CACI International Inc - 10-Q quarterly report FY

 

 

 

 

 

 

(Exact name of registrant as specified in its charter)

 

(State or other jurisdiction of incorporation or organization)

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

 

(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:

 

(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 September 30, 2002: CACI International Inc Common Stock, $0.10 par value, 28,453,236 shares.

 

 

 

				Page
PART 1:		FINANCIAL INFORMATION
Item 1.		Financial Statements		3
		Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended September 30, 2002 and 2001		3
		Condensed Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and June 30, 2002		4
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2002 and 2001		5
		Consolidated Financial Statements of Comprehensive Income (Unaudited) for the Three Months Ended September 30, 2002 and 2001		6
		Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
PART II:		OTHER INFORMATION
Item 3.		Legal Proceedings		13
Item 4.		Controls and Procedures		13
Item 5.		Forward Looking Statements		13
Item 6.		Exhibits and Reports on Form 8-K		13

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		Three Months Ended September 30,
		2002				2001
Revenue		$	187,978			$	145,815
Costs and expenses
Direct costs			114,681				88,490
Indirect costs and selling expenses			55,843				43,393
Depreciation and amortization			2,768				2,437
Total operating expenses			173,292				134,320
Operating income			14,686				11,495
Interest (income) expense, net			(318	)			647
Income before income taxes			15,004				10,848
Income taxes			5,629				4,122
Income from continuing operations		$	9,375			$	6,726
Discontinued Operations
Loss from operations from discontinued
Marketing Systems Group (less applicable income tax benefit of $92)			—				(151	)
Net income		$	9,375			$	6,575
Earnings per common and common equivalent share:
Average shares outstanding			28,445				22,944
Basic:
Income from continuing operations		$	0.33			$	0.29
Loss from discontinued operations			—				(0.01	)
Net income		$	0.33			$	0.28
Average shares and equivalent shares outstanding			29,304				23,620
Diluted:
Income from continuing operations		$	0.32			$	0.28
Loss from discontinued operations			—				(0.01	)
Net income		$	0.32			$	0.27

 

See notes to condensed consolidated financial statements (unaudited)

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		September 30, 2002			June 30, 2002
		(unaudited)
ASSETS
Current assets
Cash and equivalents		$102,192			$131,049
Marketable securities		39,313			20,019
Accounts receivable:
Billed		141,378			137,296
Unbilled		8,262			10,482
Total accounts receivable		149,640			147,778
Deferred income taxes		376			364
Deferred contract costs		1,169			1,949
Prepaid expenses and other		5,370			4,970
Total current assets		298,060			306,129
Property and equipment, net		14,940			14,973
Accounts receivable, long term		8,628			8,198
Goodwill		134,369			124,219
Other assets		17,732			15,168
Intangible assets		14,992			10,228
Deferred income taxes		866			1,749
Total assets		$489,587			$480,664
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Note payable, current		$    8,737			$    8,667
Accounts payable		8,547			6,482
Other accrued expenses		20,166			20,448
Accrued compensation and benefits		29,037			33,644
Income taxes payable		1,959			4,648
Deferred income taxes		4,154			3,476
Total current liabilities		72,600			77,365
Note payable, long-term		26,500			26,500
Deferred rent expenses		1,678			1,624
Deferred income taxes		129			125
Other long-term obligations		10,464			7,891
Shareholders’ equity
Common stock—$.10 par value, 40,000,000 shares authorized, 36,225,000 and 36,195,000 shares issued, respectively		3,622			3,620
Capital in excess of par		197,973			197,354
Retained earnings		199,138			189,763
Accumulated other comprehensive loss		(1,497	)		(2,561	)
Treasury stock, at cost (7,772,000 shares)		(21,020	)		(21,017	)
Total shareholders’ equity		378,216			367,159
Total liabilities & shareholders’ equity		$489,587			$480,664

 

See notes to condensed consolidated financial statements (unaudited)

