CACI International Inc - 10-Q quarterly report FY

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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, 2002

Commission File Number 0-8401

CACI International Inc

(Exact name of registrant as specified in its charter)

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:

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, 2002: CACI International Inc Common Stock, $0.10 par value, 28,698,982 shares.

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CACI INTERNATIONAL INC AND SUBSIDIARIES

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PART 1

FINANCIAL INFORMATION

Item 1. Financial Statements

CACI INTERNATIONAL INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

See notes to condensed consolidated financial statements (unaudited)

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CACI INTERNATIONAL INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

See notes to condensed consolidated financial statements (unaudited)

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CACI INTERNATIONAL INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

See notes to condensed consolidated financial statements (unaudited)

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CACI INTERNATIONAL INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(dollars in thousands)

See notes to condensed consolidated financial statements (unaudited).

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CACI INTERNATIONAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(dollars in thousands)

See notes to condensed consolidated financial statements (unaudited)

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CACI INTERNATIONAL INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The accompanying unaudited condensed 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 condensed 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 unaudited condensed consolidated financial statements be read in conjunction with the audited condensed 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, 2002.

Certain reclassifications have been made to the prior period’s financial statements to conform to the current presentation.

The Company considers all investments with an original maturity of three months or less on their trade date to be cash equivalents. The Company classifies investments with an original maturity of more than three months but less than twelve months on their trade date as short-term marketable securities. To date, marketable securities have been classified as available-for-sale and have been carried at fair value with unrealized gains and losses reported as a separate component of comprehensive income. The fair value of marketable securities was determined based on quoted market prices for those instruments at the reporting date. The cost of securities sold is based on specific identification. Premiums and discounts are amortized over the period from acquisition to maturity and are included in investment income, along with interest and dividends. To date, there have been no realized or unrealized gains or losses. The Company’s cash and equivalents and short-term marketable securities at December 31, 2002, and June 30, 2002, consisted of the following (cost approximated fair value):

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CACI INTERNATIONAL INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(continued)

Statement of Financial Accounting Standards No. 128 “Earnings Per Share” requires dual presentation of basic and diluted earnings per share on the face of the income statement. Basic earnings per share excludes dilution and is computed by dividing income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share includes the incremental effect of stock options calculated using the treasury stock method. The chart below shows the calculation of basic and diluted earnings per share for the three and six month periods ended December 31, 2002 and December 31, 2001, respectively:

Total accounts receivable are net of allowance for doubtful accounts of $3,391,000 and $3,255,000 at December 31, 2002 and June 30, 2002, respectively. Accounts receivable are classified as follows;

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CACI INTERNATIONAL INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(continued)

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.

The Company has entered into a subcontract agreement with a vendor to purchase a number of direction finding units to be ordered in connection with the performance of one of the Company’s contracts over a four year period ending in FY2006. The subject subcontract provides for unit price decreases as the number of units purchased under the subcontract increases. Based on the present status of contract performance, management believes that the Company will purchase a sufficient number of units over the subcontract term to allow it to realize the lowest unit cost available. Based upon that expectation, unit costs incurred to date have been recognized in “Other Direct Costs” at such lowest unit cost. Based on the number of units ordered to date and assuming that no other units are ordered under the subcontract, the Company’s maximum unit price exposure (the difference between the unit price that would be applicable to the number of units actually purchased as compared to the discount price at which the Company has recognized the purchases to date) is estimated to be approximately $350,000, which has not been recorded in the Company’s financial statements as of and for the period ended December 31, 2002.

On November 13, 1998, the Company acquired all of the common stock of QuesTech, Inc. At that time, net operating loss carryforwards were available to the Company, however, it was uncertain as to whether the Company would realize the benefits of the carryforwards in its future tax returns. As a result, a reserve for the entire amount of the carryforwards was established at the time of the acquisition. Management now believes that it is more likely than not that it will utilize the carryforwards prior to their expiration. Therefore, the Company has eliminated the entire reserve of $2.3 million, on a tax effected basis, against the deferred tax asset and has reduced goodwill by the same amount as of December 31, 2002.

On August 16, 2002 the Company acquired substantially all of the assets of the Government Solutions Division of Condor Technology Solutions, Inc. (“Condor”). The acquired Condor business complements the Company’s systems integration, knowledge management, data mining and purchasing systems solutions for federal clients. The total cash paid for Condor was $16 million. Approximately $10.3 million of the purchase price has been allocated to goodwill based primarily on the excess of the purchase price over the $1.2 million estimated fair value of net assets acquired and the $4.7 million value assigned to identifiable intangible assets. The Company is amortizing substantially all such intangible assets over a period of ten years. Condor contributed revenue of $6.7 million for the period from August 16, 2002 to December 31, 2002.

On October 16, 2002 the Company acquired all of the outstanding stock of Acton Burnell, Inc., an information technology company providing systems integration, knowledge management, manpower readiness and training, and financial systems solutions for the federal government. The total purchase price for Acton Burnell was $29.6 million, of which $26.6 million has been paid. Under the terms of the agreement the Company will pay the balance of $3.0 million plus interest at the first anniversary date of the acquisition. Approximately $15.5 million of the purchase price has been allocated to goodwill based primarily on the excess of the purchase price over the $7.9 million estimated fair value of net assets acquired and the $6.3 million value assigned to identifiable intangible assets. The Company is amortizing substantially all such intangible assets over a period of ten years. Acton Burnell, Inc., contributed revenue of $6.7 million for the period from October 16, 2002 to December 31, 2002.

