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 September 30, 1997
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of September 30, 1997: CACI International Inc Common Stock, $0.10 par value, 10,731,000 shares.
CACI INTERNATIONAL INC AND SUBSIDIARIES
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 (Unaudited) and June 30, 1997
Unaudited Consolidated Statements of Operations for the Three Months Ended September 30, 1997 and 1996
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1997 and 1996
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 1. Legal Proceedings
Item 5. Forward Looking Statements
INDEX TO EXHIBITS
SIGNATURES
PART 1
CACI INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
September 30, 1997 June 30, 1997
------------------ -------------
Current assets (Unaudited)
Cash and equivalents $ 3,484 $ 2,015
Accounts receivable:
Billed 59,428 59,294
Unbilled 11,959 11,549
------- -------
Total accounts receivable 71,387 70,843
------- -------
Income taxes receivable 148 2,984
Deferred income taxes 112 114
Prepaid expenses and other 3,083 3,576
------- -------
Total current assets 78,214 79,532
------- -------
Property and equipment, net 10,717 11,605
Accounts receivable, long term 7,207 7,015
Goodwill 15,163 15,459
Other assets 4,368 4,486
Deferred income taxes 672 763
------- -------
Total assets $116,341 $118,860
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 16,056 $ 19,854
Accrued compensation and benefits 12,481 12,527
Income taxes payable 1,240 -
Deferred income taxes 4,860 5,137
------- -------
Total current liabilities 34,637 37,518
------- -------
Note payable, long-term 7,000 8,800
Deferred rent expenses 1,543 1,627
Deferred income taxes 138 141
Shareholders' equity
Common stock -
$.10 par value, 40,000,000 shares
authorized, 14,257,000 and 14,215,000
shares issued 1,426 1,422
Capital in excess of par 10,979 10,595
Retained earnings 75,132 72,700
Cumulative currency translation
adjustments (852) (281)
Treasury stock, at cost
(3,526,000 shares) (13,662) (13,662)
------- -------
Total shareholders' equity 73,023 70,774
------- -------
Total liabilities & shareholders' equity $116,341 $118,860
======= =======
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See notes to consolidated financial statements (unaudited).
CACI INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended September 30,
-------------------------------
1997 1996
---- ----
Revenues $70,669 $62,734
Costs and expenses
Direct costs 38,037 32,084
Indirect costs and selling expenses 26,439 24,520
Depreciation and amortization 2,025 1,412
------ ------
Total operating expenses 66,501 58,016
------ ------
Income from operations 4,168 4,718
Interest expense 245 184
------ ------
Income before income taxes 3,923 4,534
Income taxes 1,491 1,836
------ ------
Net income $ 2,432 $ 2,698
====== ======
Earnings per share $ 0.22 $ 0.25
====== ======
Weighted average shares outstanding 11,075 10,891
====== ======
|
See notes to consolidated financial statements (unaudited).
CACI INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended September 30,
-------------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,432 $ 2,698
Reconciliation of net income to net
cash provided by (used in)operating
activities
Depreciation and amortization 2,025 1,412
Provision for deferred income taxes (187) 1,232
Gain on sale of property and equipment (31) -
Changes in operating assets and liabilities
Accounts receivable (645) 702
Prepaid expenses and other assets 483 (192)
Accounts payable and accrued expenses (4,131) (5,025)
Accrued compensation and benefits (35) (1,712)
Deferred rent expense (204) (146)
Income taxes (receivable) payable 4,112 (18)
------ ------
Net cash (used in) provided by operating
activities 3,819 (1,049)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (988) (1,155)
Purchase of businesses - (118)
Proceeds from sale of property & equipment 402 -
Acquisition deposit - (5,336)
Other (279) (127)
------ ------
Net cash used in investing activities (865) (6,736)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds under line-of-credit 28,300 31,271
Payments under line-of-credit (30,100) (24,258)
Proceeds from stock options 388 1,090
------ ------
Net cash (used in) provided by financing
activities (1,412) 8,103
Effect of changes in currency rates on
cash and equivalents (73) 14
------ ------
Net increase in cash and equivalents 1,469 332
Cash and equivalents, beginning of period 2,015 1,778
------ ------
Cash and equivalents, end of period $ 3,484 $ 2,110
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash (received) paid during the period
for income taxes, net $(2,832) $ 111
====== ======
Interest paid during the period $ 175 $ 119
====== ======
|
See notes to consolidated financial statements (unaudited).
