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 March 31, 1999
Commission File Number 0-8401
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CACI International Inc
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(Exact name of registrant as
specified in its charter)
Delaware
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(State or other jurisdiction of
incorporation or organization)
54-1345888
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(I.R.S. Employer Identification No.)
1100 North Glebe Road, Arlington, VA 22201
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(Address of principal executive offices)
(703) 841-7800
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(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 March 31, 1999: CACI International Inc Common Stock,
$0.10 par value, 10,911,000 shares.
<PAGE>
CACI INTERNATIONAL INC AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998
Unaudited Condensed Consolidated Statements of Operations for the
Nine Months Ended March 31, 1999 and 1998
Unaudited Condensed Consolidated Balance Sheets as of March 31, 1999
and June 30, 1998
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1999 and 1998
Unaudited Consolidated Financial Statements of Comprehensive Income
for the Three and Nine Months Ended March 31, 1999 and 1998
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
SIGNATURES
INDEX TO EXHIBITS
<PAGE>
PART I
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 March 31,
1999 1998
----------------------------
Revenues $119,594 $85,239
Costs and expenses
Direct costs 70,690 47,328
Indirect costs and selling expenses 38,914 30,449
Depreciation and amortization 1,964 1,493
Goodwill amortization 915 623
------- ------
Total operating expenses 112,483 79,893
------- ------
Income from operations 7,111 5,346
Interest expense 1,160 627
------- ------
Income before income taxes 5,951 4,719
Income taxes 2,378 1,613
------- ------
Net income $ 3,573 $ 3,106
======= ======
Basic earnings per share $ 0.33 $ 0.29
======= ======
Diluted earnings per share $ 0.32 $ 0.28
======= ======
Average shares outstanding 10,892 10,813
======= ======
Average shares and equivalent shares outstanding 11,211 11,199
======= ======
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
CACI INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share data)
Nine Months Ended March 31,
1999 1998
---------------------------
Revenues $315,665 $235,053
Costs and expenses
Direct costs 181,725 127,915
Indirect costs and selling expenses 107,046 86,039
Depreciation and amortization 5,619 5,054
Goodwill amortization 2,309 1,428
------- -------
Total operating expenses 296,699 220,436
------- -------
Income from operations 18,966 14,617
Interest expense 2,628 1,344
------- -------
Income before income taxes 16,338 13,273
Income taxes 6,264 4,863
------- -------
Net income $ 10,074 $ 8,410
======= =======
Basic earnings per share $ 0.93 $ 0.78
======= =======
Diluted earnings per share $ 0.90 $ 0.76
======= =======
Average shares outstanding 10,875 10,758
======= =======
Average shares and equivalent
shares outstanding 11,203 11,134
======= =======
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
CACI INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, 1999 June 30, 1998
-------------- -------------
(Unaudited)
ASSETS
Current assets
Cash and equivalents $ 936 $ 2,081
Accounts receivable:
Billed 98,505 83,995
Unbilled 12,120 9,350
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Total accounts receivable 110,625 93,345
------- -------
Income taxes receivable 1,214 -
Prepaid expenses and other 4,649 4,362
Deferred contract costs 1,409 2,383
Deferred income taxes 203 209
------- -------
Total current assets 119,036 102,380
------- -------
Property and equipment, net 13,406 11,351
Accounts receivable, long term 6,014 6,075
Goodwill 68,559 37,474
Other assets 6,746 4,884
Deferred contract costs, long-term 1,053 480
Deferred income taxes 5,164 416
------- -------
Total assets $219,978 $163,060
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 30,940 $ 24,257
Accrued compensation and benefits 18,471 17,010
Income taxes payable - 4,390
Deferred income taxes 1,399 1,845
------- -------
Total current liabilities 50,810 47,502
------- -------
Note payable, long-term 69,000 29,800
Deferred rent expenses 1,220 1,289
Deferred income taxes 137 142
Other long-term obligations 4,410 -
Shareholders' equity
Common stock -
$.10 par value, 40,000,000 shares
authorized, 14,437,000 and
14,215,000 shares issued 1,444 1,437
Capital in excess of par 13,111 12,344
Retained earnings 94,490 84,415
Cumulative currency translation adjustments (982) (207)
Treasury stock, at cost (3,526,000 shares) (13,662) (13,662)
------- -------
Total shareholders' equity 94,401 84,327
