NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 2016 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 6 and 12.
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, 2016. The results of operations for the three months ended September 30, 2016 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
|
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of the accounting for share-based payments, including income tax consequences and classification on the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies will be recognized as income tax expense or benefit in the income statement as discrete items in the reporting period in which they occur. Additionally, excess tax benefits will be classified as an operating activity on the statement of cash flows. In regards to forfeitures, the entity can make an accounting policy election to either recognize forfeitures as they occur or estimate the number of awards expected to be forfeited. The guidance in ASU 2016-09 is effective for the fiscal year, and interim periods within that fiscal year, beginning after December 15, 2016. Early adoption is permitted in any interim or annual period, with adjustments reflected as of the beginning of the fiscal year of adoption. The Company early adopted this standard during the fourth quarter of FY16, and is therefore required to report the impact as though the ASU had been adopted on July 1, 2015.
Upon adoption, the Company recognized excess tax benefits of $0.8 million during the three months ended September 30, 2015 as a reduction to tax expense in our Consolidated Statements of Operations, as though ASU 2016-09 had been in effect since the beginning of FY16. Consequently, this resulted in an increase in net income, an increase in earnings per share and a decrease in the annual effective tax rate. In addition, the excess tax benefits that were previously presented as a financing activity on our Consolidated Statements of Cash Flows are now presented as an operating activity, with periods prior to FY16 retrospectively adjusted. With respect to forfeitures, the Company will continue to estimate the number of awards expected to be forfeited in accordance with our existing accounting policy.
In February 2016, the FASB issued ASU No. 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.
7
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues 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 are required under existing U.S. GAAP. On July 9, 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09 to annual reporting periods, including in
terim reporting periods within those periods, beginning after December 15, 2017, using either a full retrospective approach or a modified approach. Early adoption up to the original effective date is permitted. The Company is currently evaluating the impac
t of the adoption of this standard on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard.
NSS Acquisition
On February 1, 2016, the Company acquired 100 percent of the outstanding shares of L-3 National Security Solutions, Inc. and L-3 Data Tactics Corporation (together, “NSS”). NSS is a prime mission partner to the U.S. Department of Defense (DoD), U.S. government intelligence agencies, and U.S. federal civilian agencies. The acquisition will expand CACI’s opportunities in many of our key market areas and expand our current customer base. CACI financed the acquisition by borrowing $250.0 million under its existing revolving facility and by entering into an eighth amendment and first incremental facility amendment to its credit facility to allow for the incurrence of $300.0 million in additional term loans.
The initial purchase consideration paid at closing to acquire NSS was $550.0 million plus $11.2 million representing a preliminary net working capital adjustment. Subsequent to closing, CACI received a refund of $13.6 million for the final net working capital adjustment.
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 NSS acquisition could necessitate the need to use the full one year measurement period to adequately analyze and assess a number of factors used in establishing the asset and liability fair values as of the acquisition date, including receivables and deferred revenue, contractual obligations, income tax obligations, and certain reserves. Any potential adjustments made could be material in relation to the preliminary values presented in the table below. Based on the Company’s preliminary valuation, the total estimated consideration of $547.5 million has been allocated to assets acquired and liabilities assumed as follows (in thousands):
Cash and cash equivalents
|
|
$
|
2,596
|
|
Accounts receivable
|
|
|
211,120
|
|
Prepaid expenses and other current assets
|
|
|
11,997
|
|
Property and equipment
|
|
|
21,320
|
|
Intangible assets
|
|
|
110,500
|
|
Goodwill
|
|
|
367,322
|
|
Other long-term assets
|
|
|
437
|
|
Accounts payable
|
|
|
(57,616
|
)
|
Accrued compensation and benefits
|
|
|
(38,953
|
)
|
Other accrued expenses and current liabilities
|
|
|
(38,116
|
)
|
Deferred income taxes
|
|
|
(37,796
|
)
|
Other long-term liabilities
|
|
|
(5,280
|
)
|
Total estimated consideration
|
|
$
|
547,531
|
|
8
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The goodwill of $367.3
million is largely attributable to the assembled workforce of NSS and expected synergies between the Company and NSS. The estimated fair value attributed to intangible assets, which consists of customer contracts and related customer relationships, is be
ing amortized on an accelerated basis over approximately 15 years. The fair value attributed to the intangible assets acquired was based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations
that utilized established valuation techniques. Of the value attributed to goodwill and intangible assets, $47.7 million is deductible for income tax purposes.
