Business Context and Reporting Period
Company: CACI International Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: January 16, 1996
Event: Acquisition of IMS Technologies, Inc. (IMS) effective January 1996.
CACI, Inc., a wholly-owned subsidiary of CACI International Inc., purchased all outstanding shares of IMS Technologies, Inc. for $6.5 million in cash. The transaction was funded through CACI's line of credit with Signet Bank. IMS provides computer services, including consulting, programming, and systems integration, primarily for U.S. Federal Government contracts.
Key Financial Metrics
Acquisition Details
- Purchase Price: $6.5 million cash.
- Additional Consideration: $1.5 million in consulting fees payable over three years to four IMS founders.
- Total Transaction Value: $8.0 million (allocated for pro forma purposes).
- Goodwill: Estimated at $2.476 million, to be amortized over 15 years.
Target Company (IMS) Performance (Year Ended Sept 30, 1995)
- Revenue: $21.73 million.
- Net Income: $172,600.
- Operating Cash Flow: Negative $746,713 (due to changes in working capital).
- Debt: Line of credit balance of $1.43 million.
- Employees: Approximately 285 new employees added to CACI.
Pro Forma Impact on CACI (Year Ended June 30, 1995)
- Pro Forma Revenue: $254.70 million (vs. $232.96 million historical).
- Pro Forma Net Income: $8.58 million (vs. $8.16 million historical).
- Pro Forma EPS: $0.81 (vs. $0.77 historical).
Material Changes and Outlook
Revenue Growth: The acquisition adds approximately $21 million in annual revenue to CACI's portfolio. Major IMS clients include the U.S. Navy, Department of Justice, Department of Education, DEA, Social Security Administration, and IRS.
Earnings Impact: Management forecasts the acquisition will provide at least $0.05 in earnings per share during the first full year of operations.
Cost Structure: The transaction includes the elimination of certain officer compensation ($573,000 annually in pro forma adjustments) and the assumption of IMS's operating costs.
Risks, Contingencies, and Unusual Items
- Accounting Departure: The independent auditor noted a departure from GAAP regarding the accounting method for IMS's foreign investment in Taiwan (Information Management Systems, Inc.) for the year ended September 30, 1994. The effect of this departure has not been determined.
- Foreign Investment: IMS holds a 16% interest in a foreign entity subject to exchange restrictions. This investment is accounted for using the cost method.
- Lease Termination: IMS estimated approximately $180,000 in costs for the early termination of its headquarters lease following the acquisition agreement.
- Pro Forma Limitations: The pro forma financial information is unaudited and does not purport to represent actual results had the transaction occurred earlier, nor does it project future results.
Investor Verification Checklist
- Verify the integration of IMS's 285 employees and the retention of key government contracts (Navy, DOJ, etc.).
- Monitor the actual earnings contribution against the $0.05 per share forecast for the first full year.
- Review the final purchase price allocation, specifically the $2.476 million goodwill estimate, as it may change during the fiscal year ending June 30, 1996.
- Assess the impact of the $1.5 million consulting fee obligation on future cash flows.
- Confirm the resolution of the accounting discrepancy regarding the foreign investment in Taiwan noted by Ernst & Young LLP.