CACI INTERNATIONAL INC /DE/ - Quarter Report: 2015 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2015

OR

For the transition period from                      to                     

Commission File Number 001-31400

CACI International Inc

(Exact name of registrant as specified in its charter)

1100 North Glebe Road, Arlington, VA 22201

(Address of principal executive offices)

(703) 841-7800

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x.    No  ¨.

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

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

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of April 30, 2015: CACI International Inc Common Stock, $0.10 par value, 24,177,682 shares.

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CACI INTERNATIONAL INC

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)

See Notes to Unaudited Consolidated Financial Statements

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CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(amounts in thousands, except per share data)

See Notes to Unaudited Consolidated Financial Statements

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CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(amounts in thousands)

See Notes to Unaudited Consolidated Financial Statements

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CACI INTERNATIONAL INC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(amounts in thousands, except per share data)

See Notes to Unaudited Consolidated Financial Statements

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CACI INTERNATIONAL INC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(amounts in thousands)

See Notes to Unaudited Consolidated Financial Statements

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CACI INTERNATIONAL INC

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 more than 50 percent 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 March 31, 2015 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 4 and 10.

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, 2014. The results of operations for the three and nine months ended March 31, 2015 are not necessarily indicative of the results to be expected for any subsequent interim period or for the full fiscal year.

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.

Unless the FASB delays the effective date of the new standard, it will be effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2016, using either a full retrospective approach or a modified approach. The Company is currently evaluating the impact that the adoption of ASU 2014-09 may have on the Company’s consolidated financial statements and have not yet determined the method by which the Company will adopt the standard.

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Intangible assets consisted of the following (in thousands):

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 March 31, 2015 is 13.2 years, and the weighted-average remaining period of amortization is 11.0 years. The weighted-average period of amortization for acquired technologies as of March 31, 2015 is 10.0 years, and the weighted-average remaining period of amortization is 4.8 years.

Expected amortization expense for the remainder of the fiscal year ending June 30, 2015, and for each of the fiscal years thereafter, is as follows (in thousands):

Long-term debt consisted of the following (in thousands):

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Bank Credit Facility

The Company has a $1,681.3 million credit facility (the Credit Facility), which consists of an $850.0 million revolving credit facility (the Revolving Facility) and an $831.3 million term loan (the Term Loan). The Revolving Facility has subfacilities of $50.0 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 Revolving Facility is a secured facility that permits continuously renewable borrowings of up to $850.0 million. As of March 31, 2015, the Company had $290.0 million outstanding under the Revolving Facility, $12.7 million of borrowings on the swing line and outstanding letters of credit of $0.5 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 $10.4 million through December 31, 2016 and $20.8 million thereafter until the balance is due in full on November 15, 2018. As of March 31, 2015, the Company had $779.3 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 March 31, 2015, 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 2.9 percent.

The Credit Facility requires the Company to comply with certain financial covenants, including a maximum senior secured 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, 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 March 31, 2015, 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.

The Company has capitalized $18.1 million of debt issuance costs associated with the Credit Facility. All debt issuance costs are being amortized from the date incurred to the expiration date of the Credit Facility. As of March 31, 2015, $4.2 million of the unamortized balance is included in long-term debt and $5.1 million is included in other long-term assets.

Convertible Notes Payable

Effective May 16, 2007 the Company issued at par value $300.0 million convertible notes (the Convertible Notes) which matured on May 1, 2014. Upon maturity, the aggregate conversion value was $406.8 million. Accordingly, the Company paid note holders the outstanding principal value totaling $300.0 million in cash and issued approximately 1.4 million shares of our common stock for the remaining aggregate conversion value. Concurrently with the issuance of our common stock upon conversion, the Company received 1.4 million shares of our common stock pursuant to the terms of the call option hedge transaction described below. The Company included these shares within treasury stock on our consolidated balance sheet.

In connection with the issuance of the Convertible Notes in May 2007, we entered into separate call option hedge and warrant transactions to reduce the potential dilutive impact upon the conversion of the Convertible Notes. The Call Options and the Warrants (each as defined below) are separate and legally distinct instruments that bind CACI and the counterparties and have no binding effect on the holders of the Convertible Notes.