CACI INTERNATIONAL INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 1997.
Total accounts receivable are net of allowance for doubtful accounts of $3,075,000 and $2,988,000 at September 30, 1997, and June 30, 1997, respectively. Accounts receivable are classified as follows:
(Dollars in thousands) September 30, 1997 June 30, 1997
------------------ -------------
Billed and billable receivables
Billed receivables $52,003 $52,159
Billable receivables at end of period 7,425 7,135
------ ------
Total billed receivables 59,428 59,294
Unbilled receivables
Unbilled pending receipt of contractual
documents authorizing billing 11,634 11,374
Unbilled retainages and fee withholds
expected to be billed within the next
12 months 325 175
------ ------
11,959 11,549
Unbilled retainages and fee withholds
expected to be billed beyond the next
12 months 7,207 7,015
------ ------
Total unbilled receivables 19,166 18,564
------ ------
Total accounts receivable $78,594 $77,858
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In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (EPS) which simplifies the standards for computing EPS previously found in APB Opinion No. 15 and makes them comparable to international EPS standards. The Statement is effective for financial statements issued for periods ending after December 15, 1997. Had the following statement been effective for the quarter ended September 30, 1997 and 1996, earnings per share would have been presented as follows:
Three Months Ended
September 30,
------------------
1997 1996
---- ----
Earnings per common share $0.23 $0.26
Earnings per common share-assuming dilution $0.22 $0.25
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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.
Effective November 1, 1997, the Company acquired the business and net assets of Government Systems, Inc. (GSI), a subsidiary of Infonet Services Corporation, a multinational communications network provider headquartered in El Segundo, California, for $28 million in cash, plus an additional $5.5 million to pay off existing debt of GSI. GSI delivers international communications and network-related services to meet the data networking needs of the U.S. Government and other organizations. These services include full implementation of dedicated private networks, integrated public and private networks, installation and maintenance, and network management and operations. GSI's major customers include the Department of Defense, the Federal Aviation Administration and Globalstar Limited Partnership. GSI's current annual revenues approximate $36 million. It is currently estimated that approximately $23 million of the purchase consideration will be allocated to goodwill, which will be amortized over 20 years.
In order to meet the financing requirements of the above acquisition, on October 28, 1997, the Company amended its existing credit facility extending its term from July 1, 1999 to July 1, 2000 and increasing the facility from $50 million to $70 million. All other significant terms and conditions remain the same.
As the acquisition took place in November 1997, it had no impact on the Company's results for the first quarter of FY 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
The table below sets forth the customer mix in revenues with related percentages of total revenues for the three months ended on September 30, 1997 (FY 1998) and September 30, 1996 (FY 1997), respectively:
(dollars in thousands, except as percents)
First Quarter
--------------------------------------
FY98 FY97
---------------- ----------------
Department of Defense $34,898 49.4% $32,814 52.3%
Federal Civilian Agencies 19,796 28.0% 16,063 25.6%
Commercial 14,263 20.2% 11,779 18.8%
State & Local Governments 1,712 2.4% 2,078 3.3%
------ ----- ------ -----
Total $70,669 100.0% $62,734 100.0%
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During the three months ended September 30, 1997, the Company's total revenues increased by 12.6% or $7.9 million over the same period last year. The increase was primarily the result of the acquisition discussed herein, coupled with internal growth in federal civilian agencies and commercial sales.
Department of Defense (DoD) revenues increased 6% to $34.9 million. The increase was due to $5.0 million of revenues added from business acquired in the past year, partially offset by declines on several other DoD contracts.
Revenues from federal civilian agencies increased by 23% to $19.8 million, for the quarter. Federal civilian agencies revenues are primarily derived from Department of Justice (DoJ) litigation support efforts. These services are dependent on the level of DoJ litigation that the Company is supporting at any period of time and have fluctuated from quarter to quarter. For the quarter, DoJ revenues increased sharply to $15.0 million versus $11.9 million for the same period last year.
Commercial revenues increased by 21% or $2.5 million primarily as a result of increased demand for products and services of the Company's Marketing Systems Group in the United Kingdom. The nature of the Company's proprietary software products business, primarily its simulation product line and its market analysis products, is inherently less predictable than the Company's longer-term contract project work and financial results have fluctuated from quarter to quarter.
