Fiscal Year 2011 Annual Report
economic strength
healthcare
efficient operations
Missions that Matter
leadership
cybersecurity
protecting service members
a better world
Contents
Fiscal Year 2011 Financial Highlights . . . . . . . . . . . 1
Chairman’s Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Missions that Matter . . . . . . . . . . . . . . . . . . . . . . . . . 7
Booz Allen Hamilton Leadership . . . . . . . . . . . . . . 36
Report of Independent Registered
Public Accounting Firm . . . . . . . . . . . . . . . . . . . . 37
Consolidated Financial Statements . . . . . . . . . . . . 38
Notes to Consolidated Financial Statements . . . . . 43
Shareholder Information and
Principal Offices (inside back cover)
Our Vision
Booz Allen Hamilton is committed to
being the absolute best management
and technology consulting firm, as
measured by our clients’ success, the
excellence of our people, and our spirit
of partnership .
Missions that Matter
In fiscal year 2011, clients turned to
us to help them address their toughest
challenges and achieve their missions .
We work as a trusted partner,
delivering functional expertise and
hands-on solutions that create tangible
benefits to our clients and to society .
Our Mission
Booz Allen Hamilton partners with
clients to solve their most important
and complex problems, making their
mission our mission, and delivering
results that endure .
Fiscal Year 2011 Financial Highlights
(In thousands, except per share amounts)
Fiscal year ended March 31:
Revenue
Operating Income
Adjusted Operating Income (1)
EBITDA (1)
Adjusted EBITDA (1)
Net Income (Loss)
Adjusted Net Income (1)
Per Diluted Common Share
Net Income (Loss)
Adjusted Net Income (1)
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2011
2010
Pro Forma 2009 (2)
$5,591,296
$5,122,633
$4,351,218
319,444
392,480
400,047
444,442
84,694
157,511
199,554
313,157
295,317
368,323
25,419
97,001
66,401
209,330
172,736
277,344
(49,411)
38,180
$÷÷÷÷«0.66
$÷«÷÷÷1.24
$÷÷÷÷«0.22
$÷÷÷÷«0.83
$÷«÷÷«(0.47)
$÷«÷÷÷0.36
At March 31:
Cash Provided by (Used in) Operating Activities
Free Cash Flow (1)
Total Debt
Total Backlog
2011
2010
Pro Forma 2009
$÷«296,339
$÷«270,484
$«÷÷«(6,217)
207,555
÷«994,328
÷«÷10,924
221,213
1,568,632
÷÷÷«9,013
(52,366)
1,235,727
÷÷÷«7,279
(1) These measures are non-GAAP financial measures. Please see page 67 of this report for a reconciliation of these measures to GAAP and a discussion of why the
Company is presenting this information.
(2) Included in the financial highlights are unaudited pro forma results for the 12 months ended March 31, 2009, or “pro forma 2009,” assuming the acquisition of a
majority ownership of the Company by The Carlyle Group had been completed as of the beginning of our fiscal year (or April 1, 2008, instead of July 31, 2008, when
the transaction was completed). Pro forma 2009 results are presented because management believes it provides a meaningful comparison of operating results
enabling 12 months of fiscal 2009 to be compared with fiscal 2010 and 2011. The pro forma 2009 results are for informational purposes only and do not purport
to represent what our actual results would have been if the acquisition had been completed as of April 1, 2008.
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Chairman’s Letter
Dear Colleagues and Shareholders:
In 37 years in the consulting business, I’ve seen plenty
of change. But who would have imagined that in a
single year Congress would pass landmark healthcare
legislation and financial regulatory reform, a major
cybersecurity breach would reveal sensitive govern-
ment secrets, and an exploding oil rig would lead to
the worst environmental disaster in US history?
Years like this challenge us at Booz Allen Hamilton to do the best work
for our clients. In fiscal 2011, we solved problems and built new capabili-
ties in the healthcare, finance, energy, and communications sectors. We
responded to growing concern about the protection of our warfighters
and the security of our cyber networks, and we helped clients implement
policies to reform healthcare. We helped our clients assess the causes
and long-term effects of the Gulf oil spill. And we tackled countless other
issues that directly impact the present—and the future. I am proud of
the work we did to deliver enduring value to our clients and to make a
difference to society at large.
Within Booz Allen, the big news was the initial public offering we com-
pleted in November 2010. It was both gratifying and humbling to hear
investors express the high regard they have for our firm. I’m excited to
welcome a high-quality base of long-term investors and owners who want
to be part of our success. With this strong support from our new inves-
tors and existing shareholders—The Carlyle Group and Booz Allen part-
ners—Booz Allen joins the ranks of the Fortune 500. We expect to have
the financial flexibility we need to pursue new growth opportunities.
Government, corporate, and not-for-profit clients demonstrated the confi-
dence they’ve shown in us for more than 97 years by choosing Booz Allen
to help address their most complex strategic and technical challenges.
We won new, high-profile engagements in the defense, intelligence, and
civil sectors—our primary client base. We achieved significant growth
16.1
million
shares of Class A Booz Allen
stock were issued in the initial
public offering.
$10.9
billion
As of March 31, 2011,
Booz Allen had a total backlog
of work valued at $10.9 billion,
which represents a 21.2% year-
over-year backlog growth rate.
20+
years
Booz Allen has served its
10 largest client organizations an
average of more than 20 years,
and it has served the US Navy
for more than 70 years.
25,000
Booz Allen has more than 25,000
talented professionals committed
to excellence and service.
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“ I’m excited to welcome a
high-quality base of long-term
investors and owners who want
to be part of our success.”
Ralph W. Shrader
in areas related to cybersecurity, healthcare, and consulting services for
civil government agencies. The programs we support are critical to our
nation’s future. Given the complexity of these initiatives, our innovative
thinking and deep technical and analytic capabilities make a measur-
able difference.
Our success in retaining and expanding our client base in turn drives
our organic growth. And once again, we have benefited from an infusion
of exceptional people who contribute their knowledge, skills, and passion
to client engagements. At a time of intense competition for talent, thou-
sands of professionals joined our deep and diverse workforce, which now
exceeds 25,000. These new hires want to do stimulating and meaningful
work that serves our country—and our communities.
As we grew and evolved our organization, we reaffirmed the strengths
of our management consulting heritage and culture. And we are ever
vigilant, adopting even more rigorous policies and processes to maintain
our ethical standing. During this year of change, we did not change the
proven business model that has underpinned our success. Our single
profit and loss structure gives us great agility to adapt to changes in the
market and ensures our focus on client missions and results. In addition,
we benefit from a unique matrix approach that drives and specifically
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CAPAbilitiES
Strategy and Organization
• Strategy and change
management
• Organization and process
improvement
• Human capital, learning,
and communications
Analytics
• Advanced analytics
• Business analytics
• Mission analytics
technology
• Cyber technology
• Strategic technology
and innovation
• Systems development
Engineering and Operations
• Engineering and science
• Systems engineering
and integration
• Acquisition and program
management
• Enterprise integration
• Supply chain and logistics
rewards collaboration. It enables us to work without boundaries or
barriers and apply our best resources to the most complex challenges our
clients face.
A Strong Start as a Public Company
Booz Allen has an exceptional track record of generating growth under
various market conditions. In fiscal 2011, which ended March 31, 2011,
a challenging environment for business and government contracting
certainly tested our mettle. At a time of austerity across all the sectors
we serve, we generated high single-digit growth.
• Revenue increased 9.1 percent, to $5.59 billion, with growth across
all markets.
• Net income increased to $84.7 million, from $25.4 million.
• Backlog grew to $10.9 billion at March 31, 2011, an increase of
21.2 percent from the prior year.
We are off to a strong start as a public company, and we are excited about
the future.
Enduring Value
Financial highlights notwithstanding, consulting is a “people business,”
and we define our success by the enduring value we create for our clients,
employees, communities, and investors.
Our important work springs from an entrepreneurial culture where ideas
flourish—and where people grow and pursue their passions inside and
outside of work. In fiscal 2011, Booz Allen’s workplace environment once
again earned “best company” recognition by Fortune, Working Mother, and
Consulting magazines, and by many other third-party organizations. We
also received a perfect score on the Corporate Equality Index and have
been recognized as a best company for veterans by G.I. Jobs and Disabled
American Veterans. Today’s professional services landscape is changing,
and we must continue to evolve the way we work to create greater flexibility,
more efficiency, and more personal and professional growth. Our “Way We
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“ We define our
success by the
enduring value
we create
for our clients,
employees,
communities,
and investors.”
Work” strategy combines face-to-face teaming, telework, remote delivery,
and hoteling to foster greater work-life balance, reduced commuting times,
and a smaller carbon footprint. Our people and our clients benefit from
advanced computing centers, videoconferencing, and other technologies
that support collaboration and improve product and service delivery.
Booz Allen’s people are also dedicated public servants who contribute their
time and skills to support their communities and important causes. Over
the past year, the firm and its people supported more than 600 local and
national charitable organizations through volunteerism, philan thropy,
pro bono work, and in-kind donations. Booz Allen also has a strong tradi-
tion for supporting the arts, and we were proud to sponsor the major
exhibition “Telling Stories: Norman Rockwell from the Collections of
George Lucas and Steven Spielberg” at the Smithsonian American Art
Museum this past year.
New Opportunities
We are excited by the opportunities that lie ahead as we grow and deliver
value. We have established a clear strategy focused on delivering great
client service and growing our business.
Expand our business base. We will work to expand our relationships
with existing clients and cultivate new ones in our core US federal gov-
ernment market across defense, intelligence, and civil agencies. We will
also pursue targeted opportunities in the commercial sector and in inter-
national markets, offering much-needed support in such critical areas as
cyber, healthcare, energy, and financial services. Our non-compete agree-
ment with the business we spun off in 2008 expires on July 31, 2011,
opening new opportunities for growth.
Capitalize on strengths in emerging areas. Through investments
and client engagements, we have developed the deep domain knowledge
and technical expertise to address many of our clients’ most urgent emerg-
ing challenges. We are especially well positioned to help clients protect
critical networks that provide the foundation for national security, secure
financial transactions, transportation, and energy. We have the experience
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and track record to help implement changes spurred by recent healthcare
and financial regulatory legislation and to support long-term initiatives
that range from satellite and space systems to air traffic control and
naval systems.
Continue to innovate. Clients confront constant and often sudden
change, and they value our willingness to step forward, think ahead, and
develop valuable, practical applications for new technology. We intend to
continue to invest in new intellectual capital and functional capabilities
in domains as diverse as cybersecurity, cloud computing, advanced ana-
lytics, and specialized services to help modernize, reform, and protect
the financial sector.
A Changing Landscape
For 97 years, Booz Allen Hamilton has held client service as our high-
est calling. We value the trust and confidence that clients place in us,
working side by side on missions that matter. We have a successful track
record in various economic cycles and are particularly adept at helping
clients facing budgetary and operational pressures. As we move forward
as a public company, we will marshal our people and resources to serve
the best interests of our clients around the world. To us, that matters
most of all.
Ralph W. Shrader, Ph.D.
Chairman, Chief Executive Officer, and President
June 30, 2011
AwArds
& reCognition
Booz Allen Hamilton’s
commitment to its people
and to continually enhancing
its workplace environment is
evident in dozens of awards
from major publications and
organizations over the past
year, including:
“100BestCompaniestoWorkFor”
— Fortune magazine
“BestFirmstoWorkFor”
— Consulting Magazine
“WorkingMother100
BestCompanies”
— Working Mother magazine
“BestPlacestoWorkinIT”
— Computerworld magazine
“Top25Technology
ConsultingFirms”
— Vault.com
“Top100Military-Friendly
Employers”
— G.I. Jobs magazine
“TenBestCorporationsfor
Veteran-OwnedBusinesses”
— National Veteran-Owned
Business Association
“Top50CompaniesforDiversity”
— DiversityInc.
“BestPlacestoWorkfor
LGBTEquality”
— Human Rights Campaign
“50BestFertility-Friendlyand
Adoption-FriendlyCompanies”
— Conceive magazine
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Missions that Matter
what does it take to tackle society’s most
complex and pressing challenges? For nearly
a century, Booz Allen Hamilton has helped
US government agencies and other business and
institutional clients accomplish their most critical
missions by combining a consultant’s problem-
solving orientation with deep technical knowledge
and strong execution. As consultants, we look at
problems from multiple perspectives to understand
both our clients’ real needs and how to bring
strategy and technology together to deliver value
and enduring results. And to complete these
missions, we assemble diverse teams of talented
professionals who bring to each engagement
innovative thinking; practical experience; expertise
in strategy and organization, analytics, technology,
engineering, and operations; and a spirit of service.
Today, the organizations we serve face increasingly
complex demands from citizens, businesses,
local governments, and global allies. Booz Allen
stands at their side, working in partner ship
to help reform the nation’s healthcare system,
improve cybersecurity, support servicemen and
servicewomen, boost organizational performance,
restore economic strength, and make the world
a better place.
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How can healthcare do more and cost less?
To help bring healthcare reform to life, we are defining
complex strategies, processes, and technology solutions
that will shape the future.
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Embracing Healthcare’s Digital Future
Missions that Matter
Healthcare reform represents a powerful
vision to improve the quality of care and
reduce the cost of providing it. To achieve
this goal, healthcare must follow the path
of other industries and leverage technolo-
gies that allow information to flow in ways
that create value for all stakeholders. This
involves creating a sustainable business
model that incentivizes participation
and building health information exchange
networks that collect and transmit data
and measure patient outcomes.
Since its inception in 2004, the Office
of the National Coordinator for Health
Information Technology (ONC) has brought
stakeholders together to promote the adop-
tion and meaningful use of electronic health
records. Booz Allen has supported this
organization on many levels—from sharing
technology expertise to supporting commu-
nication between stakeholders to analyzing
clinical data and measuring outcomes.
Clockwise from upper left:
Denise Tauriello-Tingle, Senior Associate;
Christine Fantaskey, Principal;
Daniyal (Dani) Syed, Associate;
Abby George, Lead Associate;
Kristine Martin Anderson, Senior
Vice President
In 2010, the ONC established the Beacon Community Program to
demonstrate how health IT tools and resources can advance healthcare
quality, safety, and efficiency. It awarded grants totaling $250 million
to 17 communities that are building health IT infrastructures and
exchange capabilities. We are helping these communities build sustain-
able exchanges by working to define effective governance structures,
evaluate IT infrastructures, determine intervention strategies, develop
quality and performance measures, and share best practices.
After an initial year of planning and analysis, Beacon communities are
now ready to execute their plans and demonstrate to clinicians, hospitals,
patients, and communities that health information exchanges can result
in better coordinated, higher-quality, and lower-cost care.
“ Communities are making tremendous progress in
protecting and securing healthcare data. In the
process, they’re creating powerful benefits for
patients, physicians, and the entire health system.”
Kristine Martin Anderson, Senior Vice President
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Women Veterans: A New
Model for Holistic Care
A Healthy Future
for Honduras
In remote villages of Honduras, at least 2,300 children
under the age of five die each year from maladies
caused by contaminated drinking water. Thousands
more suffer from illnesses that have been largely
eradicated in the developed world. With only a limited
public health infrastructure to support them, these
children depend on outside resources to provide clean
water and deliver direct patient care.
Each year, the Virginia Hospital Center Medical
Brigade embraces a mission to assist these patients,
working to create healthier living conditions and
provide life-changing
and life-saving medical
care. Since 2006, dozens
of professionals across
Booz Allen have delivered
the strategic planning,
logistics, and commu-
nications support this
nonprofit organization
needs. In October 2010,
three Booz Allen volun-
teers joined the brigade’s
annual mission to rural
Honduras that ultimately administered direct medical
care to more than 9,100 patients. Enduring success in
Honduras requires both sustainable processes and
a larger vision of the future, and our combination of
financial support and personal engagement is making
a powerful difference.
“ After seeing
more than 1,500
patients today,
and more than
9,000 this week,
our energy was
fading—but we
did not slow
down one bit.”
Booz Allen team blog
Women veterans are one of the fastest-growing
populations accessing VA healthcare services, and the
Veterans Health Administration (VHA) expects this
population to double over the next five years. To
attract and more holistically serve women veterans—
and meet their unique healthcare needs—the VHA
is shifting its paradigm of healthcare delivery. Booz
Allen supports the VHA’s Office of Women Veterans
Health Strategic Healthcare Group (WVHSHG) in its
quest to define and improve its delivery of primary
care to women veterans.
As a first step, in partnership with WVHSHG, we
defined a clear vision of what patient-centered
women veterans health programs should look like.
We defined essential components of the new system
and the primary capabilities required to deliver
consistent, reliable, and relevant health services.
We then developed, pilot tested, and implemented a
protocol to assess how the system was performing and
to identify ways to improve it. We also recommended
scoring methodologies to evaluate both field perfor-
mance and the impact of the assessment process.
The result? WVHSHG has established a solid founda-
tion for a strong, comprehensive primary care program
that will better serve greater numbers of women vet-
erans. Moving forward, women veterans receiving care
from VA facilities will benefit from relevant services,
delivered by professionals who are operating within a
culture committed to supporting their unique needs.
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Reengineering Biomedical Research
As a first-generation naturalized citizen from Somalia,
Huda Aden remembers her introduction to global
political and policy matters. As a child, she watched
the famine of the 1980s unfold in Ethiopia, and she
worried about the health and welfare of people close to
her homeland. Today, she is pursuing these interests
as a third-year associate at Booz Allen. For example,
she recently served on a team that is helping the
National Institutes of Health’s National Center for
Research Resources (NCRR) administer its Clinical and
Translational Science Awards program (CTSA). The pro-
gram’s mission: make research faster, safer, and more
effective to close the average 17-year gap that separates
medical research and discovery from clinical application.
Left to right: Kia Tollett, Associate;
Sum Mehrnama, Associate;
Huda Aden, Associate;
Srinivas Singaraju, Lead Associate
When Aden first heard about Booz Allen’s relationship
with NCRR, the project immediately struck a chord. “It was an opportunity to see
firsthand how organizations solve complex problems that directly impact the future
of public health,” she says. She joined the team and soon learned that building a
successful consortium requires its own kind of collaboration. “Our team mirrors the interdisciplinary collabora-
tion that the CTSA Consortium is also trying to achieve,” she says. “The project
director, Mary Greene, is a former pediatrician with business and public health
degrees, and we’ve had a former diplomat, a lawyer, a bioinformaticist, and a Peace
Corps volunteer, as well as researchers and information systems professionals who
brought their own varied experience and perspectives to the team. Our client appre-
ciates this diversity as much as we do, and we all learn so much from each other.”
“ I saw firsthand how
organizations solve
complex problems
that directly impact
the future of public
health.”
Huda Aden, Associate
“This consortium is a dynamic organization,” says Greene, a senior associate.
“The diversity of our experience, combined with our team’s strong collaboration
across work streams, helps us effectively address CTSA’s evolving priorities.”
Intellectual Capital
Realizing the Promise of Health Information Exchanges
Booz Allen vice president Timathie Leslie
(left) moderated “Health Information
Exchanges: Have We Turned the
Corner?” a panel discussion with
experts including Dr. Brian Jacobs
(right), vice president and chief
medical information officer of
Children’s National Medical Center.
In the United States, rising concern about the cost and quality of healthcare is focusing
attention on such IT tools as electronic health records and health information exchanges
(HIEs). Yet despite consumer engagement, rising demand, market forces, and significant IT
investment under the Affordable Care Act, adoption of these technologies has been slow.
As part of our “Expert Voices Speaker Series,” Booz Allen convened a panel of top industry
and government experts to explore what the future may hold for HIEs as a critical enabler
of national healthcare reform. Panelists concurred that HIEs are foundational to the govern-
ment’s health reform objectives. They also agreed that we have not yet turned the corner.
Effective exchange systems will require both consistent policy guidelines and infrastruc-
tures that support interoperability and integration of data. These exchanges also need to
deliver information that is intuitive, accurate, reliable, free of clutter, and integrated into
the clinician’s workflow. What’s more, consistent benchmarks must emerge to measure
performance and achievement.
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How can we protect and expand our cyber assets?
Thousands of Booz Allen cybersecurity experts are taking aim
at cyber attackers, while our investments in cyber training
and thought leadership are strengthening US cyberpower.
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Defending the Virtual Battlefield
Missions that Matter
Since the late 1990s, the US military has
continued to evolve its cyber capabilities to
address increasingly complex threats. In
2010, military cyber defense evolved from
a patchwork of organizations, each with
different responsibilities, into US Cyber
Command (USCYBERCOM), a subunified
command that integrates its full spectrum
of operations to protect freedom of action
in cyberspace. USCYBERCOM protects
command and control systems and weapons
system platforms from disruptions, intru-
sions, and attacks. It also synchronizes
war fighting across the global security
environment and delivers vital support to
civil authorities and international partners.
Booz Allen has been part of this organiza-
tional and operational journey from the
outset. Today, we are working closely with
USCYBERCOM on two critical fronts:
migrating existing cyberspace resources into a new organization and
maintaining full-scale operations in a constantly changing environment.
We are contributing to cyber intelligence analysis by providing cyber
targeting support, intelligence planning, and a flexible knowledge man-
agement system that integrates the activities and intelligence analysis
of all four military branches. We are supporting daily operational
requirements by helping address everything from strategic planning,
risk analysis, and policy formulation to workforce analysis, staffing,
and training. And we are applying our technology resources to engineer
a flexible IT infrastructure, develop cyber software, and create
Web services.
By centralizing command of cyberspace operations, USCYBERCOM
will strengthen Department of Defense (DoD) cyberspace capabilities.
It will integrate and bolster DoD’s cyber expertise; build the resilient,
reliable information and communication networks needed to counter
cyberspace threats; and support the armed services’ ability to confidently
conduct high-tempo, effective operations.
DoD is building
the resilient,
reliable networks
needed to counter
cyberspace threats
and conduct high-
tempo operations.
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Developing a New Generation of Cyber Leaders
As governments and businesses build more cyber
capabilities into their operations, they must develop a
cyber-ready workforce that can operate across bound-
aries and easily adapt to changing conditions and
challenges. To stay a step ahead, Booz Allen contin-
ues to invest in education programs to develop and
enhance the skills of our growing cyber workforce.
Our Cyber University offers boot camps, advanced
training and mentoring programs, and technical cer-
tifications where our cyber professionals can acquire
new competencies. And in 2010, we formed a strategic
partnership with University of Maryland University
College (UMUC) to offer both Booz Allen employees
and the general public three online graduate cer-
tificates in cybersecurity. This timely program will
help the United States build a competitive, forward-
thinking cyber workforce.
“ I’m continually learning the latest
skills to keep pace with the dynamic
technology, ethics, and policy
dimensions that our clients face.”
Steve Johnson, Senior Associate
Steve Johnson, a Booz Allen senior associate,
embraces the many opportunities the firm makes
available to develop new skills. He joined Booz Allen
12 years ago after working for the Peace Corps in
Kyrgyzstan and for the United Nations. Today, he
balances his responsibilities as the deputy program
manager for the Air Force Network-Centric Solutions
(NETCENTS) contract with his enrollment in the
Cybersecurity Certificate program offered at UMUC.
“Most of our IT contracts call for expertise in network
defense and information assurance,” Johnson says.
“With Booz Allen’s support, I’m continually learning
the latest skills to keep pace with the dynamic tech-
nology, ethics, and policy dimensions that our clients
face in addressing their cyber challenges. By under-
standing what the threats are, how they’re evolving,
and why they’re happening, I’m in a better position
to help our clients address these risks.”
