NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1.
|
Basis of Presentation
|
The accompanying unaudited consolidated financial statements of CACI International Inc and subsidiaries (CACI or the Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and include the assets, liabilities, results of operations, comprehensive income and cash flows for the Company, including its subsidiaries and ventures that are majority-owned or otherwise controlled by the Company. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. All intercompany balances and transactions have been eliminated in consolidation.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and amounts included in other current assets and current liabilities that meet the definition of a financial instrument approximate fair value because of the short-term nature of these amounts. The fair value of the Company’s debt outstanding as of December 31, 2021 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 15.
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, 2021. The results of operations for the three and six months ended December 31, 2021 are not necessarily indicative of the results to be expected for any subsequent interim period or for the full fiscal year.
Note 2.
|
Recent Accounting Pronouncements
|
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The guidance in this ASU is optional and expedients may be elected over time through December 31, 2022, as reference rate reform activities occur. During the year ended June 30, 2020, CACI elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives consistent with past presentation. Application of these expedients assisted in preserving the Company's presentation of derivatives as qualifying cash flow hedges. The Company continues to evaluate this guidance and may apply other elections as relevant contract and hedge accounting relationship modifications are made during the course of the reference rate reform transition period.
In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in accordance with acquisition accounting. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company early adopted this standard in fiscal year 2022 and it did not have a material impact on our consolidated financial statements.
8
During the six months ended December 31, 2021 CACI completed four acquisitions that provide mission and enterprise technology to sensitive government customers. Their capabilities include open source intelligence solutions, specialized cyber, satellite communications, multi-domain photonics technologies for free-space optical (FSO) communications, and commercial solutions for classified (CSfC) security technologies. The aggregate purchase consideration was approximately $616.2 million. The Company preliminarily recognized fair values of the assets acquired and liabilities assumed and allocated $436.4 million to goodwill and $180.6 million to intangible assets. The intangible assets consist of customer relationships of $98.4 million and technology of $82.2 million. The fair value attributed to intangible assets is being amortized on an accelerated basis over a range of approximately 15 to 20 years for customer relationships and over a range of approximately 5 to 10 years for technology. The fair value attributed to the intangible assets acquired was based on assumptions and other information compiled by management, including independent valuations that utilized established valuation techniques. Of the value attributed to goodwill and intangible assets, approximately $485.0 million is deductible for income tax purposes.
Note 4.
|
Intangible Assets
|
Intangible assets, net including those allocated on a preliminary basis, consisted of the following (in thousands):
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2021 (1)
|
|
|
2021
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Customer contracts and related customer relationships
|
|
$
|
660,842
|
|
|
$
|
601,516
|
|
Acquired technologies
|
|
|
280,420
|
|
|
|
198,273
|
|
Intangible assets
|
|
|
941,262
|
|
|
|
799,789
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
|
|
Customer contracts and related customer relationships
|
|
|
(258,104
|
)
|
|
|
(276,498
|
)
|
Acquired technologies
|
|
|
(62,470
|
)
|
|
|
(47,185
|
)
|
Less accumulated amortization
|
|
|
(320,574
|
)
|
|
|
(323,683
|
)
|
Total intangible assets, net
|
|
$
|
620,688
|
|
|
$
|
476,106
|
|
|
(1)
|
During the six months ended December 31, 2021, the Company removed $38.5 million in fully amortized intangible assets.
|
Intangible assets are primarily amortized on an accelerated basis over periods ranging from one to twenty years. The weighted-average period of amortization for all customer contracts and related customer relationships as of December 31, 2021 is 18.3 years, and the weighted-average remaining period of amortization is 15.3 years. The weighted-average period of amortization for acquired technologies as of December 31, 2021 is 10.1 years, and the weighted-average remaining period of amortization is 8.7 years.
