CACI International Inc (CACI) 2005 Q2 法說會逐字稿

Good day everyone and welcome to the CACI International second quarter fiscal 2005 earnings conference call. Today's call is being recorded. For opening remarks and introductions I would like to turn the call over to the Vice President of Investor Relations, David Dragics. Please go ahead, sir.

Thank you, Diana, and -- and good morning, everybody. I am Dave Dragics, Vice President of Investor Relations of CACI International and we are very pleased that you are able to participate with us today. Now for those of you who are with us for the first time either by telephone or via the Internet we welcome you to this call. And for those of you who are joining us again, as always, welcome back and we appreciate your continuing interest in CACI. As has been our custom on these calls we are including exhibits with our presentations and we believe they'll be helpful in reviewing our financial results and trans -- and with the discussion of our operations. So as we progress this morning we'll make every effort to keep all of you on the same page as we are.

So let's go to the first exhibit. As you know yesterday after the market closed we released our second quarter fiscal year 2005 results. We hope that most of you have had the opportunity to review our announcements and the results and they are summarized on this exhibit.

Moving to the next exhibit before we begin our discussion this morning I'd like to make our customary but important statement regarding CACI's written and oral disclosures and commentary. Now there will be statements in this call that do not address historical fact, and as such, do constitute forward-looking statements under current law. These statements are subject to important factors that's could cause actual results to differ materially from the statements made today. And the primary factors that could cause actual results to differ materially from those anticipated are listed at the bottom of this morning's earnings release and are also described in the company's Securities and Exchange Commission filings. And our Safe Harbor Statement is included on this exhibit. It should be incorporated as part of any transcript of this call.

Now let's turn to the next exhibit and open up our discussion this morning. Here is Jack London, Chairman, President and CEO of CACI International. Jack?

Thank you, Dave, and good morning, ladies and gentlemen. First, will let me welcome you to our conference call this morning. I'd like to extend a personal and special welcome to those of you who are new to CACI and to our call this morning. We appreciate your interest and invite to you join us on our future conference calls as well. Last evening, after the market closed, we reported record results for the second quarter of our fiscal year 2005. We are very pleased with our performance last quarter. The deepening of our relationships with our core customers by providing them mission-critical support and our ability to win new customers are the fundamental reasons for the growth in our profitability and revenue. As we noted in our release, this has continued to produce solid growth in our operations and the areas of systems integration, engineering services and network services.

We continue to benefit from the integration and growth of our recent acquisitions, particularly the Defense Intelligence Group we purchased from American Management Systems Incorporated in May of last year. They experienced another quarter of good growth and exceptional profitability in supporting Department of Defense acquisition efforts, responding to increased demand for intelligence support. We are very pleased with how this acquisition has integrated into our overall operations and -- and contributed significantly to our results.

As we look at our second quarter we saw operating margin expand. We had another quarter of solid organic growth. We won 100 percent of our recompeted work, all of our recompeted work, and maintained our new business win rate at over 50 percent. We experienced significant growth in revenue from the intelligence community over last year's second quarter and we continued to pay down the debt associated with the acquisition of the D. and I Group as a result of another quarter of positive cash flow from operations. Overall, our second quarter results continue to reflect the long-term strengths of our strategic focus on national security, intelligence community, Homeland Security and government transfi -- transformation operations.

Let's go to the next exhibit. With me today to discuss our results and answer your questions are Steve Waechter, our Chief Financial Officer; Bill Fairl, acting Chief Operating Officer of our U.S. Operations; and by phone from the United Kingdom, Greg Bradford, President of CACI Limited U.K.

Now is -- is our custom on these calls. we'll handle this call in segments. First, Steve Waechter will discuss our financial results. Second, Bill Fairl will discuss our domestic operations and their outlook. Finally, I'll have some closing comments to pass along. After that we'll open up the call to your questions.

So the first item on our agenda is our financial results which we're quite pleased with. So here's Steve, our CFO to discuss them. Steve, over to you.

Thank you, Jack, and good morning everyone. Let's go to exhibit number 6. As Jack indicated, last evening we reported second quarter fiscal year '05 results. Revenue for the quarter increased 48 percent to $389.7 million versus $263.4 million a year ago, just about 57 percent of that growth or just under $73 million came from the acquisition of the Defense and Intelligence Group. Net income was $20.5 million or $0.67 per diluted share, up 44 percent over last year's $14.3 million or $0.48 per diluted share.

Let me give you some more detail on some of these results. If you move to exhibit number 7, you can see that our federal business grew 48 percent during the second quarter and represented 94 percent of our total revenue. The internal growth rate of our federal business in the quarter was 14 percent and for all of CACI internal growth was 14 percent for the quarter. On a trailing 12-month basis our internal growth rate was 18 percent, exceeding our annual objective of 12 to 15 percent. Our United Kingdom operations reported $13.5 million in revenue, 23 percent more than the $10.9 million reported a year ago. Approximately half of the revenue increase was from the benefit of favorable exchange rates. The pre-tax profit margin was 8.6 percent compared to 8.4 percent a year ago.

Sales of our software and data products in the U.K. were higher than a year earlier, where our commercial IT services business there showed a marked improvement. We forecasted our U.K. operations will continue to show good performance during the second -- the last half of the fiscal year.

Moving to exhibit number 8, starting with this slide let's take a look at some of the key income statement, balance sheet and operating metrics during the quarter. Most of these were included in the financial exhibits in our press release. Our operating margin expanded nicely during the quarter to 9.5 percent compared to 8.8 percent in the second quarter of last year. This operating margin growth was driven primarily by our recent acquisitions and operational efficiencies. Overall we continue to benefit from favorable operating leg -- leverage as you can see from our operating income increasing 59 percent while revenue was up 48 percent.

Moving to the next exhibit, our cash was $54 million and our outstanding debt was $368 million at December 31. As was noted on the statement of cash flows on our earnings release we continued paying down our debt reducing it by $26 million in the quarter, an additional $10 million since the 1st of January. Our current borrowings are approximately $358 million. We had another solid quarter with respect to our operating cash flow for the quarter which is approximately $10 million compared with the minus $20 million in the second quarter last year. Year-to-date our operating cash flow is $31 million, and we anticipate operating cash flows to range between 100 million and 115 million for the full fiscal year.

In the next exhibit, days sales outstanding at the end of the quarter were 82, down one day from the prior quarters' 83 and days outstanding a year ago were at 86. We anticipate this downward trend to continue and our targeting days outstanding in the mid 70s by the - by year end. Looking at a few other metrics, about 85 percent of our revenue this past quarter was earned as a prime contractor. Also for the quarter, 58 percent of our revenue came from time and materials work, 25 percent from cost plus work and 17 percent from fixed price work. Last year those percentages were 62, 21 and 17 percent respectively. The shift to higher cost plus work was driven by the ramp-up of work on our Genesis II contract and the mix of contracts associated with the acquisition of A. M.S.

The next exhibit, number 11, contains our updated guidance for revenue, net income, diluted earnings and diluted shares for the third quarter, initial guidance for the fourth quarter and the full fiscal year. This guidance assumes that we complete no new acquisitions. And with respect to acquisitions we are actively looking at several opportunities but do not anticipate closing a transaction in the third quarter. We anticipate that our revenue for the third quarter will range between 395 million and $405 million, an increase of 37 to 40 percent over the third quarter of fiscal year '04. Also for this quarter we expect our operating margins to range between 9.3 and 9.5 percent. We anpic -- anticipate that our net income will range between 20.5 million and $21.4 million, a 30 to 36 percent increase. We expect diluted earnings per share to be between $0.67 and $0.70 per share, up 26 to 32 percent over the year earlier period. We believe that our internal growth in the third quarter will be in the range of 8 to 12 percent and that our internal growth for the trailing 12 -- trailing 4 quarters should be approximately 12 to 14 percent. Finally we estimate that the diluted weighted-average shares for the third quarter will be 30.7 million.

