Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 
| **x**                                                  | ** ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934**   |
|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                                     |
| **For the quarterly period ended  June 27, 2008** |
|                                                   |       |                                                                                                     |
| **OR**                                                 |
|                                                   |       |                                                                                                     |
| **o**                                                  | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**Commission File No. 001-33083**

 

**STANLEY,INC.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                              | ** ** | **11-3658790**      |
|-------------------------------------------|------------|---------------------|
| (State or other jurisdiction of           |       | (I.R.S. Employer    |
| incorporation or organization)            |       | Identification No.) |
|                                      |       |                |
| **3101 Wilson Boulevard, Suite 700** | ** ** | ** **          |
| **Arlington, VA**                         | ** ** | **22201**           |
| (Address of principal executive offices)  |       | (Zip Code)          |

 

**(703) 684-1125**

(Registrant’s telephone number,

 including area code)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes  x No o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

o  Large accelerated filer  x Accelerated filer  o Non-accelerated filer  o Smaller reporting company

(do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of July 31, 2008, there were 22,463,343 shares of our CommonStock, par value $0.01 per share, outstanding.

 

 

 

----

Table of Contents

 

**STANLEY, INC.**

**FORM 10-Q**

**FOR THE QUARTER ENDED JUNE 27, 2008**

**INDEX**

** **
| ** **                                   | ** **                                                                                  | ** ** | **Page** |
|----------------------------------------------|---------------------------------------------------------------------------------------------|------------|----------|
| **PART 1 — FINANCIAL INFORMATION** |                                                                                        | 3          |
| ITEM 1.                                      | FINANCIAL STATEMENTS                                                                        |       | 3        |
| ITEM 2.                                      | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |       | 15       |
| ITEM 3.                                      | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                 |       | 23       |
| ITEM 4.                                      | CONTROLS AND PROCEDURES                                                                     |       | 23       |
| **PART II — OTHER INFORMATION**    |                                                                                        | 24         |
| ITEM 1.                                      | LEGAL PROCEEDINGS                                                                           |       | 24       |
| ITEM 1A.                                     | RISK FACTORS                                                                                |       | 24       |
| ITEM 2.                                      | UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                |       | 24       |
| ITEM 3.                                      | DEFAULTS UPON SENIOR SECURITIES                                                             |       | 24       |
| ITEM 4.                                      | SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                        |       | 24       |
| ITEM 5.                                      | OTHER INFORMATION                                                                           |       | 24       |
| ITEM 6.                                      | EXHIBITS                                                                                    |       | 24       |
|                                              |                                                                                             |            |          |  |

 

2

----

Table of Contents

 

**PART 1: FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS**

 

**STANLEY, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Income(unaudited)(in thousands, except per share data)**

** **
| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| Revenues                              |       | $                                | 172,566    |   | $ | 133,481 |   |
|                                  |       |                             |       |   |   |
| Operating costs and expenses:         |       |                             |       |   |   |
| Cost of revenues                      |       | 145,760                          |       | 112,329 |   |
| Selling, general and administrative   |       | 10,659                           |       | 9,423 |   |
| Amortization of deferred compensation |       | 62                               |       | 75 |   |
| Depreciation and amortization         |       | 1,779                            |       | 1,609 |   |
| Total operating costs and expenses    |       | 158,260                          |       | 123,436 |   |
| Operating income                      |       | 14,306                           |       | 10,045 |   |
|                                  |       |                             |       |   |   |
| Other income (expense):               |       |                             |       |   |   |
| Other income                          |       | 2                                |       | — |   |
| Interest expense - net                |       | (411                             | )          | (1,062 | ) |
| Total other expenses                  |       | (409                             | )          | (1,062 | ) |
| Income before taxes                   |       | 13,897                           |       | 8,983 |   |
|                                  |       |                             |       |   |   |
| Provision for income taxes            |       | (5,580                           | )          | (3,619 | ) |
| Net income                            |       | $                                | 8,317      |   | $ | 5,364 |   |
|                                  |       |                             |       |   |   |
| Earnings per share:                   |       |                             |       |   |   |
| Basic                                 |       | $                                | 0.37       |   | $ | 0.24 |   |
| Diluted                               |       | $                                | 0.35       |   | $ | 0.23 |   |
|                                  |       |                             |       |   |   |
| Weighted-average shares:              |       |                             |       |   |   |
| Basic                                 |       | 22,676                           |       | 21,898 |   |
| Diluted                               |       | 23,649                           |       | 23,361 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

3

----

Table of Contents

 

**STANLEY, INC. AND SUBSIDIARIES**

**Condensed Consolidated Balance Sheets**

**(in thousands, except share data)**

**(unaudited)**

** **
| ** **                                                                                                          | ** ** | **June 27, 2008** | ** ** | **March 31, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| **Assets**                                                                                                          | ** ** | ** **                  | ** ** | ** **                   | ** ** |
|                                                                                                                |       |                        |       |                         |       |
| Current assets:                                                                                                     |       |                        |       |                         |       |
| Cash                                                                                                                |       | $                           | 5,677      |                         | $          | 271 |   |
| Accounts receivable - net                                                                                           |       | 156,251                     |       | 160,928                      |       |
| Prepaid and other current assets                                                                                    |       | 6,756                       |       | 4,644                        |       |
| Total current assets                                                                                                |       | 168,684                     |       | 165,843                      |       |
|                                                                                                                |       |                        |       |                         |       |
| Property and equipment - net                                                                                        |       | 16,291                      |       | 12,894                       |       |
| Goodwill                                                                                                            |       | 113,615                     |       | 113,615                      |       |
| Intangible assets - net                                                                                             |       | 7,209                       |       | 8,088                        |       |
| Deferred taxes                                                                                                      |       | 3,061                       |       | 3,343                        |       |
| Other assets                                                                                                        |       | 2,287                       |       | 2,272                        |       |
| Total assets                                                                                                        |       | $                           | 311,147    |                         | $          | 306,055 |   |
|                                                                                                                |       |                        |       |                         |       |
| **Liabilities and Stockholders’ Equity**                                                                       | ** ** | ** **                  | ** ** | ** **                   | ** ** |
|                                                                                                                |       |                        |       |                         |       |
| Current liabilities:                                                                                                |       |                        |       |                         |       |
| Accounts payable                                                                                                    |       | $                           | 19,458     |                         | $          | 29,628 |   |
| Accrued expenses and other liabilities                                                                              |       | 66,376                      |       | 62,649                       |       |
| Current portion of long-term debt                                                                                   |       | 1,000                       |       | 1,000                        |       |
| Income taxes payable                                                                                                |       | 2,696                       |       | 5,836                        |       |
| Total current liabilities                                                                                           |       | 89,530                      |       | 99,113                       |       |
|                                                                                                                |       |                        |       |                         |       |
| Long-term debt — net of current portion                                                                        |       | 35,500                      |       | 35,500                       |       |
| Other long-term liabilities                                                                                         |       | 6,979                       |       | 4,738                        |       |
| Total liabilities                                                                                                   |       | 132,009                     |       | 139,351                      |       |
|                                                                                                                |       |                        |       |                         |       |
| Commitments and contingencies:                                                                                      |       |                        |       |                         |       |
| Stockholders’ equity                                                                                           |       |                        |       |                         |       |
| Common stock, $0.01 par value — 200,000,000  shares authorized; 23,448,941 and 22,822,697 issued, respectively |       | 234                         |       | 228                          |       |
| Additional paid-in capital                                                                                          |       | 87,627                      |       | 83,970                       |       |
| Retained earnings                                                                                                   |       | 92,521                      |       | 84,204                       |       |
| Accumulated other comprehensive loss                                                                                |       | (522                        | )          | (929                         | )          |
| Less: Treasury stock; 595 and 0 shares at  cost, respectively                                                       |       | (15                         | )          | —                       |       |
| Deferred compensation                                                                                               |       | (707                        | )          | (769                         | )          |
| Total stockholders’ equity                                                                                     |       | 179,138                     |       | 166,704                      |       |
| Total liabilities and stockholders’ equity                                                                     |       | $                           | 311,147    |                         | $          | 306,055 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

4

----

Table of Contents

 

**STANLEY, INC. AND SUBSIDIARIES**

**Condensed Consolidated Statements of CashFlows**

**(unaudited)**

**(in thousands)**

** **
| ** **                                                                         | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **June 27,**                | ** ** | **June 30,** | ** ** |
| ** **                                                                         | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                | 8,317      |   | $ | 5,364 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                      |       | 1,779                            |       | 1,609 |   |
| Amortization of deferred compensation                                              |       | 62                               |       | 75 |   |
| Loss on disposal of property and equipment                                         |       | 13                               |       | 14 |   |
| Deferred taxes                                                                     |       | 41                               |       | — |   |
| Income tax benefit from stock-based  compensation                                  |       | 1,889                            |       | 442 |   |
| Stock compensation expense                                                         |       | 1,063                            |       | 378 |   |
| Changes in assets and liabilities – net of  acquisition effects:              |       |                             |       |   |   |
| Decrease (increase) in accounts receivable                                         |       | 4,677                            |       | (7,063 | ) |
| Increase in prepaid expenses and other  current assets                             |       | (2,148                           | )          | (1,522 | ) |
| (Increase) decrease in other assets                                                |       | (14                              | )          | 212 |   |
| Decrease in accounts payable                                                       |       | (10,170                          | )          | (6,242 | ) |
| Increase (decrease) in accrued expenses                                            |       | 3,297                            |       | (1,480 | ) |
| Increase in other liabilities                                                      |       | 2,467                            |       | 229 |   |
| (Decrease) increase in income taxes payable                                        |       | (3,140                           | )          | 1,573 |   |
| Net cash provided by (used in) operating  activities                               |       | 8,133                            |       | (6,411 | ) |
|                                                                               |       |                             |       |   |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Purchase of Techrizon – net of cash  acquired                                 |       | —                           |       | (30,519 | ) |
| Acquisition of property and equipment                                              |       | (3,369                           | )          | (1,346 | ) |
| Net cash used in investing activities                                              |       | (3,369                           | )          | (31,865 | ) |
|                                                                               |       |                             |       |   |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net borrowings under line-of-credit  agreements                                    |       | —                           |       | 25,664 |   |
| Repayments on long-term debt                                                       |       | —                           |       | (250 | ) |
| Payments under capital lease obligations                                           |       | (54                              | )          | (40 | ) |
| Purchase of treasury stock                                                         |       | (196                             | )          | (260 | ) |
| Proceeds from exercise of stock options                                            |       | 542                              |       | 436 |   |
| Other                                                                              |       | 350                              |       | (10 | ) |
| Net cash provided by financing activities                                          |       | 642                              |       | 25,540 |   |
|                                                                               |       |                             |       |   |   |
| **NET INCREASE (DECREASE) IN CASH**                                                |       | 5,406                            |       | (12,736 | ) |
| **CASH — Beginning of period**                                                |       | 271                              |       | 12,736 |   |
| **CASH — End of period**                                                      |       | $                                | 5,677      |   | $ | — |   |
|                                                                               |       |                             |       |   |   |
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION:**                            | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cash paid during the period for:                                                   |       |                             |       |   |   |
| Income taxes                                                                       |       | $                                | 6,546      |   | $ | 1,584 |   |
| Interest                                                                           |       | $                                | 501        |   | $ | 898 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **SUPPLEMENTAL DISCLOSURE OF NONCASH  INVESTING ACTIVITIES:**                      | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Lease incentive                                                                    |       | $                                | 942        |   | $ | — |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

5

----

Table of Contents

 

**STANLEY, INC. AND SUBSIDIARIES**

**Condensed Consolidated Statements of ComprehensiveIncome**

**(unaudited)**

**(in thousands)**

** **
| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| Net income                            |       | $                                | 8,317      |   | $ | 5,364 |   |
|                                  |       |                             |       |   |   |
| Other comprehensive income:           |       |                             |       |   |   |
| Unrealized gain on interest rate swap |       | 402                              |       | 211 |   |
| Translation adjustments               |       | 5                                |       | — |   |
| Total other comprehensive income      |       | 407                              |       | 211 |   |
| Comprehensive income                  |       | $                                | 8,724      |   | $ | 5,575 |   |

** **

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

6

----

Table of Contents

 

**STANLEY, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements(unaudited)(in thousands, except share and per share data, or as otherwise noted)**

 

**1.  DESCRIPTION OF BUSINESS**

 

Stanley, Inc., together with its subsidiaries (“Stanley” or the “Company”),is a provider of information technology services and solutions to U.S. defenseand federal civilian government agencies. Stanley offers its customerssolutions to support any stage of program, product development or businesslifecycle through five service areas: systems engineering, enterpriseintegration, operational logistics, business process outsourcing and advancedengineering and technology. The Company derives substantially all of itsrevenue from U.S. federal government agencies.