Amortization expense was $18.1 million and $35.6 million for the three and six months ended December 31, 2021, respectively, and $17.5 million and $33.6 million for the three and six months ended December 31, 2020, respectively. The estimated annual amortization expense as of December 31, 2021 was as follows (in thousands):
Fiscal year ending June 30,
|
|
Amount
|
|
2022 (remainder of year)
|
|
$
|
38,514
|
|
2023
|
|
|
75,525
|
|
2024
|
|
|
72,050
|
|
2025
|
|
|
67,882
|
|
2026
|
|
|
60,244
|
|
2027 and thereafter
|
|
|
306,473
|
|
|
|
$
|
620,688
|
|
9
The changes in the carrying amount of goodwill for the six months ended December 31, 2021 are as follows (in thousands):
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Balance at June 30, 2021
|
|
$
|
3,491,747
|
|
|
$
|
140,831
|
|
|
$
|
3,632,578
|
|
Goodwill acquired (1)
|
|
|
436,439
|
|
|
|
—
|
|
|
|
436,439
|
|
Foreign currency translation
|
|
|
(613
|
)
|
|
|
(3,436
|
)
|
|
|
(4,049
|
)
|
Balance at December 31, 2021
|
|
$
|
3,927,573
|
|
|
$
|
137,395
|
|
|
$
|
4,064,968
|
|
|
(1)
|
Includes goodwill initially allocated to new business combinations as well as measurement period adjustments, when applicable.
|
Note 6.
|
Revenues from Contracts with Customers
|
Disaggregation of Revenues
The Company disaggregates revenues by contract type, customer type, prime vs. subcontractor, and whether the solution provided is primarily expertise or technology. These categories represent how the nature, amount, timing, and uncertainty of revenues and cash flows are affected.
Disaggregated revenues by contract type were as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2021
|
|
|
December 31, 2021
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Cost-plus-fee
|
|
$
|
889,358
|
|
|
$
|
—
|
|
|
$
|
889,358
|
|
|
$
|
1,783,071
|
|
|
$
|
—
|
|
|
$
|
1,783,071
|
|
Fixed-price
|
|
|
400,011
|
|
|
|
33,279
|
|
|
|
433,290
|
|
|
|
774,485
|
|
|
|
66,510
|
|
|
|
840,995
|
|
Time-and-materials
|
|
|
148,881
|
|
|
|
14,249
|
|
|
|
163,130
|
|
|
|
324,416
|
|
|
|
28,194
|
|
|
|
352,610
|
|
Total
|
|
$
|
1,438,250
|
|
|
$
|
47,528
|
|
|
$
|
1,485,778
|
|
|
$
|
2,881,972
|
|
|
$
|
94,704
|
|
|
$
|
2,976,676
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2020
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Cost-plus-fee
|
|
$
|
843,584
|
|
|
$
|
—
|
|
|
$
|
843,584
|
|
|
$
|
1,667,193
|
|
|
$
|
—
|
|
|
$
|
1,667,193
|
|
Fixed-price
|
|
|
411,114
|
|
|
|
29,707
|
|
|
|
440,821
|
|
|
|
820,698
|
|
|
|
53,937
|
|
|
|
874,635
|
|
Time-and-materials
|
|
|
172,362
|
|
|
|
11,944
|
|
|
|
184,306
|
|
|
|
357,356
|
|
|
|
29,033
|
|
|
|
386,389
|
|
Total
|
|
$
|
1,427,060
|
|
|
$
|
41,651
|
|
|
$
|
1,468,711
|
|
|
$
|
2,845,247
|
|
|
$
|
82,970
|
|
|
$
|
2,928,217
|
|
Disaggregated revenues by customer type were as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2021
|
|
|
December 31, 2021
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Department of Defense
|
|
$
|
1,037,014
|
|
|
$
|
—
|
|
|
$
|
1,037,014
|
|
|
$
|
2,037,141
|
|
|
$
|
—
|
|
|
$
|
2,037,141
|
|
Federal Civilian agencies
|
|
|
371,897
|
|
|
|
—
|
|
|
|
371,897
|
|
|
|
785,561
|
|
|
|
—
|
|
|
|
785,561
|
|
Commercial and other
|
|
|
29,339
|
|
|
|
47,528
|
|
|
|
76,867
|
|
|
|
59,270
|
|
|
|
94,704
|
|
|
|
153,974
|
|
Total
|
|
$
|
1,438,250
|
|
|
$
|
47,528
|
|
|
$
|
1,485,778
|
|
|
$
|