Call Options and Warrants

In conjunction with the issuance of the Convertible Notes in May 2007, the Company purchased in a private transaction at a cost of $84.4 million call options (the Call Options) to purchase approximately 5.5 million shares of its common stock at a price equal to the conversion price of $54.65 per share. The cost of the Call Options was recorded as a reduction of additional paid-in capital. The Call Options allowed CACI to receive shares of its common stock from the counterparties equal to the amount of common

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stock related to the excess conversion value that CACI would pay the holders of the Convertible Notes upon conversion. The Company exercised the call options upon the maturity and conversion of the Convertible Notes and received 1.4 million shares of our common stock.

In addition the Company sold warrants (the Warrants) to issue approximately 5.5 million shares of CACI common stock at a strike price of $68.31 per share. The proceeds from the sale of the Warrants totaled $56.5 million and were recorded as an increase to additional paid-in capital. The Warrants settled daily over 90 trading days which began in August 2014 and ended in December 2014. We issued 497,550 shares for the settlement of the Warrants.

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 $600.0 million which hedge a portion of the Company’s floating rate indebtedness. The swaps mature at various dates through 2020. 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. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses is recorded as a component of interest expense. 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 nine months ended March 31, 2015 and 2014 is as follows (in thousands):

The aggregate maturities of long-term debt at March 31, 2015 are as follows (in thousands):

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.

In April 2015 we received a preliminary audit finding document from a software company regarding past software license usage and maintenance based on the vendor’s audit. We are currently reviewing the claim. In view of the inherent difficulty of predicting the outcome of this matter, particularly since the damages are indeterminate and the investigation or discovery has yet to be completed, the Company is unable to reasonably estimate a range of possible losses on potential claims.

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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). The DCAA has completed its audits of the Company’s incurred cost submissions for the years ended June 30, 2006, 2007 and 2008. The Company has settled with the Defense Contract Management Agency on indirect rates for the years ending June 30, 2006, 2007, and 2008.

The DCAA is currently in the process of auditing the Company’s incurred cost submissions for the years ended June 30, 2009 and 2010. Two of the Company’s task orders associated with work performed in Afghanistan have also been audited by the Special Inspector General for Afghanistan Reconstruction (SIGAR), and the Company provided its response to the SIGAR’s audit on April 17, 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 is providing documents responsive to the subpoena and 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 $1.8 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.

German Value-Added Taxes

The Company is under audit by the German tax authorities for issues related to value-added tax returns. At this time, the Company has not been assessed any deficiency and, based on sound factual and legal precedent, believes it is in compliance with the applicable value-added tax regulations. The Company has not accrued any liability for this matter because an unfavorable outcome is not considered probable. The Company estimates reasonably possible losses to be not greater than $3.0 million.

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 $2.8 million to $4.8 million.

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Stock-based compensation expense recognized, together with the income tax benefits recognized, is as follows (in thousands):

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 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.

In September 2013 the Company made its annual grant to key employees consisting of 202,170 Performance-based Restricted Stock Units (PRSUs). The final number of such PRSUs that were earned by participants and vest was based on the achievement of a specified net after tax profit (NATP) for the year ended June 30, 2014 and on the average share price of Company stock for the 90 day period ending September 13, 2014 as compared to the average share price for the 90 day period ended September 13, 2013. The specified NATP for the year ended June 30, 2014 was met and the average share price of the Company’s stock for the 90 day period ending September 13, 2014 exceeded the average share price of the Company’s stock for the 90 day period ended September 13, 2013 resulting in an additional 11,933 RSUs earned by participants.

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 Board 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 its key employees consisting of 180,570 Performance Restricted Stock Units (PRSUs). The final number of such performance-based RSUs which will be considered earned by the participants and eventually vest is based on the achievement of a specified earnings per share (EPS) for the year ending 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. No PRSUs will be earned if the specified EPS for the fiscal year ending June 30, 2015 is not met. If EPS for the year ending June 30, 2015 exceeds the specified EPS and the average share price of the Company’s stock for the 90 day period ending September 23, 2015, 2016 and 2017 exceeds the average share price of the Company’s stock for the 90 day period ended September 23, 2014 by 100 percent or more, then an additional 180,570 RSUs could be earned by participants. This is the maximum number of additional RSUs that can be earned related to the September 2014 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 September 23, 2017 and 50 percent of the earned award will vest on September 1, 2018, 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 March 31, 2015. 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 March 31, 2015, cumulative grants of 13,475,095 equity instruments underlying the shares authorized have been awarded, and 4,144,778 of these instruments have been forfeited.

