SRX Sra International

SRA International, Inc. (NYSE:SRX), a leading provider of technology and strategic consulting services and solutions to government organizations and commercial clients, today announced operating results for the fourth quarter and fiscal year (FY) 2010, which ended June 30, 2010.

For the quarter, revenue was $424.6 million, up 5.6% from $402.0 million in the June 2009 quarter. Organic revenue growth for the same period was 4.8%. Operating income for the quarter was $33.9 million, for an operating margin of 8.0%. Net income was $20.9 million, for a net margin of 4.9%. Diluted earnings per share (DEPS) for the quarter were $0.36, up $0.06 year over year.

For the full fiscal year, revenue was $1.667 billion, up 8.2% from $1.541 billion in FY 2009. Organic revenue growth for the same period was 8.3%. Operating income for the year was $61.1 million, net income was $18.4 million, and DEPS were $0.32. Reported figures include several unusual items, including asset impairment charges of $61.3 million related to the Era business. Adjusted for the impact of these unusual items, operating income was $123.3 million, for an operating margin of 7.4%, net income was $75.8 million, and DEPS were $1.31, up $0.30 year over year.

A reconciliation between the adjusted results and the reported results is provided below.

SRA President and CEO Stan Sloane said, “We’re pleased to report financial results in the fourth quarter that exceed our prior guidance ranges. Our pipeline of opportunities continues to grow, and now includes a record $2.7 billion of pending bids. Our backlog of signed business orders has grown 10% year-over-year, providing a solid foundation for revenue growth in fiscal year 2011.”

Executive Vice President and CFO Rick Nadeau added, “We had a second consecutive quarter of strong cash flow from operations, driven by further improvement in days sales outstanding. We are focused on maintaining this high level of performance as we enter fiscal year 2011.”

Contract Awards

SRA won new business in the fourth quarter with potential value of $250 million, if all option years are exercised. In fiscal year 2010, SRA won new business with a total potential value of $2.35 billion, for a book to bill ratio of 1.4. As of June 30, 2010, the company’s backlog of signed business orders was $4.45 billion, up 10% year-over-year, and the funded portion of backlog was $772 million.

Major highlights of competitive contract awards in the quarter include:

• Federal Aviation Administration (FAA). The company was awarded a contract to continue supporting the airport technology R&D technical/engineering support program. This single award indefinite delivery, indefinite quantity (IDIQ) contract is an important component of our work at the FAA, and has an estimated total dollar value of $57 million over five years.

SRA was also awarded several multiple-award, IDIQ contracts in the fourth quarter, which are not included in the company’s quarterly bookings figure, but are expected to drive growth over time. These include:

• United States Special Operations Command (USSOCOM). The company won the Global Battlestaff and Program Support (GBPS) contract from USSOCOM at MacDill Air Force Base in Tampa, Fla. The multiple-award IDIQ contract has an estimated value of $1.5 billion over five years, if all options are exercised.
• Department of Defense’s Defense Intelligence Agency (DIA). SRA was selected as one of six major awardees for the Solutions for the Information Technology Enterprise (SITE) program. The multiple-award IDIQ contract has a ceiling of $6.6 billion over five years, if all options are exercised.

Forward Guidance

The company is issuing initial revenue and earnings guidance for Fiscal Year 2011. 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 this table includes the effect of the Sentech acquisition that closed in July, but does not include any effect for acquisitions or divestitures that SRA might make in the future. The guidance assumes that the FY 2011 diluted weighted-average shares outstanding is 58.0 million, excluding unvested restricted stock awards, and that the allocation of earnings to unvested restricted shares used in the calculation of diluted earnings per share is approximately 1.3% of net income.

            Measure         Fiscal Year Ending

June 30, 2011

Revenue         $1.77 billion to $1.82 billion Diluted earnings per share         $1.36 to $1.44        

Conference Call

SRA senior management will hold a conference call to discuss these operating results and forward guidance today at 5:00 PM Eastern. Interested parties may listen to the conference call by dialing 888-790-3103 (U.S./Canada) or 630-395-0282 (Other) with passcode 1256593. The conference call will be Webcast simultaneously through a link on the SRA Web site (www.sra.com/investors/). A replay of the conference call will be available approximately two hours after the conclusion of the call on August 11 through August 25 by dialing 888-568-0661 (U.S./Canada) or 203-369-3202 (Other) and entering passcode 1978.