2,881,972
|
|
|
$
|
94,704
|
|
|
$
|
2,976,676
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2020
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Department of Defense
|
|
$
|
1,012,875
|
|
|
$
|
—
|
|
|
$
|
1,012,875
|
|
|
$
|
2,017,070
|
|
|
$
|
—
|
|
|
$
|
2,017,070
|
|
Federal Civilian agencies
|
|
|
390,034
|
|
|
|
—
|
|
|
|
390,034
|
|
|
|
780,213
|
|
|
|
—
|
|
|
|
780,213
|
|
Commercial and other
|
|
|
24,151
|
|
|
|
41,651
|
|
|
|
65,802
|
|
|
|
47,964
|
|
|
|
82,970
|
|
|
|
130,934
|
|
Total
|
|
$
|
1,427,060
|
|
|
$
|
41,651
|
|
|
$
|
1,468,711
|
|
|
$
|
2,845,247
|
|
|
$
|
82,970
|
|
|
$
|
2,928,217
|
|
10
Disaggregated revenues by prime vs. subcontractor were as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2021
|
|
|
December 31, 2021
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Prime contractor
|
|
$
|
1,292,529
|
|
|
$
|
43,317
|
|
|
$
|
1,335,846
|
|
|
$
|
2,591,182
|
|
|
$
|
86,223
|
|
|
$
|
2,677,405
|
|
Subcontractor
|
|
|
145,721
|
|
|
|
4,211
|
|
|
|
149,932
|
|
|
|
290,790
|
|
|
|
8,481
|
|
|
|
299,271
|
|
Total
|
|
$
|
1,438,250
|
|
|
$
|
47,528
|
|
|
$
|
1,485,778
|
|
|
$
|
2,881,972
|
|
|
$
|
94,704
|
|
|
$
|
2,976,676
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2020
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Prime contractor
|
|
$
|
1,288,533
|
|
|
$
|
38,492
|
|
|
$
|
1,327,025
|
|
|
$
|
2,577,238
|
|
|
$
|
76,625
|
|
|
$
|
2,653,863
|
|
Subcontractor
|
|
|
138,527
|
|
|
|
3,159
|
|
|
|
141,686
|
|
|
|
268,009
|
|
|
|
6,345
|
|
|
|
274,354
|
|
Total
|
|
$
|
1,427,060
|
|
|
$
|
41,651
|
|
|
$
|
1,468,711
|
|
|
$
|
2,845,247
|
|
|
$
|
82,970
|
|
|
$
|
2,928,217
|
|
Disaggregated revenues by expertise or technology were as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2021
|
|
|
December 31, 2021
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Expertise
|
|
$
|
668,209
|
|
|
$
|
18,100
|
|
|
$
|
686,309
|
|
|
$
|
1,351,833
|
|
|
$
|
37,522
|
|
|
$
|
1,389,355
|
|
Technology
|
|
|
770,041
|
|
|
|
29,428
|
|
|
|
799,469
|
|
|
|
1,530,139
|
|
|
|
57,182
|
|
|
|
1,587,321
|
|
Total
|
|
$
|
1,438,250
|
|
|
$
|
47,528
|
|
|
$
|
1,485,778
|
|
|
$
|
2,881,972
|
|
|
$
|
94,704
|
|
|
$
|
2,976,676
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2020
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Expertise
|
|
$
|
715,812
|
|
|
$
|
16,464
|
|
|
$
|
732,276
|
|
|
$
|
1,439,009
|
|
|
$
|
33,950
|
|
|
$
|
1,472,959
|
|
Technology
|
|
|
711,248
|
|
|
|
25,187
|
|
|
|
736,435
|
|
|
|
1,406,238
|
|
|
|
49,020
|
|
|
|
1,455,258
|
|
Total
|
|
$
|
1,427,060
|
|
|
$
|
41,651
|
|
|
$
|
1,468,711
|
|
|
$
|
2,845,247
|
|
|
$
|
82,970
|
|
|
$
|
2,928,217
|
|
Changes in Estimates
The Company recognizes revenues on many of its fixed price, award fee, and incentive fee arrangements over time primarily using a cost-to-cost input method based on the ratio of costs incurred to date to total estimated costs at completion. The process requires the Company to use professional judgment when assessing risks, estimating contract revenues and costs, estimating variable consideration, and making assumptions for schedule and technical issues. The Company periodically reassesses its assumptions and updates its estimates as needed. When estimates of total costs to be incurred on a contract exceed total revenues, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.
