| Acquisition fair value adjustment | 231 | |
| Goodwill at December 31, 2021 | 1,498,988 | |
| Acquisition fair value adjustment | 12,080 | |
| Goodwill at June 30, 2022 | $ | 1,511,068 | |
Other intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Other intangible assets: | | | | | | | | | | | |
| Contract and program intangible assets | $ | 512,032 | | | $ | 276,013 | | | $ | 236,019 | | | $ | 517,932 | | | $ | 262,105 | | | $ | 255,827 | |
| Capitalized software | 58,264 | | | 49,945 | | | 8,319 | | | 56,938 | | | 47,210 | | | 9,728 | |
| Total other intangible assets—net | $ | 570,296 | | | $ | 325,958 | | | $ | 244,338 | | | $ | 574,870 | | | $ | 309,315 | | | $ | 265,555 | |
Amortization expense relating to intangible assets for the three months ended June 30, 2022 and 2021 was $8.3 million and $6.3 million, respectively. Amortization expense relating to the intangible assets for the six months ended June 30, 2022 and 2021 was $16.6 million and $13.1 million, respectively. Amortization expense for the six months ended June 30, 2021 includes an impairment of $0.3 million for capitalized software. We estimate that we will have the following amortization expense for the future periods indicated below (in thousands):
| | | | | |
| For the remaining six months ending December 31, 2022 | $ | 16,279 | |
| For the year ending: | |
| December 31, 2023 | $ | 26,438 | |
| December 31, 2024 | $ | 23,885 | |
| December 31, 2025 | $ | 20,801 | |
| December 31, 2026 | $ | 19,341 | |
| December 31, 2027 | $ | 18,312 | |
9.Debt
On July 20, 2021, we amended and restated our credit agreement (Third Amended and Restated Credit Agreement) with a syndicate of lenders led by Bank of America, N.A., as sole administrative agent. The Third Amended and Restated Credit Agreement includes an aggregate principal amount of up to $1.1 billion made available through (i) a $500 million revolving credit facility with a $100 million letter of credit sublimit and a $50 million swing line loan sublimit and (ii) a $600 million delayed-draw term loan facility. Under the delayed-draw term loan facility, borrowings are available to be drawn prior to the first anniversary of the Third Amended and Restated Credit Agreement in up to three separate drawings in a minimal amount of $50 million. The Third Amended and Restated Credit Agreement also includes an accordion feature that permits us to arrange
with the lenders for the provision of additional commitments. The maturity date of the Third Amended and Restated Credit Agreement is July 20, 2026.
Borrowings under the Third Amended and Restated Credit Agreement are collateralized by substantially all of our assets and those of our Material Subsidiaries and bear interest at one of the following variable rates as selected by us at the time of borrowing: a London Interbank Offer Rate base rate plus market-rate spreads (1.25% to 2.00% based on our consolidated total leverage ratio) or Bank of America's base rate plus market spreads (0.25% to 1.00% based on our consolidated total leverage ratio).
The terms of the Third Amended and Restated Credit Agreement permit prepayment and termination of the loan commitments at any time, subject to certain conditions. The Third Amended and Restated Credit Agreement requires us to comply with specified financial covenants, including the maintenance of certain leverage ratios and a consolidated coverage ratio. The Third Amended and Restated Credit Agreement also contains various covenants, including affirmative covenants with respect to certain reporting requirements and maintaining certain business activities, and negative covenants that, among other things, may limit or impose restrictions on our ability to incur liens, incur additional indebtedness, make investments, make acquisitions and undertake certain other actions. As of and during the six months ended June 30, 2022 and 2021, we were in compliance with these covenants.
There was $300.0 million outstanding on our credit facilities at both June 30, 2022 and December 31, 2021. The maximum available borrowing under the credit facilities at June 30, 2022 was $797.0 million. As of June 30, 2022, we were contingently liable under letters of credit totaling $3.0 million, which reduces our availability to borrow under our credit facilities.