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Activity related to SSARs/non-qualified stock options and RSUs during the nine months ended March 31, 2015 is as follows:

As of March 31, 2015, there was $35.9 million of total unrecognized compensation cost related to RSUs scheduled to be recognized over a weighted-average period of 2.4 years.

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 or nine months ended March 31, 2015 and 2014. The PRSUs granted in September 2014 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 shares underlying the Convertible Notes were included in the computation of diluted earnings per share for the three and nine months ended March 31, 2014 because the average share price was above the conversion price during those periods. The Warrants were included in the computation of diluted earnings per share during the three and nine months ended March 31, 2014 because the Warrants’ strike price of $68.31 was lower than the average market price of a share of Company common stock during those periods. The Warrants were included in the computation of diluted earnings per share during the nine months ended March 31, 2015 because the strike price was lower than the average market price of a share of Company common stock during that period. The chart below shows the calculation of basic and diluted earnings per share (in thousands, except per share amounts):

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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 one foreign jurisdiction for years ended June 30, 2004 through June 30, 2012 and the IRS for the 2011 through 2013 pre-acquisition years of a Company subsidiary. 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 March 31, 2015 and June 30, 2014 was $7.6 million and $9.6 million, respectively. Of the $7.6 million unrecognized tax benefit at March 31, 2015, $1.1 million, if recognized, would impact the Company’s effective tax rate.

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 attributable to CACI. Summarized financial information concerning the Company’s reportable segments is as follows (in thousands):

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:

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The Company’s financial instruments measured at fair value included interest rate swap agreements. The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and June 30, 2014, and the level they fall within the fair value hierarchy (in thousands):

Changes in the fair value of the interest rate swap agreements are recorded as a component of accumulated other comprehensive income or loss.

On April 1, 2015, CACI acquired LTC Engineering Associates, Inc. (“LTC”). Headquartered in Florida, LTC employs approximately 50 uniquely skilled and deeply experienced associates. The company’s calendar year 2014 revenue was $16 million. LTC is a highly specialized provider of technical engineering solutions and services to the Intelligence and Department of Defense communities in the areas of software engineering, cybersecurity, signals intelligence (SIGINT), communications intelligence (COMINT), and digital signals processing. This acquisition expands our capabilities in our C4ISR, Intelligence, and Cyber market areas and complements our 2013 acquisition of Six3 Systems, Inc.

On April 22, 2015, CACI amended its credit agreement dated as of October 21, 2010 (the Credit Agreement). The amendment includes (i) an extension of the maturity of the term loans and revolving facility to June 1, 2020; (ii) revision to the consolidated senior secured leverage ratio; (iii) revision to the amortization of the principal amount of the term loan under the Credit Agreement to reflect the current term loan balance and the extended maturity; and (iv) an increase in swing line loan capacity.

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There are statements made herein which do not address historical facts and, therefore, could be interpreted to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. The factors that could cause actual results to differ materially from those anticipated include, but are not limited to, the following: regional and national economic conditions in the United States and globally (including the impact of uncertainty regarding U.S. debt limits and actions taken related thereto); terrorist activities or war; changes in interest rates; currency fluctuations; significant fluctuations in the equity markets; changes in our effective tax rate; failure to achieve contract awards in connection with re-competes for present business and/or competition for new business; the risks and uncertainties associated with client interest in and purchases of new products and/or services; continued funding of U.S. government or other public sector projects, based on a change in spending patterns, implementation of spending cuts (sequestration) under the Budget Control Act of 2011 and the Bipartisan Budget Act of 2013, changes in budgetary priorities, or in the event of a priority need for funds, such as homeland security; government contract procurement (such as bid protest, small business set asides, loss of work due to organizational conflicts of interest, etc.) and termination risks; the results of government audits and reviews conducted by the Defense Contract Audit Agency, the Defense Contract Management Agency, or other governmental entities with cognizant oversight; individual business decisions of our clients; paradigm shifts in technology; competitive factors such as pricing pressures and/or competition to hire and retain employees (particularly those with security clearances); market speculation regarding our continued independence; material changes in laws or regulations applicable to our businesses, particularly in connection with (i) government contracts for services, (ii) outsourcing of activities that have been performed by the government, and (iii) competition for task orders under Government Wide Acquisition Contracts (GWACs) and/or schedule contracts with the General Services Administration; the ability to successfully integrate the operations of our recent and any future acquisitions; our own ability to achieve the objectives of near term or long range business plans; and other risks described in our Securities and Exchange Commission filings.

