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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2002
Commission File Number 0-8401
CACI INTERNATIONAL INC
(Exact name of Registrant as specified in its charter)
| Delaware |
|
54-1345888 |
| (State or other jurisdiction |
|
(I.R.S. Employer |
| of incorporation or organization) |
|
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
|
|
Name of each exchange on which registered
|
| None |
|
None |
Securities registered pursuant to Section 12(g) of the Act:
CACI International Inc Class A Common Stock, $0.10 par value
(Title of each class)
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 x. No ¨.
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of August 31, 2002, was approximately $1,059,439,692
Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of August 31, 2002: CACI International Inc Common Stock, $.10 par value, 28,441,334 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The information relating to directors and officers contained in the proxy statement of the Registrant to be filed in connection with its 2002 Annual Meeting
of Stockholders is incorporated by reference into Part III, Items 10, 11, 12, and 13 of this Form 10-K.
BUSINESS INFORMATION
Unless the context indicates otherwise, the terms “the Company” and “CACI” as used in Parts I and II, include both CACI International Inc and its subsidiaries. The term “the
Registrant”, as used in Parts I and II, refers to CACI International Inc only.
PART I
Item 1. Business
Background
CACI International
Inc (the “Registrant”) was organized as a Delaware corporation under the name of “CACI WORLDWIDE, INC.” on October 8, 1985. By a merger effected on June 2, 1986, the Registrant became the parent of CACI, Inc., a Delaware
corporation, and CACI N.V., a Netherlands corporation. Effective April 16, 2001, CACI, Inc. was merged into its wholly-owned subsidiary, CACI, INC.-FEDERAL, such that Registrant is now the corporate parent of CACI, INC.-FEDERAL, a Delaware
corporation, and CACI, N.V., a Netherlands corporation.
The Registrant is a holding company and its operations
are conducted through subsidiaries, which are located in the U.S. and Europe.
Overview
CACI founded its business in 1962 in simulation technology, and has strategically diversified within the information technology
(“IT”) and communications industries. With 2002 revenue of $681.9 million, CACI serves clients in the government and commercial markets primarily throughout North America and the United Kingdom. The Company delivers IT and communications
solutions to clients through four areas of expertise or service offerings: systems integration, managed network services, knowledge management and engineering services. Through these service offerings, the Company provides comprehensive, practical
IT and communications solutions by adapting emerging technologies and continually evolving legacy strengths in such areas as information assurance and security, reengineering, logistics and engineering support, automated debt management systems and
services, litigation support systems and services, product data management, software development and reuse, voice, data and video communications, simulation and planning, financial and human resource systems and geo-demographic and customer data
analysis. As a result of these broad capabilities, many of the Company’s client relationships have existed for five years or more.
The Company’s high quality service has enabled it to sustain high rates of repeat business and long-term client relationships and also to compete effectively for new clients and new contracts. The Company is organized
to seek competitive business opportunities and has designed its operations to support major programs through centralized business development and business alliances. CACI has structured its new business development organization to respond to the
competitive marketplace, particularly within the federal government, and supports that activity with full-time marketing, sales, communications, and proposal development specialists.
The Company’s primary markets—both domestic and international—are agencies of national governments, major corporations and state and local governments. The
demand for CACI’s services in large measure is created by the increasingly complex network, systems and information environment in which governments and businesses operate, and by the need to stay current with emerging technology while
increasing productivity and, ultimately, performance.
At June 30, 2002, CACI employed approximately 5,524 people.
This total includes approximately 417 part time employees. The Company currently operates from its headquarters at Three Ballston Plaza, 1100 North Glebe Road, Arlington, Virginia. CACI has operating offices and facilities in over 80 other locations
throughout the United States and Western Europe.
2
Domestic Operations
CACI’s domestic operations are conducted through a number of subsidiaries, and account for all of the domestic revenue generated by the Company. Domestically, the
Company provides IT and communications solutions through all four of its major service offerings: systems integration, managed network services, knowledge management and engineering services. Generally, the solutions offered domestically are applied
by clients to improve their organizational performance by enhancing system infrastructures.
