ManTech International Corporation (depending on the circumstances, “ManTech” “Company” “we” “our” “ours” or “us”) provideprovides mission-focused technology solutions and services for U.S. defense, intelligence community and federal civilian agencies. In business more than 50 years, weWe excel in full-spectrum cyber, data collection & analytics, enterprise information technology (IT), and systems engineering and software engineeringapplication development solutions that support national and homeland security.

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the U.S., have been condensed or omitted pursuant to those rules and regulations. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We recommend that you read these condensed consolidated financial statements in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, previously filed with the SEC. We believe that the condensed consolidated financial statements in this Form 10-Q reflect all adjustments that are necessary to fairly present the financial position, results of operations and cash flows for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results that can be expected for the full year.

We derive revenue from contracts with customers primarily from contracts with the U.S. government in the areas of defense, intelligence, homeland security and other federal civilian agencies. Substantially all of our revenue is derived from services and solutions provided to the U.S. government or to prime contractors supporting the U.S. government, including services by our employees and our subcontractors, and solutions that include third-party hardware and software that we purchase and integrate as a part of our overall solutions. Customer requirements may vary from period-to-period depending on specific contract and customer requirements. We provide our services and solutions under three types of contracts: cost-reimbursable, fixed-price and time-and-materials. Under cost-reimbursable contracts, we are reimbursed for costs that are determined to be reasonable, allowable and allocable to the contract and paid a fee representing the profit margin negotiated between us and the contracting agency, which may be fixed or performance based. Under fixed-price contracts, we perform specific tasks for a fixed price. Fixed-price contracts may include either a product delivery or specific service performance over a defined period. Under time-and-materials contracts, we are reimbursed for labor at fixed hourly rates and are generally reimbursed separately for allowable materials costs and expenses at cost. We typically recognize revenue for time and material contracts under the "right to invoice" model.

For contracts that do not meet the criteria to measure performance as a right to invoice or under the series guidance, we utilize an Estimate at Completion process to measure progress toward completion. We typically estimate progress towards completion based on cost incurred or direct labor incurred. As part of this process, we review information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenue and costs. The risks and opportunities include judgments about the ability and cost to achieve the contract milestones and other technical contract requirements. We make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer and overhead cost rates, among other variables. A significant change in one or more of these estimates could affect the timing in which we recognize revenue on our contracts. For the three months ended March 31, 2020 and 2019, the aggregate impact of adjustments in contract estimates increased our revenue by $3.3 million and $3.2 million.

We have one1 reportable segment. Our U.S. government customers typically exercise independent decision-making and contracting authority. Offices or divisions within an agency or department of the U.S. government may directly, or through a prime contractor, use our services as a separate customer as long as the customer has independent decision-making and contracting authority within its organization. We treat sales to U.S. government customers as sales within the U.S. regardless of where the services are performed. We generated 99% of our revenue from sales in the U.S. for the both three months ended March 31, 2020 and 2019.

The following tables disclose revenue (in thousands) by contract type, customer and prime or subcontractor and geography for the periods presented.

The following table discloses contractcomponents of our receivables are as follows (in thousands):

Receivables at March 31, 20192020 are expected to be substantially collected within one year except for approximately $0.9$1.5 million, of which 100% is related to receivables from sales to the U.S. government or from contracts in which we acted as a subcontractor to other contractors selling to the U.S. government. We have one contract which accounts for 11.4% of our accounts receivable balance. We do not believe that we have significant exposure to credit risk as billed receivablereceivables and unbilled receivables

The following table discloses contract liabilities (in thousands):

Changes in the balance of contract liabilities are primarily due to the timing difference between our performance and our customers' payments. For the three months ended March 31, 2019,2020, the amount of revenue that was included in the opening contract liabilities balance was $18.0were $16.7 million.