10.Commitments and Contingencies
Contracts with the U.S. government, including subcontracts, are subject to extensive legal and regulatory requirements and, from time-to-time, agencies of the U.S. government, in the ordinary course of business, investigate whether our operations are conducted in accordance with these requirements and the terms of the relevant contracts. U.S. government investigations of us, whether related to our U.S. government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting activities. Management believes it has adequately reserved for any losses that may be experienced from any investigation of which it is aware. The Defense Contract Audit Agency has completed a majority of our incurred cost audits through 2019 with no material adjustments. The remaining audits through 2021 are not expected to have a material effect on our financial position, results of operations or cash flow and management believes it has adequately reserved for any losses.
In the normal course of business, we are involved in certain governmental and legal proceedings, claims and disputes and have litigation pending under several suits. We believe that the ultimate resolution of these matters will not have a material effect on our financial position, results of operations or cash flows.
We have $3.0 million outstanding on our letter of credit, of which $1.6 million is related to an outstanding performance bond in connection with a contract between ManTech MENA, LLC and Jadwalean International Operations and Management Company to fulfill technical support requirements for the Royal Saudi Air Force.
11.Stockholders' Equity and Stock-Based Compensation
Common Stock
On March 28, 2022, 11,580,000 shares of Class B common stock were converted to Class A common stock. On June 30, 2022, there were 39,380,498 shares of Class A common stock outstanding, 244,113 shares of Class A common stock as treasury stock, and 1,586,695 shares of Class B common stock outstanding.
Accounting for Stock-Based Compensation
Our 2016 Management Incentive Plan (the Plan) was designed to attract, retain and motivate key employees. The types of awards available under the Plan include, among others, stock options, restricted stock and restricted stock units (RSUs). Equity awards granted under the Plan are settled in shares of Class A common stock. At the beginning of each year, the Plan provides that the number of shares available for issuance automatically increases by an amount equal to 1.5% of the total number of shares of Class A and Class B common stock outstanding on December 31st of the previous year. On January 2, 2022, there were 611,934 additional shares made available for issuance under the Plan. Through June 30, 2022, the Board of Directors has
authorized the issuance of up to 16,970,005 shares under this Plan. Through June 30, 2022, the remaining aggregate number of shares of our common stock available for future grants under the Plan was 8,214,622. The Plan expires in March 2026.
The Plan is administered by the compensation committee of our Board of Directors, along with its delegates. Subject to the express provisions of the Plan, the committee has the Board of Directors’ authority to administer and interpret the Plan, including the discretion to determine the exercise price, vesting schedule, contractual life and the number of shares to be issued.
Stock Compensation Expense—For the three months ended June 30, 2022 and 2021, we recorded $4.4 million and $4.2 million, respectively, of stock-based compensation expense. For the six months ended June 30, 2022 and 2021, we recorded $8.3 million and $7.6 million, respectively, of stock-based compensation expense. No compensation expense of employees with stock awards, including stock-based compensation expense, was capitalized during the periods. For the three months ended June 30, 2022 and 2021, we recorded $0.1 million and $0.5 million, respectively, to income tax benefit related to the exercise of stock options, vested cancellations and the vesting of restricted stock and restricted stock units. For the six months ended June 30, 2022 and 2021, we recorded $1.0 million and $1.5 million, respectively, to income tax benefit related to the exercise of stock options, vested cancellations and the vesting of restricted stock and restricted stock units.
Stock Options—Under the Plan, we have issued stock options in the past. A stock option gives the holder the right, but not the obligation to purchase a certain number of shares at a predetermined price for a specific period of time. We did not grant any options during the six months ended June 30, 2022 and year ended December 31, 2021.
We have used the Black-Scholes-Merton option pricing model to determine the fair value of our awards on the date of grant. We will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model. Option grants that vested during the six months ended June 30, 2022 and 2021 had a combined fair value of $0.6 million and $1.1 million, respectively.