Systems
integration offerings combine current systems with new technologies or integrate hardware and software from multiple sources to enhance operations and save time and money. Systems integration services include planning, designing, implementing
and managing solutions that resolve specific technical or business needs; extracting core business logic from existing systems and preserving it for migration to more modern environments; helping clients visualize possible changes in processes and
systems before implementation; and web-enabling systems and applications, bringing the power of the Internet to clients and system users.
Managed network services offerings include a complete suite of solutions for total life cycle support of global networks. These offerings include planning and building voice, video and data networks; managing network
communications infrastructures; operating network systems, including monitoring codes, traffic, security, and fault isolation and resolution; and assuring that information is secure from unauthorized interception and intrusion during its storage and
transmission.
Knowledge Management offerings encompass a range of information management tools and
enabling technologies, including Internet-based user interfaces, commercial off-the-shelf software, and workflow management systems. These technologies enable users to automate all aspects of document administration, including warehousing,
retrieving, and sharing, while improving processes, enhancing support and allowing organizations to achieve higher operational efficiencies and mission effectiveness.
Engineering services offerings enable clients to standardize and improve the way they manage the logistical life cycles of systems, products, and material assets,
resulting in cost savings and increased productivity. They also provide acquisition support, prototype development and integration, software design and integration, systems life extension and training in the use of analytical and collaboration tools
for the U.S. intelligence community. The solutions provided are often coupled with the Company’s simulation and programming services to deliver advanced logistics planning solutions.
In fashioning solutions utilizing the technologies of each of these service offerings, the Company makes extensive use of its wide array of modeling and simulation products
and services, thereby enabling clients to visualize the impact of proposed changes or new technologies before implementation. The Company’s simulation offerings address client needs in the areas of military training and war-gaming, logistics,
manufacturing, wide area networks, including satellites and land lines, local area networks, the study of business processes, and the design of distributed computer systems architecture.
International Operations
CACI’s international operations are conducted primarily through the Company’s major operating subsidiary in Europe, CACI Limited, and account for all revenue generated from international clients and substantially all of the
Company’s commercial revenue. CACI Limited is headquartered in London, England, and operates primarily in support of the Company’s systems integration line of business.
The Company’s international systems integration offerings focus primarily on planning, designing, implementing and managing solutions that resolve specific technical
or business needs for commercial clients in the telecommunications,
3
financial services, and transportation industries, and combining data and technology in software products and services that provide strategic
information on customers, buying patterns and market trends for clients who are engaged in retail sales of consumer products, direct marketing campaigns, franchise or branch site location projects, and similar endeavors.
Major Markets and Significant Activities
CACI operates in an industry that includes many highly competitive firms, some of which are larger in size and have greater financial resources. The Company obtains much of its business on the basis of
proposals submitted in response to requests from potential and current customers, who may also receive proposals from other firms. Additionally, the Company faces indirect competition from certain government agencies that perform services for
themselves similar to those marketed by CACI. The Company knows of no single competitor that is dominant in its fields of technology. The Company has a relatively small share of the available worldwide market for its products and services and
intends to achieve growth in part through increasing market share.
Although the Company is a supplier of
proprietary computer-based simulation technology products and marketing systems products in the United Kingdom, CACI is not primarily a software product developer-distributor (see discussion following on Patents, Trademarks, Trade Secrets and
Licenses).
CACI offers substantially its entire range of information systems, technical and communications
services and proprietary products to defense and civilian agencies of the U.S. Government. In order to do so, the Company must maintain expert knowledge of agency policies and operations. The Company’s work for U.S. Government agencies may
combine a wide range of skills drawn from its major service offerings, including information systems design, development and maintenance, systems engineering, telecommunications, logistics sciences, information assurance and security, military
systems engineering, simulation, automated document management, litigation support and debt management. The Company occasionally contracts with the governments of other nations.
CACI is a leading supplier of automated information systems for state management of vehicle titles and registrations, and licensing and wheeled vehicle revenue support. The
Company also offers software, systems integration and independent validation and verification services to this market on a selective basis.
