CACI

CACI International Inc. 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2002, and the nine-month period ended on the same date. CACI International Inc. is a provider of information technology services, primarily to U.S. government agencies (Department of Defense and Federal Civilian Agencies) and commercial clients. The company operates in two segments: Domestic and International.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 24.7% for the quarter and 21.1% for the nine-month period compared to the prior year. Growth was driven by acquisitions (Digital Systems International Corporation and N.E.T. Federal, Inc.) and internal growth in Department of Defense (DoD) and Federal Civilian Agency contracts.
• Profitability: Net income rose 54.4% for the quarter and 44.1% for the nine-month period. Operating income increased 47.3% (quarter) and 46.5% (nine months).
• Accounting Change: The adoption of SFAS No. 142 eliminated goodwill amortization effective July 1, 2001. This accounting change contributed significantly to the increase in operating income and net income compared to the prior year, where goodwill amortization was recorded.
• Discontinued Operations: The company sold its Marketing Systems Group in January 2002, resulting in a net after-tax loss of $1.3 million. This segment is now reported as discontinued operations.
• Capital Structure: In March 2002, the company completed a secondary stock offering, raising approximately $161.9 million in net proceeds. Approximately $46.1 million of these proceeds were used to pay down debt, reducing long-term notes payable from $48.9 million (June 2001) to $28.5 million (March 2002).

Outlook, Risks, and Management Commentary

• Revenue Drivers: Management attributes growth to increased managed network services, systems integration, and engineering services. DoD revenue grew 30.9% (quarter) and 34.2% (nine months), while Federal Civilian Agency revenue grew 39.2% (quarter) and 21.1% (nine months).
• Commercial Weakness: Commercial revenue, primarily from the U.K., declined 23.8% (quarter) and 19.1% (nine months) due to weakness in the international telecom industry.
• Liquidity: The company maintains a $185 million unsecured revolving line of credit with $160.7 million available as of March 31, 2002. Management believes internal funds and available borrowings are sufficient for foreseeable needs.
• Risks: Key risks include the termination of government contracts, failure to win recompeted contracts, and the company's reliance on winning new business to generate cash flow. The company also faces risks related to the "war on terrorism" potentially shifting government funding priorities.
• Legal Proceedings: An appeal is pending with the Armed Services Board of Contract Appeals (ASBCA) regarding a breach of contract claim against the Defense Information Systems Agency (DISA). A hearing is scheduled for December 2002 if no settlement is reached.

Investor Verification Checklist

• Verify the sustainability of revenue growth from the Department of Defense and Federal Civilian Agencies, which now comprise over 90% of total revenue.
• Assess the impact of the discontinued Marketing Systems Group sale on future earnings and the $1.3 million loss recorded.
• Monitor the commercial segment's performance in the U.K. given the continued weakness in the telecom industry.
• Review the status of the ASBCA appeal against DISA for potential future cash inflows or legal costs.
• Confirm the company's ability to maintain its leverage ratio below 3.0x to preserve borrowing capacity for future acquisitions.