The following unaudited proforma combined condensed statements of operations set forth the consolidated results of operations for the three months ended December 31, 2002 and 2001 as if the above described acquisitions had occurred at the beginning of the period of acquisition and the same period in the year prior to the acquisition. The unaudited proforma information does not purport to be indicative of the results that actually would have occurred if the combination had been in effect for the three and six month periods ended December 31, 2002 and December 31, 2001.

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CACI INTERNATIONAL INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(continued)

The Company reports financial data in two segments: domestic operations and international operations. Operating results for the segments are as follows:

The “Other” column represents the elimination of intersegment revenue and corporate related items.

On December 19, 2002, the Company entered into a letter of intent to acquire the capital stock of a company that provides intelligence, information technology, training and logistics services in support of critical military and intelligence operations and homeland security initiatives for the Federal government. The closing of this acquisition is contingent upon the execution of a definitive agreement and the completion of due diligence satisfactory to the Company. Closing is contemplated late in the third quarter of FY2003.

On January 8, 2003, the Company paid in full the outstanding $25.0 million balance on its credit facility. The Company’s obligation related to its SWAP agreement officially ended on January 10, 2003.

On January 22, 2003, the Company entered into a letter of intent to acquire the capital stock of a company that provides engineering, design, development and evaluation of information technology and communication networks for intelligence and defense agencies of the U.S. Government. The closing of this acquisition is contingent upon the execution of a definitive agreement and the completion of due diligence satisfactory to the Company. Closing is contemplated late in the third quarter of FY2003.

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CACI INTERNATIONAL INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(continued)

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (the Interpretation). The Interpretation requires certain guarantees to be recorded at fair value, which is different from current practice, which is generally to record a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5, Accounting for Contingencies. The Interpretation also requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote, which is another change from current practice. The initial recognition and measurement provisions of the Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Interpretation’s disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not believe it has entered into any guarantees that fall within the guidance of the Interpretation other than the subcontract agreement disclosed in Footnote E, Commitments and Contingencies.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations For the Three Months Ended December 31, 2002 and 2001.

Revenue. The table below sets forth revenue by customer segment with related percentages of total revenue for the three months ended December 31, 2002 (FY2003) and December 31, 2001 (FY2002), respectively:

Revenue. For the three months ended December 31, 2002, the Company’s total revenue increased by 26.0 %, or $42.2 million, over the same period a year ago. Revenue growth in the second quarter resulted primarily from higher levels of systems integration, managed network services, engineering services, and knowledge management business from federal government customers.

Acquisitions made during the last twelve months accounted for $18.0 million of the revenue growth in the second quarter. On October 16, 2002, the Company acquired all of the outstanding capital stock of Acton Burnell, Inc. This acquisition accounted for $6.7 million of the revenue growth in the quarter. On August 16, 2002, the Company acquired substantially all of the assets of the Government Solutions Division of Condor Technology Solutions, Inc. This acquisition accounted for $4.8 million of the second quarter growth. On November 1, 2001, the Company purchased all of the outstanding capital stock of Digital Systems International Corporation (DSIC) which contributed $6.2 million towards revenue growth in the quarter. Other acquisitions accounted for the remaining growth of $0.3 million in the quarter.

Department of Defense (“DoD”) revenue increased 22.8%, or $24.1 million, for the three months ended December 31, 2002 as compared to the same period a year ago. Of this growth, $12.8 million was attributable to the previously mentioned acquisitions. The remaining growth came from the Company’s systems integration and engineering services business where we are providing C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) support to the DoD.

Revenue from Federal Civilian Agencies increased 36.6%, or $15.4 million, for the second quarter of FY2003 as compared to FY2002. Approximately 37.7% of Federal Civilian Agency revenue was derived from the Department of Justice (“DoJ”), for whom the Company provides litigation support services and maintains an automated debt management system. Revenue from DoJ was $21.6 million for the second quarter of FY2003, as compared to $18.8 million for the same period a year ago. The Acton Burnell acquisition contributed approximately $2.1 million of the total growth in civilian agency revenue for the second quarter. The Company also provided higher levels of key logistics, management and business improvement services to federal civilian agencies in the second quarter of FY2003.

Commercial revenue, which is primarily derived from the Company’s international operations, increased 12.5%, to $14.3 million during the second quarter of FY2003 as compared to $12.7 million during the same period a year ago. The Company continues to experience modest growth in its demographics business in the United Kingdom. This growth, however, has been offset by a continued weakness in the telecommunications industry in the United Kingdom, which has adversely impacted our consulting services. Most of the increase in revenue for the three months ended December 31, 2002 was derived from the domestic acquisition of Condor.

Revenue from State and Local Governments was $2.9 million for the second quarter of FY2003 as compared to $1.8 million over the same period a year ago. Revenue from State and Local Governments represents 1.4% of the Company’s total revenue. The Company’s continued and expanded focus on DoD and Federal Civilian Agency opportunities is resulting in a reduced emphasis on business with state and local governments.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The following table sets forth the relative percentage that certain items of expense and earnings bore to revenue for the quarters ended December 31, 2002 (FY2003) and December 31, 2001 (FY2002), respectively.