The remaining performance obligation as of March 31, 20192020 is $2.7$2.4 billion. The following table discloses when we expect to recognize the remaining performance obligation as revenue (in billions):

We elected to adopt ASC 842 on January 1, 2019, resultingThe acquisition was accounted for as a business combination. The results of H2M's operations have been included in us recording operating lease liabilities of $129.6 million and operating lease right of use assets of $118.7 million. We elected the practical expedient to recognize the lease payments related to short-term leases as profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payment is incurred. We also elected the following transition related practical expedients: not to reassess whether expired or existing contracts are or contain leases, not to reassess lease classification as determined under ASC 840 and not to reassess initial direct costs from any existing lease. We also elected the practical expedient as an accounting election not to separate nonlease components from lease components on all classes of underlying assets. Our leases include nonlease components such as common area maintenance (CAM), utilities and operating expenses. We also implemented internal controls and key system functionality to enable the preparation of financial information upon adoption. ASC 842 had a material impact on our condensed consolidated balance sheets, but did not have an impactfinancial statements since that date. We funded the acquisition with cash on hand and borrowings on our condensed consolidated income statements. revolving credit facility.

The most significant impactpurchase price of $38.5 million, which includes the finalized working capital adjustment, was allocated to the recognition of ROUunderlying assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.

Determining the three months ended March 31, 2019,fair value of assets acquired and liabilities assumed requires significant judgment, which includes, among other factors, analysis of historical performance and estimates of future performance of H2M's contracts. In some cases, we incurred variable lease costshave used discounted cash flow analyses, which were based on our best estimate of $0.5 million.future revenue, earnings and cash flows as well as our discount rate adjusted for risk.

The balance sheet information related to our leases was as follows (dollars in thousands):

In applying the two-class method, we determined that undistributed earnings should be allocated equally on a per share basis between Class A and Class B common stock. Under our Certificate of Incorporation, the holders of the common stock are entitled to participate ratably, on a share-for-share basis as if all shares of common stock were of a single class, in such dividends as may be declared by the Board of Directors. During the three months ended March 31, 20192020 and 2018,2019, we declared and paid a quarterly dividendsdividend in the amount of $0.27$0.32 per share and $0.25$0.27 per share, respectively, on both classes of common stock.

Basic earnings per share has been computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during each period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period in which the shares were outstanding. Diluted earnings per share have been computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during each period.

For the three months ended March 31, 20192020 and 2018,2019, options to purchase 514,224235,059 shares and 310,745514,224 shares, respectively, were outstanding but not included in the computation of diluted earnings per share because the options' effect would have been anti-dilutive. For the three months ended March 31, 20192020 and 2018,2019, there were 51,08947,224 shares and 203,85451,089 shares, respectively, issued from the exercise of stock options. For the three months ended March 31, 20192020 and 20182019 there were 35,882 shares and 72,188 shares, and 86,233 sharesrespectively, issued from the vesting of restricted stock units.

Depreciation and amortization expense related to property and equipment for the three months ended March 31, 2020 and 2019 and 2018 was $6.3$8.8 million and $5.9$6.3 million, respectively.

Amortization expense relating to intangible assets for the three months ended March 31, 2020 and 2019 was $6.5 million and 2018 was $5.8 million, and $7.1 million.respectively. We estimate that we will have the following amortization expense for the future periods indicated below (in thousands):

Borrowings under our credit agreement are collateralized by substantially all of our assets and those of our Material Subsidiaries (as defined in the credit agreement) and bear interest at one of the following variable rates as selected by us at the time of borrowing: a London Interbank Offer Rate basedbase rate plus market-rate spreads (1.25% to 2.25% based on our consolidated total leverage ratio) or Bank of America's base rate plus market spreads (0.25% to 1.25% based on our consolidated total leverage ratio).

