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Section 1: 10-Q (10-Q)

caci-10q_20190930.htm
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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 September 30, 2019

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)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

CACI

New York Stock Exchange

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 October 15, 2019, there were 25,041,979 shares outstanding of CACI International Inc’s common stock, par value $0.10 per share.

 

 


 

CACI INTERNATIONAL INC

 

 

 

PAGE

PART I:

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three Ended September 30, 2019 and 2018

3

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Ended September 30, 2019 and 2018

4

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of September 30, 2019 and June 30, 2019

5

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2019 and 2018

6

 

 

 

 

Consolidated Statements of Shareholder’s Equity (Unaudited) for the Three Months Ended September 30, 2019 and 2018

7

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

 

Item 2.

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

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

 

 

 

PART II:

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 3.

Defaults Upon Senior Securities

28

 

 

 

Item 4.

Mine Safety Disclosures

28

 

 

 

Item 5.

Other Information

28

 

 

 

Item 6.

Exhibits

29

 

 

 

 

Signatures

30

 

 

 

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

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Revenue

 

$

1,363,392

 

 

$

1,165,864

 

Costs of revenue:

 

 

 

 

 

 

 

 

Direct costs

 

 

878,881

 

 

 

782,760

 

Indirect costs and selling expenses

 

 

357,592

 

 

 

264,757

 

Depreciation and amortization

 

 

26,762

 

 

 

18,747

 

Total costs of revenue

 

 

1,263,235

 

 

 

1,066,264

 

Income from operations

 

 

100,157

 

 

 

99,600

 

Interest expense and other, net

 

 

16,811

 

 

 

8,886

 

Income before income taxes

 

 

83,346

 

 

 

90,714

 

Income tax expense

 

 

15,369

 

 

 

11,881

 

Net income

 

$

67,977

 

 

$

78,833

 

Basic earnings per share

 

$

2.73

 

 

$

3.19

 

Diluted earnings per share

 

$

2.66

 

 

$

3.10

 

Weighted-average basic shares outstanding

 

 

24,894

 

 

 

24,737

 

Weighted-average diluted shares outstanding

 

 

25,532

 

 

 

25,424

 

See Notes to Unaudited Consolidated Financial Statements


3


 

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Net income

 

$

67,977

 

 

$

78,833

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(5,308

)

 

 

(1,995

)

Change in fair value of interest rate swap agreements, net of tax

 

 

(4,964

)

 

 

217

 

Other comprehensive loss, net of tax

 

 

(10,272

)

 

 

(1,778

)

Comprehensive income

 

$

57,705

 

 

$

77,055

 

See Notes to Unaudited Consolidated Financial Statements

 


4


 

CACI INTERNATIONAL INC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except per share data)

 

 

 

September 30,

 

 

June 30,

 

 

 

2019

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,182

 

 

$

72,028

 

Accounts receivable, net

 

 

848,463

 

 

 

869,840

 

Prepaid expenses and other current assets

 

 

110,623

 

 

 

89,652

 

Total current assets

 

 

1,042,268

 

 

 

1,031,520

 

Goodwill

 

 

3,337,053

 

 

 

3,336,079

 

Intangible assets, net

 

 

422,006

 

 

 

436,115

 

Property and equipment, net

 

 

156,750

 

 

 

149,676

 

Operating lease right-of-use assets

 

 

346,273

 

 

 

 

Supplemental retirement savings plan assets

 

 

93,258

 

 

 

92,736

 

Accounts receivable, long-term

 

 

7,730

 

 

 

7,381

 

Other long-term assets

 

 

32,846

 

 

 

33,336

 

Total assets

 

$

5,438,184

 

 

$

5,086,843

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

46,920

 

 

$

46,920

 

Accounts payable

 

 

92,616

 

 

 

118,917

 

Accrued compensation and benefits

 

 

299,286

 

 

 

290,274

 

Other accrued expenses and current liabilities

 

 

334,802

 

 

 

235,611

 

Total current liabilities

 

 

773,624

 

 

 

691,722

 

Long-term debt, net of current portion

 

 

1,551,951

 

 

 

1,618,093

 

Supplemental retirement savings plan obligations, net of current portion

 

 

97,264

 

 

 

92,291

 

Deferred income taxes

 

 

209,037

 

 

 

205,339

 

Operating lease liabilities, noncurrent

 

 

