VIENNA, Va., Feb. 13 /PRNewswire/ -- GRC International (NYSE: GRH) today
announced significant additional actions to begin its return to profitability
and positive cash flow.  The company is sharply reducing costs in its
Telecommunications and Advanced Products divisions.  The company is also
seeking to sell its OSU(R) Network Interface business, its NetworkVUE(TM)
software business, and the businesses comprising its Advanced Products
Division, which are the GRC Instruments materials testing business, the
CIS/FLOW GEMINI(TM) environmental software business and the Vindicator(R)
security business.  In connection with these actions, the company took a
second quarter write-down of $14.3 million in deferred software and other
costs related to OSU and NetworkVUE.  The company reported a net loss of
$19.1 million, or $2.05 per share, on revenues of $30.3 million for the second
quarter ended December 31, 1996.  In the corresponding quarter last year, the
company reported a net loss of $318,000, or $0.03 per share, on revenues of
$28.3 million.
    "These expense reductions," said GRC International President and CEO Jim
Roth, "are over and above the $1 million operating reductions we announced
last month for our product businesses.  These actions have no bearing on our
growing and profitable Professional Services Operation where we continue to
add opportunities for revenue-generating personnel.  We are taking these steps
in light of the market conditions for the OSU Network Interface and the
company's limited financial resources that prevent us from fully implementing
the NetworkVUE business plan.
    "The two surveys we announced in December found that the market for the
OSU would develop later than anticipated and led us to the conclusion that
further investment in the OSU by GRCI is not supportable," said Roth.  "While
the OSU won high accolades from customers and survey respondents, the
near-term revenue opportunities are not sufficient to enable a company with
our limited financial resources to continue covering on-going expenses.
Similarly, we believe NetworkVUE has enormous potential, but GRCI can no
longer afford the near-term costs involved in bringing that business plan to
completion.  In addition, in order to improve our cash position and reduce
losses, we are cutting costs and pursuing the sale of the businesses
comprising our Advanced Products Division, which are the GRC Instruments
materials testing business, the CIS/FLOW GEMINI environmental software
business and the Vindicator security business.  These actions will bring our
total focus back to our core services business."
    Turning to GRCI's government services business, Roth commented on GRCI's
most recent achievements.  "Our Professional Services Operation, which still
generates more than 90 percent of our revenues and remains profitable,
increased services sales more than 7 percent quarter-to-quarter and has
expanded its gross margin by more than three percentage points, from
14.5 percent last year to 17.9 percent this year.  Maximum contract backlog
remains very high at approximately three times annual revenues, primarily as a
result of excellent performance and an invigorated and coordinated marketing
effort.
    "We continue aggressively working to expand our Professional Services
Operation within its traditional customer base in the federal marketplace and
are formulating plans to penetrate other services sectors.  I look forward to
reporting one of the best years ever for this division in terms of operating
results.
    "I am also pleased to report that we closed on the $22 million financing
package we announced last month.  We have received the proceeds of the
$4 million convertible debenture, and should be able to start drawing down on
the $18 million equity line when it becomes effective later this calendar
year, assuming we meet the required conditions to make the draws.  I believe
this investment is a vote of confidence in the future potential of GRC
International and provides a first step towards the challenge of restructuring
and reducing our long-term debt, which was approaching $30 million at December
31, 1996."
    Roth also noted that Smith Barney continues to advise the company with
respect to a full range of financial and strategic options.
    Roth concluded, "These actions we are announcing today are in the best
interests of GRCI.  After a transition period, including a substantial, but
smaller operating loss in the third quarter, we hope to see a return to
profitability.  Our company is now singularly focused on those areas in which
it has distinguished itself over its 36-year history - bringing
knowledge-based professional services and high-quality technical solutions to
it clients."

    CONSOLIDATED SIX-MONTH FINANCIAL RESULTS
    For the first six months of FY 1997, consolidated revenues of
$60.5 million were essentially unchanged, on a reported basis, from the
comparable period last year.  This is primarily because of the accounting
impact from a change in interest in a joint venture previously accounted for
on a consolidated basis through the first quarter of FY 1996.  Excluding the
negative impact of this change, consolidated revenues for the first six months
of FY 1997 increased $4.0 million, or 7.0 percent, from $56.5 million.
    Including the second quarter write-down of $14.3 million, the loss for the
first six months of the current fiscal year is $21.7 million, or $2.33 per
share. In the comparable six-month period last year the company earned
$313,000, or $0.03 per share.

