SRX Sra International

* Revenue: Up 31% to $296 million FAIRFAX, Va., May 1 /PRNewswire-FirstCall/ -- SRA International, Inc. (NYSE:SRX), a leading provider of technology and strategic consulting services and solutions to federal government organizations, today announced operating results for the third quarter of fiscal year 2006, which ended March 31, 2006. Revenue increased 31% from $226.0 million in the March 2005 quarter to $296.1 million. Excluding the effect of FAS 123R, operating income increased 15% from $22.8 million in the March 2005 quarter to $26.2 million, and net income increased 14% from $14.7 million in the March 2005 quarter to $16.7 million. Excluding the effect of FAS 123R, diluted earnings per share increased $0.03 from $0.26 in the March 2005 quarter to $0.29. 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 $23.0 million, net income was $14.8 million, and diluted earnings per share were $0.26. Management believes that excluding the effect of FAS 123R provides a better comparison with prior results. 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, "Seeing an abundance of near-term bid opportunities, we invested heavily in the third quarter to capture as much of that new business as possible. We are pleased with our awards total for the quarter and plan to continue making smart investments going forward." Chief Financial Officer Stephen Hughes added, "Cash flows and new business wins were strong in the March quarter. Though revenue and earnings were dampened in part by heightened bid and proposal activity, our heritage and hallmark of success has been to invest for long-term growth." New Business Awards SRA won new business with potential value of $390 million during the third quarter. Over the last twelve months, the Company won new business with a potential value of $1.9 billion, if all options are exercised. The Company's backlog of signed business orders is $3.2 billion, a year-over-year increase of 30%. Major highlights of competitive contract awards during the quarter include: * U.S. Navy Military Sealift Command (MSC), Afloat Systems. SRA was awarded a six-year, $108 million task order to supply the MSC with services to the IT systems that support its afloat operations. MSC provides ocean transportation of equipment, fuel, supplies, and ammunition to sustain U.S. forces worldwide. * Small Business Administration (SBA), Disaster Credit Management System (DCMS). Under this five-year, $54 million contract, SRA will continue to deliver end-to-end development and operations services for the DCMS. This web-based system will be upgraded to support increased activity in processing loans to families and businesses recovering from disasters. * U.S. Air Force Battle Control System (BCS), Single Integrated Air Picture (SIAP). The SIAP enhances the flexibility, integration and consistency of the U.S. military's view of battlefield airspace. For this two-year, $28 million task order issued under the U.S. Army's CECOM Rapid Response contract, the SRA team will support the integration of SIAP into the Air Force's Battle Control System. * Department of Defense, Defense Manpower Data Center (DMDC). SRA won a two-year, $17 million task order to provide enterprise architecture and database management support for the DMDC. An SRA client for over twenty years, DMDC maintains DoD's archive of personnel, manpower, training, security, and financial data. * Department of Defense, Office of the Secretary of Defense. SRA was awarded a competitive task order to provide program support services to the Defense Systems Directorate, which provides oversight of military acquisition programs with an emphasis on interoperability of systems. Under this five-year, $10 million contract, we will deliver program support for systems engineering and analysis, technology identification, evaluation and demonstration, and information integration analysis. SRA was also awarded a significant indefinite delivery/indefinite quantity (ID/IQ) contract during the quarter. This award's value is not included in the quarterly win total or backlog. * Department of Homeland Security (DHS), National Exercise Program (NEP). Under this ID/IQ contract, SRA will compete for task orders to prepare federal, state, and local responders to prevent and respond to acts of terrorism by providing the tools for conducting and evaluating training exercises. This contract has a ceiling value of $350 million. Forward Guidance The Company is reconfirming the guidance it issued April 20, 2006 for the fourth quarter and full fiscal year 2006. 