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Section 1: 10-Q (10-Q)

caci-10q_20181231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number 001-31400

 

CACI International Inc

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

54-1345888

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1100 North Glebe Road, Arlington, VA 22201

(Address of principal executive offices)

(703) 841-7800

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  .

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  Yes      No  .

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  .

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  .

As of January 22, 2019, there were 24,862,624 shares of CACI International Inc Common Stock, $0.10 par value per share.

 

 

 

 

 


 

CACI INTERNATIONAL INC

 

 

 

PAGE

PART I:

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended December 31, 2018 and 2017

3

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Six Months Ended December 31, 2018 and 2017

4

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended December 31, 2018 and 2017

5

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of December 31, 2018 and June 30, 2018

6

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended December 31, 2018 and 2017

7

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

 

 

 

PART II:

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

34

 

 

 

 

Signatures

35

 

 

 

2


 

PART I

FINANCIAL INFORMATION

Item 1.  Financial Statements

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Revenue

 

$

1,181,641

 

 

$

1,087,860

 

Costs of revenue:

 

 

 

 

 

 

 

 

Direct costs

 

 

790,849

 

 

 

727,160

 

Indirect costs and selling expenses

 

 

269,677

 

 

 

254,180

 

Depreciation and amortization

 

 

18,852

 

 

 

18,258

 

Total costs of revenue

 

 

1,079,378

 

 

 

999,598

 

Income from operations

 

 

102,263

 

 

 

88,262

 

Interest expense and other, net

 

 

9,421

 

 

 

10,956

 

Income before income taxes

 

 

92,842

 

 

 

77,306

 

Income tax expense (benefit)

 

 

24,246

 

 

 

(65,489

)

Net income

 

$

68,596

 

 

$

142,795

 

Basic earnings per share

 

$

2.76

 

 

$

5.80

 

Diluted earnings per share

 

$

2.71

 

 

$

5.66

 

Weighted-average basic shares outstanding

 

 

24,856

 

 

 

24,622

 

Weighted-average diluted shares outstanding

 

 

25,338

 

 

 

25,211

 

See Notes to Unaudited Consolidated Financial Statements


3


 

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)

 

 

 

Six Months Ended

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Revenue

 

$

2,347,505

 

 

$

2,173,674

 

Costs of revenue:

 

 

 

 

 

 

 

 

Direct costs

 

 

1,573,609

 

 

 

1,466,838

 

Indirect costs and selling expenses

 

 

534,434

 

 

 

515,424

 

Depreciation and amortization

 

 

37,599

 

 

 

35,846

 

Total costs of revenue

 

 

2,145,642

 

 

 

2,018,108

 

Income from operations

 

 

201,863

 

 

 

155,566

 

Interest expense and other, net

 

 

18,307

 

 

 

22,203

 

Income before income taxes

 

 

183,556

 

 

 

133,363

 

Income tax expense (benefit)

 

 

36,127

 

 

 

(51,478

)

Net income

 

$

147,429

 

 

$

184,841

 

Basic earnings per share

 

$

5.95

 

 

$

7.53

 

Diluted earnings per share

 

$

5.81

 

 

$

7.33

 

Weighted-average basic shares outstanding

 

 

24,796

 

 

 

24,555

 

Weighted-average diluted shares outstanding

 

 

25,381

 

 

 

25,228

 

See Notes to Unaudited Consolidated Financial Statements

4


 

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

68,596

 

 

$

142,795

 

 

$

147,429

 

 

$

184,841

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(3,436

)

 

 

1,191

 

 

 

(5,431

)

 

 

5,554

 

Change in fair value of interest rate swap agreements,

   net of tax

 

 

(3,778

)

 

 

2,613

 

 

 

(3,561

)

 

 

3,121

 

Other comprehensive income (loss), net of tax

 

 

(7,214

)

 

 

3,804

 

 

 

(8,992

)

 

 

8,675

 

Comprehensive income

 