The terms of the credit agreement permit prepayment and termination of the loan commitments at any time, subject to certain conditions. The credit agreement requires us to comply with specified financial covenants, including the maintenance of certain leverage ratios and a certain consolidated coverage ratio. The credit agreement also contains various covenants, including affirmative covenants with respect to certain reporting requirements and maintaining certain business activities, and negative covenants that, among other things, may limit or impose restrictions on our ability to incur liens, incur additional indebtedness, make investments,

Contracts with the U.S. government, including subcontracts, are subject to extensive legal and regulatory requirements and, from time-to-time, agencies of the U.S. government, in the ordinary course of business, investigate whether our operations are conducted in accordance with these requirements and the terms of the relevant contracts. U.S. government investigations of us, whether related to our U.S. government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting activities. Management believes it has adequately reserved for any losses that may be experienced from any investigation of which it is aware. The Defense Contract Audit Agency has substantially completed our incurred cost audits through 2016 with no material adjustments. The remaining audits for 2017 through 20182019 are not expected to have a material effect on our financial position, results of operations or cash flow and management believes it has adequately reserved for any losses.

In the normal course of business, we are involved in certain governmental and legal proceedings, claims and disputes and have litigation pending under several suits. We believe that the ultimate resolution of these matters will not have a materialan effect on our financial position, results of operations or cash flows, except for the matter noted below.

We have $7.7$5.9 million outstanding on our letter of credit, of which $14 thousand$5.7 million is related to an outstanding performance bond in connection with a contract between ManTech MENA, LLC and Jadwalean International Operations and Management Company to fulfill technical support requirements for the Royal Saudi Air Force.

The Plan is administered by the compensation committee of our Board of Directors, along with its delegates. Subject to the express provisions of the Plan, the committee has the Board of Directors’ authority to administer and interpret the Plan, including the discretion to determine the exercise price, vesting schedule, contractual life and the number of shares to be issued.

There were 0 option grants during the three months ended March 31, 2020. The following weighted-average assumptions were used for option grants during the three months ended March 31, 2019 and 2018:2019:

The following table summarizes weighted-average assumptions used in our calculations of fair value for the three months ended March 31, 2019 and 2018:2019:

The following table summarizes stock option activity for the year ended December 31, 20182019 and the three months ended March 31, 2019:2020:

The following table summarizes non-vested stock options for the three months ended March 31, 2019:2020:

Unrecognized compensation expense related to non-vested awards was $7.3$6.3 million as of March 31, 2019,2020, which is expected to be recognized over a weighted-average period of 2 years.

All statements and assumptions contained in this Quarterly Report on Form 10-Q that do not relate to historical facts constitute "forward-looking statements." These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include the use of words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan" and words and terms of similar substance in connection with discussions of future events, situations or financial performance. While these statements represent our current expectations, no assurance can be given that the results or events described in such statements will be achieved.

Forward-looking statements may include, among other things, statements with respect to our financial condition, results of operations, prospects, business strategies, competitive position, growth opportunities, and plans and objectives of management. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of our control, and include, without limitations, the risks and uncertainties discussed in the section titledItem 1A "Risk Factors" in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.

Factors or risks that could cause our actual results to differ materially from the results we anticipate include, but are not limited to, the following:

We provide mission-focused technology solutions and services for U.S. defense, intelligence community and federal civilian agencies. We excel in full-spectrum cyber, data collection & analytics, enterprise information technology (IT), systems and software engineering solutions that support national and homeland security.

AsApproximately 98% of February 15, 2019, all agencies ofour revenues are generated through contracts with the U.S. federal government, have fundingor through appropriations through Government fiscal year (GFY) 2019. Approximately 75% ofprime contractors supporting the U.S. government. The U.S. government includingis the Departmentlargest consumer of Defense had full yearservices and solutions in the U.S. As such, our business is impacted by the overall U.S. government budget and our ability to match our capabilities and offerings to the U.S. government's spending priorities. In December 2019, Congress passed and the President signed into law, two appropriation bills funding the government through GFY 2020. We believe the current appropriations to begin the fiscal year. Appropriations for the Department of Defense include near term expansions that aligned withand the Administration's stated priorities in dealingfor national and homeland security aligns favorably with significantour capabilities and offerings.