About SRA International, Inc.

SRA and its subsidiaries are dedicated to solving complex problems of global significance for government organizations and commercial clients serving the national security, civil government and global health markets. Founded in 1978, the company and its subsidiaries have expertise in such areas as air surveillance and air traffic management; contract research organization (CRO) services; cyber security; disaster response planning; enterprise resource planning; environmental strategies; IT systems, infrastructure and managed services; logistics; public health preparedness; public safety; strategic management consulting; systems engineering; and wireless integration.

SRA and its subsidiaries employ more than 7,100 employees serving clients from its headquarters in Fairfax, Va., and offices around the world. For additional information on SRA, please visit www.sra.com.

Any statements in this press release about future expectations, plans, and prospects for SRA, including statements about the estimated value of the contract and work to be performed, and other 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. In addition, the forward-looking statements included in this press release represent our views as of August 11, 2010. 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 August 11, 2010.

        Consolidated Statements of Operations (Unaudited) (in thousands, except share amounts)   Three Months Ended Year Ended 30-Jun-10   30-Jun-09 30-Jun-10   30-Jun-09 Revenue $ 424,607 $ 401,950 $ 1,666,629 $ 1,540,556 Operating costs and expenses: Cost of services (a) 317,286 300,235 1,260,216 1,152,465 Selling, general and administrative (a) 66,715 64,248 257,224 259,256 Depreciation and amortization 6,741 7,346 28,253 28,883 Impairment of goodwill and long-lived assets - 1,138 61,315 1,138 Settlement of claims against Era sellers - - (3,361 ) - Sale of Constella Futures Holding, LLC - - 1,889 (1,939 ) Acquired in-process research and development   -       -     -       900   Total operating costs and expenses   390,742       372,967     1,605,536       1,440,703   Operating income 33,865 28,983 61,093 99,853 Interest expense (169 ) (694 ) (1,306 ) (5,526 ) Interest income   464       431     1,855       2,283   Income before income taxes 34,160 28,720 61,642 96,610 Provision for income taxes   13,272       11,237     43,227       38,610   Net income $ 20,888     $ 17,483   $ 18,415     $ 58,000     Earnings per share: Basic $ 0.36     $ 0.31   $ 0.32     $ 1.02   Diluted $ 0.36     $ 0.30   $ 0.32     $ 1.01     (a) Beginning in fiscal 2010, the Company reclassified the portion of rent and facility costs, as well as stock-based compensation expense related to employees who perform work directly for the Company’s clients from the caption “selling, general and administrative" expenses to the caption “cost of services.” All prior period balances have been reclassified to conform to the current period presentation. The impact of this reclassification on fiscal years 2005 through 2009 is disclosed in our Form 10-K.    

Reconciliation Between Reported Net Income and Net Income used in the Calculation of Earnings Per Share (Unaudited)

(in thousands)