$

61,382

 

 

$

146,599

 

 

$

138,437

 

 

$

193,516

 

See Notes to Unaudited Consolidated Financial Statements

 

5


 

CACI INTERNATIONAL INC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except per share data)

 

 

 

December 31,

 

 

June 30,

 

 

 

2018

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

70,728

 

 

$

66,194

 

Accounts receivable, net

 

 

1,016,968

 

 

 

806,871

 

Prepaid expenses and other current assets

 

 

69,717

 

 

 

58,126

 

Total current assets

 

 

1,157,413

 

 

 

931,191

 

Goodwill

 

 

2,659,749

 

 

 

2,620,835

 

Intangible assets, net

 

 

230,556

 

 

 

241,755

 

Property and equipment, net

 

 

107,125

 

 

 

101,140

 

Supplemental retirement savings plan assets

 

 

88,037

 

 

 

91,490

 

Accounts receivable, long-term

 

 

8,741

 

 

 

8,620

 

Other long-term assets

 

 

38,997

 

 

 

39,175

 

Total assets

 

$

4,290,618

 

 

$

4,034,206

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

46,920

 

 

$

46,920

 

Accounts payable

 

 

197,225

 

 

 

82,017

 

Accrued compensation and benefits

 

 

232,550

 

 

 

259,442

 

Other accrued expenses and current liabilities

 

 

160,361

 

 

 

150,602

 

Total current liabilities

 

 

637,056

 

 

 

538,981

 

Long-term debt, net of current portion

 

 

1,008,116

 

 

 

1,015,420

 

Supplemental retirement savings plan obligations, net of current portion

 

 

88,736

 

 

 

86,851

 

Deferred income taxes

 

 

215,451

 

 

 

200,880

 

Other long-term liabilities

 

 

84,526

 

 

 

85,187

 

Total liabilities

 

 

2,033,885

 

 

 

1,927,319

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock $0.10 par value, 10,000 shares authorized, no shares issued or

   outstanding

 

 

 

 

 

 

Common stock $0.10 par value, 80,000 shares authorized; 42,296 shares

   issued and 24,862 outstanding at December 31, 2018 and 42,139 shares

   issued and 24,704 outstanding at June 30, 2018

 

 

4,230

 

 

 

4,214

 

Additional paid-in capital

 

 

564,586

 

 

 

570,964

 

Retained earnings

 

 

2,291,989

 

 

 

2,126,790

 

Accumulated other comprehensive loss

 

 

(28,022

)

 

 

(19,030

)

Treasury stock, at cost (17,434 and 17,434 shares, respectively)

 

 

(576,185

)

 

 

(576,186

)

Total CACI shareholders’ equity

 

 

2,256,598

 

 

 

2,106,752

 

Noncontrolling interest

 

 

135

 

 

 

135

 

Total shareholders’ equity

 

 

2,256,733

 

 

 

2,106,887

 

Total liabilities and shareholders’ equity

 

$

4,290,618

 

 

$

4,034,206

 

See Notes to Unaudited Consolidated Financial Statements

 

6


 

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

 

 

Six Months Ended

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

147,429

 

 

$

184,841

 

Reconciliation of net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

37,599

 

 

 

35,846

 

Amortization of deferred financing costs

 

 

1,156

 

 

 

2,212

 

Stock-based compensation expense

 

 

12,047

 

 

 

12,389

 

Deferred income taxes

 

 

9,123

 

 

 

(83,212

)

Changes in operating assets and liabilities, net of effect of business acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(136,177

)

 

 

7,367

 

Prepaid expenses and other assets

 

 

(2,739

)

 

 

(13,774

)

Accounts payable and other accrued expenses

 

 

110,007

 

 

 

15,190

 

Accrued compensation and benefits

 

 

(27,116

)

 

 

(11,126

)

Income taxes payable and receivable

 

 

(10,781

)

 

 

(3,796

)

Long-term liabilities

 