For the fourth quarter we currently anticipate that our revenue will range between 402 million and $417 million, an increase of 12 to 16 percent over the fourth quarter of fiscal year '04. We expect our operating margins in the quarter to range between 9.4 percent and 9.7 percent. We anticipate that our net income will range between 21.1 million and $22.3 million, a 2 to 8 percent increase. We expect diluted earnings per share to be between $0.68 and $0.72 per share, essentially even with -- with -- essentially even with to a 4 percent increase over last year's fourth quarter. Our fourth quarter fiscal year '05 compared with fourth quarter fiscal year '04 guidance includes the benefits of a full quarter of the A. M.S. acquisition, and additional costs of approximately 1.3 million net of a tax benefit for additional interest costs on debt and amortization of intangible assets resulting from the D. and I. -- D. and I. G. acquisition.

And as we discussed in our fourth quarter conference call last year, our fourth quarter net income included higher than expected margins on one contract with fixed unit pricing and higher than anticipated award fees which prop -- provided us with -- with significant one-time benefits to the bottom line. These are not expected to occur again in the fourth quarter of fiscal year '05. For the full year we've increased our revenue forecast to range now between $1.575 billion and $1.6 billion, a 37 to 47 percent increase over fiscal year '04. We now anticipate net income for the year will range between 81.8 million and $84 million, a 28 to 32 percent increase over the $63.7 million reported for fiscal year '04. Diluted earnings per share will range between $2.68 to $2.75 cents per share, an increase of 26 to 29 percent over the $2.13 cents per share reported last fiscal year.

I'm also pleased to announce that J. D. Coon, who has been our corporate controller has assumed a new role as Senior Vice President Corporate Finance Department and will assume responsibility for our strategic planning process, treasury services and provide assistance in the M&A process. He will manage the company's capital structure including cash management interest rate offerings, et cetera. And we're also pleased to welcome Mark Monticelli, who joins us as our new corporate controller and chief accounting officer. Mark comes to us from Veridian, where he was vice president, controller and principal accounting officer and prior to joining Veridian Mark was with KPMG for approximately 17 years. We are excited to have Mark join us and Mark will be responsible for our financial and income tax reporting, accounting policies and procedures and internal controls under Sarbanes-Oxley. This realignment will provide CACI with additional insight and business expertise to support our growth in becoming a $2 billion enterprise.

With respect to our compliance with Sarbanes-Oxley Section 404 Attestation requirement on June 30th, 2005, we continue to make good progress. We've identified and documented all 27 key financial processes and have begun testing of over -- of approximately 350 control points. Our testing to date has disclosed no material weaknesses or significant deficiencies. And even though Dave mentioned the Safe Harbor Statement at the beginning of this call I want to again state that this guidance is forward-looking and represents our current estimate of future operating results. Listeners on the call and readers of the transcript should be advised that our actual results may differ materially from the statements we're making today. That completes my financial review and now here is Bill Fairl, who will cover our domestic operations. Bill?

Thanks, Steve, and -- and good morning everyone. Let's go to exhibit number 12, please. As Jack noted in his opening comments the healthy pace of our domestic operations continued in our second quarter. Growth in our systems integration, engineering services and network services areas was significant as a result of being test to support mission-critical needs. This increasing demand for our services is being driven through the expansion and modification of work on existing contracts. This is a trend we noted to you last quarter.

We experienced another quarter of solid growth in our work with the intelligence community, driven, in particular, by the needs of both our military and federal civilian customers for more analytical support. In addition, our C4I SR work continued to grow as a result of quick reaction and prototyping activities by our customers to incorporate lessons learned from operations in Iraq and the global war against terrorism.

Now let's go to exhibit number 13. Let me turn now to operating trends. Our DOD revenue grew approximately 66 percent for the quarter as has been the case for the past couple of quarters, this growth came from work we are doing in the military intelligence community and from our acquisitions. Key contributors to that growth continue to be such customers as the Army's Intelligence and Security Command and its Communications Electronics Command, as well as Surface Navy and Naval Aviation activities. Revenue from federal civilian agencies grew 9 percent for the quarter. Moving to the next exhibit, please, here's a recap of the revenue we generated from our federal, commercial and state and local customers through our various services offerings. These percentages as always are approximate.

Systems integration work which includes our U.K. operations and the Defense and Intelligence Group, represents about 64 percent of our revenue. Engineering services are in the 17 to 19 percent range. Network services represents between 11 and 13 percent of our revenue. And knowledge management, approximately 6 to 7 percent.

I I'd like to now discuss exhibit number 15. Let's take a look at our pipeline of qualified opportunities. When we spoke to you in October we were looking at about 8 billion of business in our pipeline. I'm pleased to report that today that estimate is now $10 billion. The $10 billion mark represents those opportunities that are addressable by CACI. That addressable set continuously yields a set of opportunities for which we submit proposals. Based on our historical win rate more than 50 percent of thousands bids result in contract awards to CACI, which, on average, are performed over a 4 to 5 year period. Now to just put this in a near-term perspective for you in the next 6 months alone we are addressing more than $2.7 billion in new business targets. That's not recompetes, new business targets.

As you may recall an omnibus bill for the remaining discretionary appropriations of the federal budget was passed in December before the 108th Congress adjourned. This will allow those of our customers as appropriation were included in the bill to begin the process of releasing new requests for proposals or what we call RFPs. As we have commented in the past it usually takes 45 to 60 days for the appropriations to work their way down to our customers. We are, however, seeing a trend developing with these RFPs. While a dollar amount of the opportunities we have identified is not decreasing, and in fact is increasing in many cases, we are seeing the release dates for some of them beginning to slip to the right. We believe the usage of funds for support to the war fighter, as opposed to program affice -- office support is the principal cause of this slippage.

That being said, we expect the next 5 to 6 months to be ones of increased bid and proposal activity for us as we believe the flow of these RFPs will improve later this quarter. And as I just mentioned, again, we're looking at more than $2.7 billion in new business targets through the rest of this fiscal year.

Moving to exhibit 16, please. Overall we are very pleased with how things went during our second quarter. As we look at the next 6 plus months we expect to see our work on sustainment of addition programs and expansion of scope on current contracts continue to grow. We believe the demand for support of our intelligence customers will also continue. We believe we will see these trends primarily in our systems integration, engineering services and network services area. This should all add up to making CACI's fiscal '05 a very successful one in growth and profitability as Steve outlined in the guidance he gave you a few minutes ago.

Now, before I finish my overview of operations I want to take this opportunity to mention how pleased we are with two very recent additions to our top management team. As you may have seen, we've just put our press releases on these two senior executives so I'm just going to summarize here. On January 18th, we announced that Randy First joined us as our Executive Vice President in charge of CACI's managed network services line of business. And just yesterday we announced the appointment of former Lieutenant General Keith Kellogg as our Executive Vice President responsible for managing our core business and providing mission support to the war fighter with particular emphasis on the U.S. Army. Managed network services and mission support are two of our top growth drivers going forward. So suffice to it say that we're more than delighted to have them on board and we're looking forward to their contributions to our future growth. Jack, that concludes my remarks.

Thanks, Bill, terrific report. Steve, thank you for your updates. Terrific performance in quarter two. Let's move to the next exhibit, please. As you've heard we believe that this fiscal year, 2005, will be another great record year for CACI. Moving up to approximately 1.6 billion in sales. We've had a solid first half and we are looking forward to the same as we complete the second half of this fiscal year. And as Bill just indicated we believe the pace of our operations will continue strong. We have a very aggressive bid and proposal posture in place as the large RFPs in our pipeline of opportunities become available. And we will be aggressively defending our business base going forward. For sure. This certain is a distinction with CACI, retaining all of our legacy contracts and client relationships and truly a hallmark of our performance and operational profile.