Aggregate net changes in estimates for the three and six months ended December 31, 2021 reflected an increase to income before income taxes of $5.5 million ($0.17 per diluted share) and $8.2 million ($0.26 per diluted share), respectively, compared with $18.1 million ($0.53 per diluted share) and $25.9 million ($0.75 per diluted share), for the three and six months ended December 31, 2020, respectively. The Company uses its statutory tax rate when calculating the impact to diluted earnings per share.
Revenues recognized from previously satisfied performance obligations were not material for the three and six months ended December 31, 2021 or the three and six months ended December 31, 2020. The change in revenues generally relates to final true-up adjustments for estimated award or incentive fees in the period in which the customer’s final performance score was received or when it can be determined that more objective, contractually-defined criteria have been fully satisfied.
Remaining Performance Obligations
Remaining performance obligations (RPO) represent the expected revenues to be recognized for the satisfaction of remaining performance obligations on existing contracts. This balance excludes unexercised contract option years and task orders that may be issued underneath an Indefinite Delivery/Indefinite Quantity (IDIQ) vehicle until such task orders are awarded. The RPO balance generally increases with the execution of new contracts and converts into revenues as contractual performance obligations are satisfied. The Company continues to monitor this balance as it is subject to change from execution of new contracts, contract modifications or extensions, government deobligations, or early terminations.
11
As of December 31, 2021, the Company had $7.2 billion of RPO and expects to recognize approximately 85 percent over the next twelve months with the remainder to be recognized thereafter.
Note 7.
|
Contract Balances
|
Contract balances consisted of the following (in thousands):
|
|
|
|
December 31,
|
|
|
June 30,
|
|
Description of Contract Related Balance
|
|
Financial Statement Classification
|
|
2021
|
|
|
2021
|
|
Billed and billable receivables
|
|
Accounts receivable, net
|
|
$
|
757,999
|
|
|
$
|
763,921
|
|
Contract assets – current unbilled receivables
|
|
Accounts receivable, net
|
|
|
96,416
|
|
|
|
115,930
|
|
Contract assets – current costs to obtain
|
|
Prepaid expenses and other current assets
|
|
|
4,722
|
|
|
|
4,144
|
|
Contract assets – noncurrent unbilled receivables
|
|
Accounts receivable, long-term
|
|
|
11,398
|
|
|
|
12,159
|
|
Contract assets – noncurrent costs to obtain
|
|
Other long-term assets
|
|
|
11,357
|
|
|
|
9,584
|
|
Contract liabilities – current deferred
revenue and other contract liabilities
|
|
Other accrued expenses and current liabilities
|
|
|
(102,253
|
)
|
|
|
(70,907
|
)
|
Contract liabilities – noncurrent deferred
revenue and other contract liabilities
|
|
Other long-term liabilities
|
|
|
(7,200
|
)
|
|
|
(6,837
|
)
|
During the three and six months ended December 31, 2021, the Company recognized $13.6 million and $68.3 million of revenues, respectively, compared with $19.4 million and $52.9 million of revenues for the three and six months ended December 31, 2020, respectively, that was included in a previously recorded contract liability as of the beginning of the period.
