SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 1998 Commission File Number 0-8401 ----------------------------- CACI International Inc ---------------------------- (Exact name of registrant as specified in its charter) Delaware ------------------------------- (State or other jurisdiction of incorporation or organization) 54-1345888 ------------------------------------ (I.R.S. Employer Identification No.) 1100 North Glebe Road, Arlington, VA 22201 ------------------------------------------ (Address of principal executive offices) (703) 841-7800 ------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: CACI International Inc Common Stock, $0.10 par value ---------------------------------------------------- (Title of each class) 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 X No . ----- ----- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 1998: CACI International Inc Common Stock, $0.10 par value, 10,882,000 shares.
CACI INTERNATIONAL INC AND SUBSIDIARIES PART I: FINANCIAL INFORMATION - ------------------------------- Item 1. Financial Statements Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 1998 and 1997 Unaudited Condensed Consolidated Statements of Operations for the Six Months Ended December 31, 1998 and 1997 Unaudited Condensed Consolidated Balance Sheets as of December 31, 1998 and June 30, 1998 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1998 and 1997 Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 1998 and 1997 Notes to Unaudited Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II: OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings Item 5. Forward Looking Statements INDEX TO EXHIBITS SIGNATURES
PART 1 FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS CACI INTERNATIONAL INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (dollars in thousands, except per share data) Three Months Ended December 31, 1998 1997 ------------------------------- Revenues $103,720 $ 79,145 Costs and expenses Direct costs 59,392 42,550 Indirect costs and selling expenses 35,276 29,151 Depreciation and amortization 1,912 1,846 Goodwill amortization 766 495 ------- ------- Total operating expenses 97,346 74,042 ------- ------- Income from operations 6,374 5,103 Interest expense 972 472 ------- - ------- Income before income taxes 5,402 4,631 Income taxes 2,040 1,759 ------- ------- Net income $ 3,362 $ 2,872 ======= ======= Basic earnings per share $ 0.31 $ 0.27 ======= ======= Diluted earnings per share $ 0.30 $ 0.26 ======= ======= Average shares outstanding 10,874 10,755 ======= ======= Average shares and equivalent shares outstanding 11,197 11,127 ======= ======= See notes to condensed consolidated financial statements (unaudited).
CACI INTERNATIONAL INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (dollars in thousands, except per share data) Six Months Ended December 31, 1998 1997 ----------------------------- Revenues $196,071 $149,814 Costs and expenses Direct costs 111,035 80,587 Indirect costs and selling expenses 68,132 55,590 Depreciation and amortization 3,655 3,561 Goodwill amortization 1,394 805 ------- ------- Total operating expenses 184,216 140,543 ------- ------- Income from operations 11,855 9,271 Interest expense 1,468 717 ------- ------- Income before income taxes 10,387 8,554 Income taxes 3,886 3,250 ------- ------- Net income $ 6,501 $ 5,304 ======= ======= Basic earnings per share $ 0.60 $ 0.49 ======= ======= Diluted earnings per share $ 0.58 $ 0.48 ======= ======= Average shares outstanding 10,866 10,730 ======= ======= Average shares and equivalent shares outstanding 11,199 11,101 ======= ======= See notes to condensed consolidated financial statements (unaudited).
CACI INTERNATIONAL INC AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 1998 June 30, 1998 ----------------- ------------- (Unaudited) ASSETS Current assets Cash and equivalents $ 64 $ 2,081 Accounts receivable: Billed 97,733 83,995 Unbilled 14,521 9,350 ------- ------- Total accounts receivable 112,254 93,345 ------- ------- Income taxes receivable 822 - Prepaid expense and other 4,799 4,362 Deferred contract costs 1,768 2,383 Deferred income taxes 209 209 ------- ------- Total current assets 119,916 102,380 ------- ------- Property and equipment, net 12,999 11,351 Accounts receivable, long term 7,163 6,075 Goodwill 69,546 37,474 Other assets 6,742 4,884 Deferred contract costs, long-term 1,163 480 Deferred income taxes 4,964 416 ------- ------- Total assets $222,493 $163,060 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable & accrued expenses $ 30,277 $ 24,257 Accrued compensation and benefits 16,456 17,010 Income taxes payable - 4,390 Deferred income taxes 1,371 1,845 ------- ------- Total current liabilities 48,104 47,502 ------- ------- Note payable, long-term 77,352 29,800 Deferred rent expenses 1,119 1,289 Deferred income taxes 144 142 Other long-term obligations 4,570 - Shareholders' equity Common stock - $.10 par value, 40,000,000 shares authorized, 14,408,000 & 14,371,000 shares issued 1,441 1,437 Capital in excess of par 12,831 12,344 Retained earnings 90,916 84,415 Cumulative currency translation adjustments (322) (207) Treasury stock, at cost (3,526,000 shares) (13,662) (13,662) ------- ------- Total shareholders' equity 91,204 84,327 ------- ------- Total liabilities & shareholders' equity $222,493 $163,060 ======= ======= See notes to condensed consolidated financial statements (unaudited).
