DRCO Dynamics Research Corp. (MM)

ANDOVER, Mass., Aug. 2 /PRNewswire-FirstCall/ -- Dynamics Research Corporation (NASDAQ:DRCO), a provider of innovative engineering, technical and information technology services and solutions to federal and state governments today announced operating results for the second quarter ended June 30, 2006. Financial Results The company reported revenue for the second quarter of 2006 of $67.3 million, compared with $76.2 million for the same period a year ago. Net income was $0.2 million, or $0.02 per diluted share, for the quarter ended June 30, 2006, compared with $3.3 million, or $0.36 per diluted share, for the second quarter of 2005. Diluted earnings per share includes a $0.02 effect of FAS 123R for the second quarter of 2006. For the six months ended June 30, 2006 revenue was $135.5 million, compared with $149.7 million for the same period in 2005. Net income was $1.7 million, or $0.18 per diluted share, for the six months ended June 30, 2006, compared with $5.4 million, or $0.58 per diluted share, for the first six months of 2005. Business Highlights "Revenues for the quarter were at the high end of our expectations for the quarter and included approximately $1 million of non-recurring subcontractor revenue. From a profits viewpoint, while results were within the range of our expectations, continued investments in business development activities and higher than expected cost reduction expenses kept operating results at the lower end of guidance. The first year revenue value of new business awards in the second quarter totaled $12 million, continuing an upward trend seen in the first quarter of this year, bringing the total for the first six months of this year to $32 million, an increase of 60% over the first six months of last year. Looking ahead, the early trends on our growth initiatives are positive, despite federal budgetary pressures. In addition to the positive results in new business awards, business development, bid and proposal activities are continuing at a heavy pace. From a profits perspective, while results were within the range of our expectations, continued investments in business development activities and higher than expected cost reduction expenses kept earnings at the lower end of guidance. We are confident these investments will result in progressive improvement in revenues and operating results going forward in the face of government funding challenges," reported James P. Regan, DRC chairman, president and chief executive officer. The company has recently announced several significant contract wins, including task orders for U.S. Air Force Depot work, an EAGLE contract award and an important IDIQ contract with the U.S. Army Training and Doctrine Command. In addition, the company is pursuing multiple contact expansion opportunities leveraging its Lean Six Sigma and training capabilities. Company Guidance For the year 2006, the company estimates revenues in the range of $265 to $275 million and earnings per diluted share in the range of $0.40 to $0.50. For the third quarter of the year the company expects to book revenues in the range of $65 to $67 million and report earnings per diluted share of $0.08 to $0.10. Conference Call The company will conduct a second quarter 2006 conference call on Thursday, August 3, 2006 at 8:30 a.m. ET. The call will be available via telephone at (800) 946-0719, and accessible via Web cast at http://www.drc.com/. Recorded replays of the conference call will be available on Dynamics Research Corporation's investor relations home page at http://www.drc.com/ and by telephone at (888) 203-1112, passcode #8292143, beginning at 10:00 a.m. ET August 03, 2006 through 11:59 p.m. ET August 10, 2006. About Dynamics Research Corporation DRC is headquartered in Andover, Massachusetts and has major offices in Vienna, Virginia and Fairborn, Ohio. The company has 27 additional field offices throughout the United States providing direct support to all branches of the Department of Defense and several state government agencies. Dynamics Research Corporation is an innovative solutions provider that partners with its customers to apply proven processes and technologies. For more than 50 years, DRC has delivered technical and information technology services that