Overview

The following discussion and analysis of our financial condition and results of operations is provided to enhance the understanding of, and should be read together with, our unaudited consolidated financial statements and the notes to those statements that appear elsewhere in this Quarterly Report on Form 10-Q.

We derived 93.6 percent and 93.9 percent of our revenue during the nine months ended March 31, 2015 and 2014, respectively, from contracts with U.S. government agencies. These were derived through both prime and subcontractor relationships. We also provide services to state and local governments, commercial customers, and through our international operations, to non-U.S. government agencies. We provide our services and solutions to our customers in the following market areas:

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All trademarks and registered marks are the property of their respective owners.

We continue to carefully follow federal budget, legislative and contracting trends and activities and evolve our strategies to take these into consideration. Since March 2013, the federal government has been operating under sequestration required by the Budget Control Act of 2011 (BCA). Under sequestration, reductions in both defense and nondefense expenditures have taken place in each of the government’s Fiscal Year 2013 and 2014 and will continue through the government’s Fiscal Year 2021. As of March 4, 2015, appropriations for all government operations through the remainder of the government’s fiscal year ending on September 30, 2015 had been enacted. The discretionary spending caps for these appropriations are in line with those set by the 2013 Bipartisan Budget Agreement, which reduced defense and non-defense sequestration for the government’s FY14 and FY15 that had been set by the BCA. We expect the impact of sequestration on contracts and task orders we hold and may receive to continue throughout our FY2015.

In early February the President submitted a proposed budget for the government’s FY16 that increases discretionary spending levels by about $74 billion relative to those prescribed by the BCA, divided between the defense ($38 billion) and nondefense ($37 billion) categories. Congress has begun work on the FY16 annual appropriations process. If there are no changes to at least the spending levels originally set by the BCA for the government’s FY16, full sequestration will return on October 1, 2015.

We are continuously reviewing our operations in an attempt to identify those programs that are at risk from sequestration so that we can make appropriate contingency plans. We continue to experience reduced funding on some of our programs, and may experience further reductions, but we do not expect the cancellation of any of our major programs.

We also continue to face some uncertainties due to the current general business environment, and we continue to see protests of major contract awards and delays in government procurement activities. In addition, many of our federal government contracts require us to employ personnel with security clearances, specific levels of education and specific past work experience. Depending on the level of clearance, security clearances can be difficult and time-consuming to obtain and competition for skilled personnel in the information technology services industry is intense. In addition, a shift of expenditures away from programs that we support could cause federal government agencies to reduce their purchases under contracts, to exercise their right to terminate contracts at any time without penalty, or to decide not to exercise options to renew contracts. Additional factors that could affect our federal government contracting business include an increase in set-asides for small businesses and budgetary priorities limiting or delaying federal government spending in general.

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Results of Operations for the Three Months Ended March 31, 2015 and 2014

Revenue. The table below sets forth revenue by customer type with related percentages of total revenue for the three months ended March 31, 2015 and 2014, respectively:

For the three months ended March 31, 2015, total revenue decreased by 9.2 percent, or $82.6 million, over the same period a year ago. This decrease in revenue is attributable to a reduction in DoD revenue.

