DRCO Dynamics Research Corp. (MM)

Dynamics Research Corporation Reports Record Revenues for Second Quarter 2004 ANDOVER, Mass., Aug. 2 /PRNewswire-FirstCall/ -- Dynamics Research Corporation (NASDAQ:DRCO) today reported revenues of $64.9 million and earnings from continuing operations of $2.2 million, or $0.24 per diluted share, for the second quarter ended June 30, 2004. This compares with revenues of $62.1 million and earnings from continuing operations of $2.0 million, or $0.23 per diluted share, for the same period in 2003. For the six months ended June 30, 2004, DRC reported earnings from continuing operations of $4.2 million, or $0.47 per diluted share, on revenues of $127.0 million. For the first half of 2003, DRC had earnings from continuing operations of $3.6 million, or $0.42 per diluted share on revenues of $120.7 million. Regarding operating results for the quarter, James P. Regan, chairman and chief executive officer, said, "It has been a busy and productive quarter. Both the top and bottom lines were within the guidance provided at the end of the first quarter and demonstrate further progress towards achievement of our strategic objectives. During the quarter we realigned our organizational structure in order to more effectively execute our growth strategy, better address the mission-critical needs of our customers and further strengthen the delivery of proven solutions-based services. We also made progress on our PeopleSoft enterprise business system implementation, and worked towards a definitive agreement to acquire Impact Innovations Group, which was announced earlier today." "We are now six months into the implementation of our PeopleSoft system and have successfully closed two quarters in record time. The quality and timeliness of information provided by this fully integrated business system has been outstanding. We made progress in billing during the second quarter as evidenced in the substantial increase in billed receivables and decrease in unbilled receivables. While our collections were behind our expectations for the quarter, we remain focused on receivables and expect strong billing and collection activity throughout the remainder of the year to result in reduced receivables days sales outstanding going forward," he added. "We ended the quarter with $123 million, or six months of backlog consistent with historical levels. The level of first year revenue awaiting award totaled $93 million at the end of the quarter compared with $80 million at the end of the first quarter. This increase is indicative of continuing robust business development activity." DRC issued revised guidance for 2004, inclusive of the contribution from the acquisition of Impact Innovations LLC. Revenues are expected to be in the range of $276 to $280 million with earnings per diluted share from continuing operations expected to be in the range of $1.00 to $1.03. For the third quarter of the year the company expects to book revenues in the range of $70 to $73 million and report earnings per diluted share from continuing operations of $0.24 to $0.26. The company will conduct a conference call tomorrow, August 3, 2004 at 8:30 a.m. ET to discuss its first quarter results and the outlook for 2004 in more detail. The call will be available via telephone at (800) 915-4836, 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 (800) 428-6051, passcode #364206, beginning at 10:00 a.m. August 3, 2004 through 11:59 p.m. August 11, 2004. About Dynamics Research Corporation Dynamics Research Corporation is an innovative solutions provider that partners with its customers to apply proven processes and technologies. For nearly 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 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 DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Three months ended June 30, 2004 2003 Contract revenue $63,065 $60,309 Product sales 1,885 1,829 Total revenue 64,950 62,138 Cost of contract revenue 54,158 50,851 Cost of product sales 1,359 1,282 Selling, general and administrative expenses 4,935 6,109 Amortization of intangible assets 381 423 Total operating costs and expenses 60,833 58,665 Operating income 4,117 3,473 Interest expense, net (361) (237) Other income 56 38 Income from continuing operations before provision for income taxes 3,812 3,274 Provision for income taxes 1,613 1,316 