Growing the Cyber Workforce
Intellectual Capital
Our nation conducts more busi-
ness electronically each year, and
this activity makes our citizens,
businesses, and government
increasingly vulnerable to a grow-
ing challenge: Malicious behavior
online threatens to compromise
both our national defense and
our economic prosperity. A 2009
survey of 18 federal agencies
found that the current pipeline
of talent is inadequate to meet
agency needs in terms of both
the quality and quantity of cyber
applicants. “Cyber In-Security:
Strengthening the Federal
Cybersecurity Workforce,” a study
conducted by Booz Allen with the
Partnership for Public Service,
also revealed a broken hiring pro-
cess characterized by fragmented
hiring responsibility, complicated
security clearance processes,
and a disconnect between
human resources departments
and hiring managers.
How can organizations
overcome these issues to defend
against increasingly aggressive
and complex cyber attacks?
They require clear strategies
to acquire, develop, and retain
the cyber talent they need to
complete their missions. Booz
Allen outlines its methodology
for helping organizations define
the skills and capabilities critical
for successful job performance
across cyber roles and functional
areas of expertise in “Readying
the Next Generation Cyber
Workforce.” The paper describes
our Cyber People Readiness
suite, a step-by-step process that
moves from skills assessment
through people planning, develop-
ment, management, advancement,
and leadership.
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Addressing the Cybersecurity Challenge
In fall 2010, the growing cybersecurity threat dominated the headlines when
Wikileaks published sensitive government correspondence. But each day, hackers
and cyber terrorists attack governments, businesses, and citizens everywhere.
Their actions directly threaten our security, our economy, our infrastructure, and
our personal privacy.
Booz Allen has emerged as a leading advocate of proactive cybersecurity policy and
operations. As the US director of national intelligence from 2007 to 2009, Executive
Vice President John M. (Mike) McConnell understands that cybersecurity requires
a new approach that covers all missions and works across all organizations and
markets. “Today’s cyber defense is hindered by a fragmented approach to addressing
strategy, operations, technology, and policy and legal considerations,” he says.
“We need an integrated approach that brings focus to five critical areas: policy,
operations, technology, people, and management.”
“ We should imme-
diately focus on
protecting critical
infrastructure
by realigning
their use of the
Internet.”
John M. (Mike) McConnell,
Executive Vice President
In a recent Financial Times op-ed, McConnell discussed
how to address the cyber challenge while balancing
security, privacy, openness, and innovation. He wrote
that “we should immediately focus on protecting critical
infrastructure—the power grid, financial networks,
air traffic control, and other transport infrastructures—
by realigning their use of the Internet. To do this we
must create new ‘protected lanes’ inside the global
superhighway. I call this potential area ‘dot.secure’:
a series of highly protected lanes for those operating
vital infrastructure, within the free and open world
of the .com global network.”
Cyber 2020: Extending Our Cyber Advantage
Intellectual Capital
The latest technological revolution has created a new cyber domain, where nations compete
for cyberpower status and the many economic and social advantages associated with it. As
the early leader, the United States now confronts other national and regional powers that seek
to challenge US dominance and reshape the cyber domain to align with their own interests.
To maintain its position, and seize the economic, civil, and security benefits of leadership, the
United States needs to look beyond status quo precepts to shape an evolving cyber land-
scape that is transparent, accessible, dynamic, and secure.
In “Cyber 2020: Asserting Global Leadership in the Cyber Domain,” Booz Allen explores
four possible scenarios for the Internet in 2020. These scenarios examine the implications
of strong versus weak US influence, and nationally focused versus globally focused cyber
policies. By drawing sharp distinctions between these future scenarios, the paper reveals
the potential impact of US policies—and of the lack of policies—in shaping outcomes within
the cyber domain.
Currently, federal agencies view the cyber domain as a decentralized system. To create the
US-led global Internet of the future, government needs to develop a coherent, overarching
policy and legal framework; create a robust, multidimensional cyber strategy; and introduce
new governance models that stress proactive collaboration across the global megacommunity.
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How can we shield our warfighters
from hidden threats?
Warriors depend on robust and reliable support systems
in the field and at home. We’re meeting the challenge by
engineering new battlefield technologies and strengthening
veterans health programs.
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Missions that Matter
Saving Lives: Real-time Imagery in the Battlefield
For the US military, no mission is more important than protecting the safety of warfighters.
This challenge is especially acute in the rugged mountains of Afghanistan, where groups of
insurgents hide in hard-to-reach areas. Over the past five years, unmanned drones have
emerged as a highly effective technology to target and attack enemy combatants and neutral-
ize threats to warfighters. But this capability creates new demands for communications.
Specifically, troops on the ground and analysts behind the scenes need real-time access to the
robust data, full-motion video, and geospatial imagery that the drones collect.
In 2005, warfighters supporting
efforts in Iraq and Afghanistan
expressed an urgent need for
a new two-way satellite-based
communications infrastructure
to support their mission. The
Defense Information Services
Agency (DISA) required innova-
tive, fast, and reliable results,
and contracted with Booz Allen.
Our team had previously
surveyed existing satellite and
wireless technologies and had
already created a prototype
for a next-generation, two-way
Left to right: Dillon Bussert, Lead
Associate; Viviana Acosta, Associate;
Brian Myers, Lead Associate;
Jithin Raghunath, Associate
satellite communications (SATCOM) system. To help implement the
new solution, we rapidly deployed integrated Booz Allen resources that
spanned cyber technology, business analytics, modeling and simulation,
and supply chain and logistics.
The Booz Allen team worked quickly with DISA’s leadership to engineer
a standards-based, scalable architecture and develop a detailed imple-
mentation plan. Within six months, it deployed a fully accredited, oper-
ational network over commercial and Department of Defense satellite
and wireless networks. Over the past year, Booz Allen has continued
to help DISA meet growing demand for video and imagery by doubling
the system’s capacity.
“ Deployment of this two-way SATCOM network has
contributed to the disruption of insurgent networks
and the neutralization of threats to warfighters,
in part by helping them detect insurgents planting
improvised explosive devices.”
Patricia Goforth, Senior Vice President
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A Clear Picture for
Forward Operations
Real Help for
Real Warriors
Military service is a highly demanding commitment
that can place extreme stress on service members and
their families. For the more than 2 million service
members who have served in Iraq and Afghanistan,
the challenges have been especially acute. Sometimes
their psychological wounds go untreated because
service members fear that seeking help is a sign of
weakness that may diminish their reputation or
disrupt their military career.
The Department of Defense (DoD) is committed
to giving military personnel the information and
resources they need to get help. To reduce the stigma,
boost awareness, and change behavior, the Defense
Centers of Excellence for Psychological Health and
Traumatic Brain Injury (DCoE) engaged Booz Allen to
help create and launch a public education campaign
with a message that would make it widely known that
seeking help is a sign of strength. To communicate
this sensitive message, we developed an integrated
social marketing campaign based on audience research
and behavior change theories. To give skeptical
service members the proof they needed that military
careers can continue after care, the team created
video profiles and public service announcements
featuring real warriors sharing their stories. We also
developed partnerships with 125 vested organizations
and used social networking tools to connect thousands
of service members to the campaign’s resources. The
project generated high traction and millions of media
impressions. The real success, however, lies in changed
perceptions. In a recent survey of service members,
50 percent responded that they would seek profes-
sional help, compared with 20 percent a year ago.
Left to right: Chris Wahl, Lead
Associate; Farris Allread, Associate;
Lester Simpson, Senior Consultant;
Dave Schillero, Associate;
Quinton McCorvey, Senior Associate
Our warfighters operate
today within ever-chang-
ing environments and
face enemy combatants
who know how to use the
local populace, terrain, and porous borders to their
advantage. To protect the warfighter, critical forward
operations need the ability to detect, locate, identify,
and track adversarial threats. US Central Command
tasked PM Night Vision/Reconnaissance, Surveillance,
and Target Acquisition (PM NV/RSTA) to develop—as
a high priority—an integrated system of state-of-the-
art sensors, networks, and information technologies.
Partnering with PM NV/RSTA and working with
industry, Booz Allen provided systems engineering
and program management support to design, develop,
procure, and field an integrated family of sensor
systems. Deployed in Iraq and Afghanistan, these
systems provide warfighters with a sensor common
tactical picture based on full-motion video, acoustic,
magnetic, seismic, laser, and radar sensor data. Booz
Allen helped create an expeditionary system that is
fully scalable, integrated, and interoperable.
Warfighters report an increased capability to identify
adversarial activity, which allows combat leaders
to rapidly react and preempt enemy activities before
they pose a threat to our forces. Furthermore, the
flexibility and scalability of the system make it
extremely adaptable to applications in the civil sector
such as protecting critical infrastructure perimeters.
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Caring for Our Veterans
A.J. Ruiz graduated from the US Air Force Academy,
served four years on active duty, and is currently in the
Air Force reserves. Through this process, he developed
a profound respect for what military members sacrifice
to protect their country—especially at a time of serial
deployments. As an acquisition program management
professional at Booz Allen, he looked for an opportunity
to give back and support veterans in Los Angeles.
He found it at a veterans hospital in Long Beach,
where he helps promote and lead a monthly bingo
event for veterans with debilitating injuries. Each
month, he commutes to Long Beach and fills whatever
role he can—helping bedridden patients play the game,
calling bingo numbers down the hall, or handing out
the refreshments and prizes that Booz Allen helps
provide to support Ruiz and this program.
“ Booz Allen leader-
ship supports,
understands, and
commits to employ-
ees who are former
or current military
members.”
A.J. Ruiz, Associate
“The local Air Force base and Booz Allen colleagues in the area have teamed
with other contractor companies and fellow reservists,” says Ruiz, an associate.
“As a result, we’ve created a positive environment and experience for veterans
who have given so much for all of us.”
For Ruiz, giving back is a small token of his appreciation. “It seems simple, but
I can see the impact of what we do through the relationships we’ve developed—
and in how we all look forward to these events. It’s just one way of showing our
veterans how much we admire them for what they’ve done.”
Addressing a New Age of Warfare Challenges
For the US Army, knowledge is power. And for more than a decade, Booz Allen has assisted
the Army in developing Unified Quest, its annual future studies plan. The annual exercise helps
military and civilian leaders envision the future and apply their best thinking to address both
the challenges of future armed conflict and critical issues facing our security and national inter-
ests. Through a series of symposia, workshops, and wargames, Unified Quest 2011 challenged
Army Concept Framework assumptions to determine the Army’s future leadership requirements.
It also considered the capabilities it would need to address alternative futures and gaps in
cyber operations, and evaluated the combat effectiveness of our current and future forces.
Unified Quest 2011 also included two wargames, which Booz Allen supported by developing
detailed, realistic scenarios with hypothetical “roads to crisis” and multiple vignettes that
established the context for the wargames. One 2011 wargame focused on homeland
operations. After developing the scenario, we organized more than 160 participants into
separate panels focused on a border security breach, a high-magnitude natural disaster,
and a weapon of mass destruction event. At the end of the two-day event, senior leaders
were better prepared to understand new required capabilities and force design require-
ments to make homeland operations more effective.
Converging global
trends may change
the current secu-
rity landscape and
future operating
environment.
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How can organizations cut costs
and boost performance?
Drawing on our diverse skills and management consulting
legacy, we’re finding innovative ways to help government
agencies and other enterprises make the most
of their people and assets.
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A Creative Path to Sustainable Energy
Missions that Matter
In the US energy policy
arena, alternative energy
generation is emerging as an
essential strategy to promote
climate preservation and
ensure our national security.
Spurred by recent energy
mandates, rising energy
costs, and persistent budget
pressures, the Department
of Defense (DoD) is seeking
new and sustainable ways
to finance its growing en-
ergy capital requirements.
Public-private partnerships
(PPPs) are emerging as a sound strategy to enhance the funds available
for energy and other programs. Working in support of the Air Force
Real Property Agency (AFRPA) and the Deputy Assistant Secretary of
the Army, Energy & Partnerships (DASA-E&P), Booz Allen is helping
the US Air Force and Army aggressively expand the use of one such
partnership structure—enhanced use leasing, or EUL. Under the EUL
construct, the Air Force and Army receive payments by leasing tracts
of property for private development.
To execute this strategy, we built a project team consisting of experts
in high-end commercial real estate development with deal-making
experience, regulatory and technical energy experts, and profes sionals
with a deep domain understanding of the DoD. Working closely with
AFRPA, we recently helped execute an agreement to lease more than
3,000 acres of remote Mojave Desert land at Edwards Air Force Base to
a private solar development firm that has ambitious plans to construct
a 440-megawatt photovoltaic array—one of the largest in the world. The
Air Force can use more than $200 million in payments it will receive
over the life of the lease to power the base with sustainable energy or
fund other Air Force energy projects.
From four initial projects in 2005, Booz Allen has helped expand the Air
Force’s EUL portfolio to more than two dozen projects. The US Army
and US Navy have also engaged Booz Allen to devise strategic renewable
energy plans using PPPs. These efforts will help enhance our nation’s
energy security, provide much-needed revenue streams to DoD installa-
tions, and enhance economic growth in neighboring communities.
Left to right: Laura Guerrero-Redman,
Associate; Teresa Talley, Lead Associate;
David Swanson, Lead Associate;
Glady Singh, Lead Associate;
Craig Zgabay, Senior Associate
The Air Force
can use more
than $200 million
in land lease
payments to
power the base
with sustainable
energy.
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Measuring Naval Readiness
Today’s defense forces operate in a dynamic
environment that challenges commanders
to balance current readiness demands and
emerging requirements with fiscal responsibil-
ity. This holds especially true for the US Navy,
which is heavily engaged across the globe and
includes a 40,000-member force of Navy expe-
ditionary specialists encompassing a range
of warfighting capabilities. When the Navy
consolidated these operations under a single
command—the Navy Expeditionary Combat
Command (NECC)—it partnered with Booz Allen to design, develop,
and implement the Readiness and Cost Reporting Program (RCRP) to
help manage, assess, and report readiness across the enterprise.
Booz Allen’s multidisciplinary team included professionals with
expertise in operations, technology, analytics, and strategy and organ-
ization. We collaborated with NECC leadership and subject matter
experts to understand their requirements, challenges, and priorities.
After almost a year of shaping and developing the concept side by
side with NECC stakeholders, we developed a complete system that
empowers leadership to objectively and quantitatively measure force
readiness and rigorously link it to cost so that commanders at all
levels can make more informed and more effective decisions regarding
force employment, resource allocation, and investments. Commanders
are now equipped with the processes, information, tools, and analysis
to ensure their diverse expeditionary forces can achieve the right
level of readiness, at the right time, and for the right cost.
Leaders can
measure force
readiness and
rigorously link
it to cost.
Bringing Broadband to Underserved Communities
Many people rely on schools,
libraries, and other community
institutions to access the online
world. Yet there are still too many
areas where broadband services
are either unavailable or have
insufficient speed to support such
basic applications as downloading
Web pages, photos, and video.
The Recovery Act is providing
$4.7 billion in investment to
deploy broadband infrastructure
and related equipment, training,
education, support, and aware-
ness programs to unserved and
underserved communities.
Booz Allen worked with the
National Telecommunications
and Information Administration
(NTIA) to develop the Broadband
Technology Opportunities Program
(BTOP). Over the first 12 weeks
of the initiative, we assembled
more than 250 professionals
from 16 geographies to help ramp
up the program on an accelerated
timetable. We then provided
management support to help
the program ensure grantee
compliance and performance. Our
cross-functional team applied its
expertise in tele communications
policy, broad band networking,
financial analysis, IT development,
and grants management to provide
the grant-making infrastructure
the program needed. The team
evaluated more than 2,800
applications, developed criteria
to identify the 500 strongest can-
didates, and performed financial
and technological due diligence
on them to inform grant selection.
Booz Allen professionals also
provided mapping and geospatial
modeling expertise to support the
program’s grants that feed the
interactive National Broadband
Map. This tool will spur business
investment by providing current
information about local broadband
availability, speeds, competition,
and technology.
This vital program will help
improve the public’s access to
education, healthcare, employ-
ment, and public safety services.
Importantly, it will also help
encourage innovation and create
jobs in the technology sector
while making the United States
more competitive by building a
stronger telecommunications
infrastructure.
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A Strategic Plan for Operation Homefront
Operation Homefront provides emergency financial and other assistance to the
families of our nation’s service members and wounded warriors. Since its founding
in 2002, the organization has grown and evolved to a network with 23 chapter
offices nationwide. At 4,500 volunteers strong, it required a well-conceived plan
for how to best mobilize these individuals—one that laid out a coherent, unified
strategy; an action plan that supported the interests of all constituents; and
milestones and performance measures to track success.
Booz Allen has a proud legacy of working with the
military community, and in 2010 we embraced a pro
bono opportunity to join forces with the leadership
of Operation Homefront to create this new strategic
plan. We helped define 13 objectives that spanned the
entire operation—from leadership and human capital
to building a collaborative culture, driving sustainable
growth, and improving the benefits realized by soldiers
and their families. As a result, Operation Homefront
is better equipped to help address the hardships of
military life by fulfilling growing demand for funds
and other critical items and services. “Serving in the
US Navy on board a submarine, I’ve lived firsthand
the hardships that Operation Homefront serves to
address,” says Tony Teravainen, a Booz Allen associate
who was recently elected to the board of directors of
Tony Teravainen, Associate
Operation Homefront Southern California. “So, I especially appreciate Booz Allen’s
involvement, and I have great empathy for today’s young warfighters and their
families. Ultimately, they deserve all the support we can offer.”
Intellectual Capital
Teleworking: A New Era in Government
Amid incentives that include reduced fixed costs, improved business processes, and
the ability to better attract and retain top talent and more effectively manage business
continuity risks, many private sector companies have already turned to teleworking.
Yet despite intense pressure to cut spending, federal government agencies have been
slow to embrace the same strategy.
To understand current barriers and determine effective strategies for removing them,
Booz Allen and the Partnership for Public Service examined the current state of teleworking
in “On Demand Government: Deploying Flexibilities to Ensure Service Continuity.” The study
identifies management resistance, cultural and organizational barriers, and technology and
information security concerns as three key factors that limit teleworking to just 6 percent
of government employees.
The study recommends that the government set an ambitious goal of engaging nearly half
of all eligible federal employees in teleworking by 2014. To drive this change, the govern-
ment must define teleworking as more than simply a cost control strategy and an employee
perk. Rather, it must be viewed as a national security imperative. And that aspect “should
be tested regularly so that agencies can analyze their capabilities, shore up weaknesses,
and ensure teleworking is fully incorporated in all agency continuity of operations plans.”
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How can we restore economic strength?
New initiatives to rebuild our economic infrastructure
and combat financial fraud are helping transform
America’s economic future.
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Missions that Matter
Using Cyber Technologies to Combat
Money Laundering in Finance
Large-scale terrorist attacks end with destruction of life and property,
but they often begin with sophisticated money laundering schemes and
terrorist financial activities. With the passage of the USA PATRIOT Act
following the 9/11 attacks, financial institutions operating in the United
States have faced increased demand to detect money laundering and
terrorist finance transactions and report the customers behind them. As
these schemes become more complex, many banks—despite significant
investment—lack both the technical expertise and the systems and
controls necessary to detect and circumvent these evolving threats to
our national security.
Recently, a large global bank faced significant business risks and intense
regulatory scrutiny given its portfolio of international clients and its
thriving banknote transfer business. In the midst of the banking crisis,
it challenged Booz Allen to
use skills developed in support
of US government counterter-
rorism programs to strengthen
the bank’s ability to ensure the
integrity of its data by detecting
patterns of money laundering
and terrorist finance. Never be-
fore had a bank looked at these
challenges through the lens
of intelligence analysts using
advanced cyber technologies.
Using capabilities from our
cyber, national security, and law
enforcement domains, our team
of consultants created dozens
of scenarios that would indicate these illicit activities and integrated
these into the bank’s automated monitoring systems. We also assessed
the risk of the bank’s anti-money laundering regime, and developed a
new analytic workflow that the bank now uses to investigate alerts and
pursue resulting cases.
By providing the bank with a groundbreaking approach for detecting
patterns and risks, we have equipped it with the means to safeguard
its customer data and reduce its financial and regulatory exposure.
In the process, we’ve also set a new standard for performance of anti-
money laundering and anti-terrorist finance programs in the financial
services industry.
Commercial banks
must work hard to
detect patterns of
customer fraud.
Left to right: Mohamed Gohar, Associate;
Paul Chi, Vice President; Duncan DeVille,
Senior Associate
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Alternative Energy: A Platform for Economic Growth
Experts agree that alternative energy sources hold the key to long-term
economic health, national security, and environmental sustainability. But
too often, the most promising ideas never evolve beyond research and
development to broad commercial adoption. In 2009, the Department of
Energy began to close this gap when it invested $400 million to establish
the Advanced Research Projects Agency—Energy, also known as
ARPA-E. This agency identifies and invests in promising breakthrough
technologies that do not currently receive funding—but that offer the
potential to help transform our nation’s energy future.
Booz Allen worked within an aggressive time frame to help establish
this new organization and help it make the best use of its funding. We
ARPA-E invest-
ments have led
to more than
$100 million in
private follow-on
funding.
provided support across the entire program
develop ment cycle, helping to build a trans-
parent funding opportunity announcement
process, assisting with the review of concept
papers, providing feedback on applications,
and helping ARPA-E to create a streamlined
contract negotiation and award process.
Because we have been a longtime supporter
of the Department of Energy and the Defense
Advanced Research Projects Agency, we brought
the perspective—and multidisciplinary capa-
bilities—necessary to help ARPA-E quickly
become a viable award-granting organization.
We further helped make ARPA-E faster, more
efficient, and more transparent by assisting
with the creation of a nimble technology and
business process infrastructure that features
eXCHANGE, a portal that manages the flow
of information between applicants, reviewers,
and ARPA-E.
Already, initial investments by ARPA-E have
led to further private sector investment of
more than $100 million in follow-on funding,
in large part due to the ARPA-E brand and
the visibility it provides for the projects. One
project is exploring a new battery architecture
for electric cars. Researchers are developing
a more efficient and less expensive alternative
to lithium-ion batteries that could increase
range per charge to 150 miles.
New IT System Helps
Increase Tax Compliance
The Internal Revenue Service
Criminal Investigation Division
(CI) has an important mission to
foster compliance with current tax
laws, promote confidence in the
tax system, and deter fraud. To
achieve this mission, it needed to
improve organizational effective-
ness and efficiency by moderniz-
ing its information technology (IT)
systems. Booz Allen was brought
in to help CI think through every
facet of the systems development
life cycle—from concept and
architecture through deployment,
data migration, and training.
With our support, CI success-
fully replaced its outdated case
management IT system with
10 integrated systems that
support asset forfeiture, scheme
analytics, knowledge manage-
ment, and other key capabilities.
The upgraded system provided
efficiencies that reduced admin-
istrative burden and therefore
enabled employees to increase
their investigative time.
CI helps reduce tax fraud and boost
confidence in the current tax system.