------- -------
Total liabilities & shareholders' equity $219,978 $163,060
======= =======
See notes to condensed consolidated financial statements (unaudited)
<PAGE>
CACI INTERNATIONAL INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Nine Months Ended March 31,
1999 1998
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,074 $ 8,410
Reconciliation of net income to net cash
provided by (used in)operating activities
Depreciation and amortization 7,928 6,482
Provision for deferred income taxes (72) (863)
Loss (gain) on sale of property
and equipment 30 (49)
Changes in operating assets and liabilities
Accounts receivable (7,250) (3,589)
Prepaid expenses and other assets (774) 336
Accounts payable and accrued expenses 667 (1,750)
Accrued compensation and benefits 1,452 2,893
Other long-term obligations (439) -
Deferred rent expense (386) (987)
Income taxes (receivable) payable (2,686) 3,831
Deferred contract costs 401 1,831
------- -------
Net cash provided by operating activities 8,945 16,545
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (5,265) (4,148)
Purchase of businesses (44,291) (36,490)
Proceeds from sale of property & equipment 9 411
Capitalized software cost and other (491) (598)
------- -------
Net cash used in investing activities (50,038) (40,825)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds under line-of-credit 158,379 124,850
Payments under line-of-credit (119,179) (102,550)
Proceeds from stock options 774 1,411
------- -------
Net cash provided by financing activities 39,974 23,711
------- -------
Effect of changes in currency rates on
cash and equivalents (26) 52
------- -------
Net (decrease) in cash and equivalents (1,145) (517)
Cash and equivalents, beginning of period 2,081 2,015
------- -------
Cash and equivalents, end of period $ 936 $ 1,498
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for income taxes, net $ 8,783 $ 820
======= =======
Interest paid during the period $ 2,172 $ 1,159
======= =======
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
CACI INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
------------------ -----------------
Net income $3,573 $3,106 $10,074 $8,410
Currency translation adjustment (660) 438 (775) 183
----- ----- ------ -----
Comprehensive income $2,913 $3,544 $ 9,299 $8,593
===== ===== ====== =====
<PAGE>
CACI INTERNATIONAL INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. Basis of Presentation
- --------------------------
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 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
$2,238,000 and $3,637,000 at March 31, 1999, and June 30, 1998, respectively.
Accounts receivable are classified as follows:
(dollars in thousands) March 31, 1999 June 30, 1998
-------------- -------------
Billed receivables
Billed receivables $ 88,364 $76,458
Billable receivables at end of period 10,141 7,537
------- ------
Total billed receivables 98,505 83,995
Unbilled receivables
Unbilled pending receipt of
contractual documents
authorizing billing 11,830 9,195
Unbilled retainages and fee withholds
expected to be billed within the
next 12 months 290 155
------- ------
12,120 9,350
Unbilled retainages and fee withholds
expected to be billed beyond the
next 12 months 6,014 6,075
------- ------
Total unbilled receivables 18,134 15,425
------- ------
Total accounts receivable $116,639 $99,420
======= ======
C. Acquisitions
- -----------------
On November 13, 1998, the Company acquired all of the common stock of
QuesTech, Inc. ("QuesTech"), a company that specialized 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 the Company, 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 (now named CACI Technologies, Inc.)
contributed revenues of $31.4 million for the period from November 13, 1998 to
March 31, 1999.
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 the acquisition, the operations acquired from IDS have
contributed approximately $0.8 million in revenue through March 31, 1999. 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 March 31, 1999, approximately
$2.7 million of such long-term obligations 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 balance of such long-term obligations 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
actuarially 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."
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. The Company will begin to apply this statement in its fiscal
1999 annual audited financial statements and reclassify its annual financial
statements for earlier years for comparative purposes. At this point, the
Company has not fully determined the impact of the adoption of SFAS No. 131.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations For the Three and Nine Months Ended March 31, 1999
and 1998.
