Annual Report Technology and Strategic Consulting Services and Solutions for Government OVERVIEW SRA International, INC
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HONESTY AND SERVICE 2007 ANNUAL REPORT Technology and Strategic Consulting Services and Solutions for Government OVERVIEW SRA INTERNATIONAL, INC. Corporate Profile Vision SRA is a leading provider of technology and strategic SRA aspires to be the best company in the world, consulting services and solutions to clients in national by every measure — a company that creates real security, civil government, and health care and public value for its customers and employees by delivering health. SRA services include systems design, develop- high-quality technology and strategic consulting ser- ment, and integration; and outsourcing and managed vices and solutions; employs the best people, nurtures services. The Company also delivers business solu- them, and enables them to succeed; and steadfastly tions for contingency and disaster response planning, commits itself to an ethic of honesty and service. information assurance, business intelligence, environ- mental strategies, enterprise architecture, infrastruc- ture management, and wireless integration. Our staff of more than 5,200 talented and dedicated men and women serves clients from our headquarters in Fairfax, Virginia, and offices across the country. The SRA New York Stock Exchange symbol is SRX. TOTAL REVENUE $ MILLIONS Any statements in this Annual Report about future expectations, plans, and prospects for SRA, including statements about the estimated value of the contracts and work to be performed, and other state- ments 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 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; our ability to attract and retain skilled employees; any reductions in or reallocations of the U.S. defense budget or the budgets for civil government agencies; the market price of the company’s stock prevailing from time to time; the nature of other investment opportunities presented to the company from time to time; the company’s cash flow from operations; and other factors discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this printing. We anticipate that subsequent events and developments will cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. 2007 Annual Report | 1 Table of Contents Employees Featured on the Cover Messages from the Chairman and the President/CEO ...............2 First Row (Left to Right): Jodi Wharff, Project Control Officer;Schirra Gray, Our Business ............................................................................ 4 Senior Software Engineer; Steve Newburg-Rinn, Director, Information Assurance Annual Report on Form 10-K .................................................. 25 Strategic Initiatives. Second Row: John Dewar, Information Assurance Analyst; Board of Directors and Corporate Officers .............................. 31 Gina Thansom, Business Operations Analyst. Third Row: Brian Michl, Technical Stockholder Information ......................................................... 32 Lead, Army Force Management System; Nyree Waters, Executive Assistant. Financial Highlights SRA INTERNatiONAL, INC. AND SUBsiDiariES • All dollar amounts are in thousands except diluted earnings per share FOR YEARS ENDED JUNE 30 2003 2004 2005 2006 2007 Revenue $450,375 $615,802 $881,770 $1,179,267 $1,268,872 Operating Incomea 38,257 56,180 80,015 96,967 92,825 Operating Income Percentage of Revenuea 8.5% 9.1% 9.1% 8.2% 7.3% Net Incomea 27,392 35,642 52,195 62,520 63,430 Net Income Percentage of Revenuea 6.1% 5.8% 5.9% 5.3% 5.0% Diluted Earnings Per Sharea,b .58 .65 .92 1.08 1.09 Diluted Sharesb 47,460 54,738 56,549 57,739 58,382 Total Interest-Bearing Debt 400 – – – – Stockholders’ Equity 283,015 339,268 429,092 533,297 625,455 Cash Flow from Operations 43,311 43,451 65,988 86,831 122,444 Number of Employees 2,638 3,358 4,177 4,963 5,201 a To provide a better comparison with our current results, years ended June 30, 2003, 2004 and 2005 have been presented above including the stock compensation expense and related tax effects associated with FAS 123R as if it was implemented July 1, 2002 rather than July 1, 2005. b Share and per share amounts have been adjusted to reflect a May 2005 two-for-one stock split. Net Income ($ miL) CasH FLOW From diLUted EarninGS NUMBER OF Operations ($ MIL) Per SHarea EMPLOYEES 5,201 4,963 $122.4 $1.09 $1.08 $63.4 $62.5 4,177 $.92 $52.2 $86.8 3,358 $.65 $66.0 2,638 $35.6 $.58 $27.4 $43.5 $43.3 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 2 | SRA International, Inc. MessaGE from THE CHAIRMAN This has been a year of transition for SRA International. Dr. Renato DiPentima, an executive in our company for twelve years