CACI International Inc. — FY2012 Form 10-K
Period: Fiscal year ended June 30, 2012. The filing also reports fourth-quarter results; the request’s “2011 Q4” period does not match the filing period.
Business context
CACI provides information technology, intelligence, defense, cybersecurity, logistics, and other services. The U.S. government generated 94.5% of FY2012 revenue, including 78.0% from the Department of Defense. CACI had approximately 14,500 employees and reported $7.2 billion of backlog at year-end, of which $2.0 billion was funded.
Financial results and liquidity
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $3.774 billion | $3.578 billion | +5.5% |
| Operating income | $299.8 million | $251.4 million | +19.3% |
| Operating margin | 7.9% | 7.0% | +0.9 percentage points |
| Net income attributable to CACI | $167.5 million | $144.2 million | +16.1% |
| Diluted EPS | $5.96 | $4.61 | +29.3% |
| Cash from operations | $266.7 million | $226.0 million | +18.0% |
- FY2012 revenue growth comprised approximately $87.0 million of organic growth and $109.7 million from acquisitions. Acquired businesses generated $89.6 million after acquisition during FY2012.
- Management attributed improved operating margin to direct-cost mix, higher-than-expected profitability on a large fixed-price contract, and a commercial product sale. A $12.0 million product sale contributed to commercial revenue.
- Cash and cash equivalents fell to $15.7 million from $164.8 million; working capital declined to $200.9 million from $334.9 million. Management attributed the lower cash balance primarily to acquisitions and share repurchases.
- FY2012 cash from operations included a $31.5 million increase associated with outstanding checks classified in accounts payable; days sales outstanding rose to 58 from 52.
- Debt principal was $563.8 million: $300.0 million of convertible notes, $138.8 million under the term loan, and $125.0 million drawn on the revolver. The company reported $475.0 million of remaining revolving availability and compliance with credit-facility covenants.
- Shareholders’ equity was $1.164 billion, compared with $1.310 billion a year earlier. The company repurchased 6 million shares for $328.9 million during FY2012; it completed the remaining 2 million shares in the June 2012 program in July.
- Goodwill was $1.407 billion, about 59% of total assets. The filing says each reporting unit’s fair value exceeded its carrying value at June 30, 2012.
Fourth-quarter results and year-over-year developments
FY2012 fourth-quarter revenue was $948.9 million, operating income was $76.7 million, and net income attributable to CACI was $43.4 million; diluted EPS was $1.59. In FY2011’s fourth quarter, the corresponding figures were $963.2 million, $78.1 million, $45.9 million, and $1.44. Thus, Q4 revenue and net income were lower year over year, while diluted EPS was higher.
Annual revenue growth slowed from 13.6% in FY2011 to 5.5% in FY2012. The contract mix shifted notably: cost-reimbursable revenue rose to 44.0% from 35.7%, fixed-price revenue increased to 28.0% from 24.5%, and time-and-materials revenue fell to 28.0% from 39.8%.
Outlook, risks, contingencies, and unusual items
- Management expected federal budgets to contract beginning in government FY2013 and potentially through at least FY2015. It anticipated procurement delays affecting CACI particularly in the first half of its FY2013, and warned that possible sequestration could materially affect the company and industry. These are management expectations, not guaranteed outcomes.
- Key risks include dependence on federal contracting and DoD spending, contract protests and non-renewals, funding delays, price competition, fixed-price cost overruns, audit adjustments, clearance and staffing constraints, and acquisition integration. Most backlog was unfunded and may not convert to revenue.
- The company reported $300 million of convertible notes due May 2014. Principal conversion payments must be made in cash; none of the conversion conditions had been met at year-end. Floating-rate debt exposed the company to interest-rate changes; a 1% rate change was estimated to affect annual interest expense by approximately $2.9 million. New $100 million swaps were scheduled to take effect July 2013.
- The Al Shimari/Abu Ghraib civil case returned to the district court after the Fourth Circuit dismissed the appeal in May 2012; CACI said it was vigorously defending the case. The filing also describes a DCIS subpoena investigation, for which CACI accrued its best estimate within a $0.8–$1.8 million range, and a DOJ civil False Claims Act investigation for which no liability was accrued because an unfavorable outcome was not considered probable. A German VAT audit had estimated reasonably possible losses of $1.5–$3.5 million, with no liability accrued.
- Government cost audits remained incomplete for periods after June 30, 2005. CACI said it had accrued its best estimate of potential disallowances and did not expect material adjustments. Separately, it disputed a DCMA finding on allocation of legal costs relating to the Iraq investigations; no liability was accrued because an unfavorable outcome was not considered probable.
- FY2012 included substantial acquisition spending and share repurchases. Five businesses were acquired during the year for total consideration of approximately $199.1 million; a further acquisition for $42.5 million closed July 2, 2012.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control were effective as of June 30, 2012.
Important facts for investors to verify
- Whether federal budget reductions, continuing resolutions, or sequestration affected contract awards, funding, and backlog conversion after year-end.
- How much of the $7.2 billion backlog is ultimately funded, ordered, and recognized as revenue.
- Whether operating cash flow remains strong after adjusting for the $31.5 million outstanding-check classification and monitoring higher days sales outstanding.
- The company’s capacity to meet the $300 million notes’ May 2014 maturity or cash conversion obligations, alongside its ongoing acquisition and repurchase plans.
- Developments and potential financial exposure from the DCIS and DOJ investigations, the Abu Ghraib litigation, government contract audits, and the German VAT matter.
- Whether FY2012 margin improvement, including the benefit from a large fixed-price contract and product sale, is repeatable.