CACI INTERNATIONAL INC 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 consolidated financial statements and the Notes to those
statements that appear elsewhere in this Annual Report on Form 10-K. This
discussion contains forward-looking statements that involve risks and
uncertainties. Unless otherwise specifically noted, all years refer to our
fiscal year which ends on
Overview
We are a leading provider of Expertise and Technology to Enterprise and Mission
customers, supporting national security missions and government
modernization/transformation in the intelligence, defense, and federal civilian
sectors. The demand for our Expertise and Technology, in large measure, is
created by the increasingly complex network, systems, and information
environments in which governments and businesses operate, and by the need to
stay current with emerging technology while increasing productivity, enhancing
security, and, ultimately, improving performance.
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Some of our key initiatives include the following:
• Continue to grow organic revenue across our large, addressable market;
• Recruit and hire a world class workforce to execute on our growing backlog;
• Deliver strong profitability and robust cash flows from operations;
• Differentiate ourselves through our strategic mergers and acquisition
program allowing us to enhance our current capabilities and create new
customer access points; and
• Continue our unwavering commitment to our customers while supporting the
communities in which we work and live.
Business Environment and Industry Trends
Budgetary Environment
We carefully follow federal budget, legislative and contracting trends and activities and evolve our strategies to take these into consideration. In lateJuly 2019 ,Congress passed the Bipartisan Budget Act of 2019 (BBA 2019), which increased the caps for defense and non-defense spending for government fiscal year (GFY) 2020 and GFY 2021, established discretionary spending caps for GFY 2020 and GFY 2021, and suspended the national debt limit throughJuly 2021 . OnAugust 2, 2019 , the President signed the measure into law. BBA 2019 called for defense spending, including Overseas Contingency Operations funds, of$738 billion in GFY 2020 and$740.5 billion in GFY 2021. Both represent increases from GFY 2019 levels of$716 billion . InDecember 2019 ,Congress passed two GFY 2020 appropriations bills totaling$1.4 trillion:$738 billion for defense and$632 billion for non-defense agencies, which represent increases over GFY 2019 of$22 billion and$27 billion , respectively. OnDecember 20, 2019 , the President signed both bills into law. We believe that bipartisan support remains for continued investment in the areas of defense and national security. While we view the budget environment as stable under BBA 2019 and believe there is bipartisan support for continued investment in the areas of defense and national security, it is uncertain whether GFY 2021 appropriations bills will be passed in regular order and signed by the President before the end of GFY 2020, particularly given the additional time required to deal with the COVID-19 pandemic. During those periods of time when appropriations bills have not been passed and signed into law, government agencies operate under a continuing resolution (CR). Depending on their scope, duration, and other factors, CRs can negatively impact our business due to delays in new program starts, delays in contract award decisions, and other factors. When a CR expires, unless appropriations bills have been passed byCongress and signed by the President, or a new CR is passed and signed into law, the government must cease operations, or shutdown, except in certain emergency situations or when the law authorizes continued activity. We continuously review our operations in an attempt to identify programs potentially at risk from CRs so that we can consider appropriate contingency plans.
Impact of COVID-19
As travel restrictions, social distancing advisories, and other requirements began to be implemented in March, we instructed our workforce to begin to work remotely to the extent possible. While a majority of our workforce is able to work remotely, some employees must still travel to client or company facilities in order to work. While CACI employees were deemed part of the 'critical infrastructure workforce', ensuring their ability to work despite state travel limitations, our business still experienced some impacts as a result of COVID-19 risk mitigation efforts. For example, in order to reduce personnel concentration and ensure social distancing in classified environments, shift work was implemented, which reduced the number of hours our employees could work and we could bill customers on certain programs. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed byCongress and signed by the President onMarch 27, 2020 , provides a mechanism to reimburse government contractors for the cost of employees who are ready and able to work but unable to access required facilities due to COVID-19. We continue to work with our customers to implement the related provisions of the CARES Act, as well as support our customers' return-to-work plans.