 

**2.  SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

***Basis ofPresentation***—The accompanying unaudited condensedconsolidated financial statements have been prepared in accordance withgenerally accepted accounting principles (“GAAP”) in the United States andpursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”). In the opinion of management, these statements reflect alladjustments necessary to fairly present the Company’s financial position as of June 27,2008, and its results of operations and its cash flows for the three monthsended June 27, 2008 and June 30, 2007. The results of operations forthe interim periods are not necessarily indicative of the results for the fullyear. For further information, refer to the financial statements and footnotespresented in the Company’s Annual Report on Form 10-K for the year ended March 31,2008.

 

***Reporting Periods***—TheCompany’s fiscal year begins on April 1 and ends on March 31. For thefiscal years ending prior to April, 1, 2008, the Company’s fiscal quartersended on the last day of the third calendar month. For fiscal years beginningafter April 1, 2008, the Company’s first three fiscal quarters end on thethirteenth Friday after the first day of the quarter and the fourth quarterwill end on March 31. Fiscal quarters will typically be thirteen weeks.The first quarter of fiscal year 2009 ended on June 27, 2008. The Companydoes not believe that there is a material impact of the comparability of theperiods presented.

 

***Principles ofConsolidation***—The accompanying condensedconsolidated financial statements include the accounts of Stanley’swholly-owned subsidiaries. All intercompany balances and transactions have beeneliminated in consolidation.

 

***Fair Value ofFinancial Instruments***—The fair value of accountsreceivable, accounts payable, accrued expenses, note payable, and the swapcontract approximates their respective carrying amounts.

 

***Revenue Recognition***—TheCompany recognizes revenue under its contracts when a contract has beenexecuted, the contract price is fixed and determinable, delivery of services orproducts has occurred, and collectibility is considered probable and can bereasonably estimated. Revenue is earned under cost-plus-fee, fixed-price andtime-and-materials contracts. The Company uses a standard management process todetermine whether all required criteria for revenue recognition have been met,which includes regular reviews of the Company’s contract performance. Thisreview covers, among other matters, progress against a schedule, outstandingaction items, effort and staffing, quality, risks and issues, subcontractmanagement, costs incurred, commitments, and customer satisfaction. During thisreview, the Company determines whether the overall progress on a contract isconsistent with the effort expended.

 

Contract revenue recognition inherently involves the use of estimates.Examples of estimates include the contemplated level of effort to accomplishthe tasks under the contract, the cost of the effort, and an ongoing assessmentof the Company’s progress toward completing the contract. From time to time, aspart of the Company’s standard management process, facts develop that requirethe Company to revise its estimated total costs and revenues. To the extentthat a revised estimate affects contract profit or revenue previouslyrecognized, the Company records the cumulative effect of the revision in theperiod in which the facts requiring the revision become known. The full amountof an anticipated loss on any type of contract is recognized in the period inwhich it becomes probable and can be reasonably estimated.

 

Under cost-plus-fee contracts, revenues are recognized as costsare incurred and include an estimate of applicable fees earned. For level ofeffort or term cost-plus-fee contracts, fixed fees are earned in proportion tothe percentage of required effort delivered. The Company considers fixedfees under cost-plus-fee contracts to be earned in proportion to the allowablecosts actually incurred in performance of the contract for level of effortcontracts. For completion type cost-plus-fee contracts, fixed fees are earnedin proportion to the percentage of work completed. For time-and-materialscontracts, revenues are computed by multiplying the number of directlabor-hours expended in performance of the contract by the contractual billingrates and adding other billable direct and indirect costs. For fixed-pricecontracts, revenues are recognized as services are performed, using thepercentage-of-completion method, applying the cost-to-cost or units of deliverymethod, in accordance with Accounting Research Bulletin No. 45, *Accounting for Long-Term Construction-Type Contracts* (“ARB45”) and American Institute of Certified Public Accountants (“AICPA”) Statementof Position 81-1, *Accounting for Performance ofConstruction-Type and Certain Production-Type Contracts* (“SOP 81-1”).

 

7

----

 

Table of Contents

 

For cost-plus-award fee type contracts, the Company recognizes theexpected fee to be awarded by the customer at the time such fee can bereasonably estimated, based on factors such as prior award experience andcommunications with the customer regarding performance, including any interimperformance evaluations rendered by the customer. For cost-plus-incentive feetype contracts, the method of calculating the incentive fee is specified in thecontract and it is typically based on measuring actual costs to perform thecontract against a target cost to perform the contract. The Company preparesperiodic estimates to complete the contract and adjusts the incentive fee asrequired based on the contract incentive fee formula.

 

The Company’s contracts with agencies of the government are subject toperiodic funding by the respective contracting agency. Funding for a contractmay be provided in full at inception of the contract or ratably throughout thecontract as the services are provided. From time to time, the Company mayproceed with work based on customer direction prior to the completion andsigning of formal contract documents. The Company has a formal internal reviewprocess and management approval prior to commencement of work. Revenueassociated with such work is recognized without profit and only when it can bereliably estimated and realization is probable. The Company bases its estimateson notices to proceed from its customers, previous experiences with thecustomer, communications with the customer regarding funding status, and itsknowledge of available funding for the contract or program. Pre-contract costsrelated to unsuccessful contract bids are expensed in the period in which theCompany is notified that the contract will not be issued.

 

Disputes occasionally arise in the normal course of the Company’sbusiness due to events such as delays, changes in contract specifications, andquestions of cost allowability or collectibility. Such matters, whether claimsor unapproved change orders in the process of being negotiated, are recorded atthe lesser of their estimated net realizable value or actual costs incurred,and only when realization is probable and can be reliably estimated.

 

The allowability of certain costs under government contracts is subjectto audit by the government. Certain indirect costs are charged to contractsusing provisional or estimated indirect rates, which are subject to later revisionbased on government audits of those costs. Management is of the opinion thatcosts subsequently disallowed, if any, would not be significant.

 

***Concentration ofRisk***—Contracts funded by federal governmentagencies account for substantially all of our revenues. For the three monthsended June 27, 2008 and June 30, 2007, we derived approximately 63%and 68% of our revenues, respectively, from the Department of Defense,including agencies within the intelligence community, and approximately 37% and32% of our revenues, respectively, from federal civilian government agencies.The Company’s contracts with the Department of State for the provision ofpassport processing and support services, which is our largestrevenue-generating contract, and with the Department of the Navy for productionengineering and integration services under various SPAWAR programs, accountedfor approximately 16% and 11% of our revenues for the three months ended June 27,2008, respectively.

 

***Property andEquipment***—Property and equipment are carried atcost, less accumulated depreciation. Depreciation of property and equipment iscalculated using the straight-line method over the useful lives. The estimateduseful lives of computers, peripherals and software typically range from threeto five years. The estimated useful lives of furniture and equipment typicallyrange from five to ten years. Leasehold improvements are amortized over thelesser of the useful life or the term of the lease. Repairs and maintenance areexpensed as incurred. Depreciation expense related to property and equipmentwas $0.9 million and $0.7 million for the three months ended June 27,2008 and June 30, 2007, respectively.

 

***Goodwill andIntangible Assets****—*Goodwillrepresents the excess of cost over the fair value of net tangible andidentifiable intangible assets of acquired companies. In accordance with SFAS No. 142,*Goodwill and Other Intangible Assets* (“SFASNo. 142”), the Company does not amortize goodwill; rather it testsgoodwill for impairment at least on an annual basis. Testing for impairment isa two-step process as prescribed by SFAS No. 142. The first step is a testfor potential impairment, while the second step measures the amount ofimpairment, if any. Under the guidelines of SFAS No. 142, the Company isrequired to perform an impairment test at least on an annual basis at any timeduring the fiscal year provided the test is performed at the same time everyyear. An impairment loss would be recognized when the assets’ fair value isbelow their carrying value. Stanley has elected December 31 as its testingdate. Based on the testing performed as of December 31, 2007, the Companydetermined that no impairments existed as of December 31, 2007. Customerrelationships and non-competition agreements, backlog and contracts areamortized on a straight-line basis over periods ranging from five to sevenyears and two to five years, respectively.

 

***Impairment ofLong-Lived Assets***—Whenever events or changes incircumstances indicate that the carrying amount of long-lived assets may not befully recoverable, Stanley evaluates the probability that future undiscountednet cash flows, without interest charges, will be less than the carrying amountof the assets. If any impairment were indicated as a result of this review,Stanley would recognize a loss based on the amount by which the carrying amountexceeds the estimated fair value. Stanley believes that no impairments existedas of June 27, 2008.

 

***Stock***-***Based Compensation***—Stanleyadopted the provisions of SFAS No. 123(R),*Share-based Payment* (“SFAS No. 123(R)”), on a prospective basisduring the fiscal year beginning April 1, 2006.

 

8

----

Table of Contents

 

***Earnings per share***—Basicearnings per share has been computed by dividing net income available to commonstockholders by the weighted-average number of shares of common stockoutstanding during each period. Restricted shares of common stock that vest basedon the satisfaction of certain conditions are treated as contingently issuableshares until the conditions are satisfied. These shares are included in thecomputation of basic earnings per share only after the shares vest. Sharesissued during the period and shares reacquired during the period are weightedfor the portion of the period that they were outstanding. Diluted earnings pershare considers the potential dilution that could occur if securities or othercontracts to issue common stock were exercised or converted into common stock.Shares that are anti-dilutive are not included in the computation of dilutedearnings per share. The weighted-average number of common shares outstanding iscomputed as follows:

 
| ** **                                                    | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                    | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| ** **                                                    | ** ** | **(in thousands)**          | ** ** |
| Basic weighted-average common shares  outstanding             |       | 22,676                           |       | 21,898 |   |
| Effect of stock options and unvested  restricted stock grants |       | 973                              |       | 1,463 |   |
| Diluted weighted-average common shares  outstanding           |       | 23,649                           |       | 23,361 |   |

 

All options to purchase common stock are included in the computation ofdiluted earnings per share because the average fair value per common share wasgreater than the options’ exercise prices.