CACI INTERNATIONAL INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) Six Months Ended December 31, 1998 1997 ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,501 $ 5,304 Reconciliation of net income to net cash provided by (used in) operating activities Depreciation & amortization 5,049 4,366 Provision for deferred income taxes 1,666 312 Loss (gain) on sale of property & equipment 31 (32) Changes in operating assets & liabilities Accounts receivable (9,439) (4,487) Prepaid expenses & other assets (617) 851 Deferred contract costs (67) - Accounts payable & accrued expenses (700) (1,709) Accrued compensation & benefits (439) 1,172 Other long-term obligations (280) - Deferred rent expense (131) (455) Income taxes (receivable) payable (3,853) 3,307 ------- ------- Net cash provided (used) by operating activities (2,279) 8,629 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property & equipment (3,160) (2,207) Purchase of businesses (44,291) (36,154) Proceeds from sale of property & equipment 9 382 Capitalized software cost & other (324) (105) ------- ------- Net cash used in investing activities (47,766) (38,084) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds under line-of-credit 114,531 90,000 Payments under line-of-credit (66,979) (61,900) Proceeds from stock options 491 716 ------- ------- Net cash provided by financing activities 48,043 28,816 ------- ------- Effect of changes in currency rates on cash & equivalents (15) (8) ------- ------- Net increase in cash & equivalents (2,017) (647) Cash & equivalents, beginning of period 2,081 2,015 ------- ------- Cash & equivalents, end of period $ 64 $ 1,368 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash (received) paid during the period for income taxes, net $ 5,994 $ (867) ======= ======= Interest paid during the period $ 1,013 $ 502 ======= ======= See notes to condensed consolidated financial statements (unaudited).
CACI INTERNATIONAL INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands) Three Months Six Months Ended December 31, Ended December 31, 1998 1997 1998 1997 ------------------ ------------------ Net income $3,362 $2,872 $6,501 $5,304 Currency translation adjustment (543) 316 (115) (329) ----- ----- ----- ----- Comprehensive income $2,819 $3,188 $6,386 $4,975 ===== ===== ===== =====
CACI INTERNATIONAL INC AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. Basis of Presentation - -------------------------- The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all necessary adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for fair presentation for the periods presented. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report to the Securities and Exchange Commission on Form 10-K for the year ended June 30, 1998. Certain reclassifications have been made to the prior period's financial statements to conform to the current presentation. B. Accounts Receivable - ------------------------ Total accounts receivable are net of allowance for doubtful accounts of $3,064,000 and $3,637,000 at December 31, 1998, and June 30, 1998, respectively. Accounts receivable are classified as follows: (dollars in thousands) December 31, 1998 June 30, 1998 ----------------- ------------- Billed receivables Billed receivables $ 88,895 $ 76,458 Billable receivables at end of period 8,838 7,537 ------- ------- Total billed receivables 97,733 83,995 Unbilled receivables Unbilled pending receipt of contractual documents authorizing billing 14,246 9,195 Unbilled retainages and fee withholds expected to be billed within the next 12 months 275 155 ------- ------- 14,521 9,350 Unbilled retainages and fee withholds expected to be billed beyond the next 12 months 7,163 6,075 ------- ------- Total unbilled receivables 21,684 15,425 ------- ------- Total accounts receivable $119,417 $ 99,420 ======= ======= C. Acquisitions - ----------------- On November 13, 1998, the Company acquired all of the common stock of QuesTech, Inc. ("QuesTech"), a company that specializes in the development and application of information technology and engineering services for the defense and national security communities, for $18.13 per share in cash. The total consideration paid by CACI, including the assumption of liabilities, was approximately $42 million. The transaction was funded through borrowings under the Company's existing line of credit with a group of banks. For the year ended December 31, 1997, QuesTech reported revenues of $78.5 million. The transaction has been recorded using the purchase method of accounting. Approximately $31 million of the purchase consideration has been preliminarily allocated to goodwill based upon the excess of the purchase price over the estimated fair value of net assets acquired, and will be amortized over 30 years. The preliminary purchase price allocation may change during the year ending June 30, 1999, as additional information concerning the net asset valuation is obtained. QuesTech contributed revenues of $8.9 million for the period from November 13, 1998 to December 31, 1998. On August 13, 1998, the Company purchased the assets of Information Decision System ("IDS") for $2.6 million in cash and, therefore, the transaction has been recorded using the purchase method of accounting. IDS provided internet access to demographic site information and the acquisition is expected to enhance the current U.S. market share of the Company's Marketing Systems Group ("MSG") in the industry. Approximately $2.4 million