Market Environment
Across our addressable market, we provide Expertise and Technology to government Enterprise and Mission customers. Based on the analysis of an independent market consultant retained by the Company, we believe that the total addressable market for our offerings is approximately$230 billion . Our addressable market is expected to continue to grow over the next several years. Approximately 70 percent of our revenue comes from defense-related customers, including those in the Intelligence Community (IC), with additional revenue coming from non-defense IC, homeland security, and other federal civilian customers. 23 -------------------------------------------------------------------------------- We continue to align the Company's capabilities with well-funded budget priorities and took steps to maintain a competitive cost structure in line with our expectations of future business opportunities. In light of these actions, as well as the budgetary environment discussed above, we believe we are well positioned to win new business in our large addressable market. We believe that the following trends will influence theU.S. Government (USG) spending in our addressable market: • A stable USG budget environment, particularly in defense and intelligence-related areas; • A shift in focus from readiness toward increased capabilities, effectiveness, and responsiveness;
• Increased USG interest in faster contracting and acquisition processes;
• Increased focus on cyber, space and the electromagnetic spectrum as key
domains for National Security;
• Continued focus on counterterrorism, counterintelligence, and counter
proliferation as key
• Balanced focus on enterprise cost reductions through efficiency, with
increased spend on infrastructure modernization and enhancements to cyber
security protections; and
• Increased investments in advanced technologies (e.g., Artificial
Intelligence, 5G).
We believe that our customers' use of lowest price/technically acceptable (LPTA)
procurements, which contributed to pricing pressures in prior years, has
moderated, though price still remains an important factor in procurements. We
also continue to see protests of major contract awards and delays in USG
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. Additional factors that could affect USG spending in our
addressable market include changes in set-asides for small businesses, changes
in budget priorities as a result of the COVID-19 pandemic, and budgetary
priorities limiting or delaying federal government spending in general.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in theU.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. We consider the accounting policies and estimates addressed below to be the most important to our financial position and results of operations, either because of the significance of the financial statement item or because they require the exercise of significant judgment and/or use of significant estimates. Although we believe that the estimates are reasonable based on reasonably available facts, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods may differ.
We believe the following accounting policies require significant judgment due to the complex nature of the underlying transactions:
Revenue Recognition
The Company generates almost all of our revenue from three different types of contractual arrangements with theU.S. government: cost-plus-fee, fixed-price, and time-and-materials (T&M) contracts. Our contracts with theU.S. government are generally subject to the Federal Acquisition Regulation (FAR) and are competitively priced based on estimated costs of providing the contractual goods or services. We account for a contract when the parties have approved the contract and are committed to perform on it, the rights of each party and the payment terms are identified, the contract has commercial substance, and it is probable that we will collect substantially all of the consideration. At contract inception, the Company determines whether the goods or services to be provided are to be accounted for as a single performance obligation or as multiple performance obligations. This evaluation requires professional judgment as it may impact the timing and pattern of revenue recognition. If multiple performance obligations are identified, we generally use the cost plus a margin approach to determine the relative standalone selling price of each performance obligation. 24
-------------------------------------------------------------------------------- When determining the total transaction price, the Company identifies both fixed and variable consideration elements within the contract. Variable consideration includes any amount within the transaction price that is not fixed, such as: award or incentive fees; performance penalties; unfunded contract value; or other similar items. For our contracts with award or incentive fees, the Company estimates the total amount of award or incentive fee expected to be recognized into revenue. Throughout the performance period, we recognize as revenue a constrained amount of variable consideration only to the extent that it is probable that a significant reversal of the cumulative amount recognized to date will not be required in a subsequent period. Our estimate of variable consideration is periodically adjusted based on significant changes in relevant facts and circumstances. In the period in which we can calculate the final amount of award or incentive fee earned - based on the receipt of the customer's final performance score or determining that more objective, contractually-defined criteria have been fully satisfied - the Company will adjust our cumulative revenue recognized to date on the contract. This adjustment to revenue will be disclosed as the amount of revenue recognized in the current period for a previously satisfied performance obligation. We generally recognize revenue over time throughout the performance period as the customer simultaneously receives and consumes the benefits provided on our services-type revenue arrangements. This continuous transfer of control for