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		Three Months Ended September 30,
		2002				2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	9,375			$	6,575
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization			2,768				2,503
Provision (benefit) for deferred income taxes			1,561				(32	)
Changes in operating assets and liabilities
Accounts receivable			742				9,144
Prepaid expenses and other assets			(332	)			215
Deferred contract costs			780				(158	)
Accounts payable and accrued expenses			359				(8,800	)
Accrued compensation and benefits			(4,859	)			(3,169	)
Other long-term obligations			2,572				1,249
Deferred rent expense			58				31
Income taxes (receivable) payable			(2,730	)			1,465
Net cash provided by operating activities			10,294				9,023
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment			(1,883	)			(1,254	)
Purchase of businesses			(16,249	)			(2,500	)
Purchase of marketable securities			(19,294	)			—
Deferred compensation and other assets			(2,564	)			(825	)
Net cash used in investing activities			(39,990	)			(4,579	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds under line-of-credit			—				29,906
Payments under line-of-credit			—				(39,794	)
Proceeds from exercise of stock options			344				5,426
Purchase of common stock for treasury			(3	)			—
Net cash provided by (used in) financing activities			341				(4,462	)
Effect of changes in currency rates on cash and equivalents			498				670
Net (decrease) increase in cash and equivalents			(28,857	)			652
Cash and equivalents, beginning of period			131,049				14,842
Cash and equivalents, end of period		$	102,192			$	15,494
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for income taxes, net		$	6,471			$	618
Interest (received) paid during the period		$	(382	)		$	636

 

See notes to condensed consolidated financial statements (unaudited).

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		Three Months Ended September 30,
		2002			2001
Net income		$	9,375		$	6,575
Currency translation adjustment			950			1,234
Change of fair value of interest rate swap			114			—
Comprehensive income		$	10,439		$	7,809

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		2003 Cash and Equivalents			2003 Short-term Marketable Securities			2002 Cash and Equivalents			2002 Short-term Marketable Securities
		(dollars in thousands)
Certificate of Deposit		$	—		$	9,069		$	—		$	5,010
Money Market Funds			90,910			—			117,256			—
Municipal Securities			—			30,244			—			15,009
Cash			11,282			—			13,793			—
Total		$	102,192		$	39,313		$	131,049		$	20,019

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		Three Months Ended September 30,
		2002			2001
Net income		$	9,375		$	6,575
Weighted average number of shares outstanding during the period			28,445			22,944
Dilutive effect of stock options after application of treasury stock method			859			676
Weighted average number of shares outstanding during the period			29,304			23,620
Basic earnings per share		$	0.33		$	0.28
Diluted earnings per share		$	0.32		$	0.27

 

 

 

		September 30, 2002		June 30, 2002
		(dollars in thousands)
Billed receivables
Billed receivables		$  126,229		$  120,354
Billable receivables at end of period		15,149		16,942
Total billed receivables		141,378		137,296
Unbilled receivables
Unbilled pending receipt of contractual documents authorizing billing		8,262		10,482
Unbilled retainages and fee withholdings expected to be billed beyond the next 12 months		8,628		8,198
Total unbilled receivables		16,890		18,680
Total accounts receivable		$  158,268		$  155,976

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		Three Months Ended September 30,
		2002			2001
		(dollars in thousands, except per share amounts)
Revenue		$	189,874		$	150,802
Net Income			9,471			7,488
Diluted earnings per share		$	0.32		$	0.32

 

 

 

		Domestic Operations		International Operations		Other			Total
		(dollars in thousands)
Quarter Ended September 30, 2002
Revenue from external customers		$177,635		$  10,319		$      24			$187,978
Pre-tax income (loss) from continuing operations		16,456		1,244		(2,696	)		15,004
Quarter Ended September 30, 2001
Revenue from external customers		$135,802		$  10,006		$        7			$145,815
Pre-tax income (loss) from continuing operations		10,968		1,160		(1,280	)		10,848

 

 

 

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Revenue.    The table below sets forth revenue by customer segment with related percentages of total revenue for the three months ended September 30, 2002 (FY2003) and September 30, 2001 (FY2002), respectively:

 

		First Quarter												First Quarter Change
		FY2003						FY2002						$				%
		(dollars in thousands)
Department of Defense		$	118,805		63.2	%		$	90,003		61.7	%		$	28,802			32.0	%
Federal Civilian Agencies			53,256		28.3	%			37,678		25.8	%			15,578			41.3	%
Commercial			12,590		6.7	%			12,519		8.6	%			71			0.6	%
State & Local Governments			3,327		1.8	%			5,615		3.9	%			(2,288	)		(40.7	)%
Total		$	187,978		100.0	%		$	145,815		100.0	%		$	42,163			28.9	%

 

Revenue.    For the three months ended September 30, 2002, the Company’s total revenue increased by 28.9%, or $42.2 million, over the same period a year ago. Revenue growth in the first quarter came primarily from higher levels of managed network services, systems integration, engineering services, and knowledge management business from federal government customers.