has been preliminarily allocated to goodwill, based upon the excess of the purchase price over the estimated fair value of net assets acquired, and will be amortized over 15 years. Since its acquisition, the operations acquired from IDS have contributed approximately $0.2 million in revenue through September 30, 1998. The acquisition was financed with available bank borrowings. D. Other Long-Term Obligations - ------------------------------- The Company acquired certain long-term obligations in connection with the QuesTech transaction discussed in Note C. At December 31, 1998, approximately $3.0 million was accrued in connection with the Officers and Managers Deferred Compensation Plan ("DefCom"). DefCom allows eligible employee participants to defer current compensation and provides supplemental postretirement benefits along with certain specified death benefits to the participants' beneficiaries. Postretirement benefits under DefCom are payable upon the participant's termination of employment, and are paid in equal installments over a period equal to the length of time the employee deferred compensation, but no longer than ten years. Termination or retirement benefits are based upon the employee's actual deferrals plus interest credited annually, as determined by the Administrator. Supplemental death benefits are payable, in some cases, over a period of ten years provided death occurs while the participant is an active employee of the Company. DefCom is a non-qualified, defined contribution plan which has been valued based on the actual participant account balances plus interest earned to date. The remaining liability consists primarily of amounts accrued in connection with other benefit plans which provide medical and insurance coverage. The liability associated with these other plans is actuarily determined on an annual basis. E. Commitments and Contingencies - ---------------------------------- The Company is involved in various lawsuits, claims, and administrative proceedings arising in the normal course of business. Management is of the opinion that any liability or loss associated with such matters will not have a material adverse effect on the Company's operations and liquidity. F. Recent Accounting Pronouncements - ------------------------------------- In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." As specified by these Statements, the Company will apply these Statements beginning in fiscal 1999 and reclassify its annual financial statements for earlier periods for comparative purposes. SFAS No. 130 requires that all items defined under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company adopted SFAS No. 130 during the first quarter of fiscal 1999 and has reported the effects of foreign currency translation gains or losses as a component of comprehensive income in a separate financial statement. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographics areas, and major customers. This Statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. It amends SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosures requirements for previously unconsolidated subsidiaries. At this point, the Company has not fully determined the impact of the adoption of SFAS No. 131. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations For the Three and Six Months Ended December 31, 1998 and 1997 - -------------------------------------------------------------------------- REVENUES. The table below sets forth the customer mix in revenues with related percentages of total revenues for the three and six months ended December 31, 1998 (FY99) and December 31, 1997 (FY98), respectively: (dollars in thousands) <TABLE> <CAPTION> Second Quarter First Six Months FY99 FY98 FY99 FY98 ------------------ ----------------- - ------------------ ------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Department of Defense $ 48,680 46.9% $ 39,407 49.8% $ 90,423 46.1% $ 75,754 50.6% Federal Civilian Agencies 31,993 30.9% 21,073 26.6% 61,226 31.2% 39,420 26.3% Commercial 18,272 17.6% 16,850 21.3% 35,580 18.2% 31,113 20.8% State & Local Governments 4,775 4.6% 1,815 2.3% 8,842 4.5% 3,527 2.3% ------- ----- ------- ----- - ------- ----- ------- ----- Total $103,720 100.0% $ 79,145 100.0% $196,071 100.0% $149,814 100.0% ======= ===== ======= ===== ======= ===== ======= ===== </TABLE> For the three months and six months ended December 31, 1998, the Company's total revenues increased by 31%, or $24.6 million, and by 31%, or $46.3 million, respectively, over the same periods last year. Approximately $15.4 million, or 63% of the increase, and $26.5 million, or 57% of the increase, was achieved through internal or organizational growth in all market segments for the quarter and six months ended December 31, 1998, respectively, over the same periods a year ago. The remaining increase of $9.2 million and $19.8 million for the three and six months of FY99, respectively, as compared to FY98 was primarily the result of acquisitions described below. On November 13, 1998, the Company acquired 100% of the issued and outstanding common stock of QuesTech, Inc. ("QuesTech") which contributed approximately $8.9 million of incremental revenues for the three and six months ended December 31, 1998. On August 13, 1998, the Company purchased the assets of Information Decision Systems ("IDS"). Since its acquisition, the operations of IDS have contributed approximately $0.4 million of revenues through December 31, 1998. In