Booz Allen Hamilton Holding Corp [BAH] Filings

10-Q 1 bah-20230930.htm 10-Q bah-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________________

FORM 10-Q

___________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-34972

____________________________________________________________

Booz Allen Hamilton Holding Corporation

(Exact name of registrant as specified in its charter)

___________________________________________________________

Delaware

26-2634160

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

8283 Greensboro Drive,

McLean,

Virginia

22102

(Address of principal executive offices)

(Zip Code)

(703) 902-5000

Registrant’s telephone number, including area code

(Former name, former address, and former fiscal year if changed since last report.)

__________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Class A Common Stock	BAH	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


			Shares Outstanding as of 10/24/2023
Class A Common Stock			130,381,202

TABLE OF CONTENTS


		Page
PART I. Financial Information		1
ITEM 1	Financial Statements	1
ITEM 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	41
ITEM 4	Controls and Procedures	41
PART II. Other Information		42
ITEM 1	Legal Proceedings	42
ITEM 1A	Risk Factors	43
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	43
ITEM 3	Defaults Upon Senior Securities	43
ITEM 4	Mine Safety Disclosures	43
ITEM 5	Other Information	43
ITEM 6	Exhibits	44

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEX TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


			Page
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Comprehensive Income			3
Condensed Consolidated Statements of Cash Flows			4
Condensed Consolidated Statements of Stockholders' Equity			5
Notes to Unaudited Condensed Consolidated Financial Statements			7
1. Business Overview			7
2. Basis of Presentation			7
3. Revenue			8
4. Earnings Per Share			10
5. Acquisition, Goodwill and Intangible Assets			11

6. Accounts Payable and Other Accrued Expenses			12
7. Accrued Compensation and Benefits			12
8. Debt			13
9. Derivatives			15
10. Income Taxes			16
11. Employee Benefit Plans			17
12. Accumulated Other Comprehensive Income			17
13. Stock-Based Compensation			18
14. Fair Value Measurements			19
15. Commitments and Contingencies			20

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)


	September 30, 2023		March 31, 2023

	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	557,296	$	404,862
Accounts receivable, net	2,009,847		1,774,830
Prepaid expenses and other current assets	133,412		108,366
Total current assets	2,700,555		2,288,058
Property and equipment, net of accumulated depreciation	178,914		195,186
Operating lease right-of-use assets	169,640		187,798
Intangible assets, net of accumulated amortization	637,787		685,615
Goodwill	2,343,789		2,338,399
Deferred tax assets	833,597		573,780
Other long-term assets	298,327		281,816
Total assets	$	7,162,609	$	6,550,652
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	41,250	$	41,250
Accounts payable and other accrued expenses	1,056,369		1,316,640
Accrued compensation and benefits	435,576		445,205
Operating lease liabilities	46,141		51,238
Other current liabilities	26,405		42,721
Total current liabilities	1,605,741		1,897,054
Long-term debt, net of current portion	3,389,152		2,770,895
Operating lease liabilities, net of current portion	180,031		198,144
Income tax reserves	769,755		552,623

Other long-term liabilities	145,800		139,934
Total liabilities	6,090,479		5,558,650
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, Class A - $0.01 par value - authorized, 600,000,000 shares; issued, 166,669,125 shares at September 30, 2023 and 165,872,332 shares at March 31, 2023; outstanding, 130,573,866 shares at September 30, 2023 and 131,637,588 shares at March 31, 2023	1,667		1,659
Treasury stock, at cost — 36,095,259 shares at September 30, 2023 and 34,234,744 shares at March 31, 2023	(2,054,418)		(1,859,905)
Additional paid-in capital	834,042		769,460
Retained earnings	2,258,947		2,051,455
Accumulated other comprehensive income	31,892		29,333


Total stockholders’ equity	1,072,130		992,002
Total liabilities and stockholders’ equity	$	7,162,609	$	6,550,652

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share data)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022

Revenue	$	2,666,282	$	2,298,976	$	5,320,768	$	4,548,576
Operating costs and expenses:
Cost of revenue	1,232,712		1,057,450		2,484,628		2,132,423
Billable expenses	824,788		684,941		1,637,092		1,359,207
General and administrative expenses	300,886		293,612		614,887		546,676
Depreciation and amortization	40,907		39,052		82,754		79,154
Total operating costs and expenses	2,399,293		2,075,055		4,819,361		4,117,460
Operating income	266,989		223,921		501,407		431,116
Interest expense	(44,756)		(28,342)		(80,230)		(52,997)
Other income, net	3,556		26,460		5,480		23,502
Income before income taxes	225,789		222,039		426,657		401,621
Income tax expense	55,071		51,258		94,551		92,747
Net income	170,718		170,781		332,106		308,874
Net loss attributable to non-controlling interest	—		151		—		342
Net income attributable to common stockholders	$	170,718	$	170,932	$	332,106	$	309,216
Earnings per common share (Note 4):
Basic	$	1.29	$	1.28	$	2.52	$	2.32
Diluted	$	1.29	$	1.28	$	2.51	$	2.31

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in thousands)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022

Net income	$	170,718	$	170,781	$	332,106	$	308,874
Other comprehensive income, net of tax:
Change in unrealized gain on derivatives designated as cash flow hedges	(416)		7,801		3,325		13,560
Change in postretirement plan costs	(383)		(2)		(766)		(4)
Total other comprehensive income, net of tax	(799)		7,799		2,559		13,556
Comprehensive income	169,919		178,580		334,665		322,430
Comprehensive loss attributable to non-controlling interest	—		151		—		342
Comprehensive income attributable to common stockholders	$	169,919	$	178,731	$	334,665	$	322,772