 

***DerivativeInstruments and Hedging Activities***— In accordancewith SFAS No. 133,*Accounting forDerivative Instruments and Hedging Activities*  (“SFAS No. 133”), as amended by SFAS No. 138,*Accounting for Certain Derivative Instruments andCertain Hedging Activities, an Amendment of SFAS 133* and SFAS No. 149,*Amendment of Statement 133 on Derivative Instrumentsand Hedging Activities,* the fair value of the hedge arrangement isrecorded as an asset or a liability in the accompanying unaudited condensedconsolidated balance sheet at December 31, 2007. For qualifying cash flowhedges, SFAS No. 133, as amended, holds that the effective portion ofderivative gains and losses be recorded as a component of other comprehensiveincome and be reclassified into earnings in the same period in which the hedgedtransaction affects such earnings. Any ineffectiveness is reported currently inearnings.

 

Stanley entered into an interest rate swap agreement on October 27,2006 with a maturity date of January 31, 2012, an annual fixed rate of5.28% and a notional amount of $19.0 million. The Company designated this swapagreement, at its inception, as a qualifying cash flow hedge. The fair value ofthe swap at June 27, 2008 of $0.8 million has been reported in “Accruedexpenses and other liabilities” with an offset, net of tax, included in “Accumulatedother comprehensive loss” in the accompanying unaudited condensed consolidatedbalance sheets. None of the $0.8 million unrealized loss was recognized inearnings during the three months ended June 27, 2008 based on hedgeineffectiveness and none of the swap’s unrealized loss was excluded from theassessment of hedge effectiveness. Amounts in accumulated other comprehensiveloss will be reclassified into earnings in the period in which variableinterest payments (the hedged transaction) are made under the senior creditfacility. As of June 27, 2008, the estimated net amount of existing lossesexpected to be reclassified into earnings within the next 12 months is zero.

 

***Segment Reporting***—Operatingsegments are defined as components of an enterprise for which separatefinancial information is available and evaluated regularly by the chiefoperating decision maker, or decision making group, in deciding how to allocateresources and assess performance. The Company currently has one reportablesegment for financial reporting purposes, which represents the Company’s corebusiness of providing information technology solutions and services for federalgovernment customers. The Company does not report revenue by product or serviceor groups of products or services because it is impracticable to do so.

 

***Use of Estimates***—Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and the disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from thoseestimates. Significant items subject to such estimates and assumptions includerevenue recognition, carrying amount and useful lives of long-lived assets,valuation allowances for accounts receivable and deferred tax assets, softwaredevelopment costs and loss contingencies such as litigation, claims andassessments.

 

***Recently AdoptedAccounting Pronouncements***— In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157,*Fair Value Measurements* (“SFAS 157”).SFAS 157 provides guidance for measuring the fair value of assets andliabilities and expands related disclosures. SFAS 157 defines fair value as theprice that would be received to sell an asset or paid to transfer a liability(exit price) in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants at themeasurement date. SFAS 157 establishes market or observable inputs as thepreferred source of values, followed by assumptions based on hypotheticaltransactions in the absence of market inputs.

 

EffectiveApril 1, 2008, the Company adopted SFAS 157 for all financial instrumentsaccounted for at fair value on a recurring basis. SFAS 157 established a threelevel fair value hierarchy to classify the inputs used in measuring fair valueas follows:

 

Level1: Quoted prices for identical instruments in active markets.

 

9

----

Table of Contents

 

Level2: Quoted prices for similar instruments in active markets; quoted prices foridentical or similar instruments in markets that are not active; andmodel-driven valuations whose inputs are observable or whose significant valuedrivers are observable.

 

Level3: Significant inputs to the valuation model are unobservable.

 

Asof June 27, 2008, the financial liability measured at fair value consistedof an interest rate swap agreement. The value is based on model-drivenvaluations whose inputs are observable. The following table summarizes thefinancial liability measured at fair value on a recurring basis as of June 27,2008 and the level it fall within the fair value hierarchy:

 
| ** **         | ** ** | **Fair Value Measurement Using:**                                    | ** ** | ** **                                         | ** ** |
|--------------------|------------|-------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **         | ** ** | **Quoted Prices in  Active Markets for  Identical Assets** | ** ** | **Significant Other  Observable Inputs** | ** ** | **Significant  Unobservable  Inputs** | ** ** | **Total** | ** ** |
| ** **         | ** ** | **(Level 1)**                                                                  | ** ** | **(Level 2)**                                 | ** ** | **(Level 3)** | ** ** | **June 27. 2008** | ** ** |
| Liabilities:       |       |                                                                                |       |                                               |       |   |   |   |   |
| Interest rate swap |       | $                                                                                   | —     |                                               | $          | 793 |   | $ | — |   | $ | 793 |   |
|                    |            |                                                                                     |            |                                                    |            |  |  |  |  |  |  |  |  |

 

InFebruary 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2deferring the effective date of SFAS 157 for nonfinancial assets andliabilities to fiscal years beginning after November 15, 2008. The Companyis assessing the impact the adoption of SFAS 157 for nonfinancial assets andliabilities will have on its financial position, results of operations or cashflows.

 

***Recently IssuedAccounting Standards***— In December 2007, theFASB issued Statement of Financial Accounting Standards No. 141(R),Business Combinations (“SFAS 141(R)”). SFAS 141(R) changes therequirements for an acquiring entity’s recognition and measurement of theassets acquired and liabilities assumed in a business combination. Thisstatement is effective for fiscal years beginning after December 15, 2008.The Company is in the process of determining what effect, if any, theapplication of the provisions of SFAS 141(R) will have on its financialposition and results of operations.

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 160, *Noncontrolling Interests in ConsolidatedFinancial Statements – An Amendment of ARB No. 51* (“SFAS 160”).SFAS 160 establishes new accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15,2008. The Company does not currently expect the adoption of SFAS 160 to have amaterial impact on its consolidated financial statements.

 

InMarch 2008, the FASB issued Statement of Financial Accounting Standards No. 161,*Disclosures about Derivative Instruments andHedging Activities – An Amendment of FASB Statement No. 133* (“SFAS161”). SFAS 161 expands and amends the disclosure requirements for derivativeinstruments and hedging activities. SFAS 161 is effective for financialstatements issued for fiscal years and interim periods beginning after November 15,2008. The Company is in the process of determining what effect, if any, theapplication of the provisions of SFAS 161 will have on its financial position,results of operations or cash flows.

 

**3****.  ACCOUNTSRECEIVABLE**

 

Accounts receivable consists of the following:

 
| ** **                                       | ** ** | **As of**              | ** ** | **As of**               | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                       | ** ** | **June 27, 2008** | ** ** | **March 31, 2008** | ** ** |
| Billed receivables                               |       | $                           | 106,228    |                         | $          | 120,504 |   |
| Unbilled receivables:                            |       |                        |       |                         |       |
| Amounts billable                                 |       | 47,568                      |       | 35,259                       |       |
| Revenues recorded in excess of contract  funding |       | 2,867                       |       | 5,410                        |       |
| Retainage and contract fee withholding           |       | 420                         |       | 415                          |       |
| Allowance for doubtful accounts                  |       | (832                        | )          | (660                         | )          |
| Total                                            |       | $                           | 156,251    |                         | $          | 160,928 |   |

 

Amounts billable consist primarily of amounts to be billed within amonth. Revenues recorded in excess of contract funding are billable uponreceipt of contractual amendments or modifications adding additional funding.The retainage and fee withholding is billable upon completion of the contractperformance and approval of final indirect expense rates by the government.Consistent with industry practice, certain receivables related to long-termcontracts are classified as current, although a portion of these amounts is notexpected to be billed and collected within one year. Unbilled accountsreceivable at June 27, 2008 are expected to be billed and collected withinone year except for approximately $0.4 million.

 

10

----

Table of Contents

 

**4.  PROPERTY AND EQUIPMENT**

 

Property and equipment consists of the following:

 
| ** **                                                                               | ** ** | **As of**              | ** ** | **As of**               | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                                               | ** ** | **June 27, 2008** | ** ** | **March 31, 2008** | ** ** |
| Computers and peripherals                                                                |       | $                           | 4,819      |                         | $          | 4,554 |   |
| Software                                                                                 |       | 2,727                       |       | 2,429                        |       |
| Furniture and equipment                                                                  |       | 4,761                       |       | 4,390                        |       |
| Leasehold improvements                                                                   |       | 11,529                      |       | 8,270                        |       |
|                                                                                     |       | 23,836                      |       | 19,643                       |       |
|                                                                                     |       |                        |       |                         |       |
| Less: Accumulated depreciation and  amortization                                         |       | (7,545                      | )          | (6,749                       | )          |
| Property and equipment — net                                                        |       | $                           | 16,291     |                         | $          | 12,894 |   |
|                                                                                     |       |                        |       |                         |       |
| Property and equipment included above that  are under capital lease obligations include: |       |                        |       |                         |       |
| Software                                                                                 |       | $                           | 637        |                         | $          | 637 |   |
| Furniture and equipment                                                                  |       | 176                         |       | 176                          |       |
| Less: Accumulated depreciation                                                           |       | (372                        | )          | (328                         | )          |
| Total                                                                                    |       | $                           | 441        |                         | $          | 485 |   |

 

**5.  ACCRUED EXPENSES AND OTHER CURRENTLIABILITIES**

 

Accrued expenses and other current liabilities consist of thefollowing:

 
| ** **                    | ** ** | **As of**              | ** ** | **As of**               | ** ** |
|-------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                    | ** ** | **June 27, 2008** | ** ** | **March 31, 2008** | ** ** |
| Accrued payroll-related costs |       | $                           | 18,381     |                         | $          | 20,534 |   |
| Accrued contract costs        |       | 38,983                      |       | 34,759                       |       |
| Accrued indirect costs        |       | 5,058                       |       | 3,923                        |       |
| Other payables                |       | 3,954                       |       | 3,433                        |       |
| Total accrued expenses        |       | $                           | 66,376     |                         | $          | 62,649 |   |

 

**6.  DEBT**

 

On October 10, 2007, Stanley entered into an Amended and RestatedRevolving Credit and Term Loan Agreement with a group of lenders for whichSunTrust Robinson Humphrey, Inc. acted as sole book manager and leadarranger, SunTrust Bank acted as administrative agent and M&T Bank andBB&T Bank acted as co-documentation agents. The agreement amends andrestates the previous credit agreement entered into in February 2006. Theamended credit agreement increased the amount of the lenders’ aggregatecommitment under the facility from $87.0 million to $187.0 million, whichincludes a $150.0 million revolving credit facility and a $37.0 million termloan. The term loan commitment matures on January 31, 2012 and therevolving commitment matures on October 31, 2012. The agreement alsoincreased the letter of credit commitment from $5.0 million to $10.0 million,increased the swing line facility from $5.0 million to $20.0 million and eliminatedthe requirement to hedge a portion of the Company’s outstanding indebtednessunder its senior credit facility. In connection with the agreement, Stanleypaid fees of approximately $0.5 million.