 

Acquisitions made during the last twelve months accounted for $18.5 million of the FY2003 growth. On August 16, 2002, the Company acquired substantially all of the assets of the Government Solutions Division of Condor Technology Solutions, Inc. (“Condor”). In the first quarter of FY2003, Condor contributed $1.9 million in revenue. On November 1, 2001, the Company purchased all of the outstanding stock of Digital Systems International Corporation (“DSIC”), which contributed $16.3 million of FY2003 first quarter revenue. Other acquisitions accounted for approximately $0.3 million of revenue for FY2003.

 

Department of Defense (“DoD”) revenue increased 32.0%, or $28.8 million, for the first three months of FY2003 as compared to the same period a year ago. DoD revenue growth was primarily due to the internal growth in managed network and engineering services business as well as information assurance. In addition, DSIC contributed $14.0 million of revenue in the current quarter.

 

Revenue from Federal Civilian Agencies increased 41.3%, or $15.6 million, for the first three months of FY2003 as compared to FY2002. Approximately 42.0% 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 for DoJ was $22.4 million for the first quarter of FY2003, as compared to $17.8 million for the same period a year ago. The DSIC and Condor acquisitions contributed approximately $3.0 million of the total growth in civilian agency revenue for the first quarter. The remaining increase in Federal Civilian Agency revenue was mainly generated from continued growth in managed network services and GSA schedule contracts.

 

Commercial revenue, primarily derived from the Company’s international operations, increased slightly, to $12.6 million, in FY2003 as compared to $12.5 million for 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 impacted our consulting services.

 

Revenue from state and local governments was $3.3 million which represented 1.8% of the Company’s total revenue. State and local government revenue decreased 40.7%, or $2.3 million, for the three months ended September 30, 2002 as compared to the same period a year ago. The decline in revenue was primarily due to the phase out of work on two state contracts. 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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The following table sets forth the relative percentage that certain items of expense and earnings bore to revenue for the quarter ended September 30, 2002 (FY2003) and September 30, 2001 (FY2002), respectively.

 

		Dollar Amount							Percentage of Revenue
		First Quarter							First Quarter						First Quarter Change
		FY2003				FY2002			FY2003			FY2002			$				%
		(in thousands)													(in thousands)
Revenue		$	187,978			$	145,815		100.0	%		100.0	%		$	42,163			28.9	%
Costs and expenses:
Direct costs			114,681				88,490		61.0			60.7				26,191			29.6
Indirect costs & selling expenses			55,843				43,393		29.7			29.7				12,450			28.7
Depreciation & amortization			2,768				2,437		1.5			1.7				331			13.6
Total operating expenses			173,292				134,320		92.2			92.1				38,972			29.0
Income from operations			14,686				11,495		7.8			7.9				3,191			27.8
Interest (income) expense, net			(318	)			647		0.2			0.5				(965	)		(149.1	)
Earnings before income taxes			15,004				10,848		8.0			7.4				4,156			38.3
Income taxes			5,629				4,122		3.0			2.8				1,507			36.6
Net Income from Continued Operations		$	9,375			$	6,726		5.0	%		4.6	%		$	2,649			39.4	%

 

Income from Operations.    Operating income increased 27.8%, or $3.2 million, in FY2003 as compared to the same period a year ago. The increase in operating income was primarily due to the continued expansion of the Company’s business base.

 

As a percentage of revenue, direct costs were 61.0% and 60.7% for the quarters ended September 30, 2002 and 2001, respectively. Direct costs include direct labor and “other direct costs” such as equipment purchases, subcontractor costs and travel expenses. Other direct costs are common in our industry because they are incurred in response to specific client tasks, and vary from period to period. The largest component of direct costs, direct labor, was $57.9 million and $45.7 million for the first quarters of FY2003 and FY2002, respectively. The increase in direct labor was attributable to the growth in our federal government business, both in DoD and Federal Civilian Agencies, as well as from the DSIC and Condor acquisitions. Other direct costs were $56.8 million and $42.8 million in FY2003 and FY2002, respectively. The increase in other direct costs was primarily the result of increased volume of tasking across all lines of business and the aforementioned acquisitions.