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(Amounts in thousands)	Six Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net income	$	332,106	$	308,874
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	82,754		79,154
Noncash lease expense	28,059		27,558
Stock-based compensation expense	37,510		32,222
Amortization of debt issuance costs	2,245		2,287
Loss on debt extinguishment	965		10,251
Losses (gains) on dispositions, and other	1,408		(30,151)

Changes in assets and liabilities:
Accounts receivable, net	(235,244)		(39,358)
Deferred income taxes and income taxes receivable / payable	(67,978)		(130,843)
Prepaid expenses and other current and long-term assets	(22,149)		(15,885)
Accrued compensation and benefits	5,553		(26,629)
Accounts payable and other accrued expenses	(260,873)		41,453
Other current and long-term liabilities	(23,273)		(31,841)
Net cash (used in) provided by operating activities	(118,917)		227,092
Cash flows from investing activities
Purchases of property, equipment, and software	(27,436)		(29,734)
Payments for business acquisitions and dispositions	(406)		—
Payments for cost method investments	(9,160)		—
Proceeds from sale of businesses	—		44,063

Net cash (used in) provided by investing activities	(37,002)		14,329
Cash flows from financing activities
Proceeds from issuance of common stock	13,947		12,052
Stock option exercises	13,133		7,992
Repurchases of common stock	(209,187)		(103,266)
Cash dividends paid	(125,122)		(115,897)
Repayments on revolving credit facility, term loans, and Senior Notes	(520,625)		(396,443)
Net proceeds from debt issuance	636,207		414,751
Proceeds from revolving credit facility	500,000		—
Net cash provided by (used in) financing activities	308,353		(180,811)
Net increase in cash and cash equivalents	152,434		60,610
Cash and cash equivalents––beginning of period	404,862		695,910
Cash and cash equivalents––end of period	$	557,296	$	756,520
Supplemental disclosures of cash flow information
Net cash paid during the period for:
Interest	$	78,098	$	42,936
Income taxes	$	144,720	$	215,767

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in thousands, except share data)	Class A Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2023	166,521,283	$	1,665	(35,404,913)	$	(1,972,886)	$	805,240	$	2,150,361	$	32,691	$	1,017,071
Issuance of common stock	107,930	1		—	—		7,021		—		—		7,022
Stock options exercised	39,912	1		—	—		1,956		—		—		1,957
Repurchase of common stock	—	—		(690,346)	(81,532)		—		—		—		(81,532)

Net income	—	—		—	—		—		170,718		—		170,718
Other comprehensive income, net of tax	—	—		—	—		—		—		(799)		(799)
Dividends declared of $0.47 per share of common stock	—	—		—	—		—		(62,132)		—		(62,132)
Stock-based compensation expense	—	—		—	—		19,825		—		—		19,825


Balance at September 30, 2023	166,669,125	$	1,667	(36,095,259)	$	(2,054,418)	$	834,042	$	2,258,947	$	31,892	$	1,072,130

Balance at March 31, 2023	165,872,332	$	1,659	(34,234,744)	$	(1,859,905)	$	769,460	$	2,051,455	$	29,333	$	992,002
Issuance of common stock	504,499	5		—	—		13,942		—		—		13,947
Stock options exercised	292,294	3		—	—		13,130		—		—		13,133
Repurchase of common stock (1)	—	—		(1,860,515)	(194,513)		—		—		—		(194,513)

Net income	—	—		—	—		—		332,106		—		332,106
Other comprehensive income, net of tax	—	—		—	—		—		—		2,559		2,559
Dividends declared of $0.94 per share of common stock	—	—		—	—		—		(124,614)		—		(124,614)
Stock-based compensation expense	—	—		—	—		37,510		—		—		37,510


Balance at September 30, 2023	166,669,125	$	1,667	(36,095,259)	$	(2,054,418)	$	834,042	$	2,258,947	$	31,892	$	1,072,130

(1) During the six months ended September 30, 2023, the Company purchased 1.7 million shares of the Company’s Class A Common Stock in a series of open market transactions for $180.1 million. Additionally, the Company repurchased shares for $13.2 million during the six months ended September 30, 2023 to cover the minimum statutory withholding taxes on restricted stock units that vested on various dates during the period.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in thousands, except share data)	Class A Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2022	164,900,879	$	1,650	(32,477,501)	$	(1,693,012)	$	679,632	$	2,095,093	$	14,342	$	1,419	$	1,099,124
Issuance of common stock	118,216	1		—	—		5,970		—		—		—		5,971
Stock options exercised	91,522	—		—	—		3,396		—		—		—		3,396
Repurchase of common stock	—	—		(318,157)	(29,869)		—		—		—		—		(29,869)

Net income	—	—		—	—		—		170,932		—		(151)		170,781
Other comprehensive income, net of tax	—	—		—	—		—		—		7,799		—		7,799
Dividends declared of $0.43 per share of common stock	—	—		—	—		—		(57,073)		—		—		(57,073)
Stock-based compensation expense	—	—		—	—		18,406		—		—		—		18,406
Contribution to non-controlling interest							(784)						784		—
Balance at September 30, 2022	165,110,617	$	1,651	(32,795,658)	$	(1,722,881)	$	706,620	$	2,208,952	$	22,141	$	2,052	$	1,218,535

Balance at March 31, 2022	164,372,545	$	1,646	(31,788,197)	$	(1,635,454)	$	656,222	$	2,015,071	$	8,585	$	651	$	1,046,721
Issuance of common stock	503,225	4		—	—		12,048		—		—		—		12,052
Stock options exercised	234,847	1		—	—		7,991		—		—		—		7,992
Repurchase of common stock (2)	—	—		(1,007,461)	(87,427)		—		—		—		—		(87,427)

