CACI International Inc. — FY2011 Form 10-K
Period note: The request identifies “2010 Q4,” but this filing is the annual report for the fiscal year ended June 30, 2011. Fourth-quarter figures for FY2011 are included below where relevant. Amounts are in U.S. dollars.
Business context and reporting period
CACI provides professional services and IT solutions, primarily to U.S. government customers in defense, intelligence, homeland security, and IT modernization. It reported approximately 13,700 employees at year-end. Federal government work accounted for 94.9% of FY2011 revenue; DoD alone represented 79.9%.
Financial performance and liquidity
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Revenue | $3.578 billion | $3.149 billion | +13.6% |
| Operating income | $251.4 million | $194.8 million | +29.1% |
| Operating margin | 7.0% | 6.2% | +0.8 percentage points |
| Net income attributable to CACI | $144.2 million | $106.5 million | +35.4% |
| Diluted EPS | $4.61 | $3.47 | +32.9% |
| Cash from operations | $226.0 million | $209.3 million | +$16.6 million |
- FY2011 revenue growth included $364.5 million of organic growth and $64.1 million from acquisitions. DoD revenue rose 16.7% to $2.859 billion, mostly from existing operations.
- FY2011 direct costs were 70.7% of revenue, up from 70.1%; indirect costs and selling expenses declined to 20.7% from 22.0%. Management attributed improved operating margin to direct labor growth and cost control. The indirect expense comparison also benefited from a $9.6 million reduction in acquisition contingent consideration liabilities.
- Fourth-quarter FY2011 revenue was $963.2 million, operating income $78.1 million, net income $45.9 million, and diluted EPS $1.44. Corresponding FY2010 fourth-quarter figures were $848.7 million, $54.0 million, $29.9 million, and $0.96.
- Cash and cash equivalents were $164.8 million at June 30, 2011, versus $254.5 million a year earlier. Working capital was $344.9 million based on the balance-sheet totals; the MD&A also cites $334.9 million, an apparent inconsistency in the filing text.
- Cash used in investing was $152.6 million, including $133.0 million for acquisitions; capital expenditures were $14.4 million. Operating cash flow less capital expenditures was approximately $211.6 million, calculated from reported figures.
- Debt principal totaled $446.3 million: $146.3 million under the term loan and $300.0 million of convertible notes due 2014. The balance-sheet carrying amount of debt was $409.9 million after unamortized discount. The $600 million revolving facility was undrawn; CACI reported covenant compliance. Cash less debt principal was approximately $281.4 million.
- Backlog was $6.8 billion, unchanged from June 2010; $1.8 billion was funded. CACI expected the majority of funded backlog at year-end to convert to FY2012 revenue.
Material changes versus the prior comparable period
- Revenue growth accelerated from 15.3% in FY2010 to 13.6% in FY2011 in percentage terms, while operating income and net income grew substantially faster than revenue in FY2011.
- DoD’s share of revenue rose to 79.9% from 77.8%; federal civilian agencies’ share declined to 15.0% from 17.0%. Commercial and other revenue grew 13.7% to $167.0 million.
- Contract mix shifted: T&M fell to 39.8% of revenue from 46.6%; cost-reimbursable rose to 35.7% from 32.8%; fixed-price increased to 24.5% from 20.6%.
- Operating cash flow increased, while cash balances declined primarily due to acquisitions and debt repayment. FY2011 financing included a net $132.4 million term-loan reduction and approximately $50 million of share repurchases.
- FY2011 acquisitions included TechniGraphics, Applied Systems Research, and Chronotech; reported consideration for the three totaled approximately $134.6 million after final adjustments.
Outlook, risks, contingencies, and unusual items
- No specific FY2012 revenue or earnings guidance is provided in the filing. Management stated that existing cash, internally generated funds, and available borrowing capacity should meet operating and other requirements for the next 12 months.
- Management anticipated federal budget pressure, delayed appropriations and contract awards, and reductions in overseas contingency operations funding beginning in 2012. It cited potential opportunities in IT modernization, infrastructure consolidation, and cybersecurity, while noting DoD plans to reduce some knowledge-based service-support funding.
- Customer and contract concentration is a central risk: federal contracting, budget decisions, recompetes, protests, option non-renewals, insourcing, audit outcomes, and security-clearance requirements can affect awards, revenue, and cash collection. The top ten contracts generated 44.0% of FY2011 revenue.
- The Department of Homeland Security’s TASC award was terminated for the government’s convenience after a protest-related process; CACI was preparing a termination settlement proposal.
- A DCMA dispute over allocation of certain Iraq-investigation legal costs was on appeal; CACI accrued its best estimate within a stated range of zero to $2.9 million. DCAA audits of incurred costs remained incomplete for later periods, with the 2006 submission under audit.
- Abu Ghraib-related matters remained a disclosed risk. The Supreme Court declined review in the Saleh and Ibrahim matters; the Ibrahim complaint was dismissed with prejudice and final judgment entered in August 2011. Other related matters, including Al Shimari and Abbas, remained pending or stayed as described in the filing.
- Goodwill was $1.266 billion, about 55% of total assets. CACI reported that each reporting unit’s estimated fair value significantly exceeded its carrying value at June 30, 2011. Future impairment nevertheless remains a risk if conditions or expected cash flows worsen.
- Subsequent events included the July 2011 acquisition of Pangia for $41 million, a definitive agreement to acquire Paradigm with completion anticipated in the first half of FY2012, and an August 2011 agreement for an accelerated repurchase of 4.0 million shares.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile the $344.9 million balance-sheet working capital figure with the $334.9 million stated in MD&A.
- Track federal budget and contract-award developments, especially DoD funding, civilian appropriations, OCO reductions, and the TASC termination settlement.
- Assess how much of the $6.8 billion backlog is ultimately funded, ordered, and converted to revenue; most backlog was unfunded.
- Monitor fixed-price exposure, subcontractor and other direct-cost trends, and whether FY2011 margin improvement is sustained.
- Review debt service and convertible-note terms, floating-rate exposure, covenant headroom, and the effect of the share repurchase and planned acquisitions on liquidity.
- Follow acquisition integration, contingent consideration, and goodwill valuation, as well as the outstanding government-cost audits and legal matters.