DoD revenue decreased 18.0 percent, or $118.1 million, for the three months ended March 31, 2015, as compared to the same period a year ago. This decrease in revenue was primarily attributable to a reduction in subcontract labor and other direct costs resulting from the general federal government budget-related reduction activities. DoD revenue includes services provided to the U.S. Army, our largest customer, where our services focus on supporting readiness, tactical military intelligence, and communications systems. DoD revenue also includes work with the U.S. Navy and other DoD agencies across all of our major service offerings.

Revenue from federal civilian agencies increased 21.6 percent, or $40.7 million, for the three months ended March 31, 2015, as compared to the same period a year ago. This increase was primarily attributable to the growth in the Office of Personnel Management (OPM) contract. Federal civilian agency revenue also includes services provided to non-DoD national intelligence agencies.

Commercial and other revenue decreased 4.7 percent, or $2.4 million mainly from our domestic technology security product sales, during the three months ended March 31, 2015, as compared to the same period a year ago. Commercial revenue is derived from both international and domestic operations. International operations accounted for 74.5 percent, or $36.2 million, of total commercial revenue, while domestic operations accounted for 25.5 percent, or $12.3 million.

Revenue from state and local governments decreased by 67.0 percent, or $2.8 million due to a reduction in the systems support business, for the three months ended March 31, 2015, as compared to the same period a year ago. Revenue from state and local governments represented less than one percent of our total revenue for both the three months ended March 31, 2015 and 2014.

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Income from Operations. The following table sets forth the relative percentage that certain items of expense and earnings bore to revenue for the three months ended March 31, 2015 and 2014, respectively.

Income from operations for the three months ended March 31, 2015 was $53.7 million. This was a decrease of $6.8 million, or 11.3 percent, from income from operations of $60.5 million for the three months ended March 31, 2014. Our operating margin of decreased to 6.6 percent from 6.7 percent for the periods ended March 31, 2015 and 2014, respectively. The decrease in our income from operations and our operating margin was primarily due to a federal government budget-related reduction activities.

As a percentage of revenue, direct costs were 66.4 and 67.3 percent for the three months ended March 31, 2015 and 2014, respectively. Direct costs include direct labor and ODCs, which include, among other costs, subcontracted labor and material purchases. ODCs are common in our industry and may vary from period to period. The single largest component of direct costs, direct labor, was $271.2 and $270.4 million for the three months ended March 31, 2015 and 2014, respectively. ODCs were $271.7 and $335.4 million during the three months ended March 31, 2015 and 2014, respectively. The decrease in ODCs was primarily driven by reductions in subcontract labor resulting from the general federal government budget-related reduction activities.

Indirect costs and selling expenses include fringe benefits (attributable to both direct and indirect labor), marketing and bid and proposal costs, indirect labor, and other discretionary expenses. As a percentage of revenue, indirect costs and selling expenses were 25.1 and 24.0 percent for the three months ended March 31, 2015 and 2014, respectively. The decrease in indirect costs of $11.0 million year over year is a result of ongoing cost control actions. Total stock compensation expense, a component of indirect costs, was $3.9 and $3.1 million for the three months ended March 31, 2015 and 2014, respectively.

Depreciation and amortization expense decreased $1.9 million or 10.3 percent for the three months ended March 31, 2015 as compared to the same period a year ago. This decrease was primarily attributable to decreased amortization of intangible assets due to runoff of prior acquisitions.

Interest expense and other, net decreased $3.0 million, or 26.2 percent, during the three months ended March 31, 2015 as compared to the same period a year ago. The decrease was primarily attributable to decreased interest expense on our Convertible Notes which matured in May 2014 partially offset by interest rate swaps.

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The effective tax rate was 35.8 percent and 36.9 percent during the three months ended March 31, 2015 and 2014, respectively. The change in the value of the assets in the corporate owned life insurance (COLI) favorably affected the tax rate for both the third quarter of FY2015 and FY2014. If gains or losses on these COLI investments throughout the rest of the current fiscal year ending June 30, 2015 vary from our estimates, our effective tax rate will fluctuate. For the quarter ended March 31, 2015, the tax rate was also favorably affected by the reinstatement of the work opportunity tax credit benefit and reversal of tax reserves caused by the lapse of a statute of limitation. The effective tax rate in the three months ended March 31, 2014 was negatively impacted by non-deductible acquisition related expenses incurred with the acquisition of Six3 Systems.