Net income	—	—		—	—		—		309,216		—		(342)		308,874
Other comprehensive income, net of tax	—	—		—	—		—		—		13,556		—		13,556
Dividends declared of $0.86 per share of common stock	—	—		—	—		—		(115,335)		—		—		(115,335)
Stock-based compensation expense	—	—		—	—		32,102		—		—		—		32,102
Contribution to non-controlling interest	—	—		—	—		(1,743)		—		—		1,743		—

Balance at September 30, 2022	165,110,617	$	1,651	(32,795,658)	$	(1,722,881)	$	706,620	$	2,208,952	$	22,141	2,052		1,218,535

(2) During the six months ended September 30, 2022, the Company purchased 0.9 million shares of the Company’s Class A Common Stock in a series of open market transactions for $76.4 million. Additionally, the Company repurchased shares for $11.0 million during the six months ended September 30, 2022 to cover the minimum statutory withholding taxes on restricted stock units that vested on various dates during the period.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

1. Business Overview

Booz Allen Hamilton Holding Corporation, including its wholly owned subsidiaries, or the Company, we, us, and our, was incorporated in Delaware in May 2008. The Company provides management and technology consulting, analytics, engineering, digital solutions, mission operations, and cyber services to U.S. and international governments, major corporations, and not-for-profit organizations. The Company reports operating results and financial data in one reportable segment. The Company is headquartered in McLean, Virginia, with approximately 33,100 employees as of September 30, 2023.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the information contained in the Company's Annual Report on Form 10-K for the year ended March 31, 2023. The interim period unaudited condensed consolidated financial statements are presented as described below. Certain information and disclosures normally required for annual financial statements have been condensed or omitted pursuant to GAAP and SEC rules and regulations. In the opinion of management, all adjustments considered necessary for fair presentation of the results of the interim periods presented have been included. 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 results of operations for the six months ended September 30, 2023 are not necessarily indicative of results to be expected for the full fiscal year.

The condensed consolidated financial statements and notes of the Company include its subsidiaries, and other entities over which the Company has a controlling financial interest or where the Company is a primary beneficiary.

Certain amounts reported in the Company's prior fiscal year condensed consolidated financial statements have been reclassified to conform to the current fiscal year presentation.

Investments in Variable Interest Entities and Other Investments

The Company invests in certain companies that advance or develop new technologies applicable to its business. Each investment is evaluated for consolidation under the variable interest entities model and/or the voting interest model. The results of these investments are not material to the unaudited condensed and consolidated financial statements for the periods presented. The Company uses the equity method to account for investments in entities that it does not control if it is otherwise able to exert significant influence over the entities' operating and financial policies. Equity investments in entities over which the Company does not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are accounted for under the measurement alternative. As of September 30, 2023 and March 31, 2023, respectively, the total of equity and other investments related to unconsolidated entities included in other long term assets of the Company’s condensed consolidated balance sheet were $32.9 million and $23.1 million.

Accounting 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 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 the provision for claimed indirect costs, valuation and expected lives of tangible and intangible assets, impairment of long-lived assets, accrued liabilities, revenue recognition, including the accrual of indirect costs, bonus and other incentive compensation, stock-based compensation, reserves for uncertain tax positions and valuation allowances on deferred tax assets, provisions for income taxes, postretirement obligations, collectability of receivables, and loss accruals for litigation. Actual results experienced by the Company may differ materially from management's estimates.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Topic 848”). The guidance is intended to provide relief for entities impacted by reference rate reform. Topic 848 contains provisions and optional accounting expedients designed to simplify requirements around the designation of hedging relationships, probability assessments of hedged forecasted transactions, and accounting for modifications of contracts that refer to the London Interbank Offered Rate (“LIBOR”) or other rates affected by reference rate reform. The guidance is elective and is effective on the date of issuance. Topic 848 is applied prospectively to contract modifications and as of the effective date for existing and new eligible hedging relationships. During the first quarter of fiscal 2024, the Company modified its interest rate swap agreements to transition from LIBOR-indexed to term SOFR-indexed periodic swap payments to align with interest payments in connection with its term SOFR-indexed debt. As such, the Company elected the optional expedients under Topic 848 which allows the cash flow hedge to continue being recognized under hedge accounting without de-designation upon a change in critical terms affected by the reference rate reform. The adoption of this guidance did not have a material impact on the condensed consolidated financial statements and disclosures.

Recent Accounting Pronouncements Not Yet Adopted

Accounting and reporting pronouncements effective after September 30, 2023 and issued through the filing date are not expected to have a material impact on the Company's condensed consolidated financial statements.

3. Revenue

The Company's revenues from contracts with customers (clients) are derived from offerings that include management and technology consulting services, analytics, digital solutions, engineering, mission operations, and cyber services, substantially all with the U.S. government and its agencies and, to a lesser extent, subcontractors. The Company also serves foreign governments, as well as domestic and international commercial clients. The Company performs and generates revenue under three basic types of contracts, which include cost-reimbursable contracts, time-and-materials contracts, and fixed-price contracts.

Contract Estimates

We recognize revenue for many of our contracts under a contract cost-based input method and require an Estimate-at-Completion (“EAC”) process, which management uses to review and monitor the progress towards the completion of our performance obligations. Under this process, management considers various inputs and assumptions related to the EAC, including, but not limited to, progress towards completion, labor costs and productivity, material and subcontractor costs, and identified risks. Estimating the total cost at the completion of our performance obligations is subjective and requires management to make assumptions about future activity and cost drivers under the contract. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the profitability of the Company’s contracts. Changes in estimates related to contracts accounted for under the EAC process are recognized on a cumulative catch-up basis in the period when such changes are determinable and reasonably estimable. If the estimate of contract profitability indicates an anticipated loss on a contract, the Company recognizes the total loss at the time it is identified. For each of the three and six months ended September 30, 2023 and 2022, the aggregate impact of adjustments in contract estimates was not material.

