Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. SRA INTERNATIONAL, INC. (906192) 10-Q published on Nov 09, 2015 at 4:20 pm
Reporting Period: Sep 29, 2015
SRA International, Inc., a Virginia corporation, or SRA or the Company, was acquired on July 20, 2011 by private equity investment funds, or the PEP Funds, sponsored by Providence Equity Partners L.L.C., or Providence, referred to as the Transaction. SRA is a wholly-owned subsidiary of Sterling Parent L.L.C., or Sterling Parent, which is wholly-owned by SRA Companies, Inc. (formerly Sterling Holdco, Inc.), or SRA Companies or the Parent. The Parent was formed by the PEP Funds for the purpose of the Transaction. On August 31, 2015, the Company announced that it had entered into a definitive agreement (the "Merger Agreement") to combine its business operations with Computer Science Corporation's (CSC) government services unit, Computer Sciences Government Services (CSGov). The merger is expected to close during the second quarter of fiscal 2016, in conjunction with the separation of CSGov from CSC with CSGov being the surviving entity.
SRA’s attractive business model consists of multi-year contracts with high revenue visibility, attractive margins, and strong free cash flow conversion. SRA typically serves its customers under long-term contracts that span three to seven years, and SRA has served many of its customers for more than 20 years. SRA’s long-term contracts and relationships provide it with high revenue visibility, with average contract lengths of approximately five years as of June 30, 2015. Further, SRA’s $3.8 billion of total backlog September 30, 2015, provides it with a base of future revenues supported by existing contracts. In addition, with capital expenditures of less than 1% of revenue and low working capital requirements, SRA has historically had strong free cash flow conversion, allowing it to generate approximately $385 million of cash available for debt reduction or acquisitions since the Providence Acquisition in July 2011.
On August 31, 2015, we announced that we had entered into a definitive agreement to combine our business operation with Computer Science Corporation's (CSC) government services unit, Computer Sciences Government Services (CSGov). The merger is expected to close during the second quarter of fiscal 2016, in conjunction with the separation of CSGov from CSC with CSGov being the surviving entity.
During fiscal 2014, we entered into an accounts receivable purchase agreement under which we sell certain accounts receivable to a third party (the “Factor”), without recourse to the Company. The Factor initially pays the Company 90% of the receivable and the remaining price is deferred and based on the amount the Factor receives from our customer. The structure of the transaction provides for a true sale, on a revolving basis, of the receivables transferred. Accordingly, upon transfer of the receivable to the Factor, the receivable is removed from our consolidated balance sheet, a loss on the sale is recorded and the deferred price is an account receivable until it is collected. During the first quarter of fiscal 2016, a portion of our factoring program
was temporarily discontinued. As of June 30, 2015 and September 30, 2015, the balance of the sold receivables may not exceed at any time $56 million and $6 million, respectively. During the first quarter of fiscal 2016, the Company sold $43.0 million of receivables and recognized a related loss of $0.1 million in selling, general and administrative expenses. As of September 30, 2015, the balance of the sold receivables was $2.5 million, and the related deferred price was $0.3 million. As of September 30, 2015, the available unused facility was approximately $3.5 million.
The consummation of the Merger remain subject to the satisfaction or waiver (to the extent permitted by applicable law) of certain conditions, including the receipt of all consents, approvals and authorizations by governmental authorities and certain representations and warranties of CSC and CSGov being true and correct in all respects as of the effective time of the Merger. In addition, the parties to the Merger Agreement have the right to terminate the Merger Agreement under certain circumstances. There can be no assurance that the Merger will be consummated on the terms or timeline currently contemplated. We have and will continue to expend a significant amount of capital and management’s time and resources on the Merger, and a failure to consummate the Merger as currently contemplated could have a material adverse effect on our business and results of operations.