The Company’s commercial client base consists primarily of large corporations in the UK. This market is the primary target of the Company’s proprietary software and database products.
Decisions regarding contract awards by the Company’s government clients typically are based on assessment of
the quality of past performance, responsiveness to proposal requirements, price, and many other factors.
The
Company has the capability to combine comprehensive knowledge of client challenges with significant expertise in the design, integration, development and implementation of advanced information technology and communications solutions. This capability
provides CACI with opportunities either to compete directly for, or to support other bidders in competition for, multi-million dollar contracts from the U.S. Government.
CACI has strategic business relationships with many companies associated with the information technology industry. These strategic partners have business objectives
compatible with those of the Company, and offer products and services that complement CACI’s. The Company intends to continue development of these kinds of relationships wherever they support its growth objectives.
4
Marketing and new business development for the Company are conducted by virtually
all officers and managers of the Company, including the Chief Executive Officer, executive officers, vice presidents, and division managers. The Company employs marketing professionals who identify and qualify major contract opportunities, primarily
in the federal government market. The Company’s proprietary software and marketing systems are sold primarily by full time sales people. The Company also has established agreements for the sale of certain third party software and data products.
Much of the Company’s business is won through submission of formal competitive bids. Commercial bids are
frequently negotiated as to terms and conditions for schedule, specifications, delivery and payment. With respect to bids for government work, however, in most cases the client specifies the terms and conditions and form of contract. In situations
where the client-imposed contract type and/or terms appear to expose the Company to inappropriate risk, the Company may seek alternate arrangements or opt not to bid for the work. Essentially all contracts with the United States Government, and many
contracts with other government entities, permit the government client to terminate the contract at any time for the convenience of the government or for default by the contractor. Although the Company operates under the risk that such terminations
may occur and have a material impact on operations, throughout the Company’s 40 years in business such terminations have been rare and, generally, have not materially affected operations. As with other government contractors, the Company’s
business is subject to government client funding decisions and actions that are beyond its control. CACI’s contracts and subcontracts are composed of a wide range of contract types, including firm fixed-priced, cost reimbursement,
time-and-materials, indefinite delivery/indefinite quantity (“IDIQ”) and government wide acquisition contracts (known as “GWACS”) such as General Services Administration (“GSA”) schedule contracts. By Company policy,
fixed-price contracts require the approval of at least two senior officers of the Company.
At any one time, the
Company may have several hundred separate active contracts and/or task orders. In 2002, the ten top revenue-producing contracts accounted for 51.0% of CACI’s revenue, or $348.0 million. One contract for automated litigation support to the Civil
Division of the U.S. Department of Justice (“DoJ”) accounted for 10.2% of total 2002 Company revenue.
In 2002, 90.7% of CACI’s revenue came from U.S. Government contracts. Of CACI’s total revenue, 63.7% of the Company’s revenue came from U.S. Department of Defense (“DoD”) contracts, 13.1 % from contracts with
DoJ, and 13.9 % from other civilian agency government clients. The remaining 9.3% of revenue came from commercial business, both domestic and international, and state and local contracts, as well as proprietary product and data sales.
Although the Company is continuously working to diversify its client base, it will aggressively seek additional work from the
DoD. In 2002, DoD revenue grew by 33.5%, or $108.8 million, primarily as the result of two components. The first component, internal growth, accounted for approximately half of the increase in DoD revenue. The second component, the acquisitions of
Digital Systems International Corporation (“DSIC”) in November 2001 and the federal services business of N.E.T. Federal, Inc. in December 2000 (as described more fully below), accounted for approximately the other half of the DoD revenue
growth.
The Company believes it is the largest supplier of litigation support and related automation and network
services to the U.S. Government through its knowledge management service offerings. It intends to seek additional litigation support work from the U.S. Government and believes it offers significant economies to the government in this field. The
Company also provides automated debt management support services to DoJ, and is seeking to expand this service into other government agencies and commercial clients.
