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Subsequent Events
9 Months Ended
Sep. 30, 2014
Subsequent Events [Abstract]  
Subsequent Events
SUBSEQUENT EVENTS
Working Capital Adjustment
In connection with the internal restructuring carried out by Exelis prior to the distribution to the separate Vectrus business, Exelis and its subsidiaries (including Vectrus) entered into a number of conveyance agreements, including a contribution agreement between Exelis Holdings, Inc., a subsidiary of Exelis, and VSC containing a two-way adjustment mechanism relating to the working capital and cash levels of VSC and its subsidiaries prior to the Spin-off. Pursuant to that agreement, payments were made by the applicable entity to the other, reflecting the difference between the actual level of working capital (including cash) of VSC and its subsidiaries prior to the Spin-off, adjusted for the indemnification of a receivable by Exelis, as compared to the target working capital (including cash) of $67 million. As a result, Vectrus received an initial payment of $17 million from Exelis on September 26, 2014. The final payment of $2.6 million will be made to Vectrus by Exelis during the quarter ended December 31, 2014. In addition, the contribution agreement states any cash collected on the indemnified receivable by the Company will be remitted to Exelis.
Stock-based Compensation Expense
Stock-based compensation expense associated with converted and recently approved post Spin-off awards are discussed below. Stock-based compensation expenses associated with these awards total approximately $6 million, of which approximately $2 million will be recognized during the three months ended December 31, 2014.
Outstanding Exelis Awards
Exelis maintains an equity incentive plan to govern awards granted to Exelis employees and directors, including awards of non-qualified stock options (“NQOs”), restricted stock units (“RSUs”), total shareholder return (“TSR”) awards and other awards. On September 29, 2014, 324,669 outstanding NQOs granted to employees under the Exelis plan were converted to 274,745 NQOs granted to employees under the Vectrus 2014 Omnibus Plan. On September 29, 2014, 283,876 outstanding RSUs granted to employees under the Exelis plan were converted to 240,196 RSUs granted to employees under the Vectrus 2014 Omnibus Plan. The estimated fair value of the converted Vectrus stock awards immediately following the Spin-off was higher than the fair value of such awards immediately prior to the Spin-off. As a result, Vectrus will incur incremental compensation expense which will be recognized following the Spin-off.
Employee Grants
On September 29, 2014, the Committee approved the grant of 6,727 RSUs, to be effective October 10, 2014, to executives who had outstanding Exelis TSR awards under the Exelis plan. The RSUs will vest on December 4, 2015, subject to the participants continued employment and the terms of the award agreement. The fair value of the RSUs is determined based on the closing price of Vectrus common stock on the date of grant, which was $20.62. Stock compensation expense will be recognized ratably over the vesting period of the awards.
Founders' Grants
On September 29, 2014, the Committee approved the grant of 175,606 RSUs and 171,298 NQOs, effective October 10, 2014, to employees in positions deemed critical to the establishment and success of Vectrus. These Founders' Grants were a special one-time award intended to closely align the economic interest of the recipients with the Vectrus shareholders. The RSUs vest ratably over a three-year period from the date of the grant. The fair value of the RSUs is determined based on the closing price of Vectrus common stock on the date of grant, which was $20.62. The NQOs expire 10 years from the date of the grant and vest ratably over a three-year period from the date of the grant. The fair value of each NQO grant was estimated on the date of grant using the Black-Scholes option pricing model as $8.24. Stock compensation expense will be recognized ratably over the vesting period of the awards.
Non-employee Director Grants
On September 29, 2014, the Committee approved the grant of 21,024 RSUs, effective October 10, 2014, to directors representing the portion of their restricted stock compensation, prorated for their service from the Spin-off through the day before the May 2015 annual meeting. The RSUs vest one day prior to the Vectrus 2015 annual meeting. The fair value of the RSUs is determined based on the closing price of Vectrus common stock on the date of grant, which was $20.62. Stock compensation expense will be recognized ratably over the vesting period of the awards.