DRCO Dynamics Research Corp. (MM)

- New Contract Wins for Higher-End Services Driving 63 Percent Increase in Earnings - ANDOVER, Mass., Feb. 27 /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 fourth quarter and year ended December 31, 2007. Financial Results The company reported revenue for the fourth quarter of 2007 of $56.5 million, compared with $60.3 million for the fourth quarter of 2006. For the year ended December 31, 2007 revenue was $229.6 million, compared with $259.0 million for 2006. Revenues for 2006 included $6.3 million from the completion of an Air National Guard contract in May 2006 and subcontractor revenue of $5.6 million for the fourth quarter and $28.1 million for the full year, which are not reflected in results for 2007. Absent the effect of this transition, revenue growth for the fourth quarter and full year 2007 was 3.2 percent and 2.2 percent, respectively. Net income for the fourth quarter of 2007 was $2.5 million, or $0.26 per diluted share for the fourth quarter of 2007, a 63 percent rise in earnings per diluted share when compared with $1.5 million, or $0.16 per diluted share, for the fourth quarter of 2006. Net income for the year ended December 31, 2007 was $7.1 million, or $0.74 per diluted share for 2007, compared with $4.1 million, or $0.43 per share for 2006. Business Highlights "We are pleased that the company has reported sharply improving results throughout 2007. These favorable trends have resulted from our sustained focus on winning an increasing share of work in growing markets where we are seeing strong demand for the high quality, higher-end business transformation, business intelligence, training systems, automated case management, and engineering services for which DRC is known and distinguished," said Jim Regan, DRC's chairman and chief executive officer. "We already have received this year two significant new contract awards. Also, we are now operating and bidding as a prime contractor with the Air Force Aeronautical Systems Center. Clearly, we are well positioned for continued success in 2008." Company Guidance For the calendar year 2008 the company estimates revenues in the range of $220 to $235 million and earnings per diluted share in the range of $0.74 to $0.84. For the first quarter of the 2008 the company anticipates revenues in the range of $54 to $56 million and earnings per diluted share of $0.13 to $0.15. Conference Call The company will conduct a fourth quarter 2007 conference call on Thursday, February 28, 2008 at 10:00 a.m. ET. The call will be available via telephone at (877) 718-5092, 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 #2824839, beginning at 12:30 p.m. ET February 28, 2008 through 11:59 p.m. ET February 29, 2008. About Dynamics Research Corporation Dynamics Research Corporation 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; Reston, Virginia; and Fairborn, Ohio. 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, Senior Vice President and Chief Financial Officer (978) 289-1615, Media: Marisa Hagerman, Sage Communications (for DRC) (703) 584-5637, ATTACHMENT I DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three Months Ended December 31, 2007 2006 Contract revenue $54,554 $58,864 Product sales 1,905 1,471 Total revenue 56,459 60,335 Cost of contract revenue 45,315 49,922 Cost of product sales 1,394 1,124 Selling, general and administrative expenses 5,203 5,908 Amortization of intangible assets 651 702 Total operating costs and expenses 52,563 57,656 Operating income 3,896 2,679 Interest expense, net (239) (349) Other income 249 160 Income before provision for income taxes 3,906 2,490 Provision for income taxes 1,360 989 Net income $2,546 $1,501 Earnings per common share Basic $0.27 $0.16 Diluted $0.26 $0.16 Weighted average shares outstanding Basic 9,390,205 9,188,603 Diluted 9,717,968 9,412,409 ATTACHMENT II DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Twelve Months Ended December 31, 2007 2006 Contract revenue $224,676 $252,890 Product sales 4,901 6,097 Total revenue 229,577 258,987 Cost of contract revenue 187,516 218,976 Cost of product sales 4,954 4,895 Selling, general and administrative expenses 21,826 24,136 Amortization of intangible assets 2,602 2,809 Total operating costs and expenses 216,898 250,816 Operating income 12,679 8,171 Interest expense, net (1,541) (2,042) Other income 646 589 Income before provision for income taxes 11,784 6,718 Provision for income taxes 4,682 2,730 Income before cumulative effect of accounting change 7,102 3,988 Cumulative effect of accounting change (1) - 84 Net income $7,102 $4,072 Earnings per common share Basic Income before cumulative effect of accounting change $0.76 $0.44 Cumulative effect of accounting change - 0.01 Net income per common share $0.76 $0.45 Diluted Income before cumulative effect of accounting change $0.74 $0.42 Cumulative effect of accounting change - 0.01 Net income per common share $0.74 $0.43 Weighted average shares outstanding Basic 9,326,907 9,099,897 Diluted 9,649,897 9,426,535 (1) Due to the adoption of SFAS 123R on January 1, 2006. ATTACHMENT III DYNAMICS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) December 31, December 31, 2007 2006 (Restated) (1) Assets Cash and cash equivalents $2,006 $7,887 Accounts receivable, net 30,981 27,072 Unbilled expenditures and fees on contracts 32,036 36,174 Prepaid expenses and other current assets 2,508 2,933 Total current assets 67,531 74,066 Property and equipment, net 10,182 11,509 Goodwill 63,055 63,055 Intangible assets, net 3,069 5,671 Deferred tax asset 1,484 1,507 Other noncurrent assets 4,632 4,044 Total assets $149,953 $159,852 Liabilities and stockholders' equity Accounts payable $12,163 $18,195 Accrued compensation and employee benefits 13,728 14,473 Deferred income taxes 8,486 9,864 Other accrued expenses 3,248 5,201 Total current liabilities 37,625 47,733 Long-term debt 7,737 15,000 Other long-term liabilities 8,087 12,805 Stockholders' equity 96,504 84,314 Total liabilities and stockholders' equity $149,953 $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 Twelve Months Ended December 31, December 31, 2007 2006 2007 2006 National defense and intelligence agencies $43,707 $46,961 $179,067 $205,956 Federal civilian agencies 7,919 7,584 31,327 30,567 State and local government agencies 2,765 4,018 13,602 15,254 Other 163 301 680 1,113 $54,554 $58,864 $224,676 $252,890 Revenues by contract type as a percentage of contract revenue were as follows: Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 2007 2006 Time and materials 58% 61% 57% 62% Cost reimbursable 21 19 22 19 Fixed price, including service-type contracts 21 20 21 19 100% 100% 100% 100% Prime contract 59% 65% 56% 67% Sub-contract 41 35 44 33 100% 100% 100% 100% Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 2007 2006 Net cash provided by operating activities $6,172 $14,212 $2,945 $17,584 Capital expenditures $603 $419 $1,788 $2,482 Depreciation $787 $778 $3,081 $3,203 Bookings $74,322 $60,335 $253,146 $252,327 December 31, 2007 2006 Funded backlog $116,471 $92,903 Employees 1,414 1,513 DATASOURCE: Dynamics Research Corporation CONTACT: Investors, Dave Keleher, Senior Vice President and Chief Financial Officer of Dynamics Research Corporation, +1-978-289-1615, , or Media, Marisa Hagerman, Sage Communications for Dynamics Research Corporation, +1-703-584-5637, Web site: http://www.drc.com/

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