Next exhibit, please. Next week we will hear President Bush deliver his State of the Union speech followed by the release on February 7th of his proposed budget for the governments fiscal '06 beginning 1 October, 2005. We expect he will emphasize the major trends -- major trends in CACI's venues of strategic focus to continue. Those being to provide support to our national security, to continue to improve the quality of intelligence to the national command authority, and out to the war fighter. To continue to improve Homeland Security and to continue the transformation of government.

These are venues of CACI strength. We expect to see our governments reliance on companies like CACI, as we continue to provide key information technology systems and solutions. And CACI is an out front leader in this space.

Our government will continue to outsource to the private sector, needing services and technical support for worldwide operation, especially in defense and national security operations. Again, venues of CACI activity. Our customers understand the new imperative that government must still become ever more efficient and effective through the management processes of planning, budgeting, acquisition and procurement and the vital, ever critical, need for new technology and processes for information sharing remains the highest of priorities. And especially in the intelligence and Homeland Security arenas. CACI will be right there assisting them in meeting these objectives as they continue to address all of these national high priority needs. So we see strong evidence of our government customers continued reliance on CACI and the private sector to provide value-added mission-critical support in these high priority national areas.

As you know over the years we have established a fine reputation and image with our customers. The best there is. And they count on to us stay the course and deliver real results. We believe we are well-positioned to provide our clients with high-value information technology systems, solutions and services going forward. And we make that our hallmark. We believe that our strategic focus on national security, intelligence community, the global war on terrorism and the reshaping of the way government agencies communicate, use and disseminate information and deliver services to the citizens is the right strategy, in the right place, at the right time. Equally important, we believe that this will enable us to continue, deliver and enhance shareholder value. So at this point -- we are ready to open up our discussion to your questions. So, Diana, I'll turn the -- phone over to you for our first questions, if you would, please.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touchtone telephone. If you are using a speakerphone, please make sure yor mute function is turned off to allow your signal to reach our equipment. And we will proceed in the order you signal us. Please limit yourself at this time to one question and one follow-up. Thank you very much. Once again please press star 1 on your touchtone telephone to ask a question. We'll go first to Jason Kupferberg of UBS.

Good morning guys.

Good morning.

Good morning.

I just wanted to start way a big picture question here if I could , Jack. Can we get your thoughts on some of the budget cuts which were contemplated by PBD 753 which obviously leaked out over the last few weeks and understanding the fact that we won't get some actual numbers from the president for another few weeks here, just wanted to get your initial take on what's been discussed to date.

Sure, it's obviously an excellent question. Listeners I'm sure are always interested in -- in budget matters and issues. Let me just reflect on 35 years experience in the -- in the industry and in the business. I've seen lots of -- budget -- let me call it planning, budget activities, political implications associated with it. I think what you are seeing here, in my opinion, is -- is manifest in the political side. The challenging of the budget numbers going forward and the scrutiny and review. I believe that -- that there will be probably some changes in budget direction. But it's never been CACI's issue to worry about overall budget profiles. The important issue for CACI International and its shareholders is the focus on those areas in the budget that we believe that the CACI business plan calls for as being the opportunities.

I'm quite confident that when it all sorts down and shakes out given the world situation, given the elections in Iraq coming up, given the threats in Iran, given the nuclear world -- weapons of mass destruction issues around the world; you are going to see continued emphasis and national priority in the areas that we -- operate. National security, certain al -- elements of defense posture, worldwide intelligence community support, deployed operational support, Homeland Security and law enforcement, all manifest through IT and communication services. That is the business base of CACI International and I am quite confident that that is the program you are going to see emerging through these budget lines as all of it sorts itself and shakes itself down. Those are going to be priority areas. We are aligned in those areas. We are quite confident, actually, that those will be surviving elements of the budget posture.

Let me reflect a little bit for a second, however, on the cut side. The platforms that have been talked about as being slips to the right, new platform issues probably for the major aerospace organizations will be an issue. But, you've got to reflect that CACI International and its engineering and services lines of business are quite aggressive in developing and supporting the operational side of the military services and their platform areas by the maintenance requirements, logistics, refurbishment, overhaul, repair and -- all of the activities that are required to sustain -- sustain operational activity per -- primarily in the Navy where we focus most of our business. Now it's also true that there will be certain replacement issues for the United States Army. A lot of their lands vehicle situation is going to have to -- is going to be pulling in resources. On the other hand you've got an $80 billion supplemental that's moving right along and I'm sure that that will focus itself into the Army requirements, operational requirements in the theater.

So I think if you stop and look very care fully at these issues and reflect on CACI International's venue -- operating venues, that you're going to find that are going to -- these are priority areas. So I don't look at the budget overall, although I do suspect there'll be some flattening out and I think there'll be some pull-back in some of the federal civil areas. Of course we do -- our business base is -- is primarily, as I've indicated, although we do have certain civil sector work, but even there, even there in the civilian side of the federal government, the organizations we work for have a security flavor or a law enforcement flavor, like the Department of Justice, the Department of State. So we have created our business strategy carefully to seek and pursue what we think are significant growth opportunities in terms of national priorities in the funding and financing areas.

Well, thanks. That color and perspective is -- is very helpful. Steve, just a follow-up for you on the fiscal '05 EPS outlook, looks like the midpoint of the range has been inched up a little bit here with revenue obviously also coming up as well. Have you made any changes in terms of your margin assumptions for the back half of the year? To the extent some people may have been expecting a little bit higher EPS outlook here, or is there anything going on below the operating line with respect to that interest expense? Just wanted to get insight into that thought process around the guidance.

Yes, good -- good -- good point. We did raise the lower ends of our guidance by about 50 million in revenue and the upper buy about 25 million. Some of that is related to what we referred to as the -- kind of the O DC. So you're getting some higher revenue flow through there but the margins on that as you know are not as great as what we would get on the labor piece which is also growing. But, overall because of that revenue flowing through -- margins just -- just a tick down maybe in the 9.3, 9.4 kind of percent versus I think we were at 9.4 to 9.5 previously, in that range. But again still -- still very strong relative to where we were last year and we are hopeful that if we can continue to grow that labor base maybe we'll see something a little better on that.

Does that answer your question?

Thank you.

Let me -- let me just say another think -- other question to just -- on interest we have seen an uptick in the basis points that we're paying on interest, probably about 50 basis points over what we had previously given out. So I would say probably closer to a 5 percent interest rate is what you should be using in your models.

Thank you. We'll go next to Cindy Shaw of Moors & Cabot.

Good morning, Cindy.

Cindy?

Ms. Shaw, your line is open. With no response we'll move on to Laura Lederman of William Blair.

Yes, just a few questions, thank you. Can you talk a little bit about the internal growth rate you expect long-term? Another -- kind of a long-term question if you look over the next few years, what would you expect the internal growth rate in the business to be?

Well, that's a -- a wonderful question and it brings up a point that I wanted to make sure that we addressed in the Q&A session. Laura, basically CACI International has set up a growth target and objective of 20 percent per annum. CAGR compounded annual growth any of the 20 percent. I am not going to relax that requirement a bit as we go forward. We are going to demand that kind of performance out of our organization and we think we are in the market venues that can support that, first of all. See, you gotta be strategically positioned to make that a feasible objective. We have done that, and I think in spades. In fact I don't think there's any way that I could possibly have created a more opportunity -- opportunistic venue for this corporation than we have -- we have done. We are in the right place at the right time with the right capabilities.

Having said that 20 percent growth rate -- I'll notice that even our internal growth rate over the last 12 months was 18 percent. Our internal growth rate was 18 percent. Our overall objective is 20. We have traditionally looked at a growth rate of between 12 and 15 percent organic year in and year out compounded. We have looked at a merged and acquired growth rate of 5 -- 5 to 8 percent year over year. Those two added together, of course, get you your statistic of an overall 20 percent growth rate. You can be quite assured that this chief executive officer will be demanding and requiring and inventing the process for a 20 -- 20 percent growth rate compounded. Now, that's only average. There thereby some bumps as we go along. We're -- we're experiencing a little bit of a-- a stretch out here on some of the RFPs.