On January 6, 2002, the Company completed the sale of the net assets of its domestic Marketing Systems Group to ESRI Business Information Solutions, a subsidiary of
Environmental Research Systems Institute, Inc., for $3.5 million. This resulted in a net after tax loss for the Company of $1.3 million. Included in the loss was a net after tax loss from discontinued operations of $284 thousand for the period of
October 31, 2001 to January 6, 2002. The consolidated statements of operations for prior periods have been reclassified for consistent presentation of discontinued operations.
5
On December 15, 1999, the Company completed the sale of the net assets of its COMNET products business for $37 million in
cash and $3 million in escrow, all of which has been received at this date. This resulted in a net after tax gain for the Company of $1.5 million and $21.1 million for years 2001 and 2000, respectively. Included in the gain was a net after tax loss
from discontinued operations of $118 thousand for the period from November 3, 1999 to December 15, 1999. The consolidated statements of operations for prior periods have been reclassified for consistent presentation of discontinued operations.
During the past three fiscal years, the Company examined a number of opportunities and completed the acquisitions
described below. As noted above, on November 1, 2001, the Company purchased all of the outstanding capital stock of DSIC for $47.0 million, of which $40.0 million has been paid. Under the terms of the agreement, the Company will pay an additional $7
million over the next ten months. The $40.0 million payment was financed through the Company’s existing credit facility. The acquired business implements enterprise resource planning (“ERP”) systems, including large-scale financial
and human resource systems, and e-procurement applications; develops client/server and web-enabled applications; operates an enterprise networking and information assurance practice; solves complex business problems with a recognized process
modeling and simulation methodology; and provides acquisition/program management consulting services, primarily to the U.S. Government. On December 2, 2000, the Company purchased the federal services business and related assets of N.E.T. Federal,
Inc. (“Federal Services Business”) for $25 million in cash plus an additional $2.0 million paid within one year after the purchase. Based on achievement of certain milestones, payments aggregating to $10 million of additional consideration
were made through June 30, 2002, and additional payments of up to $3 million may be made based upon achievement of other milestones. The acquired business increases the Company’s capabilities in managed network services, fits the Company’s
plan for growth in the federal market and complements current offerings to federal and commercial clients. On October 6, 2000, the Company acquired the contracts and selected assets of the special projects division (“Special Projects
Business”) of Radian International, LLC (“Radian”), a subsidiary of URS Corporation, for $1.3 million. The Special Projects Business provides services to the intelligence community which complement the Company’s growing base of
business for that market. On April 1, 2000, the Company purchased substantially all of the assets of Century Technologies, Incorporated (CENTECH) (“CENTECH”) for $7.7 million. This acquisition enhanced the Company’s capabilities in
network services and complemented the Company’s offerings to federal and commercial clients. On February 1, 2000, the Company acquired all the common stock of XEN Corporation (“XEN”) for $4.3 million. The XEN acquisition augmented the
Company’s services offerings to the intelligence community, DoD and the U.S. Navy.
Seasonal Nature of
Business
The Company’s business in general is not seasonal, although the summer and winter holiday
seasons affect Company revenue because of the impact of holidays and vacations on the Company’s labor sales and on product and service sales by the Company’s international operations. Variations in the Company’s business also may
occur at the expiration of major contracts until such contracts are renewed or new business obtained.
The U.S.
Government’s fiscal year ends on September 30 of each year. It is not uncommon for government agencies to award extra tasks or complete other contract actions in the weeks before the end of the fiscal year in order to avoid the loss of
unexpended fiscal year funds. Moreover, in years when the U.S. Government does not complete its budget process before the end of its fiscal year, government operations typically are funded pursuant to a “continuing resolution” that
authorizes agencies of the government to continue to operate but traditionally does not authorize new spending initiatives. When the government operates pursuant to a continuing resolution, delays can occur in procurement of products and services,
and such delays can affect the Company’s revenue and profit during the period of delay.