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by contract type and by customer type, as well as by whether the Company acts as prime contractor or sub-contractor, as we believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following series of tables presents our revenue disaggregated by these categories.

Revenue by Contract Type:

We generate revenue under the following three basic types of contracts:

•Cost-Reimbursable Contracts: Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract, up to a ceiling based on the amount that has been funded, plus a fixed fee or award fee.

•Time-and-Materials Contracts: Under contracts in this category, we are paid a fixed hourly rate for each direct labor hour expended, and we are reimbursed for billable material costs and billable out-of-pocket expenses inclusive of allocable indirect costs. We assume the financial risk on time-and-materials contracts because our costs of performance may exceed negotiated hourly rates.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

•Fixed-Price Contracts: Under a fixed-price contract, we agree to perform the specified work for a predetermined price. To the extent our actual direct and allocated indirect costs decrease or increase from the estimates upon which the price was negotiated, we will generate more or less profit, respectively, or could incur a loss.

The table below presents the total revenue for each type of contract:


	Three Months Ended September 30,								Six Months Ended September 30,
	2023				2022				2023				2022
Cost-reimbursable	$	1,463,949	55	%	$	1,201,407	52	%	$	2,914,133	55	%	$	2,392,235	53	%
Time-and-materials	638,607		24	%	564,438		25	%	1,274,340		24	%	1,110,340		24	%
Fixed-price	563,726		21	%	533,131		23	%	1,132,295		21	%	1,046,001		23	%
Total Revenue	$	2,666,282	100	%	$	2,298,976	100	%	$	5,320,768	100	%	$	4,548,576	100	%

Revenue by Customer Type:


	Three Months Ended September 30,								Six Months Ended September 30,
	2023				2022				2023				2022
U.S. government(1):
Defense Clients	$	1,270,135	48	%	$	1,028,275	45	%	$	2,494,452	47	%	$	2,056,086	45	%
Intelligence Clients	444,982		17	%	425,874		18	%	921,479		17	%	829,997		18	%
Civil Clients	916,069		34	%	781,279		34	%	1,821,029		34	%	1,535,939		34	%
Total U.S. government	2,631,186		99	%	2,235,428		97	%	5,236,960		98	%	4,422,022		97	%
Global Commercial Clients	35,096		1	%	63,548		3	%	83,808		2	%	126,554		3	%
Total Revenue	$	2,666,282	100	%	$	2,298,976	100	%	$	5,320,768	100	%	$	4,548,576	100	%

(1) Certain contracts were reassigned between the various verticals of our U.S. government business shown in the table above to better align our operations to the customers we serve within each market. Prior year revenue by customer type has been recast to reflect the changes.

Revenue by Whether the Company Acts as a Prime Contractor or a Subcontractor:


	Three Months Ended September 30,								Six Months Ended September 30,
	2023				2022				2023				2022
Prime Contractor	$	2,537,085	95	%	$	2,179,375	95	%	$	5,054,643	95	%	$	4,310,670	95	%
Subcontractor	129,197		5	%	119,601		5	%	266,125		5	%	237,906		5	%
Total Revenue	$	2,666,282	100	%	$	2,298,976	100	%	$	5,320,768	100	%	$	4,548,576	100	%

Performance Obligations

Remaining performance obligations represent the transaction price of exercised contracts for which work has not yet been performed, irrespective of whether funding has or has not been authorized and appropriated as of the date of exercise. Remaining performance obligations exclude negotiated but unexercised options, the unfunded value of expired contracts, and certain variable consideration which the Company does not expect to recognize as revenue.

As of September 30, 2023 and March 31, 2023, the Company had $9.8 billion and $7.9 billion of remaining performance obligations, respectively. We expect to recognize approximately 75% of the remaining performance obligations at September 30, 2023 as revenue over the next 12 months, and approximately 85% over the next 24 months. The remainder is expected to be recognized thereafter.

Contract Balances

The Company's performance obligations are typically satisfied over time and revenue is generally recognized using a cost-based input method. Fixed-price contracts are typically billed to the customer using milestone or fixed monthly payments, while cost-reimbursable-plus-fee and time-and-material contracts are typically billed to the customer at periodic intervals (e.g., monthly or weekly) as indicated by the terms of the contract. Disparities between the timing of revenue recognition and customer billings and cash collections result in net contract assets or liabilities being recognized at the end of each reporting period.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

Contract assets primarily consist of unbilled receivables typically resulting from revenue recognized exceeding the amount billed to the customer and right to payment is not just subject to the passage of time. Unbilled amounts represent revenues for which billings have not been presented to customers. These amounts are generally billed and collected within one year subject to various conditions including, without limitation, appropriated and available funding. Long-term unbilled receivables not anticipated to be billed and collected within one year, which are primarily related to retainage, holdbacks, and long-term rate settlements to be billed at contract closeout, are included in other long-term assets in the accompanying condensed consolidated balance sheets. Contract liabilities primarily consist of advance payments, billings in excess of costs incurred and deferred revenue. Contract assets and liabilities are reported on a net contract basis at the end of each reporting period. The Company maintains an allowance for credit losses to provide for an estimate of uncollectible receivables. Provision for credit losses recognized was not material for the three and six months ended September 30, 2023 and 2022.