- ------------------------------------------------------------------------
REVENUES. The table below sets forth the customer mix in revenues with
related percentages of total revenues for the three and nine months ended on
March 31, 1999 (FY99) and March 31, 1998 (FY98), respectively:
<TABLE>
<CAPTION>
(dollars in thousands)
Third
Quarter First Nine Months
FY99
FY98 FY99 FY98
-----------------------------------------
- ------------------------------------------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Department of Defense $ 61,745 51.6% $40,851 47.9%
$152,167 48.2% $116,398 49.5%
Federal Civilian Agencies 34,357 28.7% 25,213 29.6%
95,583 30.3% 64,840 27.6%
Commercial 18,002 15.1% 16,613 19.5%
53,582 17.0% 47,726 20.3%
State & Local Governments 5,491 4.6% 2,562 3.0%
14,333 4.5% 6,089 2.6%
------- ----- ------- -----
- ------- ----- ------- -----
Total $119,595 100.0% $85,239 100.0%
$315,665 100.0% $235,053 100.0%
======= ===== ======= =====
======= ===== ======= =====
</TABLE>
For the three months ("quarter") and nine months ended March 31, 1999, the
Company's total revenues increased by 40%, or $34.4 million, and by 34%, or
$80.6 million, respectively, over the same periods last year. The increases
were primarily the result of the acquisitions described below and continued
growth in Year 2000 and systems integration sales to commercial and Federal
civilian agency customers.
On November 13, 1998, the Company acquired 100% of the issued and outstanding
common stock of QuesTech, Inc. ("QuesTech") which contributed approximately
$22.5 million and $31.4 million of incremental revenues for the three and nine
months ended March 31, 1999, respectively. On August 13, 1998, the Company
purchased the assets of Information Decision Systems ("IDS"). Since the
acquisition, the operations of IDS have contributed approximately $0.8 million
of revenues through March 31, 1999. On November 1, 1997, the Company
purchased the business and assets of Government Systems, Inc. ("GSI") which
generated incremental revenues of $9.6 million in FY99.
Department of Defense revenues increased 51%, or $20.9 million, for the
quarter, and 31%, or $35.8 million, for the nine months. The QuesTech and GSI
acquisitions accounted for most of the growth, contributing a combined $20.6
million and $32.3 million for the three and nine month periods, respectively.
Revenues from Federal Civilian agencies increased 36%, or $9.1 million, for
the quarter, and 47% or $30.7 million, for the first nine 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 $19.2 million and $52.1 million for
the quarter and nine months ended March 31, 1999, as compared to $14.6 million
and $43.6 million for the respective periods a year ago. Significant growth
in contracts with Civilian agencies other than DoJ was led by continued
expansion of 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 $4.1 million for the nine months ended
March 31, 1999. The remaining increase of $4.6 million for the third quarter
and $18.1 million for the first nine months of FY99 was mainly generated from
growth in a GSA supply schedule contract, through which orders have focused
primarily on Year 2000 software renovation services for several Civilian
agencies.
During the quarter and nine months ended March 31, 1999, commercial revenues
increased by 8%, or $1.4 million, and 12%, or $5.9 million, respectively, over
the same periods a year ago. These increases are primarily the result of
increased demand for systems integration services provided by our Marketing
Systems Group in the United Kingdom.
Revenues from state and local governments increased $2.9 million and $8.2
million for the quarter and nine months ended March 31, 1999, as compared to
the same periods a year ago primarily 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 nine months ended
March 31, 1999 and March 31, 1998, respectively.
<TABLE>
<CAPTION>
Dollar Amount (in
thousands) Percentage of Revenue
Third Quarter Nine
Months Third Quarter Nine Months
FY99 FY98 FY99
FY98 FY99 FY98 FY99 FY98
- -------------------------------------------
- ------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
Revenues $119,594 $85,239 $315,665
$235,053 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Direct costs 70,690 47,328 181,725
127,915 59.1% 55.5% 57.6% 54.4%
Indirect costs & selling expenses 38,914 30,449 107,046
86,039 32.5% 35.7% 33.9% 36.6%
Depreciation & amortization 1,964 1,493 5,619
5,054 1.6% 1.8% 1.8% 2.2%
Goodwill amortization 915 623 2,309
1,428 0.8% 0.7% 0.7% 0.6%
------- ------ -------
- ------- ---- ---- ---- ----
Total operating expenses 112,483 79,893 296,699
220,436 94.0% 93.7% 94.0% 93.8%
Income from operations 7,111 5,346 18,966
14,617 6.0% 6.3% 6.0% 6.2%
Interest expense 1,160 627 2,628
1,344 1.0% 0.7% 0.8% 0.6%
------- ------ -------
- ------- ---- ---- ---- ----
Earnings before income taxes 5,951 4,719 16,338
13,273 5.0% 5.6% 5.2% 5.6%
Income taxes 2,378 1,613 6,264
4,863 2.0% 1.9% 2.0% 2.0%
------- ------ -------
- ------- ---- ---- ---- ----
Net income $ 3,573 $ 3,106 $ 10,074 $
8,410 3.0% 3.7% 3.2% 3.6%
======= ====== =======
======= ==== ==== ==== ====
</TABLE>
INCOME FROM OPERATIONS. Operating income increased 33% and 30% for the quarter
and nine months ended March 31, 1999 as compared to the same periods a year
ago. This is due to the 40% and 34% growth in revenues for the third quarter
and nine months of FY99 offset by a higher proportion of other direct costs to
total direct costs, which generally provides a lower margin.