 

As of June 27, 2008, Stanley had $36.5 million of term loanindebtedness and $0.0 million of revolving indebtedness outstanding under itssenior credit facility, with a weighted-average interest rate of approximately3.81% and 7.29% for the three months ended June 27, 2008 and June 30,2007, respectively. As of June 27, 2008, Stanley’s borrowing availabilityunder its $150.0 million revolving credit facility was $149.9 million(including outstanding letters of credit). At June 27, 2008, the Companywas in compliance with all covenants under its senior credit facility. Theobligations under its senior credit facility are unconditionally guaranteed byeach of its existing and subsequently acquired or organized subsidiaries andare secured on a first-priority basis by security interests (subject topermitted liens) in substantially all assets owned by the Company and each ofits subsidiaries, including the shares of capital stock of its subsidiaries,subject to certain exceptions.

 

**7.  ACQUISITION**

 

On April 1, 2007, Stanley acquired Techrizon, LLC (“Techrizon”), apremier provider of software, training, simulation and information securitysolutions, for $30.3 million, net of cash acquired, and financed theacquisition with a combination of existing cash and borrowings under its seniorcredit facility. Additionally, acquisition related costs of $0.3 million wereincurred.

 

11

----

Table of Contents

 

The acquisition combined the specialized expertise of Techrizon withStanley’s proven systems integration capabilities. The two companies providecomplementary information technology services and together offer an expandedsuite of solutions for the Company’s combined customer base. Techrizon providessupport to the U.S. Army’s Communications-Electronics Life Cycle ManagementCommand and Fires Center of Excellence. Techrizon has also provided support tothe U.S. Army’s Field Artillery School since 1976.

 

In accordance with SFAS No. 141,*Business Combinations* (“SFAS No. 141”), the acquisition wasaccounted for under the purchase method of accounting. Accordingly, the resultsof Techrizon have been included in the accompanying condensed consolidatedfinancial statements since the date of acquisition. The purchase price has beenallocated to the assets acquired and liabilities assumed based upon theirestimated fair values. Of the purchase consideration, $25.4 million has beenallocated to goodwill, based upon the excess of the purchase price over the$2.7 million estimated fair value of net tangible assets and $2.5 million hasbeen assigned to other identifiable intangible assets. The entire amountallocated to goodwill is expected to be deductible for tax purposes.

 

Included in identifiable intangibles arising from the Techrizonacquisition are $1.6 million, $0.8 million and $0.1 million related to customercontracts and relationships, order backlog and non-compete agreements,respectively. The weighted average amortization period for customer contractsand relationships, order backlog and non-compete agreements is five years, twoyears and three years, respectively. No residual value has been assumed at theend of their useful lives.

 

**8****.  STOCKHOLDERS’EQUITY**

 

***Common Stock***

 

Stanley has one class of common stock, with each share of common stockhaving one vote per share. Holders of common stock share in dividends declared,if any, by the board of directors.

 

Stanley purchased 7,715 shares of treasury stock from its stockholdersfor $0.2 million during the three months ended June 27, 2008. The shareswere recorded at market price using the cost method of accounting.

 

***DeferredCompensation and Stock Options***

 

Under the 2006 Omnibus Incentive Compensation Plan (the “Omnibus Plan”),Stanley is authorized to provide awards for a maximum of 4,000,000 shares ofcommon stock to any director, officer, employee or consultant. The Omnibus Planallows for cash awards, restricted stock awards, restricted stock units, stockappreciation rights, performance units, fully vested shares, option awards andother equity-related awards. Vesting periods of these awards vary. Except asotherwise determined by the board of directors, the option awards may not havean exercise price less than the fair market value of the common stock on the datethe option is granted.

 

Prior to July 2006, under the Executive Deferred Compensation andEquity Incentive Plan (the “Executive Plan”), Stanley was authorized to provideawards for a maximum of 15,000,000 shares of common stock to key employees andnon-employee directors. The Executive Plan allowed for cash awards, restrictedstock awards, restricted stock trust awards and option awards. Vesting periodsof these awards varied. Holders of restricted stock awards have voting rightswith respect to the awards. The trustee of the restricted stock trust awardshas voting rights with respect to the trust awards. The option awards have anexercise price that ranges from 85% to 110% of the fair market value of thecommon stock on the date the option was granted.

 

Effective April 1, 2006, the Company adopted the provisions ofSFAS No. 123(R) using the prospective-transition method. Under thattransition method, compensation cost recognized in the three months ended June 27,2008 includes compensation cost for all share-based payments granted on orafter April 1, 2006, based on the grant-date fair value estimated inaccordance with the provisions of SFAS No. 123(R). The Company is requiredto account for any portion of awards outstanding at the date of adoption of SFASNo.123(R) using the accounting principles originally applied to thoseawards.

 

The Company has presented all tax benefits resulting from stock-basedcompensation awarded prior to the adoption of SFAS No. 123(R) asoperating cash flows in the accompanying unaudited condensed consolidatedstatements of cash flows. The tax benefits associated with share-basedcompensation in effect prior to the adoption of SFAS No. 123(R) were$1.9 million and $0.4 million for the three months ended June 27, 2008 andJune 30, 2007, respectively. For share-based payment transactions awardedsubsequent to the adoption of SFAS No. 123(R), the tax benefits in excessof the compensation cost recognized are classified as financing cash flows. Theexcess tax benefits associated with share-based payment transactions accountedfor after the adoption of SFAS No. 123(R) were $0.4 million and fivethousand dollars for the three months ended June 27, 2008 and June 30,2007, respectively, and are disclosed within the financing activities in theaccompanying Condensed Consolidated Statements of Cash Flows.

 

The fair value of each option award is estimated on the date of grantusing the Black-Scholes-Merton closed-form option-pricing model that uses theassumptions noted in the following table. Expected volatility is based on aweighted-average of the historical volatilities of similar public entities. Theexpected term of options granted is derived using the simplified method andrepresents the period of time that options granted are expected to beoutstanding. Options granted meet the criteria of “plain vanilla” for purposesof applying the simplified method. The risk-free rate for periods within thecontractual life of the option is based on the U.S. Treasury 

 

12

----

Table of Contents

 

yield curve in effect at the time of grant. The Company has not issueddividends in the past nor does it currently intend to issue dividends in thenear future.

 
| ** **               | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| Expected volatility      |       | 32.3                             | %          | 34.5 | % |
| Expected dividends       |       | 0.0                              | %          | 0.0 | % |
| Expected term (in years) |       | 3.5                              |       | 3.5 |   |
| Risk-free rate           |       | 2.6                              | %          | 4.1 | % |

 

During the three months ended June 27, 2008, the Company granted378,385 stock option awards at a weighted-average exercise price of $25.15,which reflects the fair market value of the shares on the date of grant. Theseoptions vest ratably over three years and have a contractual term of five years.The options have a weighted-average fair value of $6.86 per share. Theweighted-average fair value of stock option awards granted during the threemonths ended June 27, 2008 and June 30, 2007, as determined by theBlack-Scholes-Merton closed-form option-pricing model, was $6.86 and $4.80,respectively. The stock option awards that vested during the three months endedJune 27, 2008 and June 30, 2007 had a combined fair value of $1.2million and $0.1 million, respectively.

 

A summary of option activity for the year ended March 31, 2008 andthe three months ended June 27, 2008 is presented below.

 
| **Options**                       | ** ** | **Number of Shares** | ** ** | **Weighted-Average  Exercise Price** | ** ** | **Aggregate Intrinsic  Value (in thousands)** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|-------------------------------------------|------------|--------------------------------------------------------------|------------|
| Outstanding at April 1, 2007 |       | 2,014,986                      |       | $                                         | 4.87       |                                                         |       |   |
| Granted                           |       | 570,125                        |       | $                                         | 16.21      |                                                         |       |   |
| Exercised                         |       | (784,636                       | )          | $                                         | 3.14       |                                                         | $          | 16,998 |   |
| Forfeited                         |       | (191,000                       | )          | $                                         | 9.83       |                                                         |       |   |
| Outstanding at April 1, 2008 |       | 1,609,475                      |       | $                                         | 9.15       |                                                         |       |   |
| Granted                           |       | 378,385                        |       | $                                         | 25.15      |                                                         |       |   |
| Exercised                         |       | (56,407                        | )          | $                                         | 9.61       |                                                         | $          | 1,125 |   |
| Forfeited                         |       | (39,212                        | )          | $                                         | 10.57      |                                                         |       |   |
| Outstanding at June 27, 2008 |       | 1,892,241                      |       | $                                         | 12.30      |                                                         | $          | 39,882 |   |

 

A summary of nonvested stock option activity for the three months endedJune 27, 2008 is presented below.

 
| **Nonvested Options**        | ** ** | **Number of Shares** | ** ** | **Weighted-Average  Fair Value** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|---------------------------------------|------------|
| Outstanding at April 1, 2008 |       | 1,010,625                      |       | $                                     | 4.30       |   |
| Granted                           |       | 378,385                        |       | $                                     | 6.86       |   |
| Vested                            |       | (278,694                       | )          | $                                     | 4.19       |   |
| Forfeited                         |       | (37,862                        | )          | $                                     | 4.04       |   |
| Outstanding at June 27, 2008 |       | 1,072,454                      |       | $                                     | 5.24       |   |

 

A summary of vested stock options and stock options expected to vest atJune 27, 2008 is presented below.

 
| **Options**                      | ** ** | **Number of  Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-Average  Remaining  Contractual Term  (years)** | ** ** | **Aggregate  Intrinsic  Value (in  thousands)** | ** ** |
|----------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------------------------------|------------|
| Exercisable                      |       | 819,787                    |       | $                                       | 6.21       |                                                            | 4.9        |                                                 | $          | 22,271 |   |
| Expected to vest                 |       | 992,020                    |       | $                                       | 16.96      |                                                            | 5.1        |                                                 | $          | 16,291 |   |
| Exercisable and expected to vest |       | 1,811,807                  |       |                                    |       |                                                            |       |                                                 |       |

 

Prior to fiscal 2009, the Company primarily granted restricted stockawards to employees that vest ratably over the service period. Beginning infiscal 2009, in addition to time vested awards, the Company granted certainrestricted stock awards that vest only if the Company meets certain revenue andearnings targets determined by the Board of Directors. During the three monthsended June 27, 2008, the Company granted 534,714 restricted stock awardsat a weighted-average fair value of $25.12 per share with a vesting period offour years provided the Company meets the revenue and earnings targets.Additionally, during the three months ended June 27, 2008, the Companygranted 37,651 restricted stock awards at a weighted-average fair value of$25.15 per share that vest ratably over three years. The weighted-average fairvalue of restricted stock awards granted during the three months ended June 27,2008 and June 30, 2007 was $25.12 and $15.26, respectively. The restrictedstock awards that vested during the three months ended June 27, 2008 and June 30,2007 had a combined fair value of $0.7 million and $0.0 million, respectively.

 

13

----

Table of Contents

 

A summary of restricted stock activity for the three months ended June 27,2008 is presented below.

 
| **Restricted Stock**         | ** ** | **Number of Shares** | ** ** | **Weighted-Average  Fair Value** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|---------------------------------------|------------|
| Outstanding at April 1, 2008 |       | 149,967                        |       | $                                     | 16.17      |   |
| Granted                           |       | 581,365                        |       | $                                     | 25.12      |   |
| Vested                            |       | (43,427                        | )          | $                                     | 15.26      |   |
| Forfeited                         |       | (4,408                         | )          | $                                     | 15.26      |   |
| Outstanding at June 27, 2008 |       | 683,497                        |       | $                                     | 23.85      |   |

 

During the three months ended June 27, 2008 and June 30,2007, the Company recognized $1.1 million and $0.4 million of share-basedcompensation costs, respectively. As of June 27, 2008, there was $20.5million of total unrecognized compensation cost related to nonvestedshare-based compensation arrangements granted under the Omnibus Plan. That costis expected to be recognized over a weighted-average period of 3.4 years.