26 Booz Allen Hamilton
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Envisioning America’s Financial Future
Throughout the current Great Recession, financial experts have been
looking for signs that the US economy has turned the corner. Yet as
oil prices rise and other key indicators continue to fluctuate, questions
still remain about the pace of recovery and expansion. At the sixth
annual Aspen Ideas Festival, Booz Allen executive vice president
Lloyd W. Howell, Jr. moderated a panel titled “Is the Financial Crisis
Really Over?” Panelists expressed widely disparate views about the
state of the US economy. They did, however, agree that an era of change
lies ahead. At home, soaring federal debt will ultimately require changes
to benefits and entitlements. As Howell observed, “People need to stay
current on potential changes that may impact their benefits, and work
up a strategy for this environment of uncertainty. They have to sit down
and really work to understand what may happen.” On the positive side,
emerging markets will create unprecedented demand for goods, and
soaring consumer spending will fuel US manufacturing. True sustainable
recovery will require more
engagement and dialogue
between regulators and
financial institutions. “The
global economic community is
filled with unforeseen risks,”
Howell said, “and proactive
mechanisms can help us
avoid another crisis like the
one we’re still battling.”
Panelists (from left) David Stockman, a founder of the Blackstone Group,
Roger Ferguson, TIAA-CREF CEO, and Christopher Hyzy, Chief Investment
Officer at US Trust, discuss America’s financial future with moderator
Lloyd W. Howell, Jr.
Intellectual Capital
Reimagining Infrastructure
America’s long-term economic
health depends on the strength
and performance of three
“lifeline” infrastructures: power,
water, and transportation. Yet
over the last quarter century, their
steady decline now threatens our
country’s economic growth and
its national security.
In his American Interest
article “Reimagining Infrastruc-
ture,” Executive Vice President
Mark Gerencser analyzes the
source of the problem and
offers an alternative approach.
The obstacle, he asserts, is not
funding but the need for transfor-
mational leadership. “We have
it within our power to reimagine
America’s infrastructure…but to
seize that opportunity we need
a new form of leadership,” he
writes. One that “understands
the need to reimagine the entire
system, including its business
models, stakeholder roles,
relationships, and purpose.”
A case in point is the Next
Generation Air Transportation
System, called “NextGen” for
short. Booz Allen is supporting
the implementation of NextGen
through a 10-year contract with the
Federal Aviation Administration.
NextGen envisions a future when
air travel will use less fuel, create
less noise, cause fewer delays,
and be safer. But getting there
requires a holistic approach that
addresses not just technology
challenges but also a host of
systems, business model, and
stakeholder challenges.
Gerencser asserts that the
United States has the capabilities
in hand to develop innovative
and effective infrastructures. To
succeed, however, it needs leader-
ship that works across jurisdic-
tions and re-creates government’s
integrator role—without creating
either new monopolies or a larger,
more centralized government. As
Gerencser observes, “We have
yet to work out how to do this in
the course of our infrastructure
renewal. We lack the integrative
2011 Black
Engineer of
the Year
Each year, US Black Engineer and
Technology magazine recognizes
“true pioneers who have achieved
exceptional career gains in govern-
ment and industry, who have
already merited lifetime achieve-
ment recognition, and who
have energized their companies
and their communities alike.”
In 2011, the magazine honored
Lloyd W. Howell, Jr. as the Black
Engineer of the Year. Along
with his active support of non-
profit, educational, and community
organizations and institutions,
Howell leads Booz Allen’s growing
financial services business in both
the federal and private sectors.
leadership that understands
the new imperatives, and con-
sequently, we lack a governance
venue in which we can even dis-
cuss the problem.” For Gerencser,
we must view infrastructures
as a single network of complex
systems; design robust future
infrastructures that can adapt
to changes in both technology
and the funding environment;
convene, integrate, and align the
interests and actions of disparate
sets of stakeholders; and create
a national vision for America’s
infrastructure that defines the
function and performance of
the whole system over its entire
life cycle.
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How can we help prepare tomorrow’s leaders?
Booz Allen takes pride in a culture that encourages and
rewards the many dimensions of leadership—innovative
thinking, active collaboration, and personal service.
28 Booz Allen Hamilton
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Missions that Matter
Fostering a Culture of Innovation
At Booz Allen, good ideas—the ones clients
depend on to achieve their missions—come
not just from the firm’s senior leaders but also
from consultants who serve clients on the front
lines each day. Since 2008, our internal Ideas
Festival has encouraged staff to bring their
best ideas forward in a program consisting of
two parts: a contest and summit. In the 2011
Ideas Contest, consultants vied for investment
funding to turn their ideas into winning busi-
ness plans. Operating units across the firm
submitted more than 500 ideas, and four were
ultimately selected for investment funding. And
at the Ideas Summit, a daylong workshop (pictured here), more than 200
staff worked together to develop innovative ideas.
One winning idea from the Winter 2010 Ideas Festival proved especially
timely as the Obama administration continues its push toward a
comprehensive medical records system. While this strategy promises
to help protect patients and lower costs, Lead Associate Reechik
Chatterjee saw another important benefit. He proposed that Booz Allen
develop comparative analysis programs that could sift through and
contrast the newly available sets of patient, treatment, and outcomes
data. Data could then be analyzed for insights about the effectiveness
of medical protocols and treatments. “Ultimately, the goal is to improve
quality of care,” says Chatterjee. Since he received $300,000 to develop
the concept, he has made significant progress, partnering with the
Sisters of Mercy Health System to analyze data from 27,000 patient
health records to compare treatments for sepsis and septic shock.
A winning entry from 2011 could also
yield practical results. Associate Bret
Anderson’s idea applies lessons learned
in the financial industry to help reduce
fraudulent claims that cost the Medicare
system more than $70 billion in 2008.
Drawing on Booz Allen’s expertise in both
claims processing operations and health
IT analytics, Anderson proposed using
predictive analysis to identify providers
who make significantly more money than
their peers—often a likely sign of fraud.
Newly available
healthcare data
can reveal new
insights into
medical protocols
and treatments.
Lead Associate Reechik Chatterjee
is using the $300,000 in investment
funding he received from the 2010
Ideas Festival competition to develop his
winning idea. He is currently applying
advanced analytics to analyze data from
27,000 patient health records.
Fiscal Year 2011 Report
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The World-class
Way We Work
Booz Allen’s continued growth depends on both a
talented workforce and the ability to give clients easy
access to our comprehensive capabilities. To address
the realities of today’s complex, distributed business
environment, Booz Allen has developed an industry-
leading talent and resource delivery approach with
the flexibility to meet business, employee, and client
needs. Our approach allows us to tap talent markets
across geographies and align critical staff to meet
the unique needs of clients, regardless of location.
Our innovative “Way We Work” initiative also offers
a variety of flexible working arrangements to connect
talent with opportunity in ways that benefit clients
and staff, support the environment, and promote
work-life integration. We now have even greater
access to experienced professionals whose skills,
interests, and values can fulfill our clients’ missions.
To uphold our commitment to collaboration, client
service, and professional growth, employees use
advanced technologies to connect with clients and
teams, and use our award-winning Enterprise 2.0
tool, known as hello.bah.com, to network, join com-
munities of interest, and pursue new assignments.
We stay connected in a collaborative, secure way that
strengthens our position today and for the future.
Norfolk Office: Building
a Diverse Workforce
Booz Allen firmly believes that a workforce that brings
together people with different backgrounds, experi-
ences, cultures, and perspectives serves as a catalyst
for better ideas—and better client results. But assem-
bling a diverse workforce takes innovative thinking
and real commitment, especially at a time when even
the most sought-after employers compete vigorously
for superior talent. As we expand our footprint, we’re
pursuing new strategies to recruit, develop, engage,
and reward a diverse staff.
As just one example, our Norfolk office in Virginia
established a Diversity & Inclusion Action Committee
(DIAC) that works to recruit and retain a diverse
talent pool. The committee implemented strategies to
seek talent in nontraditional places and connect staff
with the Booz Allen culture through diversity-focused
courses, employee forums, mentoring, and network-
ing. As the office has built a more diverse workforce,
it has also raised its profile in the Hampton Roads
community. Members of new affinity groups are
actively engaged in volunteering and have sponsored
fundraisers, food drives, symposia, and other events.
In recognition of the initiative’s innovation and
achievements, the Norfolk
office DIAC received a
Booz Allen Excellence
Award, the firm’s highest
honor. Today, the program
serves as a model for
similar initiatives in
other offices.
“ We’ve created an inclusive
workplace that enables people
from all backgrounds to become
their absolute best—both at
work and in the community.”
Charles Tapp II, Senior Associate and DIAC Chair
30 Booz Allen Hamilton
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Longtime Mentor Leads by Example
In a college sociology class, Atlanta-based associate Erin Grizzle
developed a passion for public service that has helped shape
her life—and her career at Booz Allen. Almost a decade ago,
she formed a mentoring relationship with a fourth-grade girl
from a troubled family that continues today. Working together
on homework assignments, she imparted a lesson that Shanique
applies now as a college student and aspiring pediatrician: to
always reach higher. “Children are only 21 percent of the popu-
lation,” Grizzle says, “but they are 100 percent of our future.
Every kid needs an extra cheerleader, and adults who mentor
see profound changes in everything from the child’s social
relationships and school performance to future ambitions.”
After receiving her MBA, Grizzle considered a number of
positions and chose Booz Allen because of the firm’s well-
defined service culture. “Booz Allen was the only firm to
emphasize service during the recruiting process,” she explains. “And when I
visited the firm’s headquarters in McLean, I saw that service was more than a
tagline. People here get really excited about community service and are eager
to stand up and help.”
During her first year at Booz Allen, Grizzle was crowned Miss United States
2009–2010. With her supervisor’s support, she successfully balanced her team
responsibilities while using her national public speaking platform to promote two
service initiatives: mentoring children in need, and honoring service members and
military veterans. “I wanted to help patients in VA hospitals receive the attention
they deserve. I’m continually inspired by both their heroism and their wealth of
knowledge, and I want to see more people reach out to them.”
Grizzle believes these experiences are helping her become a better leader. “Service
teaches us to put the needs of others first and to take an active role,” she says. “And
when our client missions are aligned with our own values, it’s easy to give more.”
Inspiring Tomorrow’s Engineers
The United States has a strong
legacy of leadership in science,
technology, engineering, and
mathematics. To maintain and ex-
pand this competitive advantage,
we need to develop a new genera-
tion of leaders who will combine
their functional expertise with the
research, project management,
and teamwork skills required for
excellence. Each year, FIRST (For
Inspiration and Recognition of
Science and Technology) creates
competition-based programs that
help students at all grade levels
research and solve real-world
problems, present their research
and solutions, and learn and
apply engineering concepts.
During the 2010–2011 school
year, Booz Allen awarded grants
to nearly 50 teams nationwide,
helping them to participate in
the FIRST LEGO League and
the FIRST Robotics Competition.
Booz Allen employees from
across the United States served
as team mentors and coaches.
They engaged in a variety of
activities such as fundraising,
marketing, computer program-
ming, and robot design. And
one team from St. Thomas the
Apostle Episcopal School in
Houston, coached by Senior
Consultant Jennifer Snelling
and Associate Joel Abraham,
achieved success at one of
the world’s largest FIRST LEGO
League competitions. The
team prevailed in all 10 of its
matches to win first place over
60 other teams in the Lone Star
Championship in Houston, Texas.
This competition exposes
aspiring engineers to Booz Allen
core values such as teamwork,
entrepreneurship, and profession-
alism. “It’s been inspiring to show
kids how valuable science and
engineering can be,” Abraham
“ Service is more
than a tagline.
People here get
really excited
about community
service and are
eager to stand
up and help.”
Erin Grizzle, Associate
says. “You never know where the
next breakthrough idea will come
from, and this team is well on
its way.”
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How can we make the world a better place?
Our new ideas, practical experience, and spirit
of service create better living conditions and help
move societies forward.
32 Booz Allen Hamilton
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A Prosperous Future for Serbia
Missions that Matter
From Eastern Europe to the
Middle East and Africa, people
are standing up for political
freedom and economic change.
But before stable, free-market
democracy can take hold,
countries often require new
infrastructures that lay the
groundwork for long-term
stability and prosperity.
For nearly a decade, Booz Allen
has worked closely with the
US Agency for International
Development (USAID) and
the private sector to create
conditions for peace and prosperity in the Balkans. Through 16 projects in five countries, we
have helped develop new legal frameworks and new regulatory institutions to improve the
business environment. Together, we have transformed existing institutions and business
processes to make pension systems, employment service agencies, and even Cabinet offices
more productive and effective. And we have built global trade networks that increase commerce
and attract new investment. These efforts have generated measurable economic growth in the
Balkans of nearly $1 billion.
In Serbia, for example, Booz Allen and its partners removed a significant barrier to investment
by drafting new bankruptcy laws and by designing three IT systems that provide greater
transparency and control over court proceedings. As a result, citizens and investors have
greater confidence in the court system, and Serbia has emerged as a
leader in bankruptcy administration in Eastern Europe. We also helped
reposition two industries of traditional strength—construction services
and building materials—for future success by training more than
140 professionals to compete for green building projects. And the four
competitiveness projects we supported helped facilitate more than
$766 million in economic growth from exports and foreign and domestic
investments. These projects have created enduring value for USAID—
and for Balkan states seeking economic growth. As USAID builds on its
success throughout the region, it can continue its work to develop the
new financial, legal, and business systems countries need to prosper.
Global trade
networks are
increasing
commerce and
attracting new
investment.
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Fiscal Year 2011 Report
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Creative Thinking Disrupts Illicit Supply Chains
These days, criminal operations often
have the size, reach, and sophistication
of multinational corporations, with
expansive production and logistics
capabilities and highly resilient supply
chains built to resist seizure of valu-
able assets. The illicit trafficking of
these operations takes many forms,
including money laundering, weapons
and chemicals smuggling, fraudulent
Medicare and Medicaid services, and
even human trafficking.
These organizations pose daunting
national security threats, and combat-
ing them has become a high-stakes
initiative that requires creative
Left to right: Angela Zutavern, Principal;
Lana Alman, Associate; Mike Jones,
Senior Vice President; Larissa Hill,
Associate
We can analyze
criminal supply
chains holistically,
identify where
they’re most
vulnerable,
and effectively
disrupt them.
thinking and coordinated action. Based on our years of experience in helping
make commercial supply chains more resilient, Booz Allen is responding with
a new approach and working with law enforcement clients to analyze criminal
supply chains holistically, identify where they’re most vulnerable, and effectively
disrupt them. By focusing on the infrastructure of illicit networks rather than
their leadership, we can use our process and intelligence-gathering expertise to
understand how they operate and provide targeted information that helps field
agents dismantle the supply chain and cripple the networks.
Building on our success in the customs and drug enforcement arenas, we are
now exploring how this same approach can combat illicit trafficking operations
in counterfeit parts, bulk cash smuggling, money laundering, and weapons. This
approach may also benefit other clients whose mission is to protect legitimate
networks such as cyber supply chain security.
Ideas in Action: Protecting the Gulf
The Deepwater Horizon oil
spill disaster focused national
attention on the vast oil reserves
in the Gulf of Mexico and the
environmental risks of extracting
them from ultra-deep water wells.
After an estimated five million
barrels of oil spilled into the
Gulf, President Obama formed
the President’s Gulf Oil Spill
Commission to determine the
disaster’s root causes and exam-
ine ways to ensure more effective
oversight. With the commission’s
final report due six months
after the initial meeting, Booz
Allen, working closely with the
34 Booz Allen Hamilton
Department of Energy’s National
Energy Technology Laboratory,
provided the infrastructure and
strategic insight necessary to
help the commission successfully
accomplish its mission.
This new Federal Advisory
Committee Act (FACA) Commission
needed an effective technology
and office infrastructure to
connect people, gather and
integrate information, and support
communications. Working with
the commission’s leadership, our
team helped quickly stand up
the organization by drawing on
eight core capabilities, including
energy, environment, systems
development, and human capital
and learning. We recommended
the organizational structure and
a human capital plan for staffing.
We helped organize and manage
commission meetings to ensure
they met FACA requirements. And
the new website we helped create
effectively managed communica-
tions and outreach.
Booz Allen also conducted
extensive research, modeling,
and analytics that helped inform
both the initial briefing book and
the final report. We analyzed the
spill’s impact on both regional
economies and financial and
insurance markets. Using our
dynamic impact macroeconomic
model, our economists also
projected how both the spill
itself and proposed regulatory
changes would affect revenue,
employment, and output in the
Gulf Region.
The commission’s final pub-
lished report gave the administra-
tion a valuable perspective on
what went wrong and presented
clear options for how to improve
laws, regulations, and industry
practices.
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Huntsville Sets
Standard for Service
River Conservation:
A Natural Response
Beyond serving clients, Booz Allen takes seriously its
responsibility as a community citizen, encouraging
employees to act as catalysts for change. The firm’s
Huntsville, Alabama, office received a 2010 Booz Allen
Excellence Award, the firm’s highest honor, for its
model community and philanthropic program.
In 2008, Huntsville-based staff established a new
mission to significantly increase Booz Allen’s profile
in and contribution to the surrounding community.
By taking a deliberate and strategic approach, and
driving significant volunteering and participation, the
office went from serving four nonprofits at the outset
to partnering with 33 community organizations. And
at last count, 213 of 238 employees had participated
in some form of community relations activity.
The Huntsville office is especially proud of its seven-
year relationship with EarlyWorks Museums, which
help children experience how history comes to life
in the modern world. Rose Allen, a Huntsville office
principal, has provided vital support as a board mem-
ber of EarlyWorks. In this capacity, she helped plan
four major events that raised nearly $250,000 for the
children’s museums in 2010. “The engagement of our
staff brings to life Booz Allen’s core values and clearly
demonstrates how our collective energy and skills can
make a lasting difference.”
Rose Allen, Principal
Nila Boyce volunteers with Friends of
the White River. The Booz Allen team
was recognized with the group’s 2010
“Going the Distance” award.
Indiana’s White River
has been a vital resource
for generations of
Indianapolis residents. Local citizens are committed
to preserve the river’s water quality and maintain
and restore habitat and wildlife in the water—and
along its green banks. In 2010, 14 volunteers from
Booz Allen’s Indianapolis office channeled their can-
do spirit to help Friends of the White River with its
annual spring river cleanup.
“ We’ve formed new relationships,
found mentors or mentees, and
learned more about our colleagues.”
Nila Boyce, Senior Consultant
“We are really passionate about the outdoors and the
environment, and we enjoy spending time on the White
River,” says Senior Consultant Nila Boyce, environ-
mental chair of the Workforce Leadership Council in
Indianapolis. Working in teams of two, the volunteers
overcame a torrential downpour and loaded hundreds
of pounds of trash into their canoes. For their efforts,
Friends of the White River presented them an oar
representing its “Going the Distance” award.
“Events like this also help build the camaraderie
of the Indy team,” Boyce says. “We’ve formed new
relationships, found mentors or mentees, and
learned more about our colleagues beyond what
we see in the hallways.”
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booz Allen Hamilton Leadership
board of directors
Ralph W. Shrader
Chairman, Chief Executive
Officer, and President
Samuel R. Strickland
Chief Financial Officer
Allan M. Holt
The Carlyle Group
Peter Clare
The Carlyle Group
Ian Fujiyama
The Carlyle Group
Mark Gaumond
Philip A. Odeen
Charles O. Rossotti
Executive
Vice Presidents
CG Appleby
Joseph E. Garner*
Mark J. Gerencser
Neil T. Gillespie*
Francis J. Henry
Mark L. Herman
Lloyd W. Howell, Jr.
Joseph Logue
Joseph W. Mahaffee
Gary D. Mather
John D. Mayer
John M. (Mike) McConnell
Robert S. Osborne
Patrick F. Peck
Horacio D. Rozanski
Ghassan Salameh
Ralph W. Shrader
Samuel R. Strickland
Reginald Van Lee
Kenneth F. Wiegand, Jr.*
Richard J. Wilhelm
36 Booz Allen Hamilton
Leadership team
Ralph W. Shrader
CG Appleby
Francis J. Henry
Lloyd W. Howell, Jr.
Ronald T. Kadish
Gary D. Labovich
Joseph Logue
Joseph W. Mahaffee
John D. Mayer
John M. (Mike) McConnell
Robert S. Osborne
Patrick F. Peck
Horacio D. Rozanski
Samuel R. Strickland
Richard J. Wilhelm
Senior
Vice Presidents
James M. Allen
Kristine Martin Anderson
William G. Bastedo, Jr.
Fred K. Blackburn
Eugene C. Bounds
Cynthia L. Broyles
Douglas W. Carter
Thomas Crabtree
Roger Cressey
Gary C. Cubbage
Karen M. Dahut
Maria Darby
Joan Dempsey
Paul M. Doolittle
Judith H. Dotson
Lee J. Falkenstrom
Michael A. Farber
John J. Feeney
Molly Finn
Margo L. Fitzpatrick
Peter Floyd
Arthur L. Fritzson
Thomas A. Fuhrman
Nicole A. Funk
Laurene A. Gallo
Natalie M. Givans
Patricia A. Goforth
Thomas S. Greenspon
Nancy E. Hardwick
Gregory T. Harrison
Ronald A. Hodge
Gordon S. Holder
David F. Humenansky
Ralph W. Shrader
Chairman, Chief
Executive Officer,
and President
Samuel R. Strickland
Chief Financial
Officer and Chief
Administrative Officer
Horacio D. Rozanski
Chief Operating Officer
Michael W. Jones
Ronald T. Kadish
David J. Karp
Christopher M. Kelly
Jeffrey J. Kibben
David B. Kletter
Frederick W. Knops III
Charles F. Koontz
Corrine X. Kosar
Gary D. Labovich
Robert J. Lamb
Douglas J. Lane
Christopher Ling
John D. Lueders
Janet D. Lyman
Herbert S. MacArthur
David A. Mader
Robert J. Makar
James Manchisi
Angela M. Messer
Anthony K. Mitchell
Sharon L. Muzik
Catherine A. Nelson
Robert W. Noonan, Jr.
Henry A. Obering
Susan L. Penfield
Thomas J. Pfeifer
Christopher L. Pierce
Sam M. Porgess
Robin L. Portman
Donald L. Pressley
William M. Purdy
Gary M. Rahl
David Rubin
Carl R. Salzano
Larry D. Scheuble
George M. Schu
Gary M. Schulman
Joseph F. Sifer
Frank S. Smith III
Edgar D. Sniffin
Stephen M. Soules
Carol A. Staubach
Kurt B. Stevens
William H. Stewart
William A. Thoet
John A. Thomas
Michael M. Thomas
Elizabeth Thompson
Peter B. Trick
Emile P. Trombetti
Laurie S. Villano
William J. Wansley
Jack D. Welsh
Gregory G. Wenzel
Lee W. Wilbur
Dov S. Zakheim*
Charles P. Zuhoski
Abram Zwany
Officer list for fiscal year ended
3/31/2011
*Retired during 2010–2011
127180BDY_r3_5695_BAH_Page1-Pg36_k2.indd 36
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Booz Allen Hamilton Holding Corporation
We have audited the accompanying consolidated balance
sheets of Booz Allen Hamilton Holding Corporation (the Company)
as of March 31, 2011 and 2010, and the related consolidated
statements of operations, stockholders’ equity, and cash flows
for the eight-month period ended March 31, 2009. We have also
audited the consolidated statements of operations, stockholders’
equity and cash flows for the four month period ended July 31,
2008 of Booz Allen Hamilton, Inc. (Predecessor). These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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. We were not
engaged to perform an audit of the Company’s internal control
over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Booz Allen Hamilton Holding Corporation at March 31, 2011
and 2010, and the consolidated results of its operations and its
cash flows for the years ended March 31, 2011 and 2010 and
the eight months ended March 31, 2009, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the
Predecessor financial statements referred to above present fairly,
in all material respects, the consolidated results of operations
and cash flows of Booz Allen Hamilton, Inc. for the four month
period ended July 31, 2008 in conformity with U.S. generally
accepted accounting principles.