We cannot predict the future impact of the COVID-19 pandemic and the resulting impact on the economy; however, it could have a material adverse effect on our business, financial position, results of operations, and/or cash flows. The recent global threats, readiness and force structure needs withinoutbreak of the military, diplomatic, and cyber aggressions by bothCOVID-19 pandemic, along with various measures that local, state and non-state actors.  A numberfederal governments have adopted to mitigate its impact, have required us to make changes to our operations to enable our employees to continue supporting our customers' mission-critical needs in this period of federal civilian agencies, includingdisruption. As a result of travel restrictions, social distancing guidelines and other efforts that have been adopted by public health officials to mitigate the Departmentsimpact of Homeland Securitythe COVID-19 pandemic, we have made changes to our operating schedules and State operated understaffing plans to accommodate these restrictions while maintaining the ability of our employees to continue to support and work with our customers to the maximum extent possible. The changes include the implementation of telework or other means of remote work for our employees, who support both mission-critical programs and our internal support organization. With respect to our impacted programs that, by their nature, cannot be supported remotely, we have accommodated those customers who have implemented shiftwork or other mitigation protocols by maintaining our workforce in a Continuing Resolution through late December and then endured a 35-day lapse in funding prior to receiving appropriations in mid-February. We expect future appropriations to be debated with the consideration of policy priorities, national budget deficits, debt ceilings“mission ready” state. Additionally, COVID-19 and the Budget Control Act.mitigation efforts adopted to limit the spread of the disease have had a significant impact on the global economy. With economic activity curtailing in the United States and other regions, we could experience delays in our supply chain or impacts accessing financial markets.

We recommend that you read this discussion and analysis in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, previously filed with the Securities and Exchange Commission.

Revenue

The primary driver of our increase in revenues relates to revenue from new contract awards, and growth on certain existing contracts and our recent acquisitions, which were offset by contracts and tasks that ended and reduced scope of work or lower material purchases on some contracts. Due to the uncertainties around the potential impact of the COVID-19 pandemic on timing of new contract awards, the hiring environment, and customer actions, we believe our revenues during the remainder of 2020 could vary and modestly fluctuate from the first quarter revenue levels.

 

The increase in cost of services was primarily due to increases in revenue. As a percentage of revenue, direct labor costs were 49% and 48% for both the three months ended March 31, 2020 and 2019, and 2018.respectively. As a percentage of revenues, other direct costs, which include subcontractors and third party equipment and materials used in the performance of our contracts, was 38%were 37% for the three months ended March 31, 2019,2020, compared to 37%38% for the same period in 2018.2019. Due to the uncertainties of the impact of COVID-19 on our business, we believe our cost of services as a percentage of revenues may slightly increase depending primarily on levels of revenue changes.

The decreaseincrease in general and administrative expenses was primarily due to reducedincreased bid and proposal spending and amortizationother increased expenditures made to support the growth of acquisition intangiblesour business. These increases were partially offset by increased spendingreduced legal expenses compared to the prior period. As a result of the impact of the COVID-19 on infrastructure. Weour business, we expect general and administrative expensesexpense as a percentpercentage of revenue to be slightly higher for the remainder of 2020 compared to first quarter results.

Our effective tax rate is affected by recurring items, such as the relative amount of income we earn in various taxing jurisdictions and their tax rates. It is also affected by discrete items that may occur in any given year, but are not consistent from year-to-year. Our effective income tax rates wererate was 25% and 22% for each of the three months periods ended March 31, 20192020 and 2018, respectively.2019. The primary driverthree months ending March 31, 2020 included an increased level of research and development credits over the increasesame period in 2019. The increased research and development credits were offset by the negative performance of our deferred compensation plan assets due to year to date declines in equity markets. We do not currently expect any material changes to our effective tax rate was due to a reduction infor the tax benefit related to stock-based compensation.remainder of 2020.

At March 31, 2020 and December 31, 2019, our backlog was $9.3 billion and $9.1 billion, respectively. Our funded backlog was $1.4 billion and $1.3 billion as of March 31, 2020 and December 31, 2019, respectively. Backlog represents estimates that we calculate on a consistent basis. We defineFor additional information on how we compute backlog, as our estimates ofsee the remaining revenue from existing signed contracts, assumingdisclosure under the exercise of all options relating to such contracts and including executed task orders issued under Indefinite Delivery/Indefinite Quantity contracts.