 

(1,008

)

 

 

6,157

 

Net cash provided by operating activities

 

 

139,540

 

 

 

152,094

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(17,813

)

 

 

(22,013

)

Cash paid for business acquisitions, net of cash acquired

 

 

(91,151

)

 

 

(45,565

)

Other

 

 

1,876

 

 

 

3,484

 

Net cash used in investing activities

 

 

(107,088

)

 

 

(64,094

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from borrowings under bank credit facilities

 

 

833,500

 

 

 

256,500

 

Principal payments made under bank credit facilities

 

 

(841,960

)

 

 

(338,483

)

Payment of contingent consideration

 

 

(616

)

 

 

(3,630

)

Proceeds from employee stock purchase plans

 

 

2,827

 

 

 

2,459

 

Repurchases of common stock

 

 

(2,756

)

 

 

(2,463

)

Payment of taxes for equity transactions

 

 

(18,039

)

 

 

(12,656

)

Net cash used in financing activities

 

 

(27,044

)

 

 

(98,273

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(874

)

 

 

1,062

 

Net increase (decrease) in cash and cash equivalents

 

 

4,534

 

 

 

(9,211

)

Cash and cash equivalents, beginning of period

 

 

66,194

 

 

 

65,539

 

Cash and cash equivalents, end of period

 

$

70,728

 

 

$

56,328

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid during the period for income taxes, net of refunds

 

$

39,975

 

 

$

35,264

 

Cash paid during the period for interest

 

$

18,830

 

 

$

20,505

 

Non-cash financing and investing activities:

 

 

 

 

 

 

 

 

Landlord sponsored tenant improvement

 

$

3,518

 

 

$

 

Accrued capital expenditures

 

$

1,377

 

 

$

3,316

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

7


 

CACI INTERNATIONAL INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.

Basis of Presentation

The accompanying unaudited consolidated financial statements of CACI International Inc and subsidiaries (CACI or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and include the assets, liabilities, results of operations, comprehensive income and cash flows for the Company, including its subsidiaries and ventures that are majority-owned or otherwise controlled by the Company.  Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. All intercompany balances and transactions have been eliminated in consolidation.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and amounts included in other current assets and current liabilities that meet the definition of a financial instrument approximate fair value because of the short-term nature of these amounts.  The fair value of the Company’s debt outstanding as of December 31, 2018 under its bank credit facility approximates its carrying value.  The fair value of the Company’s debt under its bank credit facility was estimated using Level 2 inputs based on market data of companies with a corporate rating similar to CACI’s that have recently priced credit facilities.  See Notes 10 and 16.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation of the periods presented.  It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest annual report to the SEC on Form 10-K for the year ended June 30, 2018.  The results of operations for the three and six months ended December 31, 2018 are not necessarily indicative of the results to be expected for any subsequent interim period or for the full fiscal year.

Certain reclassifications have been made to the prior period’s financial statements to conform to the current presentation.

 

 

2.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs associated with internal-use software (Subtopic 350-40). ASU 2018-15 becomes effective for the Company in the first quarter of FY2021 and may be adopted either retrospectively or prospectively. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes the presentation of net periodic pension and postretirement cost (net benefit cost) on the consolidated statements of operations.  The service cost component of net benefit cost will continue to be part of operating income while all other components of net benefit cost (interest costs, actuarial gains and losses and amortization of prior service cost) will be shown outside of operating income.  The Company adopted this standard on July 1, 2018 and applied the standard retrospectively.  The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified on the statement of cash flows to reduce diversity in practice.  The Company adopted this standard on July 1, 2018 and applied the standard retrospectively.  As a result of adoption, the Company reclassified $3.7 million of proceeds received from the settlement of corporate owned life insurance (COLI) policies from operating activities to investing activities on the Consolidated Statement of Cash Flows for the six months ended December 31, 2017.  During the six months ended December 31, 2018, $1.9 million of COLI proceeds are presented as investing activities.  