Ernst & Young LLP
McLean, Virginia
June 8, 2011
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Fiscal Year 2011 Report
37
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Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
March 31,
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt
Accounts payable and other accrued expenses
Accrued compensation and benefits
Other current liabilities
Total current liabilities
Long-term debt, net of current portion
Income tax reserve
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 19)
Stockholders’ equity:
Common stock, Class A — $0.01 par value — authorized, 600,000,000 shares; issued and outstanding,
122,784,835 shares at March 31, 2011 and 102,922,900 shares at March 31, 2010
Non-voting common stock, Class B — $0.01 par value — authorized, 16,000,000 shares; issued and outstanding,
3,053,130 shares at March 31, 2011 and 2,350,200 shares at March 31, 2010
Restricted common stock, Class C — $0.01 par value — authorized, 5,000,000 shares; issued and outstanding,
2,028,270 shares at March 31, 2011 and 2010
Special voting common stock, Class E — $0.003 par value — authorized, 25,000,000 shares; issued and outstanding,
12,348,860 shares at March 31, 2011 and 13,345,880 shares at March 31, 2010
Additional paid-in capital
Retained earnings (Accumulated deficit)
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these Consolidated Financial Statements.
2011
2010
$÷«192,631
1,111,004
38,703
23,311
1,365,649
173,430
240,238
1,163,549
81,157
$÷«307,835
1,018,311
32,546
11,476
1,370,168
136,648
268,880
1,163,129
123,398
$3,024,023
$3,062,223
$÷÷«30,000
406,310
396,996
32,829
866,135
964,328
90,474
195,836
$÷÷«21,850
354,097
385,145
24,828
785,920
1,546,782
100,178
119,760
2,116,773
2,552,640
1,227
1,029
31
20
37
840,058
71,330
(5,453)
907,250
24
20
40
525,652
(13,364)
(3,818)
509,583
$3,024,023
$3,062,223
38 Booz Allen Hamilton Holding Corporation
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Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Revenue
Operating costs and expenses:
Cost of revenue
Billable expenses
General and administrative expenses
Depreciation and amortization
Total operating costs and expenses
Operating income (loss)
Interest expense
Other, net
Income (loss) from continuing operations before income taxes
Income tax expense (benefit) from continuing operations
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss)
Earnings (loss) from continuing operations per common share (Note 3):
Basic
Diluted
Earnings (loss) per common share (Note 3):
Basic
Diluted
The Company
Predecessor
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
$5,591,296
$5,122,633
$2,941,275
$«1,409,943
2,836,955
1,473,266
881,028
80,603
2,654,143
1,361,229
811,944
95,763
1,566,763
756,933
505,226
79,665
722,986
401,387
726,929
11,930
5,271,852
4,923,079
2,908,587
1,863,232
319,444
(131,892)
(59,488)
128,064
43,370
84,694
–
199,554
(150,734)
174
48,994
23,575
25,419
–
32,688
(98,068)
4,450
(60,930)
(22,147)
(38,783)
–
(453,289)
(1,044)
680
(453,653)
(56,109)
(397,544)
(848,371)
$÷÷«84,694
$÷÷«25,419
$÷÷(38,783)
$(1,245,915)
$÷÷÷÷«0.74
$÷÷÷÷«0.24
$÷÷÷÷(0.37)
$÷÷«(181.28)
$÷÷÷÷«0.66
$÷÷÷÷«0.22
$÷÷÷÷(0.37)
$÷÷«(181.28)
$÷÷÷÷«0.74
$÷÷÷÷«0.24
$÷÷÷÷(0.37)
$÷÷«(568.13)
$÷÷÷÷«0.66
$÷÷÷÷«0.22
$÷÷÷÷(0.37)
$÷÷«(568.13)
Dividends declared per share
$÷÷÷÷÷÷÷–
$÷÷÷÷«5.73
$÷÷÷÷÷÷÷–
$÷÷÷÷÷÷÷«–
The accompanying notes are an integral part of these Consolidated Financial Statements.
127180FIN_r1_5695_Financials_Pages37-68_k1.indd 39
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Fiscal Year 2011 Report
39
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Consolidated Statements of Cash Flows
(Amounts in thousands)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Loss from discontinued operations, net of taxes
Depreciation and amortization
Amortization of debt issuance costs
Amortization of original issuance discount on debt
Non-cash expense of debt repayments
Excess tax benefits from the exercise of stock options
Stock-based compensation expense
Loss on disposition of property and equipment
Deferred income taxes
Changes in assets and liabilities, net of effect of business combination:
Accounts receivable, net
Income taxes receivable/payable
Prepaid expenses
Other current assets
Other long-term assets
Accrued compensation and benefits
Accounts payable and accrued expenses
Accrued interest
Income tax reserve
Deferred revenue
Postretirement obligations
Other long-term liabilities
Net cash provided by (used in) operating activities of continuing operations
Net cash used in operating activities of discontinued operations
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchases of property and equipment
Cash paid in merger transaction, net of cash acquired
Investment in discontinued operations
Escrow payments
Net cash used in investing activities of continuing operations
Net cash provided by investing activities of discontinued operations
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issuance of common stock
Cash dividends paid
Redemption of common stock and class B common stock
Repayment of debt
Net proceeds from debt
Payment of deferred payment obligation
Excess tax benefits from the exercise of stock options
Stock option exercises
Net cash (used in) provided by financing activities of continuing operations
Net cash provided by financing activities of discontinued operations
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents — beginning of period
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
The Company
Predecessor
$÷÷÷84,694
$÷«25,419
$÷÷«(38,783)
$(1,245,915)
–
80,603
6,925
2,640
43,177
(15,974)
48,678
41
42,763
(92,693)
2,907
(6,157)
(12,941)
(1,627)
9,804
52,214
8,451
(10,163)
612
5,898
46,487
296,339
–
296,339
(88,784)
–
–
1,384
(87,400)
–
(87,400)
251,135
–
–
(1,637,850)
1,041,808
–
15,974
4,790
(324,143)
–
(324,143)
(115,204)
307,835
–
95,763
5,700
2,505
–
(1,915)
71,897
–
19,837
(92,386)
(14,429)
150
15,672
(3,742)
33,760
110,265
(10,633)
2,483
(8,190)
6,139
12,189
270,484
–
270,484
(49,271)
–
–
38,280
(10,991)
–
–
79,665
3,106
1,480
–
–
62,059
166
(22,147)
(33,675)
21,303
(26,030)
(6,491)
–
99,094
7,186
10,604
1,177
10,499
1,849
9,647
180,709
–
180,709
(36,835)
(1,623,683)
–
–
(1,660,518)
–
(10,991)
(1,660,518)
–
(612,401)
–
(16,100)
330,692
(78,000)
1,915
1,334
(372,560)
–
(372,560)
(113,067)
420,902
956,500
–
–
(251,050)
1,195,261
–
–
–
1,900,711
–
1,900,711
420,902
–
848,371
11,930
–
–
–
–
511,653
–
(54,236)
(19,765)
(70,781)
(4,717)
(327)
280
(44,050)
57,054
–
(7,220)
(4,036)
21,793
(26,582)
(26,548)
(160,368)
(186,916)
(9,314)
–
(153,662)
–
(162,976)
58,323
(104,653)
–
–
(16,422)
–
227,534
–
–
–
211,112
128,712
339,824
21,588
7,123
Cash and cash equivalents — end of period
$÷÷192,631
$«307,835
$÷÷420,902
$÷÷÷28,711
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest
Income taxes, net
The accompanying notes are an integral part of these Consolidated Financial Statements.
40 Booz Allen Hamilton Holding Corporation
$÷÷109,895
$«126,744
$÷÷÷82,879
$÷÷÷÷÷«720
$÷÷÷÷7,715
$÷÷«5,474
$÷÷÷÷÷÷«34
$÷÷÷42,336
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Consolidated Statements of Stockholders’ Equity – Predecessor
(Amounts in thousands)
Balance at March 31, 2008
Net loss
Reclassification of liability for share-based
payments for shares held over six months
Dividends declared
Redemption of redeemable common stock
Redemption of common stock marked
to redemption value in stock-based
compensation
Redemption of common stock marked to
redemption value in equity
Unrealized loss on benefit plan, net of income
taxes
Receivable from shareholders for exercise of
stock rights of Booz Allen Hamilton, Inc.
Distribution of Booz & Company, Inc.
common stock to shareholders of
Booz Allen Hamilton, Inc.
Redeemable
Common Stock
$÷«287,645
Stock
Subscription
Receivable
$÷÷÷÷÷–
Additional
Paid-In Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
(Loss)
Total
Stockholders’
Equity
$–
$÷÷÷62,384
$(36,964)
$÷÷313,065
–
5,479
–
(16,422)
854,494
180,985
–
–
–
–
–
–
–
–
–
–
(87,007)
–
–
–
–
–
–
–
–
–
–
(1,245,915)
–
(52)
–
–
(180,985)
–
–
–
–
–
–
–
–
(846)
(1,245,915)
5,479
(52)
(16,422)
854,494
–
(846)
–
(87,007)
(134,874)
22,252
(112,622)
Balance at July 31, 2008
$1,312,181
$(87,007)
$–
$(1,499,442)
$(15,558)
$÷«(289,826)
The accompanying notes are an integral part of these Consolidated Financial Statements.
127180FIN_r1_5695_Financials_Pages37-68_k1.indd 41
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Fiscal Year 2011 Report
41
Consolidated Statements Of Stockholders’ Equity – The Company
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(Amounts in thousands,
except share data)
Class A
Common Stock
Class B
Non-Voting
Common Stock
Class C
Restricted
Common Stock
Class E
Special Voting
Common Stock
Shares
Amount
Shares Amount
Shares Amount
Shares Amount
Additional
Paid-In
Capital
(Accumu-
lated Deficit
Retained
Earnings
Accumulated
Other Com-
prehensive
Income (Loss)
Total Stock-
holders’
Equity
Balance at August 1, 2008
– $÷÷÷«–
–
$÷–
–
$÷–
–
$÷– $÷÷÷÷÷÷÷– $÷÷÷÷÷–
$÷÷÷÷– $÷÷÷÷÷÷÷–
Exchange of rollover equity
Issuance of common stock
Net loss
Actuarial gain related to
employee benefits,
net of taxes
Comprehensive loss
Stock-based compensation
expense
5,641,870
95,675,000
–
56 2,350,200
–
–
957
–
24 2,028,270
–
–
–
–
20 14,802,880
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
44
–
–
–
–
79,725
955,543
–
–
–
(38,783)
–
–
–
79,869
956,500
(38,783)
–
62,059
–
–
698
698
(38,085)
–
62,059
Balance at March 31, 2009 101,316,870 1,013 2,350,200
24 2,028,270
20 14,802,880
44 1,097,327
(38,783)
698
1,060,343
Issuance of common stock
Stock options exercised
Recognition of liability
related to future stock
option exercises (Note 17)
Net income
Actuarial loss related
to employee benefits,
net of taxes
Comprehensive income
Stock-based compensation
expense
Dividends paid (Notes 1
and 17)
Excess tax benefits from the
exercise
of stock options
19,070
1,586,960
–
16
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (1,457,000)
–
(4)
–
1,322
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(34,408)
–
–
25,419
–
71,897
(612,401)
1,915
–
–
–
–
–
–
–
–
(4,516)
–
–
–
–
1,334
(34,408)
25,419
(4,516)
20,903
71,897
(612,401)
1,915
Balance at March 31, 2010 102,922,900 1,029 2,350,200
24 2,028,270
20 13,345,880
40
525,652
(13,364)
(3,818)
509,583
Issuance of common stock
Stock options exercised
Excess tax benefits
from the exercise
of stock options
Share exchange
Recognition of liability
related to future stock
option exercises (Note 17)
Net income
Actuarial loss related
to employee benefits,
net of taxes
Comprehensive income
Stock-based compensation
expense
16,189,830
4,375,035
161
44
–
–
–
(702,930)
–
(7)
–
702,930
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
–
–
–
–
–
–
–
–
–
–
–
–
–
702,930
– (1,699,950)
2
(5)
250,972
11,727
–
–
–
–
15,974
–
(12,945)
–
–
84,694
–
–
–
–
–
–
251,135
11,766
15,974
–
(12,945)
84,694
–
48,678
–
–
(1,635)
(1,635)
83,059
–
48,678
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at March 31, 2011 122,784,835 $1,227 3,053,130
$31 2,028,270
$20 12,348,860
$37 $÷«840,058 $«71,330
$(5,453) $÷«907,250
The accompanying notes are an integral part of these Consolidated Financial Statements.
42 Booz Allen Hamilton Holding Corporation
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Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share data or unless otherwise noted)
1. Overview
Our B uSinE S S
Booz Allen Hamilton Holding Corporation, including its wholly
owned subsidiaries, or Holding or the Company, is an affiliate
of The Carlyle Group, or Carlyle, and was incorporated in
Delaware in May 2008. The Company provides management and
technology consulting services primarily to the U.S. government
and its agencies in the defense, intelligence, and civil markets.
The Company offers clients functional knowledge spanning
strategy and organization, analytics, technology, and operations,
which it combines with specialized expertise in clients’ mission
and domain areas to help solve critical problems. The Company
reports operating results and financial data in one operating
segment. The Company is headquartered in McLean, Virginia,
with approximately 25,000 employees as of March 31, 2011.
rE F inAnC ing Tr An SACTiOn
On February 3, 2011, the Company completed a refinancing
transaction, or Refinancing Transaction, which included
amendments of the Senior Secured Credit Agreement, or Senior
Secured Agreement, by the Second Amended and Restated Credit
Agreement, or Senior Secured Agreement, as amended, to allow
for new term loan facilities with $1.0 billion of principal and a
$30.0 million increase to the Company’s revolving credit facility.
In connection with the Refinancing Transaction, the Company
used $268.9 million of cash on hand to repay the remaining
$222.1 million of indebtedness outstanding under the mezzanine
credit facility, $21.5 million on the existing senior secured loan
facilities, or Senior Credit Facilities, and related prepayment
penalties of $6.7 million. Refer to Notes 11 and 12 for further
discussion of the Refinancing Transaction.
iniTiAL PuB LiC OF F E ring
Effective November 20, 2010, the Company consummated
its initial public offering whereby the Company sold
14,000,000 shares of Class A Common Stock for $17.00 per
share. Effective December 20, 2010, the Company settled
the underwriters’ over-allotment option and sold an additional
2,100,000 shares of Class A Common Stock for $17.00 per
share. The net proceeds of the initial public offering and
over-allotment of $250.2 million, after deducting underwriting
discounts and other fees, were used to repay outstanding
debt of $242.9 million under the Company’s mezzanine credit
facility and related prepayment penalties of $7.3 million. All
expenses associated with the initial public offering have been
netted against the proceeds within stockholders’ equity.
rECAPiTALiz ATiOn Tr An SACTiOn AnD rE PriC ing
On December 11, 2009, the Company consummated a
recapitalization transaction, or Recapitalization Transaction,
which included amendments of the Senior Secured Agreement to
include a new term loan, or Tranche C Loans, with $350.0 million
of principal, and the mezzanine credit agreement, or Mezzanine
Credit Agreement, primarily to allow for the recapitalization and
payment of a special dividend. This special dividend was declared
by the Company’s Board of Directors on December 7, 2009, to be
paid to holders of record as of December 8, 2009. Net proceeds
from Tranche C Loans of $341.3 million less transaction costs
of $13.2 million, along with cash on hand of $321.9 million,
were used to fund a partial payment of the Company’s deferred
payment obligation, or DPO, in the amount of $100.4 million,
and a dividend payment of $4.642 per share, or $497.5 million,
which was paid on all issued and outstanding shares of Holding’s
Class A Common Stock, Class B Non-Voting Common Stock, and
Class C Restricted Common Stock. As required by the Officers’
Rollover Stock Plan, or Rollover Plan, and the Equity Incentive
Plan, or EIP, the exercise price per share of each outstanding
option was reduced. Because the reduction in per share value
exceeded the exercise price for certain of the options granted
under the Rollover Plan, the exercise price for those options was
reduced to the $0.01 par value of the shares issuable on exercise,
and the holders became entitled to receive a cash payment
equal to the excess of the reduction in per share value over the
reduction in exercise price to the par value. The difference
between the one cent exercise price and the reduced value for
shares vested and not yet exercised of $54.4 million will be
accrued by the Company as the options vest and will be paid in
cash upon exercise of the options. As of March 31, 2011 and
2010, the Company reported $31.4 million and $27.4 million in
other long-term liabilities, respectively, and $9.0 million and
$7.0 million in accrued compensation and benefits, respectively,
in the accompanying consolidated balance sheets for the portion
of stock-based compensation recognized, which is reflective of
the options vested with an exercise price of one cent. Transaction
fees incurred in connection with the Recapitalization Transaction
were approximately $22.4 million, of which approximately
$15.8 million were deferred financing costs and are amortized
over the lives of the loans. Refer to Note 10 for further discussion
of the DPO, Note 11 for further discussion of the amended credit
agreements, Note 12 for further discussion of the accounting
for deferred financing costs, and Note 17 for further discussion
of the December 2009 dividend and associated future cash
payments as related to stock options.
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SPin - OF F AnD ME rgE r Tr An SACTiOn S
On July 31, 2008, or Closing Date, pursuant to a merger agreement,
or Merger Agreement, the then-existing shareholders of Booz
Allen Hamilton, Inc. completed the spin-off of the commercial
business to the commercial partners. Effective August 1, 2008,
Holding acquired the outstanding common stock of Booz Allen
Hamilton, Inc., which consisted of the U.S. government consulting
business, through the merger of Booz Allen Hamilton, Inc. with
a wholly-owned subsidiary of Holding, or Merger Transaction or
Acquisition. The Company acquired Booz Allen Hamilton, Inc.
for total consideration of $1,828.0 million. The acquisition
consideration was allocated to the acquired net assets, identified
intangibles of $353.8 million, and goodwill of $1,163.5 million.
Prior to the Merger Transaction, Booz Allen Hamilton, Inc. is
referred to as the Predecessor for accounting purposes. The
Predecessor’s consolidated financial statements have been
presented for the four months ended July 31, 2008. The
consolidated financial statements of Holding subsequent to the
Merger Transaction, which is referred to as the Company, have
been presented for fiscal 2011, fiscal 2010, and from August 1,
2008 through March 31, 2009. From April through July 2008,
Holding had no operations. As a result, the Company is presented
as commencing on August 1, 2008.
In connection with the Acquisition, the Company issued certain
shares of its common stock in exchange for shares of the
Predecessor. The Rollover Plan was adopted as a mechanism to
enable the exchange of a portion of previous equity interests in
the Predecessor for equity interests in Holding. Common Stock
owned by the Predecessor’s U.S. government consulting partners
were exchanged for Class A Common Stock of Holding, while
common stock owned by a limited number of the Predecessor’s
commercial consulting partners were exchanged for Class B
Non-Voting Common Stock of Holding. Fully vested shares of the
Predecessor were exchanged for vested shares of the Company,
with a fair value of $79.7 million. This amount was included as a
component of the total acquisition consideration. The Company
also exchanged restricted shares and options for previously
issued and outstanding stock rights of the Predecessor held
by the Predecessor’s U.S. government consulting partners. The
Predecessor’s commercial consulting partners exercised their
previously outstanding stock rights and received cash for the
underlying shares surrendered. Based on the vesting terms of
the Company’s newly issued Class C Restricted Common Stock
and the new options granted under the Rollover Plan, the fair
value of the issued awards of $147.4 million is being recognized
as compensation expense by the Company subsequent to the
Acquisition, as discussed further in Note 17.
In connection with the Merger Transaction, the Company
entered into the Senior Secured Agreement and the Mezzanine
Credit Agreement for a total amount of $1,240.3 million. The
total debt proceeds received by the Company at closing of the
Merger Transaction were net of debt issuance costs, or DIC, of
$45.0 million and original issue discount, or OID, on the debt of
$19.7 million. Prior to the Merger Transaction, the Predecessor
had an outstanding line of credit of $245.0 million. The Company
paid off the Predecessor’s line of credit with proceeds from the
financing. In addition to the debt used for the Company’s
acquisition of Booz Allen Hamilton, Inc., Carlyle, along with a
consortium of other investors, provided $956.5 million in cash
in exchange for equity interests in the Company.
2. Summary of Significant Accounting Policies
BASiS OF PrE SE nTATiOn
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries,
and have been prepared in accordance with accounting principles
generally accepted in the United States, or GAAP. All intercompany
balances and transactions have been eliminated in consolidation.
The operating results of the global commercial business that
were spun off by the Predecessor effective July 31, 2008 have
been presented as discontinued operations in the Predecessor’s
consolidated financial statements and the related notes included
in these financial statements.
The Company’s fiscal year ends on March 31 and unless
otherwise noted, references to fiscal year or fiscal are for fiscal
years ended March 31. The accompanying consolidated financial
statements present the financial position of the Company as of
March 31, 2011 and 2010, the Company’s results of operations
for fiscal 2011, fiscal 2010, and the eight months ended
March 31, 2009, and the Predecessor’s results of operations
for the four months ended July 31, 2008.
uSE OF E STiMATE S
The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and
expenses during the reporting periods. Areas of the financial
statements where estimates may have the most significant
effect include allowance for doubtful accounts, contractual
and regulatory reserves, lives of tangible and intangible assets,
impairment of long-lived assets, accrued liabilities, revenue
44 Booz Allen Hamilton Holding Corporation
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recognition, bonus and other incentive compensation, stock-
based compensation, realization of deferred tax assets,
provisions for income taxes, and postretirement obligations.
Actual results experienced by the Company may differ materially
from management’s estimates.
rE vE n uE rECOgniTiOn
The majority of the Company’s revenue is derived from services
and solutions provided to the U.S. government and its agencies,
primarily by the Company’s consulting staff and, to a lesser
extent, subcontractors. The Company generates its revenue
from the following types of contractual arrangements: cost-
reimbursable-plus-fee contracts, time-and-materials contracts,
and fixed-price contracts.
Revenue on cost-reimbursable plus fee contracts is recognized
as services are performed, generally based on the allowable
costs incurred during the period plus any recognizable earned
fee. The Company considers fixed fees under cost-reimbursable-
plus-fee contracts to be earned in proportion to the allowable
costs incurred in performance of the contract. For cost-
reimbursable-plus-fee contracts that include performance-based
fee incentives, which are principally award fee arrangements,
the Company recognizes income when such fees are probable
and estimable. Estimates of the total fee to be earned are
made based on contract provisions, prior experience with similar
contracts or clients, and management’s monitoring of the
performance on such contracts. Contract costs, including indirect
expenses, are subject to audit by the Defense Contract Audit
Agency, or DCAA, and, accordingly, are subject to possible cost
disallowances.
Revenue for time-and-materials contracts is recognized as
services are performed, generally on the basis of contract
allowable labor hours worked multiplied by the contract-defined
billing rates, plus allowable direct costs and indirect cost burdens
associated with materials used and other direct expenses
incurred in connection with the performance of the contract.