    SEGMENT REPORT
    Professional Services Operation
    Revenues for GRCI's Professional Services Operation (PSO) increased
$1.6 million, or 5.9 percent, to $27.8 million for the second quarter of
fiscal 1997 from $26.3 million in the corresponding quarter last year.  PSO
reported operating profit of $1.7 million for the second quarter of fiscal
1997 versus operating profit of $713,000 in the second quarter of fiscal
1996.  Operating margin increased significantly in the second quarter of FY
1997 to 6.2 percent from 2.7 percent in FY 1996.

    Telecommunications Division
    Revenues for the company's telecommunications products and services for
the second quarter of the current year were $848,000 compared to $130,000 for
the second quarter of the prior year. Including the write down, the division
reported a second quarter FY 1997 operating loss of $18.9 million compared
to an operating loss of $905,000 in the second quarter of fiscal 1996.
Revenues in the Telecommunications Division were split 2:1 between services
and products, respectively. Telecommunications products include the OSU
Network Interface and products from the company's NetworkVUE line of software.
Telecommunications services include network design and optimization efforts by
the company's NetworkVUE consulting staff and software development services
performed by the division's Application Software Group (ASG) for Lucent
Technologies.

    Advanced Products Division
    Revenues for the company's Advanced Products Division (APD) for the second
quarter of fiscal 1997 were $1.7 million, down from $1.9 million in the
corresponding quarter last year. APD reported an operating loss of
$1.1 million for the second quarter of the current year compared to an
operating profit of $110,000 in the second quarter of last year. The company
is attempting to sell the businesses comprising APD, which are the GRC
Instruments materials testing business; the CIS/ FLOW GEMINIT environmental,
health and safety software business; and the Vindicator security business.

    Forward-looking statements contained in this release are subject to risks
and uncertainties that could cause actual results to differ materially. These
risks and uncertainties include the company's dependence on continued funding
of U.S. Department of Defense programs and the company's ability to fill
required staff positions to service the contracts granted under those
programs; government contract procurement and termination risks; GRC
International's ability to successfully penetrate new services markets; the
company's ability to successfully withdraw from its OSU, NetworkVUE and APD
businesses as outlined above; the company's ability to service and restructure
its debt; its limited available cash; terms and conditions of the company's
$18 million equity line which may limit the availability of funds under the
equity line; and other risks described in the company's Securities and
Exchange Commission filings.
    GRC International Inc., with headquarters in Vienna, Va., is recognized as
a leading provider of knowledge-based professional services and high-quality
technology based product solutions to government and commercial customers.
GRCI is a publicly traded company listed on the New York Stock Exchange under
the symbol GRH. Additional details about the company can be obtained on the
Internet at http://www.grci.com/.

                           GRC International, Inc.

                 Consolidated Condensed Statements of Income
                  (in thousands, except for per share data)
                                 (unaudited)

                              Three Months Ended          Six Months Ended
                                  December 31,               December 31,
                                1996       1995            1996       1995

    Revenues                  $30,345    $28,268         $60,479    $60,954
    Cost of revenues           27,005     23,854          52,305     51,396
    Gross margin                3,340      4,414           8,174      9,558
    General,
     administrative,
      marketing,
      research
      and development           7,676      4,649          14,984      9,225
    Write down of
     deferred
     software
     and inventory             14,252         --          14,252         --
    Operating income (loss)   (18,588)      (235)        (21,062)       333
    Interest (net)               (516)       (83)           (652)       (20)
    Income (loss) before
     taxes                    (19,104)      (318)        (21,714)       313
    Provision for taxes            --         --              --         --
    Net Income (Loss)        $(19,104)     $(318)       $(21,714)      $313

    Income (loss) per
     common
     and common
     equivalent
     share:                    $(2.05)    $(0.03)         $(2.33)     $0.03

    Number of shares
     used in
     EPS calculation            9,340      9,150           9,321      9,327


                         Consolidated Balance Sheets
                          (Condensed and unaudited)
                  (in thousands, except for per share data)

                                        December 31,      June 30,
                                            1996            1996
    Assets
       Current assets                      $40,107        $41,904
       Property and equipment, net          12,023         12,267
       Goodwill and other
          intangible assets, net             2,285          2,311
       Deferred software costs, net            576         11,216
       Other assets                          6,334          6,403

    Total assets                           $61,325        $74,101

    Liabilities and stockholders' equity
       Current liabilities                 $24,904        $26,310
       Long-term obligations                29,328         19,116
       Stockholders' equity                  7,093         28,675
    Total liabilities and
         stockholders' equity              $61,325        $74,101

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