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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2020
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to    
Commission File Number: 001-36341        
Vectrus, Inc.
(Exact name of registrant as specified in its charter)
Indiana
 
38-3924636
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2424 Garden of the Gods Road,Colorado Springs,Colorado80919
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code:
(719)591-3600
Securities Registered Under Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, Par Value $0.01 Per ShareVECNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company


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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes 
No  
As of August 7, 2020, there were 11,620,091 shares of common stock ($0.01 par value per share) outstanding.


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VECTRUS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page No.
Item 1.


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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months EndedSix Months Ended
July 3,June 28,July 3,June 28,
(In thousands, except per share data)2020201920202019
Revenue$336,063  $331,589  $687,797  $657,495  
Cost of revenue311,817  300,553  631,510  596,149  
Selling, general, and administrative expenses21,816  19,843  41,374  39,762  
Operating income2,430  11,193  14,913  21,584  
Interest expense, net(1,346) (1,329) (3,048) (2,904) 
Income from operations before income taxes1,084  9,864  11,865  18,680  
Income tax (benefit) expense(27) 2,247  2,086  3,989  
Net income$1,111  $7,617  $9,779  $14,691  
Earnings per share
Basic$0.10  $0.66  $0.84  $1.29  
Diluted$0.09  $0.66  $0.83  $1.28  
Weighted average common shares outstanding - basic11,607  11,455  11,575  11,376  
Weighted average common shares outstanding - diluted11,745  11,605  11,742  11,512  
The accompanying notes are an integral part of these financial statements.
4

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VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months EndedSix Months Ended
July 3,June 28,July 3,June 28,
(In thousands)2020201920202019
Net income$1,111  $7,617  $9,779  $14,691  
Other comprehensive income (loss), net of tax
  Changes in derivative instruments:
  Net change in fair value of interest rate swap60  (963) (1,325) (1,324) 
  Net change in fair value of foreign currency forward contracts395  183  134  85  
  Tax (expense) benefit(98) 169  258  268  
  Net change in derivative instruments357  (611) (933) (971) 
  Foreign currency translation adjustments, net of tax2,470  547  536  (276) 
Accounting Standards Update (ASU) 2018-02 reclassification of certain tax effects to Retained Earnings      (259) 
Other comprehensive income (loss), net of tax2,827  (64) (397) (1,506) 
Total comprehensive income$3,938  $7,553  9,382  $13,185  
The accompanying notes are an integral part of these financial statements.

5

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VECTRUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
July 3,December 31,
(In thousands, except share information)20202019
Assets
Current assets
Cash$62,719  $35,318  
Receivables260,295  269,144  
Other current assets21,980  16,154  
Total current assets344,994  320,616  
Property, plant, and equipment, net19,107  18,844  
Goodwill262,130  261,983  
Intangible assets, net12,905  14,926  
Right-of-use assets11,259  14,654  
Other non-current assets7,386  5,366  
Total non-current assets312,787  315,773  
Total Assets$657,781  $636,389  
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable$142,138  $148,015  
Compensation and other employee benefits60,417  53,155  
Short-term debt7,500  6,500  
Other accrued liabilities45,655  37,409  
Total current liabilities255,710  245,079  
Long-term debt, net59,234  63,041  
Deferred tax liability46,473  49,407  
Other non-current liabilities26,929  19,997  
Total non-current liabilities132,636  132,445  
Total liabilities388,346  377,524  
Commitments and contingencies (Note 13)
Shareholders' Equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; No shares issued and outstanding
    
Common stock; $0.01 par value; 100,000,000 shares authorized; 11,619,544 and 11,523,691 shares issued and outstanding as of July 3, 2020 and December 31, 2019, respectively
116  115  
Additional paid in capital79,944  78,757  
Retained earnings194,854  185,075  
Accumulated other comprehensive loss(5,479) (5,082) 
Total shareholders' equity269,435  258,865  
Total Liabilities and Shareholders' Equity$657,781  $636,389  
The accompanying notes are an integral part of these financial statements.
6