the prior year, the Company purchased the business and assets of Government Systems, Inc. ("GSI") on November 1, 1997, which generated incremental revenues of $9.6 million for the first three months of FY99. Department of Defense revenues increased 24%, or $9.3 million, for the quarter, and 19%, or $14.7 million, for the first six months. The QuesTech and GSI acquisitions accounted for primarily all of the growth, contributing a combined $7.8 million and $11.8 million for the three and six month periods, respectively. Revenues from Federal Civilian agencies increased 52%, or $10.9 million, for the quarter, and 55% or $21.8 million, for the first six months of FY99, as compared to the same periods a year ago. Approximately 54% of Federal Civilian agency revenues are derived from the Department of Justice ("DoJ") in providing litigation support services and in developing an automated debt collection system. Revenues for DoJ were $16.1 million and $32.8 million for the quarter and six months ended December 31, 1998, as compared to $13.9 million and $29.0 million for the respective periods a year ago. Significant growth in contracts with Civilian agencies other than DoJ was led by expanding efforts under contract vehicles with the Federal Aviation Administration ("FAA") and the General Services Administration ("GSA"). A higher level of communication services and equipment provided to the FAA has resulted in incremental revenues of $1.5 million for the second quarter of FY99 and of $5.2 million for the first half of FY99. The remaining increase of $7.2 million for the second quarter and $12.8 million for the first half of FY99 was mainly generated from growth in a GSA multiple task order contract, which provides primarily Year 2000 software renovation services to several Civilian agencies. During the quarter and six months ended December 31, 1998, commercial revenues increased by 8%, or $1.4 million, and 14%, or $4.5 million, respectively, over the same periods a year ago. These increases are primarily the result of increased demand for European systems integration services provided by our Marketing Systems Group ("MSG") in the United Kingdom. Revenues from state and local governments increased $3.0 million and $5.3 million for the quarter and six months ended December 31, 1998, as compared to the same periods a year ago due to increased demand for Year 2000 software renovation services. The following table sets forth the relative percentage that certain items of expense and earnings bear to revenues for the quarter and six months ended December 31, 1998 and December 31, 1997, respectively. <TABLE> <CAPTION> Dollar Amount (in thousands) Percentage of Revenue Second Quarter First Six Months Second Quarter First Six Months FY99 FY98 FY99 FY98 FY99 FY98 FY99 FY98 - ---------------------------------------------- - --------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Revenues $103,720 $ 79,145 $196,071 $149,814 100.0% 100.0% 100.0% 100.0% Costs and expenses: Direct costs 59,392 42,550 111,035 80,587 57.3% 53.8% 56.6% 53.8% Indirect costs & selling expenses 35,276 29,151 68,132 55,590 34.0% 36.8% 34.7% 37.1% Depreciation & amortization 1,912 1,846 3,655 3,561 1.8% 2.3% 1.9% 2.4% Goodwill amortization 766 495 1,394 805 0.7% 0.7% 0.7% 0.5% ------- ------- ------- - ------- ----- ----- ----- ----- Total operating expenses 97,346 74,042 184,216 140,543 93.8% 93.6% 93.9% 93.8% Income from operations 6,374 5,103 11,855 9,271 6.2% 6.4% 6.1% 6.2% Interest expense 972 472 1,468 717 0.9% 0.6% 0.7% 0.5% ------- ------- ------- - ------- ----- ----- ----- ----- Earnings before income taxes 5,402 4,631 10,387 8,554 5.3% 5.8% 5.4% 5.7% Income taxes 2,040 1,759 3,886 3,250 2.1% 2.2% 2.1% 2.2% ------- ------- ------- - ------- ----- ----- ----- ----- Net income $ 3,362 $ 2,872 $ 6,501 $ 5,304 3.2% 3.6% 3.3% 3.5% ======= ======= ======= ======= ===== ===== ===== ===== INCOME FROM OPERATIONS. Operating income increased 25% and 28% for the quarter and six months ended December 31, 1998 as compared to the same periods a year ago. This is due to the 31% growth in revenues for both the second quarter and first half of FY99 offset by a higher proportion of other direct costs to total direct costs which generally provide a lower margin. As a percentage of revenues, total direct costs for the second quarter of FY99 were 57.3% versus 53.8% a year ago and for the first six months of FY99 were 56.6% versus 53.8% a year ago. Direct costs include direct labor and other direct costs such as equipment purchases, subcontract costs and travel expenses. The largest component of direct costs, direct labor was $29.9 million and $25.2 for the second quarter of FY99 and FY98, respectively. For the six months ended December 31, 1998 and 1997, direct labor was $57.2 million and $49.0 million, respectively. Other direct costs were $29.5 million and $17.4 million for the second quarters of FY99 and FY98, respectively, and $53.8 million versus $31.6 million for the first six months of FY99 and FY98, respectively. Other direct costs have grown at a more rapid pace as the Company has a higher number of contracts with an increased level of other direct costs. The most notable increases have come from equipment purchases for contracts with the FAA and DoJ as well as subcontract and travel costs incurred with Year 2000 software services. Indirect costs and selling expenses include fringe benefits, marketing and bid proposal costs, indirect labor and