DRCO Dynamics Research Corp. (MM)

ANDOVER, Mass., Feb. 28 /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 fourth quarter and full year ended December 31, 2006. Financial Results The company reported revenue for the fourth quarter of 2006 of approximately $60.3 million, consistent with previously issued guidance of $59 to $62 million. Net income was $1.5 million, or $0.16 per diluted share for the fourth quarter of 2006, compared with $0.31 per diluted share for the same period a year ago. For the year ended December 31, 2006 revenue was $259.0 million, compared with $300.4 million for 2005. Net income was $4.1 million, or $0.43 per diluted share for 2006, compared with $11.4 million, or $1.24 per share for 2005 which included $0.13 of non-recurring gain from the sale of investments. Business Highlights "The Company's results for the quarter just ended reflect significant improvement over the third quarter and significant progress in adapting to a changed industry environment and positioning the company to sustain organic growth and improve profitability. In 2006 new business wins, measured in the estimated first year revenue value of contracts, grew by more than 50%. Total estimated value (all years) of new business contract wins was $145 million in 2006. We are focused on achieving continued success from our business development initiatives while concurrently expanding profit margins," said Jim Regan, DRC's chairman and chief executive officer. Company Guidance The company estimates revenues in the range of $225 to $240 million and earnings per diluted share in the range of $0.65 to $0.75 for the calendar year 2007. For the first quarter of the 2007 the company anticipates revenues in the range of $53 to $55 million and earnings per diluted share of $0.11 to $0.13. Conference Call The company will conduct a fourth quarter 2006 conference call on Thursday, March 1, 2007 at 8:30 a.m. ET. The call will be available via telephone at (800) 319-9003, 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 #2492094, beginning at 1:30 p.m. ET March 1, 2007 through 11:59 p.m. ET March 8, 2007. 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. CONTACTS: Investors: Dave Keleher SVP and Chief Financial Officer 978.289.1615 Media: Duyen "Jen" Truong, Sage Communications (for DRC) 703.584.5645 ATTACHMENT I DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended December 31, 2006 2005 Contract revenue $58,864 $69,950 Product sales 1,471 1,647 Total revenue 60,335 71,597 Cost of contract revenue 49,922 57,639 Cost of product sales 1,124 1,264 Selling, general and administrative expenses 5,908 5,889 Amortization of intangible assets 702 760 Total operating costs and expenses 57,656 65,552 Operating income 2,679 6,045 Interest expense, net (349) (1,174) Other income 160 55 Income before provision for income taxes 2,490 4,926 Provision for income taxes 989 1,994 Net income $1,501 $2,932 Earnings per common share Basic $0.16 $0.33 Diluted $0.16 $0.31 Weighted average shares outstanding Basic 9,188,603 8,954,488 Diluted 9,412,409 9,377,548 ATTACHMENT II DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (in thousands, except share and per share data) Year ended December 31, 2006 2005 (unaudited) (audited) Contract revenue $252,890 $293,662 Product sales 6,097 6,778 Total revenue 258,987 300,440 Cost of contract revenue 218,907 245,566 Cost of product sales 4,895 5,212 Selling, general and administrative expenses 24,059 25,318 Amortization of intangible assets 2,809 3,039 Total operating costs and expenses 250,670 279,135 Operating income 8,317 21,305 Interest expense, net (2,042) (4,367) Other income 589 2,276 Income before provision for income taxes 6,864 19,214 Provision for income taxes 2,792 7,781 Net income (1) $4,072 $11,433 Earnings per common share Basic (1) $0.45 $1.30 Diluted (1) $0.43 $1.24 Weighted average shares outstanding Basic 9,099,897 8,809,644 Diluted 9,426,535 9,253,522 (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) December 31, December 31, 2006 2005 (unaudited) (audited) Assets Cash and cash equivalents $7,887 $1,020 Accounts receivable, net 27,136 32,894 Unbilled expenditures and fees on contracts in process 36,764 60,210 Prepaid expenses and other current assets 2,824 1,483 Total current assets 74,611 95,607 Property, plant and equipment, net 11,509 12,252 Goodwill 63,055 63,055 Intangible assets, net 5,671 8,480 Deferred tax asset 1,507 3,916 Other noncurrent assets 3,499 4,443 Total assets $159,852 $187,753 Liabilities and stockholders' equity Current portion of long-term debt $- $10,170 Accounts payable 18,195 25,668 Deferred income taxes 11,698 19,825 Accrued payroll and employee benefits 14,473 18,761 Other accrued expenses 3,916 6,392 Total current liabilities 48,282 80,816 Long-term debt 15,000 15,242 Other long-term liabilities 12,805 17,508 Stockholders' equity 83,765 74,187 Total liabilities and stockholders' equity $159,852 $187,753 ATTACHMENT IV DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Contract revenues were earned from the following sectors: Three Months Ended Year ended December 31, December 31, 2006 2005 2006 2005 National defense and intelligence agencies $46,961 $53,963 $205,956 $233,924 Federal civilian agencies 7,584 9,186 30,567 33,746 State and local government agencies 4,018 5,990 15,254 22,986 Other 301 811 1,113 3,006 $58,864 $69,950 $252,890 $293,662 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended Year ended December 31, December 31, 2006 2005 2006 2005 Time and materials 61% 57% 62% 56% Cost reimbursable 19% 19% 19% 20% Fixed price, including service-type contracts 20% 24% 19% 24% 100% 100% 100% 100% Prime contact 65% 67% 67% 68% Sub-contract 35% 33% 33% 32% 100% 100% 100% 100% Three Months Ended Year ended December 31, December 31, 2006 2005 2006 2005 Net cash provided by (used in) operating activities $14,212 $16,775 $17,584 $24,610 Capital expenditures $419 $1,198 $2,482 $4,571 Depreciation $778 $896 $3,203 $3,719 Bookings $60,335 $76,642 $252,327 $287,581 December 31, 2006 2005 Funded backlog $92,903 $144,571 Employees 1,513 1,822 DATASOURCE: Dynamics Research Corporation CONTACT: For media, Duyen "Jen" Truong of Sage Communications, +1-703- 584-5645, , for Dynamics Research Corporation, or investors, Dave Keleher, SVP and Chief Financial Officer of Dynamics Research Corporation, +1-978-289-1615, Web site: http://www.drc.com/

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