8


CACI INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing guidance on accounting for leases.  The new standard requires lessees to put virtually all leases on the balance sheet by recognizing lease assets and lease liabilities. Lessor accounting is largely unchanged from that applied under previous guidance. The amended guidance is effective for the fiscal year, and interim periods within that fiscal year, beginning after December 15, 2018, and requires a modified retrospective approach.  Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. The Company plans to adopt this standard on July 1, 2019 and is currently in the process of accumulating data required to measure its existing leases, reviewing lease contracts, implementing a new lease accounting solution and evaluating accounting policy and internal control changes.  We expect that upon adoption we will recognize a material right-of-use asset and lease liability on our balance sheet. We do not expect the standard to have a material impact on our cash flows or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended (ASC 606), which superseded nearly all existing revenue recognition guidance under GAAP.  The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than were required under previous GAAP.  In addition, ASU 2014-09 added ASC 340-40 to codify guidance on other assets and deferred costs for contracts with customers.  

Effective July 1, 2018, we adopted ASC 606 using the modified retrospective method, whereby the cumulative effect of applying the standard was recognized through shareholders’ equity on the date of adoption.  In addition, for our fiscal year ending June 30, 2019 and the interim reporting periods therein, the Company is required to disclose the amount by which each financial statement line item was affected by the new standard.  The Company’s comparative information, for prior periods presented before July 1, 2018, has not been restated and continues to be reported under ASC 605.

The impact of adoption on our consolidated balance sheet is as follows (in thousands):

 

 

 

June 30, 2018

As Reported Under

ASC 605

 

 

Adjustments

Due to

ASC 606

 

 

July 1, 2018

Balance

Under ASC 606

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

806,871

 

 

$

20,454

 

 

$

827,325

 

Prepaid expenses and other current assets

 

 

58,126

 

 

 

2,342

 

 

 

60,468

 

Other long-term assets

 

 

39,175

 

 

 

3,923

 

 

 

43,098

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses and current liabilities

 

 

150,602

 

 

 

2,212

 

 

 

152,814

 

Deferred income taxes

 

 

200,880

 

 

 

6,639

 

 

 

207,519

 

Other long-term liabilities

 

 

85,187

 

 

 

98

 

 

 

85,285

 

Retained earnings

 

 

2,126,790

 

 

 

17,770

 

 

 

2,144,560

 

 

ASC 606 changed the pattern of revenue recognition for some of our contracts with customers.  For our award and incentive fee contracts, we now recognize a constrained amount of variable consideration throughout the performance period rather than defer recognition of the relevant portion of fee until customer notification of the amount earned.  Some of our fixed price services-type contracts in which revenue was previously recognized on a straight-line basis over the performance period converted to recognition of revenue using a cost-to-cost input method to measure our progress towards the complete satisfaction of the performance obligation.  The cumulative effect of these changes in the pattern of revenue recognition resulted in an increase to accounts receivable, net with an offset to retained earnings.

In addition, ASC 606 changed the timing of revenue recognition for license renewal performance obligations.  Under prior GAAP, license renewals were generally recognized in the period the renewal contract was executed.  However, upon adoption of ASC 606, the consideration received for a license renewal may not be recognized until the start of the term of the renewal.  The cumulative effect of this change resulted in an increase to contract liabilities with an offset to retained earnings.

The adoption of ASC 606 did not have a material impact on the Company’s revenue recognition for cost-plus-fee, fixed price/level-of-effort, time-and-materials (T&M), fixed price contracts previously recognized under ASC 605-35, and fixed price product revenue arrangements.

9


CACI INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

Under ASC 340-40, the Company capitalizes certain costs to fulfill and obtain a contract.  The cumulative effect of this change resulted in an increase to contract assets with an offset to retained earnings.  These capitalized costs are amortized over the period of contract performance as revenue is recognized from the transfer of goods or services and the underlying performance obligation is satisfied.    