Okay, that's -- I look at that as a very temporary activity associated in part with the -- the budget issues, with the change of the administration. We have some cabinet officers that are yet to be approved and so forth. So you've got a little bit of a slow down here which is very customary, nothing unexpected about it. There is some serious review of budgets going forward. That's most appropriate. But the important point for , I believe our listeners, is the positioning of CACI within the priorities, national priorities, and resource areas of the United States Government and the American people going forward. I think it's -- I don't know how we can put it in a better spot at least for the foreseeable future.

Can you also talk about the acquisition pipeline, how are prices looking out there? Are there a lot of businesses that look interesting to you and can you just talk a little bit about what's out there?

I be -- be delighted to pick up on that one as well. The M&A horizon and profile I -- I don't think has changed radically. I think that in terms of the opportunities I -- I believe that the market seems to have slowed down a little bit. Let me only talk to CACI which I can -- I can do with considerable authority. We have been integrating a major transaction last year. We went to the markets, major capital markets, borrowed a --a large capital base for that transaction. We have brought that 250 to $280 million business base into this corporation, about 1,600 employees, a wonderful new customer set, a very fine high tech organization and I am pleased, pinch me, pinch me, to report to you that the integration has been very successful. Been absolutely delighted with it. It's a great leadership team and a great customer set. We have had the opportunity in the last 6 months to see many of the customers and it's a terrific business opportunity going forward.

Having said that there's a couple of other dimensions to it. One is the --the cash we've driven down the borrowings to, as Steve reported, 358 million as of the other -- the end of January, I guess, will be around 358. From a $422 million transaction. So we are very, very delighted with the aggressive cash management and -- but -- but yet we are going to prove that. In terms of the M&A arena, we have begun to activate our activities again this last quarter, getting -- getting it running again. We had the issues, the distractions and the unnecessary distractions associated with that with Ghraib last year caused us to refocus some of our energy and effort as well as the integration of D. and I. from A. M.S.

Now we are back in the hunt, there are companies out there, we are talking aggressively to organizations. We have a two -- two-track process for M&A right now. The first track is for larger transactions that we've demonstrated we can successfully do not only to the capital markets, the investment community but also to the industry through the D and I Group. We also have our more traditional historic success pattern with the smaller transactions from 50 to 100 million in sales. We're going to be picking up on that track as well. So we have a two-track process going forward, looking for larger, more significant opportunities, let me -- let me say, as well as the special niche place, strategic enhancements to our business portfolio through our smaller acquisitions, typically those of private companies. See we've got two venues we are going to work aggressively starting out of the gate here. our New Year's resolution if you will, getting -- going to the back half of this year after consolidating the -- integrating A MS and after getting through some of the distractions of Abu Ghraib.

Let me talk about that a second as well. We went through a -- an investigative process, a wire brushing all over the place last -- last year and have come out very successful. The reason I mention this point is I think our reputation and image in the industry, in the defense market internal sector right now is extremely appreciated. And that is very important as you look at CACI going forward, a very respected organization, participating in the national priority, national security arenas where the work is extremely important to the clients and to the military personnel we serve. So I think that the prospects are exciting and very interesting in opening up new worldwide operational venues for CACI.

Thank you. We'll go next to Cai von Rumohr of SG Cowen.

Yes, thanks a lot. Jack, you mentioned 2.7 billion in bids over the next -- new business targets over the next 6 months. Are those decisions you expect to be made before the ends of your fiscal year?

The bid profile is always an excellent question. That was actual Bill that

Okay.

Bill Fairl our chief operating officer. I'll turn that over to Bill to amplify and give you a little color on that. If you would, Bill, please.

Yes sir. Cai, yes that -- that's the set of opportunities that we are addressing over the next six months. So I believe as I mentioned earlier a subset of that will turn into actual proposals that we submit all during the next 6 months. We would expect these to be addressed either with a bid or perhaps a no bid decision on these all within the next 6 months. So I wanted to give you a feel for just the volume of business opportunities that we will deal with through the remainder of this fiscal year, if will you.

Okay. And secondly your -- your fed civil business was down sequentially. Without the timing of the budget and you mentioned, you know, DOJ was down because of some issues at the FBI. Maybe explain that a little bit and give us sort of the look going forward.

Sure. Yes, the point you raised about contributing factors to that with the change in the governments fiscal year, the elections coming up and the movement of folks at the higher levels of these offices and then the budget approval phase that we talked about where the appropriations bill was-- was fairly recently approved, all of that contributes to -- in the second quarter in particular, a slow down in RFPs if you will and a -- and a reluctance on the part of those clients to start new big programs, if you will. Having said that the opportunities are there now. They've just moved into this quarter and for the rest of this fiscal year. So we expect the pace of activity in that area to actually pick up now.

Thank you.

Sure.

Thank you. We'll go next to Edward Caso of Wachovia Securities.

Hello.

Good morning, thank you. I just wanted to follow -- follow up on some prior question about the organic growth rate. I know your target is 20 percent organic and acquisitions but I guess the next quarter was guided to 8 to 12 percent organic. Are we going to be closer to the low end of the range for the next several quarters or is that more long-term or is the 8 to 12 percent just reflect the sort of near-term sliding to the right?

Well, the -- that guidance that we gave for the third quarter is our best estimate as we now look at things. We obviously work very hard to try and improve on those numbers. And as you've -- you've seen in the past sometimes we've exceeded those. But, as we look at it today we think that's our best guidance. And I'm not going to say whether the low or high-end, I think that -- that's the ranges of guidance that we're looking at. Obviously we'd like to be to the higher end of that. We'd like to exceed it if we can. But that is our guidance as to where we are right now.

I think Ed -- Ed's question also incorporates the rationale for it and he's right, some of these factors have slipped a bit for us and -- and that's a fact. I don't look at that, and I hope I indicated, don't for a minute look at that as a long-term issue because of all the opportunities we see back of us as I hope Bill made very clear that that in --that opportunity pile if anything is growing. Now why is it growing, you say? Well, very specifically. Two years ago we turned in 840 some odd million in sales. This next year by the closing this year we'll be 1.6, we will have doubled -- double the sites of this company in two fiscal years. Doubled the size -- and big numbers by the way. So I'm telling you that there's bid opportunities out there and we are now become -- becoming truly a tier one player and are going to have larger opportunities we are pursue.

That's been our objective all along. Perhaps we haven't made it as clear but that clearly now is becoming an opportunity because of our size of the caliber of people we are able to recruit and hire, our capture process. We can now -- we have more resources to put in -- into investment. We have more money to put into bid opportunities. So all of this a -- a kind of an integrated story if you will; these issues are quite related. The size, the doubling of the company, our doubling of our bid opportunities more senior people to go after, more money to spend on. So it's all -- it's all part of a calculus, if you will, I think that the argue a strong growth rate going forward. And that's -- that's our plan.

So you -- you haven't moved away from a 10 to 15 percent organic growth rate the next few years?

Our goal remains, I think we have it at 12 to 15, isn't it? We classically say 12 to 15 internal and 5 to 8 on the merger acquisition for an objective of a compounded annual 20 percent. So those will remain our goals. We will not relax those goals in the near term. If we do at some point we will make clear to the world around us what our -- our targets are. But that remains our target.

Thank you. We'll go next to Tim Quillin of Stevens, Inc.

Good morning.

Good morning, Tim.

I -- I appreciate the -- the feedback as -- as far as the -- the awards and -- and the push outs and -- and what you see as a broad budget picture but I'm just wonder if there's any concern that the focus on the war fighter and kind of the difficult budget decisions of -- of -- of spending on the war fighter and maybe, um you know, on discretionary back office modernization, waiting on that, do you have that's -- that's potentially a longer term trend or are you concerned about that at all?