Revenue on fixed-price contracts is recognized using percentage-
of-completion based on actual costs incurred relative to total
estimated costs for the contract. These estimated costs are
updated during the term of the contract, and may result in
revision by the Company of recognized revenue and estimated
costs in the period in which they are identified. Profits on fixed-
price contracts result from the difference between incurred
costs and revenue earned.
Contract accounting requires significant judgment relative to
assessing risks, estimating contract revenue and costs, and
making assumptions for schedule and technical issues. Due
to the size and nature of many of the Company’s contracts,
developing total revenue and cost at completion requires the
use of estimates. Contract costs include direct labor and billable
expenses, an allocation of allowable indirect costs, and warranty
obligations. Billable expenses is comprised of subcontracting
costs and other “out of pocket” costs that often include, but
are not limited to, travel-related costs and telecommunications
charges. The Company recognizes revenue and billable expenses
from these transactions on a gross basis. Assumptions regarding
the length of time to complete the contract also include expected
increases in wages and prices for materials. Estimates of total
contract revenue and costs are monitored during the term of the
contract and are subject to revision as the contract progresses.
Anticipated losses on contracts are recognized in the period they
are deemed probable and can be reasonably estimated.
The Company’s contracts may include the delivery of a
combination of one or more of the Company’s service offerings.
In these situations, the Company determines whether such
arrangements with multiple elements should be treated as
separate units of accounting based on how the elements are
bid or negotiated, whether the customer can accept separate
elements of the arrangement, and the relationship between the
pricing on the elements individually and combined.
CASH AnD CASH EquivALE nTS
Cash and cash equivalents include cash on hand and highly liquid
investments having an original maturity of three months or less.
The Company’s investments consist primarily of institutional
money market funds and U.S. Treasury securities. The Company
maintains its cash and cash equivalents in bank accounts that,
at times, exceed the federally insured limits. The Company has
not experienced any losses in such accounts.
vALuATiOn OF ACCOunTS rECE ivAB LE
The Company maintains allowances for doubtful accounts
against certain billed receivables based upon the latest
information regarding whether invoices are ultimately collectible.
Assessing the collectability of customer receivables requires
management judgment. The Company determines its allowance
for doubtful accounts by specifically analyzing individual accounts
receivable, historical bad debts, customer credit-worthiness,
current economic conditions, and accounts receivable aging
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trends. Valuation reserves are periodically re-evaluated and
adjusted as more information about the ultimate collectability
of accounts receivable becomes available. Upon determination
that a receivable is uncollectible, the receivable balance and
any associated reserve are written off.
COnCE nTr ATiOn S OF CrE DiT riSk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents
and accounts receivable. The Company’s cash equivalents are
generally invested in U.S. government insured money market
funds and Treasury bills, which minimizes the credit risk. The
Company believes that credit risk, with respect to accounts
receivable, is limited as the receivables are primarily with the
U.S. government.
PrOPE rT Y AnD EquiPME nT
Property and equipment are recorded at cost, and the balances
are presented net of depreciation. The cost of software purchased
or internally developed is capitalized. Depreciation is calculated
using the straight-line method over the estimated useful lives
of the assets. Furniture and equipment is depreciated over five
to ten years, computer equipment is depreciated over three
years, and software purchased or developed for internal use is
depreciated over one to three years. Leasehold improvements
are amortized over the shorter of the useful life of the asset or
the lease term. Maintenance and repairs are charged to expense
as incurred. Rent expense is recorded on a straight-line basis
over the life of the respective lease. The difference between the
cash payment and rent expense is recorded as deferred rent in
other long-term liabilities in the consolidated balance sheets.
The Company receives incentives for tenant improvements on
certain of its leases. The cash expended on such improvements
is recorded as property and equipment and amortized over the
life of the associated asset. Incentives for tenant improvements
are recorded as deferred rent in other long-term liabilities in the
consolidated balance sheets, and are amortized on a straight
line basis over the lease term.
gOODwiLL
Goodwill is the amount by which the cost of acquired net assets
in a business acquisition exceeds the fair value of net identifiable
assets on the date of purchase. The Company assesses goodwill
for impairment on at least an annual basis on January 1, and
whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. The Company
defines its single reporting unit as its operating segment given
that the Company is managed and operated as one business.
There were no impairment charges for fiscal 2011 or 2010.
inTAngiB LE AS SE TS
Intangible assets consist of trade name, contract backlog, and
favorable lease terms. Trade name is not amortized, but is tested
annually for impairment. Contract backlog is amortized over the
expected backlog life based on projected future cash flows of
approximately five to nine years. Favorable lease terms are
amortized over the remaining contractual terms of approximately
five years.
LOng - LivE D AS SE TS
The Company reviews its long-lived assets, including property
and equipment and intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying
amounts of the assets may not be fully recoverable. If the total
of the expected undiscounted future net cash flows is less than
the carrying amount of the asset, a loss is recognized for any
excess of the carrying amount over the fair value of the asset.
There were no impairment charges for fiscal 2011 or 2010.
inCOME TA xE S
Deferred tax assets and liabilities are recorded to recognize the
expected future tax benefits or costs of events that have been, or
will be, reported in different years for financial statement purposes
than for tax purposes. Deferred tax assets and liabilities are
computed based on the difference between the financial statement
carrying amount and tax basis of assets and liabilities using
enacted tax rates and laws for the years in which these items are
expected to reverse. If management determines that a deferred
tax asset is not “more likely than not” to be realized, a valuation
allowance is recorded through the income tax provision to reduce
the deferred tax asset to an appropriate level in that period. In
determining the need for a valuation allowance, management
considers all positive and negative evidence, including historical
earnings, projected future taxable income, future reversals of
existing taxable temporary differences, and prudent, feasible
tax-planning strategies.
The Company periodically assesses its liabilities and contingencies
for all periods open to examination by tax authorities based on
the latest available information. Where it is not more likely than
not that the Company’s tax position will be sustained, the
Company records its best estimate of the resulting tax liability
and interest in the consolidated financial statements.
COMPrE HE n SivE inCOME (LOS S )
Comprehensive income (loss) is the change in equity of a
business enterprise during a period from transactions and
other events and circumstances from nonowner sources.
Comprehensive income (loss) is presented in the consolidated
statements of stockholders’ equity. Accumulated other
46 Booz Allen Hamilton Holding Corporation
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comprehensive loss as of March 31, 2011 and 2010 consisted
of unrealized gains (losses) on the Company’s defined and
postretirement benefit plans.
STOCk- BASE D COMPE n SATiOn
Share-based payments to employees are recognized in the
consolidated statements of operations based on their grant
date fair values with the expense recognized over the vesting
period. Share-based payments to employees are subject to
graded vesting schedules and are recognized in the consolidated
statements of operations based on their grant date fair values
with the expense recognized on an accelerated basis. The
Company uses the Black-Scholes option-pricing model to
determine the fair value of its awards at the time of the grant.
rE DE E MAB LE COMMOn S TOCk
Prior to the Merger Transaction, the Predecessor’s partners
had Redeemable Common Stock. Shares of Redeemable
Common Stock issued upon exercise of rights granted prior to
April 1, 2006 were marked to the redemption amount at the end
of each reporting period with changes recorded in stock-based
compensation expense. For shares of Redeemable Common
Stock issued upon exercise of rights granted on or after April 1,
2006, the Redeemable Common Stock was marked to the
redemption amount through stock-based compensation expense
until such shares had been outstanding for six months. After
such time, changes in the redemption amount were recorded as
a component of stockholders’ equity. No such redeemable stock
was outstanding subsequent to the Merger Transaction.
DE F inE D B E nE F iT PL An AnD OTHE r POSTrE TirE ME nT
B E nE F iTS
The Company recognizes the underfunded status of pension
and other postretirement benefit plans on the consolidated
balance sheets. Gains and losses, prior service costs and
credits, and any remaining transition amounts that have not yet
been recognized through net periodic benefit cost are recognized
in accumulated other comprehensive income (loss), net of tax
effects, and will continue to be amortized as a component of
net periodic cost. The measurement date, the date at which the
benefit obligations and plan assets are measured, is the
Company’s fiscal year end.
SE LF - F unDE D ME DiCAL PL An S
The Company maintains self-funded medical insurance.
Self-funded plans include a health maintenance organization,
preferred provider organization, point of service, qualified point
of service, and traditional choice. Further, self-funded plans
also include prescription drug and dental benefits. The Company
records an incurred but unpaid claim liability in the accrued
compensation and benefits line of the consolidated balance
sheets for self-funded plans based on an external actuarial
valuation. Primary data that drives this estimate is based on
claims and enrollment data provided by a third party valuation
firm for medical and pharmacy related costs.
DE F E rrE D COMPE n SATiOn PL An
The Company accounts for its deferred compensation plan in
accordance with the terms of the underlying plan agreement.
To the extent the terms of the contract attribute all or a portion
of the expected future benefit to an individual year of the
employee’s service, the cost of the benefits are recognized in
that year. Therefore, the Company estimates the cost of future
benefits that are expected to be paid and expenses the present
value of those costs in the year as services are provided.
FAir vALuE ME ASurE ME nTS
The fair value of the Company’s cash and cash equivalents
approximates its carrying value at March 31, 2011 and 2010
because of the short-term nature of these amounts. The fair
value of the Company’s debt instruments approximates its
carrying value at March 31, 2011 and 2010. The fair value of
debt is determined based on interest rates available for debt
with terms and maturities similar to the Company’s existing
debt arrangements.
rECE nT ACCOunTing PrOnOunCE ME nTS
Recent accounting pronouncements issued by the Financial
Accounting Standards Board during fiscal 2011 and through the
filing date did not or are not believed by management to have a
material impact on the Company’s present or historical
consolidated financial statements.
3. Earnings Per Share
The Company computes basic and diluted earnings per share
amounts based on net income (loss) for the periods presented.
The Company uses the weighted average number of common
shares outstanding during the period to calculate basic earnings
(loss) per share, or EPS. Diluted EPS is computed similar to basic
EPS, except the weighted average number of shares outstanding
is increased to include the dilutive effect of outstanding common
stock options and other stock-based awards.
The Company currently has outstanding shares of Class A
Common Stock, Class B Non-Voting Common Stock, Class C
Restricted Common Stock, and Class E Special Voting Common
Stock. Class E Special Voting Common Stock shares are not
included in the calculation of EPS as these shares represent
voting rights only and are not entitled to participate in dividends
or other distributions.
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47
Notes to Consolidated Financial Statements
A reconciliation of the income (loss) used to compute basic and diluted EPS for the periods presented are as follows:
Earnings (loss) from continuing operations for basic and diluted computations
Earnings (loss) for basic and diluted computations
Weighted-average Class A Common Stock outstanding
Weighted-average Class B Non-Voting Common Stock outstanding
Weighted-average Class C Restricted Common Stock outstanding
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
$84,694
84,694
109,511,290
2,939,387
2,028,270
$25,419
25,419
102,099,180
2,350,200
2,028,270
The Company
Eight Months
Ended
March 31, 2009
$(38,783)
(38,783)
101,316,870
2,350,200
2,028,270
Total weighted-average common shares outstanding for basic computations
Dilutive stock options
114,478,947
12,969,753
106,477,650
9,750,730
105,695,340
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Four Months
Ended
July 31, 2008
$÷«(397,544)
(1,245,915)
2,193,000
–
–
2,193,000
–
Average number of common shares outstanding for diluted computations
127,448,700
116,228,380
105,695,340
2,193,000
Earnings (loss) from continuing operations per common share:
Basic
Diluted
Earnings (loss) per common share:
Basic
Diluted
In the EPS calculation for the fiscal years ended March 31, 2011
and 2010, and the eight months ended March 31, 2009,
310,000, 610,000, and 26,702,920 options were not included in
the EPS calculation as their impact is anti-dilutive. Such options
may have a dilutive effect in future periods.
4. Business Combination
The Company acquired the outstanding common stock of Booz
Allen Hamilton, Inc. effective August 1, 2008. The purchase price
was $1,828.0 million as of March 31, 2010. Pursuant to the
Merger Agreement, spin-off, indemnification, and working capital
escrow accounts in the amounts of $15.0 million, $25.0 million,
and $50.0 million, respectively, were established for a period of
one year from the date of the Closing Date or until all outstanding
claims made against the escrow accounts are resolved, whichever
is later. In fiscal 2011 and 2010, payments in the aggregate
amount of $4.3 million and $52.5 million, respectively, were made
out of the escrow accounts, of which $617,000 and $13.0 million,
respectively, have been released to selling shareholders.
$÷÷0.74
$÷÷0.66
$÷÷0.74
$÷÷0.66
$÷÷0.24
$÷÷(0.37)
$÷÷«(181.28)
$÷÷0.22
$÷÷(0.37)
$÷÷«(181.28)
$÷÷0.24
$÷÷(0.37)
$÷÷«(568.13)
$÷÷0.22
$÷÷(0.37)
$÷÷«(568.13)
5. Goodwill and Intangible Assets
gOODwiLL
As of March 31, 2011 and 2010, goodwill was $1,163.5 million
and $1,163.1 million, respectively. The change in the carrying
amount of goodwill is attributable to escrow payments and tax
adjustments stemming from the Company’s acquisition by
Carlyle in July 2008.
The Company performed an annual impairment test of goodwill
and the trade name as of January 1, 2011 and 2010, noting
no impairment. Goodwill was assessed for the Company’s one
reporting unit utilizing a two-step methodology. The first step
requires the Company to estimate the fair value of its reporting
unit and compare it to the carrying value. If the carrying value of
a reporting unit were to exceed its fair value, the goodwill of that
reporting unit would be potentially impaired, and the Company
would proceed to step two of the impairment analysis. The
outcome of the first step of the Company’s test indicated that
there was no potential impairment, and therefore the second
step of the test was not required. The fair value of the reporting
unit as of January 1, 2011 exceeded its carrying value by 250.2%.
At January 1, 2011 and 2010, the fair value of the Company’s
trade name exceeded its carrying value. There were no additional
events or changes that indicated any impairment as of March 31,
2011 and 2010.
48 Booz Allen Hamilton Holding Corporation
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inTAngiB LE AS SE TS
Intangible assets consisted of the following:
Amortizable intangible assets:
Contract backlog
Favorable leases
Total
Unamortizable intangible assets:
Trade name
Total
gross Carrying
value
Accumulated
Amortization
net Carrying
value
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
As of March 31, 2011
As of March 31,2010
$160,800
2,800
$111,330
2,232
$÷49,470
568
$160,800
2,800
$83,405
1,515
$÷77,395
1,285
$163,600
$113,562
$÷50,038
$163,600
$84,920
$÷78,680
$190,200
$÷÷÷÷÷«–
$190,200
$190,200
$÷÷÷÷«–
$190,200
$353,800
$113,562
$240,238
$353,800
$84,920
$268,880
Amortization expense for fiscal 2011, fiscal 2010, and the eight
months ended March 31, 2009, was $28.6 million, $40.6 million,
and $44.3 million, respectively. There were no intangible assets
prior to the Merger Transaction. The following table summarizes
the estimated annual amortization expense for future periods
indicated below:
For the Fiscal Year Ending March 31,
2012
2013
2014
2015
2016
Thereafter
$16,367
12,549
8,450
4,225
4,225
4,222
$50,038
6. Accounts Receivable, Net
Accounts receivable, net consisted of the following:
March 31,
Current:
Accounts receivable — billed
Accounts receivable — unbilled
Allowance for doubtful accounts
Accounts receivable, net
Long-term:
$÷«466,688
645,664
(1,348)
$÷«437,256
583,182
(2,127)
1,111,004
1,018,311
Unbilled receivables related to retainage
and holdbacks
17,075
17,072
Total accounts receivable, net
$1,128,079
$1,035,383
The Company recognized a provision for doubtful accounts of
$230,000, $1.4 million, $2.1 million, and $1.0 million for fiscal
2011, fiscal 2010, the eight months ended March 31, 2009,
and the four months ended July 31, 2008, respectively. Long-
term unbilled receivables related to retainage, holdbacks, and
long-term rate settlements to be billed at contract closeout are
included in non-current assets as accounts receivable in the
accompanying consolidated balance sheets.
7. Property and Equipment, Net
The components of property and equipment, net were as follows:
March 31,
Furniture and equipment
Computer equipment
Software
Leasehold improvements
Total
Less: Accumulated depreciation and
amortization
2011
2010
$«111,513
58,163
28,583
113,266
$÷82,759
43,824
20,693
79,501
311,525
226,777
(138,095)
(90,129)
$«173,430
$136,648
Property and equipment, net, includes $14.7 million and
$12.1 million of internally developed software, net of depreciation
as of March 31, 2011 and 2010, respectively. Depreciation and
amortization expense relating to property and equipment for
fiscal 2011, fiscal 2010, the eight months ended March 31,
2009, and the four months ended July 31, 2008 was $52.0 million,
$55.2 million, $35.3 million, and $11.9 million, respectively.
2011
2010
Property and equipment, net
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8. Accounts Payable and Other Accrued Expenses
Accounts payable and other accrued expenses consisted of
the following:
March 31,
Vendor payables
Accrued expenses
Other
Total accounts payable and
other accrued expenses
2011
2010
$279,801
123,863
2,646
$257,418
93,317
3,362
$406,310
$354,097
Accrued expenses consisted primarily of the Company’s reserve
related to potential cost disallowance in conjunction with audits
by the DCAA.
9. Accrued Compensation and Benefits
Accrued compensation and benefits consisted of the following:
$62.4 million, respectively, may be indemnified under the
remaining available DPO. During fiscal 2011, the Company
favorably settled $11.0 million of its pre-acquisition uncertain
tax positions, thereby reducing the estimated amount to be
indemnified under the remaining available DPO and increasing the
DPO amount to be paid to the selling shareholders. Accordingly,
the $38.2 million and $20.0 million DPO balance recorded as of
March 31, 2011 and 2010, respectively, within other long-term
liabilities in the accompanying consolidated balance sheets,
represents the residual balance estimated to be paid to the
selling shareholders based on consideration of contingent tax
claims, accrued interest and other matters. Interest is accrued
at a rate of 5.0% per six-month period on the DPO balance, net
of any settled claims or payments, which was $80.0 million
as of March 31, 2011 and 2010.
A reconciliation of the principal balance of the DPO to the amount
recorded in the consolidated balance sheets for the periods
presented are as follows:
March 31,
Bonus
Retirement
Vacation
Other
2011
2010
March 31,
$136,503
93,826
133,643
33,024
$146,035
89,200
119,912
29,998
Deferred payment obligation
Return of capital to selling shareholders
Payment of accrued interest to selling
shareholders
Total accrued compensation and benefits
$396,996
$385,145
Indemnified pre-acquisition uncertain
2011
2010
$«80,000
–
$158,000
(78,000)
–
(22,443)
(52,721)
10,904
(62,425)
24,896
$«38,183
$÷20,028
10. Deferred Payment Obligation
In connection with the Merger Transaction, on July 31, 2008
the Company established a DPO of $158.0 million, payable
by 8.5 years after the Closing Date, less any settled claims.
Pursuant to the Merger Agreement, $78.0 million of the
$158.0 million DPO was required to be paid in full to the
selling shareholders. On December 11, 2009, in connection
with the Recapitalization Transaction, $100.4 million was paid
to the selling shareholders, of which $78.0 million was the
repayment of that portion of the DPO, with approximately
$22.4 million representing accrued interest.
The remaining $80.0 million is available to indemnify the
Company for certain pre-acquisition tax contingencies, related
interest and penalties, and other matters pursuant to the
Merger Agreement. Any amounts remaining after the settlement
of claims will be paid out to the selling shareholders. As of
March 31, 2011 and 2010, the Company has recorded
$90.5 million and $100.2 million, respectively, for pre-acquisition
uncertain tax positions, of which approximately $52.7 million and
tax positions
Accrued interest
Amount recorded in the consolidated
balance sheets
11. Debt
Debt consisted of the following:
March 31,
2011
2010
interest
rate
Outstanding
Balance
Interest
Rate
Outstanding
Balance
Senior secured credit agreement:
Tranche A Loans
Tranche B Loans
Tranche C Loans
Unsecured credit agreement:
Mezzanine Term Loan
2.81%
4.00%
$497,185
497,143
–
994,328
4.00%
7.50%
6.00%
$÷«110,829
566,811
345,790
1,023,430
–
13.00%
545,202
Total
Current portion of long-term debt
994,328
(30,000)
1,568,632
(21,850)
Long-term debt, net of
current portion
$964,328
$1,546,782
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Notes to Consolidated Financial Statements
The Company maintains a Senior Secured Agreement, as
amended, with a syndicate of lenders. In connection with the
Refinancing Transaction, the Senior Secured Agreement was
amended and restated effective February 3, 2011 to amend the
term loan facilities and increase the Company’s revolving credit
facility. The Senior Secured Agreement, as amended, provides
for $1.0 billion in term loans ($500.0 million of Tranche A Loans
and $500.0 million of Tranche B Loans) and a $275.0 million
revolving credit facility. The loans under the Senior Secured
Agreement, as amended, are secured by substantially all of
the Company’s assets.
The Senior Secured Agreement, as amended, requires quarterly
principal payments of 1.25% of the stated principal amount of the
Tranche A Loans, with annual incremental increases to 1.875%,
2.50%, 3.125%, and 16.25%, prior to the Tranche A Loans
maturity date of February 3, 2016, and 0.25% of the stated
principal amount of the Tranche B Loans, with the remaining
balance payable on the Tranche B Loans maturity date of August 3,
2017. The revolving credit facility matures on July 31, 2014, at
which time any outstanding principal balance is due in full.
At the Company’s option, the interest rate on borrowings under
the Senior Credit Facilities may be based on the Eurocurrency
rate or the alternate base rate, or ABR, plus, in each case, an
applicable margin, subject to the Eurocurrency rate and ABR
being no lower than 1.00% or 2.00%, respectively, in the case
of Tranche B Loans. Subject to a leveraged based pricing grid,
the applicable margins on Tranche A Loans range from 2.00% to
2.75% with respect to Eurocurrency loans, or 1.00% to 1.75%
with respect to ABR loans. The applicable margins on Tranche B
Loans will be 3.00% with respect to Eurocurrency loans, or 4.00%
with respect to ABR loans, stepping down, in each case to 2.75%
and 3.75%, respectively, when the total leverage ratio is less
than or equal to 1.75 to 1.00. The revolving credit facility margin
and commitment fee are subject to the leveraged based pricing
grid, set forth in the Senior Secured Agreement, as amended.
The Company entered into a 3-month LIBOR on February 3, 2011
for the Tranche A Loans at 0.31% plus the 2.50% spread to total
the 2.81% all-in rate. For the Tranche B Loans, the Company
entered into a 6-month LIBOR to lock in the all-in rate of 4.00%,
which consists of the 1.00% floor plus the 3.00% spread.
Depending on market conditions, Tranche A Loans and Tranche B
Loans will reprice under the most appropriate LIBOR term.
Currently, the Tranche B Loans do not have a variable rate as
the floor has not been exceeded.