324,601

 

 

 

 

Other long-term liabilities

 

 

56,456

 

 

 

107,932

 

Total liabilities

 

$

3,012,933

 

 

$

2,715,377

 

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; 42,392 shares

   issued and 24,958 outstanding at September 30, 2019 and 42,314 shares

   issued and 24,880 outstanding at June 30, 2019

 

 

4,239

 

 

 

4,231

 

Additional paid-in capital

 

 

572,348

 

 

 

576,277

 

Retained earnings

 

 

2,478,141

 

 

 

2,410,164

 

Accumulated other comprehensive loss

 

 

(53,428

)

 

 

(43,156

)

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

 

 

(576,184

)

 

 

(576,185

)

Total CACI shareholders’ equity

 

 

2,425,116

 

 

 

2,371,331

 

Noncontrolling interest

 

 

135

 

 

 

135

 

Total shareholders’ equity

 

 

2,425,251

 

 

 

2,371,466

 

Total liabilities and shareholders’ equity

 

$

5,438,184

 

 

$

5,086,843

 

See Notes to Unaudited Consolidated Financial Statements


5


 

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

67,977

 

 

$

78,833

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

26,762

 

 

 

18,747

 

Amortization of deferred financing costs

 

 

589

 

 

 

579

 

Non-cash lease expense

 

 

17,825

 

 

 

 

Stock-based compensation expense

 

 

7,038

 

 

 

5,698

 

Deferred income taxes

 

 

5,485

 

 

 

10,086

 

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

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

21,589

 

 

 

(64,339

)

Prepaid expenses and other assets

 

 

(25,989

)

 

 

(12,678

)

Accounts payable and other accrued expenses

 

 

3,477

 

 

 

71,337

 

Accrued compensation and benefits

 

 

(1,267

)

 

 

(16,763

)

Income taxes payable and receivable

 

 

4,463

 

 

 

(5,218

)

Operating lease liabilities

 

 

(17,450

)

 

 

 

Long-term liabilities

 

 

(7,295

)

 

 

(3,176

)

Net cash provided by operating activities

 

 

103,204

 

 

 

83,106

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(22,536

)

 

 

(9,368

)

Cash paid for business acquisitions, net of cash acquired

 

 

(1,351

)

 

 

(89,956

)

Other

 

 

 

 

 

(409

)

Net cash used in investing activities

 

 

(23,887

)

 

 

(99,733

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from borrowings under bank credit facilities

 

 

439,500

 

 

 

465,500

 

Principal payments made under bank credit facilities

 

 

(506,230

)

 

 

(432,230

)

Payment of contingent consideration

 

 

 

 

 

(616

)

Proceeds from employee stock purchase plans

 

 

1,852

 

 

 

1,527

 

Repurchases of common stock

 

 

(1,717

)

 

 

(1,393

)

Payment of taxes for equity transactions

 

 

(467

)

 

 

(6,576

)

Net cash provided by (used in) financing activities

 

 

(67,062

)

 

 

26,212

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,101

)

 

 

(292

)

Net increase in cash and cash equivalents

 

 

11,154

 

 

 

9,293

 

Cash and cash equivalents at beginning of period

 

 

72,028

 

 

 

66,194

 

Cash and cash equivalents at end of period

 

$

83,182

 

 

$

75,487

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

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

 

$

4,675

 

 

$

8,714

 

Cash paid during the period for interest

 

$

15,114

 

 

$

9,637

 

Non-cash financing and investing activities:

 

 

 

 

 

 

 

 

Accrued capital expenditures

 

$

3,338

 

 

$

3,545

 

See Notes to Unaudited Consolidated Financial Statements

 

6


 

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(amounts in thousands)

 

 

 

Common Stock

Shares        Amount

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury Stock

Shares        Amount

 

 

Total CACI

Shareholders’

Equity

 

 

Noncontrolling

Interest

 

 

Total

Shareholders’

Equity

 

BALANCE, June 30, 2019

 

 

42,314

 

 

$

4,231

 

 

$

576,277

 

 

$

2,410,164

 

 

$

(43,156

)

 

 

17,434

 

 

$

(576,185

)

 

$

2,371,331

 

 

$

135

 

 

$

2,371,466

 

Net income

 

 

 

 

 

 

 

 

 

 

 

67,977

 

 

 

 

 

 

 

 

 