The following table sets forth the relative percentage that certain items of expense and earnings bear to revenues for the three months ending September 30, 1997 and September 30, 1996, respectively.
(Dollars in thousands, except as percents)
Percentage
Dollar Amount of Revenues
----------------- -----------------
FY98 FY97 FY98 FY97
------ ------ ------ ------
Revenues $70,669 $62,734 100.0% 100.0%
Costs and expenses:
Direct costs 38,037 32,084 53.8 51.1
Indirect costs 26,439 24,520 37.4 39.1
Depreciation & amortization 2,025 1,412 2.9 2.3
------ ------ ---- ----
Total operating expenses 66,501 58,016 94.1 92.5
Income from operations 4,168 4,718 5.9 7.5
Interest expense 245 184 0.4 0.3
------ ------ ---- ----
Earnings before income taxes 3,923 4,534 5.5 7.2
Income taxes 1,491 1,836 2.1 2.9
------ ------ ---- ----
Net income $ 2,432 $ 2,698 3.4% 4.3%
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Compared with the first quarter of FY 1997, operating income decreased by $0.5 million from $4.7 million to $4.2 million. Higher earnings a year ago were the result of a $0.5 million pretax gain from a favorable settlement of prior indirect cost rates that had been subject to routine audits by the U.S. Government. After adjusting for this item, operating margins were 6.7% in FY 1997. The reduced margins in FY 1998 were also the result of lower license sales in the current year.
For the quarter, direct costs increased by $6.0 million, or 18.6%, largely due to the increases in revenues. Direct costs include direct labor and other direct costs (i.e. non-labor direct cost) which are generally passed to the customer without significant mark-up. Direct labor, the principal driver of profit-bearing revenues, increased by 9.9% in the first quarter of FY 1998 versus the same period last year. Other direct costs, which historically have larger quarter to quarter variances, increased by approximately $3.8 million or 36.5%.
Indirect costs include fringe benefits, indirect labor, marketing and bid & proposal costs, and other discretionary costs. Fringe benefits, representing the largest category of indirect expenses, increased proportionally to the total labor costs. Primarily as a result of increased revenues and related direct labor, total indirect costs increased by $1.9 million or 7.8% for the quarter.
Depreciation and amortization expense increased $0.6 million for the quarter, primarily the result of an increased level of fixed asset purchases made during the last half of FY 1997 (principally computing and network equipment) and from additional goodwill amortization related to acquisitions.
Interest expense of $245,000 reflects a $61,000 increase over the same quarter last year and is largely the result of the $1.5 million increase in average borrowings from $11.0 million to $12.5 million, for the respective quarters in 1997 and 1998.
The effective income tax rate for the quarter and the first six months was 38.0% versus 40.5% for the same period last year. The decrease in the effective tax rate is primarily the result of a lower effective state income tax rate.
For the first three months of FY 1998, operations provided $3.8 million of cash compared with a use of cash of $1.0 million during the same period last year. The increase is primarily due to current period refund of an overpayment of income taxes in FY 1997.
Investing activities used cash of approximately $0.9 million during the three months ended September 30, 1997, versus $6.7 million for the same period last year. During the three months ended September 30, 1997, $5.3 million was used for the Sunset Resources, Inc. (SRI) acquisition. During both periods, the remainder of the investments were for the purchase of office and computer-related equipment for use in the performance of contracts and for increased efficiency in the Company's administration.
During the three months ended September 30, 1997, the Company's financing activities used cash of approximately $1.4 million as cash flow from operations was used to reduce borrowings. Last year's financing activities provided cash primarily from additional borrowings to fund the above $5.3 million SRI acquisition payment and reduce accrued compensation benefits.
As discussed in Note E, "Event Subsequent to September 30, 1997", to the Notes of the Consolidated Financial Statements, on November 1, 1997, the Company completed its acquisition of the business and most of the assets of Government Systems, Inc., a subsidiary of Infonet Services Corporation, a multinational communications network provider headquartered in El Segundo, California, for approximately $33.5 million. The acquisition was financed with borrowings under the existing line of credit, as amended on October 28, 1997. The amendment increases the U.S. credit facility from a $50 million to a $70 million unsecured facility and extends the term through July 1, 2000. The Company also maintains a 500,000 pound sterling unsecured line of credit in London, England, which expires in December 1997. At September 30, 1997, the Company had approximately $44 million available for borrowing under its lines of credit. On November 3, 1997, the next business day after the GSI acquisition and after the financing amendment, the Company had approximately $30 million available for borrowing under its lines of credit. Accordingly, the Company believes that the combination of internally generated funds, available credit and cash on hand will provide the required liquidity and capital resources for the foreseeable future.
