DRCO Dynamics Research Corp. (MM)

ANDOVER, Mass., Aug. 1 /PRNewswire-FirstCall/ -- Dynamics Research Corporation (NASDAQ:DRCO), a leading 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, 2007. Financial Results The Company reported revenue of $58.0 million for the second quarter of 2007, compared with $67.3 million for the same period in 2006. Completion of the Company's Air National Guard contract in May 2006 and lower subcontractor revenue resulting from the recent transition to the USAF Consolidated Acquisition and Professional Services (CAPS) contract accounted for approximately $11 million of the change in revenues for the second quarter of this year, compared with a year ago. Net income was $1.5 million, or $0.16 per diluted share, for the second quarter of 2007 compared with $0.2 million, or $0.02 per diluted share, for the same period a year ago. For the six months ended June 30, 2007 revenue was $114.8 million, compared with $135.5 million for the same period in 2006. Net income was $2.6 million, or $0.27 per diluted share, for the six months ended June 30, 2007, compared with $1.6 million, or $0.17 per diluted share, for the first six months of 2006, before the effect of an accounting change. Business Highlights "We've just completed another solid quarter with results at the high end of the guidance ranges we provided three months ago," said Jim Regan, DRC's chairman and chief executive officer. "The quarter results reflect continued progress in business growth and increased earnings. Revenue growth of 3.2% on a pro-forma basis turned positive for the second quarter just ended. We're now seeing the favorable effects from the strong base of contract wins received over the past year. We anticipate continued growth on these contracts will result in a positive pro-forma organic growth for the second half of 2007. From a profits viewpoint we saw continued improvement in operating margin, up eight-tenths of a point on a sequential basis. Recognizing the effects of current Federal budgetary pressures on contract award delays we are cautious in our outlook for 2008, but remain confident in the long-term outlook for our industry," Regan added. Company Guidance The Company estimates revenues for the calendar year 2007 to be in the range of $228 to $237 million and earnings per diluted share to be in the range of $0.65 to $0.72. For the third quarter of 2007 the Company anticipates revenues in the range of $58 to $60 million and earnings per diluted share of $0.18 to $0.20. Conference Call The Company will conduct a second quarter 2007 conference call on Thursday, August 2, 2007 at 10:30 a.m. ET. The call will be available via telephone at (800) 210-9006, 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 #8144644, beginning at 12:30 p.m. ET August 2, 2007 through 11:59 p.m. ET August 9, 2007. About Dynamics Research Corporation Dynamics Research Corporation (DRC) is a leading provider of mission- critical technology management services and solutions for government programs. DRC offers forward-thinking solutions backed by a history of excellence and customer satisfaction. Founded in 1955, DRC is a publicly held corporation (NASDAQ:DRCO) and maintains more than 25 offices nationwide with major offices in Andover, Massachusetts; Vienna, Virginia; and Fairborn, Ohio. For more information 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. ATTACHMENT I DYNAMICS RESEARCH CORPORATION CONSOLIDATED RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended June 30, 2007 2006 Contract revenue $57,030 $65,720 Product sales 980 1,558 Total revenue 58,010 67,278 Cost of contract revenue 47,460 58,353 Cost of product sales 1,200 1,256 Selling, general and administrative expenses 5,763 6,036 Amortization of intangible assets 651 703 Total operating costs and expenses 55,074 66,348 Operating income 2,936 930 Interest expense, net (473) (566) Other income 122 12 Income before provision for income taxes 2,585 376 Provision for income taxes 1,071 200 Net income $1,514 $176 Earnings per common