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 second quarter of fiscal year (FY) 2011, which ended December 31, 2010.

Revenue for the quarter was $434.8 million, up 5.3% from $412.8 million in the December 2009 quarter. Organic revenue growth for the same period was 1.1%. Operating income for the quarter was $31.7 million, for an operating margin of 7.3%. Income from continuing operations was $19.8 million, for a net margin of 4.5%. Diluted earnings per share (DEPS) from continuing operations for the quarter were $0.34. Operating cash flow was $29.8 million.

During the quarter the company incurred a severance charge of $1.8 million in connection with a reduction in its indirect labor force. The actions resulted in a reduction to the annual selling, general and administrative expenses of approximately $10 million. The savings will phase in over the March quarter, and the full effect will be felt in the June quarter. The severance charge is included in selling, general and administrative expenses on the income statement.

SRA President and CEO Stan Sloane said, “Our pipeline of opportunities in the Federal market is robust. We are taking proactive steps to ensure our continued competitiveness, and are committed to delivering organic growth.”

Executive Vice President and CFO Rick Nadeau added, “Operating cash flow was strong in the quarter. We completed the acquisition of Platinum Solutions in November, and completed the quarter with approximately $60 million in cash and no debt.”

Contract Awards

SRA won new business in the second quarter with potential value of $270 million, if all option years are exercised. As of December 31, 2010, the company’s backlog of signed business orders was $4.84 billion, up 9% year-over-year, and the funded portion of backlog was $1.0 billion, up 20% year-over-year.

Major highlights of competitive contract awards in the quarter include:

• U.S. Special Operations Command. SRA was awarded the Special Operations Research, Development and Acquisition Center Program Executive Office-Fixed Wing task order under the SOCOM Global Battlestaff and Program Support vehicle. The task order is valued at $15.3 million with a period of performance of five years.

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

• Federal Bureau of Investigation. Platinum Solutions, which was recently acquired by SRA, won a prime position on the Federal Bureau of Investigation Information Technology Supplies and Support Services, or IT Triple S contract. IT Triple S is a multiple-award IDIQ contract with a total ceiling value of $30 billion over 8 years, if all options are exercised.

Forward Guidance

The company is updating revenue and earnings guidance for Fiscal Year 2011 previously provided on November 2, 2010. The table below represents management’s current expectations about the company’s future financial performance, based on information available at this time. SRA completed the acquisition of Platinum Solutions in November. The forward guidance does include the effect of the Platinum acquisition, but does not include any effect of any additional acquisitions or divestitures that SRA might make in the future. The guidance assumes that the FY 2011 diluted weighted-average shares outstanding are 58.2 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 1.4% of net income.

Measure   Fiscal Year Ending

June 30, 2011

Revenue   $1.785 billion to $1.815 billion

Diluted earnings per sharefrom continuing operations

  $1.38 to $1.44

Conference Call

SRA senior management will discuss the results in a conference call beginning at 11 a.m. EST. Interested parties may listen to the conference call by dialing 888-790-3103 (U.S./Canada) or 773-756-4790 (Other) with passcode 1256593. The conference call will be webcast simultaneously through a link on the SRA website (www.sra.com/investors). A replay of the conference call will be available approximately two hours after the conclusion of the call on Feb. 8 through Feb. 22 by dialing 800-219-6350 (U.S./Canada) or 402-220-3904 (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; learning technologies; logistics; public health preparedness; public safety; strategic management consulting; systems engineering; and wireless integration.

SRA and its subsidiaries employ more than 7,200 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. Factors or risks that could cause our actual results to differ materially from the results we anticipate include, but are not limited to: (i) reduced spending levels and changing budget priorities of our largest customer, the United States federal government, which accounts for more than 90% of our revenue; (ii) failure to comply with complex U.S. government procurement-related laws and other regulations, including but not limited to, punitive damage liabilities under the False Claims Act and other laws, and financial incentives under so-called “whistleblower” statutes, awarding the whistleblower with a percentage of the recovery if the claims are successfully waged; (iii) possible delays or overturning of our government contract awards due to bid protests by competitors or loss of contract revenue or diminished opportunities based on the existence of organizational conflicts of interest; (iv) entry into new markets or foreign legal jurisdictions or operation of our business in various foreign jurisdictions, including incurring liabilities in hazardous areas; (v) failure to comply with laws such as the Foreign Corrupt Practices Act or regulations on government gratuities; (vi) failure to comply with Federal Acquisition Regulations (FAR) and Cost Accounting Standards or the Fair Labor Standards Act; (vii) security threats, attacks or other disruptions on our information infrastructure, and failure to comply with complex network security and data privacy legal and contractual obligations or to protect sensitive information; (viii) any violation of third party intellectual rights; (ix) risks associated with commercial product sales not covered by the FAR; (x) adverse changes in federal government practices such as insourcing; (xi) delays in the U.S. government adopting appropriations necessary for program funding and future appropriation uncertainties adversely impacting customer spending plans; (xii) intense competition to win U.S. government contracts or recompetes and commoditization of services we offer; (xiii) failure to obtain option awards, task orders or funding under contracts, or inability to successfully execute awarded contracts; (xiv) any adverse results of audits and investigations conducted by the Defense Contract Audit Agency or any of the Inspectors General for various agencies with which we contract, including, without limitation, any determination that our contractor business systems or contractor internal control systems are deficient; (xv) difficulties accurately estimating contract costs and contract performance requirements; (xvi) challenges in attracting and retaining key personnel or high-quality employees, particularly those with security clearances; (xvii) failure to manage acquisitions or divestures successfully, including identifying and valuating acquisitions targets, integrating acquired companies, realizing benefits from such acquisitions, or contingent liabilities associated with divestures; (xviii) adverse market conditions and the resulting impact on future cash flows may result in the impairment of goodwill and intangible assets which account for a significant portion of our assets; (xix) adverse weather conditions or unexpected employee leave patterns reducing our expected billable labor revenue; and (xx) adverse impact on employee and customer relations from media speculation regarding the company and its future ownership and operations.