As a percentage of revenues, total direct costs for the third quarter of FY99
were 59.1% versus 55.5% a year ago and for the first nine months of FY99 were
57.6% versus 54.4% 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 $34.7
million and $27.0 million for the third quarters of FY99 and FY98,
respectively. For the nine months ended March 31, 1999 and 1998, direct
labor was $91.9 million and $76.0 million, respectively. Other direct costs
were $36.0 million and $20.3 million for the third quarters of FY99 and FY98,
respectively, and $89.8 million versus $51.9 million for the first nine months
of FY99 and FY98, respectively. Other direct costs have grown at a more rapid
pace than direct labor because the Company has a higher number of contracts
with an increased level of such 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 in performing 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
third quarter and the nine month period of FY99.
Depreciation and amortization expense increased slightly in the third quarter
and the nine month period 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 third quarter
and $0.9 million for the nine month period 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 full period impact from the GSI acquisition in the
prior year.
INTEREST EXPENSE. Interest expense increased $0.5 million and $1.3 million
for the third quarter and first nine 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 nine months ended March
31, 1999 was 38.3% versus 36.6% for the same period last year. The increase
is primarily due to the impact of non-deductible goodwill amortization from
the QuesTech acquisition.
NET INCOME. Net income increased to $3.6 million for the quarter and to $10.1
million for the nine months of FY 1999, as compared to $3.1 million and $8.4
million for the same periods in the previous year for the various reasons
discussed above.
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 the acquisition
activities. Working capital was $68.2 million and $54.9 million as of March
31, 1999 and June 30, 1998, respectively. The increase in working capital in
the nine month period of FY99 is related both to internal growth and to the
QuesTech acquisition. Operating activities provided cash of $8.9 million for
the nine months of FY99 as compared to FY98 when operating activities provided
cash of $16.5 million. This decrease in cash provided by operating activities
since the prior year is primarily due to $8.7 million of income tax payments
in the nine month period of FY99 as compared to $0.3 million of income tax
payments in FY98. In addition, the decrease is due to growth in receivables
resulting from the 34% growth in revenues for the nine month period of FY99 as
compared to the same period of FY98.
The Company used $50.0 million in investing activities for the nine months
ended March 31, 1999 versus $40.8 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 $39.2 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 March 31, 1999, the Company had approximately $56.8 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, which is the result of computer programs written using two digit date
fields rather than four digit date fields to define the applicable year.
Computer systems and products that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculation causing disruptions of operations
potentially leading to the inability able to engage in normal business
activities.
The Company has undertaken a multi-dimensional 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). The compliance program also includes 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 Company's
software products currently offered are compliant or not date-sensitive and
have published the status of all Company 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 custom systems previously developed by the Company for its
customers, the Company has evaluated certain contractual commitments that
could potentially obligate it to remediate non-compliant systems, as well as
the Company's potential legal exposure concerning systems for which the
Company has no continuing express warranty or maintenance obligations. As a
result of this evaluation, the Company believes that (1) those systems
developed pursuant to a specific requirement of Year 2000 compliance are
compliant and (2) the Company has no continuing express warranty obligations
to make compliant those systems developed in the absence of a specific Year
2000 compliance requirement.
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 is evaluating the
major components of its computer hardware and software, as well as its
telecommunication equipment and software. To date, approximately 85% of the
software and computer hardware has been found to be compliant or to require
only minor changes. Pursuant to its Year 2000 plan, the Company is scheduled
to achieve material compliance of these systems by June 1999.
The Company has identified the following systems as key business applications:
finance & project management, payroll, human resources, and contracts. The
human resources information, project forecasting, and contracts database
systems are compliant. In addition, the Company has completed the upgrade of
its payroll system to a fully compliant MS-Windows(R)-based version supplied
by an outside vendor.
In January 1998, the Company began implementation of a new finance system
supplied by Deltek Systems, a leading supplier of such systems to the
government contracting industry. This system is represented as being
compliant and the plan to have it implemented by June 1999 is on schedule.