OurHistorically, our primary liquidity needs relate to managinghave been financing acquisitions, working capital, financing acquisitions, makingpayments under our cash dividend payments, purchasing propertyprogram and equipment and investing in capital software.expenditures. Our primary sources of liquidity are cash from operating activities and borrowings under our revolving credit facility.

On March 31, 2019,2020, our cash and cash equivalents balance was $120.5$88.6 million. There were outstanding borrowings of $96.0$115.0 million under our revolving credit facility at March 31, 2019.2020. The increase in both our cash balance and outstanding borrowings at quarter end reflect our decision to add to our available cash position in order to provide us flexibility for potential impacts to our cash flows as a result of COVID-19 (for example, in the event that logistical complications were to result in delays in payments from our customers). As of March 31, 2020, we were contingently liable under letters of credit totaling $5.9 million, which reduces our availability to borrow under our revolving credit facility. The maximum available borrowings under our revolving credit facility at March 31, 20192020 were $396.3$379.1 million. As of March 31, 2019, we were contingently liable under letters of credit totaling $7.7 million, which reduces our availability to borrow under our revolving credit facility.

Cash Flows From (Used In) Operating Activities

Our operating cash flow is primarily affected by our ability to invoice and collect from our customers in a timely manner, our management of vendor payments and the overall profitability of our contracts. We bill most of our customers monthly after services are rendered. Our accounts receivable days sales outstanding were 7064 and 6970 for the three months ended March 31, 20192020 and 2018,2019, respectively. For the three months ended March 31, 20192020 and 2018,2019, our net cash from (used in) operating activities was $47.3$42.6 million and $(18.0)$47.3 million, respectively. The increasedecrease in net cash flows from operating activities during the three months ended March 31, 20192020 when compared to the same period in 20182019 was primarily due to the increase in accounts receivable driven by our revenue growth, offset by the timing of receivables collection.vendor payments, increases in contract liabilities and net income.

Cash Flows From (Used In) Investing Activities

Our cash used in investing activities consists primarily of business combinations, purchases of property and equipment and investments in capital software. For the three months ended March 31, 2020 our net cash used in investing activities was $29.8 million, which was primarily due to the purchase of equipment to support managed IT service contracts, infrastructure investments and capitalized software. We expect an elevated level of capital expenditures during the balance of 2020 to support our managed services IT contracts and infrastructure investments, including facility investments in order to support our growth. For the three months ended March 31, 2019 our net cash used in investing activities was $10.2 million, which was primarily due to the purchase of equipment to support a managed IT service contract, infrastructure investments and capitalized softwareused for internal use. For the three months ended March 31, 2018 our net cash used in investing activities was $9.0 million, which was primarily due to the purchase of equipment to support a managed IT service contract, infrastructure investments and capitalized software for internal use.

Cash Flows From (Used in) Financing Activities

For the three months ended March 31, 2020, our net cash flow from financing activities was $66.9 million, which was primarily due to net borrowings under our revolving credit facility, offset by dividend payments. For the three months ended March 31, 2019, our net cash flow from financing activities was $78.1 million, which was primarily due to net borrowings under revolvingour credit facility and dividend payments. The net increase in borrowings for the three months ended March 31, 2019 is due to funding requirements to acquire Kforce Government Solutions on April 1, 2019. For the three months ended March 31, 2018, our net cash flow from financing activities were $27.9 million, which were primarily due to net borrowings under our revolving credit facility and exercise of stock options partially offset by dividenddividends payments.

Revolving Credit Facility

We maintain a credit agreement with a syndicate of lenders led by Bank of America, N.A., as sole administrative agent. The credit agreement provides for a $500 million revolving credit facility, with a $75 million letter of credit sublimit and a $30 million swing line loan sublimit. The credit agreement also includes an accordion feature that permits us to arrange with the lenders for the provision of additional commitments. The maturity date is August 17, 2022.