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 Fiscal Year Ending June 30, 2006 June 30, 2006 Revenue (in millions) $296-$306 $1,178-$1,188 Diluted EPS, excluding effect of FAS 123R $0.30-$0.32 $1.18-$1.20 FAS 123R effect ($0.03) ($0.13) Diluted EPS, including effect of FAS 123R $0.27-$0.29 $1.05-$1.07 Diluted Share Equivalents (in millions) 58.3 57.8 About SRA International, Inc. SRA is a leading provider of technology and strategic consulting services and solutions -- including 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, enterprise architecture, 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, Business Week selected SRA as one of its "Hot Growth" companies and as an Info Tech 100 Company. The Company's 4,900 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 February 2, 2006. In addition, the forward-looking statements included in this press release represent our views as of May 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 May 1, 2006. Pro Forma Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2006 (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-Mar-06 31-Mar-06 3 months 3 months ended Adjustments ended Revenue $296,098 $- $296,098 Operating costs and expenses: Cost of services 220,256 - 220,256 Selling, general and administrative 48,134 (3,162) 44,972 (1) Depreciation and amortization 4,689 - 4,689 Total operating costs and expenses 273,079 (3,162) 269,917 Operating income 23,019 3,162 26,181 Interest income, net 826 - 826 Pro forma income before taxes 23,845 3,162 27,007 Pro forma provision for taxes 9,062 1,233 10,295 (2) Pro forma net income $14,783 1,929 $16,712 Pro forma earnings per share: Basic $0.27 $0.03 $0.30 Diluted $0.26 $0.03 $0.29 Weighted-average shares Basic 55,371,625 - 55,371,625 Diluted 57,947,723 37,234 57,984,957 (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%. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share amounts) Three Months Ended Nine Months Ended 3/31/06 3/31/05 3/31/06 3/31/05 Revenue $296,098 $226,018 $882,106 $640,704 Operating costs and expenses: Cost of services 220,256 168,299 661,500 475,787 Selling, general and administrative 48,134 31,659 137,237 90,781 Depreciation and amortization 4,689 3,308 13,342 9,345 Total operating costs and expenses 273,079 203,266 812,079 575,913 Operating income 23,019 22,752 70,027 64,791 Interest income, net 826 970 2,596 2,247 Income before taxes 23,845 23,722 72,623 67,038 Provision for income taxes 9,062 9,028 27,547 25,181 Net income $14,783 $14,694 $45,076 $41,857 Earnings per share: Basic $0.27 $0.28 $0.82 $0.79 Diluted $0.26 $0.26 $0.78 $0.74 Weighted-average shares: Basic 55,371,625 53,409,298 54,815,017 52,665,586 Diluted 57,947,723 56,882,406 57,627,037 56,300,030 Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except per share amounts) As of 3/31/06 6/30/05 Current assets: Cash and cash equivalents $154,469 $162,973 Short-term investments 5,113 20,156 Accounts receivable, net 272,389 206,995 Prepaid expenses and other 19,092 19,931 Deferred income taxes, current 3,812 6,506 Total current assets 454,875 416,561 Property and equipment, net 33,171 34,754 Other assets: Goodwill 169,334 89,214 Identified intangibles, net 26,825 17,661 Investments - 5,172 Deferred income taxes, noncurrent 1,986 - Deferred compensation trust 7,800 5,755 Total other assets 205,945 117,802 Total assets $693,991 $569,117 Current liabilities: Accounts payable and accrued expenses $103,255 $75,383 Accrued payroll and employee benefits 66,667 49,486 Billings in excess of revenue recognized 3,756 6,616 Total current liabilities 173,678 131,485 Long-term liabilities: Deferred income taxes, noncurrent - 106 Other long-term liabilities 9,649 8,434 Total long-term liabilities 9,649 8,540 Total liabilities 183,327 140,025 Stockholders' equity 510,664 429,092 Total liabilities and stockholders' equity $693,991 $569,117 Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended 3/31/06 3/31/05 Cash flows from operating activities: Net income $45,076 $41,857 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,342 9,345 Stock-based compensation 9,742 239 Tax benefits of stock option exercises - 14,344 Deferred income taxes 602 (3,754) Working capital changes, net of the effect of acquisitions (12,487) 2,709 Net cash provided by operating activities 56,275 64,740 Cash flows from investing activities: Capital expenditures (7,782) (12,175) Sales and maturities of investments 20,696 12,791 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 (91,533) (17,900) Cash flows from financing activities: Issuance of common stock 11,053 8,130 Tax benefits of stock option exercises 11,711 - Reissuance of treasury stock 3,990 3,488 Net cash provided by financing activities 26,754 11,618 Net (decrease) increase in cash and cash equivalents (8,504) 58,458 Cash and cash equivalents, beginning of period 162,973 143,367 Cash and cash equivalents, end of period $154,469 $201,825 Supplemental disclosures of cash flow information: Cash paid during the period: Income taxes $22,229 $15,461 Cash received during the period: Interest $2,966 $2,493 Income taxes $766 $556 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 3/31/06 3/31/05 Growth Total Revenue, as reported $296,098 $226,018 31.0% Plus: Revenue from acquired companies for the comparable prior year period 36,148 Organic Revenue $296,098 $262,166 12.9% 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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