CACI

CACI International Inc. 10-K Summary (Fiscal Year Ended June 30, 2010)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended June 30, 2010. CACI International Inc. is a leading provider of professional services and information technology (IT) solutions, primarily to U.S. federal government agencies. The company operates through two segments: Domestic Operations (U.S. government focus) and International Operations (primarily U.K. commercial and government focus). As of June 30, 2010, the company employed approximately 13,100 people.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 15.3% ($419.0 million) year-over-year. Approximately 13.4% was organic growth, driven by increased services to DoD, intelligence, and federal civilian agencies. The remaining 1.9% was attributable to acquisitions.
• Customer Mix: DoD revenue grew 17.9% to $2.45 billion (77.8% of total revenue). Commercial revenue surged 66.4% to $146.8 million, largely due to acquisitions.
• Profitability: While net income increased 18.7%, the operating margin declined from 6.7% to 6.2%. This was driven by an increase in subcontract labor and materials as a percentage of direct costs and higher variable cash and stock compensation expenses.
• Backlog: Total backlog decreased by $1.0 billion to $6.8 billion, primarily due to lower recompete activity during the year.
• Debt Reduction: The company prepaid $50.0 million on its Term Loan during FY2010. Subsequent to the fiscal year end (August 5, 2010), an additional $80.0 million prepayment was made.

Guidance, Outlook, Risks, and Contingencies

Outlook and Commentary: Management anticipates continued strong demand for intelligence, defense, and security services. However, they note potential budget pressures and a shift toward performance-based contracting. The company expects to refinance its Credit Facility, which expires in May 2011, prior to maturity.

Key Risks:

• Government Dependence: 94.8% of revenue is derived from U.S. federal government contracts. Changes in budgetary priorities or contract terminations could materially harm operations.
• Contract Protests: Competitor protests can delay contract awards and revenue recognition.
• Fixed-Price Risk: Approximately 20.6% of revenue comes from fixed-price contracts, exposing the company to cost overruns.
• Security Clearances: Inability to obtain or maintain security clearances for employees could limit business opportunities.

Legal Contingencies: The company is involved in litigation related to interrogation services in Iraq (e.g., Saleh v. Titan Corp.). While the Court of Appeals dismissed claims against CACI in September 2009, plaintiffs have petitioned the U.S. Supreme Court for review. Management believes these lawsuits are without merit and does not expect a material adverse effect.

Investor Verification Checklist

• Backlog Quality: Verify the ratio of funded vs. unfunded backlog ($1.9B funded vs. $4.9B unfunded) and the risk of unfunded contracts not being appropriated by Congress.
• Debt Maturity: Confirm the refinancing status of the $278.7 million Term Loan due in May 2011 and the $300 million Convertible Notes due in 2014.
• Margin Pressure: Monitor the trend of subcontractor costs and the mix of contract types (T&M vs. Fixed-Price) to assess future margin stability.
• Acquisition Integration: Review the performance of recent acquisitions (SystemWare, Monitor Media, and the U.S. security technology firm) which contributed significantly to commercial revenue growth.
• Legal Status: Track the status of the Supreme Court petition regarding the Abu Ghraib-related litigation.