Prior to the February 2011 Refinancing Transaction, the
Company’s then existing Senior Secured Agreement provided for
$1,060.0 million in term loans ($125.0 million Tranche A Loans,
$585.0 million Tranche B Loans, and $350.0 million Tranche C
Loans), and a $245.0 million revolving credit facility. The Senior
Secured Agreement required scheduled principal payments in
equal consecutive quarterly installments of 2.50%, 0.25%, and
0.25% of the stated principal amounts of Tranche A Loans,
Tranche B Loans, and Tranche C Loans, with incremental increases
prior to their respective maturity dates. The interest rates on the
loans under the Senior Secured Agreement were based on the
Eurocurrency rate or ABR, subject to the Eurocurrency rate and
ABR being no lower than 3.00% or 4.00%, respectively, in the
case of Tranche B Loans, and 2.00% or 3.00%, respectively, in
the case of Tranche C Loans. Subject to a leveraged based pricing
grid, the applicable interest rate margins on Tranche A Loans
ranged from 3.75% to 4.00% with respect to Eurocurrency loans,
or 2.75% to 3.00% with respect to ABR loans. The applicable
interest rate margins on Tranche B Loans were 4.50% with respect
to Eurocurrency loans, or 3.50% with respect to ABR loans, as
defined in the Senior Secured Agreement. The applicable interest
rate margins on Tranche C Loans were 4.00% with respect to
Eurocurrency loans, or 3.00% with respect to ABR loans, as
defined in the Senior Secured Agreement.
Prior to the February 2011 Refinancing Transaction, the
Company’s then existing Mezzanine Credit Agreement provided
for a $550.0 million term loan, or Mezzanine Term Loan. The
Mezzanine Term Loan did not require scheduled principal payment
installments, but reached maturity July 31, 2016, at which time
any remaining principal balance would have been due in full.
Optional prepayments required a prepayment fee equal to 3.00%
of the principal amount prepaid if paid on or after the second
anniversary but before the third anniversary of the Closing Date,
2.00% if paid on or after the third anniversary but before the
fourth anniversary of the closing date, and a mandatory 1.00%
if paid on or after the fourth anniversary of the Closing Date.
The Company recorded the mandatory 1.00% payment as
additional interest expense over the life of the Mezzanine Term
Loan on the consolidated statements of operations. Prepayments
made before the second anniversary of closing date are subject
to additional premiums and penalties based on the present value
of the debt and remaining interest payments at the time of such
prepayment. The applicable fixed interest rate on the Mezzanine
Term Loan was 13.00%, with the option that, in lieu of interest
payments in cash, up to 2.00% of that amount would be added
to the then outstanding aggregate principal balance.
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Notes to Consolidated Financial Statements
During fiscal 2011, interest payments of $3.9 million,
$37.0 million, $19.1 million, $49.9 million, and $46,000
were made for Tranche A Loans, Tranche B Loans, Tranche C
Loans, the Mezzanine Term Loan, and the revolving credit
facility, respectively. During fiscal 2010, interest payments of
$4.9 million, $44.1 million, $5.3 million, and $72.5 million were
made for Tranche A Loans, Tranche B Loans, Tranche C Loans,
and the Mezzanine Term Loan, respectively. In February 2011,
the Company drew down $50.0 million on the revolving credit
facility, which was fully repaid as of March 31, 2011. As of
March 31, 2011 and 2010, no amounts were outstanding on
the revolving credit facility.
The total outstanding debt balance is recorded in the
accompanying consolidated balance sheets, net of unamortized
discount of $5.7 million and $19.2 million as of March 31, 2011
and 2010, respectively.
The Company made optional repayments on the Senior Credit
Facilities and the mezzanine credit facility during fiscal 2011.
In accordance with the terms of the Mezzanine Credit Agreement,
the Company also paid prepayment penalties of 3.00% of the
respective principal repayment amounts. In addition, the
Company wrote-off ratable portions of DIC and OID associated
with each repayment on the Senior Credit Facilities and the
mezzanine credit facility. These amounts were reflected in other,
net in the accompanying consolidated statements of operations.
The optional repayments on the Senior Credit Facilities and the mezzanine credit facility, and the associated prepayment penalties
and write-off of DIC and OID during fiscal 2011 were as follows:
Date
February 3, 2011
December 21, 2010*
November 26, 2010*
August 2, 2010
Term Facility
Tranche A, B, and C Loans
Mezzanine
Mezzanine
Mezzanine
Mezzanine
Principal
Payment
$1,021,463
222,076
32,494
210,430
85,000
Prepayment
Penalties
$÷÷÷÷«–
6,662
975
6,313
2,550
Write-Off
of DIC
$11,374
8,287
1,229
8,022
3,359
Write-Off
of OID
$÷6,432
1,768
262
1,712
732
Total
Expense
$17,806
16,717
2,466
16,047
6,641
$1,571,463
$16,500
$32,271
$10,906
$59,677
* The December 21, 2010 and November 26, 2010 repayments and prepayment penalties were paid with net proceeds from the sale of shares of the Company’s Class A Common Stock.
The following table summarizes required future debt principal repayments:
Payments Due By March 31,
Tranche A Loans
Tranche B Loans
Total
Total
500,000
500,000
2012
25,000
5,000
2013
37,500
5,000
2014
50,000
5,000
2015
62,500
5,000
2016
Thereafter
325,000
5,000
–
475,000
$1,000,000
$30,000
$42,500
$55,000
$67,500
$330,000
$475,000
At March 31, 2011 and 2010, the Company was contingently liable under open standby letters of credit and bank guarantees
issued by the Company’s banks in favor of third parties. These letters of credit and bank guarantees totaling $1.9 million and
$1.4 million as of March 31, 2011 and 2010, respectively, primarily relate to leases and support of insurance obligations. These
instruments reduce the Company’s available borrowings under the revolving credit facility.
The Senior Secured Agreement, as amended, requires the maintenance of certain financial and non-financial covenants. As of
March 31, 2011, the Company was in compliance with all of its covenants.
52 Booz Allen Hamilton Holding Corporation
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Notes to Consolidated Financial Statements
12. Deferred Financing Costs
A reconciliation of the beginning and ending amount of DIC for the
periods presented are as follows:
A reconciliation between income tax computed at the U.S. federal
statutory income tax rate to income tax expense (benefit) from
continuing operations are as follows:
March 31,
Beginning of year
Amortization
Write-off related to optional debt repayments
Additional DIC related to February 2011
Refinancing Transaction
Additional DIC related to December 2009
Recapitalization Transaction
End of year
2011
2010
$«52,042
(6,925)
(32,271)
$41,934
(5,700)
–
8,192
–
–
15,808
$«21,038
$52,042
Costs incurred in connection with the February 2011 Refinancing
Transaction were $12.5 million, of which $8.2 million was recorded
as other long-term assets and will be amortized and reflected
in interest expense in the consolidated statements of operations
over the lives of the loans. Amortization of these costs will be
accelerated to the extent that any prepayment is made on the
Senior Credit Facilities. The remaining amount of $4.3 million
was recorded as general and administrative expenses in the
consolidated statements of operations.
Costs incurred in connection with the December 2009
Recapitalization Transaction to amend the Senior Secured
Agreement and Mezzanine Credit Agreement were $18.9 million,
of which $15.8 million was recorded as other long-term assets
and is amortized and reflected in interest expense in the
consolidated statements of operations over the lives of the
loans. The remaining amount of $3.1 million was recorded
as general and administrative expenses in the consolidated
statements of operations.
13. Income Taxes
The components of income tax expense (benefit) from continuing
operations were as follows:
The Company
Predecessor
The Company
Predecessor
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
$«44,822
$17,148
$(21,326)
$(158,779)
(10,142)
–
–
–
6,039
2,913
(2,651)
(6,889)
2,684
2,552
1,321
–
–
(33)
–
962
–
509
97,048
12,511
$«43,370
$23,575
$(22,147)
$÷(56,109)
Income tax expense
(benefit) computed
at U.S. statutory
rate (35)%
Increases
(reductions)
resulting from:
Changes in accruals
for uncertain tax
positions
State income
taxes, net of
the federal tax
benefit
Meals and
entertainment
Nondeductible
stock-based
compensation
Other
Income tax expense
(benefit) from
continuing
operations
Significant components of the Company’s net deferred income
tax asset were as follows:
March 31,
2011
2010
Deferred income tax assets:
Accrued expenses
Stock-based compensation
Pension and postretirement insurance
Property and equipment
Net operating loss carryforwards
Capital loss carryforward
AMT
Deferred rent and tenant allowance
Other
$÷53,675
56,114
22,785
31,982
57,124
42,379
8,353
18,101
12,440
302,953
(42,379)
$÷36,655
47,461
844
28,728
141,472
42,379
3,091
4,047
4,913
309,590
(42,379)
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
Total gross deferred income taxes
Less: Valuation allowance
Current:
U.S. Federal
State and local
Total current
Deferred:
U.S. Federal
State and local
$«(4,880)
5,487
$÷2,664
1,074
$÷÷÷÷÷–
–
$÷(1,414)
(459)
607
3,738
–
(1,873)
40,290
2,473
18,004
1,833
(16,133)
(6,014)
(44,996)
(9,240)
Total deferred
42,763
19,837
(22,147)
(54,236)
Total
$43,370
$23,575
$(22,147)
$(56,109)
Total net deferred income tax assets
260,574
267,211
Deferred income tax liabilities:
Unbilled receivables
Intangible assets
Debt issuance costs
Total deferred tax liabilities
138,667
94,789
6,926
122,733
106,106
–
240,382
228,839
Net deferred income tax asset
$÷20,192
$÷38,372
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Notes to Consolidated Financial Statements
For the fiscal year ended March 31, 2011, the Company’s
reserves for uncertain tax positions decreased primarily as
a result of a lapse in statute of limitations for a prior federal
tax year, which was recorded as an income tax benefit of
approximately $11.0 million.
The Company recognizes accrued interest and penalties related
to the reserves for uncertain tax positions in the income tax
provision. Included in the total reserve for uncertain tax positions
are accrued penalties and interest of $13.2 million and
$14.2 million at March 31, 2011 and 2010, respectively.
The Internal Revenue Service, or IRS, is completing its
examination of the Company’s income tax returns for fiscal 2006,
2005, and 2004. As of March 31, 2011, the IRS has proposed
certain adjustments to the Company’s claim on research credits.
Management is currently appealing the proposed adjustment and
does not anticipate that the adjustments will result in a material
change to its financial position. The Company is also subject to
taxes imposed by various taxing authorities including state and
foreign jurisdictions. Tax years that remain open and subject to
examination related to state and foreign jurisdictions are not
considered to be material or will be indemnified under the Merger
Agreement. Additionally, due to statute of limitations expirations
and potential audit settlements, it is reasonably possible that
approximately $55.0 million of currently remaining unrecognized
tax positions, each of which are individually insignificant, may be
effectively settled by March 31, 2012.
14. Employee Benefit Plans
DE F inE D COnTriB uTiOn PL An
The Company sponsors the Employees’ Capital Accumulation
Plan, or ECAP, which is a qualified defined contribution plan that
covers eligible U.S. and international employees. ECAP provides
for distributions, subject to certain vesting provisions, to
participants by reason of retirement, death, disability, or
termination of employment. Total expense under ECAP for fiscal
2011, fiscal 2010, the eight months ended March 31, 2009, and
the four months ended July 31, 2008 was $224.8 million,
$210.3 million, $116.8 million, and $53.3 million, respectively,
and the Company-paid contributions were $223.7 million,
$196.3 million, $127.3 million, and $32.9 million, respectively.
Deferred tax balances reflect the impact of temporary differences
between the carrying amount of assets and liabilities and their
tax basis and are stated at the tax rates expected to be in effect
when taxes are actually paid or recovered. A valuation allowance
is provided against deferred tax assets when it is more likely than
not that some or all of the deferred tax asset will not be realized.
In determining if the Company’s deferred tax assets are realizable,
management considers all positive and negative evidence,
including the history of generating book earnings, future reversals
of existing taxable temporary differences, projected future taxable
income, as well as any tax planning strategies. The Company
recognized a valuation allowance of $42.4 million as of March 31,
2011 and 2010 against the deferred tax asset associated with
the capital loss carryforward. For all other deferred tax assets,
the Company believes it is more likely than not that the results of
future operations will generate sufficient taxable income to realize
these deferred tax assets.
At March 31, 2011 and 2010, the Company had approximately
$148.8 million and $367.6 million, respectively, of net operating
loss, or NOL, carryforwards, which will begin to expire in 2028.
As discussed in Notes 1 and 4, Holding acquired the Predecessor
in a nontaxable merger effective August 1, 2008. The Company
believes that it is more likely than not that the Company will
generate sufficient taxable income to fully realize the tax benefit
of our NOL carryforwards over the next two years.
unCE rTAin TA x POSiTiOn S
The Company maintains reserves for uncertain tax positions
related to tax benefits recognized in prior years. These reserves
involve considerable judgment and estimation and are evaluated
by management based on the best information available including
changes in tax regulations and other information. As of March 31,
2011 and 2010, the Company has recorded $90.5 million and
$100.2 million, respectively, of reserves for uncertain tax positions,
of which approximately $52.7 million and $62.4 million, respectively,
may be indemnified under the remaining available DPO.
Included in the balance of reserves for uncertain tax positions
at March 31, 2011 and 2010 are potential tax benefits of
$77.3 million and $86.0 million, respectively, that, if recognized,
would impact the effective tax rate. A reconciliation of the
beginning and ending amount of potential tax benefits for the
periods presented are as follows:
March 31,
Beginning of year
Settlements with taxing authorities
Lapse of statute of limitations
End of year
2011
2010
$85,982
(129)
(8,549)
$87,867
(1,885)
–
$77,304
$85,982
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Notes to Consolidated Financial Statements
DE F inE D B E nE F iT PL An AnD OTHE r POSTrE TirE ME nT
B E nE F iT PL An S
Assumed healthcare cost trend rates for the Officer Medical Plan
at March 31, 2011 and 2010 were as follows:
The Company maintains and administers a defined benefit
retirement plan and a postretirement medical plan for current,
retired, and resigned Officers.
The Company established a non-qualified defined benefit plan
for all Officers in May 1995, or Retired Officers’ Bonus Plan,
which pays a lump-sum amount of $10,000 per year of service
as an Officer, provided the Officer meets retirement vesting
requirements. The Company also provides a fixed annual
allowance after retirement to cover financial counseling and
other expenses. The Retired Officers’ Bonus Plan is not salary
related, but rather is based primarily on years of service.
In addition, the Company provides postretirement healthcare
benefits to former or active Officers under a medical indemnity
insurance plan, with premiums paid by the Company. This plan
is referred to as the Officer Medical Plan.
The Company recognizes a liability for the defined benefit plans’
underfunded status, measures the defined benefit plans’
obligations that determine its funded status as of the end of the
fiscal year, and recognizes as a component of accumulated other
comprehensive income (loss) the changes in the defined benefit
plans’ funded status that are not recognized as components of
net periodic benefit cost.
The components of net postretirement medical expense for the
Officer Medical Plan were as follows:
The Company
Predecessor
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
Service cost
Interest cost
$3,363
2,569
$2,682
2,269
$2,325
1,395
$÷«755
666
Total postretirement
medical expense
$5,932
$4,951
$3,720
$1,421
The weighted-average discount rate used to determine the year-
end benefit obligations were as follows:
The Company
Predecessor
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
Officer Medical Plan
Retired Officers’
Bonus Plan
5.75%
5.75%
5.75%
5.75%
6.50%
6.50%
6.50%
6.50%
Pre-65 initial rate
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2011
8.0%
5.0%
2018
2010
8.0%
5.0%
2017
Assumed healthcare cost trend rates have a significant effect on
the amounts reported for the healthcare plans. A one-percentage-
point change in assumed healthcare cost trend rates calculated
as of March 31, 2011 would have the following effects:
Effect on total of service and interest cost
Effect on postretirement benefit obligation
1% Increase
1% Decrease
$1,017
$7,793
$÷«(827)
$(6,408)
Total pension expense, consisting of service and interest,
associated with the Retired Officers’ Bonus Plan was $864,000,
$800,000, $800,000, and $300,000 for fiscal 2011, fiscal
2010, eight months ended March 31, 2009, and four months
ended July 31, 2008, respectively. Benefits paid associated with
the Retired Officers’ Bonus Plan were $647,000, $300,000,
$600,000, and $400,000 for fiscal 2011, fiscal 2010, eight
months ended March 31, 2009, and four months ended July 31,
2008, respectively. The end-of-period benefit obligation of
$5.2 million and $5.0 million as of March 31, 2011 and 2010,
respectively, is included in postretirement obligations in the
accompanying consolidated balance sheets.
Accumulated other comprehensive loss as of March 31, 2011,
includes unrecognized net actuarial loss of $2.7 million, net of
taxes of $1.1 million, that have not yet been recognized in net
periodic pension cost for the Retired Officers’ Bonus Plan and
the Officer Medical Plan. Accumulated other comprehensive loss
as of March 31, 2010, includes unrecognized net actuarial loss
of $7.2 million, net of taxes of $2.9 million, that have not yet
been recognized in net periodic pension cost for the Retired
Officers’ Bonus Plan and the Officer Medical Plan. A primary
driver for the net actuarial loss of $7.2 million in fiscal 2010 was
the change in the actuarial discount rate from 6.50% to 5.75%.
The amounts in accumulated other comprehensive income expected
to be recognized as components of net periodic benefit (cost) in
fiscal 2012 are $8.5 million of net gain (loss), zero net prior service
cost (credit), and zero net transition asset (obligation).
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Notes to Consolidated Financial Statements
The changes in the benefit obligation, plan assets, and funded
status of the Officer Medical Plan were as follows:
The expected future medical benefit payments and contributions
are as follows:
The Company
Predecessor
For the Fiscal Year Ending March 31,
Officer Medical Plan Benefits
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
$45,455
3,363
2,569
3,053
(1,687)
$35,577
2,682
2,270
6,673
(1,747)
$32,157
2,325
1,395
797
(1,097)
$32,605
755
666
(1,518)
(351)
2012
2013
2014
2015
2016
2017–2021
$÷1,703
1,966
2,194
2,527
2,879
22,208
15. Other Long-Term Liabilities
$52,753
$45,455
$35,577
$32,157
Other long-term liabilities consisted of the following:
Benefit obligation,
beginning of the
year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Benefit obligation,
end of the year
Changes in plan
assets
Fair value of plan
assets, beginning
of the year
Employer
contributions
Benefits paid
Fair value of plan
assets, end of
the year
$÷÷÷÷«–
$÷÷÷÷«–
$÷÷÷÷«–
$÷÷÷÷«–
1,687
(1,687)
1,747
(1,747)
1,097
(1,097)
351
(351)
$÷÷÷÷«–
$÷÷÷÷«–
$÷÷÷÷«–
$÷÷÷÷«–
As of March 31, 2011 and 2010, the unfunded status of
the Officer Medical Plan was $52.8 million and $45.5 million,
respectively.
The postretirement benefit liability for the Officer Medical Plan
is included in other long-term liabilities in the accompanying
consolidated balance sheets.
F unDE D STATu S FOr DE F inE D B E nE F iT PL An S
Generally, annual contributions are made at such times and in
amounts as required by law and may, from time to time, exceed
minimum funding requirements. The Retired Officers’ Bonus Plan
is an unfunded plan and contributions are made as benefits
are paid, for all periods presented. As of March 31, 2011 and
2010, there were no plan assets for the Retired Officers’ Bonus
Plan and therefore, the accumulated liability of $5.2 million
and $5.0 million, respectively, is unfunded. The liability will be
distributed in a lump-sum payment as each Officer retires.
March 31,
2011
2010
Deferred rent
Deferred compensation
Stock-based compensation
Deferred payment obligation
Postretirement obligation
Other
$÷45,878
22,408
31,392
38,161
57,997
–
$÷10,255
11,289
27,432
20,028
50,464
292
Total other long-term liabilities
$195,836
$119,760
In fiscal 2011 and 2010, the Company recorded a stock-based
compensation liability of $40.4 million and $34.4 million,
respectively, including $9.0 million and $7.0 million, respectively,
expected to be paid within one year, related to the reduction in
stock option exercise price associated with the December 2009
dividend. Options vested and not yet exercised that would have
had an exercise price below zero as a result of the dividend were
reduced to one cent, with the remaining reduction to be paid in
cash upon exercise of the options. Refer to Note 17 for further
discussion of the December 2009 dividend.
The Company maintains a deferred compensation plan, or EPP,
established in January 2009, for the benefit of certain employees.
The EPP allows eligible participants to defer all or a portion of
their annual performance bonus, reduced by amounts withheld for
the payment of taxes or other deductions required by law. The
Company makes no contributions to the EPP, but maintains
participant accounts for deferred amounts and interest earned.
The amounts deferred into the EPP will earn interest at a rate of
return indexed to the results of the Company’s growth as defined
by the EPP. In each subsequent year, interest will be compounded
on the total deferred balance. Employees must leave the money
56 Booz Allen Hamilton Holding Corporation
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in the EPP until 2014. The deferred balance generally will be
paid within 180 days of the final determination of the interest to
be accrued for 2014, upon retirement, or termination. As of
March 31, 2011 and 2010, the Company’s liability associated
with the EPP was $22.4 million and $11.3 million, respectively.
16. Stockholders’ Equity
STOCk SPLiT
On September 21, 2010, the Company’s Board of Directors
approved an amended and restated certificate of incorporation
that was filed on November 8, 2010, thereby effecting a ten-for-
one stock split of all the outstanding shares of Class A Common
Stock, Class B Non-Voting Common Stock, Class C Restricted
Common Stock, and Class E Special Voting Common Stock. Par
value for Class A Common Stock, Class B Non-Voting Common
Stock, and Class C Restricted Common Stock remained at
$0.01 par value per share. Par value for Class E Special Voting
Stock was split ten-for-one to become $0.003 per share. All
issued and outstanding common stock and stock options and
per share amounts of the Company contained in the financial
statements have been retroactively adjusted to reflect this
stock split for all periods presented.
The amended and restated certificate of incorporation also
eliminated the Class D Merger Rolling Common Stock and the
Class F Non-Voting Restricted Common Stock.
COMMOn S TOCk
Holders of Class A Common Stock, Class C Restricted Common
Stock, Class D Merger Rolling Common Stock, and Class E
Special Voting Common Stock are entitled to one vote for each
share as a holder. The holders of the Voting Common Stock
shall vote together as a single class. The holders of Class B
Non-Voting Common Stock and Class F Non-Voting Restricted
Common Stock have no voting rights.
During fiscal 2011, 702,930 shares of Class A Common Stock
held by an Officer were exchanged for the equivalent number of
shares of Class B Non-Voting Common Stock, and 702,930
shares of Class E Special Voting Common Stock were issued to
a family trust of the same Officer for an aggregate consideration
of $2,109.
Class C Restricted Common Stock is restricted in that a holder’s
shares vest as set forth in the Rollover Plan. Refer to Note 17
for further discussion of the Rollover Plan.
Class E Special Voting Common Stock represents the voting
rights that accompany the new options program. The new options
program has a fixed vesting and exercise schedule to comply
with IRS section 409(a). Upon exercise, the option will convert
to Class A Common Stock, and the corresponding Class E
Special Voting Common Stock will be repurchased by the
Company and retired. Refer to Note 17 for further discussion
of the new options program.
Each share of common stock, except for Class E Special Voting
Common Stock, is entitled to participate equally, when and if
declared by the Board of Directors from time to time, such
dividends and other distributions in cash, stock, or property
from the Company’s assets or funds become legally available
for such purposes subject to any dividend preferences that may
be attributable to preferred stock that may be authorized. The
Company’s ability to pay dividends to shareholders is limited
as a practical matter by restrictions in the credit agreements
governing the Senior Credit Facilities.
The authorized and unissued Class A Common Stock shares
are available for future issuance upon share option exercises,
without additional stockholder approval.