Inventories consisted of the following (in thousands):
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2021
|
|
Materials, purchased parts and supplies
|
|
|
$
|
61,179
|
|
|
$
|
52,615
|
|
Work in process
|
|
|
|
16,145
|
|
|
|
11,353
|
|
Finished goods
|
|
|
|
19,115
|
|
|
|
15,728
|
|
Total
|
|
|
$
|
96,439
|
|
|
$
|
79,696
|
|
Inventories are stated at the lower of cost (average cost or first-in, first-out) or net realizable value and are included in prepaid expenses and other current assets on the accompanying consolidated balance sheets. The Company periodically assesses its current inventory balances and records a provision for damaged, deteriorated, or obsolete inventory based on historical patterns and forecasted sales.
Note 9.
|
Sales of Receivables
|
On December 23, 2021, the Company amended its Master Accounts Receivable Purchase Agreement (MARPA) with MUFG Bank, Ltd. (the Purchaser), for the sale of certain designated eligible U.S. government receivables. The amendment extended the term of the MARPA to December 22, 2022. Under the MARPA, the Company can sell eligible receivables, including certain billed and unbilled receivables up to a maximum amount of $200.0 million. The Company’s receivables are sold under the MARPA without recourse for any U.S. government credit risk.
The Company accounts for receivable transfers under the MARPA as sales under ASC 860, Transfers and Servicing, and derecognizes the sold receivables from its balance sheets. The fair value of the sold receivables approximated their book value due to their short-term nature.
The Company does not retain an ongoing financial interest in the transferred receivables other than cash collection and administrative services. The Company estimated that its servicing fee was at fair value and therefore no servicing asset or liability related to these receivables was recognized as of December 31, 2021. Proceeds from the sold receivables are reflected in operating cash flows on the statement of cash flows.
12
MARPA activity consisted of the following (in thousands):
|
|
As of and for the Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Beginning balance:
|
|
$
|
182,027
|
|
|
$
|
200,000
|
|
Sales of receivables
|
|
|
1,361,521
|
|
|
|
1,354,577
|
|
Cash collections
|
|
|
(1,356,070
|
)
|
|
|
(1,354,819
|
)
|
Outstanding balance sold to Purchaser: (1)
|
|
|
187,478
|
|
|
|
199,758
|
|
Cash collected, not remitted to Purchaser (2)
|
|
|
(49,166
|
)
|
|
|
(43,304
|
)
|
Remaining sold receivables
|
|
$
|
138,312
|
|
|
$
|
156,454
|
|
|
(1)
|
For the six months ended December 31, 2021 and 2020, the Company recorded a net cash inflow of $5.5 million and a net cash outflow of $0.2 million in its cash flows from operating activities, respectively, from sold receivables. MARPA cash flows are calculated as the change in the outstanding balance during the fiscal year.
|
|
(2)
|
Includes the cash collected on behalf of but not yet remitted to the Purchaser as of December 31, 2021 and 2020. This balance is included in other accrued expenses and current liabilities as of the balance sheet date.
|
Long-term debt consisted of the following (in thousands):
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2021
|
|
Bank credit facility – term loans
|
|
$
|
1,225,000
|
|
|
$
|
797,635
|
|
Bank credit facility – revolver loans
|
|
|
896,500
|
|
|
|
945,000
|
|
Principal amount of long-term debt
|
|
|
2,121,500
|
|
|
|
1,742,635
|
|
Less unamortized discounts and debt issuance costs
|
|
|
(11,044
|
)
|
|
|
(6,796
|
)
|
Total long-term debt
|
|
|
2,110,456
|
|
|
|
1,735,839
|
|
Less current portion
|
|
|
(30,625
|
)
|
|
|
(46,920
|
)
|
Long-term debt, net of current portion
|
|
$
|
2,079,831
|
|
|
$
|
1,688,919
|
|
Bank Credit Facility
On December 13, 2021, the Company amended its credit facility (the Credit Facility) primarily to extend the maturity date, increase borrowing capacity, and improve pricing. As amended, the Company’s $3,200.0 million Credit Facility consists of a $1,975.0 million revolving credit facility (the Revolving Facility) and a $1,225.0 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.
