SRX Sra International

* Revenue: Up 38% to $280.7 million FAIRFAX, Va., Nov. 2 /PRNewswire-FirstCall/ -- SRA International, Inc. (NYSE:SRX), a leading provider of information technology services and solutions to the federal government, today announced operating results for the first quarter of fiscal year 2006, which ended September 30, 2005. Revenue increased 38% from $203.5 million in the September 2004 quarter to $280.7 million. Excluding the effect of FAS 123R, operating income increased 30% from $19.8 million in the September 2004 quarter to $25.7 million, and net income increased 30% from $12.4 million in the September 2004 quarter to $16.2 million. Excluding the effect of FAS 123R, diluted earnings per share increased 27% from $0.22 in the September 2004 quarter to $0.28, compared with previous guidance of at least $0.27. On July 1, 2005, the Company adopted Financial Accounting Standards Board Statement No. 123R, which requires the Company to recognize share-based payment transactions as a compensation expense in its financial statements. Including the effect of FAS 123R, quarterly GAAP operating income was $22.8 million, net income was $14.4 million, and diluted earnings per share were $0.25. Management believes that excluding the effect of FAS 123R, although not in accordance with GAAP, provides a better comparison with prior results and with the results of companies not yet required to comply with FAS 123R. A reconciliation of GAAP results with results excluding the effect of FAS 123R is provided at the end of this press release. Renny DiPentima, SRA President and Chief Executive Officer, stated, "We are pleased to announce another strong quarter. Our backlog of signed business orders continues to grow with substantial new business wins, and our pipeline of new opportunities increased more than in any other quarter in our history. Earlier today, we closed our acquisition of Spectrum Solutions Group, Inc., a growing and trusted provider of enterprise resource planning (ERP) services throughout the federal government." Chief Financial Officer Stephen Hughes added, "We are very pleased with the September quarter results. Year-over-year earnings were up sharply again, and we will continue to invest in building the business, with our focus on marketing and sales efforts. We are enjoying outstanding returns on these investments as we continue to win significant new business." New Business Awards During the first quarter, SRA won new business with potential value of $658 million, a record amount for the Company. Over the last six months, the Company won new business with a potential value of $1.2 billion, if all options are exercised. The Company's backlog of signed business orders is now over $3.2 billion, a year-over-year increase of 32%. Major highlights of competitive contract awards during the quarter include: * Department of Homeland Security (DHS) Office for Civil Rights and Civil Liberties (CRCL). Under a single award, five-year Blanket Purchase Agreement with a maximum value of $25 million, SRA will provide research, analysis, business process, strategic consulting, and technical services support. CRCL provides legal and policy advice to DHS and leads the Department's equal employment opportunity programs. * Federal Aviation Administration (FAA) William J. Hughes Technical Center. SRA will deliver engineering, research, and development services in the areas of airport pavement and aircraft fire safety. The two five-year contracts have a combined maximum value of $51.2 million if all options are exercised. The Center provides research and development support to the FAA to improve the safety and efficiency of the U.S. aerospace system. * Army Forces Command Contract Maintenance Facility. SRA will provide materiel management, systems administration, and training to enhance unit readiness for the Army 101st Airborne Division at Fort Campbell, Kentucky, as well as other locations. The task order has an estimated value of $26.8 million over five years if all options are exercised. * Kuwait Iraq C4 Commercialization (KICC). SRA is the sole winner of a five-year, $46 million Blanket Purchase Agreement to design, install, and maintain the information technology infrastructure for nine Army bases in southern Iraq. The KICC program will initially provide critical communications for the warfighter in Iraq, but it will eventually become part of the communications infrastructure for the Iraqi people. * DoD Office of the Director of Defense Research and