SRX Sra International

* Revenue: Up 45% to $305.3 million * Net Income: Up 22% to $17.9 million before FAS 123R expense ($15.9 million GAAP) * Diluted EPS: Up $0.05 to $0.31 before FAS 123R expense ($0.28 GAAP) FAIRFAX, Va., Feb. 1 /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 second quarter of fiscal year 2006, which ended December 31, 2005. Revenue increased 45% from $211.2 million in the December 2004 quarter to $305.3 million. Excluding the effect of FAS 123R, operating income increased 23% from $22.3 million in the December 2004 quarter to $27.5 million, and net income increased 22% from $14.7 million in the December 2004 quarter to $17.9 million. Excluding the effect of FAS 123R, diluted earnings per share increased $0.05 from $0.26 in the December 2004 quarter to $0.31, compared with previous guidance of at least $0.28. 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 $24.2 million, net income was $15.9 million, and diluted earnings per share were $0.28. Management believes that excluding the effect of FAS 123R 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 outstanding quarter. Revenue and earnings growth were strong across the board, even in comparison to our exceptional December quarter last year. We are delighted to have been selected by FORTUNE(R) magazine as one of the '100 Best Companies to Work For' for the seventh consecutive year. Our customer- and employee-centric approach remains the foundation of our success." Chief Financial Officer Stephen Hughes added, "We are very pleased with the December quarter results. Revenue, earnings, and diluted earnings per share grew rapidly. We believe that our planned investments are paying off, as the sales pipeline continued to grow during the quarter and hiring and retention improved." New Business Awards Despite some lengthy federal budget delays, SRA won new business with potential value of $285 million during the second quarter. Over the last twelve months, the Company won new business with a potential value of $1.8 billion, if all options are exercised. The Company's backlog of signed business orders is $3.2 billion, a year-over-year increase of 33%. Major highlights of competitive contract awards during the quarter include: * Classified National Security Contracts. SRA was awarded three task orders with the Defense and Homeland Security Departments worth a total of $75 million if all options are exercised. Though the specific nature of these contracts is classified, they all encompass mission-critical IT services for the purpose of tracking and combating terrorist threats. * California Office of Homeland Security (OHS). SRA will provide counter- terrorism analysis for the state of California's Office of Homeland Security. This three-year award, which has an estimated value of $16 million if all options are exercised, represents the Company's first contract with this customer. * National Institute of Health (NIH) Enterprise Messaging and Infrastructure Branch (EMIB) Support. Under this task order, which has an estimated value of $15 million over six years if all options are exercised, SRA will support more than 40,000 users at the NIH, a long- standing customer. The EMIB contract will offer the Company an opportunity to leverage its existing knowledge of the NIH's systems and processes. Forward Guidance The Company is issuing initial guidance for the third and fourth quarters of fiscal year 2006 and updating its forward guidance for fiscal year 2006 provided on November 2, 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 does not include any effect for acquisitions that SRA might make in the future. Measure Quarter Ending Quarter Ending Fiscal Year March 31, June 30, June 30, 2006 2006 2006 Revenue (in millions) $296-$301 $301-$308 $1,183-$1,195 Diluted EPS, excluding effect of FAS 123R $0.31-$0.32 $0.34-$0.35 $1.24-$1.26 FAS 123R effect ($0.03) ($0.03) ($0.13) Diluted EPS, including effect of FAS 123R $0.28-$0.29 $0.31-$0.32 $1.11-$1.13 Diluted Share Equivalents (in millions) 58.2 58.5 58.0 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 seven 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-Q filed with the SEC on November 3, 2005. In addition, the forward-looking statements included in this press release represent our views as of February 1, 2006. 