Intangible assets consisted of the following (in thousands):
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Customer contracts and related customer relationships
|
|
$
|
635,397
|
|
|
$
|
635,826
|
|
Acquired technologies
|
|
|
28,046
|
|
|
|
28,074
|
|
Covenants not to compete
|
|
|
3,304
|
|
|
|
3,321
|
|
Other
|
|
|
1,545
|
|
|
|
1,551
|
|
Intangible assets
|
|
|
668,292
|
|
|
|
668,772
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Customer contracts and related customer relationships
|
|
|
(373,521
|
)
|
|
|
(363,412
|
)
|
Acquired technologies
|
|
|
(25,913
|
)
|
|
|
(25,693
|
)
|
Covenants not to compete
|
|
|
(3,242
|
)
|
|
|
(3,245
|
)
|
Other
|
|
|
(1,060
|
)
|
|
|
(1,050
|
)
|
Less accumulated amortization
|
|
|
(403,736
|
)
|
|
|
(393,400
|
)
|
Total intangible assets, net
|
|
$
|
264,556
|
|
|
$
|
275,372
|
|
Intangible assets are primarily amortized on an accelerated basis over periods ranging from one to fifteen years. The weighted-average period of amortization for all customer contracts and related customer relationships as of September 30, 2016 is 14 years, and the weighted-average remaining period of amortization is 11.8 years. The weighted-average period of amortization for acquired technologies as of September 30, 2016 is 10 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, 2017, and for each of the fiscal years thereafter, is as follows (in thousands):
Fiscal year ending June 30,
|
|
Amount
|
|
2017 (nine months)
|
|
$
|
29,928
|
|
2018
|
|
|
36,109
|
|
2019
|
|
|
31,487
|
|
2020
|
|
|
27,029
|
|
2021
|
|
|
23,830
|
|
Thereafter
|
|
|
116,173
|
|
Total intangible assets, net
|
|
$
|
264,556
|
|
9
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The changes in the carrying amount of goodwill for the year ended June 30, 2016 and the three months ended September 30, 2016 are as follows (in thousands):
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Balance at June 30, 2015
|
|
$
|
2,108,768
|
|
|
$
|
81,048
|
|
|
$
|
2,189,816
|
|
Business acquisitions
|
|
|
378,380
|
|
|
|
29,939
|
|
|
|
408,319
|
|
Foreign currency translation
|
|
|
—
|
|
|
|
(12,792
|
)
|
|
|
(12,792
|
)
|
Balance at June 30, 2016
|
|
|
2,487,148
|
|
|
|
98,195
|
|
|
|
2,585,343
|
|
Business acquisitions
|
|
|
(400
|
)
|
|
|
(172
|
)
|
|
|
(572
|
)
|
Foreign currency translation
|
|
|
—
|
|
|
|
(2,823
|
)
|
|
|
(2,823
|
)
|
Balance at September 30, 2016
|
|
$
|
2,486,748
|
|
|
$
|
95,200
|
|
|
$
|
2,581,948
|
|
Long-term debt consisted of the following (in thousands):
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Bank credit facility – term loans
|
|
$
|
1,019,341
|
|
|
$
|
1,032,833
|
|
Bank credit facility – revolver loans
|
|
|
395,000
|
|
|
|
440,000
|
|
Principal amount of long-term debt
|
|
|
1,414,341
|
|
|
|
1,472,833
|
|
Less unamortized debt issuance costs
|
|
|
(15,660
|
)
|
|
|
(16,789
|
)
|
Total long-term debt
|
|
|
1,398,681
|
|
|
|
1,456,044
|
|
Less current portion
|
|
|
(53,965
|
)
|
|
|
(53,965
|
)
|
Long-term debt, net of current portion
|
|
$
|
1,344,716
|
|
|
$
|
1,402,079
|
|
Bank Credit Facility
The Company has a $1,981.3 million credit facility (the Credit Facility), which consists of an $850.0 million revolving credit facility (the Revolving Facility) and a $1,131.3 million term loan (the Term Loan). The Revolving Facility has subfacilities of $100.0 million for same-day swing line loan borrowings and $25.0 million for stand-by letters of credit. At any time and so long as no default has occurred, the Company has the right to increase the Revolving Facility or the Term Loan in an aggregate principal amount of up to the greater of $400.0 million or an amount subject to 2.75 times senior secured leverage, calculated assuming the Revolving Facility is fully drawn, with applicable lender approvals. The Credit Facility is available to refinance existing indebtedness and for general corporate purposes, including working capital expenses and capital expenditures.