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Results of Operations for the Nine Months Ended March 31, 2015 and 2014

Revenue. The table below sets forth revenue by customer type with related percentages of total revenue for the nine months ended March 31, 2015 and 2014, respectively:

For the nine months ended March 31, 2015, total revenue decreased by 7.9 percent, or $210.9 million, over the same period a year ago. This decrease in revenue is attributable to a decrease in DoD revenue.

DoD revenue decreased 14.7 percent, or $283.6 million, for the nine months ended March 31, 2015, as compared to the same period a year ago. Our results for the nine months ended March 31, 2015 were impacted by lower subcontractor costs and ODCs resulting from the drawdown in Southwest Asia and federal government budget-related reduction activities.

Revenue from federal civilian agencies increased 13.9 percent, or $79.3 million, for the nine months ended March 31, 2015, as compared to the same period a year ago. This increase was primarily attributable to the Six3 Systems acquisition completed during November 2013, growth in the OPM contract and other new business. Federal civilian agency revenue also includes services provided to non-DoD national intelligence agencies.

Commercial and other revenue increased 1.5 percent, or $2.2 million mainly from our international and domestic technology services and cybersecurity products, during the nine months ended March 31, 2015, as compared to the same period a year ago. Commercial revenue is derived from both international and domestic operations. International operations accounted for 70.9 percent, or $107.4 million, of total commercial revenue, while domestic operations accounted for 29.1 percent, or $44.2 million.

Revenue from state and local governments decreased by 66.9 percent, or $8.8 million, for the nine months ended March 31, 2015, as compared to the same period a year ago due to a reduction in the system support business. Revenue from state and local governments represented less than one percent of our total revenue for both the nine months ended March 31, 2015 and 2014.

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Income from Operations. The following table sets forth the relative percentage that certain items of expense and earnings bore to revenue for the nine months ended March 31, 2015 and 2014, respectively.

Income from operations for the nine months ended March 31, 2015 was $161.3 million. This is a decrease of $26.9 million, or 14.3 percent, from income from operations of $188.2 million for the nine months ended March 31, 2014. Our operating margin decreased to 6.6 percent from 7.1 percent during the same period a year ago. The decrease in our income from operations and our operating margin was primarily due to the startup and ramp up costs related to our recent growth in the OPM contract and the general federal government budget-related reduction activities.

As a percentage of revenue, direct costs were 66.4 percent and 68.2 percent for the nine months ended March 31, 2015 and 2014, respectively. Direct costs include direct labor and ODCs. Direct labor was $786.5 million and $764.1 million for the nine months ended March 31, 2015 and 2014, respectively. ODCs were $839.6 million and $1.0 billion during the nine months ended March 31, 2015 and 2014, respectively. This year over year ODCs decrease was primarily driven by a decrease in subcontractor costs and ODCs as a result of the drawdown in Southwest Asia and federal government budget-related reduction activities.

Indirect costs and selling expenses include fringe benefits, marketing and bid and proposal costs, indirect labor, and other discretionary expenses. As a percentage of revenue, indirect costs and selling expenses were 25.0 percent and 22.9 percent for the nine months ended March 31, 2015 and 2014. This increase is due primarily to higher indirect and fringe benefit costs related to the Six3 Systems acquisition and our startup costs for the growth of the OPM contract.

Depreciation and amortization expense was $50.1 million and $47.1 million for the nine months ended March 31, 2015 and 2014, respectively. This increase of $3.0 million, or 6.4 percent, was primarily attributable to amortization of intangible assets associated with the Six3 Systems acquisition that occurred in FY14.

Interest expense and other, net costs decreased $2.2 million, or 7.7 percent, during the nine months ended March 31, 2015 as compared to the same period a year ago. The decrease was attributable to decreased interest expense on our Convertible Notes which matured May 2014 offset in part by an increase related to higher outstanding debt primarily attributable to the Six3 Systems acquisition.