CACI Employment
and Benefits
The Company’s employees are its most valuable resource. It is in continuing competition for
highly skilled professionals in virtually all of its high technology areas. The success and growth of CACI’s business are significantly correlated with its ability to recruit, train, promote and retain high quality people at all levels of the
organization.
6
For these reasons, the Company endeavors to maintain competitive salary
structures, incentive compensation programs, fringe benefits, opportunities for growth, and individual recognition and award programs. Fringe benefits are generally consistent across the Company’s subsidiaries, and include paid vacations and
holidays, medical, dental and life insurance, tuition reimbursement for job-related education and training, and other benefits under various retirement savings and stock purchase plans.
The Company has published policies that set high standards for the conduct of its business. It requires all of its employees, consultants, officers, and directors annually
to execute and affirm the Company’s published Code of Ethics and Business Conduct Standards, or Director Code of Ethics, as applicable.
Research and Development
During fiscal years 2002, 2001,
and 2000, the Company incurred cost in the amounts of $1,155,000, $831,000 and $1,523,000, respectively, for research and development.
Patents, Trademarks, Trade Secrets and Licenses
The Company owns one patent in
the United States and one patent in Canada. While the Company believes its patents are valid, it does not consider that its business is dependent on patent protection in any material way.
CACI claims copyright, trademark and other proprietary rights in a variety of intellectual property, including each of its proprietary computer software and data products
and the related documentation. The Company presently owns approximately 23 registered trademarks and service marks in the U.S. and 53 registered trademarks and service marks in other countries, primarily the U.K. All of the Company’s registered
trademarks and service marks may be renewed indefinitely. In addition, the Company asserts copyrights in essentially all of its electronic and hard copy publications, its proprietary software and data products and in software produced at the expense
of the U.S. Government, which rights can be maintained for up to 75 years. Because most of the Company’s business involves providing services to government entities, the Company’s operations generally are not substantially dependent upon
obtaining and/or maintaining copyright or trademark protections, although its international operations make use of such protections and benefit from them as discriminators in competition. CACI is also a party to agreements that give it the right to
distribute computer software, data and other products owned by other companies, and to receive income from such distributions. As a systems integrator, it is important that the Company maintain access to software, data and products supplied by such
third parties, but the Company generally has experienced little difficulty in doing so. The durations of such agreements vary according to the terms of the agreements themselves.
The Company maintains a number of trade secrets that contribute to its success and competitive distinction and endeavors to accord such trade secrets protection adequate to
ensure their continuing availability to the Company. While retaining protection of its trade secrets and vital confidential information is important, the Company is not materially dependent on maintenance of any specific trade secret or group of
trade secrets.
Backlog
The Company’s backlog as of June 30, 2002 was $1.9 billion, of which $385 million was funded for orders believed to be firm. Total backlog as of June 30, 2001 was $1.1
billion, of which $292 million was for funded orders. The source of backlog is primarily contracts with the U.S. Government. It is presently anticipated, based on current revenue projections, the majority of the firm backlog will be filled during
the fiscal year ending June 30, 2003.
Business Segments, Foreign Operations, and Major Customer
The business segment, foreign operations and major customer information is provided in the Company's
Consolidated Financial Statements contained in this Report. In particular, see Note 12, Business Segment Information, in the Notes to Consolidated Financial Statements.
7
The following information is provided about the amounts of revenue attributable
to firm fixed-price contracts (including proprietary software product sales), time-and-materials contracts, and cost reimbursable contracts of the Company during each of the last three fiscal years:
| Fiscal Year Ended June 30,
|
|
Firm Fixed-Price
|
|
%
|
|
|
Time-and-Materials
|
|
%
|
|
|
Cost Reimbursable
|
|
%
|
|
|
Total
|
| |
|
(dollars in thousands) |
| 2002 |
|
$ |
132,697 |
|
19.5 |
% |
|
$ |
418,438 |
|
61.3 |
% |
|
$ |
130,807 |
|
19.2 |
% |
|
$ |
681,942 |
| 2001 |
|
$ |
107,634 |
|
19.3 |
% |
|
$ |
332,955 |
|
59.7 |
% |
|
$ |
117,301 |
|
21.0 |
% |
|
$ |
557,890 |
| 2000 |
|
$ |
88,647 |
|
18.3 |
% |
|
$ |
277,827 |
|
57.3 |
% |
|
$ |
118,071 |
|
24.4 |
% |
|
$ |
484,545 |
Item 2. Properties
As of June 30, 2002, CACI leased office space at 81 U.S. locations containing an aggregate of approximately 1,173,255 square
feet located in 24 states and the District of Columbia. In two countries outside the U.S., CACI leased four offices containing an aggregate of about 25,000 square feet. CACI’s leases expire primarily within the next four years, with the
exception of four leases in Northern Virginia, that will expire within the next 6 to 9 years. CACI anticipates that most of these leases will be renewed or replaced by other leases.