 

 

 

67,977

 

 

 

 

 

 

67,977

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

7,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,038

 

 

 

 

 

 

7,038

 

Tax withholdings on restricted share vestings

 

 

78

 

 

 

8

 

 

 

(10,868

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,860

)

 

 

 

 

 

(10,860

)

Change in fair value of interest rate swap agreements, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,964

)

 

 

 

 

 

 

 

 

(4,964

)

 

 

 

 

 

(4,964

)

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,308

)

 

 

 

 

 

 

 

 

(5,308

)

 

 

 

 

 

(5,308

)

Repurchases of common stock

 

 

 

 

 

 

 

 

(112

)

 

 

 

 

 

 

 

 

8

 

 

 

(1,605

)

 

 

(1,717

)

 

 

 

 

 

(1,717

)

Treasury stock issued under stock purchase plans

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

(8

)

 

 

1,606

 

 

 

1,619

 

 

 

 

 

 

1,619

 

BALANCE, September 30, 2019

 

 

42,392

 

 

$

4,239

 

 

$

572,348

 

 

$

2,478,141

 

 

$

(53,428

)

 

 

17,434

 

 

$

(576,184

)

 

$

2,425,116

 

 

$

135

 

 

$

2,425,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, June 30, 2018

 

 

42,139

 

 

$

4,214

 

 

$

570,964

 

 

$

2,126,790

 

 

$

(19,030

)

 

 

17,434

 

 

$

(576,186

)

 

$

2,106,752

 

 

$

135

 

 

$

2,106,887

 

Net income

 

 

 

 

 

 

 

 

 

 

 

78,833

 

 

 

 

 

 

 

 

 

 

 

 

78,833

 

 

 

 

 

 

78,833

 

Cumulative effect adjustment of ASC 606, net of taxes

 

 

 

 

 

 

 

 

 

 

 

17,770

 

 

 

 

 

 

 

 

 

 

 

 

17,770

 

 

 

 

 

 

17,770

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,698

 

 

 

 

 

 

5,698

 

Tax withholdings on restricted share vestings

 

 

143

 

 

 

14

 

 

 

(17,250

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,236

)

 

 

 

 

 

(17,236

)

Change in fair value of interest rate swap agreements, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

 

 

 

 

 

 

217

 

 

 

 

 

 

217

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,995

)

 

 

 

 

 

 

 

 

(1,995

)

 

 

 

 

 

(1,995

)

Repurchases of common stock

 

 

 

 

 

 

 

 

(122

)

 

 

 

 

 

 

 

 

8

 

 

 

(1,271

)

 

 

(1,393

)

 

 

 

 

 

(1,393

)

Treasury stock issued under stock purchase plans

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

(8

)

 

 

1,272

 

 

 

1,277

 

 

 

 

 

 

1,277

 

BALANCE, September 30, 2018

 

 

42,282

 

 

$

4,228

 

 

$

559,295

 

 

$

2,223,393

 

 

$

(20,808

)

 

 

17,434

 

 

$

(576,185

)

 

$

2,189,923

 

 

$

135

 

 

$

2,190,058

 

 

 

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 September 30, 2019 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 17.

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, 2019.  The results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results to be expected for any subsequent interim period or for the full fiscal year.

 

 

2.

Recent Accounting Pronouncements

Accounting Standards Updates Issued but Not Yet Adopted

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. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires companies to record an allowance for expected credit losses over the contractual term of financial assets, including short-term trade receivables and contract assets, and expands disclosure requirements for credit quality of financial assets. ASU 2016-13 becomes effective for the Company in the first quarter of FY2021. We do not expect a significant impact to our operating results, financial position or cash flows as a result of adopting this new standard.

Accounting Standards Updates Adopted

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 was effective for the fiscal year, and interim periods within that fiscal year, beginning after December 15, 2018, and requires a modified retrospective approach.

The Company adopted this standard on July 1, 2019.  As part of our implementation, the Company accumulated data required to measure its existing leases, reviewed lease contracts, implemented a new lease accounting solution and evaluated accounting policy and internal control changes.  The Company adopted certain practical expedients provided under ASC 842, including reassessment of whether expired or existing contracts contain leases, reassessment of lease classification for expired or existing leases, reassessing initial direct costs for existing leases, and an election to separate lease from non-lease components.