Borrowings under our credit agreement are collateralized by substantially all theof our assets of us and our Material Subsidiaries (as defined in the credit agreement) and bear interest at one of the following variable rates as selected by us at the time of borrowing: a London Interbank Offer Rate basedbase rate plus market spreads (1.25% to 2.25% based on our consolidated total leverage ratio) or Bank of America's base rate plus market spreads (0.25% to 1.25% based on our consolidated total leverage ratio).

There were $115.0 million outstanding borrowings of $96.0 million on our revolving credit facility at March 31, 2019.2020. As of and during the three months ended March 31, 2019,2020, we were in compliance with the financial covenants under the credit agreement.

Capital Resources

We believe the capital resources available to us from cash on hand, our remaining capacity under our revolving credit facility, and cash from our operations are adequate to fund our anticipated cash requirements for at least the next year. We anticipate financing our internal and external growth through cash from operating activities, borrowings under our revolving credit facility or other debt and issuance of equity.

Cash Management

To the extent possible, we invest our available cash in short-term, investment grade securities in accordance with our investment policy. Under our investment policy, we manage our investments in accordance with the priorities of maintaining the safety of

Dividend

During the three months ended March 31, 20192020 and 2018,2019, we declared and paid a quarterly dividendsdividend in the amount of $0.27$0.32 per share and $0.25$0.27 per share, respectively, on both classes of our common stock. While we expect to continue the cash dividend program, any future dividends declared will be at the discretion of our Board of Directors and will depend, among other factors, upon our results of operations, financial condition and cash requirements, as well as such other factors that our Board of Directors deems relevant.

In the ordinary course of business, we use letters of credit issued to satisfy certain contractual terms with our customers. As of March 31, 2019, $7.72020, $5.9 million in letters of credit were issued but undrawn. We have an outstanding performance bond in connection with a contract between ManTech MENA, LLC and Jadwalean International Operations and Management Company to fulfill technical support requirements for the Royal Saudi Air Force. This performance bond is guaranteed by a letter of credit in the amount of $14 thousand.$5.7 million.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Application of these policies is particularly important to the portrayal of our financial condition and results of operations. The discussion and analysis of our financial condition

 

Our exposure to market risk relates to changes in interest rates for borrowing under our revolving credit facility. At March 31, 2019,2020, we had an outstanding balance of $96.0$115.0 million on our revolving credit facility. Borrowings under our revolving credit facility bear interest at variable rates. A hypothetical 10% increase in interest rates would have a $0.1$0.2 million effect on our interest expense for the three months ended March 31, 2019.2020.

We do not use derivative financial instruments for speculative or trading purposes. When we have excess cash, we invest in short-term, investment grade, interest-bearing securities. Our investments are made in accordance with an investment policy. Under this policy, no investment securities can have maturities exceeding six months and the weighted average maturity of the portfolio cannot exceed 60 days.

Management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over financial reporting. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Quarterly Report on Form 10-Q, is accurately recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

It should be noted that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result, our disclosure controls and procedures are designed to provide reasonable assurance that such disclosure controls and procedures will meet their objectives.

As of March 31, 2019,2020, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), management evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level described above.

We are subject to certain legal proceedings, government audits, investigations, claims and disputes that arise in the ordinary course of our business. Like most large government defense contractors, our contract costs are audited and reviewed on a continual basis by an in-house staff of auditors from the Defense Contract Audit Agency. In addition to these routine audits, we are subject from time-to-time to audits and investigations by other agencies of the U.S. government. These audits and investigations are conducted to determine if our performance and administration of our government contracts are compliant with contractual requirements and applicable federal statutes and regulations. An audit or investigation may result in a finding that our performance, systems and administration are compliant or, alternatively, may result in the government initiating proceedings against us or our employees, including administrative proceedings seeking repayment of monies, suspension and/or debarment from doing business with the U.S. government or a particular agency or civil or criminal proceedings seeking penalties and/or fines. Audits and investigations conducted by the U.S. government frequently span several years.

Although we cannot predict the outcome of these and other legal proceedings, investigations, claims and disputes, based on the information now available to us, we do not believe the ultimate resolution of these matters, either individually or in the aggregate, will have a material adverse effect on our business, prospects, financial condition or operating results.