8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) February 22, 2006

DYNAMICS RESEARCH CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Massachusetts

(State or Other Jurisdiction of Incorporation)

000-023479	04-2211809
(Commission File Number)	(IRS Employer Identification No.)
60 Frontage Road Andover, Massachusetts	01810
(Address of Principal Executive Offices)	(Zip Code)

(978) 475-9090

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

     o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Section 2 — Financial Information
	Item 2.02. Results of Operations and Financial Condition
Section 9 — Financial Statements and Exhibits
	Item 9.01. Financial Statements and Exhibits.
SIGNATURES
Exhibit Index
Ex-99.1 Press Release dated February 22, 2006

Section 2 — Financial Information

Item 2.02. Results of Operations and Financial Condition

The information in this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the company under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

On February 22, 2006, Dynamics Research Corporation issued a press release announcing financial results as of and for the three months and year ended December 31, 2005. A copy of the press release is attached hereto as Exhibit 99.1.

Section 9 — Financial Statements and Exhibits

Item 9.01. Financial Statements and Exhibits.

(c)     Exhibits

Number

   99.1               Press release dated February 22, 2006.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

DYNAMICS RESEARCH CORPORATION (Registrant)
By:	/s/ David Keleher
	David Keleher
	Senior Vice President and Chief Financial Officer

February 22, 2006

Exhibit Index

Exhibit
Number	Exhibit Name	Location
99.1	Press release dated February 22, 2006.	Furnished herewith*

* Exhibit 99.1 attached hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

EX-99.1

Exhibit 99.1

DYNAMICS RESEARCH CORPORATION
REPORTS PRELIMINARY UNAUDITED FOURTH QUARTER
AND FULL YEAR 2005 RESULTS

Annual Revenue Up 9%, Operating Margin Up 12%, Debt Down 64%

Andover, Mass.—February 22, 2006—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, 2005.

Financial Results

Preliminary unaudited revenue for the fourth quarter of 2005 was $71.6 million compared with $78.2 million for the same period a year ago. Preliminary unaudited revenue for the full year ended December 31, 2005 was $300.4 million, up $24.7 million or 9%, from $275.7 million for the same period in 2004. The growth in 2005 resulted principally from an acquisition completed in September 2004.

Operating income for the fourth quarter of 2005 was $6.0 million, or 8.4% of revenue, compared with $5.6 million, or 7.1% of revenue, for the fourth quarter a year ago. For the full year ended December 31, 2005 operating income was $21.3 million, or 7.1% of revenue, compared with $17.5 million, or 6.4% of revenue for the full year 2004.

Preliminary unaudited net income was $2.9 million, or $0.31 per diluted share, for the quarter ended December 31, 2005, unchanged from $2.9 million, or $0.31 per diluted share, for the fourth quarter of 2004. For the year ended December 31, 2005 preliminary unaudited net income was $11.4 million, or $1.24 per diluted share, including $0.13 attributable to the sale of stock in the second quarter ended June 30, 2005, compared with $9.4 million, or $1.03 per diluted share, for the year ended December 31, 2004.

Business Highlights

“I am please to report record revenues, record earnings and a significantly reduced level of debt at the end of 2005. Services revenue for full year increased by 9.3% in 2005 from 2004. Our annual operating margin of 7.1%, was at a record level, up nearly 12% over the 2004 operating margin, and we reduced our funded debt by $44 million resulting in a debt to capital ratio of 26%,” said James P. Regan, DRC president, chairman and chief executive officer.

“We ended the quarter with funded backlog of $145 million, or 6 months, which is consistent with historical levels. Funded bookings of $77 million for the quarter and our book to bill ratio was 1.07. Business development indicators remain strong. First year revenue awaiting award for new and follow on business was $150 million at the end of the year with well over a third of that amount in new business and we are consistently winning in excess of 35% of new business opportunities.

“Throughout 2005 we focused our efforts on two key strategic objectives – profitable growth and operational efficiency. We continued to invest in business development activities developing new key partnership roles in a number of our customer’s highest priority programs laying the foundation for 2006 and beyond.

“While 2006 will not be without challenges, the successes of the past year continue the progress being made in DRC’s transformation. In 2006 we will sharpen our focus on growth and continued margin improvement. We will concentrate on satisfying our customers while growing our business at both the top and bottom lines. I am confident DRC has the strategies, the business systems and processes, and the customer relationships and contract awards in place for a successful 2006,” Regan added.

Company Guidance

The company estimates revenues in the range of $290 to $305 million and earnings per diluted share in the range of $1.06 to $1.14 for 2006. For the first quarter of the year the company expects to book revenues in the range of $69 to $71 million and report earnings per diluted share of $0.21 to $0.23. Earnings guidance for 2006 periods includes FAS123R stock compensation expense which is estimated to be in the range of $0.06 to $0.08 for the full year. FAS123R stock compensation expense for 2005, which was not included in preliminary unaudited reported earnings was $0.08 for the year and $0.03 for the first quarter.