The following table summarizes the contract assets and liabilities, and accounts receivable, net of allowance recognized on the Company’s condensed consolidated balance sheets:


	September 30, 2023		March 31, 2023
Current assets
Accounts receivable–billed	$	678,241	$	551,666
Accounts receivable–unbilled (contract assets)	1,331,785		1,223,482
Allowance for credit losses	(179)		(318)
Accounts receivable, net	2,009,847		1,774,830
Other long-term assets
Accounts receivable–unbilled (contract assets)	59,653		59,455
Total accounts receivable, net	$	2,069,500	$	1,834,285
Other current liabilities
Advance payments, billings in excess of costs incurred and deferred revenue (contract liabilities)	$	14,918	$	18,995

Changes in contract assets and contract liabilities are primarily due to the timing difference between the Company’s performance of services and payments from customers. For the three months ended September 30, 2023 and 2022, we recognized revenue of $1.7 million and $3.7 million, respectively, and for the six months ended September 30, 2023 and 2022, we recognized revenue of $16.2 million and $20.0 million, respectively, related to our contract liabilities on April 1, 2023 and 2022, respectively. To determine revenue recognized from contract liabilities during the reporting periods, the Company allocates revenue to individual contract liability balances and applies revenue recognized during the reporting periods first to the beginning balances of contract liabilities until the revenue exceeds the balances.

4. Earnings Per Share

The Company computes basic and diluted earnings per share amounts based on net income attributable to common stockholders for the periods presented. The Company uses the weighted average number of shares of common stock outstanding during the period to calculate basic earnings per share, or EPS. Diluted EPS adjusts the weighted average number of shares outstanding 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. Holders of unvested Class A Restricted Common Stock are entitled to participate in non-forfeitable dividends or other distributions (“participating securities”). These unvested restricted shares participated in the Company's dividends declared and paid in the second quarter of fiscal 2024 and 2023. As such, EPS is calculated using the two-class method whereby earnings are reduced by distributed earnings as well as any available undistributed earnings allocable to holders of these unvested restricted shares. A reconciliation of the income used to compute basic and diluted EPS for the periods presented are as follows:

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Numerator (1):




Earnings for basic computations	$	169,277	$	169,543	$	329,428	$	306,933
Earnings for diluted computations	$	169,280	$	169,546	$	329,434	$	306,939
Denominator:
Weighted-average common stock shares outstanding, basic	130,792,215		132,266,373		130,913,026		132,317,689
Dilutive stock options and restricted stock	340,930		462,872		424,887		551,452
Weighted-average common stock shares outstanding, diluted (2)	131,133,145		132,729,245		131,337,913		132,869,141
Earnings per common share:
Basic	$	1.29	$	1.28	$	2.52	$	2.32
Diluted (2)	$	1.29	$	1.28	$	2.51	$	2.31

(1) The difference between earnings for basic and diluted computations and net income presented on the condensed consolidated statements of operations is due to undistributed earnings and dividends allocated to the participating securities. There were approximately 1.1 million of participating securities for the three months ended September 30, 2023 and 2022, respectively, and 1.1 million and 1.0 million shares of participating securities for the six months ended September 30, 2023 and 2022, respectively.

(2) The impact of anti-dilutive options excluded from the calculation of EPS was not material during the periods presented.

5. Acquisition, Goodwill and Intangible Assets

Acquisition

On October 14, 2022, the Company completed the acquisition of EverWatch Corp. (“EverWatch”), a leading provider of advanced solutions to the defense and intelligence communities for approximately $445.1 million, net of post-closing adjustments and incurred transaction costs as part of the acquisition. The acquisition was funded with cash on hand. As a result of the transaction, EverWatch became a wholly owned subsidiary of Booz Allen Hamilton Inc.

The Company recognized $108.6 million of intangible assets which consists primarily of contract assets and were valued using the excess earnings method discounted cash flow approach, incorporating Level 3 inputs as described under the fair value hierarchy of Topic 820. These unobservable inputs reflect the Company's own judgment about which assumptions market participants would use in pricing an asset on a non-recurring basis. The intangible assets are being amortized over the estimated useful life of 14 years. The goodwill of $330.9 million is primarily attributable to EverWatch's specialized workforce and the expected synergies between the Company and EverWatch, and is non-deductible for tax purposes.

The following table summarizes the consideration and the allocation of the purchase price paid for EverWatch:


Cash consideration (gross of cash acquired)	$	445,074

Purchase price allocation:
Cash	4,779
Current assets	27,725
Operating lease right-of-use asset	7,894
Other long-term assets	5,078
Intangible assets	108,600
Deferred tax liabilities	(20,394)
Current liabilities	(11,612)
Operating lease liabilities - short-term	(1,362)
Operating lease liabilities - long-term	(6,532)
Total fair value of identifiable net assets acquired	$	114,176

Goodwill	$	330,898

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

The acquisition was accounted for under the acquisition method of accounting, which requires the total acquisition consideration to be allocated to the assets acquired and liabilities assumed based on an estimate of the acquisition date fair value, with the difference reflected in goodwill. During the first quarter of fiscal 2024, the Company completed the determination of fair values of the acquired assets and liabilities assumed. Pro forma results of operations for this acquisition are not presented because the acquisition is not material to the Company's consolidated results of operations.

Goodwill

As of September 30, 2023 and March 31, 2023, goodwill was $2,343.8 million and $2,338.4 million, respectively. The $5.4 million increase in the carrying amount of goodwill was attributable the Company's finalization of the accounting for the acquisition of EverWatch.

Intangible Assets

Intangible assets consisted of the following:


	September 30, 2023						March 31, 2023
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Amortizable intangible assets:
Programs and contract assets, channel relationships, and other amortizable intangible assets	$	591,894	$	203,365	$	388,529	$	599,794	$	169,316	$	430,478
Software	141,301		82,243		59,058		134,152		69,215		64,937
Total amortizable intangible assets	$	733,195	$	285,608	$	447,587	$	733,946	$	238,531	$	495,415
Unamortizable intangible assets:
Trade name	$	190,200	$	—	$	190,200	$	190,200	$	—	$	190,200
Total	$	923,395	$	285,608	$	637,787	$	924,146	$	238,531	$	685,615

The decrease in the gross carrying value of intangible assets was primarily attributable to a $7.9 million adjustment related to the Company's finalization of the accounting for the acquisition of EverWatch in the first quarter of fiscal 2024.