  In accordance with Accounting Standards Codification (ASC) section 260 Earnings Per Share, we are required to allocate a portion of our earnings to any outstanding unvested restricted share awards that qualify as participating securities as defined in that standard. The Company's unvested restricted stock awards are excluded from both the basic and diluted weighted average shares outstanding. The adoption of this guidance reduced previously reported basic earnings per share for the year ended June 30, 2009 by one cent.     Three Months Ended   Year Ended 30-Jun-10   30-Jun-09 30-Jun-10   30-Jun-09 Net income, as reported $ 20,888   $ 17,483 $ 18,415   $ 58,000 Less: allocation of earnings to unvested restricted shares   238     200   215     670 Net income for the computation of earnings per share $ 20,650   $ 17,283 $ 18,200   $ 57,330   Basic weighted-average shares outstanding   56,867     56,332   56,721     56,316 Diluted weighted-average shares outstanding   57,498     56,737   57,259     56,823   Basic earnings per share $ 0.36   $ 0.31 $ 0.32   $ 1.02 Diluted earnings per share $ 0.36   $ 0.30 $ 0.32   $ 1.01       Condensed Consolidated Balance Sheets (Unaudited) (in thousands)   As of 30-Jun-10   30-Jun-09 Current assets: Cash and cash equivalents $ 98,113 $ 74,683 Accounts receivable, net 354,825 356,261 Inventories, net 6,866 6,786 Prepaid expenses and other 25,752 37,707 Deferred income taxes   15,057     13,924 Total current assets 500,613 489,361 Property, plant and equipment, net 33,626 38,130 Goodwill 438,995 490,481 Identified intangibles, net 35,063 43,235 Deferred compensation trust 7,182 6,494 Other long-term assets   18,236     26,592 Total assets $ 1,033,715   $ 1,094,293   Current liabilities: Accounts payable and accrued expenses $ 101,573 $ 137,443 Accrued payroll and employee benefits 123,617 111,296 Billings in excess of revenue recognized   17,023     16,598 Total current liabilities 242,213 265,337 Long-term debt - 75,000 Deferred compensation liability 7,182 6,494 Deferred income taxes 7,280 - Other long-term liabilities   5,477     5,842 Total liabilities   262,152     352,673   Stockholders' equity   771,563     741,620       Total liabilities and stockholders' equity $ 1,033,715   $ 1,094,293           Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)   Three Months Ended Year Ended 30-Jun-10   30-Jun-09 30-Jun-10   30-Jun-09 Cash flows from operating activities: Net income $ 20,888 $ 17,483 $ 18,415 $ 58,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,741 7,346 28,253 28,883 Stock-based compensation 2,272 2,206 9,032 10,660 Deferred income taxes 1,420 821 8,438 1,550 Impairment of goodwill and long-lived assets - 1,138 61,315 1,138 Settlement of claims against Era sellers - - (3,361 ) - Sale of Constella Futures Holding, LLC - - 1,889 (1,939 ) Acquired in-process research and development - - - 900 Gain realized from forward exchange contracts (1,733 ) - (2,965 ) - Changes in assets and liabilities, net of the effect of acquisitions and divestitures   29,214       31,361     (24,316 )     (8,556 ) Net cash provided by operating activities   58,802       60,355     96,700       90,636     Cash flows from investing activities: Capital expenditures (3,220 ) (4,206 ) (13,366 ) (15,057 ) Payments to Spectrum Solutions Group, Inc. shareholders - (2,375 ) - (9,396 ) Acquisitions, net of cash acquired - - (8,611 ) (132,275 ) Proceeds from sale of Constella Futures Holding, LLC - - - 14,320 Settlement of Era purchase price - - 12,500 - Collections on note receivable - - 5,330 - Proceeds from forward exchange contracts   1,733       -     2,965       -   Net cash used in investing activities   (1,487 )     (6,581 )   (1,182 )     (142,408 )   Cash flows from financing activities: Issuance of common stock 880 1,747 4,192 4,600 Excess tax benefit of stock option exercises 32 682 146 1,075 Borrowings under credit facility - - 115,000 75,000 Repayments under credit facility - (75,000 ) (190,000 ) (150,000 ) Net repayments under other short-term credit facilities - (7,983 ) - (9,910 ) Reissuance of treasury stock - - 462 399 Purchase of treasury stock   (243 )     (202 )   (1,233 )     (22,042 ) Net cash provided by (used in) financing activities   669       (80,756 )   (71,433 )     (100,878 )             Effect of exchange rate changes on cash and cash equivalents   (359 )     (521 )   (655 )     (1,927 )   Net increase (decrease) in cash and cash equivalents 57,625 (27,503 ) 23,430 (154,577 ) Cash and cash equivalents, beginning of period   40,488       102,186     74,683       229,260   Cash and cash equivalents, end of period $ 98,113     $ 74,683   $ 98,113     $ 74,683       Reconciliation Between Total Revenue and Organic Revenue (Unaudited) (in thousands)  