PrE F E rrE D STOCk
The Company is authorized to issue 54,000,000 shares of
Preferred Stock, $0.01 par value per share, the terms and
conditions of which are determined by the Board of Directors
upon issuance. The rights, preferences, and privileges of
holders of common stock are subject to, and may be adversely
affected by, the rights of holders of any shares of preferred
stock that the Company may designate and issue in the future.
At March 31, 2011 and 2010, there were no shares of preferred
stock outstanding.
PrE DECE S SOr rE DE E MAB LE COMMOn S TOCk
Prior to the Merger Transaction, the Predecessor’s authorized
capital stock as of March 31 and July 31, 2008, consisted of
5,000 shares of Common Stock, 5,000 shares of Class A
Non-Voting Common Stock, 4,000 shares of Class B Common
Stock, and 1,000 shares of Class B Non-Voting Common Stock.
Each share of Common Stock and each share of the Class B
Common Stock was entitled to one vote. Pursuant to the terms
of the Predecessor’s Officer Stock Rights Plan, shares of
Common Stock and shares of Class A Non-Voting Common
Stock were redeemable at the book value per share at the
option of the holder.
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17. Stock-Based Compensation
The following table summarizes stock-based compensation
expense recognized in the consolidated statements of
operations:
The Company
Predecessor
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
$14,073
$23,652
$20,479
$÷÷÷÷÷«–
34,605
48,245
41,580
511,653
Cost of revenue
General and
administrative
expenses
Total
$48,678
$71,897
$62,059
$511,653
As of March 31, 2011 and 2010, there was $40.6 million and
$75.6 million, respectively, of total unrecognized compensation
cost related to unvested stock compensation agreements. The
unrecognized compensation cost as of March 31, 2011 is
expected to be fully amortized over the next 5.25 years.
OF F iCE rS’ rOLLOvE r STOCk PL An
The Rollover Plan was adopted as a mechanism to enable the
exchange by the Officers of the Company’s U.S. government
consulting business who were required to exchange (and those
commercial officers who elected to exchange subject to an
aggregate limit) a portion of their previous equity interests in
the Predecessor for equity interests in the Company. Among the
equity interests that were eligible for exchange were common
stock and stock rights, both vested and unvested.
The stock rights that were unvested, but would have vested in
2008, were exchanged for 2,028,270 shares of new Class C
Restricted Common Stock, or Class C Restricted Stock, issued
by the Company at an estimated fair value of $10.00 at August 1,
2008. The aggregate grant date fair value of the Class C
Restricted Stock issued for $20.3 million is being recorded as
expense over the vesting period. Total compensation expense
recorded in conjunction with this Class C Restricted Stock for
fiscal 2011, fiscal 2010, and the eight months ended March 31,
2009 was $3.9 million, $7.1 million, and $7.9 million,
respectively. As of March 31, 2011 and 2010, unrecognized
compensation cost related to the non-vested Class C Restricted
Stock was $1.4 million and $5.3 million, respectively, and is
expected to be recognized over 2.25 and 3.25 years, respectively.
For fiscal 2011 and 2010, 988,980 and 494,490 shares of
Class C Restricted Stock vested, respectively. At March 31, 2011
and 2010, 3,971,730 shares of Class C Restricted Stock were
authorized but unissued under the Plan. Notwithstanding the
foregoing, Class C Restricted Stock was intended to be issued
only in connection with the exchange process described above.
In addition to the conversion of the stock rights that would
have vested in 2008 to Class C Restricted Stock, new options,
or New Options, were issued in exchange for old stock rights
held by the Predecessor’s U.S. government consulting partners
that were issued under the stock rights plan that existed for
the Predecessor’s Officers prior to the closing of the Merger
Transaction. The New Options were granted based on the
retirement eligibility of the Officer. For the purposes of the New
Options, there are two categories of Officers — retirement eligible
and non-retirement eligible. New Options granted to retirement
eligible Officers vest in equal annual installments on June 30,
2009, 2010, and 2011.
The following table summarizes the exercise schedule for
Officers who were deemed retirement eligible. Exercise schedules
are based on original vesting dates applicable to the stock rights
surrendered:
As of June 30,
2009
2010
2011
2012
2013
2014
Percentage of New Options to be Exercised
Retirement eligible:
Original vesting date of
June 30, 2009
Original vesting date of
June 30, 2010
Original vesting date of
June 30, 2011
60%
–
–
20%
50%
–
20%
20%
20%
–
20%
20%
–
10%
30%
–
–
30%
Those individuals who were considered retirement eligible
also were given the opportunity to make a one-time election
to be treated as non-retirement eligible. The determination of
retirement eligibility was made as of a fixed period of time
and cannot be changed at a future date.
New Options granted to Officers who were categorized as non-
retirement eligible will vest 50% on June 30, 2011, and 25%
on June 30, 2012 and 2013.
The following table summarizes the exercise schedule for
Officers who were deemed non-retirement eligible. Exercise
schedules are based on original vesting dates applicable to
the stock rights surrendered:
As of June 30,
2011
2012
2013
2014
2015
Percentage of New Options to be Exercised
Non-retirement eligible:
Original vesting date of
June 30, 2011
Original vesting date of
June 30, 2012
Original vesting date of
June 30, 2013
20%
–
–
20%
25%
–
20%
25%
33%
20%
25%
33%
20%
25%
34%
58 Booz Allen Hamilton Holding Corporation
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If a holder’s employment with the Company were to terminate
without cause, by reason of disability, or Company approved
termination, these shares will continue to vest as if the holder
continued to be employed as a retirement eligible or non-
retirement eligible employee, as the case may be. In the event
that a holder’s employment is terminated due to death, any
unvested New Options shall immediately vest in full. In the
event of a holder’s termination of employment due to death,
disability, or a Company approved termination, the Company
may, in its sole discretion, convert all or a portion of unexercised
New Options into the right to receive upon vesting and exercise,
in lieu of Company common stock, a cash payment pursuant
to a prescribed formula. The aggregate grant date fair value of
the New Options issued of $127.1 million is being recorded as
compensation expense over the vesting period. Total compensation
expense recorded in conjunction with the New Options for the
fiscal 2011, fiscal 2010, and the eight months ended March 31,
2009 was $27.3 million, $42.2 million, and $42.7 million,
respectively. The total fair value of New Options vested during
fiscal 2011 and 2010 was $10.4 million and $10.4 million,
respectively. As of March 31, 2011 and 2010, unrecognized
compensation cost related to the non-vested New Options was
$14.7 million and $42.0 million, respectively, which is expected
to be recognized over 2.25 and 3.25 years, respectively.
EquiT Y inCE nTivE PL An
The EIP was created in connection with the Merger Transaction
for employees and directors of Holding. The Company created
a pool of options, or EIP Options, to draw upon for future grants
that would be governed by the EIP. All options under the EIP
are exercisable, upon vesting, for shares of common stock of
Holding. The grants of options under the EIP were as follows:
Date of grant
August 17, 2010
April 28, 2010
February 15, 2010
January 27, 2010
May 7, 2009
November 19, 2008
Number of
Options Granted
50,000
1,700,000
140,000
470,000
1,420,000
11,900,000
Estimated
Fair Value of
Common Stock
at Time of Grant
$16.85
12.80
11.49
11.49
11.81
10.00
On November 16, 2010 the Board of Directors approved the grant
of 260,000 options under the amended EIP. On March 1, 2011,
the Board of Directors approved additional grants of 430,000
options under the amended EIP, however, the grant date for these
options was not established until the first quarter of fiscal 2012.
Stock options are granted at the discretion of the Board of
Directors or its Compensation Committee and expire ten years
from the date of the grant. Options generally vest over a five-year
period based upon required service and performance conditions.
The Company calculates the pool of additional paid-in capital
associated with excess tax benefits using the “simplified method.”
The aggregate grant date fair value of the EIP Options issued
during fiscal 2011, fiscal 2010, and the eight months ended
March 31, 2009, was $15.3 million, $10.6 million, and
$51.5 million, respectively, and is being recorded as expense
over the vesting period. Total compensation expense recorded in
conjunction with options outstanding under the EIP for fiscal
2011, fiscal 2010, and the eight months ended March 31, 2009
was $17.4 million, $22.4 million, and $11.5 million, respectively.
The total fair value of EIP Options vested during fiscal 2011 and
2010 was $12.7 million and $10.1 million, respectively. As of
March 31, 2011 and 2010, unrecognized compensation cost
related to the non-vested EIP Options was $24.5 million and
$28.1 million, respectively, and is expected to be recognized over
5.25 and 4.75 years, respectively. As of March 31, 2011 and
2010, there were 12,130,240 and 7,633,600 options,
respectively, available for future grant under the EIP.
ADOP TiOn OF AnnuAL inCE nTivE PL An
On October 1, 2010, the Board of Directors adopted a new
compensation plan in connection with the initial public offering
to more appropriately align the Company’s compensation
programs with those of similarly situated companies. The amount
of the annual incentive payment will be determined based on
performance targets established by the Board of Directors and a
portion of the bonus may be paid in the form of equity (including
stock and other awards under the EIP). If the Board of Directors
elects to make payments in equity, the value of the overall award
will be increased by 20%, related to the portion paid in equity.
Equity awards will vest based on the passage of time, subject to
the Officer’s continued employment by the Company. The portion
to be paid in the form of equity will be recognized in the
accompanying consolidated statements of operations based on
grant date fair value over the vesting period of three years and
is estimated to be valued at $8.3 million for the deferred bonus
earned in fiscal 2011. The portion to be paid in cash is accrued
ratably during the fiscal year in which the employees provide
service and paid out during the first quarter of the subsequent
fiscal year.
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gr AnTS OF CL AS S A rE STriCTE D COMMOn S TOCk
On April 28, 2010, the Compensation Committee of the Board
of Directors granted 11,730 Class A Common Stock with certain
restrictions, or Class A Restricted Stock, to certain Board members
for their continued service to the Company. These shares vest
in equal installments on September 30, 2010 and March 31,
2011, and were issued with an aggregate grant date fair value of
$150,000. Total compensation expense recorded in conjunction
with this grant for fiscal 2011 was $150,000. There were no
additional shares authorized to be issued under the April 2010
Compensation Committee grant.
On May 7, 2009, the Compensation Committee of the Board
of Directors granted 19,070 Class A Restricted Stock to
certain unaffiliated Board members. These shares vest in
equal installments on May 7, 2009, September 30, 2009, and
March 31, 2010, and were issued with an aggregate grant date
fair value of $225,000. Total compensation expense recorded
in conjunction with this grant for fiscal 2010 was $225,000.
There were no additional shares authorized to be issued under
the May 2009 Compensation Committee grant.
PrE DECE S SOr STOCk PL An
Prior to the Merger Transaction, the Predecessor’s Officer Stock
Rights Plan enabled Officers to purchase shares of Class A
Common Stock. The Board of Directors had sole discretion to
establish the book value applicable to shares of common stock to
be purchased by Officers upon the exercise of their stock rights.
Rights were granted in connection with the Class B Common
Stock to purchase shares of Class A Common Stock, and vested
one-tenth each year based on nine years of continuous service,
with the first tenth vesting immediately. The exercise price for
the first tenth was equal to the book value of the Predecessor’s
Class A Common Stock on the grant date, and for the remaining
rights the exercise price was equal to 50% of the book value on
the grant date. Rights not exercised upon vesting were forfeited.
Rights also accelerated upon retirement, in which case the
exercise price was equal to 100% of the grant date book value.
Effective July 30, 2008, the Predecessor modified the Officer
Stock Rights Plan to provide for accelerated vesting of stock
rights in anticipation of a change in control of the Predecessor.
All unvested stock rights were accelerated and vested with
the exception of rights that would be exchanged for equity
instruments in Holding after the Merger Transaction. Any stock
rights that were due to vest in June 2008 were exercised at a
price of 50% of the grant date book value and converted to
Class A Common Stock on July 30, 2008. The remaining stock
rights that were accelerated and vested were subsequently
exercised at 100% of the grant date book value and converted
to Class A Common Stock on July 30, 2008.
The Predecessor accounted for the rights granted under the
Officer Stock Rights Plan as liability awards, which are marked
to intrinsic value for the life of the award, using an accelerated
method, through stock-based compensation expense.
Stock-based compensation expense of $193.5 million related
to the acceleration of stock rights, and $318.2 million related
to the mark-up of redeemable common shares, was recorded
during the four months ended July 31, 2008.
ME THODOLOgY
The Company uses the Black-Scholes option-pricing model to
determine the estimated fair value for stock-based awards. The
fair value of the Company stock on the date of the New Option
grant was determined based on the fair value of the Merger
Transaction involving Booz Allen Hamilton, Inc. and the Company
that occurred on July 31, 2008. For all grants of options through
the initial public offering, the fair value of the Company’s stock
was determined by an independent valuation specialist. For all
grants of options subsequent to the initial public offering, the
fair value of the Company’s stock was based on the Company’s
closing price on the New York Stock Exchange.
As the Company has no plans to issue regular dividends, a
dividend yield of zero was used in the Black-Scholes option-
pricing model. Expected volatility was calculated as of each grant
60 Booz Allen Hamilton Holding Corporation
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date based on reported data for a peer group of publicly traded
companies for which historical information was available. The
Company will continue to use peer group volatility information
until historical volatility of the Company can be regularly measured
against an open market to measure expected volatility for
future option grants. The risk-free interest rate is determined by
reference to the U.S. Treasury yield curve rates with the remaining
term equal to the expected life assumed at the date of grant. The
average expected life was estimated based on internal qualitative
and quantitative factors. Forfeitures were estimated based on
the Company’s historical analysis of Officer attrition levels and
actual forfeiture rates by grant date.
The weighted-average assumptions used in the Black-Scholes
option-pricing model for stock option awards were as follows:
Through Fiscal Year Ended March 31, 2011
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Rollover Stock
Plan New Options
(Retirement)
Rollover Stock
Plan New
Options (Non-
Retirement)
0.0%
33.6%
2.76%
2.98
0.0%
36.0%
3.26%
5.29
Equity
Incentive
Plan
0.0%
40.0%
2.63%
7.02
The weighted-average grant-date fair values of retirement
eligible New Options, non-retirement eligible New Options, and
EIP Options were $8.54, $8.63, and $4.98, respectively.
DECE MB E r 2009 DiviDE nD AnD J u LY 2009 DiviDE nD
On December 7, 2009, the Company’s Board of Directors
approved a dividend of $4.642 per share paid to holders of
record as of December 8, 2009 of Class A Common Stock,
Class B Non-Voting Common Stock, and Class C Restricted
Common Stock. This dividend totaled $497.5 million. As
required by the Rollover Plan and the EIP, and in accordance
with applicable tax laws and regulatory guidance, the exercise
price per share of each outstanding New Option and EIP Option
was reduced in an amount equal to the value of the dividend.
The Company evaluated the reduction of the exercise price
associated with the dividend issuance. Both the Rollover and EIP
plans contained mandatory antidilution provisions requiring
modification of the options in the event of an equity restructuring,
such as the dividends declared in July and December 2009. In
addition, the structure of the modifications, as a reduction in the
exercise price of options, did not result in an increase to the fair
value of the awards. As a result of these factors, the Company
did not record incremental compensation expense associated
with the modifications of the options as a result of the July and
December 2009 dividends. Options vested and not yet exercised
that would have had an exercise price below zero as a result of
the dividend were reduced to one cent. The difference between
the one cent exercise price and the reduced value for shares
vested and not yet exercised of approximately $54.4 million will
be accrued by the Company as the options vest and will be paid
in cash upon exercise of the options, subject to the continued
vesting of the options. As of March 31, 2011 and 2010, the
Company reported $31.4 million and $27.4 million, respectively,
in other long-term liabilities and $9.0 million and $7.0 million,
respectively, in accrued compensation and benefits in the
consolidated balance sheets based on the proportion of the
potential payment of $54.4 million which is represented by vested
options for which stock-based compensation expense has been
recorded. The Company paid $7.0 million to option holders in
fiscal 2011 to settle the New Options exercised during the fiscal
year, which is included in stock option exercises in cash flows from
financing activities in the consolidated statements of cash flows.
On July 27, 2009, the Company’s Board of Directors approved
a dividend of $1.087 per share paid to holders of record as of
July 29, 2009 of the Company’s Class A Common Stock, Class B
Non-Voting Common Stock, and Class C Restricted Common
Stock. This dividend totaled $114.9 million. In accordance with
the Officers’ Rollover Stock Plan, the exercise price per share of
each outstanding option, including New Options and EIP options,
was reduced in compliance with applicable tax laws and regulatory
guidance. Additionally, the Company evaluated the reduction of
the exercise price associated with the dividend issuance. As a
result, the Company did not record any additional incremental
compensation expense associated with the dividend and
corresponding decrease in the exercise and fair value of all
outstanding options.
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The following table summarizes stock option activity for the
periods presented:
The following table summarizes unvested stock options for the
periods presented:
Officers’ rollover Stock Plan new Options
Retirement eligible:
Options outstanding at March 31, 2010
Granted
Forfeited
Expired
Exercised
Number of
Options
Weighted Average
Exercise Price
5,828,340
–
–
–
1,699,930
$÷0.01*
–
–
–
0.01
Officers’ rollover Stock Plan
new Options
Retirement eligible:
Unvested at March 31, 2010
Granted
Vested
Forfeited
Number of
Options
Weighted
Average Fair
Value
Aggregate
Intrinsic Value
on Grant Date
4,856,950
–
2,428,470
–
$12.86
–
4.27*
–
$40,995
–
10,370*
–
Options outstanding at March 31, 2011
4,128,410
$÷0.01
Unvested at March 31, 2011
2,428,480
$21.46
Non-retirement eligible:
Options outstanding at March 31, 2010
Granted
Forfeited
Expired
Exercised
7,517,500
–
–
–
–
$÷0.01*
–
–
–
–
Non-retirement eligible:
Unvested at March 31, 2010
Granted
Vested
Forfeited
7,517,500
–
–
–
$10.00
–
–
–
$62,553
–
–
–
Options outstanding at March 31, 2011
7,517,500
$÷0.01
Unvested at March 31, 2011
7,517,500
$10.00
Equity incentive Plan Options
Options outstanding at March 31, 2010
Granted
Forfeited
Expired
Exercised
13,064,970
2,010,000
624,140
–
2,675,105
$÷4.80
13.45
4.38
–
4.40
Equity incentive Plan Options
Unvested at March 31, 2010
Granted
Vested
Forfeited
10,826,040
2,010,000
2,642,170
624,140
$÷4.91
13.45
4.82
4.38
$÷÷÷÷«–
–
–
–
Unvested at March 31, 2011
9,569,730
$÷6.76
Options outstanding at March 31, 2011
11,775,725
$÷6.39
* Reflects adjustment for $4.642 dividend issued December 11, 2009, and $1.087 dividend issued
July 27, 2009.
* Reflects adjustment for $4.642 dividend issued December 11, 2009, and $1.087 dividend issued
July 27, 2009.
The following table summarizes stock options outstanding at March 31, 2011:
range of Exercise Prices
Officers’ rollover Stock Plan
$0.01
Equity incentive Plan
$4.27–$20.00
Stock Options
Outstanding
Weighted Average
Exercise Price
Weighted
Average Remaining
Contractual Life
(In years)
Stock Options
Exercisable
Weighted Average
Exercise Price
Weighted
Average Remaining
Contractual Life
(In years)
11,645,910
11,775,725
$0.01*
$6.39
1.75
1,699,930
7.94
2,205,895
$0.01
$4.77
0.38
7.70
* Reflects adjustment for $4.642 dividend issued December 11, 2009, and $1.087 dividend issued July 27, 2009.
The grant date aggregate intrinsic value for New Options outstanding and New Options exercisable at March 31, 2011 was
$49.7 million and $726,000, respectively.
62 Booz Allen Hamilton Holding Corporation
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Notes to Consolidated Financial Statements
18. Related-Party Transactions
As discussed in Note 1, Carlyle acquired all of the issued and
outstanding stock of the Company. From time to time, and in the
ordinary course of business: (1) other Carlyle portfolio companies
engage the Company as a subcontractor or service provider,
and (2) the Company engages other Carlyle portfolio companies
as subcontractors or service providers. Revenue and cost
associated with these related parties for fiscal 2011 were
$6.3 million and $5.3 million, respectively. Revenue and cost
associated with these related party transactions for fiscal 2010
were $15.1 million and $13.5 million, respectively. Revenue
and cost associated with these related party transactions for
the eight months ended March 31, 2009 were immaterial.
On July 31, 2008, the Company entered into a management
agreement, or Management Agreement, with TC Group V US, L.L.C.,
or TC Group, a company affiliated with Carlyle. In accordance with
the Management Agreement, TC Group provides the Company
with advisory, consulting, and other services and the Company
pays TC Group an aggregate annual fee of $1.0 million plus
expenses. In addition, the Company made a one-time payment
to TC Group of $20.0 million for investment banking, financial
advisory, and other services provided to the Company in
connection with the Acquisition. For fiscal 2011, fiscal 2010,
and the eight months ended March 31, 2009, the Company
incurred $1.0 million, $1.0 million, and $700,000, respectively,
in advisory fees.
Pursuant to the spin-off described in Note 1, effective July 31,
2008, the Company entered into a transition services agreement,
or TSA, and a collaboration agreement, or CA, with Booz &
Company Inc., or Booz & Co. The TSA required the Company and
Booz & Co. to provide to each other certain support services for
up to 15 months following July 31, 2008. Revenue and expenses
were recognized as incurred.
The CA requires the Company and Booz & Co. to provide to
each other the services of personnel that were either staffed
on existing contracts as of July 31, 2008, or contemplated to
be staffed in proposals submitted prior to but accepted after
such date. The CA will remain in effect until the termination or
expiration of the applicable contracts. Revenue and expenses
are recognized as incurred.
Included in the accompanying consolidated balance sheets
and statements of operations are support services between the
Company and Booz & Co. under terms of the TSA and CA, as well
as occupancy charges based on license agreements:
As of March 31, 2011:
Accounts receivable
Accounts payable
As of March 31, 2010:
Accounts receivable
Accounts payable
For the fiscal year ended March 31, 2011:
Revenue
Expenses
For the fiscal year ended March 31, 2010:
Revenue
Expenses
For the eight months ended March 31, 2009:
Revenue
Expenses
$÷÷«187
$÷÷÷«91
$÷÷«376
$÷1,318
$÷1,438
$÷1,936
$÷3,712
$÷2,889
$27,652
$27,785
There were no related-party transactions during the four months
ended July 31, 2008.
19. Commitments and Contingencies
LE ASE S
The Company leases office space under noncancelable operating
leases that expire at various dates through 2021. The terms for
the facility leases generally provide for rental payments on a
graduated scale, which are recognized on a straight-line basis
over the terms of the leases, including reasonably assured
renewal periods, from the time the Company controls the leased
property. Lease incentives are recorded as a deferred credit
and recognized as a reduction to rent expense on a straight-line
basis over the lease term. Rent expense was approximately
$118.4 million, net of $5.8 million of sublease income,
$109.5 million, net of $7.1 million of sublease income,
$68.6 million, net of $10.6 million of sublease income, and
$30.2 million, net of $2.0 million of sublease income for fiscal
2011, fiscal 2010, eight months ended March 31, 2009, and
four months ended July 31, 2008, respectively.
