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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Registrant, State of Incorporation,
Address and Telephone Number
-----------------------------
GRC INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
1900 GALLOWS ROAD
VIENNA, VIRGINIA 22182
(703) 506-5000
Commission I.R.S. Employer
File No. Identification No.
------------ ------------------
1-7517 95-2131929
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock October 31, 1995
--------------------- ----------------
$.10 PAR VALUE 9,132,514 SHARES
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CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
A. FINANCIAL STATEMENTS
Consolidated Statements of Income 3
Consolidated Condensed Balance Sheets 4-5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Condensed Financial Statements 8
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-10
C. PART II - OTHER INFORMATION 11
NOTE: The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations although the Company believes that the disclosures are
adequate to make the information presented not misleading.
It is suggested that these consolidated condensed financial statements be
read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's latest annual report on Form 10-K.
2
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GRC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
------- -------
<S> <C> <C>
REVENUES $32,686 $31,494
Cost of revenues 26,986 25,431
------- -------
GROSS MARGIN 5,700 6,063
General, administrative, marketing,
research and development expenses 4,868 4,536
Provision for losses 264 175
------- -------
OPERATING INCOME 568 1,352
Interest income 76 160
Interest expense (13) (5)
------- -------
INCOME BEFORE INCOME TAXES 631 1,507
Provision for income taxes -- --
------- -------
NET INCOME $ 631 $ 1,507
======= =======
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .07 $ .16
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 9,505 9,419
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
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GRC INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1995
------------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21 $ 2,679
Accounts receivable 31,024 32,419
Unbilled reimbursable costs and fees 6,910 5,662
Inventories, at lower of cost or market 1,597 1,600
Other receivables 933 1,160
Prepaid expenses and other 1,219 918
------- -------
Total current assets 41,704 44,438
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PROPERTY AND EQUIPMENT,
at cost, net of accumulated depreciation
and amortization of $8,409 and $7,773 10,676 10,332
------- -------
OTHER ASSETS:
Goodwill and other intangible assets, net 2,568 2,555
Deferred software costs, net 10,640 8,344
Deferred income taxes 2,561 2,561
Deposits and other 5,894 5,479
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Total other assets 21,663 18,939
------- -------
$74,043 $73.709
======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
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GRC INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1995
------------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 6,955 $ 7,774
Accrued compensation and benefits 10,892 11,960
Deferred income taxes 1,561 1,561
Accrued expenses 1,962 2,564
Other current liabilities 212 201
-------- --------
Total current liabilities 21,582 24,060
-------- --------
LONG-TERM DEBT 2,350 --
-------- --------
OTHER NON-CURRENT LIABILITIES 1,373 1,381
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value -
Authorized - 30,000,000 shares
Issued - 9,428,000 shares
and 9,325,000 shares 943 932
Paid-in capital 76,640 76,812
Accumulated deficit (25,000) (25,631)
-------- --------
52,583 52,113
Less: Treasury stock, at cost;
300,000 shares (3,845) (3,845)
-------- --------
Total stockholders' equity 48,738 48,268
-------- --------
$ 74,043 $ 73,709
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
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GRC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
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(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 631 $ 1,507
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 770 780
Provisions for losses on accounts
receivable, unbilled reimbursable costs
and fees, and inventory 320 27
Changes in assets and liabilities:
Accounts receivable and unbilled
reimbursable costs and fees (173) 927
Inventory 3 (179)
Other current assets (301) 41
Accounts payable, accruals and
other current liabilities (2,486) (2,314)
Other, net 46 (9)
------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,190) 780
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,057) (1,275)
Deferred software costs (2,342) (777)
Other, net (258) (164)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (3,657) (2,216)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury stock -- (1,461)
New financing 2,350 500
Other, net (161) 87
------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,189 (874)
------- -------
DECREASE IN CASH & CASH EQUIVALENTS (2,658) (2,310)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,679 3,660
------- -------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 21 $ 1,350
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
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GRC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
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(IN THOUSANDS)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash transactions:
Interest paid $ 14 $ 5
Income taxes paid 19 30
</TABLE>
The accompanying notes are an integral part of these statements.