Engineering (DDR&E). SRA will provide a broad range of IT and program support, including database development and administration, financial management, and specialized technical analysis of research and engineering projects. The task order has an estimated value of $15.9 million over five years if all options are exercised. DDR&E oversees research and engineering projects to help solve current and future DoD challenges. In addition, the Company won more than $150 million in task orders from the Departments of Defense, Homeland Security, and Justice to implement new business processes and intelligence analysis systems to counter terrorist threats. Forward Guidance The Company is issuing initial guidance for the second quarter of fiscal year 2006 and updating its forward guidance for fiscal year 2006 provided on August 1, 2005. The table below represents management's current expectations about the Company's future financial performance, based on information available at this time. The forward guidance in the table below includes the expected contribution of Spectrum Solutions Group, Inc., but it does not include any effect for acquisitions that SRA might make in the future. Measure Quarter Ending Fiscal Year Ending December 31, 2005 June 30, 2006 Revenue (in millions) $280-$285 $1,140-$1,175 Diluted EPS, excluding effect of FAS 123R At least $0.28 $1.21-$1.26 FAS 123R effect ($0.04) ($0.14) Diluted EPS, including effect of FAS 123R At least $0.24 $1.07-$1.12 Diluted Share Equivalents (in millions) 57.6 58.1 About SRA International, Inc. SRA is a leading provider of information technology services and solutions -- including strategic consulting; systems design, development, and integration; and outsourcing and managed services -- to clients in national security, civil government, and health care and public health markets. The Company also delivers business solutions for text and data mining, contingency and disaster response planning, information assurance, environmental strategies, enterprise systems management, and wireless integration. FORTUNE(R) magazine has chosen SRA as one of the "100 Best Companies to Work For" for six consecutive years. In 2005, BusinessWeek selected SRA as one of its "Hot Growth" companies and as an Info Tech 100 Company. The Company's 4,800 employees serve clients from its headquarters in Fairfax, Virginia, and offices across the country. For additional information on SRA, please visit http://www.sra.com/. Any statements in this press release about future expectations, plans, and prospects for SRA, including statements containing the words "estimates," "believes," "anticipates," "plans," "expects," "will," and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: our dependence on our contracts with federal government agencies, particularly within the U.S. Department of Defense, for substantially all of our revenue, our dependence on our GSA schedule contracts and our position as a prime contractor on government-wide acquisition contracts to grow our business, and other factors discussed in our latest quarterly report on Form 10-K filed with the SEC on September 13, 2005. In addition, the forward-looking statements included in this press release represent our views as of November 2, 2005. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to November 2, 2005. Pro Forma Consolidated Statement of Operations for the Three Months Ended September 30, 2005 (Unaudited) (in thousands, except share and per share amounts) The Company has presented net income, as adjusted, to show the effect that the adoption of FAS 123R had on the Company's earnings per share. The Company believes that these non-GAAP financial measures provide useful information to investors because they allow investors to compare the Company's current performance to prior performance and to the performance of companies that have not yet adopted FAS 123R. These non-GAAP financial measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. As Reported Pro Forma 30-Sep-05 30-Sep-05 3 months 3 months ended Adjustments ended Revenue $280,695 $- $280,695 Operating costs and expenses: Cost of services 210,240 - 210,240 Selling, general and administrative 43,657 (2,959) 40,698 Depreciation and amortization 4,010 - 4,010 Total operating costs and expenses 257,907 (2,959) 254,948 Operating income 22,788 2,959 25,747 Interest income 733 - 733 Pro forma income before taxes 23,521 2,959 26,480 Pro forma provision for taxes 9,131 1,148 10,279 Pro forma net income $14,390 1,811 $16,201 Pro forma earnings per share: Basic $0.27 $0.03 $0.30 Diluted $0.25 $0.03 $0.28 Weighted-average shares Basic 54,263,817 - 54,263,817 Diluted 57,408,033 122,240 57,530,273 (1) Adjusted to eliminate the FAS 123R stock compensation expense resulting from the adoption of FAS 123R on July 1, 2005. (2) Adjusted to eliminate the tax effect of the adjustment described in Note 1 at the consolidated effective tax rate of 38.8%. Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share amounts) Three Months Ended 9/30/04 9/30/05 Revenue $203,474 $280,695 Operating costs and expenses: Cost of services 151,546 210,240 Selling, general and administrative 29,276 43,657 Depreciation and amortization 2,882 4,010 Total operating costs and expenses 183,704 257,907 Operating income 19,770 22,788 Interest income, net 523 733 Income before taxes 20,293 23,521 Provision for income taxes 7,853 9,131 Net income $12,440 $14,390 Earnings per share: Basic $0.24 $0.27 Diluted $0.22 $0.25 Weighted-average shares: Basic 51,986,022 54,263,817 Diluted 55,540,778 57,408,033 Condensed Consolidated Balance Sheets (Unaudited) (in thousands) As of 6/30/05 9/30/05 Current assets: Cash and cash equivalents $162,973 $88,454 Short-term investments 20,156 23,173 Accounts receivable, net 206,995 261,502 Prepaid expenses and other 19,931 15,919 Deferred income taxes, current 6,506 8,153 Total current assets 416,561 397,201 Total property and equipment, net 34,754 34,836 Other assets: Goodwill 89,214 162,540 Identified intangibles, net 17,661 28,457 Investments 5,172 - Deferred income taxes, noncurrent - 136 Deferred compensation trust 5,755 7,798 Total other assets 117,802 198,931 Total assets $569,117 $630,968 Current liabilities: Accounts payable and accrued expenses $75,383 $97,836 Accrued payroll and employee benefits 49,486 61,794 Billings in excess of revenue recognized 6,616 5,593 Total current liabilities 131,485 165,223 Long-term liabilities: Deferred income taxes, noncurrent 106 - Other long-term liabilities 8,434 10,018 Total long-term liabilities 8,540 10,018 Total liabilities 140,025 175,241 Total stockholders' equity 429,092 455,727 Total liabilities and stockholders' equity $569,117 $630,968 Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended 9/30/04 9/30/05 Cash flows from operating activities: Net income $12,440 $14,390 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,882 4,010 Stock-based compensation 82 3,080 Tax benefits of stock option exercises 2,658 - Deferred income taxes (956) (1,889) Working capital changes, net of the effect of acquisitions 12,502 (7,491) Net cash provided by operating activities 29,608 12,100 Cash flows from investing activities: Capital expenditures (3,527) (2,775) Sales and maturities of investments - 2,636 Purchases of investments (1,867) - Acquisition of Galaxy Scientific Corporation, net of cash acquired - (95,645) Net cash used in investing activities (5,394) (95,784) Cash flows from financing activities: Issuance of common stock 2,410 4,727 Tax benefits of stock option exercises - 4,438 Net cash provided by financing activities 2,410 9,165 Net increase (decrease) in cash and cash equivalents 26,624 (74,519) Cash and cash equivalents, beginning of period 143,367 162,973 Cash and cash equivalents, end of period $169,991 $88,454 Supplemental disclosures of cash flow information: Cash paid during the period: Income taxes $1,391 $2,572 Cash received during the period: Interest $769 $983 Income taxes $176 $16 Reconciliation Between Total Revenue Growth and Organic Revenue Growth (Unaudited) (in thousands) Organic revenue growth, as presented, measures revenue growth adjusted for the impact of acquisitions. The Company believes that this non-GAAP financial measure provides useful information because it allows investors to better assess the underlying growth rate of the Company's existing business. This non-GAAP financial measure should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Three Months Ended 9/30/04 9/30/05 Growth Total Revenue, as reported $203,474 $280,695 38.0% Plus: Touchstone revenue for July 1, 2004 through September 30, 2004 7,410 - Plus: Galaxy revenue for July 1, 2004 through September 30, 2004 18,495 - Organic Revenue $229,379 $280,695 22.4% DATASOURCE: SRA International, Inc. CONTACT: Stuart Davis, VP and Director, Investor Relations, +1-703-502-7731, , or Stephen Hughes, Executive VP and CFO, +1-703-227-7010, , both of SRA International, Inc. Web site: http://www.sra.com/

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