The Revolving Facility is a secured facility that permits continuously renewable borrowings of up to $1,975.0 million. As of December 31, 2021, the Company had $896.5 million outstanding under the Revolving Facility and no borrowings on the swing line. 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 $7.7 million through December 31, 2023 and $15.3 million thereafter until the balance is due in full on December 13, 2026. As of December 31, 2021, the Company had $1,225.0 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 December 31, 2021, 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 1.92 percent.
The Credit Facility requires the Company to comply with certain financial covenants, including a maximum total leverage ratio and a minimum interest coverage ratio. The Credit Facility also includes customary negative covenants restricting or limiting the Company’s ability to guarantee or incur additional indebtedness, grant 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 December 31, 2021, the Company was in compliance with all of the financial covenants. A majority of the Company’s assets serve as collateral under the Credit Facility.
All debt issuance costs are being amortized from the date incurred to the expiration date of the Credit Facility.
13
The aggregate maturities of long-term debt at December 31, 2021 were as follows (in thousands):
Twelve months ending December 31,
|
|
|
|
|
2022
|
|
$
|
30,625
|
|
2023
|
|
|
30,625
|
|
2024
|
|
|
61,250
|
|
2025
|
|
|
61,250
|
|
2026
|
|
|
1,937,750
|
|
Principal amount of long-term debt
|
|
|
2,121,500
|
|
Less unamortized discounts and debt issuance costs
|
|
|
(11,044
|
)
|
Total long-term debt
|
|
$
|
2,110,456
|
|
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 $650.0 million which hedge a portion of the Company’s floating rate indebtedness. The swaps mature at various dates through 2026. 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. 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 and six months ended December 31, 2021 and 2020 is as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Gain (loss) recognized in other comprehensive income
|
|
$
|
2,194
|
|
|
$
|
(908
|
)
|
|
$
|
1,186
|
|
|
$
|
(2,188
|
)
|
Amounts reclassified to earnings from accumulated other
comprehensive loss
|
|
|
3,230
|
|
|
|
3,552
|
|
|
|
6,452
|
|
|
|
7,084
|
|
Net current period other comprehensive income
|
|
$
|
5,424
|
|
|
$
|
2,644
|
|
|
$
|
7,638
|
|
|
$
|
4,896
|
|
Note 11.
|
Legal Proceedings and Other Commitments and Contingencies
|
Legal Proceedings
The Company is involved in various claims, lawsuits, and administrative proceedings arising in the normal course of business, none of which, based on current information, are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Government Contracting
Payments to the Company on cost-plus-fee and T&M 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 has completed audits of the Company’s annual incurred cost proposals through fiscal year 2019. The Company is still negotiating the results of prior years’ audits with the respective cognizant contracting officers and believe its reserves for such are adequate. 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 and 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 may be identified, discussed and settled.
14
Note 12.
|
Earnings Per Share
|
Earnings per share and the weighted-average number of diluted shares are computed as follows (in thousands, except per share data):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net income
|
|
$
|
90,299
|
|
|
$
|
106,478
|
|
|
$
|
178,408
|
|
|
$
|
200,122
|
|
Weighted-average number of basic shares outstanding
during the period
|
|
|
23,399
|
|
|
|
25,225
|
|
|
|
23,480
|
|
|
|
25,162
|
|
Dilutive effect of RSUs after application of treasury
stock method
|
|
|
199
|
|
|
|
226
|
|
|
|
242
|
|
|
|
307
|
|
Weighted-average number of diluted shares outstanding
during the period
|
|
|
23,598
|
|
|
|
25,451
|
|
|
|
23,722
|
|
|
|
25,469
|
|
Basic earnings per share
|
|
$
|
3.86
|
|
|
$
|
4.22
|
|
|
$
|
7.60
|
|
|
$
|
7.95
|
|
Diluted earnings per share
|
|
$
|
3.83
|
|
|
$
|
4.18
|
|
|
$
|
7.52
|
|
|
$
|
7.86
|
|
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 is currently under examination by the Internal Revenue Service for fiscal years 2017 through 2021. The Company does not expect the resolution of these examinations to have a material impact on its results of operations, financial condition or cash flows.
