EX-99.1 4 l01055aexv99w1.txt EXHIBIT 99.1 Exhibit 99.1 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma consolidated balance sheet as of March 31, 2003 and the unaudited pro forma consolidated statements of operations for the year ended December 31, 2002 and the three months ended March 31, 2003, which we refer to as the Pro Forma Financial Information, present the pro forma effect of the sale of the company's Encoder Division. The objective of Pro Forma Financial Information is to provide investors with information about the continuing impact of particular completed or probable transactions by indicating how the transactions might have affected historical financial statements had they occurred at an earlier date. On October 18, 2002, the company announced that it was actively pursuing the divestiture of the Encoder Division. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Encoder Division was reflected as discontinued operations for all periods presented in the company's consolidated financial statements included in the company's Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Accordingly, the revenue, costs, expenses, assets, liabilities and cash flows of the Encoder Division have been reported separately in the consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows for all periods presented. On May 1, 2003, Dynamics Research Corporation ("DRC") completed the sale of its Encoder Division assets and certain liabilities to GSI Lumonics in Billerica, Massachusetts for $3.3 million in cash subject to adjustment. As a result, an estimated loss of $1.1 million before taxes was recorded on the disposal of discontinued operations in the first quarter of 2003, reflecting $0.3 million of professional fees and $0.8 million of other costs to exit the business. This $1.1 million was included in the current liabilities of discontinued operations on the March 31, 2003 balance sheet. The following unaudited pro forma consolidated balance sheet as of March 31, 2003 presents, on a pro forma basis, DRC's consolidated financial position assuming the sale of the Encoder Division had occurred on March 31, 2003. The following unaudited pro forma consolidated statements of operations for the three months ended March 31, 2003 and the year ended December 31, 2002 present, on a pro forma basis, DRC's consolidated results of operations assuming the sale of the Encoder Division had occurred on January 1, 2002. The Pro Forma Financial Information is not necessarily indicative of the results that would have actually been achieved had the transactions described above occurred on the dates indicated nor are they necessarily indicative of the results that may be achieved in the future. The pro forma adjustments are based upon available information and assumptions that the company's management believes to be reasonable under the circumstances. The Pro Forma Financial Information should be read in conjunction with DRC's consolidated financial statements and notes to those financial statements included in the company's Annual Report on Form 10-K and Quarterly Report on Form 10-Q as previously filed with the Securities and Exchange Commission. DYNAMICS RESEARCH CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET As of March 31, 2003 (in thousands of dollars except share and per share data)
DRC Adjustments Pro Forma ------------ -------------- -------------- Assets ------ Current assets Cash and cash equivalents $ 2,243 $ 3,188 (a) $ 5,431 Receivables, net of allowances 28,631 - 28,631 Unbilled expenditures and fees on contracts in process 28,082 - 28,082 Prepaid expenses and other current assets 2,637 - 2,637 Discontinued operations 3,159 (3,159) (a) - ------------ -------------- -------------- Total current assets 64,752 29 64,781 Non current assets Net property, plant and equipment 15,628 - 15,628 Deferred Income Taxes 1,357 - 1,357 Goodwill and Intangibles, net of amortization 29,888 - 29,888 Other noncurrent assets 1,320 - 1,320 Discontinued operations 291 (291) (a) - ------------ -------------- -------------- Total non current assets 48,484 (291) 48,193 ------------ -------------- -------------- Total assets $ 113,236 $ (262) $ 112,974 ============ ============== ============== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities Current portion of long-term debt $ 500 $ - $ 500 Notes and revolver 14,000 - 14,000 Current deferred income taxes 6,253 - 6,253 Accounts payable 11,478 - 11,478 Accrued payroll and employee benefits 13,055 96 (b) 13,151 Capital lease obligations - - - Other accrued expenses 3,677 1,626 (b) 5,303 Discontinued operations 1,984 (262) (a) - (1,722) (b) - ------------ -------------- -------------- Total current liabilities 50,947 (262) 50,685 Capital lease obligations and notes payable - - - Long-term debt 8,125 - 8,125 Accrued pension liability 11,778 - 11,778 Other non current obligations 1,030 - 1,030 ------------ -------------- -------------- Total non current liabilities 20,933 - 20,933 Preferred stock, par value, $.10 per share 5,000,000 shares authorized, none issued - - - Common stock, par value, $.10 per share: Authorized - 30,000,000 shares Issued - 9,622,130 shares 962 - 962 Treasury stock - 1,379,426 shares (138) - (138) Capital in excess of par value 34,499 - 34,499 Unearned compensation (974) - (974) Accumulated other comprehensive income (6,881) - (6,881) Retained earnings 13,888 - 13,888 ------------ -------------- -------------- Total stockholders' equity 41,356 - 41,356 ------------ -------------- -------------- Total liabilities and stockholders' equity $ 113,236 $ (262) $ 112,974 ============ ============== ==============
