SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 2, 1999
-----------------
GRC INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-7517 95-2131929
- -------------- ------------------------ -------------------
(State of (Commission File Number) (I.R.S. Employer
Incorporation) Identification No.)
1900 Gallows Road, Vienna, Virginia 22182
--------------------------------------------------
(Address of principal executive office) (Zip Code)
(703) 506-5000
-------------------------------
(Registrant's telephone number)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
Item 2 is amended to add the following paragraph.
The acquisition has been accounted for using the purchase method of
accounting and its operations will be consolidated with GRCI from the date
of acquisition. The goodwill to be recognized in the transaction is
estimated at $21 million, which the Company expects to amortize over a
period of 30 years.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) (1) FINANCIAL STATEMENTS. Consolidated financial statements for MCR for the
fiscal year ended February 28, 1999, and Report of Independent Auditors.
(b) (2) PRO FORMA FINANCIAL INFORMATION. Pro forma financial information of GRCI
reflecting the acquisition of MCR.
The following GRCI pro forma condensed consolidated statement of operations for
the year ended June 30, 1999, and the GRCI pro forma consolidated balance sheet
as of June 30, 1999, are unaudited and have been prepared to give effect to the
acquisition of MCR as if the transaction had occurred on July 1, 1998 for
purposes of the statement of operations and as of June 30, 1999 for purposes of
the balance sheet.
The pro forma condensed consolidated statement of operations for the year ended
June 30, 1999 does not purport to represent what GRCI's result of operations
would actually have been had the transaction in fact occurred on the
aforementioned date, or to project GRCI's results of operations for any future
periods. The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable under the
circumstances.
The pro forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements of both GRCI and MCR,
including the notes thereto.
2
<PAGE>
Consolidated Financial Statements
Management Consulting & Research, Inc.
Year ended February 28, 1999
with Report of Independent Auditors
3
<PAGE>
Management Consulting & Research, Inc.
Consolidated Financial Statements
Year ended February 28, 1999
Contents
Report of Independent Auditors..............................................5
Audited Consolidated Financial Statements
Consolidated Balance Sheet..................................................6
Consolidated Statement of Income............................................7
Consolidated Statement of Stockholders' Equity..............................8
Consolidated Statement of Cash Flow.........................................9
Notes to Consolidated Financial Statements.................................10
4
<PAGE>
Report of Independent Auditors
Board of Directors
Management Consulting & Research, Inc.
We have audited the accompanying consolidated balance sheet of Management
Consulting & Research, Inc. as of February 28, 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Management
Consulting & Research, Inc. at February 28, 1999, and the consolidated results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young, L.L.P.
McLean, Virginia
July 6, 1999
5
<PAGE>
<TABLE>
<CAPTION>
Management Consulting & Research, Inc.
Consolidated Balance Sheet
February 28,
1999
-------------------
<S> <C>
Assets
Current assets:
Cash $ 121,112
Accounts receivable 8,461,960
Prepaid expenses and other current assets 273,839
Current portion of note receivable 120,000
-------------------
Total current assets 8,976,911
Equipment, net 724,126
Due from officers 186,602
Note receivable 102,175
Due from majority stockholder, including accrued interest of $287,797
1,500,000
Cash surrender value of officer's life insurance 954,113
Other assets 69,148
===================
Total assets $12,513,075
===================
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 686,000
Accrued compensation 1,524,219
Accrued ESOP & profit sharing 767,193
Income taxes payable 792,809
Deferred income taxes 2,422,419
Other current liabilities 91,961
-------------------
Total current liabilities 6,284,601
Other liabilities 321,474
Minority interest 1,112,540
Commitments and contingencies
Stockholders' equity:
Common stock, $0.0015 par value - 5,000,000 shares
authorized; 2,000,000 shares issued and outstanding 3,000
Treasury stock (5,600)
Retained earnings 4,797,060
-------------------
Total stockholders' equity 4,794,460
===================
Total liabilities and stockholders' equity $12,513,075
===================
See accompanying notes.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Management Consulting & Research, Inc.