other discretionary costs, most of which are highly variable. As a percentage of revenues, indirect costs have decreased due to the impact of higher other direct costs on revenues for the second quarter and first half of FY99. Depreciation and amortization expense increased slightly in the second quarter and first half of FY99 as compared to the same periods a year ago, primarily due to the acquisition of QuesTech. Goodwill amortization expense has increased $0.3 million for the second quarter and $0.6 million for the first half of FY99 as compared to the same periods a year ago due to the acquisitions of QuesTech and IDS in the current fiscal year as well as the incremental impact from the GSI acquisition in the prior year. INTEREST EXPENSE. Interest expense increased $0.5 million and $0.7 million for the second quarter and first six months of FY99 as compared to the same periods in FY98. This is directly attributable to the increased borrowings of $42 million necessary to complete the QuesTech acquisition as well as an increase in average borrowings since the acquisition of GSI in the prior year. INCOME TAXES. The effective income tax rate for the quarter and six months ended December 31, 1998 was 37.8% and 37.4% as compared to 38.0% for both the quarter and six months ended December 31, 1997. The slight decrease for both periods is due to a lower effective state income tax rate offset by the impact of non-deductible goodwill amortization from the QuesTech acquisition. Liquidity and Capital Resources - ------------------------------- Historically, the Company's positive cash flow from operations and available credit facilities provided adequate liquidity and working capital to fully fund the Company's operational needs and support the acquisition activities. Working capital was $71.8 million and $54.9 million as of December 31, 1998 and June 30, 1998, respectively. The increase in working capital in the first six months of FY99 is related both to internal growth and to the QuesTech acquisition. Operating activities used cash of $2.3 million for the six months of FY99 as compared to FY98 when operating activities provided cash of $8.6 million. This decrease in cash provided by operating activities since the prior year is primarily due to $6.0 million of income tax payments in the first half of FY99 as compared to $3.1 million of income tax refunds in FY98. In addition, the decrease is due to cash payments related to higher other direct costs as well as growth in receivables resulting from the 31% growth in revenues for the first six months of FY99 as compared to the same period of FY98. The Company used $47.8 million in investing activities for the six months ended December 31, 1998 versus $38.1 million for the same period a year ago. This is primarily due to the acquisitions of QuesTech of $41.6 million and of IDS for $2.6 million in FY99, and of GSI for $33.5 million in FY98. The Company financed its investing activities from operating cash flows and from a net increase in borrowings of $47.6 million under its line of credit. In June 1998, the Company executed a new five-year unsecured revolving line of credit, which permits borrowings of up to $125 million with annual sublimits on amounts borrowed for acquisitions. The Company also maintains a 500,000 pound sterling unsecured line of credit in London, England, which expires in November 1999. At December 31, 1998, the Company had approximately $48.5 million available for borrowings under its lines of credit. The Company believes that the combination of internally generated funds, available bank borrowings and cash on hand will provide the required liquidity and capital resources for the foreseeable future. Year 2000 - --------- The following discussion addresses the Company's response to the Year 2000 issue, caused by the fact that many computer systems have not been designed to process dates for the Year 2000 and beyond. The Company has undertaken a multi-faceted compliance program to address its readiness to handle the date issue in connection with both Information Technology ("IT") and non-IT systems (such as those using embedded chip technology) in the following areas: CACI-developed software products and systems, infrastructure hardware and software applications, business applications, office equipment, leasehold facilities, and critical business partners. The Company believes that continued awareness and communication are critical to the successful execution of this program. We are currently addressing each one of these elements listed above. Through the use of questionnaires, compliance testing, and continued discussions, we have determined that a substantial portion of the CACI software products currently offered are compliant and have published the status of all CACI software products on the Company's internet site at http://www.caci.com. The Company's plan is to achieve full compliance by July 1999. Regarding the custom systems previously developed by CACI for its customers, the Company is working to evaluate the contractual commitments that would obligate CACI to remediate non-compliant systems, as well as CACI's potential legal exposure concerning systems for which CACI has no continuing express warranty or maintenance obligations. Based on the present state of our knowledge and of the law as it applies to this aspect of the Year 2000 issue, we are unable at this time to determine the full extent of exposure or to estimate the probable