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Notes to Consolidated Financial Statements
Future minimum operating lease payments for noncancelable
operating leases and future minimum noncancelable sublease
rentals are summarized as follows:
For the Fiscal Year Ending March 31,
Operating
Lease Payments
Operating
Sublease Income
2012
2013
2014
2015
2016
Thereafter
$÷85,440
70,783
64,086
54,267
40,600
58,567
$373,743
$÷«989
496
–
–
–
–
$1,485
Rent expense is included in occupancy costs, a component
of general and administrative expenses, as shown on the
consolidated statements of operations, and includes rent,
sublease income from third parties, real estate taxes, utilities,
parking, security, repairs and maintenance, and storage costs.
As a result of the Merger Transaction, the Company assigned a
total of nine leases to Booz & Co. The facilities are located in
New York, New York; Troy, Michigan; Florham Park, New Jersey;
Parsippany, New Jersey; Houston, Texas; Chicago, Illinois;
Cleveland, Ohio; Dallas, Texas; and London, England. Except for
the Cleveland and Dallas leases, which expired, the Company
remains liable under the terms of the original leases should
Booz & Co. default on its obligations. There were no events of
default under these leases as of March 31, 2011 and March 31,
2010. The maximum potential amount of undiscounted future
payments is $47.0 million, and the leases expire at different
dates between February 2012 and March 2017.
gOvE rnME nT COnTr ACTing MAT TE rS
For fiscal 2011, fiscal 2010, eight months ended March 31,
2009, and four months ended July 31, 2008, approximately 97%,
98%, 98%, and 93%, respectively, of the Company’s revenue was
generated from contracts with U.S. government agencies or other
U.S. government contractors. Contracts with the U.S. government
are subject to extensive legal and regulatory requirements and,
from time to time and in the ordinary course of business, agencies
of the U.S. government investigate whether the Company’s
operations are conducted in accordance with these requirements
and the terms of the relevant contracts by using investigative
techniques as subpoenas or civil investigative demands.
U.S. government investigations of the Company, whether related
to the Company’s 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 the Company, or could lead to suspension or debarment
from future U.S. government contracting. Management believes it
has adequately reserved for any losses that may be experienced
from any investigation of which it is aware. The Defense Contract
Management Agency Administrative Contracting Officer has
negotiated annual final indirect cost rates through fiscal year
2006. Audits of subsequent years may result in cost reductions
and/or penalties. Management believes it has adequately
reserved for any losses that may be experienced from any
such reductions and/or penalties. As of March 31, 2011 and
2010, the Company has recorded a liability of approximately
$100.2 million and $72.7 million, respectively, for its current
best estimate of net amounts to be refunded to customers for
potential adjustments from such audits or reviews of contract
costs incurred subsequent to fiscal year 2006.
LiTigATiOn
The Company is involved in legal proceedings and investigations
arising in the ordinary course of business, including those
relating to employment matters, relationships with clients and
contractors, intellectual property disputes, and other business
matters. These legal proceedings seek various remedies,
including monetary damages in varying amounts that currently
range up to $26.2 million or are unspecified as to amount.
Although the outcome of any such matter is inherently uncertain
and may be materially adverse, based on current information,
management does not expect any of the currently ongoing audits,
reviews, investigations, or litigation to have a material adverse
effect on the financial condition and results of operations.
Six former officers and stockholders of the Predecessor who had
departed the firm prior to the Acquisition have filed a total of nine
suits, with original filing dates ranging from July 3, 2008 through
December 15, 2009 (three of which were amended on July 2,
2010 and then further amended into one consolidated complaint
on September 7, 2010) against the Company and certain of the
Company’s current and former directors and officers. Each of the
suits arises out of the Acquisition and alleges that the former
stockholders are entitled to certain payments that they would
have received if they had held their stock at the time of the
Acquisition. Some of the suits also allege that the acquisition
price paid to stockholders was insufficient. The various suits
assert claims for breach of contract, tortious interference with
contract, breach of fiduciary duty, civil Racketeer Influenced and
Corrupt Organizations Act, or RICO, violations, violations of the
64 Booz Allen Hamilton Holding Corporation
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Notes to Consolidated Financial Statements
Employee Retirement Income Security Act, and/or securities and
common law fraud. Two of these suits have been dismissed and
another has been dismissed but the former stockholder has
sought leave to re-plead. Five of the remaining suits are pending
in the United States District Court for the Southern District of
New York and the sixth is pending in the United States District
Court for the Southern District of California. As of March 31,
2011 and 2010, the aggregate alleged damages sought in the six
remaining suits was approximately $348.7 million ($291.5 million
of which is sought to be trebled pursuant to RICO) and
$197.0 million ($140.0 million of which is sought to be trebled
pursuant to RICO), respectively, plus punitive damages, costs,
and fees.
20. Business Segment Information
The Company reports operating results and financial data
in one operating and reportable segment. The Company
manages its business as a single profit center in order to
promote collaboration, provide comprehensive functional service
offerings across its entire client base, and provide incentives
to employees based on the success of the organization as a
whole. Although certain information regarding served markets
and functional capabilities is discussed for purposes of promoting
an understanding of the Company’s complex business, the
Company manages its business and allocates resources at the
consolidated level of a single operating segment.
21. Unaudited Quarterly Financial Data
Revenue
Operating income
Income before income taxes
Net income
Earnings per common share:
Basic (1)
Diluted (1)
Revenue
Operating income
Income before income taxes
Net income
Earnings per common share:
Basic (1)
Diluted (1)
2011 quarters
First
Second
Third
Fourth
$1,341,929
88,745
48,085
28,169
$1,367,214
71,909
26,276
14,817
$1,389,176
75,131
21,943
23,638
$1,492,977
83,659
31,760
18,070
$÷÷÷÷«0.26
$÷÷÷÷«0.23
$÷÷÷÷«0.14
$÷÷÷÷«0.12
$÷÷÷÷«0.20
$÷÷÷÷«0.18
$÷÷÷÷«0.14
$÷÷÷÷«0.13
2010 Quarters
First
Second
Third
Fourth
$1,229,459
52,351
15,972
8,425
$1,279,257
57,938
21,262
10,810
$1,261,353
40,712
2,696
1,294
$1,352,564
48,553
9,064
4,890
$÷÷÷÷«0.08
$÷÷÷÷«0.08
$÷÷÷÷«0.10
$÷÷÷÷«0.10
$÷÷÷÷«0.01
$÷÷÷÷«0.01
$÷÷÷÷«0.05
$÷÷÷÷«0.04
(1) Earnings per share are computed independently for each of the quarters presented and therefore may not sum to the total for the fiscal year.
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Notes to Consolidated Financial Statements
22. Supplemental Financial Information
STOCk- BASE D COMPE n SATiOn
The following schedule summarizes valuation and qualifying
accounts for the periods presented:
The Company
Predecessor
Fiscal Year
Ended
March 31, 2011
Fiscal Year
Ended
March 31, 2010
Eight Months
Ended
March 31, 2009
Four Months
Ended
July 31, 2008
Allowance for
doubtful accounts:
Beginning balance
Provision for
doubtful
accounts
Charges against
allowance
$÷2,127
$÷1,648
$÷1,959
$÷4,364
230
1,371
2,082
1,038
(1,009)
(892)
(2,393)
(3,443)
Ending balance
$÷1,348
$÷2,127
$÷1,648
$÷1,959
Tax valuation
allowance:
Beginning balance
Purchase
accounting
adjustments
$42,379
$10,056
$16,000
$÷÷÷÷«–
–
32,323
(5,944)
16,000
Ending balance
$42,379
$42,379
$10,056
$16,000
23. Discontinued Operations
As discussed in Note 1, the Predecessor spun off its global
commercial business into a stand-alone entity referred to as
Booz & Company Inc. on July 31, 2008. Accordingly, the following
amounts related to the global commercial business have been
segregated from continuing operations and included in discontinued
operations, net of taxes, in the consolidated statement of
operations for the four months ended July 31, 2008:
Revenue
Operating expenses:
Cost of revenue
General and administrative expenses
Operating loss
Interest expense
Other, net
Loss before income tax benefit
Income tax benefit
Loss from discontinued operations, net of taxes
July 31, 2008
$÷÷438,567
300,652
1,142,880
(1,004,965)
(855)
2,741
1,886
(1,003,079)
154,708
$÷«(848,371)
As discussed in Note 17, the Predecessor’s Officer Stock
Rights Plan enabled Officers of the Predecessor to purchase
shares of stock. The global commercial business recorded stock-
based compensation expense of $427.3 million in general and
administrative expenses related to the acceleration of stock rights
and shadow stock units, and $541.8 million for the mark-up of
redeemable common stock during the four months ended July 31,
2008. The value of the accelerated stock rights and the
redeemable common stock was determined using the price
per share paid in the Merger Transaction.
DE F inE D COnTriB uTiOn PL An S
As discussed in Note 14, the Company has a defined contribution
plan. Total expense under ECAP related to the global commercial
business was $7.6 million for the four months ended July 31, 2008.
DE F inE D B E nE F iT PL An AnD OTHE r POSTrE TirE ME nT
B E nE F iT PL An S
The Predecessor recognized total pension expense of
$500,000, and total postretirement expense of $1.8 million, for
its U.S. employees as a component of loss from discontinued
operations for the four months ended July 31, 2008.
The officers and professional staff of the Predecessor employed
in Germany were covered by a defined benefit pension plan,
or Non-U.S. Plan. As stipulated in the Merger Agreement, the
Company is not liable for the pension obligations associated
with the German Pension Plan. The Predecessor recognized total
pension expense for the Non-U.S. Plan as a component of loss
from discontinued operations of $8.9 million for the four months
ended July 31, 2008.
These plans were transferred to Booz & Co. as new plans as
part of the Merger Transaction.
LE ASE OB LigATiOn S
Rent expense related to the global commercial business,
net of sublease income, was $10.5 million for the four months
ended July 31, 2008.
24. Subsequent Events
After March 31, 2011, the Company a signed a definitive
purchase agreement to sell its state and local government
transportation consulting business for $28.5 million in cash,
subject to certain adjustments. The transaction is expected to
close in the second quarter of fiscal 2012. If the Company
recognizes a gain on the sale, there is potential for a release
of a portion of the deferred tax valuation allowance.
66 Booz Allen Hamilton Holding Corporation
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Non-GAAP Measures
“Adjusted EBITDA” represents net income before income taxes,
net interest and other expense, and depreciation and amortization
and before certain other items, including: (i) certain stock option-
based and other equity-based compensation expenses, (ii)
transaction costs, fees, losses, and expenses, including fees
associated with debt prepayments, (iii) the impact of the
application of purchase accounting, and (iv) any extraordinary,
unusual, or non-recurring items. We prepare Adjusted EBITDA to
eliminate the impact of items it does not consider indicative of
ongoing operating performance due to their inherent unusual,
extraordinary, or non-recurring nature or because they result
from an event of a similar nature.
“Adjusted Net Income” represents net income before: (i) certain
stock option-based and other equity-based compensation
expenses, (ii) transaction costs, fees, losses, and expenses,
including fees associated with debt prepayments, (iii) the impact
of the application of purchase accounting, (iv) adjustments
related to the amortization of intangible assets, (v) amortization
or write-off of debt issuance costs and write-off of original issue
discount, and (vi) any extraordinary, unusual, or non-recurring
items, in each case net of the tax effect calculated using an
assumed effective tax rate. We prepare Adjusted Net Income to
eliminate the impact of items, net of tax, it does not consider
indicative of ongoing operating performance due to their inherent
unusual, extraordinary, or non-recurring nature or because they
result from an event of a similar nature.
“Adjusted Diluted EPS” represents diluted EPS calculated using
Adjusted Net Income as opposed to net income.
“Free Cash Flow” represents the net cash generated from
operating activities less the impact of purchases of property
and equipment.
Booz Allen utilizes and discusses Adjusted Operating Income,
Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS
because management uses these measures for business
planning purposes, including to manage our business against
internal projected results of operations and measure our
performance. Management views Adjusted Operating Income,
Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS
as measures of the core operating business, which exclude the
impact of the items detailed below, as these items are generally
not operational in nature. These non-GAAP measures also provide
another basis for comparing period to period results by excluding
potential differences caused by non-operational and unusual or
non-recurring items. We also utilize and discuss Free Cash Flow
because management uses this measure for business planning
purposes, measuring the cash generating ability of the operating
business, and measuring liquidity generally. We present these
supplemental measures because we believe that these measures
provide investors with important supplemental information with
which to evaluate our performance, long term earnings potential,
or liquidity, as applicable, and to enable them to assess our
performance on the same basis as management. These
supplemental performance measurements may vary from and
may not be comparable to similarly titled measures by other
companies in our industry. Adjusted Operating Income, Adjusted
EBITDA, Adjusted Net Income, Adjusted Diluted EPS, and Free
Cash Flow are not recognized measurements under GAAP and
when analyzing our performance or liquidity, as applicable,
investors should (i) evaluate each adjustment in our reconciliation
of operating and net income to Adjusted Operating Income,
Adjusted EBITDA, and Adjusted Net Income, and cash flows to
Free Cash Flow, and the explanatory footnotes regarding those
adjustments, and (ii) use Adjusted Operating Income, Adjusted
EBITDA, Adjusted Net Income, and Adjusted Diluted EPS, in
addition to, and not as an alternative to operating income, net
income, or diluted EPS as a measure of operating results, with
cash flows in addition to, and not as an alternative to, net cash
generated from operating activities as a measure of liquidity, each
as defined under GAAP. We have defined the aforementioned
non-GAAP measures as follows:
“Adjusted Operating Income” represents operating income
before (i) certain stock option-based and other equity-based
compensation expenses, (ii) the impact of the application of
purchase accounting, (iii) adjustments related to the amortization
of intangible assets, and (iv) any extraordinary, unusual, or
non-recurring items. We prepare Adjusted Operating Income to
eliminate the impact of items it does not consider indicative of
ongoing operating performance due to their inherent unusual,
extraordinary, or non-recurring nature or because they result from
an event of a similar nature.
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Non-GAAP Measures
Below is a reconciliation of Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash
Flow to the most directly comparable financial measure calculated and presented in accordance with GAAP.
(Amounts in thousands, except share and per share data)
Adjusted Operating income
Operating Income
Certain stock-based compensation expense (a)
Purchase accounting adjustments (b)
Amortization of intangible assets (c)
Transaction expenses (d)
Adjusted Operating Income
EBiTDA & Adjusted EBiTDA
Net income
Income tax expense
Interest and other, net
Depreciation and amortization
EBITDA
Certain stock-based compensation expense (a)
Transaction expenses (d)
Purchase accounting adjustments (b)
Adjusted EBITDA
Adjusted net income
Net income
Certain stock-based compensation expense (a)
Transaction expenses (e)
Purchase accounting adjustments (b)
Amortization of intangible assets (c)
Amortization or write-off of debt issuance
costs and write-off of original issue discount
Release of FIN 48 reserves (f)
Adjustments for tax effect (g)
Adjusted Net Income
Adjusted Diluted Earnings Per Share
Weighted-average number of diluted shares outstanding
Adjusted Net Income Per Diluted Share
Free Cash Flow
Net cash provided by operating activities
Less: Purchases of property and equipment
Free Cash Flow
2011
2010
Pro Forma 2009
(Unaudited)
$÷÷÷«319,444
39,947
–
28,641
4,448
$÷÷÷«199,554
68,517
1,074
40,597
3,415
$÷÷÷«÷66,401
82,019
3,077
57,833
–
$÷÷÷«392,480
$÷÷÷«313,157
$÷÷÷«209,330
$÷÷÷«÷84,694
43,370
191,380
80,603
$÷÷÷«÷25,419
23,575
150,560
95,763
$÷÷÷««(49,441)
(25,831)
141,673
106,335
400,047
39,947
4,448
–
295,317
68,517
3,415
1,074
172,736
82,019
19,512
3,077
$÷÷÷«444,442
$÷÷÷«368,323
$÷÷÷«277,344
$÷÷÷«÷84,694
39,947
20,948
–
28,641
$÷÷÷«÷25,419
68,517
3,415
1,074
40,597
$÷÷÷««(49,441)
82,019
–
3,077
57,833
50,102
(10,966)
(55,855)
5,700
–
(47,721)
3,106
–
(58,414)
$÷÷÷«157,511
$÷÷÷«÷97,001
$÷÷÷«÷38,180
127,448,700
116,228,380
105,695,340
$÷÷÷«÷÷÷1.24
$÷÷÷«÷÷÷0.83
$÷÷÷«÷÷÷0.36
$÷÷÷«296,339
(88,784)
$÷÷÷«270,484
(49,271)
$÷÷÷«÷«(6,217)
(46,149)
$«÷÷÷207,555
$÷÷÷«221,213
$÷÷÷««(52,366)
(a) Reflects stock-based compensation expense for options for Class A Common Stock and restricted shares, in each case, issued in connection with the acquisition under the Officer’s Rollover Stock Plan that
was established in connection with the acquisition. Also reflects stock-based compensation expense for Equity Incentive Plan Class A Common Stock options issued in connection with the acquisition under
the Equity Incentive Plan that was established in the connection with the acquisition.
(b) Reflects adjustments resulting from the application of purchase accounting in connection with the acquisition not otherwise included in depreciation and amortization.
(c) Reflects amortization of intangible assets resulting from the acquisition.
(d) Three months ended March 31, 2011 reflects costs related to the modification of our credit facilities in connection with the Refinancing Transaction. Fiscal 2011 reflects debt refinancing costs incurred in
connection with the Refinancing Transaction and certain external administrative and other expenses incurred in connection with the initial public offering. Fiscal 2010 reflects costs related to the
modification of our credit facilities, the establishment of the Tranche C term loan facility under our senior secured credit facilities and the related payment of special dividends.
(e) Three months ended March 31, 2011 reflects costs related to the modification of our credit facilities and prepayment fees associated with early repayments on the mezzanine term loan and credit facilities
in connection with the Refinancing Transaction. Fiscal 2011 reflects debt refinancing costs and prepayment fees incurred in connection with the Refinancing Transaction, as well as certain external
administrative and other expenses incurred in connection with the initial public offering. Fiscal 2010 reflects costs related to the modification of our credit facilities, the establishment of the Tranche C
term loan facility under our senior secured credit facilities and the related payment of special dividends.
(f) Reflects the release of uncertain tax reserves, net of tax.
(g) Reflects tax adjustments at an assumed marginal tax rate of 40%.
68 Booz Allen Hamilton Holding Corporation
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Shareholder Information
Global Reach
ComPany nE ws
Information about Booz Allen Hamilton Holding Corporation and
our operating company Booz Allen Hamilton, including archived
news releases and SEC filings, is available from the company’s
website at www.boozallen.com. Booz Allen’s quarterly earnings
conference calls and other significant investor events are posted
when they occur.
Inquiries from securities analysts, portfolio managers, and
other representatives of institutional investors about Booz Allen
should be directed to:
Curt Riggle
Director of Investor Relations
Phone: 703/377-5332
Email: Riggle_Curt@bah.com
Tr an sf E r agE nT anD rEgisTr ar
BNY Mellon
480 Washington Boulevard
Jersey City, NJ 07310-1900
Phone: 877/296-3711
www.bnymellon.com/shareowner/equityaccess
BNY Mellon maintains the records for our registered shareholders
and can help you with a variety of shareholder-related services at
no charge, including:
• Change of name or address
• Consolidation of accounts
• Duplicate mailings
• Lost stock certificates
• Transfer of stock to another person
• Additional administrative services
You can also access your investor statements online
24 hours a day, seven days a week at www.bnymellon.com/
shareowner/equityaccess.
inDE PE nDE nT rEgisTE rE D Pub liC aCCounTing f irm
Ernst & Young LLP
McLean, VA
Booz Allen Hamilton serves clients wherever their mission
takes us. In the past year, we’ve supported clients on long-term
engagements in Europe, Asia, Southeast Asia, the Middle East,
and the Pacific Rim.
Principal Offices
Huntsville, Alabama
Sierra Vista, Arizona
Troy, Michigan
Kansas City, Missouri
Los Angeles, California
Omaha, Nebraska
San Diego, California
Red Bank, New Jersey
San Francisco, California
New York, New York
Colorado Springs, Colorado
Rome, New York
Denver, Colorado
District of Columbia
Orlando, Florida
Pensacola, Florida
Sarasota, Florida
Tampa, Florida
Atlanta, Georgia
Honolulu, Hawaii
O’Fallon, Illinois
Indianapolis, Indiana
Leavenworth, Kansas
Aberdeen, Maryland
Dayton, Ohio
Philadelphia, Pennsylvania
Charleston, South Carolina
Houston, Texas
San Antonio, Texas
Abu Dhabi,
United Arab Emirates
Alexandria, Virginia
Arlington, Virginia
Chantilly, Virginia
Charlottesville, Virginia
Falls Church, Virginia
Annapolis Junction, Maryland
Herndon, Virginia
Hanover, Maryland
Lexington Park, Maryland
Linthicum, Maryland
Rockville, Maryland
McLean, Virginia
Norfolk, Virginia
Stafford, Virginia
Seattle, Washington
sharE PriCE informaTion
Booz Allen Hamilton Holding Corporation common stock is listed
on the New York Stock Exchange (NYSE) under ticker symbol BAH.
The weighted average number of diluted shares outstanding for
the fiscal year ended March 31, 2011, was 127,448,700. Share
price information can be found at www.boozallen.com/investors.
managE mE nT’s CE r Tif iCaTion s
The certifications of our Chief Executive Officer and Chief
Financial Officer required by Section 302 of the Sarbanes-Oxley
Act of 2002 have been filed with the Securities and Exchange
Commission as exhibits to our Annual Report on Form 10-K.
In addition, our Chief Executive Officer provided to the New York
Stock Exchange the annual Section 303A CEO certification
regarding our compliance with the New York Stock Exchange’s
corporate governance listing standards.
Acknowledgements
Design: BCN Communications; Editorial Content: Rob Squire
Photography: Front, inside and back covers: © Glenn Gyssler; Page 3: © John Madere;
Page 8: Natulrich/123RF; Page 9: © James Schnepf; Page 10 (left): Tim Bieber/Lifesize/
Getty Images; Page 10 (right): Michael Zysman/123RF; Page 11 (top): © James Schnepf;
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© James Schnepf; Page 16: iStockphoto; Pages 17–19: © James Schnepf; Page 20:
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US Navy; Page 22 (bottom): Thinkstock; Page 23: © James Schnepf; Page 24: Burak
Pekakcan/Vetta/Getty Images; Page 25: © James Schnepf; Page 26: Thinkstock;
Page 27 (left): © Brett Wilhelm; Page 27 (right): © Matthew Borkoski; Page 28:
Masterfile; Page 29: © Joshua Cogan; Page 30 (left): © Matthew Borkoski; Page 30
(right): © Michael Campbell; Page 31 (top): © Bonnie Bandurski; Page 31 (bottom):
© Adriana M. Groisman; Page 32: Thomas Barwick/Lifesize/Getty Images; Page 33:
Thinkstock; Pages 34–35: © James Schnepf; Page 36 (left and center): © John Madere;
Page 36 (right): © James Schnepf. Note: Use of Department of Defense images does
not imply or constitute DoD endorsement of this organization or its products or services.
Printing: Classic Color
In keeping with Booz Allen’s commitment
to sustainability, the firm has reduced the
number of paper copies of its Fiscal Year
2011 Report and printed those copies on
FSC®-certified paper containing at least
10% postconsumer waste.
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