DRCO Dynamics Research Corp. (MM)

Dynamics Research Corporation Reports Preliminary Unaudited Fourth Quarter and Full Year 2004 Results Record Fourth Quarter Revenues up 27% Year over Year ANDOVER, Mass., Feb. 23 /PRNewswire-FirstCall/ -- Dynamics Research Corporation (NASDAQ:DRCO) today reported preliminary unaudited revenues of $78.2 million and preliminary unaudited earnings from continuing operations of $2.9 million, or $0.31 per diluted share for the fourth quarter ended December 31, 2004. This compares with revenues of $61.6 million and earnings from continuing operations of $2.7 million, or $0.30 per diluted share for the same period in 2003. Revenues for the full year 2004, which are preliminary and unaudited, were $275.7 million, compared with $244.8 million for 2003. Preliminary unaudited net income from continuing operations was $9.4 million, or $1.03 per diluted share for 2004, compared with $8.7 million, or $0.98 per diluted share for 2003. "I am pleased to report record revenue and earnings for the fourth quarter and full year 2004. Building on our steadily improving results of the first three quarters, services revenue grew by 27% in the fourth quarter of 2004 compared with the same period in 2003 and full year services revenue increased by 13% in 2004 from 2003. We are clearly delivering on our commitment to growth as evidenced by our average annual growth rate of 22% over the past two years," said James P. Regan, DRC chairman and chief executive officer. Regarding 2005, Regan said, "I continue to be optimistic about the strong business trends in our industry. Our opportunities for growth in the national priority markets we serve continue to be significant. This year marks a major milestone for DRC, the 50th anniversary of its founding in 1955. Few companies today can match our 50-year record of highly satisfied government customers. While we have undergone many changes during this proud history, one constant has remained: a commitment to building strong, enduring partnerships with our customers by providing the best possible technology- driven solutions for their success." DRC projects revenues for 2005 in the range of $330 to $340 million and earnings per diluted share from continuing operations of between $1.20 and $1.30 for the year. For the first quarter of the year the company anticipates revenues in the $73 to $75 million range and earnings per diluted share from continuing operations of $0.20 to $0.22. The company awaits the completion of its financial statements and internal control audits. Accordingly, the results reported today are unaudited and considered preliminary, as they are subject to changes that may be identified in connection with or during completion of the audits. The company will conduct a conference call tomorrow, February 24, 2005 at 8:30 a.m. ET to discuss its preliminary unaudited 2004 results and 2005 outlook in more detail. The call will be available via telephone at (800) 946-0705, and accessible via Web cast at http://www.drc.com/. A replay of the call will be available on the company's Web site at http://www.drc.com/ and by telephone at (888) 203-1112, passcode #124790, beginning at 10:30 a.m. ET, February 24, 2005 through 11:59 p.m. March 3, 2005. About Dynamics Research Corporation Dynamics Research Corporation is an innovative solutions provider that partners with its customers in government and commercial sectors to apply proven processes and technologies. DRC's solutions include design, development, operation and maintenance of business intelligence systems, business transformation services, defense program acquisition management services, training and performance support systems and services, automated case management systems and information technology infrastructure services. DRC strives to apply these processes and technologies to enhance the performance and cost effectiveness of its customers' mission critical systems. For additional information about DRC please visit the website at http://www.drc.com/. Safe harbor statements under the Private Securities Litigation Reform Act of 1995: Some statements contained or implied in this news release, may be considered forward-looking statements, which by their nature are uncertain. Consequently, actual results could materially differ. For more detailed information concerning how risks and uncertainties could affect the company's financial results, please refer to DRC's most recent filings with the SEC. The company assumes no obligation to update any forward-looking information. ATTACHMENT I. DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended December 31, 2004 2003 Contract revenue $76,273 $60,036 Product sales 1,964 1,596 Total revenue 78,237 61,632 Cost of contract revenue 63,492 49,258 Cost of product sales 1,440 1,223 Selling, engineering and administrative expenses 6,741 6,040 Amortization of intangible assets 989 423 Total operating costs and expenses 72,662 56,944 Operating income 5,575 4,688 Interest expense, net (1,092) (158) Other income (125) 323 Income from continuing operations before provision for income taxes 4,358 4,853 Provision for income taxes 1,496 2,175 Income from continuing operations 2,862 2,678 Loss from discontinued operations, net of taxes - (275) Loss on disposal of discontinued operations, net of taxes - (115) Net income $2,862 $2,288 NET INCOME PER COMMON AND EQUIVALENT SHARE Basic Income from continuing operations $0.33 $0.32 Loss from discontinued operations - (0.05) Net income per common share $0.33 $0.27 Diluted Income from continuing operations $0.31 $0.30 Loss from discontinued operations - (0.04) Net income per common share $0.31 $0.26 Weighted average shares outstanding Weighted average shares outstanding - basic 8,601,489 8,328,003 Dilutive effect of options 547,209 721,754 Weighted average shares outstanding - diluted 9,148,698 9,049,757 ATTACHMENT II. DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (in thousands, except share and per share data) Year ended December 31, 2004 2003 (unaudited) (audited) Contract revenue $268,634 $237,876 Product sales 7,072 6,932 Total revenue 275,706 244,808 Cost of contract revenue 227,509 199,647 Cost of product sales 5,214 5,100 Selling, engineering and administrative expenses 23,152 22,948 Amortization of intangible assets 2,324 1,724 Total operating costs and expenses 258,199 229,419 Operating income 17,507 15,389 Interest expense, net (2,225) (854) Other income 360 454 Income from continuing operations before provision for income taxes 15,642 14,989 Provision for income taxes 6,269 6,334 Income from continuing operations 9,373 8,655 Loss from discontinued operations, net of taxes - (1,635) Loss on disposal of discontinued operations, net of taxes - (348) Net income $9,373 $6,672 NET INCOME PER COMMON AND EQUIVALENT SHARE Basic Income from continuing operations $1.10 $1.05 Loss from discontinued operations, net of taxes - (0.24) Net income per common share $1.10 $0.81 Diluted Income from continuing operations $1.03 $0.98 Loss from discontinued operations, net of taxes - (0.22) Net income per common share $1.03 $0.76 Weighted average shares outstanding Weighted average shares outstanding - basic 8,499,013 8,226,225 Dilutive effect of options 563,618 615,818 Weighted average shares outstanding - diluted 9,062,631 8,842,043 ATTACHMENT III. DYNAMICS RESEARCH CORPORATION CONDENSED BALANCE SHEETS (in thousands) December 31, 2004 2003 (unaudited) (audited) Assets Cash and cash equivalents $925 $2,724 Accounts receivable, net 45,978 28,251 Unbilled expenditures and fees on contracts in process 50,322 34,257 Prepaid expenses and other current assets 5,668 2,145 Total current assets 102,893 67,377 Property, plant and equipment, net 22,139 20,672 Deferred income tax asset - 2,337 Goodwill 63,055 26,711 Intangible assets, net 11,519 2,343 Other noncurrent assets 5,528 1,630 Total assets $205,134 $121,070 Liabilities and stockholders' equity Current portion of long-term debt $8,357 $500 Notes payable and revolver 10,000 8,500 Current deferred income taxes 15,418 9,698 Accounts payable 21,778 13,351 Accrued payroll and employee benefits 17,914 15,657 Other accrued expenses 4,447 2,371 Current liabilities of discontinued operations 422 778 Total current liabilities 78,336 50,855 Long-term debt 51,485 7,750 Accrued pension liability 11,336 12,030 Deferred income taxes 591 - Other long-term liabilities 2,068 1,386 Long-term liabilities of discontinued operations - 398 Stockholders' equity 61,318 48,651 Total liabilities and stockholders' equity $205,134 $121,070 ATTACHMENT IV. DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Three Months Ended Year ended December 31, December 31, 2004 2003 2004 2003 Capital expenditures (total company) $1,213 $2,747 $4,544 $8,163 Depreciation Continuing operations $976 $759 $3,624 $3,007 Total company $976 $759 $3,624 $3,060 Bookings Continuing operations $92,061 $74,506 $282,260 $255,756 Total company $92,061 $74,506 $282,260 $257,697 Funded backlog (total company) $165,017 $123,895 December 31, 2004 2003 Employees (total company) 1,960 1,714 DATASOURCE: Dynamics Research Corporation CONTACT: Elise Caffrey, Vice President & Treasurer of Dynamics Research Corporation, +1-978-475-9090, Ext. 1309 Web site: http://www.drc.com/

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