ourU.S. government contracts is supported by the unilateral right of our customer to terminate the contract for a variety of reasons without having to provide justification for its decision. For our services-type revenue arrangements in which there are a repetitive amount of services that are substantially the same from one month to the next, the Company applies the series guidance. We use a variety of input and output methods that approximate the progress towards complete satisfaction of the performance obligation, including: costs incurred, labor hours expended, and time-elapsed measures for our fixed-price stand ready obligations. For certain contracts, primarily our cost-plus and T&M services-type revenue arrangements, we apply the right-to-invoice practical expedient in which revenue is recognized in direct proportion to our present right to consideration for progress towards the complete satisfaction of the performance obligation. When a performance obligation has a significant degree of interrelation or interdependence between one month's deliverables and the next, when there is an award or incentive fee, or when there is a significant degree of customization or modification, the Company generally records revenue using a percentage of completion methodology. For these revenue arrangements, substantially all revenue is recognized over time using a cost-to-cost input method based on the ratio of costs incurred to date to total estimated costs at completion. When estimates of total costs to be incurred on a contract exceed total revenue, a provision for the entire loss on the contract is recorded in the period in which the loss is determined. Contract modifications are reviewed to determine whether they should be accounted for as part of the original performance obligation or as a separate contract. When a contract modification changes the scope or price and the additional performance obligations are at their standalone selling price, the original contract is terminated and the Company accounts for the change prospectively when the new goods or services to be transferred are distinct from those already provided. When the contract modification includes goods or services that are not distinct from those already provided, the Company records a cumulative adjustment to revenue based on a remeasurement of progress towards the complete satisfaction of the not yet fully delivered performance obligation. Based on the critical nature of our contractual performance obligations, the Company may proceed with work based on customer direction prior to the completion and signing of formal contract documents. The Company has a formal review process for approving any such work that considers previous experiences with the customer, communications with the customer regarding funding status, and our knowledge of available funding for the contract or program.
Accounting for Business Combinations,
The purchase price of an acquired business is allocated to the tangible assets
and separately identifiable intangible assets acquired less liabilities assumed
based upon their respective fair values, with the excess recorded as goodwill.
25
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The fair values of the assets acquired and liabilities assumed were
preliminarily determined using income, market and cost valuation methodologies.
The income approach was primarily used to value the customer relationships
intangible assets. The income approach indicates value for an asset or liability
based on the present value of cash flow projected to be generated over the
remaining economic life of the asset or liability being measured. Both the
amount and the duration of the cash flows are considered from a market
participant perspective. Our estimates of market participant net cash flows
considered historical and projected pricing, operational performance including
company specific synergies, material and labor pricing, and other relevant
customer, contractual and market factors. Where appropriate, the net cash flows
are adjusted to reflect the uncertainties associated with the underlying
assumptions, as well as the risk profile of the net cash flows utilized in the
valuation. The adjusted future cash flows are then discounted to present value
using an appropriate discount rate. Projected cash flow is discounted at a
required rate of return that reflects the relative risk of achieving the cash
flow and the time value of money. The fair values of the tangible assets and
acquired liabilities assumed, were determined using a combination of market and
cost valuation methodologies. The market approach is a valuation technique that
uses prices and other relevant information generated by market transactions
involving identical or comparable assets, liabilities, or a group of assets and
liabilities. Valuation techniques consistent with the market approach often use
market multiples derived from a set of comparables. The cost approach, which
estimates value by determining the current cost of replacing an asset with
another of equivalent economic utility.
We evaluate goodwill at least annually for impairment, or whenever events or
circumstances indicate that the carrying value may not be recoverable. The
evaluation includes comparing the fair value of the relevant reporting unit to
the carrying value, including goodwill, of such unit. The level at which we test
goodwill for impairment requires us to determine whether the operations below
our operating segments constitute a self-sustaining business for which discrete
financial information is available and segment management regularly reviews the
operating results. If the fair value exceeds the carrying value, no impairment
loss is recognized. However, if the carrying value of the reporting unit exceeds
its fair value, the goodwill of the reporting unit may be impaired. Impairment
is measured by comparing the derived fair value of the goodwill to its carrying
value. Separately identifiable intangible assets with estimable useful lives
are amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment if impairment indicators are
present.