cost and timing of any required remediation. Over the past few years, the Company has made a concerted effort to update its desktop and laptop computers and its internal communications network equipment and software. With current technology in place, the Company believes that most of these systems are already compliant. The Company has taken the additional step of requesting that its 160 suppliers of such systems and components provide information as to Year 2000 compliance of their products. To date, approximately 60% have been found to be compliant or require only minor changes. The Company is proceeding in accordance with a plan that is scheduled to achieve material compliance of these systems by June 1999. At this point, the Company has identified the following systems as our key business applications: finance & project management, payroll, human resources, and contracts. Our human resources information and contracts database systems are largely compliant with only minor issues remaining. We are currently reviewing the project forecasting systems for Year 2000 readiness. In addition, we recently completed the upgrade of our payroll system to a fully compliant MS-Windows(R)-based version supplied by an outside vendor. In January 1998, we began our implementation of a new finance system, which is supplied by Deltek Systems, a leading supplier of such systems to the government contracting industry. This system is represented as being compliant and our plan is on schedule to have it implemented by June 1999. We have and will continue to determine and assess our critical business partners as a part of our compliance program. Presently, such significant business partners include, but are not limited to, our suppliers, the utility companies, our bank lending group, an outside vendor used to process payroll, insurance and benefit providers, and property management firms. CACI's operations are dependent to varying degrees on the readiness of these and other partners. CACI has issued questionnaires to identified business partners. To date, the number of responses received indicate that many of our business partners are actively addressing the Year 2000 issue. The Company is continuing to aggressively pursue responses in order to complete our evaluations and develop any appropriate contingency plans, as necessary. The Company is heavily dependent upon the effectiveness of its customers' systems, principally in the U.S. Government, for the administration of contracts and payment of the Company's invoices. The Company has made formal inquiries and continues to vigorously pursue responses concerning the efforts of its larger U.S. Government customers to determine the status and encourage correction of any problems in their systems. The primary concern is that there will be delays in contract payments to the Company, which would require a temporary increase in working capital. The Company has substantial borrowing capacity available under its current line of credit, which extends to June 2003, but will further evaluate the potential cash flow impact of the problem and determine if additional steps are necessary to insure that adequate contingency financing is available. The financial impact of preparing the Company to be compliant is not fully determinable at this time. Presently, the most significant costs are related to our implementation of our new business systems in finance and project management, which are discussed above. Costs for this project, including software, hardware, consulting fees and labor are estimated at $2 million, of which approximately 50% has been spent to date. These costs are being capitalized and will be depreciated when the system is operational. In addition, we anticipate incurring approximately $200 thousand in incremental, internal labor costs that relate specifically to management of the Year 2000 compliance program. The Company has devoted one full-time individual, an oversight committee of 15 individuals and approximately 40 LAN administrators at various offsite locations to communicate and implement all aspects of the Year 2000 compliance program. The Company has found that many of the upgrades or patches necessary to fix the software are being provided at no cost by major vendors. In addition, a majority of the CACI software product upgrades are currently planned using existing technical staff without a significant effect on other new product development. In summary, the Company has established a Year 2000 compliance program plan which is progressing as described above. We have not yet proceeded far enough through performance of that plan to make a more complete assessment of the Company's state of readiness, costs to address Year 2000 issues, or risks to the Company. Moreover, because the Company's Year 2000 compliance program plan appears, on the basis of our present knowledge, to adequately address the matter, we have not yet developed specific contingency plans. Investors should be aware of the fact that the process of addressing the Year 2000 issue is necessarily incremental. The Company will continue to report on the status of its Year 2000 compliance program. Investors are cautioned, however, that the Company's assessment of its readiness, of the costs of performing the program and the risks attended thereto, and of the need for any contingency plans may change materially in the future as we gain more complete knowledge and proceed further through plan performance.