7
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GRC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(1) The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The results
of operations presented herein are not necessarily indicative of the
results to be expected for a full year. Although the Company believes that
all material adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim periods presented are
included and that the disclosures are adequate to make the information
presented not misleading, these consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995.
(2) In December 1994, the Company announced that it had completed the
previously authorized repurchase of 300,000 shares of its common stock, at
a cost of $3,845,000, and that its Board of directors authorized the
repurchase of up to 200,000 additional shares of its common stock in the
open market or in private transactions.
The timing and number of shares of the repurchase of the additional 200,000
shares of common stock will depend greatly on market conditions and other
factors. The shares will be purchased with existing cash, short-term
borrowings, future cash flows, or a combination of these factors, and may
be retired or used for general corporate purposes. As of September 30,
1995, the Company has not purchased any additional shares under its
repurchase program.
8
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GRC INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
The revenues and operating income and interest expense of the Company are
presented for the periods indicated:
Percentage
Three Months Ended Increase
9/30/95 9/30/94 (Decrease)
-------- -------- ----------
Revenues $ 32,686 $ 31,494 3.8%
======== ========
Operating income $ 568 $ 1,352 (58.0)%
Interest income (expense), net 63 155 (59.4)%
-------- --------
Income before income taxes 631 1,507 (58.1)%
Provision for income taxes 0 0 --
-------- --------
Net income $ 631 $ 1,507 (58.1)%
======== ========
RESULTS OF OPERATIONS
- ---------------------
Revenues were $32.7 million for the first quarter, compared with $31.5
million for the same quarter last year. The revenue increase of $1.2 million or
3.8% is attributable entirely to an increase in service revenues associated with
subcontract work (work performed by other organizations and included in the
Company's revenues). The Company typically does not earn a fee on subcontract
revenues. Product sales were only slightly higher between periods.
Cost of revenues were $27.0 million, compared with $25.4 million for the
same quarter last year. The increase of $1.6 million or 6.1% is attributable
entirely to the increase in subcontract revenues. The cost of product sales was
slightly lower for the quarter, compared with the same quarter last year. Gross
Margin was $5.7 million or 17.4% of revenues, compared with $6.1 million or
19.3% of revenues for the same quarter last year. The decrease of $.4 million in
gross margin is attributable to the increase in subcontract work, for which the
Company typically does not earn any fee. If subcontract work were excluded from
the Company's financial results, service revenues would have been lower,
9
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but gross margin percentage would have been higher. Gross margin contribution
from service revenues, without subcontract work, would have been 21.3% for the
quarter, compared with 20.7% for the same quarter last year.
Operating income was $.6 million or 1.7% of revenues for the quarter,
compared with $1.4 million or 4.3% of revenues for the same quarter last year.
The $.8 million decrease in operating income for the quarter is attributable to
the increase in subcontract work, increased sales and marketing expense and an
increase in the loss provision.
The Company's net interest income continues to be not significant to the
comparable quarters.
Income taxes continue to be insignificant to the operating results, since
the Company can utilize its net operating loss carryforward to shelter its
income from tax.
A large percentage of the Company's revenues are derived from contracts with
the U.S. Department of Defense (DoD). Possible decreases or funding delays in
the DoD budget may negatively impact the Company's plans and ability to achieve
revenue growth. However, the Company believes that its contract base is
sufficiently diverse so that the cancellation of any one DoD program would not
have a material adverse effect on the Company. In addition, the Company also
believes that there are sufficient opportunities for other contract awards in
the DoD, NASA, other governmental agencies and the private sector to allow the
Company to sustain its revenue level or grow over time.