Well, I'm -- let me -- respond by saying I 'm -- I'm always concerned about all the -- all the elements of our business. There clearly is a -- a near-term focus on the operational side of things, and I think even the supplemental, the 80 mil -- 80 bil supplemental is a -- indicative of that. The thing that I would simply reflect on is that we, CACI International today as a very robust interna -- business base that is on the operational side of things, not -- not a focus on back office per se, is very important for you to understand that our business plan incorporates expanding our international operations in support of the Dep -- Department of Defense around the world. We have demonstrated the ability to do that. We have I think about 10 percent of our employees now, for example, are deployed around the world. So, we're -- we're looking at a -- an environment I think, worldwide environment for which we are positioned that indicates a continuing need and requirement of the global war on terrorism.

The fact that I think today there was an announcement from a -- a senior military officials in country about -- perhaps another two years of maintaining the force levels at current strength in the foreseeable future post-election. So these are all pieces of information that I think relate to where CACI's positioned to support the United States Government and the American people in these areas.

The other thing is that we have, that I'd like to point out and reflect on a second and -- and invite your recollection, is the federal government employment profile, the maturing and / or retirement rate has been accelerating in certain areas as you well know in terms of civil service staffing and support. We think that that's going to follow with more outsourcing in the services arena, not just IT but more broadly in the services arena. And we are position to go take advantage of -- what we believe is a business opportunity to support the government in that venue. So those are -- these are, I think elements that -- that fit in the -- in the calculus going forward. Bill, had you some thoughts you want to share.

Yes, Tim, I would just like to add a couple of points here. . Clearly we view a -- a focus for mission support going forward on the Army, in particular, but -- but I'll tell you that on the -- the other services, as just a couple of examples, there's a lot of initiatives that are underway now that just absolutely need to happen to enable the Air Force and Navy, for example, to recognize savings in the out years. They're working some very expensive Legacy systems right now. The Air Force, for example, has undertaken these significant maintenance repair and overhaul facility upgrades. Some of these facilities where they support logistics activities for the Air Force are 40 and 50 years old on these shop floors and so they need to bring in some, you know, modern, industrial practices, and that's -- that's on the as of saving them money. So those programs are going to go forward.

Same time on the Navy side, the Navy has been committed, and has -- has been a leader in this area of modernizing its business enterprise if you will, actually for the very same reason. And that is, they've a lot of Legacy systems that are very expensive to keep updated and -- and maintained if will you. So they're investing in -- in moving to modern business systems. You -- you may recall that we -- announced earlier this fiscal year a major award in support of the Navy's ERP, pilot -- premier ERP initiative NAMAEUS (ph), $133 million, I think that was. That's -- that's typical of the kind of work they need to do to modernize their system. And we're right in the sweet spot of that. The other thing I would add to -- to the remarks Jack made are that we are seeing this continued trend towards taking jobs that have typically done -- been done in the logistics world, the support world, if you will, by uniform military personnel and having contractors such as CACI perform those roles for them for two reasons. One is those folks are needed in war fighting roles and two is there's an economic argument that contractor support is cheaper than uniform military personnel. Just wanted to add that.

Yes, I appreciate that. But could you also talk about AMSs pipeline a little bit? Thank you.

Sure. The AMS -- Jack mentioned earlier that that -- that has, that integration has just gone terrifically. They've moved into our business development process if you will and have just really stepped up with contributions to our business development pipeline. I'll tell you, they're -- they're across the board in -- in the key areas that we mentioned. They're heavy in the support to the Intel community. To the integration of that community if you will. Some of these modernization efforts that I just mentioned in the Air Force and Navy, they're right in the sweet spot of that as well with -- with a number of large bid opportunities. So they -- they've come on board. They've embraced the CACI business development philosophy, if you will. And they're right out there with the front runners, quite frankly. Couldn't be more excited with that.

And Tim, I would add they did about $250 million the year preceding our acquisition anticipating somewhere in the $285 million range for them this year. So very good 14 percent kind of growth out of them.

Thank you. We'll go next to George Price of Legg Mason.

Hi, thanks very much. Can you hear me okay?

Yes sir.

Good morning, George.

Good morning, gentlemen. Just a couple of follow ups. First of all I may have missed it but did you give DOD and civilian internal growth?

I don't believe we gave the internal growth for DOD. I have that here somewhere if you give me a second.

Was all -- was civ -- was that 9 percent civilian, that was all internal?

That was 9 percent -- no that was not all internal. That was 9 percent overall.

Okay.

For civ -- civilians agencies. Hold on a sec I'm struggling to find my charts. One second. I'm fumbling through my pages here.

Let -- let me maybe throw out another question in the -- in the interim; go ahead.

20 -- 26 percent was internal growth for DOD.

Okay. And then civilian was?

Was down about 14.

Okay,.

On internal. That was primarily as Bill indicated the DOJ work, the FBI.

Right, okay,-- and -- I guess just a little bit more around the 2 billion -- well, a couple of things. One, the 2.7 billion in opportunities over the next 6 months, so that stuff you are either going to -- you're either going to go after or not go after but it's -- those are opportunities. I guess, do you have a -- a number that's going to be decisioned in the next two quarters?

Oh, you mean actual awards made?

Yes.

We -- this pipeline that we've had going, I mean we view this as a continuous sort of thing. So the --the awards decisions can really, you know happen any time from a period of a couple of weeks to, it'll stretch out over a year quite frankly. So I'm no -- I'm not at this point I want to project on an award number over the next 6 months, if you will. I will tell you that for -- as maybe as a benchmark for you for the first 6 months of this fiscal year we've announced north of $800 million in -- in new awards.

Well that's an annualized rate--- rate of 1.6 billion.

That's right, Jack. If you annualized that it's -- it's 1.6 billion.

Okay. And can you maybe give us some insight into the -- you know is there anything interesting in terms of the 2 billion that was added to the pipeline, you know what -- what kind of work specifically?

Well, I -- I will tell -- I won't -- I'm not going to get into a lot of specifics but I will tell you that within the past 90 days alone we've started tracking a -- well not actually started but it has matured a $2 billion opportunity with our -- our single largest customer which is the U.S. Army, right in our sweet spot of support to the war fighters. So it -- the good thing about this in addition to everything we've already mentioned is the pipeline is grown larger, we have additional resources to address those opportunities that are in there and I'll tell you, we can afford to be even more picky these days. So the quality of that pipeline is -- is greatly increased as well. So it's -- it's all a good news story from where I stand.

Thanks.

I think I'll add another piece of color and that is that the size of the company now, reputation after the issues of last year, the stand up aspect of the -- CACI International and the support to the United States Army, around the world, has enhanced I believe our opportunity along with our size, the fact that we can literally go after larger deals credibly, enhances in a fairly robust way in fact I will be bullish and say in a robust way,y the forward opportunity profile. It is materially different than it was a year ago, materially different. To say nothing of having doubled our business in less than two fiscal years.

Thank you. We will go next to Joseph Vafi of Jefferies.

Hi, gentlemen, and good morning.

Hey Joe.

Joe.

I guess the question has to do again with, you know, some of the -- the forward look into the bookings activity. Sounds like we might be looking at kind of maybe a different behavior in -- in the award activity moving forward given from the DODs priority with the war fighter relative to Intel and maybe some larger deals that -- that might be out there. Should we, I guess if you could give some color on how -- how we should look at bookings activity moving forward if we think that that might change relative to -- to what we've seen over the past few quarters in terms of -- of how those numbers flush out.

Well, I think, this is Bill Fairl again. We -- we would prefer to think in terms of awards as opposed to actual bookings at this point. So.

Sure.