The Credit Facility was amended during the third quarter of FY16 in connection with the Company’s acquisition of NSS (see Note 3). CACI financed the transaction by borrowing $250.0 million under its existing Revolving Facility and by entering into an eighth amendment and first incremental facility amendment to its Credit Facility to allow for the incurrence of $300.0 million in additional Term Loans.
The Revolving Facility is a secured facility that permits continuously renewable borrowings of up to $850.0 million. As of September 30, 2016, the Company had $395.0 million outstanding under the Revolving Facility, no borrowings on the swing line and an outstanding letter of credit of $0.4 million. The Company pays a quarterly facility fee for the unused portion of the Revolving Facility.
The Term Loan is a five-year secured facility under which principal payments are due in quarterly installments of $13.5 million through June 30, 2018 and $27.0 million thereafter until the balance is due in full on June 1, 2020. As of September 30, 2016, the Company had $1,019.3 million outstanding under the Term Loan.
The interest rates applicable to loans under the Credit Facility are floating interest rates that, at the Company’s option, equal a base rate or a Eurodollar rate plus, in each case, an applicable rate based upon the Company’s consolidated total leverage ratio. As of September 30, 2016, the effective interest rate, including the impact of the Company’s floating-to-fixed interest rate swap agreements and excluding the effect of amortization of debt financing costs, for the outstanding borrowings under the Credit Facility was 3.13 percent.
10
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The Credit Facility requires the Company to comply with certain financial covenants, including a maximum senior se
cured leverage ratio, a maximum total leverage ratio and a minimum fixed charge coverage ratio. The Credit Facility also includes customary negative covenants restricting or limiting the Company’s ability to guarantee or incur additional indebtedness, gra
nt liens or other security interests to third parties, make loans or investments, transfer assets, declare dividends or redeem or repurchase capital stock or make other distributions, prepay subordinated indebtedness and engage in mergers, acquisitions or
other business combinations, in each case except as expressly permitted under the Credit Facility. As of September 30, 2016, the Company was in compliance with all of the financial covenants. A majority of the Company’s assets serve as collateral under t
he Credit Facility.
All debt issuance costs are being amortized from the date incurred to the expiration date of the Credit Facility.
Cash Flow Hedges
The Company periodically uses derivative financial instruments as part of a strategy to manage exposure to market risks associated with interest rate fluctuations. The Company has entered into several floating-to-fixed interest rate swap agreements for an aggregate notional amount of $900.0 million which hedge a portion of the Company’s floating rate indebtedness. The swaps mature at various dates through 2022. The Company has designated the swaps as cash flow hedges. Unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these swaps are designated as effective or ineffective. Realized gains and losses in connection with each required interest payment are reclassified from accumulated other comprehensive income or loss to interest expense. The Company does not hold or issue derivative financial instruments for trading purposes.
The effect of derivative instruments in the consolidated statements of operations and accumulated other comprehensive loss for the three months ended September 30, 2016 and 2015 is as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Gain (loss) recognized in other comprehensive income
|
|
$
|
605
|
|
|
$
|
(5,456
|
)
|
Amounts reclassified to earnings from accumulated other
comprehensive loss
|
|
|
2,249
|
|
|
|
2,422
|
|
Net current period other comprehensive income (loss)
|
|
$
|
2,854
|
|
|
$
|
(3,034
|
)
|
The aggregate maturities of long-term debt at September 30, 2016 are as follows (in thousands):
Twelve months ending September 30,
|
|
|
|
|
2017
|
|
$
|
53,965
|
|
2018
|
|
|
67,456
|
|
2019
|
|
|
107,930
|
|
2020
|
|
|
1,184,990
|
|
Principal amount of long-term debt
|
|
|
1,414,341
|
|
Less unamortized debt issuance costs
|
|
|
(15,660
|
)
|
Total long-term debt
|
|
$
|
1,398,681
|
|
7
.
|
Commitments and Contingencies
|
The Company is involved in various lawsuits, claims, and administrative proceedings arising in the normal course of business. Management is of the opinion that any liability or loss associated with such matters, either individually or in the aggregate, will not have a material adverse effect on the Company’s operations and liquidity.