6. Accounts Payable and Other Accrued Expenses

Accounts payable and other accrued expenses consisted of the following:


	September 30, 2023		March 31, 2023
Vendor payables	$	603,188	$	597,808
Accrued expenses	453,181		718,832
Total accounts payable and other accrued expenses	$	1,056,369	$	1,316,640

Accrued expenses consisted primarily of the Company’s provision for claimed indirect costs (approximately $328.9 million and $326.7 million as of September 30, 2023 and March 31, 2023, respectively). Accrued expenses at March 31, 2023 also included a $350.0 million reserve associated with the settlement of the U.S. Department of Justice's investigation of the Company which was subsequently settled and paid in the second quarter of fiscal 2024. See Note 15, “Commitments and Contingencies,” to the condensed consolidated financial statements for further discussion of these items.

7. Accrued Compensation and Benefits

Accrued compensation and benefits consisted of the following:


	September 30, 2023		March 31, 2023
Bonus	$	64,810	$	120,023
Retirement	100,203		52,480
Vacation	217,421		203,627
Other	53,142		69,075
Total accrued compensation and benefits	$	435,576	$	445,205

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

8. Debt

Debt consisted of the following:


	September 30, 2023				March 31, 2023
	Interest Rate		Outstanding Balance		Interest Rate		Outstanding Balance
Term Loan A	6.67	%	$	1,608,750	5.97	%	$	1,629,375



Senior Notes due 2028	3.88	%	700,000		3.88	%	700,000
Senior Notes due 2029	4.00	%	500,000		4.00	%	500,000
Senior Notes due 2033	5.95	%	650,000				—
Less: Unamortized debt issuance costs and discount on debt			(28,348)				(17,230)
Total			3,430,402				2,812,145
Less: Current portion of long-term debt			(41,250)				(41,250)
Long-term debt, net of current portion			$	3,389,152			$	2,770,895

Credit Agreement

Booz Allen Hamilton Inc. (“Booz Allen Hamilton”), Booz Allen Hamilton Investor Corporation (“Investor”), and certain wholly owned subsidiaries of Booz Allen Hamilton are parties to a Credit Agreement dated as of July 31, 2012, as amended (the “Credit Agreement”), with certain institutional lenders and Bank of America, N.A., as Administrative Agent, Collateral Agent and Issuing Lender. As of September 30, 2023, the Credit Agreement provided Booz Allen Hamilton with a $1,608.8 million Term Loan A (“Term Loan A”) and a $1.0 billion revolving credit facility (the “Revolving Credit Facility”), with a sub-limit for letters of credit of $200.0 million. As of September 30, 2023, the maturity date of the Term Loan A and the Revolving Commitments is September 7, 2027. Voluntary prepayments of the Term Loan A and the Revolving Loans are permitted at any time, in minimum principal amounts, without premium or penalty. Booz Allen Hamilton’s obligations and the guarantors’ guarantees under the Credit Agreement were secured by a first priority lien on substantially all of the assets (including capital stock of subsidiaries) of Booz Allen Hamilton, Investor and the subsidiary guarantors, subject to certain exceptions set forth in the Credit Agreement and related documentation; such security was released in connection with Booz Allen Hamilton obtaining investment grade ratings from both Moody's and S&P. On September 7, 2022 (the “Ninth Amendment Effective Date”), the previously outstanding Term Loan B loans under the Credit Agreement were prepaid in full.

On July 27, 2023 (the “Tenth Amendment Effective Date”), Booz Allen Hamilton entered into a Tenth Amendment (the “Amendment”) to the Credit Agreement (as amended prior to the Tenth Amendment Effective Date, the “Existing Credit Agreement” and, as amended by the Amendment, the “Amended Credit Agreement”) with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”), and the lenders and other financial institutions party thereto, in order to make permanent certain changes to the Existing Credit Agreement in connection with Booz Allen Hamilton obtaining investment grade ratings from both Moody's and S&P and prepaying the Term Loan B loans in full and to make certain additional changes in connection therewith, including, among other things, (i) removing the requirements for the obligations under the Amended Credit Agreement to be secured, (ii) removing the requirement for any subsidiary or other affiliate of Booz Allen Hamilton (other than the Company) to provide any guarantee of the obligations under the Amended Credit Agreement, and (iii) removing or modifying certain covenants applicable to Booz Allen Hamilton. Pursuant to the Amendment, all guarantees in respect of the Existing Credit Agreement have been released. The Amendment did not impact any of the terms of the Credit Agreement related to amortization or payments.

On the Tenth Amendment Effective Date in connection with the Amendment, the Company entered into a Guarantee Agreement (the “Guarantee Agreement”) in favor of the Administrative Agent, pursuant to which the Company guarantees on an unsecured basis the obligations of Booz Allen Hamilton under the Amended Credit Agreement subject to certain conditions. Pursuant to the Amended Credit Agreement Booz Allen Hamilton has the option, though not any obligation, to join one or more of its domestic subsidiaries as a guarantor under the Guarantee Agreement.