The table below presents the impact of adoption of ASC 606 on our consolidated statement of operations for the three and six months ended December 31, 2018 (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31, 2018

 

 

December 31, 2018

 

 

 

As Adjusted Under

ASC 605

 

 

Effect of

ASC 606

 

 

As Reported Under

ASC 606

 

 

As Adjusted Under

ASC 605

 

 

Effect of

ASC 606

 

 

As Reported Under

ASC 606

 

Revenue

 

$

1,177,635

 

 

$

4,006

 

 

$

1,181,641

 

 

$

2,336,337

 

 

$

11,168

 

 

$

2,347,505

 

Costs of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs

 

 

790,849

 

 

 

 

 

 

790,849

 

 

 

1,573,609

 

 

 

 

 

 

1,573,609

 

Indirect costs and selling expenses

 

 

270,997

 

 

 

(1,320

)

 

 

269,677

 

 

 

535,697

 

 

 

(1,263

)

 

 

534,434

 

Depreciation and amortization

 

 

18,852

 

 

 

 

 

 

18,852

 

 

 

37,599

 

 

 

 

 

 

37,599

 

Total costs of revenue

 

 

1,080,698

 

 

 

(1,320

)

 

 

1,079,378

 

 

 

2,146,905

 

 

 

(1,263

)

 

 

2,145,642

 

Income from operations

 

 

96,937

 

 

 

5,326

 

 

 

102,263

 

 

 

189,432

 

 

 

12,431

 

 

 

201,863

 

Interest expense and other, net

 

 

9,421

 

 

 

 

 

 

9,421

 

 

 

18,307

 

 

 

 

 

 

18,307

 

Income before taxes

 

 

87,516

 

 

 

5,326

 

 

 

92,842

 

 

 

171,125

 

 

 

12,431

 

 

 

183,556

 

Income tax expense

 

 

22,858

 

 

 

1,388

 

 

 

24,246

 

 

 

32,945

 

 

 

3,182

 

 

 

36,127

 

Net income

 

$

64,658

 

 

$

3,938

 

 

$

68,596

 

 

$

138,180

 

 

$

9,249

 

 

$

147,429

 

Basic earnings per share

 

$

2.60

 

 

$

0.16

 

 

$

2.76

 

 

$

5.57

 

 

$

0.37

 

 

$

5.95

 

Diluted earnings per share

 

$

2.55

 

 

$

0.16

 

 

$

2.71

 

 

$

5.44

 

 

$

0.36

 

 

$

5.81

 

 

For the three and six months ended December 31, 2018, the effect of ASC 606 was primarily related to the timing of award and incentive fee revenue recognition.

The table below presents the impact of adoption of ASC 606 on our consolidated balance sheet as of December 31, 2018 (in thousands):

 

 

 

As Adjusted Under

ASC 605

 

 

Effect of

ASC 606

 

 

As Reported Under ASC 606

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

987,494

 

 

$

29,474

 

 

$

1,016,968

 

Prepaid expenses and other current assets

 

 

67,077

 

 

 

2,640

 

 

 

69,717

 

Other long-term assets

 

 

34,109

 

 

 

4,888

 

 

 

38,997

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses and current liabilities

 

 

156,538

 

 

 

3,823

 

 

 

160,361

 

Deferred income taxes

 

 

209,291

 

 

 

6,160

 

 

 

215,451

 

Other long-term liabilities

 

 

84,526

 

 

 

 

 

 

84,526

 

Retained earnings

 

 

2,264,970

 

 

 

27,019

 

 

 

2,291,989

 

 

 

3.

Summary of Significant Accounting Policies

Revenue Recognition

The Company generates almost all of our revenue from three different types of contractual arrangements with the U.S. government: cost-plus-fee, time-and-materials (T&M), and fixed-price contracts.  Our contracts with the U.S. government are generally subject to the Federal Acquisition Regulation (FAR) and are competitively priced based on estimated costs of providing the contractual goods or services.  