11
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Government Contracting
Payments to the Company on cost-plus-fee and time-and-materials contracts are subject to adjustment upon audit by the Defense Contract Audit Agency (DCAA) and other government agencies that do not utilize DCAA’s services. The DCAA is currently nearing completion of its audits of the Company’s incurred cost submissions for the years ended June 30, 2010 and 2011, and an intelligence agency is nearing completion of its audit of direct costs on selected contracts through our fiscal year ended June 30, 2012. DCAA audits of our incurred cost submissions for the year ended June 30, 2012 have commenced, and an intelligence agency has commenced audits of direct costs on selected contracts through our fiscal year ended June 30, 2015. In the opinion of management, adjustments that may result from these audits and the audits not yet started are not expected to have a material effect on the Company’s financial position, results of operations, or cash flows as the Company has accrued its best estimate of potential disallowances. Additionally, the DCAA continually reviews the cost accounting and other practices of government contractors, including the Company. In the course of those reviews, cost accounting and other issues are identified, discussed and settled.
On March 26, 2012, the Company received a subpoena from the Defense Criminal Investigative Service seeking documents related to one of the Company’s contracts for the period of January 1, 2007 through March 26, 2012. The Company has provided documents responsive to the subpoena and is cooperating fully with the government’s investigation. The Company has accrued its current best estimate of the potential outcome within its estimated range of zero to $3.9 million.
On April 9, 2012, the Company received a letter from the Department of Justice (DoJ) informing the Company that the DoJ is investigating whether the Company violated the civil False Claims Act by submitting false claims to receive federal funds pursuant to a GSA contract. Specifically, the DoJ is investigating whether the Company failed to comply with contract requirements and applicable regulations by improperly billing for certain contracting personnel under the contract. The Company has not accrued any liability as based on its present knowledge of the facts, it does not believe an unfavorable outcome is probable.
We pursued an appeal at the ASBCA of a determination made by the Army Contracting Command in response to an audit performed on behalf of the Special Inspector General for Afghanistan Reconstruction (SIGAR) of two task orders under which we performed work in Afghanistan. We appealed the Army’s determination that our methods for computing employee danger pay were incorrect, and needed to be changed. In a decision dated July 18, 2016, the Armed Services Board of Contract Appeals ruled in favor of the Company.
We are also pursuing appeals at the ASBCA of determinations and demands made by the DCMA associated with questioned direct costs from DCAA audits of our incurred cost submissions for our fiscal years ending June 30 2006, 2007, and 2008. The Company has not accrued any liabilities for these determinations and demands and does not believe unfavorable outcomes are probable.
Virginia Sales and Use Tax Audit
The Company is under audit for sales and use tax related issues by the Commonwealth of Virginia. The Company has accrued its current best estimate of the potential outcome within its estimated range of $1.0 million to $2.5 million.
8
.
|
Stock-Based Compensation
|
Stock-based compensation expense recognized, together with the income tax benefits recognized, is as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Total stock-based compensation related to RSUs included in
indirect costs and selling expense
|
|
$
|
4,897
|
|
|
$
|
3,638
|
|
Income tax benefit recognized for stock-based compensation expense
|
|
$
|
1,757
|
|
|
$
|
1,415
|
|
Under the terms of its 2006 Stock Incentive Plan (the 2006 Plan), the Company may issue, among others, non-qualified stock options, restricted stock, RSUs, SSARs, and performance awards, collectively referred to herein as equity instruments. During the periods presented all equity instrument grants were made in the form of RSUs. Other than performance-based RSUs (PRSUs) which contain a market-based element, the fair value of RSU grants was determined based on the closing price of a share of the Company’s common stock on the date of grant. The fair value of RSUs with market-based vesting features was also measured on the grant date, but was done so using a binomial lattice model.
12
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Annual grants under the 2006 Plan are generally made to the Company’s key employees during the first quarter of the Company’s fiscal year and to members of the Company’s Boar
d of Directors during the second quarter of the Company’s fiscal year. With the approval of its Chief Executive Officer, the Company also issues equity instruments to strategic new hires and to employees who have demonstrated superior performance.
In September 2014, the Company made its annual grant to key employees consisting of 180,570 PRSUs. The final number of such PRSUs that are earned by participants and vest is based on the achievement of a specified earnings per share (EPS) for the year ended June 30, 2015 and on the average share price of Company stock for the 90 day period ending September 23, 2015, 2016 and 2017 as compared to the average share price for the 90 day period ended September 23, 2014. The specified EPS for the year ended June 30, 2015 was met and the average share price of the Company’s stock for the 90 day period ending September 23, 2016 exceeded the average share price of the Company’s stock for the 90 day period ended September 23, 2014, resulting in an additional 19,190 RSUs earned by participants.
