CACI

CACI International Inc. - 10-K Summary (Fiscal Year Ended June 30, 2002)

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended June 30, 2002, for CACI International Inc., a Delaware corporation providing information technology (IT) and communications solutions. The company operates primarily through two segments: Domestic Operations (U.S. government and commercial) and International Operations (primarily U.K. commercial). CACI serves clients in government and commercial markets through four service offerings: systems integration, managed network services, knowledge management, and engineering services. As of June 30, 2002, the company employed approximately 5,524 people.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 22.2% ($124.0 million) driven by internal growth in managed network and systems integration services, as well as acquisitions. Department of Defense (DoD) revenue grew 33.5% to $433.9 million, accounting for 63.7% of total revenue.
• Profitability: Operating income increased 42.2% to $53.1 million. A significant portion of this increase (approx. 32.7%) was due to the adoption of SFAS No. 142, which eliminated goodwill amortization expense ($5.2 million in FY2001 vs. $0 in FY2002).
• Acquisitions: The company acquired Digital Systems International Corporation (DSIC) in November 2001, which contributed approximately $40.3 million in revenue for the period. Other acquisitions included the federal services business of N.E.T. Federal, Inc.
• Discontinued Operations: The company sold its domestic Marketing Systems Group in January 2002, resulting in a net after-tax loss of $1.3 million. This contrasts with a gain of $1.5 million in FY2001 from the sale of the COMNET products business.
• Liquidity: Working capital surged by $146.8 million, primarily due to a secondary stock offering in March 2002 that raised approximately $161 million in net proceeds. This allowed the company to pay down debt by $23.9 million.
• Commercial Revenue: Commercial revenue decreased 19.1% to $49.4 million, attributed to difficult conditions in the international telecommunications market and lower pass-through revenues.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management anticipates the majority of the firm backlog ($385 million) will be filled during the fiscal year ending June 30, 2003. The company intends to aggressively seek additional work from the DoD and expand litigation support and debt management services.
• Capital Resources: The company executed a new five-year unsecured revolving line of credit of up to $185 million in February 2002. It believes internally generated funds and available borrowings will provide adequate liquidity.
• Risks:
  • Government Dependence: 90.7% of revenue is derived from U.S. Government contracts. The top 10 contracts accounted for 51.0% of revenue, with one DoJ contract representing 10.2%.
  • Contract Termination: Government contracts can be terminated for convenience or default, though such events have historically been rare.
  • Legal Proceedings: An appeal is pending with the Armed Services Board of Contract Appeals (ASBCA No. 53058) regarding a breach of contract claim against the Defense Information Systems Agency (DISA) concerning electronic data interchange licenses.
  • Market Conditions: Risks include the downturn in the U.K. telecommunications sector, currency fluctuations, and changes in government funding priorities (e.g., war on terrorism).
• Unusual Items: The elimination of goodwill amortization significantly boosted reported operating income. The sale of the Marketing Systems Group resulted in a loss, impacting net income.

Investor Verification Checklist

• Customer Concentration: Verify the stability of the top 10 contracts, particularly the single DoJ contract representing over 10% of revenue.
• Goodwill Accounting: Confirm the impact of SFAS No. 142 on earnings quality and review the independent benchmark assessment for goodwill impairment (none identified as of July 1, 2002).
• Legal Exposure: Monitor the status of the ASBCA appeal against DISA for potential damage awards or liabilities.
• Acquisition Integration: Assess the integration progress and revenue contribution of the DSIC acquisition.
• Commercial Sector Trends: Evaluate the outlook for the U.K. telecommunications market, which drove a 19% decline in commercial revenue.
• Debt Covenants: Review the terms of the new $185 million credit facility and the company's leverage ratios.