Now private, SRA lowers values of three business units

August 25, 2013

Fairfax-based contractor SRA International’s life as a private company has been fitful so far. In its most recent fiscal year, it lowered the value of three of its four business units by about $300 million and recorded its second year of losses.

The performance is the latest reflection of the challenging environment facing contractors following a decade of growth.

The 5,600-employee SRA provides consulting services to the government, particularly in technology fields. Its work includes helping the government manage its mobile devices, handle cybersecurity and analyze intelligence.

SRA was sold in 2011 to an affiliate of private-equity firm Providence Equity Partners in a deal worth nearly $2 billion. Since then, its executives have been free to reposition a business that no longer needs to cater to the daily whims of Wall Street.

But the company is not operating entirely out of the public eye. A recent filing with the Securities and Exchange Commission shows that the contractor is facing tougher times. In the document, SRA — which voluntarily files updates because it has publicly traded debt — said that it undertook its regular assessment of whether the value assigned to the company on its books matches what it would be worth in the market.

The contractor devalued three of its four business units — the defense, civil, and intelligence, homeland security and law enforcement groups — by nearly $300 million. About $166 million of that total was related to the civil group.

The lower values reflect the decline in values for contracting firms industry-wide “as well as competitive pressures, contract award and funding delays, and uncertainty regarding U.S. federal government budgets,” SRA said in its filing.

SRA isn’t the only government contractor taking a hard look at the value of its assets. Falls Church-based General Dynamics, for instance, this year announced it had recorded a $2 billion charge for its information systems and technology group because of slowed defense spending.

Dara F. Castle, managing partner in the Washington offices of accounting and consulting firm McGladrey, said these charges are likely to be more common as the industry adjusts to spending declines.

“It’s an indication that they’ve been affected by the market conditions,” she said. “Those of us who have been in the industry have seen this pendulum swing before.”

SRA’s filing provides limited details about the charges. In a statement, the contractor said the charge “is a technical accounting measure that has no significant impact on our operations.”

SRA said it recorded a loss of $317.3 million in fiscal 2013 following a $73.9 million loss in fiscal 2012. Revenue fell to $1.51 billion in 2013, down 10 percent from $1.68 billion the previous year.

The company is in the process of remaking itself under private ownership. Shortly after Providence’s purchase, William L. Ballhaus was named chief executive. He has moved SRA from two sectors — national security and civil and health — to four business groups. The company has also made plans to move its headquarters to Chantilly to save money.

Providence is “trying to reshape this company out of the realm of public view,” said George A. Price Jr., senior equity research analyst for aerospace, defense and government services at BB&T Capital Markets. “I think it’s a tough road for everybody; SRA is in that same boat.”

SRA said it’s still seeing opportunity in the federal market, particularly in health, cybersecurity and veterans affairs.

“Long-term growth prospects are driven by the fact that IT can be used to shrink government, do more with less, and improve efficiency over the next decade of anticipated tight budgets,” the filing said.

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