PART II
Reference is made to Part I, Item 3, Legal Proceedings, in the Registrant's Annual Report on Form 10-K for the period ending June 30, 1997, for the most recently filed information concerning the suit filed on October 6, 1995 by Ceridian Corporation (Ceridian) in the District Court for Hennepin County, Minnesota, against Registrant's wholly-owned subsidiary, CACI Systems Integration Inc. (CACI), alleging breach of contract, breach of warranty, and repudiation by CACI in connection with a contract for the development of a manufacturing system. In January 1996, CACI filed its answer and counterclaims, denying Ceridian's allegations and seeking damages from Ceridian for breach of contract, intentional and negligent misrepresentation, and tortious interference with contract.
Since the filing of the Registrant's report indicated above, the parties have almost completed discovery and the court has ruled on pre-trial motions. A court-ordered mediation is scheduled for November 12-14, 1997. No trial date has been set.
Reference is made to Part I, Item 3, Legal Proceedings, in the Registrant's Annual Report on Form 10-K for the period ending June 30, 1997, 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 procedure 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 property seized by ADOT in connection with the termination of the contract; and (vi) lawyers' fees.
Since the filing of Registrant's report indicated above, the case has been placed on the inactive calendar pending completion of discovery and case preparation over what is estimated to be a nine (9) month period.
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; competitive factors and pricing pressures; acts of God; changes in government laws or regulations; continued improvements in the productivity of document coding services for the Department of Justice; profitability of our Marketing Systems Group; unusually intense competition for employees with cutting-edge technical skills; and our own ability to manage the business to achieve forecast results.
CACI INTERNATIONAL INC AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Title
----- -----
11 Computation of Earnings per Common and
Common Equivalent Share
27 Financial Data Schedule
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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.
/s/
Date: November 14, 1997 By: -------------------------------------------
Dr. J.P. London
Chairman of the Board,
President, and Director
(Principal Executive Officer)
/s/
Date: November 14, 1997 By: -------------------------------------------
James P. Allen
Executive Vice President,
Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer)
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EXHIBIT 11
CACI INTERNATIONAL INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
Three Months Ended
September 30,
------------------
1997 1996
---- ----
Net income $ 2,432 $ 2,698
Average shares outstanding
during the period 10,705 10,298
Dilutive effect of stock options after
application of treasury stock method 370 593
------ ------
Average number of shares
outstanding during the period 11,075 10,891
====== ======
Earnings per common and
common equivalent share $ 0.22 $ 0.25
====== ======
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| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR THE PERIOD ENDING SEPTEMBER 30, 1997, AND AS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | JUN 30 1998 |
| PERIOD END | SEP 30 1997 |
| CASH | 3,484,000 |
| SECURITIES | 0 |
| RECEIVABLES | 74,462,000 |
| ALLOWANCES | (3,075,000) |
| INVENTORY | 0 |
| CURRENT ASSETS | 78,214,000 |
| PP&E | 32,575,649 |
| DEPRECIATION | (21,859,154) |
| TOTAL ASSETS | 116,341,000 |
| CURRENT LIABILITIES | 34,637,000 |
| BONDS | 7,000,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 1,426,000 |
| OTHER SE | 71,597,000 |
| TOTAL LIABILITY AND EQUITY | 116,341,000 |
| SALES | 0 |
| TOTAL REVENUES | 70,669,000 |
| CGS | 0 |
| TOTAL COSTS | 38,037,000 |
| OTHER EXPENSES | 28,165,000 |
| LOSS PROVISION | 299,000 |
| INTEREST EXPENSE | 245,000 |
| INCOME PRETAX | 3,923,000 |
| INCOME TAX | 1,491,000 |
| INCOME CONTINUING | 2,432,000 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 2,432,000 |
| EPS PRIMARY | $0.22 |
| EPS DILUTED | $0.22 |