 

Indirect costs and selling expenses include fringe benefits, marketing and bid & proposal costs, indirect labor and other discretionary costs. Most of these are highly variable and have grown in dollar volume generally in proportion to the growth in revenue. As a percentage of revenue, indirect costs and selling expenses have remained the same at 29.7% for the first three months of FY2003 as compared to FY2002.

 

Depreciation and amortization expense increased by $0.3 million or 13.6% in FY2003 as compared to FY2002. This increase was primarily due to the amortization of intangible assets purchased in acquisitions that occurred during FY2002.

 

Interest expense decreased 149.1% or $1.0 million during the first three months FY2003 as compared to the same period a year ago. This decrease is attributable to the Company having $141.5 million of cash and equivalents and short term marketable securities on its balance sheet as of September 30, 2002 as compared to $15.5 million of cash and equivalents at the same date a year ago, which resulted in higher borrowings on its line of credit for FY2002. The cash and short-term marketable securities accounted for over $0.6 million in interest income during the first quarter of FY2003. The significant increase in cash and marketable securities is due to $161.1 million of net proceeds raised in the Company’s secondary stock offering in March 2002.

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The effective income tax rates for the first three months of FY2003 and FY2002 were 37.5% and 38.0%, respectively.

 

Liquidity and Capital Resources

 

Historically, the Company’s positive cash flow from operations and available credit facilities have provided adequate liquidity and working capital to fully fund the Company’s operational needs and support. Since March 2002, the proceeds from the Company’s offerings of approximately 4.9 million shares of stock have also provided substantial liquidity and capital. Working capital was $225.5 million and $228.8 million as of September 30, 2002 and June 30, 2002, respectively. Working capital has remained strong over the prior several quarters due to the proceeds generated from the Company’s secondary stock offering. These proceeds will be used in the Company’s on-going acquisition activities. Operating activities provided cash of $10.3 million and $9.0 million for the first quarter of FY2003 and FY2002, respectively. The increase in cash provided by operating activities was primarily attributable to the growth in earnings.

 

The Company used $40.0 million of cash in investing activities in the first quarter of FY2003 as compared to $4.6 million in the first quarter of FY2002. This increase of $35.4 million was primarily due to the acquisition of Condor, and the Company’s purchase of $19.3 million in short term marketable securities. The cash used in the first three months of FY2002 was primarily for a note payable due on a prior acquisition and additional capital asset purchases.

 

During the three months ended September 30, 2002, the Company’s financing activities provided cash of $0.3 million. This was derived almost entirely from the exercise of stock options. In the first quarter of FY2002, the Company used net cash of $4.5 million in connection with repayment of a portion of the line of credit in the amount of $9.9 million offset by $5.4 million of proceeds from the exercise of stock options.

 

In anticipation of continuing its strategy of acquisition and in order to secure lower interest rates, on February 4, 2002, the Company executed a five year unsecured revolving line of credit. The agreement permits borrowings of up to $185 million with annual sublimits on amounts borrowed for acquisitions. The Company also maintains a 500,000 pounds sterling, unsecured line of credit in London, England, which expires in December 2002. At September 30, 2002, the Company had no borrowings under this line of credit.

 

The Company believes that the combination of internally generated funds, available bank borrowings and cash and cash equivalents on hand will provide the required liquidity and capital resources for the foreseeable future.

 

On October 16, 2002, the Company paid approximately $25.7 million in cash for the acquisition of Acton Burnell, Inc. (see also “Subsequent Events” in the Notes to the unaudited Condensed Consolidated Financial Statements.)