The Term Loan A amortizes in consecutive quarterly installments in an amount equal to (i) on the last business day of each full fiscal quarter that begins after the Ninth Amendment Effective Date but on or before the two year anniversary of the Ninth Amendment Effective Date, 0.625% of the stated principal amount of the Term Loan A and (ii) on the last business day of each full fiscal quarter that begins after the two year anniversary of the Ninth Amendment Effective Date but before the five year anniversary of the Ninth Amendment Effective Date, 1.25% of the stated principal amount of the Term Loan A. The remaining balance of the Term Loan A will be payable upon maturity.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

The rate at which the Term Loan A and the Revolving Loans bear interest is based, at Booz Allen Hamilton’s option, either on Term SOFR (subject to a 0.10% adjustment and a floor of zero) for the applicable interest period or a base rate (equal to the highest of (i) the administrative agent’s prime corporate rate, (ii) the overnight federal funds rate plus 0.50% and (iii) three-month Term SOFR (subject to a 0.10% adjustment and a floor of zero) plus 1.00%), in each case plus an applicable margin, payable at the end of the applicable interest period and in any event at least quarterly. The applicable margin for the Term Loan A and the Revolving Loans ranges from 1.00% to 2.00% for Term SOFR loans and zero to 1.00% for base rate loans, in each case based on the lower of (i) the applicable rate per annum determined pursuant to a consolidated total net leverage ratio grid and (ii) the applicable rate per annum determined pursuant to a ratings grid. Unused Revolving Commitments are subject to a quarterly fee ranging from 0.10% to 0.35% based on the lower of (i) the applicable fee rate per annum determined pursuant to a consolidated total net leverage ratio grid and (ii) the applicable fee rate per annum determined pursuant to a ratings grid. Booz Allen Hamilton has also agreed to pay customary letter of credit and agency fees.

The Company occasionally borrows under the Revolving Credit Facility for our working capital needs. During the first and second quarters of fiscal 2024, we borrowed $500.0 million on our Revolving Credit Facility for our working capital needs, which was subsequently repaid in the second quarter of fiscal 2024. As of March 31, 2023 and September 30, 2023, respectively, there was no outstanding balance on the Revolving Credit Facility.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. In addition, Booz Allen Hamilton is required to meet a financial covenant at each quarter end based on a consolidated net total leverage ratio. As of September 30, 2023 and March 31, 2023, Booz Allen Hamilton was in compliance with all financial covenants associated with its debt and debt-like instruments. In connection with Booz Allen Hamilton obtaining investment grade ratings from both Moody's and S&P, activities restricted by certain negative covenants are permitted subject to pro forma compliance with the financial covenants and no events of default having occurred and continuing.

The following table summarizes interest payments made on the Company’s term loans:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Term Loan A	$	27,007	$	7,846	$	53,098	$	14,165
Term Loan B	$	—	$	2,793	$	—	$	5,209
Total	$	27,007	$	10,639	$	53,098	$	19,374

Borrowings under the Term Loan A, and if used, the Revolving Credit Facility, incur interest at a variable rate. As of September 30, 2023, Booz Allen Hamilton had interest rate swaps with an aggregate notional amount of $550.0 million. These instruments hedge the variability of cash outflows for interest payments on the Term Loans and Revolving Credit Facility. The Company's objectives in using cash flow hedges are to reduce volatility due to interest rate movements and to add stability to interest expense (See Note 9, “Derivatives,” to our condensed consolidated financial statements).

Senior Notes

For information on the terms, conditions, and restrictions of Booz Allen Hamilton's 4.000% Senior Notes due July 1, 2029 (the “Senior Notes due 2029”) and 3.875% Senior Notes due September 1, 2028 (the “Senior Notes due 2028”), see Note 10, “Debt,” of the Company’s consolidated financial statements included in the fiscal 2023 Annual Report on Form 10-K.

In connection with Booz Allen Hamilton obtaining investment grade ratings from both Moody's and S&P, certain negative covenants in the indentures governing the Senior Notes were suspended, and guarantees of the Senior Notes were released.

On August 4, 2023, Booz Allen Hamilton completed an offering of $650.0 million aggregate principal amount of its 5.950% senior unsecured notes due August 4, 2033 (the “Senior Notes due 2033”, and, together with the Senior Notes due 2028 and Senior Notes due 2029, the “Senior Notes”). The Senior Notes due 2033 were issued pursuant to an Indenture, dated as of August 4, 2023 (the “Base Indenture”), among Booz Allen Hamilton, Booz Allen Hamilton Holding Corporation, and U.S. Bank Trust Company, National Association, as trustee, as supplemented by the First Supplemental Indenture, dated as of August 4, 2023 (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). The Indenture contains certain covenants, events of default, and other customary provisions. The Senior Notes due 2033 are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Booz Allen Hamilton Holding Corporation, pursuant to the Indenture.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

Interest Expense

Interest on debt and debt-like instruments consisted of the following:


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)				(In thousands)
Term Loan A Interest Expense	27,312		12,118		53,415		18,477
Term Loan B Interest Expense	—		2,757		—		5,186
Revolving Credit Facility Interest Expense	1,420		—		1,438		—
Senior Notes Interest Expense	18,012		11,781		29,793		23,562
Amortization of Debt Issuance Cost (DIC) and Original Issue Discount (OID) (1)	1,218		1,126		2,245		2,287
Interest Swap (Income) Expense	(3,702)		397		(7,271)		3,228
Other	496		163		610		257
Total Interest Expense	$	44,756	$	28,342	$	80,230	$	52,997

(1) DIC and OID on the Term Loans and senior notes are recorded as a reduction of long-term debt in the condensed consolidated balance sheet and are amortized ratably over the life of the related debt using the effective rate method. DIC on the Revolving Credit Facility is recorded as a long-term asset on the condensed consolidated balance sheet and amortized ratably over the term of the Revolving Credit Facility.

9. Derivatives

The Company utilizes derivative financial instruments to manage interest rate risk related to its variable rate debt. The Company’s objectives in using these interest rate derivatives, which were designated as cash flow hedges, are to manage its exposure to interest rate movements and reduce volatility of interest expense.