The Company’s total liability for unrecognized tax benefits as of December 31, 2021 and June 30, 2021 was $34.3 million and $31.5 million, respectively. The $34.3 million unrecognized tax benefit at December 31, 2021, if recognized, would positively impact the Company’s effective tax rate.
The Company’s effective income tax rate was 20.2 percent and 22.3 percent for the three and six months ended December 31, 2021, respectively, and 19.6 percent and 22.1 percent for the three and six months ended December 31, 2020, respectively. Increases in the effective income tax rate were primarily due to decreases in excess tax benefits related to employee stock-based compensation.
On January 1, 2022, a provision of the Tax Cuts and Jobs Act of 2017 went into effect which eliminates the option to deduct domestic research and development costs in the year incurred and instead requires taxpayers to amortize such costs over five years. The House Ways and Means Committee has proposed tax legislation to delay the effective date of this change to 2026, but it is uncertain whether the proposed delay will ultimately be enacted into law. If no new legislation is passed, the provision would go into effect for the Company’s fiscal year 2023 and is expected to decrease cash flows from operations and increase net deferred tax assets by a similar amount. The Company is currently evaluating the potential impact on cash flows from operations.
Note 14.
|
Business Segment Information
|
The Company reports operating results and financial data in two segments: domestic operations and international operations. Domestic operations provide Expertise and Technology primarily to U.S. federal government agencies. International operations provide Expertise and Technology primarily to international government and commercial customers.
The Company evaluates the performance of its operating segments based on net income. Summarized financial information for the Company’s reportable segments is as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
1,438,250
|
|
|
$
|
1,427,060
|
|
|
$
|
2,881,972
|
|
|
$
|
2,845,247
|
|
International
|
|
|
47,528
|
|
|
|
41,651
|
|
|
|
94,704
|
|
|
|
82,970
|
|
Total revenues
|
|
$
|
1,485,778
|
|
|
$
|
1,468,711
|
|
|
$
|
2,976,676
|
|
|
$
|
2,928,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
83,407
|
|
|
$
|
99,921
|
|
|
$
|
165,104
|
|
|
$
|
188,058
|
|
International
|
|
|
6,892
|
|
|
|
6,557
|
|
|
|
13,304
|
|
|
|
12,064
|
|
Total net income
|
|
$
|
90,299
|
|
|
$
|
106,478
|
|
|
$
|
178,408
|
|
|
$
|
200,122
|
|
15
Note 15.
|
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.
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 following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and June 30, 2021, and the level they fall within the fair value hierarchy (in thousands):
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
Financial Statement
|
|
Fair Value
|
|
2021
|
|
|
2021
|
|
Description of Financial Instrument
|
|
Classification
|
|
Hierarchy
|
|
Fair Value
|
|
Interest rate swap agreements
|
|
Other accrued expenses and
current liabilities
|
|
Level 2
|
|
$
|
17
|
|
|
$
|
1,028
|
|
Interest rate swap agreements
|
|
Other long-term liabilities
|
|
Level 2
|
|
$
|
15,486
|
|
|
$
|
24,838
|
|
Changes in the fair value of the interest rate swap agreements are recorded as a component of accumulated other comprehensive income or loss.
Note 16.
|
Accelerated Share Repurchase
|
On March 12, 2021, the Company entered into an accelerated share repurchase agreement (ASR Agreement) with JPMorgan Chase Bank, National Association (JPMorgan). Under the ASR Agreement, the Company paid $500.0 million to JPMorgan and received an initial delivery of 1.7 million shares of common stock which became treasury shares. During the six months ended December 31, 2021, the ASR Agreement was completed and an additional 0.3 million shares of common stock were received which became treasury shares. In total, 2.0 million shares were repurchased at an average price per share of $253.47.
Note 17.
|
Subsequent Event
|
In January 2022, the Company entered into two additional floating-to-fixed interest rate swap agreements including a 5 year $50.0 million swap effective July 1, 2022 and a 4 year $50.0 million swap effective January 1, 2023. The Company has designated these swaps as cash flow hedges.
16