The effective tax rate was 37.2 percent and 38.0 percent during the nine months ended March 31, 2015 and 2014, respectively. The tax rate reported for both nine month periods was favorably impacted by non-taxable gains on assets invested in COLI policies during the first nine months of both fiscal years. If gains or losses on those investments throughout the rest of the current fiscal year vary from our estimates, our effective tax rate will fluctuate in the fourth quarter of the year ending June 30, 2015. For the nine months ended March 31, 2015, the tax rate was also favorably affected by the reinstatement of the work opportunity tax credit benefit and reversal of tax reserves caused by the lapse of a statute of limitations. The effective tax rate in the nine months ended March 31, 2014 was negatively impacted by non-deductible acquisition related expenses incurred in the acquisition of Six3 Systems.

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Liquidity and Capital Resources

As of March 31, 2015, the aggregate amount of committed financing under our Credit Facility was a $1,681.3 million credit facility, which included an $850.0 million revolving credit facility (the Revolving Facility), and an $831.3 million term loan (the Term Loan). The Credit Facility matures on November 15, 2018.

The Revolving Facility is a secured facility that permits continuously renewable borrowings and has subfacilities of $50.0 million for same-day swing line borrowings and $25.0 million for stand-by letters of credit. As of March 31, 2015, we had $290.0 million outstanding under the Revolving Facility, $12.7 million of borrowings on the swing line and outstanding letters of credit of $0.5 million.

The Term Loan is a five-year secured facility under which principal payments are due in quarterly installments of $10.4 million through December 31, 2016 and $20.8 million thereafter until the balance is due in full on November 15, 2018. As of March 31, 2015, $779.3 million was outstanding under the Term Loan.

At any time and so long as no default has occurred, we have the right to increase the Term Loan or Revolving Facility in an aggregate principal amount of up to the greater of $400.0 million or an amount subject to 2.75 times secured leverage, calculated assuming the Revolving Facility is fully drawn, with applicable lender approvals.

The interest rates applicable to loans under the Credit Facility are floating interest rates that, at our option, equal a base rate or a Eurodollar rate plus, in each case, an applicable margin based upon our consolidated total leverage ratio.

The Credit Facility requires us to comply with certain financial covenants, including a maximum senior secured 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 our 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. Since the inception of the Credit Facility, we have been in compliance with all of the financial covenants. A majority of our assets serve as collateral under the Credit Facility.

On April 22, 2015, CACI amended its credit agreement dated as of October 21, 2010 (the Credit Agreement). The amendment includes (i) an extension of the maturity of the term loans and revolving facility to June 1, 2020; (ii) revision to the consolidated senior secured leverage ratio; (iii) revision to the amortization of the principal amount of the term loan under the Credit Agreement to reflect the current term loan balance and the extended maturity; and (iv) an increase in swing line loan capacity.

Cash and cash equivalents were $33.6 and $64.5 million as of March 31, 2015 and June 30, 2014, respectively. The decrease in cash and cash equivalents was primarily attributable to paying down the credit facility. Our operating cash flow was $190.4 million for the nine months ended March 31, 2015 compared to $146.3 million for the same period a year ago. Days-sales outstanding decreased to 61 at March 31, 2015, compared to 62 days at March 31, 2014.

We used cash in investing activities of $11.8 and $851.1 million for the nine months ended March 31, 2015 and 2014, respectively. This decrease in cash used during the nine months ended March 31, 2015 was due to the acquisition of Six3 Systems which occurred on November 15, 2013.

Cash flows used in financing activities were $207.2 million during the nine months ended March 31, 2015 while cash provided by financing activities was $687.5 million for the nine months ended March 31, 2014. During the nine months ended March 31, 2015 we had net payments of $203.5 million under our credit facility while we had net borrowings of $696.6 million over the same period a year ago. The decrease in net borrowing was a result of the additional debt taken in FY14 for the Six3 Systems acquisition.

We believe that the combination of internally generated funds, available bank borrowings and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, customary capital expenditures, debt service obligations, and other working capital requirements over the next twelve months. We may in the future seek to borrow additional amounts under a long-term debt security. Over the longer term, our ability to generate sufficient cash flows from operations necessary to fulfill the obligations under the Credit Facility and any other indebtedness we may incur will depend on our future financial performance which will be affected by many factors outside of our control, including worldwide economic and financial market conditions.