That clarification I'll go back to what I said earlier about activity in the second quarter and -- and some areas at least a little bit of a slippage of RFPs to the right, if will you, for the reasons we touched on earlier. They're not going away. They're there now. And clients are going to be pushing to get those awards made within the next 9 to 9 months. That takes us through the end of our fiscal year and the end of the governments fiscal '05 as well. And I think we are going to see that and that's a trends we've seen in the past quite frankly. So you'll see the -- you'll see the bid activity ramp up for us here in the next 6 months and then you'll see the award activity follow that shortly thereafter as well.

I'd like to simply add, Bill, thank for your comment but the -- CACI's funded position, that is backlog book-to-bill, is up significantly in quarter 2. So our forward opportunities are quite solid and I think our guidance that were out there gives you a good -- good profile of our expectations. And then if you look at the -- the slippage issue we feel like that as that begins to mature we are going to be seeing upward opportunities here -- here downstream a bit. But we are going through a little bit of a slow part on the RFP side, that I think we are alone. That's not an unusual feature if you will, administration changes, you say he was re-elected but the truth of the matter is you're going to have a new administration, there is going to be new emphasis on different areas. And until that settles a bit you're going to see a bit of this slippage, nothing unusual here.

I think the combination of a -- the governments first fiscal quarter and the election and change over that that's typical for this phase if you will.

Okay, that's helpful. Maybe a little color then on the -- on the DHS budget -- or on the -- in the awards activity, not bookings, awards activity, relative to that line of business for you if -- if that 's behaving the same way or maybe perhaps differently now that maybe they've got a -- a better vision and a move -- a better go forward plan after the last few years for integrating all of the other departments.

Yes, again, I think -- I think you've put your finger on that, Joe. After years of getting -- getting things together there over at DHS, if you will, we are finally starting to see the -- the RFPs come out. These are areas that we are particularly well-positioned for and particularly in the counter-terrorism areas, if you will. We've had a number of awards in support of the Coast Guard for example and then growth on our existing contracts with them as well. Coast Guard data network is one job that came to us here recently. So that's absolutely right and -- and when I look down the pipeline of opportunities that I've got here now those terms -- rather opportunities for DHS are much more real and much more near term than they've been in the past. So there is a maturing of that customer set if you will.

We'll go next to Mark Jordan of A.G. Edwards.

Good morning, gentlemen. Could you talk a little bit about your strategy for the adoption of expensing of options? Are you going to change the method by which you compensate people or should we extrapolate your historical costs in this area as something that we'll start seeing reflecting results around mid-year?

You have a -- quiet an important question there, you talked about the incentive incentavising and motivating our senior management team and management team of the cooperation, thank you for that question, actually it's -- it's quite apropos. Let me speak to one generality quickly and I'll ask Steve to assist in the accounting treatment -- arena. The philosophy of the company is shareholder value. We are here to build shareholder value for our investors and do a wonderful job for our clients and our employees at the same time and the community at large. So we want to motivate people. We want to excite people to perform. So there will be some form of program going forward. I'm not sure how we'll be able to sort it out depending on tax treatments and issues but we will remain committed to the award to senior executives who are building shareholder value of the company. Having said that, I'm going to turn it over to Steve to give you a little bit of an update if he can on sort of how we see thing going forward, if you would, please, Steve.

Yes, well as Jack -- I think ultimate -- ultimately it'd be that our comp committee will decide kind of what they are going to do going forward. You know we do have some compensation expense related to restricted stock shares that have hit our operations this year which is a little bit of a change from what we've had in the past. And quarter to date or I guess year-to-date we've -- I think hit about $1.5 million of operating expense for those RSUs and that will continue through the year. So probably about a $3 million charge this year we di -- that we didn't have last year related to those. With regard to adopting the new policies, cause obviously right now we are using the FAS 123. I think if you look at our 10(K), if you are looking for some guidance in terms of what that would mean to the -- the company I think you can look at the footnote and that'll give you the -- the breakdown on what the -- the diluted shares would have been impacted by shares had we elected to expense them. And we have not decided yet in terms of -- of the method of what-- what fair value we are going to place on yet. But that's a work in process as you know, just kind of -- just happened here recently. So we need to study it and make a recommendation to our comp committee and to Jack.

Okay.

Excellent question, thank you.

One follow up. Looking at depreciation and amortization, it declined sequentially. Can you talk to that decline and then secondly break up that depreciation and amortization charge to the operations and what relates to amortization of purchase intangibles?

Sure, Mark. The -- let me give you the -- just some general -- I'll break it into the kind of 2 buckets as we see it kind of going forward, and this'll give you kind of our annual range here. On the intangible amortization as it relates to acquired companies over the past year here, somewhere in the 19.5 million to $20 million range is what we see that coming out at, you can kind of split that in half and be very, very close. And then with respect to depreciation and amortization, this will be before the equipment, amortization of leasehold expenses, et cetera, we see that in the -- in the range of, you know, close to about $12 million. That's how we see it shaking up on an on an annual basis. So that has come down as we've tightened up our -- our understanding of those numbers.

Thank you. We'll go next to Alex Hamilton of Advest.

Hi, good morning.

Hi, Alex.

Morning.

Good morning. Two simple questions. The first is you had good cash and good debt pay document you stated what your goals are for cash. Any goals for the next 6 to 12 months in terms of debt pay down. Should we see this contin -- this activity continue?

The answer to that is yes. Our hope was and we had indicated earlier in the year that we wanted to be off of the revolver by the end of the -- or during the third quarter. We are well on our way to being having that paid down. So we're excited about -- about that prospect and I think that should give us a nice war chest to go forward for acquisitions of a -- of a couple hundred million dollars. With respect to the -- the term loan we'll -- we'll -- there's -- there's some formulas that -- that we have to go through at the end of the year in terms of how much we pay down on that but there's a -- there's an amortization of -- of roughly I think it's $1 million a year or something like that that we -- we pay off and we -- we can't prepay that. We will take a look at our cash position and we -- we may want to pay it down, we may not, and I know J.D. in his new role is kind of our capital guru here and treasurer is taking a look at some interest rate hedges and what have you that we want to protect our -- our cost of capital if you will. So we are looking at that as we speak.

Okay.

I might add we are going to pay particular attention as we go forward and build this operation on capital structure is the underpinnings of our -- our business development plan in a broad sense as you well know. So, you're going to see a lot of attention at the board level and at my level for capital structure planning and the ability to create a multi-billion dollar corporation over the next few years.

Okay. And then historically when there have been supplementals, I know that that typically goes to sustainment -- or it has gone to the sustainment of the -- the tempo in the Mideast. But have you seen anything, I guess, historically and what I'm trying to get at is will we -- should we expect to see that or are you expecting to see maybe some short term small awards that are going to come out of that or do that typically just go to kind of cash on hand to -- to finance what's going on?

Alex, it's Dave Dragics. It's going to go to the -- to the operations over in Iraq.

Okay.

There might be a little bit extra in there for some relief efforts for the tsunami. It's expected that they might increase that pledge from 350 million to $900 million. But that'll be out a little later on today when they talk about, when they send the basic information up to the -- to the Hill from the White House and out of the OMB.

Thank you. We'll go next to David Garrity of Caris & Company.

Hi, David.

Hi. Good morning.

Good morning.

Well, let's see. Quick question for you. I know that with large scale RFPs being pushed out one thing we haven't spent much time talking about in the call is sort of the contract scope expansion opportunity that you referenced in your text. If we are looking at a year of somewhat more fiscal conservatism with the second Bush administration do you think the opportunity exists for greater contract expansion? Then I got a second follow-up question.

Okay. Yes, this is Bill Fairl, David. I'll go back to the point I mentioned earlier. I think --I think what you say is true. We've seen some real significant increases in size of contracts. I mentioned the -- the $2 billion opportunity. I won't get into our specifics but it's right from the sweet spot of the Army client set that we deal with, stuff that we do day in and day out. That's a -- a large increase in scope, size and performance period for that particular activity. And we're -- we're extremely well-positioned for that. That's -- not that they're all $2 billion. they're not. But, that's the kind of trend we're seeing, that the clients coming out with these large procurements if you will. They've got an issue there of -- of getting these RFPs out of their contract shops. So they'd rather do larger ones, quite frankly, so they can get them out the door if you will.