In September 2015, the Company made its annual grant to key employees consisting of 208,160 PRSUs. The final number of such PRSUs that are earned by participants and vest is based on the achievement of a specified EPS for the year ending June 30, 2016 and on the average share price of Company stock for the 90 day periods ending September 18, 2016, 2017 and 2018 as compared to the average share price for the 90 day period ended September 18, 2015. The specified EPS for the year ended June 30, 2016 was met and the average share price of the Company’s stock for the 90 day period ending September 18, 2016 exceeded the average share price of the Company’s stock for the 90 day period ended September 18, 2015, resulting in an additional 11,811 RSUs earned by participants.
In September 2016, the Company made its annual grant to its key employees consisting of 193,420 PRSUs. The final number of such PRSUs that are earned by participants and vest is based on the achievement of a specified EPS for the year ended June 30, 2017 and on the average share price of Company stock for the 90 day period ending September 30, 2017, 2018 and 2019 as compared to the average share price for the 90 day period ended September 30, 2016. If EPS for the year ending June 30, 2017 exceeds the specified EPS and the average share price of the Company’s stock for the 90 day period ending September 30, 2017, 2018 and 2019 exceeds the average share price of the Company’s stock for the 90 day period ended September 30, 2016 by 100 percent or more, then an additional 193,420 could be earned by participants. This is the maximum number of additional RSUs that can be earned related to the September 2016 annual grant. In addition to the performance and market conditions, there is a service vesting condition which stipulates that 50 percent of the earned award will vest on October 1, 2019 and 50 percent of the earned award will vest on October 1, 2020, in both cases dependent upon continuing service by the grantee as an employee of the Company, unless the grantee is eligible for earlier vesting upon retirement or certain other events.
The total number of shares authorized by shareholders for grants under the 2006 Plan and its predecessor plan is 12,450,000 as of September 30, 2016. The aggregate number of grants that may be made may exceed this approved amount as forfeited SSARs, stock options, restricted stock and RSUs, and vested but unexercised SSARs and stock options that expire, become available for future grants. As of September 30, 2016, cumulative grants of 13,978,332 equity instruments underlying the shares authorized have been awarded, and 4,217,234 of these instruments have been forfeited.
Activity related to RSUs during the three months ended September 30, 2016 is as follows:
|
|
RSUs
|
|
Outstanding, June 30, 2016
|
|
|
873,854
|
|
Granted
|
|
|
215,052
|
|
Vested
|
|
|
(80,466
|
)
|
Forfeited
|
|
|
(3,918
|
)
|
Outstanding, September 30, 2016
|
|
|
1,004,522
|
|
Weighted-average grant date fair value for RSUs
|
|
$
|
100.66
|
|
As of September 30, 2016, there was $51.9 million of total unrecognized compensation costs related to RSUs scheduled to be recognized over a weighted-average period of 3.0 years.
13
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
ASC 260, Earnings Per Share (ASC 260), requires dual presentation of basic and diluted earnings per share on the face of the income statement. Basic earnings per share excludes dilution and is computed by dividing income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock but not securities that are anti-dilutive, including stock options and SSARs with an exercise price greater than the average market price of the Company’s common stock. Using the treasury stock method, diluted earnings per share include the incremental effect of SSARs, stock options, restricted shares, and those RSUs that are no longer subject to a market or performance condition. There were no anti-dilutive common stock equivalents for the three months ended September 30, 2016 and 2015. The PRSUs granted in September 2016 are excluded from the calculation of diluted earnings per share as the underlying shares are considered to be contingently issuable shares. These shares will be included in the calculation of diluted earnings per share beginning in the first reporting period in which the performance metric is achieved. The chart below shows the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
36,663
|
|
|
$
|
34,632
|
|
Weighted-average number of basic shares outstanding
during the period
|
|
|
24,340
|
|
|
|
24,208
|
|
Dilutive effect of SSARs/stock options and RSUs after
application of treasury stock method
|
|
|
588
|
|
|
|
513
|
|
Weighted-average number of diluted shares outstanding
during the period
|
|
|
24,928
|
|
|
|
24,721
|
|
Basic earnings per share
|
|
$
|
1.51
|
|
|
$
|
1.43
|
|
Diluted earnings per share
|
|
$
|
1.47
|
|
|
$
|
1.40
|
|
The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company’s total liability for unrecognized tax benefits as of September 30, 2016 and June 30, 2016 was $0.4 million for both periods. The $0.4 million unrecognized tax benefit at September 30, 2016, if recognized, would impact the Company’s effective tax rate.