8


CACI INTERNATIONAL INC

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

 

Upon adoption of ASC 842, the Company recorded right of use assets of $354.3 million and current and non-current lease liabilities of $67.0 million and $331.8 million, respectively, on the consolidated balance sheet, inclusive of required reclassifications for prepaid and deferred rent, lease incentives, and other lease-related balances.  

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

 

 

 

June 30, 2019

As Reported Under

ASC 840

 

 

Adjustments

Due to

ASC 842

 

 

July 1, 2019

Balance

Under ASC 842

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

89,652

 

 

$

(3,199

)

 

$

86,453

 

Operating lease right-of-use assets

 

 

 

 

 

354,317

 

 

 

354,317

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses and current liabilities

 

 

235,611

 

 

 

59,034

 

 

 

294,645

 

Operating lease liabilities, noncurrent

 

 

 

 

 

331,761

 

 

 

331,761

 

Other long-term liabilities

 

 

107,932

 

 

 

(39,677

)

 

 

68,255

 

 

The standard had no impact on our results of operations or cash flows. In addition, new disclosures are provided to enable users to assess the amount, timing and uncertainty of cash flows arising from leases.

 

 

3.

Summary of Significant Accounting Policies

The Company enters into contractual arrangements primarily for the use of real estate facilities, information technology equipment, and certain other equipment.  These arrangements contain a lease when the Company controls the underlying asset and has the right to obtain substantially all of the economic benefits or outputs from the asset.  All of our leases are operating leases.

The Company records a right of use (ROU) asset and lease liability as of the lease commencement date equal to the present value of the remaining lease payments.  Most of our leases do not provide an implicit rate that can be readily determined.  Therefore, we use a discount rate based on the Company’s incremental borrowing rate, which is determined using our credit rating and information available as of the commencement date.  The ROU asset is then adjusted for initial direct costs and certain lease incentives included in the contractual arrangement.  The Company has elected to not apply the lease recognition guidance for short-term equipment leases and to separate lease from non-lease components.  Our operating lease arrangements may contain options to extend the lease term or for early termination.  We account for these options when it is reasonably certain we will exercise them.  ROU assets are evaluated for impairment in a manner consistent with the treatment of other long-lived assets.

Operating lease expense is recognized on a straight-line basis over the lease term and is recorded primarily within indirect costs and selling expenses on the consolidated statement of operations.  Variable lease expenses are generally recorded in the period they are incurred and are excluded from the ROU asset and lease liability.

 

 

4.

Acquisition

LGS

On March 1, 2019, CACI acquired all of the equity interests of Legos Intermediate Holdings, LLC and MDCP Legos Blocker, Inc., the parent companies of LGS Innovations (LGS).  The purchase consideration was approximately $757.1 million, which includes $759.9 million of cash paid at close net of cash acquired and a $2.8 million net purchase price payment for returnable consideration due from the seller, deferred consideration, and post-close net working capital adjustments.  LGS is a leading provider of SIGINT and cyber products and solutions to the Intelligence Community and Department of Defense.


9


CACI INTERNATIONAL INC

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

 

CACI is in the process of finalizing its valuation of all the assets acquired and liabilities assumed. As the amounts recorded for certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed at the acquisition date.  The final determination of fair values of certain assets and liabilities will be completed within the measurement period of up to one-year from the acquisition date as permitted under GAAP. The LGS acquisition could necessitate the need to use the full one-year measurement period to adequately analyze and assess several factors used in establishing the asset and liability fair values as of the acquisition date, including intangible assets, receivables, inventory, deferred revenue, deferred taxes, income tax obligations, and certain reserves. Any potential adjustments made could be material in relation to the preliminary values.

During the three months ended September 30, 2019, we continued to obtain information to refine estimated fair values.  As a result of the additional information, the Company recorded measurement period adjustments that increased receivables and goodwill by $1.4 million and $3.3 million, respectively, reduced accrued expenses and other current liabilities by $1.9 million, and increased purchase consideration by $6.6 million.

 

 

5.

Intangible Assets

 

Intangible assets consisted of the following (in thousands):

 

 

 

September 30,

 

 

June 30,

 

 

 

2019 (1)

 

 

2019

 

Intangible assets:

 

 

 

 

 

 

 

 

Customer contracts and related customer relationships

 

$

547,801

 

 

$

549,552

 

Acquired technologies

 

 

138,031