We estimate the fair value of our reporting units using both an income approach
and a market approach. The valuation process considers our estimates of the
future operating performance of each reporting unit. Companies in similar
industries are researched and analyzed and we consider the domestic and
international economic and financial market conditions, both in general and
specific to the industry in which we operate, prevailing as of the valuation
date. The income approach utilizes discounted cash flows.
We evaluate goodwill as of the first day of the fiscal fourth quarter. In
addition, we will perform interim impairment testing should circumstances
requiring it arise. We completed our annual goodwill assessment as of April 1,
2020 and no impairment charge was necessary as a result of this assessment. We
have concluded that none of our reporting units are at risk of a goodwill
impairment in the near term as their fair values are considerably greater than
their carrying values.
Determining the fair values of the reporting units inherently involves
management judgments regarding assumptions such as future sales, profits and
cash flows, determination of the discount rate, weighting of the income and
market approaches, and the effect of the market conditions on those
assumptions. Due to the variables inherent in the estimation of a reporting
unit's fair value and the relative size of our goodwill, differences in
assumptions could have a material effect on one or more of our reporting units
and could result in a goodwill impairment charge in a future period.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, in the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K for additional information.
26
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Results of Operations
The following table sets forth the relative percentage that certain items of
expense and earnings bear to revenue for the three most recent fiscal years
ended.
Consolidated Statements of Operations
Years ended June 30,
Year to Year Change
2020 2019 2018 2020 2019 2018 2019 to 2020 2018 to 2019
Dollars Percentages Dollars Percent Dollars Percent
(dollar amounts in thousands)
Revenue $ 5,720,042 $ 4,986,341 $
4,467,860 100.0 % 100.0 % 100.0 %
$ 518,481 11.6 % Costs of revenue Direct costs 3,719,056 3,304,053
2,978,608 65.0 66.3 66.7 415,003 12.6
325,445 10.9
Indirect costs and
selling expenses 1,432,602 1,218,544 1,076,356 25.1 24.4 24.1 214,058 17.6
142,188 13.2
Depreciation and
amortization 110,688 85,877 72,196 1.9 1.7 1.6 24,811 28.9 13,681 18.9
Total costs of revenue 5,262,346 4,608,474 4,127,160 92.0 92.4 92.4 653,872 14.2 481,314 11.7
Income from operations 457,696 377,867 340,700 8.0 7.6 7.6 79,829 21.1
37,167 10.9
Interest expense and
other, net 56,059 49,958 42,036 1.0 1.0 0.9 6,101 12.2
7,922 18.8
Income before income
taxes 401,637 327,909 298,664 7.0 6.6 6.7 73,728 22.5
29,245 9.8
Income tax (benefit)
expense 80,157 62,305 (2,507 ) 1.4 1.3 - 17,852 28.7 64,812 2,585.2 Net income$ 321,480 $ 265,604 $ 301,171 5.6 % 5.3 % 6.7 %$ 55,876 21.0$ (35,567 ) (11.8)% Revenue. For the twelve months endedJune 30, 2020 , total revenue was$5.7 billion , 14.7 percent greater than last year with 8.0 percent from organic revenue growth. The remaining growth in revenue was attributable to acquired revenues. Out of our primary customer groups,Department of Defense andFederal Civilian revenue increased by$509.4 million and$204.1 million , respectively, compared with the same period a year ago.