The following table summarizes the material terms of the Company’s outstanding interest rate swap derivative contracts as of September 30, 2023:

Effective Date

Maturity Date

Terms

Notional Amount

April 28, 2023

(1)

June 30, 2024

Variable to Fixed

200,000

April 28, 2023

(1)

June 30, 2025

Variable to Fixed

200,000

June 30, 2023

June 30, 2026

Variable to Fixed

150,000

Total

550,000

(1) Swap agreements were originally effective on April 30, 2019 and were amended during the first quarter of fiscal 2024 to transition from LIBOR-indexed to term SOFR-indexed periodic swap payments to align with interest payments in connection with its term SOFR-indexed debt. See Note 2, “Basis of Presentation,” to the condensed consolidated financial statements for further information on the transition.

The floating-to-fixed interest rate swaps involve the exchange of variable interest amounts from a counterparty for the Company making fixed-rate interest payments over the life of the agreements without exchange of the underlying notional amount and effectively convert a portion of the variable rate debt into fixed interest rate debt.

Derivative instruments are recorded in the condensed consolidated balance sheet on a gross basis at estimated fair value. As of September 30, 2023, $13.2 million and $4.7 million, were classified as other current assets and other long-term assets, respectively, on the condensed consolidated balance sheet. As of March 31, 2023, $11.2 million, $3.5 million and $1.4 million were classified as other current assets, other long-term assets and other long-term liabilities, respectively, on the condensed consolidated balance sheet.

For interest rate swaps designated as cash flow hedges, the changes in the fair value of derivatives are recorded in Accumulated Other Comprehensive Income, or AOCI, net of taxes, and is subsequently reclassified into interest expense, net in the period that the hedged forecasted interest payments are made on the Company's variable-rate debt. The effect of derivative instruments on the accompanying condensed consolidated financial statements for the three and six months ended September 30, 2023 and 2022 is as follows:

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)


		Three Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	Location of Gain or Loss Recognized in Income on Derivatives	Amount of Pre-Tax Gain Recognized in AOCI on Derivatives				Amount of Pre-Tax Gain or (Loss) Reclassified from AOCI into Income (1)
		2023		2022		2023		2022
Interest rate swaps	Interest income (expense)	$	3,173	$	10,173	$	3,702	$	(388)

(1) The reclassifications from accumulated other comprehensive income to net income were reduced by tax (expense) benefit of ($1.0 million) and $0.1 million for the three months ended September 30, 2023 and 2022, respectively.


		Six Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	Location of Gain or Loss Recognized in Income on Derivatives	Amount of Pre-Tax Gain or (Loss) Recognized in AOCL on Derivatives				Amount of Pre-Tax Gain or (Loss) Reclassified from AOCL into Income (2)
		2023		2022		2023		2022
Interest rate swaps	Interest income (expense)	$	11,772	$	15,139	$	7,271	$	(3,219)

(2) The reclassifications from accumulated other comprehensive loss to net income was reduced by tax (expense) benefit of ($1.9 million) and $0.8 million for the six months ended September 30, 2023 and 2022, respectively.

Over the next 12 months, the Company estimates that $13.2 million will be reclassified as a decrease to interest expense. Cash flows associated with periodic settlements of interest rate swaps will be classified as operating activities in the condensed consolidated statement of cash flows.

The Company is subject to counterparty risk in connection with its interest rate swap derivative contracts. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The Company mitigates this credit risk by entering into agreements with credit-worthy counterparties and regularly reviews its credit exposure and the creditworthiness of the counterparties.

10. Income Taxes

The Company’s effective income tax rates were 24.4% and 23.1% for the three months ended September 30, 2023 and 2022, respectively, and 22.2% and 23.1% for the six months ended September 30, 2023 and 2022, respectively. Our effective tax rates for these periods differ from the federal statutory rate of 21.0% primarily due to the inclusion of state and foreign income taxes and permanent rate differences, which are predominantly related to certain executive compensation and the accrual of reserves for uncertain tax positions, offset by research and development tax credits, excess tax benefits for employee share-based compensation, and the Foreign Derived Intangible Income deduction.

The Company is currently contesting tax assessments from the District of Columbia Office of Tax and Revenue (“DC OTR”) for fiscal years 2013 through 2015. The assessment relates to $11.7 million of taxes, net of federal tax benefits, as of September 30, 2023.

During fiscal 2022, the Company received notification that the District of Columbia Office of Administrative Hearings ruled in favor of the DC OTR. The Company is currently appealing the decision with the District of Columbia Court of Appeals. The Company intends to continue to vigorously defend this matter. Oral arguments occurred on September 26, 2023 and the Company continues to wait on further developments from the court.

The Company has taken similar tax positions with respect to subsequent fiscal years. As of September 30, 2023, the Company does not maintain reserves for any uncertain tax positions related to the contested tax benefits related to 2013 through 2015, nor does it maintain reserves for the similar tax positions taken in the subsequent fiscal years. Management continues to evaluate this position quarterly to determine if a change in estimate is needed. If an adverse final resolution were to occur with respect to the contested tax benefits or the similar tax positions taken for fiscal years 2013 through 2020, the total potential future tax expense that would arise would be approximately $40.4 million to $64.3 million, net of federal benefit.

During fiscal 2024, the Company expects to recognize an increase in reserves for uncertain tax positions related to an increase in research and development tax credits available, as in prior years, and the required capitalization of research and development expenditures which began in fiscal 2023. The unrecognized tax benefits related to the capitalization of research and development expenditures is expected to be offset by a deferred tax asset.

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BOOZ ALLEN HAMILTON HOLDING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in tables in thousands, except share and per share data or unless otherwise noted)

Tax Receivables and Payables

The Company has both income tax receivables and income tax payable on its condensed consolidated balance sheets as follows:


	September 30, 2023	March 31, 2023
Current income tax receivable	24,031	23,633
Long term income tax receivable	167,821	167,821
Current income tax payable	6,668	14,523

Current income tax payable represents current liabilities associated with the Company’s current tax returns that the Company intends to file in fiscal 2024