Description of Business and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Our quarterly financial periods end on the Friday closest to the last day of the calendar quarter (September 26, 2014 for the third quarter of 2014 and September 27, 2013 for the third quarter of 2013), except for the last quarter of the fiscal year, which ends on December 31. For ease of presentation and to conform with Exelis' presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter. The results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year.

Our unaudited Condensed Combined Financial Statements reflect the Company's wholly-owned domestic and international subsidiaries and allocated costs from Exelis. The unaudited Condensed Combined Financial Statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Exelis and may not be indicative of Vectrus' future performance. Periods prior to the Spin-off do not necessarily reflect what the results of operations, financial position and cash flows would have been had Vectrus operated as a stand-alone company. The unaudited Condensed Combined Financial Statements reflect our financial position, results of operations and cash flows as we were historically managed, in conformity with generally accepted accounting principles in the United States of America ("GAAP").

Principles of Combination

The unaudited Condensed Combined Financial Statements have been prepared pursuant to the rules and regulations of the SEC and, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. We believe that the disclosures made are adequate to make the information presented not misleading. We consistently applied the accounting policies described in the information statement filed as an exhibit to the Registration Statement, in preparing these financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Registration Statement.

All intercompany transactions between Vectrus and Exelis have been included in these unaudited Condensed Combined Financial Statements and are considered to be effectively settled for cash in the unaudited Condensed Combined Financial Statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the unaudited Condensed Combined Statements of Cash Flows as a financing activity and in the unaudited Condensed Combined Balance Sheets as “Parent company equity.” All intracompany and intercompany transactions among our businesses have been eliminated.

Our unaudited Condensed Combined Financial Statements include expenses of Exelis allocated to us for certain functions provided by Exelis, including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, communications, ethics and compliance, shared services, employee benefits and incentives, insurance and stock-based compensation. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, headcount or other measures. We consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to, or the benefit received by, us during the periods presented. The allocations may not, however, reflect the expense we would have incurred as an independent, publicly-traded company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. Following our Spin-off from Exelis, we will perform these functions using our own resources or purchased services. For an interim period, however, some of these functions will continue to be provided by Exelis under a transition services agreement, which generally has a term of one year or less for most services to be provided (See Note 10, "Related Party Transactions and Parent Company Equity"). In addition, in support of ongoing business, we have entered into subcontracts with Exelis whereby either we or Exelis serve as a subcontractor to the other on certain government contracts.

Exelis uses a centralized approach to cash management and financing of its operations. Prior to the Spin-off, the majority of our cash was transferred to Exelis daily and Exelis funded our operating and investing activities as needed. Cash transfers to and from the cash management accounts of Exelis are reflected in the unaudited Condensed Combined Statements of Cash Flows as “Transfer to Parent, net.”

The unaudited Condensed Combined Financial Statements also include the push down of certain assets and liabilities that have historically been held at the Exelis corporate level but are specifically identifiable or otherwise allocable to us. The cash and cash equivalents held by Exelis at the corporate level, prior to the Spin-off, are not specifically identifiable to the Company and therefore were not allocated to us for any of the periods presented. Cash in our unaudited Condensed Combined Balance Sheets represents cash held locally by entities included in our unaudited Condensed Combined Financial Statements. Third-party debt and the related interest expense of Exelis were not allocated to us for any of the periods presented as we are not the legal obligor of the debt and the Exelis borrowings were not directly attributable to our business.

Use of Estimates

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, the 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. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, revenue recognition, income tax contingency accruals, fair value and impairment of goodwill and valuation of assets and certain contingent liabilities. Actual results could differ from these estimates.

During the performance of long-term sales contracts, estimated final contract prices and costs are reviewed periodically and revisions are made as required and recorded in income in the period in which they are determined. Additionally, the fees under certain contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria. Such incentive fee awards or penalties are included in revenue when there is sufficient information to reasonably assess anticipated contract performance. Amounts representing contract change orders, claims, requests for equitable adjustment, or limitations in funding on contracts are recorded only if it is probable the claim will result in additional contract revenue and the amounts can be reliably estimated. Provisions for estimated losses on uncompleted long-term contracts are made in the period in which such losses are determined and are recorded as a component of cost of revenue. Contract revenue and cost estimates are reviewed and reassessed periodically. Changes in these estimates could result in recognition of cumulative catch-up adjustments to the contract’s inception to date revenue, cost of revenue and profit in the period in which such changes are made, based on a contract’s percentage of completion. Changes in revenue and cost estimates could also result in a forward loss or an adjustment to a forward loss.

New Accounting Pronouncements, Policy



Standard	Description	Date of issuance	Effect on the financial statements or other significant matters
Standards that are not yet adopted
ASU 2014-09, Revenue from Contracts with Customers	The standard will replace existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. It may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts with remaining performance obligations as of the effective date. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is not permitted.	May 2014	We are currently evaluating the effect the standard is expected to have on the Company’s financial statements and related disclosures.
Standards that were adopted
ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity	The standard will reduce the frequency of disposals reported as discontinued operations by raising the threshold for a disposal to qualify as a discontinued operation, focusing on strategic shifts that have or will have a major effect on an entity’s operations and financial results. The guidance is effective prospectively for annual periods beginning on or after December 15, 2014, with early adoption permitted, and would only apply to disposals completed subsequent to adoption.	April 2014	The Company adopted this guidance on September 27, 2014. The adoption of the standard had no impact on the Company’s financial statements.

Other new pronouncements issued but not effective until after September 30, 2014 are not expected to have a material impact on our financial position, results of operations or cash flows.