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VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
July 3,June 28,
(In thousands)20202019
Operating activities
Net income$9,779  $14,691  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense1,971  1,538  
Amortization of intangible assets2,028  1,277  
Loss on disposal of property, plant, and equipment  2  
Stock-based compensation5,411  4,031  
Amortization of debt issuance costs193  201  
Changes in assets and liabilities:
Receivables9,429  (224) 
Other assets(7,938) (7,128) 
Accounts payable(6,021) 2,038  
Deferred taxes(2,735) (2,579) 
Compensation and other employee benefits7,037  3,324  
Other liabilities15,252  (1,721) 
Net cash provided by operating activities34,406  15,450  
Investing activities
Purchases of capital assets and intangibles(2,246) (11,739) 
Net cash (used in) investing activities(2,246) (11,739) 
Financing activities
Repayments of long-term debt(3,000) (2,000) 
Proceeds from revolver144,000  98,000  
Repayments of revolver(144,000) (98,000) 
Proceeds from exercise of stock options59  3,467  
Payments of employee withholding taxes on share-based compensation(1,873) (768) 
Net cash (used in) provided by financing activities(4,814) 699  
Exchange rate effect on cash55  (226) 
Net change in cash27,401  4,184  
Cash-beginning of year 35,318  66,145  
Cash-end of period$62,719  $70,329  
Supplemental disclosure of cash flow information:
Interest paid $2,527  $2,818  
Income taxes paid$70  $4,198  
Non-cash investing activities:
Purchase of capital assets on account$447  $301  
The accompanying notes are an integral part of these financial statements.
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VECTRUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO SHAREHOLDERS' EQUITY
Common Stock IssuedAdditional Paid-in CapitalAccumulated Other Comprehensive LossTotal Shareholders' Equity
(In thousands)SharesAmountRetained Earnings
Balance at December 31, 201811,267  $113  $71,729  $151,640  $(3,158) $220,324  
Net income7,074  7,074  
Cumulative effects of adoption of ASU 2018-02 reclassification of certain tax effects from AOCI259  (259)   
Foreign currency translation adjustments(823) (823) 
Unrealized loss on cash flow hedge(360) (360) 
Employee stock awards and stock options85  1  (82) (81) 
Stock-based compensation1,117  1,117  
Balance at March 29, 201911,352  $114  72,764  158,973  (4,600) 227,251  
Net income7,617  7,617  
Foreign currency translation adjustments547  547  
Unrealized loss on cash flow hedge(611) (611) 
Employee stock awards and stock options154  1  2,779  2,780  
Stock-based compensation1,099  1,099  
Balance at June 28, 201911,506  $115  $76,642  $166,590  $(4,664) $238,683  
Balance at December 31, 201911,524  $115  $78,757  $185,075  $(5,082) $258,865  
Net income8,668  8,668  
Foreign currency translation adjustments(1,934) (1,934) 
Unrealized loss on cash flow hedge(1,290) (1,290) 
Employee stock awards and stock options64  1  (1,787) (1,786) 
Stock-based compensation1,720  1,720  
Balance at April 3, 202011,588  116  78,690  193,743  (8,306) 264,243  
Net income1,111  1,111  
Foreign currency translation adjustments2,470  2,470  
Unrealized gain on cash flow hedge357  357  
Employee stock awards and stock options32  —  (28) (28) 
Stock-based compensation1,282  1,282  
Balance at July 3, 202011,620  $116  $79,944  $194,854  $(5,479) $269,435  
The accompanying notes are an integral part of these financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
Our Business
        Vectrus, Inc. is a leading provider of services to the United States Government (U.S. Government) worldwide. The Company operates as one segment and provides the following services and offerings: facility and logistics services, information technology and network communications services, and operational technologies and converged solutions.
        Vectrus was incorporated in the State of Indiana on February 4, 2014. On September 27, 2014, Exelis Inc. (Exelis) completed a spin-off (the Spin-off) of Vectrus, and Vectrus became an independent, publicly traded company. Unless the context otherwise requires, references in these notes to "Vectrus", "we," "us," "our," "the Company" and "our Company" refer to Vectrus, Inc. References in these notes to Exelis or "Former Parent" refer to Exelis Inc. and its consolidated subsidiaries (other than Vectrus).
Basis of Presentation
        Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (July 3, 2020 for the second quarter of 2020 and June 28, 2019 for the second quarter of 2019), except for the last quarter of the fiscal year, which ends on December 31. For ease of presentation, the quarterly financial statements included herein are described as three months ended.