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 February 1, 2006. Pro Forma Condensed Consolidated Statement of Operations for the Three Months Ended December 31, 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 31-Dec-05 31-Dec-05 3 months 3 months ended Adjustments ended Revenue $305,313 $- $305,313 Operating costs and expenses: Cost of services 231,004 - 231,004 Selling, general and administrative 45,446 (3,327) 42,119(1) Depreciation and amortization 4,643 - 4,643 Total operating costs and expenses 281,093 (3,327) 277,766 Operating income 24,220 3,327 27,547 Interest income 1,037 - 1,037 Pro forma income before taxes 25,257 3,327 28,584 Pro forma provision for taxes 9,354 1,298 10,652(2) Pro forma net income $15,903 2,029 $17,932 Pro forma earnings per share: Basic $0.29 $0.04 $0.33 Diluted $0.28 $0.04 $0.31(3) Weighted-average shares Basic 54,809,608 - 54,809,608 Diluted 57,525,356 61,166 57,586,522 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 marginal tax rate of 39.0%. 3 The impact of FAS 123R on diluted EPS is $0.035 which rounds to $0.04. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share amounts) Three Months Ended Six Months Ended 12/31/05 12/31/04 12/31/05 12/31/04 Revenue $305,313 $211,212 $586,008 $414,686 Operating costs and expenses: Cost of services 231,004 155,942 441,244 307,488 Selling, general, and administrative 45,446 29,846 89,103 59,122 Depreciation and amortization 4,643 3,155 8,653 6,037 Total operating costs and expenses 281,093 188,943 539,000 372,647 Operating income 24,220 22,269 47,008 42,039 Interest income, net 1,037 754 1,770 1,277 Income before taxes 25,257 23,023 48,778 43,316 Provision for income taxes 9,354 8,300 18,485 16,153 Net income $15,903 $14,723 $30,293 $27,163 Earnings per share: Basic $0.29 $0.28 $0.56 $0.52 Diluted $0.28 $0.26 $0.53 $0.48 Weighted-average shares: Basic 54,809,608 52,601,438 54,536,713 52,293,730 Diluted 57,525,356 56,476,908 57,466,695 56,008,844 Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except per share amounts) As of 12/31/05 6/30/05 Current assets: Cash and cash equivalents $99,590 $162,973 Short-term investments 12,737 20,156 Accounts receivable, net 295,053 206,995 Prepaid expenses and other 29,740 19,931 Deferred income taxes, current 9,007 6,506 Total current assets 446,127 416,561 Property and equipment, net 33,797 34,754 Other assets: Goodwill 169,284 89,214 Identified intangibles, net 28,116 17,661 Investments - 5,172 Deferred compensation trust 7,607 5,755 Total other assets 205,007 117,802 Total assets $684,931 $569,117 Current liabilities: Accounts payable and accrued expenses $115,961 $75,383 Accrued payroll and employee benefits 69,802 49,486 Billings in excess of revenue recognized 7,700 6,616 Total current liabilities 193,463 131,485 Long-term liabilities: Deferred income taxes, noncurrent 274 106 Other long-term liabilities 9,576 8,434 Total long-term liabilities 9,850 8,540 Total liabilities 203,313 140,025 Stockholders' equity 481,618 429,092 Total liabilities and stockholders' equity $684,931 $569,117 Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended 12/31/05 12/31/04 Cash flows from operating activities: Net income $30,293 $27,163 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,653 6,037 Stock-based compensation 6,488 159 Tax benefits of stock option exercises - 8,816 Deferred income taxes (2,333) (1,567) Working capital changes, net of the effect of acquisitions (25,894) (2,226) Net cash provided by operating activities 17,207 38,382 Cash flows from investing activities: Capital expenditures (4,960) (7,671) Sales and maturities of investments 13,072 8,515 Purchases of investments - (18,516) Acquisition of Galaxy Scientific Corporation, net of cash acquired (95,645) - Acquisition of Spectrum Solutions Group, net of cash acquired (8,802) - Net cash used in investing activities (96,335) (17,672) Cash flows from financing activities: Issuance of common stock 6,401 5,061 Tax benefits of stock option exercises 7,078 - Reissuance of treasury stock 2,266 - Net cash provided by financing activities 15,745 5,061 Net (decrease) increase in cash and cash equivalents (63,383) 25,771 Cash and cash equivalents, beginning of period 162,973 143,367 Cash and cash equivalents, end of period $99,590 $169,138 Supplemental disclosures of cash flow information: Cash paid during the period: Income taxes $17,596 $14,209 Cash received during the period: Interest $1,927 $1,264 Income taxes $53 $513 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 12/31/05 12/31/04 Growth Total Revenue, as reported $305,313 $211,212 44.6% Plus: Revenue from acquired companies for the comparable prior year period - 32,621 Organic Revenue $305,313 $243,833 25.2% First Call Analyst: FCMN Contact: DATASOURCE: SRA International, Inc. CONTACT: David Keffer, Director of Investor Relations, +1-703-502-7731, , or Stephen Hughes, Executive VP and CFO, +1-703-227-8350, , both of SRA International, Inc. Web site: http://www.sra.com/

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