All of CACI’s offices are in reasonably modern and well-maintained buildings. The facilities are substantially utilized and adequate for present operations.
As of June 30, 2002, CACI International Inc maintained its corporate headquarters in approximately 89,000 square
feet of space at 1100 North Glebe Road, Arlington, Virginia. See Note 10, Commitments and Contingencies, to the Notes to Consolidated Financial Statements, for additional information regarding the Company’s lease commitments.
Item 3. Legal Proceedings
Appeal of CACI International Inc, ASBCA No.53058
Reference is made to Part II, Item 1, Legal Proceedings, in the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, for the most recently filed information concerning the appeal filed on
September 27, 2000, with the Armed Services Board of Contract Appeals (“ASBCA”) challenging the Defense Information Systems Agency’s (“DISA”) denial of its claim for breach of contract damages. The appeal seeks damages
arising from DISA’s breach of license agreement pursuant to which the DoD agreed to conduct all electronic data interchanges (which can be broadly understood to mean e-commerce) exclusively through certified value-added networks, such as the
network maintained by Registrant’s wholly-owned subsidiary, CACI, INC.-FEDERAL, for the period from September 2, 1994 through April 22, 1998. By decision of March 22, 2001, in the companion case of GAP Instrument Corporation, ASBCA No.51658
(2001), the ASBCA held that the Government’s failure to conduct all electronic data interchanges exclusively through certified value-added networks constituted a breach of contract.
Since the filing of Registrant’s last Quarterly Report on Form 10-Q, the parties have been engaged in discovery efforts and an audit of CACI, INC.-FEDERAL’s claim
with the goal of developing damage issues for negotiation or trial.
Item 4. Submission of Matters to
a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the Registrant’s fiscal year ended June 30, 2002, through the solicitation of proxies or otherwise. The Registrant intends to present a number of issues to a vote of security holders in connection with its 2002 Annual Meeting of
Stockholders on November 21, 2002.
8
PART II
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
The Registrant’s Common Stock became publicly traded on June 2, 1986, replacing paired units of common stock of CACI, Inc., and beneficial interests in common shares
of CACI N.V. which had been traded in the over-the-counter market before that date.
From July 1, 2001 to June 30,
2002, the ranges of high and low sales prices of the common shares of the Registrant quoted on the NASDAQ National Market System under the ticker symbol “CACI” for each quarter during this period were as follows:
| |
|
2002
|
|
2001
|
| Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
| 1st |
|
$ |
28.425 |
|
$ |
16.600 |
|
$ |
12.750 |
|
$ |
8.375 |
| 2nd |
|
$ |
43.500 |
|
$ |
25.510 |
|
$ |
12.250 |
|
$ |
9.563 |
| 3rd |
|
$ |
42.990 |
|
$ |
30.800 |
|
$ |
14.063 |
|
$ |
11.094 |
| 4th |
|
$ |
40.630 |
|
$ |
27.430 |
|
$ |
23.500 |
|
$ |
13.313 |
The Registrant has never paid a cash dividend. The present policy
of the Registrant is to retain earnings to provide funds for the operation and expansion of its business. The Registrant does not intend to pay any cash dividends at this time.
The Company began trading on the New York Stock Exchange (“NYSE”) as of August 16, 2002. The Company’s new ticker symbol is “CAI”.