        The unaudited interim Condensed Consolidated Financial Statements of Vectrus have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the U.S. (GAAP) have been omitted. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.
        It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position and operating results. Revenue and net income for any interim period are not necessarily indicative of future or annual results.
Immaterial Restatement of Prior Period Balances
        Subsequent to the issuance of our Annual Report on Form 10-K for the year ended December 31, 2019, we identified an error in our historical financial statements related to estimated contract costs for the year ended December 31, 2019 as well as an error in our historical financial statements related to overbilling for a separate contract dating back to 2013, prior to the Spin-off. In the first instance, management determined that additional subcontractor costs should have been included as part of estimated contract costs, resulting in a misstatement in other accrued liabilities and cost of revenue as well as revenue and accounts receivable to a lesser extent. In the second instance, management identified that certain contract costs were incorrectly included in customer billings for one contract, resulting in a misstatement in revenue and other accrued liabilities.
        The cumulative impact of the errors was a $2.5 million decrease in retained earnings as of December 31, 2019. The impact of the errors on net income for the year ended December 31, 2019 is $1.5 million. The impact on diluted earnings per share is a decrease of $0.13 for the year ended December 31, 2019. The impact to diluted earnings per share in the first, second, third, and fourth quarters of 2019 is a decrease of $0.00, $0.00, $0.13, and $0.00, respectively. The impact on diluted earnings per share is a decrease of $0.02 and $0.01 for the years ended December 31, 2018 and 2017, respectively. 
        Accordingly, the Company is restating the relevant financial statements and related footnotes for all applicable periods for these errors and related tax effect and will correct the respective financial statements as they appear in future filings. Management has evaluated the materiality of these misstatements and concluded they were not material to prior periods.
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        The effects of the corrections to each of the individual affected line items in our Condensed Consolidated Statements of Income were as follows:
Three Months Ended June 28, 2019Six Months Ended June 28, 2019
(In thousands, except per share data)As Previously ReportedCorrectionAs CorrectedAs Previously ReportedCorrectionAs Corrected
Revenue$331,589  $  $331,589  $657,517  $(22) $657,495  
Operating income11,193    11,193  21,606  (22) 21,584  
Income from operations before income taxes9,864    9,864  18,702  (22) 18,680  
Income tax expense2,247    2,247  3,994  (5) 3,989  
Net income$7,617  $  $7,617  $14,708  $(17) $14,691  
Earnings per share
Basic$0.66  $  $0.66  $1.29  $  $1.29  
Diluted$0.66  $  $0.66  $1.28  $  $1.28  
        The effects of the corrections to each of the individual affected line items on our Condensed Consolidated Statements of Comprehensive Income were as follows:
Three Months Ended June 28, 2019Six Months Ended June 28, 2019
(In thousands)As Previously ReportedCorrectionAs CorrectedAs Previously ReportedCorrectionAs Corrected
Net income$7,617  $  $7,617  $14,708  $(17) $14,691  
Total comprehensive income$7,553  $  $7,553  $13,202  $(17) $13,185  
        The effects of the corrections to each of the individual affected line items on our Condensed Consolidated Balance Sheet were as follows:
December 31, 2019
(In thousands)As Previously ReportedCorrection As Corrected
Receivables $269,239  $(95) $269,144  
Total current assets320,711  (95) 320,616  
Total Assets636,484  (95) 636,389  
Other accrued liabilities34,587  2,822  37,409  
Total current liabilities242,257  2,822  245,079  
Deferred tax liability49,808  (401) 49,407  
Total non-current liabilities132,846  (401) 132,445  
Total Liabilities375,103  2,421  377,524  
Retained earnings187,591  (2,516) 185,075  
Total shareholders' equity261,381  (2,516) 258,865  
Total Liabilities and Shareholders' Equity$636,484  $(95) $636,389  
        
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        The effects of the corrections to each of the individual affected line items on our Condensed Consolidated Statements of Cash Flows were as follows:
Six Months Ended June 28, 2019
(In thousands)As Previously ReportedCorrectionAs Corrected
Net income$14,708  $(17)