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Reference is made to Part II, Item 1, Legal Proceedings, in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2002, for the most recently filed information concerning the appeal filed on September 27, 2000, with the Armed Services Board of Contract Appeals (“ASBCA”) challenging the Defense Information Systems Agency’s (“DISA”) denial of its claim for breach of contract damages. The Registrant’s appeal seeks damages arising from DISA’s breach of license agreement pursuant to which the Department of Defense agreed to conduct all electronic data interchanges (which can be broadly understood to mean e-commerce) exclusively through certified value-added networks, such as the network maintained by Registrant’s wholly-owned subsidiary, CACI, INC.-FEDERAL, for the period from September 2, 1994 through April 22, 1998. By decision of March 22, 2001, in the companion case of GAP Instrument Corporation, ASBCA No.51658 (2001), the ASBCA held that the Government’s failure to conduct all electronic data interchanges exclusively through certified value-added networks constituted a breach of contract. As a result, unless the GAP Instrument decision is overturned on appeal, Registrant will pursue collection of its damages, which are substantial and which could have a material impact on the Company’s earnings.

 

Since the filing of Registrant’s report indicated above, the parties have been engaged in discovery efforts. If settlement is not resolved, a trial on damages is expected in the spring of 2003.

 

 

Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation.

 

 

Forward Looking Statements

 

There are statements made herein which may not address historical facts and, therefore, could be interpreted to be forward looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. The factors that could cause actual results to differ materially from those anticipated include, but are not limited to, the following: regional and national economic conditions in the United States and United Kingdom, (the UK economy is experiencing a downturn that affects the Registrant’s UK operations) including conditions that result from terrorist activities or war; changes in interest rates; currency fluctuations; failure to achieve contract awards in connection with recompetes for present business and/or competition for new business; the risks and uncertainties associated with client interest in and purchases of new products and/or services; continued funding of U.S. Government or other public sector projects, based on Congressional action on the FY03 Federal budget, or in the event of a priority need for funds, such as homeland security, the war on terrorism or war with Iraq; government contract procurement (such as bid protest, small business set asides, etc.) and termination risks; individual business decisions of our clients; financial condition of our clients; paradigm shifts in technology; competitive factors such as pricing pressures and competition to

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hire and retain employees; our ability to complete acquisitions appropriate to achievement of our strategic plans; material changes in laws or regulations applicable to our businesses, particularly legislation affecting (i) government contracts for services, (ii) outsourcing of activities that have been performed by the government and (iii) competition for task orders under Government Wide Acquisition Contracts (“GWACS”) and/or scheduled contracts with the General Services Administration; our own ability to achieve the objectives of near term or long range business plans; and other risks described in the Company’s Securities and Exchange Commission filings.

 

 

 

 

 

 

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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 hereunto duly authorized.

 

 

CACI International Inc.

Registrant

 

 

Date:		November 14, 2002				By:		/s/    Dr. J. P. London
								Dr. J. P. London Chairman of the Board, President Chief Executive Officer and Director (Principal Executive Officer)

 

 

Date:		November 14, 2002				By:		/s/    Stephen L. Waechter
								Stephen L. Waechter Executive Vice President, Chief Financial Officer and Treasurer (Principal Executive Officer)

 

 

Date:		November 14, 2002				By:		/s/    James D. Kuhn
								James D. Kuhn Senior Vice President and Corporate Controller (Principal Executive Officer)

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Section 302 Certification

 

I, Dr. J.P. London, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

Date:		November 14, 2002				/s/    Dr.  J.P.  London
						Dr.  J.P.  London Chairman of the Board, President Chief  Executive Officer and Director (Principal Executive Officer)

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Section 906 Certification

 

In connection with the quarterly report on Form 10-Q of CACI International Inc (the “Company”) for the fiscal quarter ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned Chairman of the Board, President and Chief Executive Officer of the Company certifies, to the best of his knowledge and belief pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

 

Date:		November 14, 2002						/s/    Dr.  J.P.   London
								Dr.  J.P.  London Chairman of the Board, President Chief  Executive Officer and Director (Principal Executive Officer)

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Section 302 Certification

 

I, Stephen L. Waechter, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

Date:		November 14, 2002		/s/    Stephen L. Waechter
				Stephen L. Waechter Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

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Section 906 Certification

 

In connection with the quarterly report on Form 10-Q of CACI International Inc (the Company) for the fiscal quarter ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned Executive Vice President, Chief Financial Officer and Treasurer of the Company certifies, to the best of his knowledge and belief pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

 

Date:		November 14, 2002		/s/    Stephen L. Waechter
				Stephen L. Waechter Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

 

 

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