At August 31, 2002, the number of record stockholders of the Registrant’s Common Stock was approximately 566.
Item 6. Selected Financial Data
The selected financial data set forth below is derived from the audited financial statements of the Company for the years ended June 30, 2002, 2001, 2000, 1999 and
1998. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements of the Company and the notes thereto included as Item 8 in this Form 10-K.
On December 15, 1999, the Company sold its COMNET products business to Compuware and on January 6, 2002, the Company sold its domestic Marketing Systems Group to Environmental Research Systems Institute, Inc's subsidiary, ESRI Business Information
Solutions. Operating results from the Company's discontinued operations are shown in Note 13, Discontinued Operations, in the Notes to Consolidated Financial Statements.
9
INCOME STATEMENT DATA
(dollars in thousands, except per share)
| |
|
Year Ended June 30,
|
| |
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
| Revenue |
|
$ |
681,942 |
|
$ |
557,890 |
|
$ |
484,545 |
|
$ |
427,422 |
|
$ |
312,770 |
| Operating Expenses |
|
|
628,838 |
|
|
520,535 |
|
|
451,929 |
|
|
400,290 |
|
|
293,815 |
| Income from continuing operations |
|
|
31,924 |
|
|
20,765 |
|
|
17,891 |
|
|
14,317 |
|
|
10,921 |
| Net Income |
|
$ |
30,465 |
|
$ |
22,301 |
|
$ |
38,412 |
|
$ |
14,170 |
|
$ |
11,715 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per common and common share equivalent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average shares outstanding |
|
|
24,992 |
|
|
22,634 |
|
|
22,620 |
|
|
21,792 |
|
|
21,558 |
| Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from continuing operations |
|
$ |
1.28 |
|
$ |
0.92 |
|
$ |
0.79 |
|
$ |
0.66 |
|
$ |
0.51 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income |
|
$ |
1.22 |
|
$ |
0.99 |
|
$ |
1.70 |
|
$ |
0.65 |
|
$ |
0.55 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average shares and equivalent shares outstanding |
|
|
25,814 |
|
|
23,056 |
|
|
23,154 |
|
|
22,440 |
|
|
22,306 |
| Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from continuing operations |
|
$ |
1.24 |
|
$ |
0.90 |
|
$ |
0.77 |
|
$ |
0.64 |
|
$ |
0.49 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income(1) |
|
$ |
1.18 |
|
$ |
0.97 |
|
$ |
1.66 |
|
$ |
0.63 |
|
$ |
0.53 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Computed on the basis described in Note 1, Earnings Per Share, in the Notes to Consolidated Financial Statements. |
10
Balance Sheet Data
(dollars in thousands)
| |
|
June 30,
|
| |
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
1998
|
| Total assets |
|
$ |
480,664 |
|
$ |
284,731 |
|
$ |
235,997 |
|
$ |
221,712 |
|
$ |
163,060 |
| Long-term obligations |
|
|
36,140 |
|
|
55,230 |
|
|
31,913 |
|
|
67,027 |
|
|
31,231 |
| Working capital |
|
|
228,764 |
|
|
81,961 |
|
|
62,492 |
|
|
66,726 |
|
|
54,878 |
| Stockholders’ equity |
|
|
367,159 |
|
|
160,204 |
|
|
141,968 |
|
|
98,937 |
|
|
84,327 |
Item 7. Management’s Discussion and Analysis of
Financial Condition & Results of Operations
The following discussion and analysis is provided
to enhance the understanding of, and should be read in conjunction with, the Financial Statements and the related Notes. All years refer to the Company’s fiscal year which ends on June 30 and have been restated for consistent presentation of
discontinued operations.