I might add that's another reason that we believe that our size and the girth of our business now and our reputation enhancement over the last year augers well for opportunities out there. There are no gimme's, no slam-dunks, but I think we are in a favorable position to be looked at as a val -- viable solution and award recipient. So that -- that fits right into the calculus of what have we're trying to achieve here.

Yes, and Jack -- and I -- I would add to that with that same theme, that award I mentioned earlier that we got in the August timeframe, for ERP award for the Navy, that's a capability that CACI built from scratch quite frankly over the last three years. To the point where we went essentially from just a couple of folks working in that area to this over $100 million award as the prime contractor to consolidate all the Navy's ERP support on an AMAEUS (ph) Activity. So -- Jack, you're absolutely right, That's just an indication of how positioning and dedication to a plan gets us to a point of elevation in the clients eyes, it -- it represents new heights and visibility for us.

Very good. A follow-up question is, as you start looking at larger acquisitions do you still look mostly to use cash and debt or are you starting to think more about bringing stock into the mix.

Primarily with the company always use cash, again obviously depending on the size of the transaction it could require an equity play. But primarily our focus is a -- is a cash transaction.

Thank you very much.

Thank you. We'll go next to Brett Manderfeld of Piper Jaffray.

Good morning, guys.

Good morning.

Steve, hoping you can comment on Sarb-Ox spending in the quarter and what you expect into March and June? Thanks.

A lot. (laughter) It's -- I don't want to give out our -- our internal cost on -- on Sarbanes but I think one of the -- one of the good things for us and I guess for -- fortuitous in a lot of ways, that we have a centralized accounting operation shop so, you know, we've been able to keep our key processes down to a minimum. I know some of my -- my peers in aerospace and defense have, you know, widespread operations that, you know, create a lot of testing for them. But, you know, suffice it to say it is a -- a lot of time internally. There is outside costs that we are spending with consultants helping us on -- on testing. And then also our -- obviously the outside auditors have to come in and they've begun already doing their primarily work on it. So it is a significant cost increase to the company. I won't get into specifics of the numbers, though.

Okay. How about capital expenditures expected for the year? Thanks.

I -- I think we're still in that kind of 8 to $10 million range would be a reasonable thing, 12 at the outset.

Thank you. We,ll go next to Thomas Meagher of Friedman Billings Ramsey.

Yes, good morning. How are you all doing today?

Good morning.

Good, hey, just if I could get a follow up on the -- on the slippage issue. Given the size of the AMS transaction and -- and knowing what they did previously in terms of the, you know, the financial systems contracts systems and whatnot, I'm just wondering are you seeing a larger impact in terms of that issue to -- to that part of the operation than to core or Legacy I should say CACI?

No, Tom, this is Bill Fairl. It's actually the contrary and the reason for that is when those folks were a part of AMS they really didn't have the business development and marketing resources that they now have as part of CACI if will you. So it's actually for them I think as I mentioned earlier the pipeline has gone the other way. There is more opportunities that they're tracking now in that modernization field and also quite frankly with the Intel community. The marriage of the AMS folks that came over to us with our existing Intel practices that we had really strengthened our relationship with that client set; particularly in the mission support area. So it's just -- it's really been a good news story for us.

Okay. And then just one follow-up, you know there's been some talk about GSA reorganization, FSS/STS and whatnot, getting rid of some of these redundant [INAUDIBLE]. I was wondering if you all had heard anything further on that where -- where the Hill and particular Congressman Davis stands on that whole issue going forward?

Well I can tell you, Tom, just from you my perspective just take the Navy for the -- an example, they are steering away from using GSA vehicles and putting in place their own large, I'll call them, GWAC vehicles, it's that big broad ID/IQ type contracts we've had a number of those kinds of awards over the past calendar year, they're -- they're big vehicles with lots and lots of ceiling on it.

Tom, this is Dave Dragics. I think also there was an article in the Post last Friday with regards to the new contracting guru that's being confirmed in -- at -- over at OMB and I think the emphasis they're going to put on about training and that, is a -- is a contributor to that as far as the GSA. We have haven't heard anything specifically as to to what's going on. I think you'll see that play out over the next few weeks or few months.

Thank you. We'll go next to Cynthia Houlton of ARBC Capital Markets.

Earlier about focusing expanding your emphasis on some of the international work that you do to support government, could you give us a little bit more detail on -- on what types of work, is this, you know, something more along the kind of non-tech side like some of the integration work or I think services like that or are you looking at more tac, I mean if you could just give us a little bit more color on what's -- what the opportunities are on international work of in terms of supporting government.

Cynthia, it's -- it's Bill Fairl. Yes, I think where we're seeing our largest business base and most of our growth opportunities are in the support type functions, the logistics if you will, supply chain management, intelligence support as well the interrogator business is actually a very small fraction of our business, if you will. The -- the large parts and the large growth opportunities go back to that point I was making earlier about taking functions that in the past have been done by uniform military personnel so you can free the -- them up for missions and -- and using folks like CACI to -- to backfill them in their -- in their -- in their jobs again in logistics, supply chain management, intelligence system support integration, fusion of intelligence. Those areas, if you will, that's where the real growth drivers are for us.

Okay. And then -- just on some -- the sense of log -- logistics did you give what ODCs were for the quarter, I know you mentioned that that was -- had an impact on some of the revenue growth targets, but Steve I don't know if you could just give us a sense of that?

They were pretty much in line for the q -- up -- up a little bit but ODCs as a percent of revenues, let's see here, David,

Well, they were still about 51percent of our direct cost.

51 percent is the number we looked at.

That's the same as it was the first quarter. 51 percent of our direct cost.

So the ratio hasn't changed.

Okay. Thank you.

Thank you. We'll go next to Sandra Notardonato of Adam Harkness.

Hi, I wanted to talk to Bill a little bit about the commentary you made about the second -- the next couple of quarters in terms of how contractor awards might play out. We've seen a decline from last quarter to this quarter. I think you've explained why, but you've also highlighted that with RFP activity increasing we might begin to see, you know, an increase in -- in awards in the next couple of quarters. Can we expect that next quarter and then again in the following quarter or how should we be anticipating that?

Sandra, my experience when we get into this time of year if you will, the combination of the back half of CACI's fiscal '05 and then the remaining three quarters in the governments fiscal year, it really y typically ends up that a lot of the awards end up in the -- in -- in our fourth quarter and in the government, governments fourth quarter as well. So it's those two fourth quarter's where everything the award seem to happen if you will. So that, what that means is.

April through September,.

April through September, well said. What that means is that we're going to see those -- those RFPs that slipped and those that haven't, we're going to see the bid activity pick up on those things. The bids will go in, the evaluations will occur and the awards will happen in that -- in that time frame if you will. That's the historical pattern that we see.

So -- we're not going to necessarily see an increase from 235 in the March quarter, we can expect it though in the June quarter.

It's -- yes, that's a little difficult to predict near term here but again the -- the overall trend would be towards the larger award amounts out towards our fourth quarter and the governments fourth quarter.

April through September.

April to September is right.

Thank you. We'll go next to Bill Loomis of Legg Mason.

Hi.

Good morning Bill.

Good morning. Can you talk about, Steve, what's your internal growth assumptions in your fourth quarter guidance and then on the -- if you could just touch on the balance sheet of the decline -- sequential decline in payables and accruals, do you expect to see that reverse in the second half?