PART II OTHER INFORMATION ----------------- ITEM 1. LEGAL PROCEEDINGS CACI, INC. - FEDERAL v. Arizona Department of Transportation - ------------------------------------------------------------ Reference is made to Part II, Item 1, Legal Proceedings, in the Registrant's Report on Form 10-Q for the quarter ended September 30, 1998 for the most recently filed information concerning the lawsuit filed on June 25, 1996, by CACI, INC. - FEDERAL ("CACI"), the Registrant's wholly-owned subsidiary, in Superior Court for Maricopa County, Arizona, against the Arizona Department of Transportation ("ADOT"). This suit seeks the following: (i) a declaratory judgment that the disputes procedures mandated by the Arizona Procurement Code is unconstitutional; (ii) a declaratory judgment that ADOT cannot assert claims against CACI under the mandated disputes procedure; (iii) a declaratory judgment that ADOT is not entitled to recover consequential damages in connection with the dispute; (iv) $2,938,990 plus interest in breach of contract damages; (v) the return of CACI's property seized by ADOT in connection with the termination of the contract; and (vi) lawyers' fees. ADOT has counterclaimed, seeking in excess of $100 million in damages allegedly caused by CACI's breach of contract. Since the filing of Registrant's report indicated above, the parties have reopened settlement discussions, with no resolution to date. ITEM 5. OTHER INFORMATION Other Information - ----------------- At a meeting held on February 9, 1999, the Board of Directors of the Company unanimously amended the By-laws of the Company to establish ministerial and administrative procedures governing any solicitation of written consents for corporate action pursuant to Section 228 of the Delaware General Corporation Law. Among other things, the By-law amendments permit the Board of Directors of the Company to set a record date for determining shareholders entitled to act by written consent, to provide that written consents may only be valid for up to 60 days, and to establish procedures for the inspection and review of the validity of consents and revocations. The full text of the amendments is filed as Exhibit 3.2 hereto. Forward Looking Statements - -------------------------- This filing may contain "forward-looking" statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements concerning expectations of the Company's future performance in terms of revenues and earnings. The Company cautions investors that there can be no assurance that actual results will not differ materially from those projected or suggested in such forward-looking statements. Factors which could cause a material difference in results include, but are not limited to, the following: regional and national economic conditions; changes in interest rates; changes in government spending policies and/or decisions concerning specific programs; individual business decisions of customers and clients; developments in technology; competition for employee resources; competitive factors and pricing pressures; the Year 2000 compliance of the Company's customers, contracting partners supplies and landlords; our ability to achieve the objectives of our business plans; and changes in governme nt laws or regulations.
CACI INTERNATIONAL INC AND SUBSIDIARIES INDEX TO EXHIBITS Exhibit Number Title - ------- ----- 3.2 By-laws of CACI International Inc, as amended February 9, 1999 11 Computation of Basic and Diluted Earnings Per Share
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CACI International Inc ---------------------------------- (Registrant) Date: February 12, 1999 By: /s/ --------------------------- ---------------------------------- Dr. J.P. London Chairman of the Board, Chief Executive Officer, and Director (Principal Executive Officer) Date: February 12, 1999 By: /s/ --------------------------- ---------------------------------- Dr. J.P. London Acting Chief Financial Officer and Treasurer (Principal Financial Officer) </TABLE>