CACI International Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended June 30, 2013. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing.
Business context and reporting period
CACI provides information technology and mission-support services, primarily to U.S. government agencies. Its work spans defense, intelligence, cybersecurity, healthcare, business systems and other government markets. The company reported about 14,900 employees and approximately 610 active contracts and 1,780 task orders at year-end.
U.S. government work generated 94.4% of FY2013 revenue, including 74.3% from the Department of Defense (DoD). The ten largest revenue-producing contracts accounted for 40.7% of revenue.
Key financial metrics
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $3,682.0 million | $3,774.5 million | Down 2.5% |
| Income from operations | $270.8 million | $299.8 million | Down 9.7% |
| Operating margin | 7.4% | 7.9% | Down 0.5 percentage points |
| Net income attributable to CACI | $151.7 million | $167.5 million | Down 9.4% |
| Diluted EPS | $6.35 | $5.96 | Up 6.5% |
| Cash from operations | $249.3 million | $271.2 million | Down $21.9 million |
Cash and cash equivalents were $64.3 million at June 30, 2013, versus $15.7 million a year earlier. Capital expenditures were $15.4 million; operating cash flow less capital expenditures was approximately $233.9 million. Working capital was negative $14.5 million, compared with positive $200.9 million in FY2012, primarily reflecting the $300 million convertible notes becoming current ahead of their May 2014 maturity.
Principal debt totaled $611.3 million: $300 million of convertible notes, $131.3 million under the term loan and $180 million under the revolving facility. The company reported $569.6 million available under the revolver and compliance with its credit-facility financial covenants. Total backlog was $6.9 billion, including $1.7 billion funded, versus $7.2 billion total backlog in FY2012.
Material changes versus the prior comparable period
- Revenue from existing operations fell 5.7% ($216.8 million); $124.3 million of acquired revenue partly offset the decline. DoD revenue declined 7.1% to $2.7 billion, mainly reflecting lower other direct costs amid the Afghanistan drawdown and sequestration-related cuts.
- Federal civilian agency revenue increased 19.4% to $741.1 million, with most of the increase attributed to acquisitions. Commercial and other revenue declined 1.9% to $190.1 million.
- Operating income and net income fell despite lower total revenue costs. FY2012 operating margin benefited from better-than-expected profitability on a large fixed-price contract; FY2013 also included $7.1 million in severance and $2.3 million in lease-related costs from cost-reduction actions.
- Diluted EPS increased while net income declined, alongside a reduction in weighted-average diluted shares to 23.9 million from 28.1 million, reflecting prior share repurchases.
- Cash used for acquisitions fell to $107.0 million from $185.9 million. Share repurchases also decreased, to $127.5 million from $316.6 million.
Outlook, risks, contingencies and unusual items
- Outlook: No specific FY2014 revenue or earnings guidance is provided in the supplied filing text. Management expected most funded backlog at June 30, 2013 to generate revenue in FY2014, while anticipating continued constrained federal discretionary spending. It cited potential demand in cyber, cloud, mobile, intelligence and federal healthcare IT.
- Government-budget exposure: Sequestration took effect in March 2013. The filing warns of possible program disruption, delayed awards, reduced funding and contract terminations; continuing resolutions or a government shutdown could further delay work and collections.
- Customer and contract concentration: Reliance on federal customers, particularly DoD, exposes results to budget priorities, competitive rebids, protests, contract options and government termination rights. Backlog includes substantial unfunded amounts and may not convert to revenue as estimated.
- Debt and liquidity: The $300 million convertible notes were due May 1, 2014 and principal repayment must be in cash. After year-end, an August 6, 2013 amendment extended the credit facility maturity to August 2018 and increased potential incremental facility capacity. These subsequent changes do not remove the need to verify the notes’ repayment or refinancing outcome.
- Audits and investigations: DCAA incurred-cost audits for FY2006–FY2008 were in process, and later periods remained unaudited. The company disclosed a government investigation with an accrued estimated exposure range of zero to $1.8 million, a DOJ False Claims Act investigation for which no liability was accrued, and tax audits with estimated possible losses of $1.5–$3.5 million in Germany and an accrued estimate within a $0.9–$3.7 million range in Virginia.
- Litigation: In the Abu Ghraib-related case, the district court dismissed the third amended complaint without prejudice on June 26, 2013; plaintiffs appealed in July. CACI said it was vigorously defending the proceeding and believed the lawsuit lacked merit.
- Other items: The FY2013 performance-based restricted stock grant tied to a net-after-tax-profit target was not earned, and related compensation expense was reversed. The annual goodwill impairment test found no impairment; goodwill was $1.5 billion.
Important facts for investors to verify
- Whether sequestration and subsequent federal budget decisions further reduced DoD work, awards or funded backlog.
- How much of the $6.9 billion backlog is funded, executable and expected to convert to revenue, and whether the 40.7% top-ten contract concentration changed.
- How the $300 million notes due May 2014 were repaid or refinanced, and the company’s resulting debt, liquidity and covenant position.
- Developments and potential financial effects from DCAA audits, the government and DOJ investigations, tax audits, and the Abu Ghraib-related appeal.
- Whether cost-reduction actions and contract mix stabilize operating margins after the FY2013 decline.