Consolidated Statement of Income
Year ended
February 28,
1999
-------------------
<S> <C>
Services revenue $28,660,597
Operating expenses:
Cost of services 14,240,666
Selling, general, and administrative expenses 11,627,038
-------------------
Total operating expenses 25,867,704
-------------------
Income from operations 2,792,893
Other income/(expenses):
Interest income 136,004
Interest expense (51,494)
Other (19,005)
-------------------
Total other income 65,505
-------------------
Income before income taxes and minority interest 2,858,398
Provision for income taxes 1,134,086
-------------------
Income before minority interest 1,724,312
Minority interest 344,862
===================
Net income $1,379,450
===================
Basic and diluted earnings per common share $0.69
===================
Weighted average common shares used in computing share amounts, basic and
diluted 2,000,000
===================
</TABLE>
See accompanying notes.
7
<PAGE>
<TABLE>
<CAPTION>
Management Consulting & Research, Inc.
Consolidated Statement of Stockholders' Equity
Common Treasury
Stock Stock
---------------------------------------------------------- Retained
Shares Amount Shares Amount Earnings Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1998 2,000,000 3,000 - - 3,497,546 3,500,546
Dividends declared ($.04 per share) - - - - (79,936) (79,936)
Purchase of stock - - (1,600) (5,600) - (5,600)
Net income - - - - 1,379,450 1,379,450
---------------------------------------------------------------------------------------------
Balance at February 28, 1999 2,000,000 $3,000 (1,600) $(5,600) $4,797,060 $4,794,460
=============================================================================================
See accompanying notes.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Management Consulting & Research, Inc.
Consolidated Statement of Cash Flows
Year ended
February 28,
1999
-------------------
<S> <C>
Operating activities:
Net income $1,379,450
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 295,836
Deferred income taxes 443,199
Interest earned on amounts due from officers and
majority stockholder (127,870)
Minority interest 344,862
Changes in assets and liabilities:
Accounts receivable 247,389
Other assets (115,129)
Accounts payable and accrued expenses (528,371)
Other liabilities 79,916
-------------------
Net cash provided by operating activities 2,019,282
Investing activities:
Purchases of equipment (336,969)
Note receivable 110,339
Net advances to officers and majority stockholder (174,352)
-------------------
Net cash used in investing activities (400,982)
Financing activities:
Dividends paid (50,000)
Purchase of stock (5,600)
Payments to related parties (271,608)
Proceeds from line of credit 6,380,174
Payments on line of credit (7,670,096)
-------------------
Net cash used in financing activities (1,617,130)
-------------------
Net increase in cash and cash equivalents 1,170
Cash at beginning of year 119,942
===================
Cash at end of year $121,112
===================
See accompanying notes.
</TABLE>
9
<PAGE>
Management Consulting & Research, Inc.
Notes to Consolidated Financial Statements
February 28, 1999
1. Description of Business
The consolidated financial statements of Management Consulting & Research, Inc.
(the "Company") include the accounts of the parent company, Management
Consulting & Research, Inc. ("MCR"), and its five majority-owned subsidiaries.
The Company's majority-owned subsidiaries include MCR Federal, Inc. (formerly
MCR Services Group, Inc.), MCR Healthcare, Inc., MCR Technologies, Inc., MCR
Federal Systems, Inc., and MCR International, Inc.
MCR Healthcare, Inc. includes the accounts of its wholly-owned subsidiary, MCR
Federal Healthcare (formerly MCR Bengtsson International Inc.). In addition, MCR
Technologies, Inc. includes the accounts of its two wholly-owned subsidiaries,
MCR Business Technologies, Inc. and MCR Advanced Technologies Inc.
MCR Federal, Inc. performs development and lifecycle cost analysis and similar
consulting services under contracts primarily with the Federal government. MCR
Healthcare, Inc. performs facilities and design consulting services for
commercial clients. MCR Federal Systems, Inc. performs information systems
consulting services to government and industry clients. MCR Technologies, Inc.
and MCR International, Inc. perform consulting services to industry clients.
