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