The following table summarizes revenue by customer type with related percentages of revenue for the three most recent fiscal years:
Years Ended June 30,
2020 2019 2018
(dollars in thousands)
Department of Defense $ 3,999,261 69.9 % $ 3,489,854 70.0 % $ 3,032,744 67.9 %
Federal Civilian Agencies 1,467,801 25.7 1,263,681 25.3 1,202,023 26.9
Commercial and other 252,980 4.4 232,806 4.7 233,093 5.2
Total $ 5,720,042 100.0 % $ 4,986,341 100.0 % $ 4,467,860 100.0 %
•
single largest customer, where our services focus on supporting readiness,
tactical military intelligence, and communications systems.
also includes contracts with the
• Federal civilian agencies' revenue primarily includes services and products
provided to non-
government, including intelligence agencies and Departments of Justice,
Agriculture,
• Commercial and other revenue primarily includes services and products
provided to U.S. state and local governments, commercial customers, and
certain foreign governments and agencies through our International
reportable segment.
27
-------------------------------------------------------------------------------- Direct Costs. For the twelve months endedJune 30, 2020 , direct costs increased by$415.0 million or 12.6 percent, compared with the same period a year ago. The increase in direct costs is primarily related to increased direct labor expenses due to organic growth on existing programs and acquired contracts. As a percentage of revenue, total direct costs were 65.0 percent and 66.3 percent, respectively, for FY2020 and FY2019. Indirect Costs and Selling Expenses. For the twelve months endedJune 30, 2020 , indirect costs and selling expenses increased by$214.1 million or 17.6 percent, compared with the same period a year ago. As a percentage of revenue indirect costs and selling expenses were 25.1 percent and 24.4 percent for FY2020 and FY2019, respectively. This percentage increase is driven primarily by a larger workforce from recent acquisitions, resulting in increased labor, fringe benefit and facility costs. The increase also relates to higher investment in independent research and development (IR&D) efforts and bid and proposal (B&P) costs.
Depreciation and Amortization. For the twelve months ended
Interest Expense and Other, Net. For the twelve months endedJune 30, 2020 , interest expense and other, net increased by$6.1 million or 12.2 percent, compared with the same period a year ago. The increase is primarily attributable to higher average outstanding debt balances on the Company's Credit Facility in support of acquisitions. In addition, the Company incurred purchase discount fees on its MARPA (as discussed and defined within Note 14). Income Tax (Benefit) Expense. The effective income tax rate in FY2020, FY2019, and FY2018, was 20.0 percent, 19.0 percent, and (0.8) percent, respectively. The effective income tax rate increased in FY2020 primarily as a result of pretax book income increasing more than favorable credits and permanent items. In each period, the effective income rate was favorably affected by excess tax benefits from employee stock-based payment awards as well as a benefit from the research and development tax credit. COVID-19 Impact to Net Income For the twelve months endedJune 30, 2020 , the Company estimates that COVID-19 has negatively impacted our financial results by approximately$68.0 million of revenue and$17.9 million of net income. The financial impact was primarily driven by CACI employees and subcontractors who were unable to access certain facilities due to COVID-19 and who could not telework.
Contract Backlog
The Company's backlog represents total value on our existing contracts that has the potential to be recognized into revenue as work is performed. The Company includes unexercised option years in its backlog amount and excludes task orders that may be issued underneath a multiple award IDIQ vehicle until such task orders are awarded.
The Company's backlog as of period end is either funded or unfunded:
• Funded backlog represents contract value appropriated by a customer that is
expected to be recognized into revenue.
• Unfunded backlog represents the sum of unappropriated contract value on
executed contracts and unexercised option years that is expected to be
recognized into revenue.
As of June 30, 2020 , the Company had total backlog of $21.6 billion , compared
with $16.9 billion a year ago, an increase of 27.8 percent. Contract awards in
FY2020 were $11.6 billion , an increase of 12.8 percent compared with the same
period a year ago. Funded backlog as of June 30, 2020 was $2.8 billion . The
total backlog consists of remaining performance obligations (see Note 11,
Revenue Recognition, in the Notes to Consolidated Financial Statements contained
in this Annual Report on Form 10-K) plus unexercised options.
There is no assurance that all funded or potential contract value will result in
revenue being recognized. The Company continues to monitor our backlog as it is
subject to change from execution of new contracts, contract modifications or
extensions, government deobligations, or early terminations. Based on this
analysis, an adjustment to the period end balance may be required.