Organic revenue, as presented, is computed by comparing our reported revenue for the current period to revenue for the same period in the prior year adjusted to include revenue of acquired businesses for the pre-acquisition period of the prior year.  In arriving at prior-year revenue, we include the revenue of acquired companies and remove the revenue of divested companies for the prior-year periods comparable to the current-year periods for which the companies are included in our reported revenue. The resulting growth rate is intended to represent our organic, or non-acquisitive, growth year-over-year, including comparable period growth or decline attributable to acquired companies. We believe that this non-GAAP financial measure provides useful information because it allows investors to better assess the underlying growth rate of our business, including the post-acquisition activity of acquired companies.  This non-GAAP financial measure is not used for any other purpose and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

    Three Months Ended   30-Jun-10   30-Jun-09   % Increase Revenue, as reported $ 424,607   $ 401,950 5.6 %   Plus: Revenue of acquired companies for the comparable prior year period       3,400         Organic Revenue $ 424,607   $ 405,350     4.8 %     Year Ended 30-Jun-10   30-Jun-09   % Increase   Revenue, as reported $ 1,666,629 $ 1,540,556 8.2 %   Plus: Revenue of acquired companies for the comparable prior year period 10,413 Less: Revenue of divested companies for the comparable prior year period       (11,940 )       Organic Revenue $ 1,666,629   $ 1,539,029     8.3 %    

Reconciliation of Non-GAAP Financial Measures (Unaudited)

(in thousands, except share and per share amounts)  

The financial measures shown below, including operating income, as adjusted, net income, as adjusted and diluted earnings per share, as adjusted, are non-GAAP financial measures.  We believe these non-GAAP measures provide investors with useful supplemental information regarding underlying business trends and performance of our ongoing operations and are useful for period-over-period comparisons of such operations.  These measures are not calculated through the application of GAAP and are not the required form of disclosure by the Securities and Exchange Commission (SEC).  As such, they should not be considered as substitutes for the most directly comparable GAAP measures and should not be used in isolation, but in conjunction with these GAAP measures. The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.   Reconciliations to the most directly comparable GAAP financial measures are included in the table below.

    Adjusted for Impairment & Unusual Items Quarter Ended   Quarter Ended   Quarter Ended   Quarter Ended   Year Ended 30-Sep-09   31-Dec-09   31-Mar-10   30-Jun-10   30-Jun-10 Operating income (loss), as reported $ 29,987 $ 28,116 $ (30,875 ) $ 33,865 $ 61,093 Add: Impairment of goodwill and long-lived assets - - 61,315 - 61,315 Less: Settlement of claims against Era sellers - - (3,361 ) - (3,361 ) Add: Sale of Constella Futures Holding, LLC - 1,889 - - 1,889 Add: Facility exit charge   -       1,893       -       439       2,332   Non-GAAP operating income, as adjusted $ 29,987     $ 31,898     $ 27,079     $ 34,304     $ 123,268       Net income (loss), as reported $ 18,050 $ 19,188 $ (39,711 ) $ 20,888 18,415 Add: Impairment of goodwill and long-lived assets - - 61,315 - 61,315 Less: Settlement of claims against Era sellers - - (3,361 ) - (3,361 ) Add: Sale of Constella Futures Holding, LLC - 1,889 - - 1,889 Add: Facility exit charge - 1,893 - 439 2,332 Less: Income tax effect of the items above - (1,471 ) (523 ) (171 ) (2,165 ) Less: Prior-year income tax benefits   -       (1,560 )     (1,109 )     -       (2,669 ) Non-GAAP net income, as adjusted $ 18,050 $ 19,939 $ 16,611 $ 21,156 $ 75,756 Less: allocation of earnings to unvested restricted shares   (208 )     (243 )     (197 )     (240 )     (888 ) Non-GAAP net income for the computation of earnings per share $ 17,842     $ 19,696     $ 16,414     $ 20,916     $ 74,868     Diluted weighted-average shares outstanding, as reported 57,102 57,171 56,766 57,498 57,259 Add: Dilutive effect of stock equivalents   -       -       481       -       -   Non-GAAP diluted weighted-average shares outstanding   57,102       57,171       57,247       57,498       57,259                     Diluted earnings (loss) per share, as reported $ 0.31     $ 0.33     $ (0.70 )   $ 0.36     $ 0.32   Non-GAAP diluted earnings per share, as adjusted $ 0.31     $ 0.34     $ 0.29     $ 0.36     $ 1.31