Yes, I think the -- the internal growth for the fourth quarter, Bill, is in the 5 to 8 percent range and 12 to 14 overall for the total year which was indicated earlier. With respect to the balance sheet we did have a lot of payables, we had a lot of tax payments in our second quarter which is part of the payable issue. And then ODCs, obviously get -- it's just a timing issue on those, but we still think for the year somewhere between 100 million to 115 million on operating cash flow for the year.

Okay. Thank you.

Thank you. We'll go next to Laura Lederman of William Blair.

The question's been asked. Thank you.

Thank you. We'll go to George Price of Legg Mason.

Hi, thanks just a couple of quick follow-ups. First just on the -- the fiscal fourth quarter you just mentioned the internal growth 5 to 8 percent. That's obviously comping against the -- you know the strong fourth fiscal '04 quarter. What -- can you -- is there any way you can kind of strip out the -- the award activity and sort of the one time benefits you had that quarter and what would that do to the internal growth?

I -- It -- it'd-- I could -- be hard to do it here on the phone, George, we can certainly work with you but we did have as I indicated earlier timing of award fees. That -- that's revenue and also margin that -- when that flows through. So that's obviously a one time unusual from the prior year. We also had some fixed unit pricing on the contract. That again was also revenue and margin. So it has some impact on it but, you know, it's still early, the -- that's our -- our preliminary guidance here for the fourth quarter. We'll see where we shake out here on the third and we'll -- we'll be -- get back to you guys on it. But -- th-- yes -- clearly that some of those adjustments did have some impact on the revenues last -- last year.

I mean, I -- I -- I think ab -- I think you guys said, excuse me, about -- about $0.06. Is that about 3 million pretax if we just assume that, you know, it's basically, you know all drops to the bottom line.

A penny's about about 300,000, so, yes.

Okay. And then last question, any -- any upcoming recompetes, you know, maybe over the next several quarter -- quarters within the Legacy CACI business or within AMS?

Yes, we've got -- we've got a fair number of recompetes that we're working here and as Jack mentioned our goal is 100 percent win on those recompetes, so yes. Our -- our big ones, our really big ones are not happening this fiscal year. It's more of the -- they're all important if you will, but it's more of the mid-sized and smaller size recompetes.

Great. Thank you.

Sure.

If you find that your question has been answered you may remove yourself from the queue by pressing the pound key. We'll go to Schlomo Rosen -- or actually I'm sorry, we'll go to Julie Santoriello of Morgan Stanley.

Thank you, good morning.

Morning.

Morning Julie.

I wonder if you can comment a bit more on the -- just the -- the overall competitive front and -- and sort of in -- in two veins, one in the area of expansion of -- of existing contracts and modifications. Are those very often sole source opportunities? And then secondly, when it comes to the larger defense contractors who, I know at times are competitors, do you see them getting more focused in the IT side of the business now that the -- sort of weapons and platforms areas may be -- may be head for some cuts? Thanks.

Let me just start off by saying the -- I -- I -- it's hard for me to see that the --the way to heaven for the major 4 or 5 aerospace organizations to come into the IT services sector, and I just don't see that as being a -- a significant strategy for them given the challenge. I mean -- there -- there's competition in place to begin with and the given -- the given issue of their performance rates, their growth rate ob -- objectives, I don't see how it can come out of the IT as such. Having said that, there will be, I think, continued emphasis on the parts of those organizations in this sector. But again, let me repeat where I was 10, 15 minutes ago and that is that we have built this company, we doubled the size of it in a couple of years, we're going to continue that growth profile and that objective and what we want to do is to be a -- a significant contender for those size deals that we are -- are qualified for. And that is exactly what Bill was relating to, is that our big pile or job jar opportunity is greatly enhanced because we are up there in a different plateau now. I can't over emphasize that. The value of the company has been enhanced by the fact that we are now contingent on lots -- upon a significant number of larger opportunities and I -- I'm sure I have high confidence that we will be moving in focusing our efforts. The trick in this business -- business, if there is a trick, is to focus on those opportunities where you really have this -- achieved some advantage, not try to bid everything coming down the pipeline. [INAUDIBLE] in his -- his commentary about this 2.7 is a sel -- selected screened number. That's not, you know, just whatever 's out there, that's a prequalified number. So we will probably bid a good percentage of that because of the distinctions of specific experience that we believe we can offer. So again we are moving to a different tier and the competition obviously is at a different level but we are able compete at a different level. Bill, you got a thought or two?

Yes, just to add to that, Julia. I'll tell you that the -- the big houses have -- have actually had a presence in this IT space, if you will, for a number of years now and we've been competing with them and we've been winning. As we've mentioned, I think several times, our win rate exceeds 50 percent in many cases we go up against those people and -- and we win our share, and more than our share, quite frankly. So very comfortable competing with those folks.

Thank you. Now we'll go back to Cai von Rumohr of SG Cowen.

Yes, you had mentioned that -- that a good part of your expected growth in revenue estimate for the year comes from -- from ODCs. Could you give us an approximate percentage as to what you expect the ODCs to perf -- to be of cons for the year.

Yes, Steve, can you take a look at that. for us for Cai von.

Yes. For the - for the year on a year-over-year increase, we're looking for the ODCs, if you will, to grow about -- about 30 -- somewhere between 37 to 39 percent. On the flip side, the other -- the other half or 49 percent of our direct -- direct cost if you will, which is direct labor, is actually going to grow at a faster rate. We're looking at about 39 to 40 percent on the direct labor component of -- of direct cost there.

Okay, and -- does that -- what does that imply for the second half? Cause the ODCs were higher. So does that imply -- any -- any particular pattern for the second half cause the ODCs were -- were relatively high in the -- in the first quarter?

It's -- it's -- they're-- they're a little higher in the second half of the year. I don't have -- I don't have a first half / second half kind of guidance here, we'll have you -- more than happy to take that off-line with you, Cai.

Once again if you'd like to ask a question, or if you have a follow-up question, please press star one to signal. As a reminder, if you are using a speakerphone, please be sure your mute function is turned of to allow your signal to reach our equipment. Next, we'll go back to Sandra Notardonato of Adam Harkness.

Thank you. The 8 to 12 percent organic growth guidance for the following quarter, does that assume that federal civilian agency -- the mix on the federal civilian agency continues to decline or are we also going to see a lit -- little decline on the -- on the defense side?

Sandra, this is Bill Fairl. That -- we -- we don't see a decline on the -- defense side. I'm -- I'm -- at this point I'm looking at -- you know relatively flat on the federal civilian side.

Okay. Thank you. You're welcome.

It appears there are no further questions at this time. Dr. London, I'd like to turn the conference back over to you for any additional or closing remarks.

Okay, thank you Diana. We certainly appreciate your help. And I'd like to thank everyone for your questions and your interest. It's certainly been a -- a -- a great quarter and an opportunity to visit with you and we appreciate that. We certainly appreciate your participation on the call. We hope we provided you with a clear picture of our second quarter results in significant detail and -- and furthermore to project and s hare with you our expectations for the remainder of this fiscal year and beyond. This quarter we're going to be participating in several conferences and -- and visiting investors in the New York City area as well as Chicago and the Midwest. So we look forward to seeing you -- many of you, and bringing you up to date on CACI in those meetings in those locations and events. And as always, if you're coming to the Washington, D.C. area, I'd like to arrange a meeting. You're most welcome always. Please contact David Dragics, of Vice President of Public Relations, and he will help you set up a -- a timetable for your visits here and again you're most welcome. Where also that some of you may have had other questions you'd like to discuss and weren't able to get to during our briefing this morning, our team will be available in -- oh about 10 to 15 minutes or so to take your calls with any questions you may have. So, please feel free to dial in. So, again, thank you ladies and gentlemen for your participation, interest in CACI. We think we have a very fascinating future ahead of us in building this corporation and moving it significantly up into tier one status and I will enjoy the opportunity to visit with you in the future. So, thank you for participation. That concludes our conference call this morning. Have a great day.

Once again thank you for your participation.

That does conclude today's call. You may disconnect at this time.