The Company's board of directors approved an increase in the number of
authorized common stock shares to 5 million (par value $.0015) and authorized a
4 for 1 stock split in February 1999. Accordingly, all references in the
financial statements to number of shares and related amounts have been restated
to reflect the stock split.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Management
Consulting & Research, Inc. and its majority-owned subsidiaries and their
wholly-owned subsidiaries. The minority interest reflects the non-Company owned
stockholder interests in the majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
10
<PAGE>
2. Significant Accounting Policies (Continued)
Equipment
Equipment is stated at cost. Depreciation is computed using the straight line
method with estimated useful lives ranging between 3 and 7 years.
Income Taxes
The Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
remeasured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 allows companies to
account for stock-based compensation either under the provisions of SFAS No. 123
or under the provisions of Accounting Principles Bulletin No. 25, Accounting for
Stock Issued to Employees ("APB No. 25"), but requires pro forma disclosures in
the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company accounts for its stock-based
compensation in accordance with APB No. 25.
Earnings Per Share
The Company has adopted Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share," ("SFAS 128") which established new standards for computing
and presenting net income per share information. Basic earnings per share was
determined by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is consistent
with that of basic earnings per share while giving effect to all dilutive
potential common shares, if any, that were outstanding during the period. The
dilutive effect of outstanding options issued by the Company, if any, has been
reflected in diluted earnings per share by application of the treasury stock
method. A reconciliation of the net earnings per share and the number of shares
used in computing basic and diluted net income per share is presented in Note
12.
11
<PAGE>
2. Significant Accounting Policies (Continued)
Services Revenue
The Company is engaged principally in time-and-materials contracts, but also
performs under fixed-price contracts and cost plus award fee contracts. For
time-and-materials contracts, revenue is recognized by the application of
contract labor and material rates as services are performed. For fixed-price
contracts, revenue is recognized on the percentage-of-completion method. For
cost plus award fee contracts, revenue is recognized by the application of
contract labor and material rates as services are performed plus the applicable
award fee. The Company provides for anticipated losses on contracts by a charge
to income during the period such losses are first identified.
Contract costs, including indirect costs, are subject to audit by agencies of
the United States Government and have been audited through 1997. Management
believes any future adjustment from the audits, if any, will not have a material
effect on the consolidated financial statements.
Concentration of Credit Risk
Cash
The Company maintains cash balances at a single financial institution. Accounts
at this institution are insured up to $100,000. Balances in these accounts may
from time to time exceed the insured amount.
Major Customers
Approximately 96% of revenue earned in 1999 is attributable to services provided
to the Federal government, in particular, the Department of the Air Force,
through prime or subcontracts. Substantially all accounts receivable were
related to such contracts at February 28, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
12
<PAGE>
2. Significant Accounting Policies (Continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
Non-cash financing activities and supplemental cash flow information includes:
Year ended
February 28,
1999
------------------
<S> <C>
Dividends declared $ 79,936
==================
Interest paid $ 51,494
==================
Income taxes paid $732,580
==================
</TABLE>
Recent Pronouncements
For the year ended February 28, 1999, the Company adopted FASB Statement No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and displaying comprehensive income and its components in financial statements.
The adoption of SFAS 130 did not have any effect on the Company's financial
statements as the Company does not have any elements of comprehensive income.
For the year ended February 28, 1999, the Company adopted FASB Statement No.
131, "Disclosure About Segments of an Enterprise and Related Information," which
establishes standards for disclosures about products, geographies and major
customers. The Company's implementation of this standard does not have any
effect on its financial statements.
In March 1998, AcSEC issued Statement of Position 98-1 ("SOP 98-1"), Accounting
for the Costs of Computer Software Developed For or Obtained For Internal Use.
SOP 98-1 is effective for the Company beginning March 1, 1999. SOP 98-1 will
require the capitalization of certain costs incurred after the date of adoption
in connection with developing or obtaining software for internal use. The
Company does not expect the adoption of SOP 98-1 to have a material effect on
the Company's financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
13
<PAGE>
3. Accounts Receivable
<TABLE>
<CAPTION>
Accounts receivable were due under prime contracts with the Federal government,
contracts with commercial or private entities, and subcontracts with commercial
contractors performing contracts for the Federal government. Components of
accounts receivable consist of the following:
February 28,
1999
------------------
<S> <C>
Billed $5,150,747
Unbilled 3,311,213
------------------
$8,461,960
==================
</TABLE>
Unbilled accounts receivable are stated at estimated realizable value.