28--------------------------------------------------------------------------------
Revenue by Contract Type
The Company generates revenue under three basic contract types:
• Cost-plus-fee contracts: This contract type provides for reimbursement of
allowable direct expenses and allocable indirect expenses plus an
additional negotiated fee. The fee component of the contract may include
fixed fees, award fees and incentive fees. Fixed fees are fees that are
negotiated and fixed at the inception of the contract. In general, award
fees are more subjective in performance criteria and are earned based on
overall cost, schedule, and technical performance as measured against
contractual requirements. Incentive fees have more objective cost or
performance criteria and generally contain a formula based on the
relationship of actual costs incurred to target costs.
• Firm fixed-price contracts: This contract type provides for a fixed price
for specified products, systems, and services and is often used when there
is more certainty regarding the estimated costs to complete the contractual
statement of work. Since the contractor bears the risk of cost overruns,
there is higher risk and potential profit associated with this contract
type.
• Time and materials contracts: This contract type provides for a fixed
hourly rate for defined contractual labor categories, with reimbursement of
billable material and other direct costs. For this contract type, the
contractor bears the risk that its labor costs and allocable indirect
expenses are greater than the fixed hourly rate defined within the
contract.
As discussed further within Item 1A, Risk Factors in this Annual Report on Form
10-K, our earnings and margins may vary based on the mix of our contract
types. We generated the following revenue on our cost-plus-fee, fixed-price, and
time-and-materials contracts during each of the last three fiscal years:
Years Ended June 30,
2020 2019 2018
(dollars in thousands)
Cost-plus-fee $ 3,274,707 57.2 % $ 2,764,291 55.4 % $ 2,276,589 51.0 %
Firm fixed-price 1,629,475 28.5 1,465,559 29.4 1,455,167 32.6
Time and materials 815,860 14.3 756,491 15.2 736,104 16.4
Total $ 5,720,042 100.0 % $ 4,986,341 100.0 % $ 4,467,860 100.0 %
Effects of Inflation
During FY2020, 57.2 percent of our revenue was generated under cost-reimbursable
contracts which automatically adjust revenue to cover costs that are affected by
inflation. 14.3 percent of our revenue was generated under T&M contracts, where
labor rates for many of the services provided are often fixed for several years.
Under certain T&M contracts containing IDIQ procurement arrangements, we adjust
labor rates annually as permitted. The remaining portion of our business is
fixed-price and may span multiple years. We generally have been able to price
our T&M and fixed-price contracts in a manner that accommodates the rates of
inflation experienced in recent years.
Liquidity and Capital Resources
To date, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources. However, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. Existing cash and cash equivalents and cash generated by operations are our primary sources of liquidity, as well as sales of receivables under our MARPA (as defined and discussed in Note 14) and available borrowings under our Credit Facility (as defined in Note 15) described below. The Company has a$2,438.4 million Credit Facility, which consists of an$1,500.0 million Revolving Facility and a$938.4 million Term Loan. The Revolving Facility is a secured facility that permits continuously renewable borrowings and has subfacilities of$100.0 million for same-day swing line borrowings and$25.0 million for stand-by letters of credit. As ofJune 30, 2020 ,$844.6 million was outstanding under the Term Loan,$569.0 million was outstanding under the Revolving Facility and no borrowings on the swing line. The Term Loan is a five-year secured facility under which principal payments are due in quarterly installments of$11.7 million until the balance is due in full onJune 30, 2024 . 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. 29
-------------------------------------------------------------------------------- The Credit Facility requires us 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 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.