The table below sets forth, for the periods indicated, the customer mix in revenue with
related percentages of total revenue.
| |
|
2002
|
|
|
2001
|
|
|
2000
|
|
| |
|
(dollars in thousands) |
|
| Department of Defense |
|
$ |
433,927 |
|
63.7 |
% |
|
$ |
325,118 |
|
58.3 |
% |
|
$ |
249,776 |
|
51.5 |
% |
| Federal Civilian Agencies |
|
|
184,392 |
|
27.0 |
|
|
|
149,205 |
|
26.7 |
|
|
|
141,393 |
|
29.2 |
|
| Commercial |
|
|
49,369 |
|
7.2 |
|
|
|
61,029 |
|
11.0 |
|
|
|
60,181 |
|
12.4 |
|
| State & Local Government |
|
|
14,254 |
|
2.1 |
|
|
|
22,538 |
|
4.0 |
|
|
|
33,195 |
|
6.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
$ |
681,942 |
|
100.0 |
% |
|
$ |
557,890 |
|
100.0 |
% |
|
$ |
484,545 |
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. For the year
ended June 30, 2002, the Company’s total revenue increased by $124.0 million, or 22.2%. The growth in revenue came primarily from higher levels of managed network and systems integration services business from federal government customers along
with the acquisition of DSIC. Total revenue in FY2001 increased $73.3 million, or 15.1%, from $484.6 million to $557.9 million. The increase was primarily in the managed network services business as a result of the combination of internal growth and
the acquisition of the Federal Services Business.
All of the Company’s acquisitions have been accounted for
using the purchase method of accounting and the results of their operations have been included in the Company’s revenue since the date of acquisition. Acquisitions made during the last two fiscal years accounted for $63 million of the FY2002
revenue growth. As previously described, on November 1, 2001, the Company purchased all of the outstanding capital stock of DSIC. In FY2002, DSIC contributed approximately $40 million in revenue. On December 2, 2000, the Company acquired the Federal
Services Business, which contributed approximately $22 million of revenue in FY2002. Other acquisitions accounted for approximately $1 million of revenues for FY2002.
Revenue from DoD increased 33.5%, or $108.8 million, for FY2002 as compared to FY2001. In FY2001, DoD revenue increased 30.2%, or $75.3 million, as compared to FY2000. DoD
revenue growth from FY2000 to FY2002 was primarily due to internal growth in the managed network and engineering services as well as the aforementioned acquisitions of DSIC and the Federal Services Business.
11
Revenue from federal civilian agencies increased 23.6%, or $35.2 million, for
FY2002 as compared to FY2001. Approximately 49% of federal civilian agency revenue was derived from DoJ, for which the Company provides litigation support services and maintains an automated debt management system. Revenue from DoJ was $89.8
million, $72.7 million and $73.6 million in FY2002, FY2001 and FY2000, respectively. In FY2002, the Company also experienced increased revenue growth of 23.7%, or $18.1 million, from federal civilian agencies other than DoJ as compared to FY2001.
The increase was primarily due to the acquisition of DSIC as well as increased task orders on our GWAC contracts.
Commercial revenue, primarily derived from the Company’s international operations, decreased by 19.1%, or $11.7 million, for the twelve months ended June 30, 2002. This decrease in commercial revenue in FY2002 compared to FY2001
came from the Company’s exposure to the international telecommunications market, where there have been difficult conditions, and from lower pass-through revenues on systems project’s where the third party hardware, software and subcontract
content of these projects was substantially lower this year than in the prior year. In FY2001, as compared to FY2000, commercial revenue increased by $0.8 million, or 1.3%. The slower growth rate was primarily due to the impact of a decrease of
approximately 10% in the average foreign exchange rate of pounds sterling for the year compared to FY2000.
Revenue from state and local governments decreased 36.8%, or $8.3 million, to $14.3 million for the year ended June 30, 2002 as compared to the same period a year ago. The decline in revenue was primarily due to the phase out of work
on two state contracts. The Company’s continued and expanded focus on DoD and federal civilian agency opportunities is resulting in a reduced emphasis on state and local governments. As a percentage of total revenue, state and local government
revenues decreased significantly from $33.2 million, or 6.8%, in FY2000 to $22.5 million, or 4.0%, in FY2001. The decrease was attributable primarily to the reduced level of Y2K remediation business.