The Company will continue to determine and assess the Year 2000 readiness of
its critical business partners as a part of the compliance program.
Presently, such significant business partners include, but are not limited to,
suppliers, utility companies, the bank lending group, an outside vendor used
to process payroll, insurance and benefit providers, and property management
firms. The Company's operations are dependent to varying degrees on the
readiness of these and other partners. The Company has issued questionnaires
to identified business partners. To date, 66% of the property management
firms and 100% of the remaining significant business partners have responded
to the request for information. All of the Company's business partners are
actively addressing the Year 2000 issue. The Company is continuing to pursue
responses in order to complete the 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 Year 2000 compliant is not
fully determinable at this time. Presently, the most significant costs are
related to implementation of 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, the Company anticipates 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 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
Company's proprietary software product upgrades to achieve Year 2000
compliance 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
that is progressing as described above. Investors should be aware of the
fact that the process of addressing the Year 2000 issue is necessarily
incremental and subject to uncertainties, some of which may not be fully
determinable (for example, potential liability associated with [1] custom
systems that were delivered prior to the time when Year 2000 issues were
identified, and [2] software products no longer under maintenance contracts).
The Company will continue to report on the status of its Year 2000 compliance
program. The Company expects that its business systems will be Year 2000
ready, but it may experience isolated incidences of non-compliance and
potential outages with respect to its IT infrastructure. The Company plans to
allocate internal resources to be ready to take action should these events
occur. Investors are cautioned, however, that the Company's assessment of its
readiness, of the costs of performing the program and the risks attendant
thereto, and of the need for any contingency plans may change materially in
the future as the Company proceeds further through plan performance.
<PAGE>
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 December 31, 1998 for the most recentl
y 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
continued 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
incorporated by reference to Exhibit 3.2 of the Registrant's report to the Secur
ities and Exchange Commission on Form 10-Q for the quarter ended December 31,
1998.
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, suppliers and landlords; the
Company's ability to achieve the objectives of its business plans; and changes
in government laws or regulations.
<PAGE>
CACI INTERNATIONAL INC AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Title
- ------- -----
11 Computation of Basic and Diluted Earnings Per Share
<PAGE>
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 hereunto duly authorized.
CACI International Inc
------------------------------
(Registrant)
Date: May 14, 1999 By: /s/
---------------- -------------------------------
Dr. J.P. London
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 14, 1999 By: /s/
---------------- -------------------------------
Dr. J.P. London
Acting Chief Financial Officer
and Treasurer
(Principal Financial Officer)
Exhibit 11
CACI INTERNATIONAL INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
------------------ ------------------
Net income $ 3,573 $ 3,106 $10,074 $ 8,410
Average shares outstanding
during the period 10,892 10,813 10,875 10,758
Dilutive effect of stock options
after application of treasury
stock method 319 386 328 376
------ ------ ------ ------
Average number of shares
outstanding during the period 11,211 11,199 11,203 11,134
====== ====== ====== ======
Basic earnings per share $ 0.33 $ 0.29 $ 0.93 $ 0.78
====== ====== ====== ======
Diluted earnings per share $ 0.32 $ 0.28 $ 0.90 $ 0.76
====== ====== ====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 936,000
<SECURITIES> 0
<RECEIVABLES> 118,877,000
<ALLOWANCES> (2,238,000)
<INVENTORY> 0
<CURRENT-ASSETS> 119,036,000
<PP&E> 48,686,378
<DEPRECIATION> (35,279,995)
<TOTAL-ASSETS> 219,978,000
<CURRENT-LIABILITIES> 50,810,000
<BONDS> 69,000,000
0
0
<COMMON> 1,444,000
<OTHER-SE> 92,957,000
<TOTAL-LIABILITY-AND-EQUITY> 219,978,000
<SALES> 0
<TOTAL-REVENUES> 315,665,000
<CGS> 0
<TOTAL-COSTS> 181,725,000
<OTHER-EXPENSES> 114,407,000
<LOSS-PROVISION> 567,000
<INTEREST-EXPENSE> 2,628,000
<INCOME-PRETAX> 16,338,000
<INCOME-TAX> 6,264,000
<INCOME-CONTINUING> 10,074,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,074,000
<EPS-PRIMARY> $0.90<F1>
<EPS-DILUTED> $0.90<F1>
<FN>
<F1>Earnings per share has been presented on the financial statements
in accordance with SFAS #128 as shown below:
earnings per share-basic $0.93
earnings per share-diluted $0.90
</FN>
</TABLE>