A summary of the change in cash and cash equivalents is presented below:
Years Ended June 30,
2020 2019 2018
(dollar amounts in thousands)
Net cash provided by operating activities
$ 321,460 Net cash used in investing activities (178,529 ) (1,127,982 ) (114,606 ) Net cash provided by (used in) financing activities (303,394 ) 579,556 (206,516 ) Effect of exchange rate changes on cash (1,574 ) (1,037 ) 317 Net increase in cash and cash equivalents 35,208 5,834 655
Cash and cash equivalents were
Cash provided by operating activities was$518.7 million and$555.3 million for FY2020 and FY2019, respectively. The year-over-year decrease in operating cash flows is primarily related to a$185.1 million decrease in cash received from MARPA sales, partially offset by increases of$55.9 million in FY2020 net income,$70.7 million due to more favorable timing of cash collections, and$40.6 million related to deferrals of employer related social security taxes under the CARES Act. The year-over-year change in MARPA proceeds is due to initial proceeds received from sold receivables in the prior year. Days-sales outstanding (DSO) was 48 and 54 atJune 30, 2020 and 2019, respectively. The decrease in DSO is primarily related to timing of cash collections. Cash used in investing activities was$178.5 million and$1.1 billion during FY2020 and FY2019, respectively. During FY2020 we paid$106.2 million for business acquisitions, as compared to$1.08 billion during FY2019. Purchases of office and computer equipment and software of$72.3 million and$47.9 million in FY2020 and FY2019, respectively, accounted for a majority of the remaining funds used in investing activities. Cash used in financing activities was$303.4 million during FY2020 compared to cash flows provided by financing activities of$579.6 million during FY2019. During FY2020, we had net repayment of$262.9 million under our Credit Facility compared to net borrowings of$599.9 million in FY2019. During FY2020 and FY2019, we paid$8.7 million and$0.6 million , respectively, in settlement of contingent consideration for various acquisitions. During FY2020 and FY2019 we also paid taxes on the settlement of employee equity transactions of$31.4 million and$19.6 million , respectively. We believe that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, customary capital expenditures, debt service obligations, and other working capital requirements over the next twelve months. We may in the future seek to borrow additional amounts under a long-term debt security. Over the longer term, our ability to generate sufficient cash flows from operations necessary to fulfill the obligations under the Credit Facility and any other indebtedness we may incur will depend on our future financial performance which will be affected by many factors outside of our control, including current worldwide economic conditions and financial market conditions. 30
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Off-Balance Sheet Arrangements and Contractual Obligations
We have no material off-balance sheet financing arrangements. We had contractual commitments to repay debt, make payments under operating leases, and settle tax and other liabilities. The following table summarizes our contractual obligations as ofJune 30, 2020 that require us to make future cash payments: Payments Due by Period Less than 1 to 3 3 to 5 More than Total 1 year years years 5 years (amounts in thousands) Contractual obligations (1): Bank credit facility-term loan (2)$ 844,555 $ 46,920 $ 93,840 $ 703,795 $ - Bank credit facility-revolver loan (2) 569,000 - - 569,000 - Interest payments (3) 85,719 25,538 43,946 16,235 - Operating leases (4) 417,869 78,302 130,768 102,732 106,067 Deferred consideration (5) 7,956 7,216 740 - - Other long-term liabilities Deferred compensation (6) 110,654 7,650 9,772 5,395 87,837 Transition tax (7) 5,071 - 1,699 3,372 - Deferred payroll taxes (8) 40,594 - 40,594 - - Total$ 2,081,418 $ 165,626 $ 321,359 $ 1,400,529 $ 193,904
(1) The liability related to unrecognized tax benefits has been excluded from the
contractual obligations table because a reasonable estimate of the timing and
amount of cash out flows from future tax settlements cannot be
determined. See Note 20 for additional information regarding taxes and
related matters.
(2) See Note 15 to our consolidated financial statements for additional
information regarding debt and related matters.
(3) Interest payments are estimated through the maturity date of the Term
Loan. Variable rate interest obligations are estimated based on rates as of
excluded because a reasonable estimate of the timing and amount of cash out
flows cannot be determined.
(4) See Note 16 to our consolidated financial statements for additional
information regarding operating lease commitments.
(5) Represents deferred payment obligations related to acquisitions.
(6) This liability is substantially offset by COLI assets held by the Company to
fund the payment of the liability to the plan participant. See Note 21.
(7) Represents transition tax related to the Tax Cuts and Jobs Act (TCJA).
(8) Represents deferred payments of the employer portion of social security taxes
as permitted under the CARES Act.
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