11.
|
Business Segment Information
|
The Company reports operating results and financial data in two segments: domestic operations and international operations. Domestic operations provide information solutions and services to its customers. Its customers are primarily U.S. federal government agencies. Other customers of the Company’s domestic operations include state and local governments and commercial enterprises. The Company places employees in locations around the world in support of its clients. International operations offer services to both commercial and non-U.S. government customers primarily within the Company’s business systems and enterprise IT markets. The Company evaluates the performance of its operating segments based on net income. Summarized financial information concerning the Company’s reportable segments is as follows (in thousands):
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
1,038,891
|
|
|
$
|
34,389
|
|
|
$
|
1,073,280
|
|
Net income
|
|
|
33,642
|
|
|
|
3,021
|
|
|
|
36,663
|
|
Three Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
785,678
|
|
|
$
|
36,764
|
|
|
$
|
822,442
|
|
Net income
|
|
|
31,935
|
|
|
|
2,697
|
|
|
|
34,632
|
|
14
CACI INTERNATIONAL INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
12.
|
Fair Value of Financial Instruments
|
ASC 820,
Fair Value Measurements and Disclosures
, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in an orderly transaction. The market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability is known as the principal market. When no principal market exists, the most advantageous market is used. This is the market in which the reporting entity would sell the asset or transfer the liability with the price that maximizes the amount that would be received or minimizes the amount that would be paid. Fair value is based on assumptions market participants would make in pricing the asset or liability. Generally, fair value is based on observable quoted market prices or derived from observable market data when such market prices or data are available. When such prices or inputs are not available, the reporting entity should use valuation models.
The Company’s financial assets and liabilities recorded at fair value on a recurring basis are categorized based on the priority of the inputs used to measure fair value. The inputs used in measuring fair value are categorized into three levels, as follows:
|
•
|
Level 1 Inputs – unadjusted quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2 Inputs – unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
|
|
•
|
Level 3 Inputs – amounts derived from valuation models in which unobservable inputs reflect the reporting entity’s own assumptions about the assumptions of market participants that would be used in pricing the asset or liability.
|
The Company’s financial instruments measured at fair value included interest rate swap agreements and contingent consideration in connection with business combinations. The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and June 30, 2016, and the level they fall within the fair value hierarchy (in thousands):
|
|
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
Financial Statement
|
|
Fair Value
|
|
2016
|
|
|
2016
|
|
Description of Financial Instrument
|
|
Classification
|
|
Hierarchy
|
|
Fair Value
|
|
Contingent consideration
|
|
Other accrued expenses and
current liabilities
|
|
Level 3
|
|
$
|
3,751
|
|
|
$
|
—
|
|
Contingent consideration
|
|
Other long-term liabilities
|
|
Level 3
|
|
$
|
11,447
|
|
|
$
|
15,171
|
|
Interest rate swap agreements
|
|
Other accrued expenses and
current liabilities
|
|
Level 2
|
|
$
|
655
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
Other long-term liabilities
|
|
Level 2
|
|
$
|
16,247
|
|
|
$
|
21,609
|
|
Changes in the fair value of the interest rate swap agreements are recorded as a component of accumulated other comprehensive income or loss.
Various acquisitions completed during FY16 contained provisions requiring that the Company pay contingent consideration in the event the acquired businesses achieved certain specified earnings results during the two and three year periods subsequent to each acquisition. The Company determined the fair value of the contingent consideration as of each acquisition date using a valuation model which included the evaluation of the most likely outcome and the application of an appropriate discount rate. At the end of each reporting period, the fair value of the contingent consideration was remeasured and any changes were recorded in indirect costs and selling expenses. During the three months ended September 30, 2016, this remeasurement resulted in a $0.4 million change to the liability recorded.
On October 1, 2016, CACI Limited acquired a business in the United Kingdom that provides outsourced database managed services and associated database segmentation and analytics for large corporate customers. The purchase consideration for this business is approximately $2.8 million, which includes initial cash payments, deferred consideration and contingent consideration to be paid upon achieving certain metrics.
15