 

Prior to the adoption of SFAS No. 123(R), the fair market value ofeach issuance and grant was determined by the Company on a contemporaneousbasis. The Company recorded stock-based deferred compensation in aggregate ofapproximately $1.4 million in connection with compensatory grants of stockoptions and shares of restricted stock awarded during fiscal 2006 and 2007.Approximately, $0.1 million of compensation expense was recognized during thethree months ended June 27, 2008. The remaining deferred compensation of$0.7 million will be amortized over the remaining three year vesting period ofthe awards.

 

**9.  COMMITMENTS AND CONTINGENCIES**

 

***Contract Cost Audits***—Substantially all payments to Stanley under cost-reimbursable contracts andsubcontracts with the U.S. Government are provisional payments, which aresubject to potential adjustments upon audit by the Defense Contract AuditAgency. Audits through December 31, 2004 have been completed. In theopinion of management, adjustments resulting from the audits of all subsequentyears are not expected to have a material effect on the Company’s financialposition or results of operations.

 

**10.  SUBSEQUENT EVENTS**

 

***Acquisition of Oberon Associates Inc.—***On July 15, 2008, Stanley completed itsacquisition of Oberon Associates, Inc. (“Oberon”), an engineering,intelligence operations and information technology services company. The acquisitionwas consummated pursuant to an Agreement and Plan of Merger, dated June 10,2008 (the “Merger Agreement”), by and among Stanley, Oberon, Omaha AcquisitionCorporation, a newly-formed and wholly-owned subsidiary of Stanley (“Merger Sub”),and certain shareholders of Oberon. Pursuant to the terms of the MergerAgreement, Merger Sub merged with and into Oberon, with Oberon continuing asthe surviving corporation and as Stanley’s wholly-owned subsidiary. Under theterms of the Merger Agreement, Stanley acquired all of the outstanding equityinterests in Oberon for a purchase price of approximately $170 million, net ofapproximately $3 million of cash acquired. This amount is subject to review inthe 60 calendar days following the closing and is potentially subject tofurther net working capital and other adjustments based on the results of thatreview.

 

***Partial Exercise of Accordion Feature of Amendedand Restated Credit Agreement—***On July 15, 2008, Stanley exercised, in part, the accordion optionfeature under its Amended and Restated Credit Agreement, dated as of October 10,2007 (“Credit Agreement”), to increase the aggregate commitment under therevolving credit facility contemplated by the Credit Agreement by $69.1million. The exercise of the accordion feature increased the amount of thelenders’ current aggregate commitment under the facility from $186.5 million to$255.6 million, which includes a $219.1 million revolving credit facility and a$36.5 million term loan.

 

Immediatelyfollowing the foregoing exercise of the accordion feature under the CreditAgreement, Stanley borrowed $174.0 million under the revolving credit facilityand used the proceeds to fund the acquisition of Oberon, as described above.Stanley paid aggregate lender fees equal to $0.6 million in connection with theexercise of the accordion feature.

 

14

----

Table of Contents

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*You should read the following discussion inconjunction with the unaudited and audited consolidated financial statementsand the accompanying notes included in this Form 10-Q and our annualreport on Form 10-K for the fiscal year ended March 31, 2008. Thisdiscussion contains forward-looking statements that involve risks anduncertainties. Our actual results may differ materially from those discussed inor implied by any of the forward-looking statements as a result of variousfactors, including but not limited to, those listed in**the “Risk Factors” section of this Report, as well as in our AnnualReport on Form 10-K for the year ended March 31, 2008, filed by uswith the Securities and Exchange Commission on May 28, 2008. We caution readers not to place unduereliance on any such forward-looking statements, which speak only as of thedate made. We undertake no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise, after the date of this Form 10-Q.*

 

**Overview**

 

We provide information technology services and solutions to U.S.defense and federal civilian government agencies. We offer our customerssolutions and expertise to support their mission-essential needs at any stageof program, product development or business lifecycle through five serviceareas: systems engineering, enterprise integration, operational logistics,business process outsourcing and advanced engineering and technology. As asystems integrator, we apply these five service areas to enable our customersto achieve interoperability between different business processes andinformation technology systems.

 

Contracts funded by federal government agencies account forsubstantially all of our revenues. As of June 27, 2008, we had more than200 active contractual engagements across 44 federal government agencies. Ourcustomers include the Department of Defense (including all major agencieswithin the Department of Defense), the Department of State, the Department ofHomeland Security, the Department of Transportation, the Department of theTreasury, NASA, the Department of Justice and the Department of Health andHuman Services.

 

**Key Metrics Evaluated By Management**

 

We manage and assess the performance of our business by evaluating avariety of financial and non-financial metrics derived from and in addition toour United States generally accepted accounting principles, or GAAP, results.The most significant of these metrics are discussed below.

 

***Revenue Growth***

 

We closely monitor revenue growth in order to assess the performance ofour business. In monitoring our revenue growth, we focus on both internalrevenue growth and revenue growth through acquisitions. Our internal revenuegrowth is driven primarily by two factors. First, internal revenue growth isdriven by adding new customers. For example, over the past several years wehave added the Department of the Treasury’s Office of the Comptroller of theCurrency, the National Guard Bureau, the Department of Transportation andagencies in the intelligence community as new customers. Second, internalrevenue growth is driven by increasing revenues under existing contracts andtask orders with customers. For example, since the initial award of ourcontract with the Department of State for the provision of passport processingand support services, the scope of services provided by us, and the revenuesgenerated by those services, have grown significantly.

 

Our revenue growth strategy also includes the pursuit of strategicacquisitions. We have completed the following six acquisitions since 2000:

 
| **Acquired  Company**               | ** ** | **Date of Acquisition** |
|-------------------------------------|------------|-------------------------|
|                                |       |                    |
| GCI Information Services, Inc. |       | January 2000       |
| CCI, Incorporated                   |       | September 2002     |
| Fuentez Systems Concepts, Inc. |       | December 2003      |
| Morgan Research Corporation         |       | February 2006      |
| Techrizon, LLC                      |       | April 2007         |
| Oberon Associates, Inc.        |       | July 2008          |

 

15

----

Table of Contents

 

***Backlog***

 

We monitor backlog, which provides us with visibility of our futurerevenues, as a measure of the strength of our target markets and our ability toretain existing contracts and win new contracts. The following table summarizesour backlog as of the dates indicated:

 
| ** **    | ** ** | **As of**              | ** ** |
|---------------|------------|-----------------------------|------------|
| ** **    | ** ** | **June 27, 2008** | ** ** | **June 30, 2007** | ** ** |
| ** **    | ** ** | **(in millions)**      | ** ** |
| Backlog:      |       |                        |       |   |   |
| Funded        |       | $                           | 308.5      |   | $ | 241.5 |   |
| Unfunded      |       | 1,687.9                     |       | 744.5 |   |
| Total Backlog |       | $                           | 1,996.4    |   | $ | 986.0 |   |

 

Each year, a significant portion of our revenues is derived from ourbacklog, and a substantial portion of our backlog represents work related tothe continuation of services and solutions under contracts or projects where weare the incumbent provider.

 

We define backlog as the amount of revenues we expect to realize (i) overthe remaining base contract performance period and (ii) from the exerciseby the customer of option periods that we reasonably believe will be exercised,in each case from signed contracts in existence as of the measurement date. Wedo not include contract ceiling values, which represent the maximum amount ofcontract awards that could be awarded to all contractors under government-wideacquisition contracts (“GWACs”) or agency-specific indefinite delivery/indefinitequantity (“ID/IQ”) contracts in our backlog calculation. We also do not includein backlog (i) the expected amount of revenues that would be realized if,and when, we were successful in the re-compete of signed contracts in existenceas of the measurement date or (ii) the expected amount of revenues thatwould be realized from future unidentified growth on signed contracts and taskorders in existence as of the measurement date.

 

We define funded backlog as the portion of our backlog for whichfunding currently is appropriated and obligated to us under a signed contractor task order by the purchasing agency, or otherwise authorized for payment tous by a customer upon completion of a specified portion of work, less theamount of revenue we have previously recognized under the contract. Our fundedbacklog does not include the full potential value of our contracts, becauseCongress often appropriates funds to be used by an agency for a particularprogram or contract on a yearly or quarterly basis, even though the contractmay call for performance over a number of years. As a result, contractstypically are only partially funded at any point during their term, and all orsome of the work to be performed under the contracts may remain unfunded unlessand until Congress makes subsequent appropriations and the procuring agencyallocates funding to the contract.

 

***Contract Mix***

 

We work with the federal government under contracts employing one ofthree types of price structures: cost-plus-fee, time-and-materials andfixed-price. Cost-plus-fee contracts are typically lower risk arrangements andthus yield lower profit margins than time-and-materials and fixed-pricearrangements. Because the customer usually specifies the type of contract for aparticular contractual engagement, we generally do not influence the choice ofcontract type. However, where we do have the opportunity to influence thecontract type, and where customer requirements are clear, we prefertime-and-materials and fixed-price arrangements rather than cost-plus-feearrangements because time-and-materials and fixed-price contracts, as comparedwith cost-plus-fee contracts, generally provides us with a greater opportunityto generate higher margins and provides the customer with a fixed value forservices provided. Our successful recompete win of the contract with theDepartment of State to support passport production and services has changedfrom a cost-plus-fee contract type to a time-and-materials contract type. Thischange has resulted in an increase to our percentage of time-and-materialscontracts and a corresponding reduction in the percentage of cost typecontracts. The following table summarizes our historical contract mix, measuredas a percentage of total revenues, for the periods indicated:

 
| ** **         | ** ** | **Three Months Ended** | ** ** |
|--------------------|------------|----------------------------------|------------|
| ** **         | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| Cost-plus-fee      |       | 33                               | %          | 48 | % |
| Time-and-materials |       | 47                               | %          | 36 | % |
| Fixed-price        |       | 20                               | %          | 16 | % |

 

***Headcount and LaborUtilization***

 

We generate revenues primarily from services provided by our employeesand subcontractors, with services provided by our employees generally yieldinghigher profits than services provided by our subcontractors. Our ability tohire and deploy additional qualified employees is a key driver of our abilityto generate additional revenues, and our successful deployment of existingemployees on direct-billable jobs is a key driver of our profitability.

 

16

----

Table of Contents

 

***Indirect Costs***

 

Indirect costs constitute a substantial portion of the costs associatedwith our performance of contracts for customers. We carefully monitor the amountby which our actual indirect costs under our contracts vary from those expectedto be incurred, which we refer to as indirect expense variance. Increasedindirect rates can adversely affect our ability to achieve attractive contractpricing, our profitability, and our competitive position, by resulting inunexpected increased costs to our customers.

 

***Days SalesOutstanding***

 

Days sales outstanding, or DSO, is a measure of how efficiently wemanage the billing and collection of our accounts receivable, our mostsignificant working capital requirement. For the three months ended June 27,2008, we reported DSO of 83 days, an increase from 82 days we reported for thefiscal year ended March 31, 2008. The increase in DSO was primarily theresult of higher average receivables balances during the quarter and the timingof receipts from two customers with new payment processing systems beingimplemented.