10


CACI INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

We account for a contract when the parties have approved the contract and are committed to perform on it, the rights of each party and the payment terms are identified, the contract has commercial substance, and it is probable that we will collect substantially all of the consideration.  

At contract inception, the Company determines whether the goods or services to be provided are to be accounted for as a single performance obligation or as multiple performance obligations.  This evaluation requires significant professional judgment as it may impact the timing and pattern of revenue recognition.  If multiple performance obligations are identified, we generally use the cost plus a margin approach to determine the relative standalone selling price of each performance obligation.  

When determining the total transaction price, the Company identifies both fixed and variable consideration elements within the contract.  Variable consideration includes any amount within the transaction price that is not fixed, such as: award or incentive fees; performance penalties; unfunded contract value; or other similar items.  For our contracts with award or incentive fees, the Company estimates the total amount of award or incentive fee expected to be recognized into revenue.  Throughout the performance period, we recognize as revenue a constrained amount of variable consideration only to the extent that it is probable that a significant reversal of the cumulative amount recognized to date will not be required in a subsequent period.  Our estimate of variable consideration is periodically adjusted based on significant changes in relevant facts and circumstances.  In the period in which we can calculate the final amount of award or incentive fee earned - based on the receipt of the customer’s final performance score or determining that more objective, contractually-defined criteria have been fully satisfied - the Company will adjust our cumulative revenue recognized to date on the contract.  This adjustment to revenue will be disclosed as the amount of revenue recognized in the current period for a previously satisfied performance obligation.

We generally recognize revenue over time throughout the performance period as the customer simultaneously receives and consumes the benefits provided on our services-type revenue arrangements.  This continuous transfer of control for our U.S. government contracts is supported by the unilateral right of our customer to terminate the contract for a variety of reasons without having to provide justification for its decision.  For our services-type revenue arrangements in which there are a repetitive amount of services that are substantially the same from one month to the next, the Company applies the series guidance.  We use a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation, including: costs incurred, labor hours expended, and time-elapsed measures for our fixed-price stand ready obligations.  For certain contracts, primarily our cost-plus and T&M services-type revenue arrangements, we apply the right-to-invoice practical expedient in which revenue is recognized in direct proportion to our present right to consideration for progress towards the complete satisfaction of the performance obligation.

When a performance obligation has a significant degree of interrelation or interdependence between one month’s deliverables and the next, when there is an award or incentive fee, or when there is a significant degree of customization or modification, the Company generally records revenue using a percentage of completion methodology.  For these revenue arrangements, substantially all revenue is recognized over time using a cost-to-cost input method based on the ratio of costs incurred to date to total estimated costs at completion. When estimates of total costs to be incurred on a contract exceed total revenue, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.

Contract modifications are reviewed to determine whether they should be accounted for as part of the original performance obligation or as a separate contract.  When a contract modification changes the scope or price and the additional performance obligations are at their standalone selling price, the original contract is terminated and the Company accounts for the change prospectively when the new goods or services to be transferred are distinct from those already provided.  When the contract modification includes goods or services that are not distinct from those already provided, the Company records a cumulative adjustment to revenue based on a remeasurement of progress towards the complete satisfaction of the not yet fully delivered performance obligation.

Based on the critical nature of our contractual performance obligations, the Company may proceed with work based on customer direction prior to the completion and signing of formal contract documents.  The Company has a formal review process for approving any such work that considers previous experiences with the customer, communications with the customer regarding funding status, and our knowledge of available funding for the contract or program.  

11


CACI INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

Contract Assets

Contract assets include unbilled receivables in which our right to consideration is conditional on factors other than the passage of time.  Contract assets exclude billed and billable receivables.  

In addition, the costs to fulfill a contract are considered for capitalization based on contract specific facts and circumstances. The incremental costs to fulfill a contract (e.g. ramp up costs at the beginning of the period of performance) may be capitalized when expenses are incurred prior to satisfying a performance obligation.  