The following table summarizes stock option activity for the year ended December 31, 2021 and the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value
(in thousands) | | Weighted Average Remaining Contractual Life |
| Stock options outstanding at December 31, 2020 | 785,827 | | | $ | 56.33 | | | $ | 25,629 | | | |
| Exercised | (196,735) | | | $ | 48.65 | | | $ | 7,168 | | | |
| Cancelled and expired | (21,776) | | | $ | 63.80 | | | | | |
| Stock options outstanding at December 31, 2021 | 567,316 | | | $ | 58.70 | | | $ | 8,380 | | | |
| Exercised | (99,286) | | | $ | 52.15 | | | $ | 3,253 | | | |
| Cancelled and expired | (9,983) | | | $ | 64.05 | | | | | |
| Stock options outstanding at June 30, 2022 | 458,047 | | | $ | 60.01 | | | $ | 16,235 | | | 2 years |
| | | | | | | |
| Stock options exercisable at June 30, 2022 | 403,471 | | | $ | 58.00 | | | $ | 15,112 | | | 1 year |
The following table summarizes non-vested stock options for the six months ended June 30, 2022:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Fair Value |
| Non-vested stock options at December 31, 2021 | 114,067 | | | $ | 12.16 | |
| Vested | (55,167) | | | $ | 10.07 | |
| Cancelled | (4,324) | | | $ | 12.59 | |
| Non-vested stock options at June 30, 2022 | 54,576 | | | $ | 14.23 | |
Unrecognized compensation expense related to non-vested awards was $0.3 million as of June 30, 2022, which is expected to be recognized over a weighted-average period of 0.3 years.
Restricted Stock—Under the Plan, we have issued restricted stock. A restricted stock award is an issuance of shares that cannot be sold or transferred by the recipient until the vesting period lapses. Restricted stock issued to members of our Board of Directors vest on the one year anniversary of the grant date. The related compensation expense is recognized over the service period and is based on the grant date fair value of the stock. The grant date fair value of the restricted stock is equal to the closing market price of our common stock on the date of grant.
The following table summarizes the restricted stock activity during the year ended December 31, 2021 and the six months ended June 30, 2022:
| | | | | | | | | | | |
| Number of Shares | | Weighted Average Fair Value |
| Non-vested restricted stock at December 31, 2020 | 24,000 | | | $ | 71.11 | |
| Granted | 24,000 | | | $ | 86.01 | |
| Vested | (24,000) | | | $ | 71.11 | |
| Non-vested restricted stock at December 31, 2021 | 24,000 | | | $ | 86.01 | |
| Vested | (24,000) | | | $ | 86.01 | |
| Non-vested restricted stock at June 30, 2022 | — | | | $ | — | |
RSUs—Under the Plan, we have issued restricted stock units (RSUs). RSUs are not actual shares, but rather a right to receive shares in the future. The shares are not issued and the employee cannot sell or transfer shares prior to vesting and have no voting rights until the RSUs vest. Employees who are granted RSUs do not receive dividend payments during the vesting period. Our employees' time-based RSUs generally provide for the delivery of shares in one-third increments on the first, second and third anniversaries of the date of grant. The grant date fair value of the RSUs is equal to the closing market price of our common stock on the grant date less the present value of dividends expected to be awarded during the service period. We recognize the grant date fair value of RSUs of shares we expect to issue as compensation expense ratably over the requisite service period.
The following table summarizes the non-vested RSU activity during the year ended December 31, 2021 and the six months ended June 30, 2022:
| | | | | | | | | | | |
| Number of Units | | Weighted Average Fair Value |
| Non-vested RSUs at December 31, 2020 | 346,799 | | | $ | 64.48 | |
| Granted | 236,240 | | | $ | 78.78 | |
| Vested | (152,121) | | | $ | 61.06 | |
| Forfeited | (25,564) | | | $ | 67.07 | |
| Non-vested RSUs at December 31, 2021 | 405,354 | | | $ | 73.94 | |
| Granted | 200,760 | | | $ | 81.02 | |
| Vested | (116,422) | | | $ | 71.09 | |
| Forfeited | (24,622) | | | $ | 75.30 | |
| Non-vested RSUs at June 30, 2022 | 465,070 | | | $ | 77.64 | |