 

***Unbilled Receivables***

 

Unbilled receivables are comprised of work-in-process that will bebilled in accordance with contract terms and delivery schedules, as well asamounts billable upon final execution of contracts, contract completion,milestones or completion of rate negotiations. Because the billing of unbilledreceivables is contingent on those events, changes in the relative amount ofunbilled receivables have an impact on our working capital and liquidity.

 

Payments to us for performance on certain of our federal governmentcontracts are subject to audit by the DCAA and are also subject to governmentfunding. We provide a reserve against our receivables for estimated losses thatmay result from rate negotiations, audit adjustments and/or government fundingavailability. To the extent that actual adjustments due to rate negotiations,audit adjustments or government funding availability differ from our estimates,our revenue may be impacted. Because substantially all of our receivables comefrom contracts funded by the federal government, the likelihood of a materialloss on an uncollectible account from this activity is low.

 

**Critical Accounting Policies**

 

The discussion and analysis of our financial condition and results ofoperations is based on our consolidated financial statements, which have beenprepared in accordance with GAAP. The preparation of these condensedconsolidated financial statements requires management to make estimates andassumptions that affect reported amounts, and actual results may differ fromthe estimates. Our significant accounting policies are described in Note 2to our unaudited condensed consolidated financial statements included in thisreport. We consider the following accounting policies to be critical to theunderstanding of our financial condition and results of operations becausethese policies require the most difficult, subjective or complex judgments onthe part of our management in their application, often as a result of the needto make estimates about the effect of matters that are inherently uncertain,and are the most important to our financial condition and operating results.

 

***Revenue Recognition***

 

We recognize revenue under our contracts when a contract has beenexecuted, the contract price is fixed and determinable, delivery of services orproducts has occurred and collectibility is considered probable and can be reasonablyestimated. We use a standard management process to determine whether allrequired criteria for revenue recognition have been met, which includes regularreviews of our contract performance. This review covers, among other matters,progress against a schedule, outstanding action items, effort and staffing,quality, risks and issues, subcontract management, costs incurred, commitmentsand customer satisfaction. During this review, we determine whether the overallprogress on a contract is consistent with the effort expended.

 

Contract revenue recognition inherently involves the use of estimates.Examples of estimates include the contemplated level of effort to accomplishthe tasks under the contract, the cost of the effort and an ongoing assessmentof our progress toward completing the contract. From time to time, as part ofour standard management process, facts develop that require us to revise ourestimated total costs and revenues. To the extent that a revised estimateaffects contract profit or revenue previously recognized, we record thecumulative effect of the revision in the period in which the facts requiringthe revision become known. The full amount of an anticipated loss on any typeof contract is recognized in the period in which it becomes probable and can bereasonably estimated.

 

Under cost-plus-fee contracts, revenues are recognized as costs areincurred and include an estimate of applicable fees earned. We consider fixedfees under cost-plus-fee contracts to be earned in proportion to the allowablecosts actually incurred in performance of the contract for level of effortcontracts. For completion type cost-plus-fee contracts, fixed fees are earnedin proportion to the percentage of work completed. For time-and-materialscontracts, revenues are computed by multiplying the number of directlabor-hours expended in performance of the contract by the contractual billingrates and adding other billable direct and indirect costs. For 

 

17

----

Table of Contents

 

fixed-price contracts, revenues are recognized as services areperformed, using the percentage-of-completion method, applying the cost-to-costor units of delivery method, in accordance with ARB 45 and SOP 81-1.

 

For cost-plus-award fee type contracts, we recognize the expected feeto be awarded by the customer at the time such fee can be reasonably estimated,based on factors such as prior award experience and communication with thecustomer regarding performance, including any interim performance evaluationsrendered by the customer. For cost-plus-incentive fee type contracts, themethod of calculating the incentive fee is specified in the contract and it istypically based on measuring actual costs to perform the contract against atarget cost to perform the contract. We prepare periodic estimates to completethe contract and adjust the incentive fee as required based on the contractincentive fee formula.

 

Our contracts with agencies of the government are subject to periodicfunding by the respective contracting agency. Funding for a contract may beprovided in full at inception of the contract or ratably throughout thecontract as the services are provided. From time to time, we may proceed withwork based on customer direction prior to the completion and signing of formalcontract documents. Such situations require completion of a formal internalreview process and management approval prior to commencement of work. Additionally,revenue associated with such work is recognized without profit and only when itcan be reliably estimated and realization is probable. We base our estimates onnotices to proceed from our customers, previous experience with customers,communications with customers regarding funding status, and our knowledge ofavailable funding for the contract or program. Pre-contract costs related tounsuccessful contract bids are expensed in the period in which we are notifiedthat the contract will not be issued.

 

Disputes occasionally arise in the normal course of our business due toevents such as delays, changes in contract specifications, and questions ofcost allowability or collectibility. Such matters, whether claims or unapprovedchange orders in the process of negotiation, are recorded at the lesser oftheir estimated net realizable value or actual costs incurred, and only whenthe realization is probable and can be reliably estimated. Claims against usare recognized where a loss is considered probable and can be reasonablyestimated in amount.

 

***Contract CostAccounting***

 

As a contractor providing services primarily to the federal government,we must categorize our costs as either direct or indirect and allowable orunallowable. Direct costs are those costs that are identified with specificcontracts. These costs include labor, travel, subcontractor and consultantservices, third party materials we purchase under a contract and othernon-labor costs incurred in support of a contract. Indirect costs are thosecosts not identified with specific contracts. Rather, indirect costs areallocated to contracts in accordance with federal government rules andregulations. These costs typically include certain of our selling, general andadministrative expenses, fringe benefit expenses, overhead expenses anddepreciation and amortization costs. Direct and indirect costs that are notallowable under the Federal Acquisition Regulation or specific contractprovisions cannot be considered for reimbursement under our federal governmentcontracts. We must specifically identify these costs to ensure we comply withthese requirements. Our unallowable costs include a portion of our executivecompensation, certain employee morale activities, certain types of legal andconsulting costs, interest expense and the amortization of identifiedintangible assets, among others.

 

***Goodwill andIntangible Assets***

 

Goodwill represents the excess of cost over the fair value of nettangible and identifiable intangible assets of acquired companies. Inaccordance with SFAS No. 142,*Goodwilland Other Intangible Assets* (“SFAS No. 142”), we do notamortize goodwill. Rather, we test goodwill for impairment at least on anannual basis. Testing for impairment is a two-step process as prescribed by SFASNo. 142. The first step is a test for potential impairment, while thesecond step measures the amount of impairment, if any. Under the guidelines ofSFAS No. 142, we are required to perform an impairment test at least on anannual basis at any time during the fiscal year, provided that thetest is performed at the same time every year. An impairment loss would berecognized when the assets’ fair value is below their carrying value. Based onthe testing performed as of December 31, 2007, we determined that noimpairments existed as of December 31, 2007. Customer relationships andnon-competition agreements, backlog and contracts are amortized on astraight-line basis over periods ranging from five to seven years and two tofive years, respectively.

 

18

----

Table of Contents

 

**Results of Operations**

 

Our historical financial statements reflect the operating results ofour acquisitions from the date of acquisition. The following unaudited tablesset forth the results of operations expressed in dollars (in thousands) and asa percentage of revenues, for the periods below:

 
| ** **                                                     | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|
| **Consolidated Statements of Income Data** | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| Revenues                                                       |       | $                                | 172,566    |   | $ | 133,481 |   |
| Operating costs and expenses:                                  |       |                             |       |   |   |
| Cost of revenues                                               |       | 145,760                          |       | 112,329 |   |
| Selling, general and administrative                            |       | 10,659                           |       | 9,423 |   |
| Amortization of deferred compensation                          |       | 62                               |       | 75 |   |
| Depreciation and amortization                                  |       | 1,779                            |       | 1,609 |   |
| Total operating costs and expenses                             |       | 158,260                          |       | 123,436 |   |
| Operating income                                               |       | 14,306                           |       | 10,045 |   |
| Other income (expense):                                        |       |                             |       |   |   |
| Other income (expense)                                         |       | 2                                |       | — |   |
| Interest expense—net                                      |       | (411                             | )          | (1,062 | ) |
| Total other expenses                                           |       | (409                             | )          | (1,062 | ) |
| Income before taxes                                            |       | 13,897                           |       | 8,983 |   |
| Provision for income taxes                                     |       | (5,580                           | )          | (3,619 | ) |
| Net income                                                     |       | $                                | 8,317      |   | $ | 5,364 |   |

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|
| **As a Percentage of Revenues** | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| Revenues                                            |       | 100.0                            | %          | 100.0 | % |
| Operating costs and expenses:                       |       |                             |       |   |   |
| Cost of revenues                                    |       | 84.5                             |       | 84.2 |   |
| Selling, general and administrative                 |       | 6.2                              |       | 7.0 |   |
| Amortization of deferred compensation               |       | —                           |       | 0.1 |   |
| Depreciation and amortization                       |       | 1.0                              |       | 1.2 |   |
| Total operating costs and expenses                  |       | 91.7                             |       | 92.5 |   |
| Operating income                                    |       | 8.3                              |       | 7.5 |   |
| Other income (expense):                             |       |                             |       |   |   |
| Other income (expense)                              |       | —                           |       | — |   |
| Interest expense—net                           |       | (0.2                             | )          | (0.8 | ) |
| Total other expenses                                |       | (0.2                             | )          | (0.8 | ) |
| Income before taxes                                 |       | 8.1                              |       | 6.7 |   |
| Provision for income taxes                          |       | (3.3                             | )          | (2.7 | ) |
| Net income                                          |       | 4.8                              | %          | 4.0 | % |

 

We generate revenues primarily from services provided by our employeesand subcontractors, with services provided by our employees generally yieldinghigher profits than services provided by our subcontractors. To a lesserdegree, we earn revenues through reimbursable travel and other reimbursabledirect and indirect costs to support the contractual effort and third-partyhardware and software that we purchase and integrate for customers as part ofthe solutions we provide.

 

Our most significant expense is cost of revenues, which includes thecosts of direct labor, subcontractors, materials, equipment, non-reimbursabletravel and an allocation of indirect costs (other than selling, general andadministrative expenses and depreciation). Indirect costs consist primarily offringe benefits, human resources, recruiting, training, other overhead andcertain other non-direct costs that are necessary to support direct labor. Thenumber and types of personnel, their salaries and other costs, can have a significantimpact on our cost of revenues.

 

19

----

Table of Contents

 

Our selling, general and administrative expenses include costs not directlyassociated with performing work for our customers. These costs include wagesplus associated fringe benefits, stock-based compensation charges, rent, traveland insurance. Among the functions covered by these expenses are sales,business development, contract administration, legal, finance, accounting,human resources, information technology and general management. Most of thesecosts are allowable costs under the cost accounting standards for contractingwith the federal government and are recoverable under cost-plus-fee contracts.

 

Our depreciation and amortization expenses include the amortization ofpurchased intangibles in connection with acquisitions, the amortization ofleasehold improvements and the depreciation of property and equipment purchasedin the ordinary course of business.