As of September 30, 1995, the value of the Company's backlog (without
options) approximates one year's revenues, and the value of the total backlog
(with options) approximates two years' revenues. The backlog consists of
approximately 178 active contracts which vary in the period of performance from
a few months to multi-year. The work to be performed on these contracts
involves the following: information technology; studies and analysis; modeling
and simulation; and testing and evaluation.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has been able to finance its operations from a combination of
internally generated working capital and borrowing against its available credit
facilities. Management believes that the Company has adequate revenues to
finance its current and future operations from existing or internally generated
working capital and available credit. The Company has a revolving credit
agreement which entitles it to borrow up to a maximum of $20 million at the
prime rate (8.75% as of September 30, 1995). The agreement is based on a three
year term, but will automatically be renewed for successive, one-year terms
unless the bank delivers written notice of non-renewal at least 15 months prior
to the end of any subsequent renewal period. There is $17.5 million of the
credit agreement available as of September 30, 1995.
During the first quarter of fiscal year 1996, the Company increased its
deferred software costs by a net $2.3 million, resulting in a balance at
September 30, 1995 of approximately $10.3 million. The Company capitalizes
internal software costs incurred for products to be sold only after
technological feasibility has been established. The majority of the deferred
software costs relates to the Company's efforts associated with its OSU(TM)
Network Interface, a telecommunications product.
During fiscal year 1996, the Company will continue to increase its deferred
software costs associated with its OSO(TM) Network Interface, a
telecommunications product, and its Network VUE(TM), network design and
optimization system. The Company intends to finance the deferred software costs
with internally generated working capital and borrowings against its available
credit facilities.
As of September 30, 1995, the Company has $.021 million of cash and cash
equivalents available to support its working capital requirements.
10
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PART II - OTHER INFORMATION
Items 1, 2, 3 and 5 are Inapplicable.
- -------------------------------------
Item 4 - Results of Votes of Security Holders.
- ----------------------------------------------
On November 2, 1995 the Annual Meeting of Shareholders was held. The
shareholders re-elected 3 current directors as follows:
Director For Withheld Broker Nonvotes
--------------------- --------- -------- ---------------
Leslie B. Disharoon 8,258,640 16,040 862,378
Edward C. Meyer 8,254,740 16,640 865,678
Jim Roth 8,254,899 16,081 866,078
The shareholders ratified the selection of Deloitte & Touche as independent
public accountants for the fiscal year ending June 30, 1996 as follows:
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
8,227,889 7,310 39,481 862,378
Item 6(a) Exhibits.
- -------------------
None.
Item 6(b) - Reports on Form 8-K.
- --------------------------------
On July 10, 1995, the Company filed a Report on Form 8-K reporting the amendment
of its Shareholder Rights Plan.
11
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRC INTERNATIONAL, INC.
By: /s/ Philip R. Pietras
------------------------------------------
Philip R. Pietras
Vice President, Treasurer, Chief Financial
Officer & Chief Accounting Officer
November 13, 1995
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME ON PAGES 3
THROUGH 5 OF GRC INTERNATIONAL'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 31,040
<ALLOWANCES> 16
<INVENTORY> 1,597
<CURRENT-ASSETS> 41,704
<PP&E> 19,085
<DEPRECIATION> 8,409
<TOTAL-ASSETS> 74,043
<CURRENT-LIABILITIES> 21,582
<BONDS> 0
<COMMON> 943
0
0
<OTHER-SE> 47,795
<TOTAL-LIABILITY-AND-EQUITY> 74,043
<SALES> 32,686
<TOTAL-REVENUES> 32,686
<CGS> 26,986
<TOTAL-COSTS> 26,986
<OTHER-EXPENSES> 4,868
<LOSS-PROVISION> 264
<INTEREST-EXPENSE> (63)
<INCOME-PRETAX> 631
<INCOME-TAX> 0
<INCOME-CONTINUING> 631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 631
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