4. Equipment
<TABLE>
<CAPTION>
Property and equipment consists of the following:
February 28,
1999
------------------
<S> <C>
Furniture and fixtures $ 428,470
Computer equipment 866,687
Other -
------------------
1,295,157
Less: accumulated depreciation (571,031)
==================
$ 724,126
==================
</TABLE>
The Company wrote-off fully depreciated equipment totaling $1,321,590 during the
year ended February 28, 1999.
14
<PAGE>
5. Due from Officers and Majority Stockholder
The Company has $186,602 due from two officers of the Company at February 28,
1999. Interest is fixed at 7% and is payable monthly. The principal amount is
due on demand. The amount is classified as noncurrent due to lack of payment
during the preceding year.
The Company maintains a $1.5 million line of credit that expires on June 5, 2001
and bears interest at 8% for the benefit of its majority stockholder. There was
$1.5 million due from the majority stockholder, which includes accrued interest
of $287,797, at February 28, 1999. The majority stockholder has personally
guaranteed repayment of all borrowed funds and has pledged his interest in
certain common stock of the Company as collateral.
6. Cash Surrender Value of Officer's Life Insurance
The Company maintains life insurance through various policies on its president,
of which the Company is the beneficiary except for a split-dollar policy. Under
the split-dollar policy, the Company pays the premium and receives, upon
termination of the policy, the lesser of the cash surrender value of the policy
or the total of premiums paid by the Company. Upon the death of the insured, the
Company would receive the amount of the total premiums paid by the Company and
remit any excess proceeds to the estate or beneficiary named. Two of the
policies have been assigned to the bank that provides the line of credit as
additional security.
7. Line of Credit
The Company has a $1.5 million line of credit, which expires on September 30,
1999. Interest is payable at the lender's prime rate plus one-half percent
(8.25% at February 28, 1999). Amounts drawn on the line of credit are secured by
the Company's assets, cash surrender value of the officer's life insurance, and
personal guarantees by the Company's president. There was $0 outstanding under
the line of credit at February 28, 1999. The Company is required to maintain
certain financial and non-financial covenants pursuant to the line of credit.
15
<PAGE>
8. Stockholders' Equity
The Company reserved 500,000 shares for issuance under the MCR Omnibus Stock
Plan during the year ended February 28, 1999.
<TABLE>
<CAPTION>
Common stock option activity is as follows for the year ended February 28, 1999:
Weighted average
exercise price
Shares
----------------------------------------
<S> <C> <C>
Outstanding at February 28, 1998 - -
Granted 144,000 $5.25
Exercised - -
Canceled - $5.25
========================================
Outstanding at February 28, 1999 144,000 $5.25
========================================
</TABLE>
Vesting generally occurs ratably over 3 years. There were no options exercisable
at February 28, 1999.
The effect of applying Statement 123's fair value method to the Company's
stock-based awards results in a net income of $1,368,885 in 1999, with net
earnings per share of $0.68. The effect of applying SFAS No. 123 on the pro
forma net income is not necessarily representative of the effects on future
years due to, among other things, the vesting period of the stock options and
the fair value of additional stock options in future years.
16
<PAGE>
9. Income Taxes
<TABLE>
<CAPTION>
Following is a summary of the components of the net deferred tax liability:
February 28,
1999
------------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward $
-
Other -
------------------
-
Deferred tax liabilities:
Cash basis reporting for tax purposes 2,381,788
Equipment 40,631
------------------
2,422,419
==================
Net deferred tax liability $2,422,419
==================
</TABLE>
<TABLE>
<CAPTION>
The provision for income taxes consists of the following:
Year ended
February 28,
1999
------------------
<S> <C>
Current:
Federal $ 619,333
State and local 71,554
------------------
690,887
Deferred:
Federal 382,210
State and local 60,989
------------------
443,199
==================
$1,134,086
==================
</TABLE>
<TABLE>
<CAPTION>
The effective tax rate differed from the statutory rate as follows:
Year ended
February 28, 1999,
--------------------------
<S> <C>
Statutory federal rate 34%
State taxes 6%
==========================
Effective tax rate 40%
==========================
</TABLE>
17
<PAGE>
10. Commitments
Leases
<TABLE>
<CAPTION>
The Company leases office space under operating leases expiring in various
years. Minimum future rental payments under non-cancelable operating leases at
February 28, 1999 are as follows:
<S> <C>
2000 $1,219,755
2001 1,060,626
2002 1,028,891
2003 992,347
2004 and thereafter 2,482,752
==================
$6,784,371
==================
</TABLE>
Rent expense was approximately $1,140,000 for the year ended February 28, 1999.