Income from continuing operations 2,199 1,958 Loss from discontinued operations, net of taxes -- (856) Net income $2,199 $1,102 NET EARNINGS PER COMMON SHARE Basic Income from continuing operations $0.26 $0.24 Loss from discontinued operations -- (0.11) Net earnings per common share $0.26 $0.13 Diluted Income from continuing operations $0.24 $0.23 Loss from discontinued operations -- (0.10) Net earnings per common share $0.24 $0.13 Weighted average shares outstanding Weighted average shares outstanding - basic 8,461,945 8,181,314 Dilutive effect of options 557,194 504,706 Weighted average shares outstanding - diluted 9,019,139 8,686,020 DYNAMICS RESEARCH CORPORATION RESULTS OF OPERATIONS (unaudited) (in thousands, except share and per share data) Six months ended June 30, 2004 2003 Contract revenue $123,702 $117,238 Product sales 3,316 3,506 Total revenue 127,018 120,744 Cost of contract revenue 105,995 99,003 Cost of product sales 2,500 2,535 Selling, general and administrative expenses 10,270 11,890 Amortization of intangible assets 762 878 Total operating costs and expenses 119,527 114,306 Operating income 7,491 6,438 Interest expense, net (574) (514) Other income 437 80 Income from continuing operations before provision for income taxes 7,354 6,004 Provision for income taxes 3,111 2,414 Income from continuing operations 4,243 3,590 Loss from discontinued operations, net of taxes -- (1,213) Loss on disposal of discontinued operations, net of taxes -- (233) Net income $4,243 $2,144 NET EARNINGS PER COMMON SHARE Basic Income from continuing operations $0.50 $0.44 Loss from discontinued operations -- (0.15) Loss on disposal of discontinued operations -- (0.03) Net earnings per common share $0.50 $0.26 Diluted Income from continuing operations $0.47 $0.42 Loss from discontinued operations -- (0.14) Loss on disposal of discontinued operations -- (0.03) Net earnings per common share $0.47 $0.25 Weighted average shares outstanding Weighted average shares outstanding - basic 8,428,105 8,160,932 Dilutive effect of options 570,234 487,927 Weighted average shares outstanding - diluted 8,998,339 8,648,859 DYNAMICS RESEARCH CORPORATION CONDENSED BALANCE SHEETS (unaudited) (in thousands) June 30, December 31, 2004 2003 Assets Cash and cash equivalents $145 $2,724 Accounts receivable, net of allowances 39,178 28,251 Unbilled expenditures and fees on contracts in process 45,161 34,257 Prepaid expenses and other current assets 2,722 2,145 Total current assets 87,206 67,377 Property, plant and equipment, net 21,068 20,672 Deferred income taxes 2,342 2,337 Goodwill 26,711 26,711 Intangible assets, net 1,581 2,343 Other noncurrent assets 1,981 1,630 Total noncurrent assets 53,683 53,693 Total assets $140,889 $121,070 Liabilities and stockholders' equity Current portion of long-term debt $500 $500 Notes payable and revolver 20,887 8,500 Accounts payable 15,749 13,351 Accrued payroll and employee benefits 14,628 15,657 Deferred income taxes 10,081 9,698 Other accrued expenses 2,399 2,371 Discontinued operations 635 778 Total current liabilities 64,879 50,855 Long-term debt, less current portion 7,500 7,750 Accrued pension liability 12,030 12,030 Other long-term liabilities 1,728 1,386 Discontinued operations 99 398 Total long-term liabilities 21,357 21,564 Total liabilities 86,236 72,419 Stockholders' equity 54,653 48,651 Total liabilities and stockholders' equity $140,889 $121,070 DYNAMICS RESEARCH CORPORATION SUPPLEMENTAL INFORMATION (unaudited) (dollars in thousands) Three Months Ended Six months ended June 30, June 30, 2004 2003 2004 2003 Capital expenditures - continuing operations $1,025 $2,395 $2,182 $3,228 Capital expenditures - total company $1,025 $2,395 $2,182 $3,228 Depreciation - continuing operations $898 $759 $1,772 $1,559 Depreciation - total company $898 $772 $1,772 $1,612 Bookings - continuing operations $41,941 $58,948 Bookings - total company $41,941 $59,405 June 30, 2004 2003 Funded backlog - continuing operations $123,369 $118,510 Funded backlog - total company $123,369 $118,510 Employees - continuing operations 1,653 1,797 Employees - total company 1,653 1,841 DATASOURCE: Dynamics Research Corporation CONTACT: Elise P. Caffrey, Vice President & Treasurer of Dynamics Research Corporation, +1-978-475-9090, ext. 1309 Web site: http://www.drc.com/

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