The incremental costs of obtaining a contract (e.g. sales commissions) are capitalized as an asset when the Company expects to recover them either directly or indirectly through the revenue arrangement’s profit margins.  These capitalized costs are subsequently expensed over the revenue arrangement’s period of performance.  The Company has elected to apply the practical expedient to immediately expense the costs to obtain a contract when the performance obligation will be completed within twelve months of contract inception.  

Contract assets are periodically reassessed based on reasonably available information as of the balance sheet date to ensure they do not exceed their net realizable value.  

Contract Liabilities

Contract liabilities include advance payments received from the customer in excess of revenue that may be recognized as of the balance sheet date.  The advance payment is then subsequently recognized into revenue as the performance obligation is satisfied.  

Remaining Performance Obligations

The Company’s remaining performance obligations balance represents the expected revenue to be recognized for the satisfaction of remaining performance obligations on our existing contracts as of period end. The remaining performance obligations balance excludes unexercised contract option years and task orders that may be issued underneath an Indefinite Delivery/Indefinite Quantity (IDIQ) vehicle.  The remaining performance obligations balance generally increases with the execution of new contracts and converts into revenue as our contractual performance obligations are satisfied.

The Company continues to monitor our remaining performance obligations balance as it is subject to change from execution of new contracts, contract modifications or extensions, government deobligations, or early terminations.  Based on this analysis, an adjustment to the period end balance may be required.

 

 

4.

Acquisitions

Domestic Acquisition

On August 15, 2018, CACI acquired certain assets of the systems engineering and acquisition support services business unit (SE&A BU) of CSRA LLC, a managed affiliate of General Dynamics Information Technology, Inc.   The initial purchase consideration paid at closing to acquire the SE&A BU was $84.0 million plus $6.0 million representing a preliminary net working capital adjustment.  Subsequent to closing, CACI estimated that an additional payment may be due to the sellers for the final net working capital adjustment.  The Company recognized fair values of the assets acquired and liabilities assumed and allocated $42.6 million to goodwill and $8.9 million to intangible assets. The intangible assets consist of customer relationships. The final purchase price allocation, which is provisional and is expected to be completed by Q1 FY2020, will be based on final appraisals and other analysis of fair values of acquired assets and liabilities. The Company does not expect that differences between the preliminary and final purchase price allocation will have a material impact on its results of operations or financial position.

 

 

12


CACI INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

5.

Intangible Assets

 

Intangible assets consisted of the following (in thousands):

 

 

 

December 31,

 

 

June 30,

 

 

 

2018 (1)

 

 

2018

 

Intangible assets:

 

 

 

 

 

 

 

 

Customer contracts and related customer relationships

 

$

444,221

 

 

$

435,933

 

Acquired technologies

 

 

13,165

 

 

 

13,237

 

Other

 

 

800

 

 

 

804

 

Intangible assets

 

 

458,186

 

 

 

449,974

 

Less accumulated amortization:

 

 

 

 

 

 

 

 

Customer contracts and related customer relationships

 

 

(217,673

)

 

 

(199,018

)

Acquired technologies

 

 

(9,484

)

 

 

(8,761

)

Other

 

 

(473

)

 

 

(440

)

Less accumulated amortization

 

 

(227,630

)

 

 

(208,219

)

Total intangible assets, net

 

$

230,556

 

 

$

241,755

 

__________________

 

(1)

During the six months ended December 31, 2018, the Company removed $0.2 million in fully amortized intangible assets.

Intangible assets are primarily amortized on an accelerated basis over periods ranging from one to twenty years.  The weighted-average period of amortization for all customer contracts and related customer relationships as of December 31, 2018 is 15.0 years, and the weighted-average remaining period of amortization is 11.5 years.  The weighted-average period of amortization for acquired technologies as of December 31, 2018 is 7.0 years, and the weighted-average remaining period of amortization is 5.4 years.