The accompanying notes are an integral part of these unaudited pro forma financial statements. DYNAMICS RESEARCH CORPORATION NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET As of March 31, 2003 (a) Adjustment to record the sale of the assets and certain liabilities of the Encoder Division. (b) Entry to reclassify the liabilities not assumed by the buyer from discontinued operations to continuing operations. DYNAMICS RESEARCH CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS For the Year Ended December 31, 2002 (in thousands of dollars except share and per share data)
DRC Adjustments Pro Forma --------------- ------------- ---------------- Revenue Contract revenue $ 184,994 $ - $ 184,994 Product sales 7,616 - 7,616 --------------- ------------- ---------------- Total revenue 192,610 - 192,610 Costs and expenses Cost of contract revenue 156,441 - 156,441 Cost of product sales 5,238 - 5,238 Selling, engineering and administrative expenses 17,910 - 17,910 Amortization of intangible assets 374 - 374 --------------- ------------- ---------------- Total operating costs and expenses 179,963 - 179,963 Operating income 12,647 - 12,647 Other income (expense) 67 - 67 Interest expense, net (421) - (421) --------------- ------------- ---------------- Income from continuing operations before provision for income taxes 12,293 - 12,293 Provision for income taxes 4,936 - 4,936 --------------- ------------- ---------------- Income from continuing operations 7,357 - 7,357 Loss from discontinued operations, net of tax (1,124) 1,124 (a) - benefit of $741 Loss on disposal of discontinued operations, net of tax - (630) (b) (630) benefit of $423 --------------- ------------- ---------------- Net income $ 6,233 $ 494 $ 6,727 =============== ============= ================ Earnings per share ------------------ Per common share - basic Income from continuing operations $ 0.92 $ 0.92 Loss from discontinued operations, net of tax (0.14) - Loss on disposal of discontinued operations, net of tax - (0.08) --------------- ---------------- Net income $ 0.78 $ 0.84 =============== ================ Per common share - diluted Income from continuing operations $ 0.83 $ 0.83 Loss from discontinued operations, net of tax (0.13) - Loss on disposal of discontinued operations, net of tax - (0.07) --------------- ---------------- Net income $ 0.70 $ 0.76 =============== ================ Weighted average shares outstanding ----------------------------------- Weighted average shares outstanding - basic 7,989,793 7,989,793 Dilutive effect of options 887,376 887,376 --------------- ---------------- Weighted average shares outstanding - diluted 8,877,169 8,877,169 =============== ================
The accompanying notes are an integral part of these unaudited pro forma financial statements. DYNAMICS RESEARCH CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS For the Three Months Ended March 31, 2003 (in thousands of dollars except share and per share data)
DRC Adjustments Pro Form ----------------- ------------- --------------- Revenue Contract revenue $ 56,929 $ - $ 56,929 Product sales 1,677 - 1,677 ----------------- ------------- --------------- Total revenue 58,606 - - 58,606 Costs and expenses Cost of contract revenue 48,152 - 48,152 Cost of product sales 1,253 - 1,253 Selling, engineering and administrative expenses 5,781 - 5,781 Amortization of intangible assets 455 - 455 ----------------- ------------- --------------- Total operating costs and expenses 55,641 - 55,641 Operating income 2,965 - 2,965 Other income (expense) 42 - 42 Interest expense, net (277) - (277) ----------------- ------------- --------------- Income from continuing operations before provision for income taxes 2,730 - 2,730 Provision for income taxes 1,098 - 1,096 ----------------- ------------- --------------- Income from continuing operations 1,632 - 1,634 Loss from discontinued operations, net of tax (357) 357 (a) - benefit of $240 Gain (loss) on disposal of discontinued operations, net of tax (233) 630 (b) 397 benefit of $157 ----------------- ------------- --------------- Net income $ 1,042 $ 987 $ 2,031 ================= ============= =============== Earnings per share ------------------ Per common share - basic Income from continuing operations $ 0.20 $ 0.20 Loss from discontinued operations, net of tax (0.04) - Gain (loss) on disposal of discontinued operations, net of tax (0.03) 0.05 ----------------- --------------- Net income $ 0.13 $ 0.25 ================= =============== Per common share - diluted Income from continuing operations $ 0.19 $ 0.19 Loss from discontinued operations, net of tax (0.04) - Gain (loss) on disposal of discontinued operations, net of tax (0.03) 0.05 ----------------- --------------- Net income $ 0.12 $ 0.23 ================= =============== Weighted average shares outstanding ----------------------------------- Weighted average shares outstanding - basic 8,116,515 8,116,515 Dilutive effect of options 529,402 529,402 ----------------- --------------- Weighted average shares outstanding - diluted 8,645,917 8,645,917 ================= ===============
The accompanying notes are an integral part of these unaudited pro forma financial statements. DYNAMICS RESEARCH CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2002 and the Three Months Ended March 31, 2003 For the Year Ended December 31, 2002 (a) Adjustment to eliminate the loss incurred from discontinued operations during 2002. (b) Adjustment to record the estimated loss of $630,000, net of taxes, on disposal of discontinued operations. For the Three Months Ended March 31, 2003 (a) Adjustment to eliminate the loss incurred from discontinued operations during the three months ended March 31, 2003. (b) Adjustment to eliminate the estimated loss that was recorded in the consolidated historical financial statements of the company on disposal of discontinued operations of $630,000, net of taxes. The resulting pro forma gain on disposal of discontinued operations relates to royalty income associated with the 1999 sale of the company's discontinued Telecommunications Fraud Control business.