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Off-Balance Sheet Arrangements and Contractual Obligations

We use off-balance sheet arrangements to finance the lease of operating facilities. We have financed the use of all of our current office and warehouse facilities through operating leases. Operating leases are also used to finance the use of computers, servers, phone systems, motor vehicles in the U.K., and to a lesser extent, other fixed assets, such as furnishings, that are obtained in connection with business acquisitions. We generally assume the lease rights and obligations of companies acquired in business combinations and continue financing equipment under operating leases until the end of the lease term following the acquisition date. We generally do not finance capital expenditures with operating leases, but instead finance such purchases with available cash balances. For additional information regarding our operating lease commitments, see Note 14 in the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended June 30, 2014. The Credit Facility provides for stand-by letters of credit aggregating up to $25.0 million that reduce the funds available under the Revolving Facility when issued. As of March 31, 2015, we had outstanding letters of credit of $0.5 million. We have no other material off-balance sheet financing arrangements.

The interest rates on both the Term Loan and the Revolving Facility are affected by changes in market interest rates. We have the ability to manage these fluctuations in part through interest rate hedging alternatives in the form of interest rate swaps. We have entered into floating-to-fixed interest rate swap agreements for an aggregate notional amount of $600 million related to a portion of our floating rate indebtedness. All remaining balances under our Term Loan, and any additional amounts that may be borrowed under our Revolving Facility, are currently subject to interest rate fluctuations. With every one percent fluctuation in the applicable interest rates, interest expense on our variable rate debt for the nine months ended March 31, 2015 would have fluctuated by approximately $5.9 million.

Approximately 4.4 percent and 4.0 percent of our total revenue in nine months ended March 31, 2015 and 2014, respectively, was derived from our international operations headquartered in the U.K. Our practice in our international operations is to negotiate contracts in the same currency in which the predominant expenses are incurred, thereby mitigating the exposure to foreign currency exchange fluctuations. It is not possible to accomplish this in all cases; thus, there is some risk that profits will be affected by foreign currency exchange fluctuations. As of March 31, 2015, we held a combination of euros and pounds sterling in the U.K. and in the Netherlands equivalent to approximately $17.4 million. This allows us to better utilize our cash resources on behalf of our foreign subsidiaries, thereby mitigating foreign currency conversion risks.

As of the end of the three month period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitation, judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and fraud. Due to such inherent limitations, there can be only reasonable, and not absolute, assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to appropriate levels of management.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level at March 31, 2015.

The Company reports that no changes in its internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2015.

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PART II

OTHER INFORMATION

Al Shimari, et al. v. L-3 Services, Inc. et al.

Reference is made to Part I, Item 3, Legal Proceedings in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2014 for the most recently filed information concerning the suit filed in the United States District Court for the Southern District of Ohio. The lawsuit names CACI International Inc, CACI Premier Technology, Inc. and former CACI employee Timothy Dugan as Defendants, along with L-3 Services, Inc. Plaintiffs seek, inter alia, compensatory damages, punitive damages, and attorney’s fees.

Since the filing of Registrant’s report described above, on February 6, 2015, the district court held a hearing on whether the case should be dismissed based on the political question doctrine. The court took the motion under advisement.

Abbass, et al v. CACI Premier Technology, Inc. and CACI International Inc, Case No. 1:13CV1186-LMB/JFA (EDVA)

Reference is made to Part I, Item 3, Legal Proceedings in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2014 for the most recently filed information concerning the suit filed in the United States District Court for the Eastern District of Virginia. The lawsuit names CACI International Inc and CACI Premier Technology, Inc. as Defendants. Plaintiffs seek, inter alia, compensatory damages, punitive damages, and attorney’s fees.

Since the filing of Registrant’s report described above, the case remains stayed.

We are vigorously defending the above-described legal proceedings, and, based on our present knowledge of the facts, believe the lawsuits are completely without merit.

Reference is made to Part I, Item 1A, Risk Factors, in the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2014. There have been no material changes from the risk factors described in that report.

The following table provides certain information with respect to our purchases of shares of CACI International Inc’s common stock:

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None

Not applicable

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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