 

Certain revenues and payments we receive are based on provisionalbillings and payments that are subject to adjustment after audit. Federalgovernment agencies have the right to challenge our cost estimates and allocationmethodologies with respect to government contracts. In addition, contracts withthese agencies are subject to audit and possible adjustment to give effect tounallowable costs under cost-plus-fee contracts or to other regulatoryrequirements affecting both cost-plus-fee and fixed-price contracts.

 

***Comparison ofResults of Operations for the Three Months Ended June 27, 2008 and June 30,2007***

 

***Revenues.*** Our consolidated revenues increased $39.1 million, or 29.3%, from $133.5million for the three months ended June 30, 2007, to $172.6 million forthe three months ended June 27, 2008. The increase was primarily due to$12.0 million of increased revenues attributable to our contract with the U.S.Citizenship and Immigration Services, $9.9 million of increased revenuesattributable to expanding demand for passport services for the Department ofState’s Bureau of Consular Affairs, $5.5 million of increased revenuesattributable to systems and software engineering services for the U.S. Army’sCommunications-Electronics Life Cycle Management Command and Fires Center ofExcellence, $2.1 million of increased revenues attributable to contracts thatinclude specialized engineering and technology services provided to the U.S.Army Aviation and Missile Command (“AMCOM”), $1.7 million of increased revenuesattributable to information systems support provided to the U.S. Marine Corps,to include software and network engineering services for the Marine CorpsRecruiting Command (“MCRC”), and $0.9 million of increased revenuesattributable to production and engineering services under various SPAWARprograms. The balance of the increased revenues of $7.0 million was primarilyrelated to continued growth providing enterprise integration and operationalsupport services for the Department of Defense, and ongoing logistics supportfor the Army’s equipment reset effort in the United States and abroad.

 

***Cost of Revenues.*** Our cost of revenues increased $33.5 million, or 29.8%, from $112.3 million forthe three months ended June 30, 2007, to $145.8 million for the threemonths ended June 27, 2008. This increase was primarily the result ofadditional costs attributable to revenues associated with the increasedservices provided under the contracts referred to above. Cost of revenuesrepresented 84.5% of revenues for the three months ended June 27, 2008, ascompared to 84.2% of revenues for the three months ended June 30, 2007.This increase was primarily the result of start-up costs associated with theramp up of new contracts and SFAS 123(R) share-based payment expenses.

 

***Selling, General andAdministrative.***  Our selling, general andadministrative expense increased $1.3 million, or 13.1%, from $9.4 million forthe three months ended June 30, 2007, to $10.7 million for the three monthsended June 27, 2008. This increase was primarily due to higher selling,general and administrative expenses to support expanding operations fromorganic and acquired growth, SFAS 123(R) share-based payment expenses,higher recruiting costs to expand our workforce, and additional costsassociated with legal, internal and external audit, and tax complianceservices. Selling, general and administrative expenses represented 6.2% ofrevenues for the three months ended June 27, 2008, as compared to 7.0% ofrevenues for the three months ended June 30, 2007. This decrease wasprimarily the result of continued realization of efficiencies in our corporateinfrastructure.

 

***Depreciation andAmortization.***  Our depreciation andamortization expense increased $0.2 million, or 10.5%, from $1.6 million forthe three months ended June 30, 2007, to $1.8 million for the three monthsended June 27, 2008. The increase in depreciation and amortization wasprimarily due to depreciation expense associated with capital expenditures andleasehold improvements.

 

***Interest Expense,Net.***  Our net interest expense decreased $0.7million from $1.1 million for the three months ended June 30, 2007, to$0.4 million for the three months ended June 27, 2008. The decrease in netinterest expense was due to the repayment of borrowings under our senior creditfacility and a lower overall borrowing rate.

 

***Net Income.*** Our net income increased $2.9 million from $5.4 million for the three monthsended June 30, 2007, to $8.3 million for the three months ended June 27,2008. The primary reasons for the increase in net income were higher operatingincome, lower interest expense and a slightly lower effective income tax rate.

 

**Liquidity and Capital Resources**

 

As of June 27, 2008, we had approximately $5.7 million in availablecash. On July 15, 2008, we exercised, in part, the accordion option featureunder the Credit Agreement to increase the aggregate commitment under therevolving credit facility contemplated by the Credit Agreement by $69.1million.  The exercise of the accordionfeature increased the amount of the lenders’ current aggregate commitment underthe facility from $186.5 million to $255.6 million, which facility as a resultincludes a $219.1 million revolving credit facility and a $36.5 million termloan.  Immediately following theforegoing exercise of the accordion feature under the Credit Agreement, weborrowed approximately $174.0 million under our senior credit facility to fundthe purchase of Oberon Associates, Inc., and paid aggregate lender fees equalto $0.6 million in connection with the exercise of the accordion feature.  All other terms of the Credit Agreementremained unchanged.  We have bothshort-term and long-term liquidity requirements as described in more detailbelow.

 

20

----

Table of Contents

 

***Short-Term Liquidity Requirements.***  We generally consider our short-termliquidity requirements to consist primarily of funds necessary to finance thecosts of operations pending the billing and collection of accounts receivable.We expect to meet our short-term liquidity needs through existing cash balancesand cash provided by our operations and, if necessary, from borrowings underour senior credit facility.  

 

***Long-Term Liquidity Requirements.***  We generally consider our long-term liquidityrequirements to consist primarily of funds necessary to pay scheduled debtmaturities, non-recurring capital expenditures and the costs associated withacquisitions that we may pursue. Historically, we have satisfied our long-termliquidity requirements through various sources of capital, including cashprovided by operations, equity offerings and borrowings under our senior creditfacility. 

 

We believe that these sources of capital will continue to be availableto us in the future to fund our long-term liquidity requirements. However, ourability to incur additional debt is dependent upon a number of factors,including our degree of leverage, the value of our unencumbered assets,borrowing restrictions imposed by existing lenders and general marketconditions. In addition, our ability to raise funds through the issuance ofequity securities is dependent upon, among other things, general marketconditions and market perceptions about us. We will continue to analyze whichsource of capital is most advantageous to us at any particular point in time,but the equity markets may not be consistently available on terms that areattractive, or at all.  

 

We expect we will require additional borrowings, including borrowingsunder our senior credit facility, to satisfy our long-term liquidityrequirements. Other sources of liquidity may be sales of common or preferredstock.  

 

***Cash Flows***

 

Accounts receivable represents our largest working capital requirement.We bill most of our customers monthly after services are rendered. Ouroperating cash flow is primarily affected by the overall profitability of ourcontracts, our ability to invoice and collect from our customers in a timelymanner, and our ability to manage our vendor payments.

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **June 27, 2008**      | ** ** | **June 30, 2007** | ** ** |
| ** **                                           | ** ** | **(in millions)**           | ** ** |
| Net cash provided by (used in) operating  activities |       | $                                | 8.1        |   | $ | (6.4 | ) |
| Net cash used in investing activities                |       | $                                | (3.4       | ) | $ | (31.9 | ) |
| Net cash provided by financing activities            |       | $                                | 0.6        |   | $ | 25.5 |   |

 

Net cash provided by operating activities of $8.1 million for the threemonths ended June 27, 2008 primarily reflected our net income plusdepreciation and amortization expenses for that period, a $4.7 million decreasein accounts receivable, $1.9 million of income tax benefits from stockcompensation and $1.1 million of share-based payment expense, partially offsetby a $10.2 million decrease in accounts payable. For the three months ended June 30,2007, net cash used in operating activities of $6.4 million consisted primarilyof net income plus depreciation and amortization expenses, offset by a $7.1million increase in accounts receivable and a $6.2 million decrease in accountspayable.

 

Net cash used in investing activities of $3.4 million for the threemonths ended June 27, 2008 consisted primarily of leasehold improvementsfor a new facility leased in Alexandria, Virginia. Net cash used in investingactivities of $31.9 million for the three months ended June 30, 2007consisted primarily of $30.5 million for the purchase of Techrizon and $1.3million for the purchase of property and equipment used in the ordinary courseof business.

 

Net cash provided by financing activities of $0.6 million for the threemonths ended June 27, 2008 consisted primarily of $0.5 million of proceedsfrom the exercise of stock options. Net cash provided by financing activitiesof $25.5 million for the three months ended June 30, 2007 consistedprimarily of $25.7 million in borrowings under the revolving portion of oursenior credit facility to support the acquisition of Techrizon.

 

***Credit Facility andBorrowing Capacity***

 

On October 10, 2007, we entered into an Amended and RestatedRevolving Credit and Term Loan Agreement (the “Amended Credit Agreement”) witha group of lenders for which SunTrust Robinson Humphrey, Inc. acted assole book manager and lead arranger, SunTrust Bank acted as administrativeagent and M&T Bank and BB&T Bank acted as co-documentation agents. TheAmended Credit Agreement amends and restates the previous credit agreemententered into in February 2006. In connection with the Amended CreditAgreement, we paid fees of approximately $0.5 million.

 

The Amended Credit Agreement increased the amount of the lenders’aggregate commitment under the facility from $87.0 million to $187.0 million,which includes a $150.0 million revolving credit facility and a $37.0 millionterm loan. The term loan commitment matures on January 31, 2012 and therevolving commitment matures on October 31, 2012. The Amended CreditAgreement also increased the letter of credit commitment from $5.0 million to$10.0 million, increased the swing line facility from 

 

21

----

Table of Contents

 

$5.0 million to $20.0 million and eliminated the requirement to hedge aportion of our outstanding indebtedness under our senior credit facility.

 

Under the terms of the amended credit facility, we are entitled torequest an increase in the size of the credit facility by an amount not greaterthan $125.0 million in the aggregate. If any lender elects not to increase itscommitment under the senior credit facility, we may designate another bank orother financial institution to become a party to the credit facility.

 

The Amended Credit Agreement also contains a number of affirmative andrestrictive covenants, including limitations on mergers, consolidations anddissolutions; sales of assets; investments and acquisitions; indebtedness andliens; repurchases of shares of capital stock and options to purchase shares ofcapital stock; transactions with affiliates; sale and leaseback transactions;and restricted payments.

 

In addition, the Amended Credit Agreement provides that we are requiredto meet the following financial covenants:

 

·                  a fixed chargecoverage ratio as of the end of any fiscal quarter of not less than 1.35 to1.00, based upon the ratio of (i) consolidated EBITDA (as defined in theAmended Credit Agreement) less the actual amount paid by us and our subsidiariesin cash on account of capital expenditures and taxes to (ii) consolidatedinterest expense for such period, scheduled principal payments required to bemade on consolidated total debt during such period and certain restrictedpayments paid during such period, in each case measured for the fourconsecutive fiscal quarters ending on or immediately prior to such date; and

 

·                  a maximumleverage ratio not greater than 3.75 to 1.00, based upon the ratio of (i) consolidatedtotal debt to (ii) consolidated EBITDA (as defined in the Amended CreditAgreement).

 

As of June 27, 2008, we had $36.5 million of term loanindebtedness and $0.0 million of revolving indebtedness outstanding under oursenior credit facility. As of June 27, 2008, our borrowing availabilityunder our amended $150.0 million revolving credit facility was $149.9 million(including outstanding letters of credit). As of June 27, 2008, we were in compliance with allcovenants under our senior credit facility.The obligations under our senior credit facility are unconditionallyguaranteed by each of our existing and subsequently acquired or organizedsubsidiaries and secured subsidiaries and are secured on a first-priority basisby security interests (subject to permitted liens) in substantially all assetsowned by us and each of our subsidiaries, including the shares of capital stockof our subsidiaries, subject to certain exceptions.