enhance the performance and cost effectiveness of its customers' mission critical systems. For additional information about DRC please visit our 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. CONTACT: David Keleher, Senior Vice President and Chief Financial Officer (978) 289-1615 ATTACHMENT I DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended June 30, 2006 2005 Contract revenue $ 65,720 $ 74,539 Product sales 1,558 1,649 Total revenue 67,278 76,188 Cost of contract revenue 58,353 62,947 Cost of product sales 1,256 1,297 Selling, general and administrative expenses 6,036 6,686 Amortization of intangible assets 703 765 Total operating costs and expenses 66,348 71,695 Operating income 930 4,493 Interest expense, net (566) (1,046) Other income 12 2,077 Income before provision for income taxes 376 5,524 Provision for income taxes 200 2,251 Net income $176 $3,273 Earnings per common share Basic $ 0.02 $ 0.37 Diluted $ 0.02 $ 0.36 Weighted average shares outstanding Basic 9,079,011 8,743,516 Diluted 9,439,954 9,202,013 ATTACHMENT II DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Six months ended June 30, 2006 2005 Contract revenue $ 132,479 $ 146,378 Product sales 3,012 3,352 Total revenue 135,491 149,730 Cost of contract revenue 115,229 123,753 Cost of product sales 2,554 2,706 Selling, general and administrative expenses 12,592 12,707 Amortization of intangible assets 1,405 1,519 Total operating costs and expenses 131,780 140,685 Operating income 3,711 9,045 Interest expense, net (1,135) (2,132) Other income 351 2,102 Income before provision for income taxes 2,927 9,015 Provision for income taxes 1,277 3,651 Net income (1) $ 1,650 $5,364 Earnings per common share Basic (1) $ 0.18 $ 0.62 Diluted (1) $ 0.18 $ 0.58 Weighted average shares outstanding Basic 9,057,556 8,719,577 Diluted 9,426,269 9,207,035 (1) Includes $84, or $0.01 per common share, attributable to the cumulative effect of the change in accounting principle for the adoption of SFAS 123R in 2006. ATTACHMENT III DYNAMICS RESEARCH CORPORATION CONDENSED BALANCE SHEETS (in thousands) June 30, December 31, 2006 2005 (unaudited) (audited) Assets Cash and cash equivalents $ 329 $ 1,020 Accounts receivable, net 35,840 32,894 Unbilled expenditures and fees on contracts in process 46,409 60,210 Prepaid expenses and other current assets 3,323 1,483 Total current assets 85,901 95,607 Property, plant and equipment, net 12,184 12,252 Goodwill 63,055 63,055 Intangible assets, net 7,075 8,480 Other noncurrent assets 7,629 8,359 Total assets $ 175,844 $ 187,753 Liabilities and stockholders' equity Current portion of long-term debt $7,857 $ 10,170 Accounts payable 21,144 25,668 Deferred income taxes 14,953 19,825 Accrued payroll and employee benefits 17,928 18,761 Other accrued expenses 3,880 6,392 Total current liabilities 65,762 80,816 Long-term debt 15,539 15,242 Other long-term liabilities 16,557 17,508 Stockholders' equity 77,986 74,187 Total liabilities and stockholders' equity $ 175,844 $ 187,753 ATTACHMENT IV DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Contract revenues were earned from the following sectors: Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 National defense and intelligence agencies $53,474 $59,978 $108,416 $115,992 Federal civilian agencies 9,038 8,560 16,349 17,775 State and local government agencies 2,994 5,356 7,270 11,050 Other 214 645 444 1,561 $65,720 $74,539 $132,479 $146,378 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Time and materials 61% 57% 61% 56% Cost reimbursable 20% 20% 20% 20% Fixed price, including service-type contracts 19% 23% 19% 24% 100% 100% 100% 100% Prime contact 69% 66% 68% 68% Sub-contract 31% 34% 32% 32% 100% 100% 100% 100% Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Net cash provided by operating activities $2,904 $7,659 $1,346 $10,420 Capital expenditures $510 $1,208 $1,571 $2,426 Depreciation $830 $966 $1,620 $1,908 Bookings $60,944 $44,191 $131,787 $138,633 June 30, 2006 2005 Funded backlog $128,866 $154,277 Employees 1,610 1,905 DATASOURCE: Dynamics Research Corporation CONTACT: David Keleher, Senior Vice President and Chief Financial Officer of Dynamics Research Corporation, +1-978-289-1615 Web site: http://www.drc.com/

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