11. Employee Benefit Plans
Retirement Plan
The Company has a defined contribution retirement plan (the "Plan") covering
employees meeting certain eligibility requirements. Employees of all of the
companies may contribute to the Plan in amounts up to 10% of their compensation,
subject to certain Internal Revenue Service requirements. A matching
contribution of up to 5% of the employee's compensation is made to the Plan.
Employee contributions vest 100% immediately while employer contributions vest
20% per year until they reach 100% after five years. The Company contributed
approximately $393,000 under the Plan during the year ended February 28, 1999.
The Company may make a discretionary contribution to the Plan determined by the
Board of Directors. Vesting in discretionary contributions occurs as follows: 0%
if employed less than four years; 40% after four years; 100% after five or more
years of employment. The Company made a discretionary contribution of
approximately $300,000 during the year ended February 28, 1999.
18
<PAGE>
11. Employee Benefit Plans (continued)
Employee Stock Ownership Plan
The Company has a non-leveraged Employee Stock Ownership Plan ("ESOP"). The ESOP
covers employees meeting certain eligibility requirements. Contributions to the
plan are determined by the Board of Directors. Vesting in the ESOP occurs as
follows: 0% if less than five years and 100% after five or more years of
employment. The Company's obligation to purchase shares allocated to Plan
participants if all participants terminated employment and exercised their
options to have the Company purchase their shares would be $892,569 at February
28, 1999. The Company contributed $516,000 to the ESOP during the year ended
February 28, 1999.
12. Earnings Per Share
<TABLE>
<CAPTION>
The following table set forth the computation of basic and diluted net loss per
share:
1999
----------------------------------
<S> <C>
Numerator:
Net income $ 1,379,450
----------------------------------
Numerator for basic and diluted earnings per share
$ 1,379,450
==================================
Denominator:
Denominator for basic earnings per share - weighted
average shares 2,000,000
Effect of dilutive securities
Employee stock options -
----------------------------------
Denominator for diluted earnings per share 2,000,000
==================================
Basic earnings per share $0.69
==================================
Diluted earnings per share $0.69
==================================
</TABLE>
19
<PAGE>
13. Subsequent Events
Acquisition
The Company's stockholders entered into an agreement and plan of merger
subsequent to year end whereby the outstanding common stock and options of the
Company and subsidiaries will be acquired by GRC International, Inc. ("GRC").
Total consideration is $27.1 million consisting of 2 million shares of GRC
common stock and the remainder in cash.
Minority Interest
In May 1999, the Company issued 500,000 shares of common stock in exchange for
all minority interests in the consolidated subsidiaries.
Common Stock Options
The Company granted an additional 18,000 common stock options at $7.18 per
share.
14. Impact of Year 2000 (Unaudited)
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has completed its study of the implications of the Year 2000 on its
information systems. The Company's efforts did not require a significant
commitment of resources and costs to resolve the potential problems associated
with this event. Interfaces to external suppliers and customers (including
banks) were included in the Company's assessments. However, the Company does not
have control over these third parties and, as a result, can not currently
estimate to what extent future operating results may be adversely affected by
the failure of these third parties to successfully address their Year 2000
issues.
The Company believes that the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, there can be no
guarantee and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the ability to locate and correct all relevant computer codes,
interfaces with third parties, and similar uncertainties.