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 February 8, 2011. 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 8, 2011.

Consolidated Statements of Operations (Unaudited) (in thousands, except share amounts)   Three Months Ended Six Months Ended 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09 Revenue $ 434,849 $ 412,770 $ 858,782 $ 829,509 Operating costs and expenses: Cost of services 327,720 312,062 644,876 628,612 Selling, general and administrative 68,648 62,592 138,965 124,669 Depreciation and amortization 6,756 7,055 13,209 14,065 Sale of Constella Futures Holding, LLC   -     1,889     -     1,889   Total operating costs and expenses   403,124     383,598     797,050     769,235   Operating income 31,725 29,172 61,732 60,274 Interest expense (208 ) (345 ) (371 ) (828 ) Interest income   235     565     598     973   Income before income taxes 31,752 29,392 61,959 60,419 Provision for income taxes   11,990     9,558     23,728     21,854   Income from continuing operations   19,762     19,834     38,231     38,565   Loss from discontinued operations, net of tax   (681 )   (646 )   (962 )   (1,327 ) Net Income $ 19,081   $ 19,188   $ 37,269   $ 37,238     Basic earnings (loss) per share: Continuing operations $ 0.34 $ 0.35 $ 0.66 $ 0.67 Discontinued operations   (0.01 )   (0.01 )   (0.02 )   (0.02 ) Basic earnings per share (a) $ 0.33   $ 0.33   $ 0.64   $ 0.65     Diluted earnings (loss) per share: Continuing operations $ 0.34 $ 0.34 $ 0.65 $ 0.67 Discontinued operations   (0.01 )   (0.01 )   (0.02 )   (0.02 ) Diluted earnings per share (a) $ 0.33   $ 0.33   $ 0.64   $ 0.64    

(a) May not sum due to rounding

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

(in thousands, except share amounts)