share Basic $0.16 $0.02 Diluted $0.16 $0.02 Weighted average shares outstanding Basic 9,317,297 9,079,011 Diluted 9,650,919 9,439,954 ATTACHMENT II DYNAMICS RESEARCH CORPORATION CONSOLIDATED RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Six months ended June 30, 2007 2006 Contract revenue $112,942 $132,479 Product sales 1,848 3,012 Total revenue 114,790 135,491 Cost of contract revenue 94,393 115,298 Cost of product sales 2,348 2,554 Selling, general and administrative expenses 11,361 12,669 Amortization of intangible assets 1,301 1,405 Total operating costs and expenses 109,403 131,926 Operating income 5,387 3,565 Interest expense, net (929) (1,135) Other income 74 351 Income before provision for income taxes 4,532 2,781 Provision for income taxes 1,895 1,215 Income before cumulative effect of accounting change 2,637 1,566 Cumulative effect of accounting change (1) - 84 Net income $2,637 $1,650 Earnings per common share Basic Income before cumulative effect of accounting change $0.28 $0.17 Cumulative effect of accounting change - 0.01 Net income per common share $0.28 $0.18 Diluted Income before cumulative effect of accounting change $0.27 $0.17 Cumulative effect of accounting change - 0.01 Net income per common share $0.27 $0.18 Weighted average shares outstanding Basic 9,308,558 9,057,556 Diluted 9,609,575 9,426,269 (1) Due to the adoption of SFAS 123R on January 1, 2006. ATTACHMENT III DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) June 30, December 31, 2007 2006 (Restated) (1) Assets Cash and cash equivalents $286 $7,887 Accounts receivable, net 33,238 27,072 Unbilled expenditures and fees on contracts in process 33,723 36,174 Prepaid expenses and other current assets 3,686 2,933 Total current assets 70,933 74,066 Property, plant and equipment, net 10,673 11,509 Goodwill 63,055 63,055 Intangible assets, net 4,370 5,671 Deferred tax asset 1,507 1,507 Other noncurrent assets 3,594 4,044 Total assets $154,132 $159,852 Liabilities and stockholders' equity Accounts payable $14,051 $18,195 Accrued compensation and employee benefits 13,585 14,473 Deferred income taxes 8,039 9,864 Other accrued expenses 4,369 5,201 Total current liabilities 40,044 47,733 Long-term debt 13,027 15,000 Other long-term liabilities 12,673 12,805 Stockholders' equity 88,388 84,314 Total liabilities and stockholders' equity $154,132 $159,852 (1) The December 31, 2006 balance sheet has been adjusted to correct certain tax liabilities, which resulted in an increase in stockholders' equity of $549, which was more fully described in the Company's first quarter 2007 Form 10-Q filing with the Securities and Exchange Commission. 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, 2007 2006 2007 2006 National defense and intelligence agencies $45,219 $53,474 $89,850 $108,416 Federal civilian agencies 7,924 9,038 15,487 16,349 State and local government agencies 3,767 2,994 7,315 7,270 Other 120 214 290 444 $57,030 $65,720 $112,942 $132,479 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Time and materials 56% 61% 56% 61% Cost reimbursable 22% 20% 22% 20% Fixed price, including service- type contracts 22% 19% 22% 19% 100% 100% 100% 100% Prime contract 57% 69% 56% 68% Sub-contract 43% 31% 44% 32% 100% 100% 100% 100% Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Net cash provided by (used in) operating activities $11,562 $2,904 $(5,753) $1,346 Capital expenditures $231 $510 $740 $1,571 Depreciation $751 $830 $1,576 $1,620 Bookings $56,557 $60,944 $135,119 $131,787 June 30, 2007 2006 Funded backlog $113,230 $128,866 Employees 1,501 1,610 CONTACTS: Investors: David Keleher SVP and Chief Financial Officer 978.289.1615 Media: Duyen "Jen" Truong, Sage Communications (for DRC) 703.584.5645 DATASOURCE: Dynamics Research Corporation CONTACT: Investors, David Keleher, SVP and Chief Financial Officer of Dynamics Research Corporation, +1-978-289-1615, ; Media, Duyen "Jen" Truong, Sage Communications (for DRC), +1-703-584-5645, Web site: http://www.drc.com/

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