 

**Capital Expenditures**

 

Our capital expenditures were $3.4 million and $1.3 million for thethree months ended June 27, 2008 and June 30, 2007, respectively.Substantially all of these expenditures consisted of leasehold improvements andpurchases of office equipment.

 

**Off-Balance Sheet Arrangements**

 

We do not have any significant off-balance sheet arrangements asdefined in Item 303(a)(4)(ii) of SEC Regulation S-K as of June 27,2008.

 

**Recently Adopted Accounting Pronouncements**

 

In September 2006, the FASB issued Statement of FinancialAccounting Standards No. 157,*FairValue Measurements* (“SFAS 157”). SFAS 157 provides guidance formeasuring the fair value of assets and liabilities. It requires additionaldisclosures related to the extent to which companies measure assets andliabilities at fair value and the information used to measure fair value. Afair value hierarchy was established to classify the inputs used in measuringfair value. In February 2008, the FASB issued FASB Staff Position(FSP) FAS 157-2 deferring the effective date of SFAS 157 to fiscal yearsbeginning after November 15, 2008 for nonfinancial assets and nonfinancialliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually). Effective April 1,2008 we categorized our financial assets and liabilities measured at fair valueby level in the hierarchy based on the priority of the inputs used in thevaluation technique to measure fair value. See Note 2 to the CondensedConsolidated Financial Statements in Item 1 for expanded disclosurerequirements. We are assessing the impact the adoption of SFAS 157 fornonfinancial assets and nonfinancial liabilities will have on our financialposition, results of operations or cash flows.

 

**Recent Accounting Pronouncements**

 

In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 141(R), *Business Combinations*(“SFAS 141(R)”). SFAS 141(R) changes the requirements for an acquiringentity’s recognition and measurement of the assets acquired and liabilitiesassumed in a business combination. This statement is effective for fiscal yearsbeginning after December 15, 2008. We are in the process of determiningwhat effect, if any, the application of the provisions of SFAS 141(R) willhave on our financial position and results of operations.

 

22

----

Table of Contents

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 160, *Noncontrolling Interests in ConsolidatedFinancial Statements – An Amendment of ARB No. 51* (“SFAS 160”).SFAS 160 establishes new accounting and reporting standards for the non-controllinginterest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160is effective for fiscal years beginning on or after December 15, 2008. Wedo not currently expect the adoption of SFAS 160 to have a material impact onour consolidated financial statements.

 

InMarch 2008, the FASB issued Statement of Financial Account Standards No. 161,*Disclosure about Derivative Instruments and hedgingActivities – An Amendment of FASB Statement No. 133* (“SFAS 161”).  SFAS 161 expands and amends the disclosurerequirement for derivative instruments and hedging activities.  SFAS 161 is effective for financialstatements issued for fiscal years and interim periods beginning after November 15,2008.  We are in the process ofdetermining what effect, if any, the application of the provisions of SFAS 161will have on our financial position, results of operations or cash flows.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Our principal exposure to market risk relates to changes in interestrates. From time to time, we enter into interest rate swap agreements toeffectively limit exposure to interest rate movements within the parameters ofour interest rate hedging policy. As of June 27, 2008, all of theoutstanding debt under our senior credit facility, with the exception of thatportion covered by an interest rate swap, was subject to floating interest raterisk. In October 2006, we entered into an interest rate swap agreementcovering fifty percent of our term indebtedness under which the swap and termdebt maturities match. Even after giving effect to this agreement, we areexposed to risks due to fluctuations in the market value of this agreement andchanges in interest rates with respect to the portion of our senior credit facilitythat is not covered by this agreement. A hypothetical increase in the interestrate of 100 basis points would have increased our three month interest expenseon that portion of our outstanding debt not covered by the interest rate swapby less than $0.1 million.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls and Procedures**

 

Asof June 27, 2008, under the supervision and with the participation of ourmanagement, including our chief executive officer and our chief financialofficer, we have evaluated the effectiveness of the design and operation of ourdisclosure controls and procedures pursuant to Rule 13a-15 of theSecurities Exchange Act of 1934, as amended, or Exchange Act. Based on thisevaluation, our chief executive officer and our chief financial officer haveconcluded that our disclosure controls and procedures are effective in timelyalerting management, including the chief executive officer and chief financialofficer, of material information about us required to be included in periodicSEC filings. However, in evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives and management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

**Changes in Internal Control over Financial Reporting**

 

Therehas not been any change in our internal control over financial reporting (asdefined in Rule 13a-15(f) of the Exchange Act) identified inconnection with the evaluation required by Rule 13a-15(d) under theExchange Act during the quarter ended June 27, 2008 that has materiallyaffected, or is reasonably likely to materially affect, those controls.

 

**Limitations on the Effectiveness of Controls**

 

Ourmanagement, including our chief executive officer and chief financial officer,does not expect that our disclosure controls and procedures and internalcontrols over financial reporting will prevent all error and all fraud. Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control systemare met. Further, the design of a control system must reflect the fact thatthere are resource constraints, and the benefits of controls must be consideredrelative to their costs. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, with the Company have beendetected. These inherent limitations include the realities that judgments indecision-making can be faulty and that breakdowns can occur because of simple erroror mistake. Additionally, controls can be circumvented by the individual actsof some persons, by collusion of two or more people or by management overrideof the controls.

 

Thedesign of any system of controls also is based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions. Over time, a control may become inadequate because of changes inconditions or the degree of compliance with the policies or procedures maydeteriorate. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and may not be detected.

 

23

----

Table of Contents

 

**PART 2:OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

Neither we, nor any of our subsidiaries, are currently subject to anymaterial legal proceedings, nor, to our knowledge, is any material legalproceeding threatened against us.

 

**ITEM 1A. RISK FACTORS**

 

Inaddition to the other information set forth in this report, you shouldcarefully consider the factors discussed in Part I, “Item1A.  Risk Factors” in our Form 10-K for the fiscal year ended March 31,2008, which could materially affect our business, financial condition or futureresults.  We do not believe there have been any material changes inour risk factors from those disclosed in our Form 10-K for the fiscal yearended March 31, 2008.

 

**ITEM 2. UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

**Issuer Purchases of Equity Securities**

 
| **Period**                             | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of Shares  Purchased as Part of Publicly  Announced Plans or Programs** | ** ** | **Maximum Number of Shares that  May Yet Be Purchased Under the  Plans or Programs** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1, 2008 - May 2, 2008  |       | —                                           |       | $                                                | —     |                                                                                                                                     | —     |                                                                                                                                        | —     |   |
| May 3, 2008 - May 30, 2008   |       | 7,715                                            | (1)        | $                                                | 25.44      |                                                                                                                                     | —     |                                                                                                                                        | —     |   |
| May 31, 2008 - June 27, 2008 |       | —                                           |       | $                                                | —     |                                                                                                                                     | —     |                                                                                                                                        | —     |   |

 

----

(1) Representsshares of common stock repurchased by the Company to satisfy certain employees’tax obligations upon the vesting of restricted stock on May 3, 2008.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None.

 

**ITEM 5. OTHER INFORMATION**

 

OnAugust 4, 2008, the Company entered into an amendment (the “AmendmentAgreement”) to its Amended and Restated Credit Agreement, dated October 10,2007, by and among the Company, a group of lenders for which SunTrust RobinsonHumphrey, Inc. acted as sole book manager and lead arranger, SunTrust Bankacted as administrative agent and M&T Bank and BB&T Bank acted asco-documentation agents and the other parties thereto (the “Credit Agreement”).

 

Pursuantto the terms of the Amendment Agreement, during the period from August 18,2008 until the time when the Company’s financial statements and compliancecertificate for the Company’s fiscal quarter ending September 26, 2008 arerequired to be delivered pursuant to the terms of the Credit Agreement, thedefinition of Applicable Margin (as defined in the Credit Agreement) will bedeemed to be 1.375% per annum for Eurodollar and index rate loans and 0.375%per annum for base rate loans, and the definition of Applicable Percentage (asdefined in the Credit Agreement) will be deemed to be 0.275% per annum.

 

Theforegoing description of the Amendment Agreement does not purport to becomplete and is qualified in its entirety by reference to the full text of theAmendment Agreement, a copy of which is filed as Exhibit 10.10 to thisreport, which is incorporated herein by reference.

 

**ITEM 6. EXHIBITS**

 

See the exhibit index.

 

24

----

Table of Contents

 

**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 theundersigned.

 
|       | **STANLEY, INC.**                                     |
|------------|-------------------------------------------------------|
|       | ** **                                            |
| ** ** | ** **                                            |
|       | **/s/ PHILIP O. NOLAN**                               |
|       | Philip O. Nolan                                       |
|       | Chairman, President and Chief Executive Officer       |
|       | (Principal Executive Officer)                         |
|       | August 4, 2008                                   |
|       |                                                  |
|       |                                                  |
|       | **/s/ BRIAN J. CLARK**                                |
|       | Brian J. Clark                                        |
|       | Executive Vice President, Chief Financial Officer and |
|       | Treasurer                                             |
|       | (Principal Financial Officer)                         |
|       | August 4, 2008                                   |

 

25

----

Table of Contents

 

**EXHIBIT INDEX**

 
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                          |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |       | Amended and Restated  Certificate of Incorporation of Stanley, Inc. (incorporated by reference  to Exhibit 3.1 to the Company’s Form 10-K for the fiscal year ended  March 31, 2008)                                                                                                            |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 3.2              |       | Amended and Restated  Bylaws of Stanley, Inc. (incorporated by reference to Exhibit 3.2  to the Company’s Form 10-K for the fiscal year ended March 31,  2008)                                                                                                                                  |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.1             |       | Amendment No. 2  to 2006 Omnibus Incentive Compensation Plan (incorporated by reference to  Exhibit 10.7 to the Company’s Form 10-K for the fiscal year ended  March 31, 2008)†                                                                                                            |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.2             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and Philip O. Nolan*†                                                                                                                                                                                          |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.3             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and Brian J. Clark*†                                                                                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.4             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and George H. Wilson*†                                                                                                                                                                                         |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.5             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and Gregory M. Denkler*†                                                                                                                                                                                       |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.6             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and Christopher J. Torti*†                                                                                                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.7             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and E. Patrick Flannery*†                                                                                                                                                                                      |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.8             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and James H. Brabston*†                                                                                                                                                                                        |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.9             |       | Change in Control  Severance Agreement, dated June 26, 2008, by and between  Stanley, Inc. and Scott D. Chaplin*†                                                                                                                                                                                         |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.10            |       | Amendment to Amended  and Restated Revolving Credit and Term Loan Agreement, dated August 4,  2008*                                                                                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 10.11            |       | Agreement and Plan of  Merger, dated June 10, 2008, by and among Stanley, Inc., Omaha  Acquisition Corporation, Oberon Associates, Inc. and the Significant  Shareholders named therein (incorporated by reference to Exhibit 2.1 to  the Company’s Form 8-K, filed on June 10, 2008) |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 31.1             |       | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.*                                                                                                                                                                                                              |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 31.2             |       | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.*                                                                                                                                                                                                              |
|             |       |                                                                                                                                                                                                                                                                                                                     |
| 32.1             |       | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to Section 906 of  The Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                  |

 

----

*                    Filed herewith

 

†                     Denotesmanagement contract or compensation plan or arrangement

 

26

----