In accordance with generally accepted accounting principles (GAAP), we are required to allocate a portion of our earnings to any outstanding unvested restricted share awards that qualify as participating securities. The Company's unvested restricted stock awards are excluded from both the basic and diluted weighted-average shares outstanding. Three Months Ended   Six Months Ended 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09 Income from continuing operations $ 19,762 $ 19,834 $ 38,231 $ 38,565 Less: allocation of earnings to unvested restricted shares   295   241   536   454 Income from continuing operations for the computation of earnings per share $ 19,467 $ 19,593 $ 37,695 $ 38,111   Basic weighted-average shares outstanding   57,123   56,684   57,052   56,626 Diluted weighted-average shares outstanding   57,703   57,171   57,644   57,137   Basic earnings per share from continuing operations $ 0.34 $ 0.35 $ 0.66 $ 0.67 Diluted earnings per share from continuing operations $ 0.34 $ 0.34 $ 0.65 $ 0.67 Condensed Consolidated Balance Sheets (Unaudited) (in thousands)   As of 31-Dec-10   30-Jun-10 Current assets: Cash and cash equivalents $ 60,602 $   98,113 Accounts receivable, net 383,353 354,140 Inventories, net 6,034 6,829 Prepaid expenses and other 48,398 25,712 Deferred income taxes - 15,057 Current assets of discontinued operations   -       762 Total current assets 498,387 500,613 Property, plant and equipment, net 35,834 33,501 Goodwill 511,238 436,683 Identified intangibles, net 58,285 33,005 Deferred compensation trust 8,684 7,182 Other long-term assets 3,594 18,236 Long-term assets of discontinued operations   -       4,495 Total assets $ 1,116,022   $   1,033,715   Current liabilities: Accounts payable and accrued expenses $ 126,184 $ 101,323 Accrued payroll and employee benefits 113,774 123,334 Billings in excess of revenue recognized 24,293 16,487 Deferred income taxes 9,039 - Liabilities of discontinued operations   -       1,069 Total current liabilities 273,290 242,213 Deferred compensation liability 8,684 7,182 Deferred income taxes 14,567 7,280 Other long-term liabilities   4,784       5,477 Total liabilities   301,325       262,152   Stockholders' equity   814,697       771,563       Total liabilities and stockholders' equity $ 1,116,022   $   1,033,715 Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)   Three Months Ended Six Months Ended 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09 Cash flows from operating activities: Net income $ 19,081 $ 19,188 $ 37,269 $ 37,238 Loss from discontinued operations 681 646 962 1,327 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 4,492 4,398 8,797 8,751 Amortization of intangible assets 2,705 2,657 5,261 5,314 Stock-based compensation 2,629 2,144 5,157 4,610 Deferred income taxes 28,972 5,045 29,666 6,833 Sale of Constella Futures Holding, LLC - 1,889 - 1,889 Loss (gain) realized from forward exchange contracts (1,270 ) (35 ) 1,795 (433 ) Changes in assets and liabilities, net of the effect of acquisitions   (27,596 )   (57,113 )   (24,428 )   (82,575 ) Net cash provided by (used in) operating activities of continuing operations 29,694 (21,181 ) 64,479 (17,046 ) Net cash (used in) provided by operating activities of discontinued operations   60     (555 )   (692 )   (358 ) Net cash provided by (used in) operating activities   29,754     (21,736 )   63,787     (17,404 )   Cash flows from investing activities: Capital expenditures (5,762 ) (2,549 ) (9,338 ) (7,739 ) Acquisitions, net of cash acquired (87,119 ) - (112,314 ) - Sale of Airport Operations Solutions 6,000 - 6,000 - Collections on note receivable 15,000 3,330 15,000 5,330 (Payments for) proceeds from forward exchange contracts   1,270     35     (1,795 )   433   Net cash used in investing activities   (70,611 )   816     (102,447 )   (1,976 )   Cash flows from financing activities: Proceeds from the exercise of stock options 610 377 1,266 1,323 Proceeds from employee stock purchase plan 369 348 726 689 Excess tax benefits of stock option exercises 37 9 125 34 Borrowings under credit facility 40,000 20,000 40,000 55,000 Repayments under credit facility (40,000 ) (25,000 ) (40,000 ) (70,000 ) Net borrowings under other short-term credit facilities - (4,715 ) - - Purchase of treasury stock   (72 )   (83 )   (1,186 )   (940 ) Net cash provided by (used in) financing activities   944     (9,064 )   931     (13,894 )         Effect of exchange rate changes on cash and cash equivalents   (50 )   836     218     (79 )   Net decrease in cash and cash equivalents (39,963 ) (29,148 ) (37,511 ) (33,353 ) Cash and cash equivalents, beginning of period   100,565     70,478     98,113     74,683   Cash and cash equivalents, end of period $ 60,602   $ 41,330   $ 60,602   $ 41,330   Non-GAAP Financial Measures   The financial measures shown below, organic revenue and free cash flow from continuing operations, are non-GAAP financial measures. These measures are not calculated through the application of GAAP and are not the required form of disclosure by the Securities and Exchange Commission. 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 below. Reconciliation Between Total Revenue and Organic Revenue (Unaudited) (in thousands)   Organic revenue, as presented, is computed by comparing our actual reported revenue in the current period, including revenue attributable to acquired companies, with adjusted revenue from the prior year period. In arriving at prior year revenue, we include the revenue of acquired companies for the prior year periods comparable to the current-year periods for which the companies are included in our actual reported revenue. Revenue from discontinued operations is not included in reported revenue, and therefore, is not considered in our calculation of organic revenue. The resulting rate is intended to represent our organic, or non-acquisitive, growth or decline year-over-year. 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. Three Months Ended   31-Dec-10 31-Dec-09   % Change Revenue from continuing operations, as reported $ 434,849 $ 412,770 5.3 % Plus: Revenue of acquired companies for the comparable prior year period   -   17,498     Organic revenue $ 434,849 $ 430,268   1.1 %     Six Months Ended 31-Dec-10 31-Dec-09   % Increase Revenue from continuing operations, as reported $ 858,782 $ 829,509 3.5 % Plus: Revenue of acquired companies for the comparable prior year period     25,424     Organic revenue $ 858,782 $ 854,933   0.5 % Reconciliation Between Net Cash Provided by Operating Activities and Free Cash Flow (Unaudited) (in thousands)   We define free cash flow, as presented, as net cash provided by operating activities less capital expenditures. Cash flows from discontinued operations are excluded from the calculation of free cash flow as these cash flows will not continue in future periods. We believe that this non-GAAP financial measure is useful for investors in analyzing our ability to generate cash flow for purposes such as repaying debt, funding business acquisitions, and repurchasing our common stock. Three Months Ended   Six Months Ended 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09 Net cash provided by (used in) operating activities of continuing operations $ 29,694 $ (21,181 ) $ 64,479 $ (17,046 ) Less: Capital expenditures   (5,762 )   (2,549 )   (9,338 )   (7,739 ) Free cash flow from continuing operations $ 23,932   $ (23,730 ) $ 55,141   $ (24,785 )