The company will conduct a conference call tomorrow, February 23, 2006 at 8:30 a.m. ET to discuss its 2005 results and 2006 outlook in more detail. The call will be available via telephone at (800) 311-0799, and accessible via Web cast at www.drc.com. A replay of the call will be available on the company’s Web site at www.drc.com and by telephone at 888/203-1112, passcode #3924085, beginning at 10:30 a.m. ET, February 23, 2006 through 11:59 p.m. March 2, 2006.

About Dynamics Research Corporation

Dynamics Research Corporation is an innovative solutions provider that partners with its customers to apply proven processes and technologies. For 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 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:	Elise Caffrey, Vice President & Treasurer
	(978) 289-1545

ATTACHMENT I.

DYNAMICS RESEARCH CORPORATION

RESULTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)

	Three months ended
	December 31,
	2005			2004
Contract revenue	$	69,950		$	76,273
Product sales		1,647			1,964
Total revenue		71,597			78,237
Cost of contract revenue		57,639			63,492
Cost of product sales		1,264			1,440
Selling, engineering and administrative expenses		5,889			6,741
Amortization of intangible assets		760			989
Total operating costs and expenses		65,552			72,662
Operating income		6,045			5,575
Interest expense, net		(1,174	)		(1,092	)
Other income (expense), net		55			(125	)
Income before provision for income taxes		4,926			4,358
Provision for income taxes		1,994			1,496
Net income	$	2,932		$	2,862
NET INCOME PER COMMON AND EQUIVALENT SHARE
Basic	$	0.33		$	0.33
Diluted	$	0.31		$	0.31
Weighted average shares outstanding
Weighted average shares outstanding — basic		8,954,488			8,601,489
Dilutive effect of options		423,060			557,735
Weighted average shares outstanding — diluted		9,377,548			9,159,224

ATTACHMENT II.

DYNAMICS RESEARCH CORPORATION

RESULTS OF OPERATIONS

(in thousands, except share and per share data)

	Year ended
	December 31,
	2005			2004
	(unaudited)			(audited)
Contract revenue	$	293,662		$	268,634
Product sales		6,778			7,072
Total revenue		300,440			275,706
Cost of contract revenue		245,566			227,509
Cost of product sales		5,212			5,214
Selling, engineering and administrative expenses		25,318			23,152
Amortization of intangible assets		3,039			2,324
Total operating costs and expenses		279,135			258,199
Operating income		21,305			17,507
Interest expense, net		(4,367	)		(2,225	)
Other income		2,276			360
Income before provision for income taxes		19,214			15,642
Provision for income taxes		7,781			6,269
Net income	$	11,433		$	9,373
NET INCOME PER COMMON AND EQUIVALENT SHARE
Basic	$	1.30		$	1.10
Diluted	$	1.24		$	1.03
Weighted average shares outstanding
Weighted average shares outstanding — basic		8,809,644			8,499,013
Dilutive effect of options		443,878			574,035
Weighted average shares outstanding — diluted		9,253,522			9,073,048

ATTACHMENT III.

DYNAMICS RESEARCH CORPORATION

CONDENSED BALANCE SHEETS

(in thousands)

	December 31,
	2005		2004
	(unaudited)		(audited)
Assets
Cash and cash equivalents	$	1,020	$	925
Accounts receivable, net		32,894		45,978
Unbilled expenditures and fees on contracts in process		60,210		48,119
Prepaid expenses and other current assets		1,483		5,668
Total current assets		95,607		100,690
Property, plant and equipment, net		12,252		22,139
Goodwill		63,055		63,055
Intangible assets, net		8,480		11,519
Deferred income tax asset		3,916		—
Unbilled expenditures and fees on contracts in process		1,549		2,203
Other noncurrent assets		2,894		5,528
Total assets	$	187,753	$	205,134
Liabilities and stockholders’ equity
Current portion of long-term debt	$	10,170	$	8,357
Notes payable and revolver		—		10,000
Accounts payable		25,668		20,550
Accrued payroll and employee benefits		18,761		17,914
Current deferred income taxes		19,825		15,418
Other accrued expenses		6,392		4,447
Current liabilities of discontinued operations		—		422
Total current liabilities		80,816		77,108
Long-term debt		15,242		51,485
Accrued pension liability		5,328		11,336
Deferred income taxes		—		591
Other long-term liabilities		4,991		3,296
Deferred gain on sale and long term commitments		7,189		—
Stockholders’ equity		74,187		61,318
Total liabilities and stockholders’ equity	$	187,753	$	205,134

ATTACHMENT IV.

DYNAMICS RESEARCH CORPORATION

SUPPLEMENTAL INFORMATION (unaudited)

(dollars in thousands)

	Three Months Ended				Year ended
	December 31,				December 31,
	2005		2004		2005		2004
Capital expenditures (total company)	$	1,198	$	1,213	$	4,571	$	4,544
Depreciation	$	896	$	976	$	3,719	$	3,624
Bookings	$	76,642	$	92,061	$	287,581	$	282,260
Funded backlog (total company)					$	144,571	$	165,017

	December 31,
	2005		2004
Employees (total company)		1,822		1,960