Expected amortization expense for the remainder of the fiscal year ending June 30, 2019, and for each of the fiscal years thereafter, is as follows (in thousands):

 

Fiscal year ending June 30,

 

Amount

 

2019 (six months)

 

$

17,165

 

2020

 

 

32,440

 

2021

 

 

28,767

 

2022

 

 

25,000

 

2023

 

 

22,336

 

Thereafter

 

 

104,848

 

Total intangible assets, net

 

$

230,556

 

 

 

6.

Goodwill

The changes in the carrying amount of goodwill for the year ended June 30, 2018 and the six months ended December 31, 2018 are as follows (in thousands):

 

 

 

Domestic

 

 

International

 

 

Total

 

Balance at June 30, 2017

 

$

2,479,496

 

 

$

97,939

 

 

$

2,577,435

 

Goodwill acquired (1)

 

 

35,024

 

 

 

6,867

 

 

 

41,891

 

Foreign currency translation

 

 

 

 

 

1,509

 

 

 

1,509

 

Balance at June 30, 2018

 

 

2,514,520

 

 

 

106,315

 

 

 

2,620,835

 

Goodwill acquired (1)

 

 

42,704

 

 

 

(99

)

 

 

42,605

 

Foreign currency translation

 

 

 

 

 

(3,691

)

 

 

(3,691

)

Balance at December 31, 2018

 

$

2,557,224

 

 

$

102,525

 

 

$

2,659,749

 

 

 

(1)

Includes goodwill initially allocated to new business combinations as well as measurement period adjustments.

 

 

13


CACI INTERNATIONAL INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 

7.

Revenue Recognition

We disaggregate our revenue arrangements by contract type, customer, and whether the Company performs on the contract as the prime or subcontractor.  We believe that these categories allow for a better understanding of the nature, amount, timing, and uncertainty of revenue and cash flows arising from our contracts.

Revenue by Contract Type

The Company generated revenue on our cost-plus-fee, firm fixed-price (including proprietary software product sales), and time-and-materials contracts as follows during the three and six months ended December 31, 2018 (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31, 2018

 

 

December 31, 2018

 

 

 

Domestic

 

 

International

 

 

Total

 

 

Domestic

 

 

International

 

 

Total

 

Cost-plus-fee

 

$

657,050

 

 

$

 

 

$

657,050

 

 

$

1,298,577

 

 

$

 

 

$

1,298,577

 

Firm fixed-price

 

 

313,018

 

 

 

24,356

 

 

 

337,374

 

 

 

634,089

 

 

 

47,289

 

 

 

681,378

 

Time and materials

 

 

172,484

 

 

 

14,733

 

 

 

187,217

 

 

 

336,409

 

 

 

31,141

 

 

 

367,550

 

Total

 

$

1,142,552

 

 

$

39,089

 

 

$

1,181,641

 

 

$

2,269,075

 

 

$

78,430

 

 

$

2,347,505

 

Customer Information

The Company generated revenue from our primary customer groups as follows during the three and six months ended December 31, 2018 (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31, 2018

 

 

December 31, 2018

 

 

 

Domestic

 

 

International

 

 

Total

 

 

Domestic

 

 

International

 

 

Total

 

Department of Defense

 

$

834,797

 

 

$

 

 

$

834,797

 

 

$

1,653,063

 

 

$

 

 

$

1,653,063

 

Federal civilian agencies

 

 

287,915

 

 

 

 

 

 

287,915

 

 

 

580,117

 

 

 

 

 

 

580,117

 

Commercial and other

 

 

19,840

 

 

 

39,089

 

 

 

58,929

 

 

 

35,895

 

 

 

78,430

 

 

 

114,325

 

Total

 

$

1,142,552

 

 

$

39,089

 

 

$

1,181,641

 

 

$

2,269,075

 

 

$

78,430

 

 

$

2,347,505

 

Prime or Subcontractor