20
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1999
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 88 $ 0 $ 88
Accounts receivable, net 36,438 6,291 42,729
Unbilled reimbursable costs and fees 2,924 0 2,924
Other receivables 1,339 0 1,339
Prepaid expenses and other current assets 522 30 552
Deferred income taxes 6,871 0 6,871
------------ -------------- -------------
Total current assets 48,182 6,321 54,503
------------ -------------- -------------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements 5,298 0 5,298
Equipment, furniture and fixtures 17,294 819 18,113
Less accumulated depreciation and amortization (13,497) 0 (13,497)
------------ -------------- -------------
Property and equipment, net 9,095 819 9,914
------------ -------------- -------------
OTHER ASSETS:
Goodwill and other intangible assets, net 1,989 20,802 22,791
Deferred income taxes 15,428 1,510 13,918
Deposits and other 1,387 1,026 2,413
------------ -------------- -------------
Total other assets 18,804 20,318 39,122
------------ -------------- -------------
TOTAL ASSETS: $ 76,081 $ 27,458 $ 103,539
============ ============== =============
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9 $ 0 $ 9
Accounts payable 5,567 688 6,255
Accrued compensation and benefits 14,461 1,525 15,986
Accrued expenses and other current liabilities 3,063 1,929 4,992
------------ -------------- -------------
Total current liabilities 23,100 4,142 27,242
------------ -------------- -------------
LONG-TERM LIABILITIES:
Long-term debt 12,623 6,496 19,119
Other long-term liabilities 299 958 1,257
------------ -------------- -------------
Total long-term liabilities 12,922 7,454 20,376
------------ -------------- -------------
Total stockholders' equity 40,059 15,862 55,921
------------ -------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 76,081 $ 27,458 $ 103,539
============ ============== =============
</TABLE>
21
<PAGE>
The pro forma adjustments represent the allocation of the net purchase price of
approximately $23 million for all of the assets, liabilities, and intangible
assets of MCR and subsidiaries. The excess of the purchase price over the fair
value of the net assets acquired was estimated at approximately $21 million and
will be amortized on a straight-line basis over 30 years. The preliminary
purchase price allocation may change during the year ending June 30, 2000 as
additional information concerning the net asset valuation is obtained.
The adjustments reflect the increase in GRCI's line of credit and the increase
in stockholders equity related to the issuance of 2,000,000 common shares at
$7.80 per share to purchase MCR.
22
<PAGE>
<TABLE>
<CAPTION>
GRC INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
As of June 30, 1999
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 164,602 $ 30,165 $ 194,767
Cost of services 138,770 15,029 153,799
Indirect and other costs 16,574 12,552 29,126
------------- ------------- ------------
Operating income 9,258 2,584 11,842
Interest expense, net (1,215) (463) (1,678)
------------- ------------- ------------
Income from continuing operations
before income taxes 8,043 2,121 10,164
Income tax benefit/(provision) 863 (1,123) (260)
------------- ------------- ------------
Income from continuing operations 8,906 998 9,904
Income from discontinued operations 225 0 225
------------- ------------- ------------
Net income $ 9,131 $ 998 $ 10,129
============= ============= ============
Income per common and common equivalent share:
Basic
Continuing operations $ 0.87 $ 0.50 $ 0.81
Net income $ 0.89 $ 0.50 $ 0.83
------------- ------------- ------------
Number of shares used in basic EPS
calculation 10,230 2,000 12,230
============= ============= ============
Diluted
Continuing operations $ 0.85 $ 0.48 $ 0.79
Net income $ 0.87 $ 0.48 $ 0.81
------------- ------------- ------------
Number of shares used in diluted EPS
calculation 10,498 2,071 12,569
============= ============= ============
</TABLE>
23
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The pro forma adjustments include the historical results of MCR for the year
ended June 30, 1999 adjusted to reflect the goodwill amortization of $696,000,
and estimated interest expense of $455,000 on the increase in debt.
The tax provision in the pro forma adjustments of 53% of the related pretax
income is above the normal statutory tax rate as a result of the goodwill
amortization not being tax deductible.
24
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned hereunto duly authorized.
GRC INTERNATIONAL, INC.
Date: November 12, 1999 By: /s/ Thomas E. McCabe
--------------------------------------------
Thomas E. McCabe
Senior Vice President, Director of Corporate
Development, General Counsel & Secretary
25
<PAGE>