and CEO for more than two, has retired. The new CEO is Dr. Stanton Sloane, a seasoned and highly successful executive from Lockheed Martin. At the same time, the market has changed. The wars in Iraq and Afghanistan have diverted funds that otherwise would have gone to our traditional markets. Nevertheless, I am optimistic over the long term that the markets will return and that SRA will resume its traditional process of gaining market share. Renny DiPentima has been a significant asset to our company. He served as president and chief executive officer of SRA from January 2005 through March 2007 and as president and chief operating officer prior to that. Before joining SRA in 1995, Renny compiled an excellent record in federal government service. He was deputy commissioner for systems at the Social Security Administration, overseeing and managing all information processing, data, and voice communication systems. He chaired the Federal Information Technology Acquisition Improvement team as part of the President’s National Performance Review initiatives, and later, he chaired the Industry Advisory Council CIO task force. Stan Sloane comes to SRA from Lockheed Martin Corporation where he has held the position of executive vice president for Integrated Systems and Solutions, which provides systems engineering services for information and intelligence systems that support the Department of Defense and other national security customers. Stan began his career as an officer in the Navy. H e joined General Electric Aerospace in 1984 and progressed through engineering, program management, and business development assignments in a variety of GE and subsequently Lockheed Martin businesses. Stan is wasting no time getting started. I am particularly impressed with his initiatives in marketing and sales and profit margin improvement. Over the longer term, he should be able to bring the company more engineering services work. I have been involved in electrical engineering and information technology for more than 50 years, first as a military officer, then as a senior civil servant, and for the past 29 years with SRA. During that long period, there have been many variations in federal government priorities caused by international tensions, wars, recessions, and evolving needs. The market is vast and hard to measure, but I believe it has grown almost every year. There are several reasons for this. First, information technology innovation has always accelerated, particularly electronics and software. This presents new opportunities to do things better, whether through improved weapon systems or better management of large, com- plex organizations. Second, the needs of our country have always increased because of population and economic growth. Third, virtually all political leaders emphasize efficient and effective government. Professional technical services companies like SRA can meet these needs by assisting military leaders and managers of civil agency systems. These market conditions seem likely to continue indefinitely. Therefore, the challenge for SRA is to continue to exploit these wonderful opportunities while enhancing our corporate values and culture which are based on the ethic of honesty and service. Ernst Volgenau Chairman 2007 Annual Report | 3 MessaGE from THE PRESIDENT & CEO SRA delivered another strong year of operational and financial performance. We maintained our unbroken record of revenue growth and profitability and, most importantly, created value for our clients, employees, and stockholders while preserving and enhancing a culture based on honesty and service. Revenue increased by 8% from $1.18 billion to $1.27 billion. Net income for the year was $63 million, and diluted earnings per share were $1.09. We won $1.6 billion in new contract awards, increased our total backlog of signed business orders by 3% to $3.4 billion, and expanded our pipeline of opportunities by 42% to $18.9 billion. For the fiscal year, cash flows from operations totaled $122 million, or 1.9 times net income. Our balance sheet continues to support future growth, with over $212 million in cash and investments and no debt as of June 30, 2007. New Business Highlights We continue to win significant work with new and long-term clients across a diverse client base. Highlights of our FY07 contract awards include: • A competitive task order to develop and maintain a Web-based supply chain management system for the Department of Agriculture (USDA). The new system represents the company’s largest enterprise resource planning implementation to date and will support all purchases for USDA Food Aid programs worldwide. • A recompete contract to continue delivering enterprise operations and security services for the nationwide network of the Army National Guard.