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) November 1, 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 November 1, 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 November 1, 2006, Dynamics Research Corporation issued a press release announcing financial results as of and for the three and nine months ended September 30, 2006. 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 November 1, 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

November 1, 2006

Exhibit Index

Exhibit Number	Exhibit Name	Location
99.1	Press release dated November 1, 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

NewsRelease

60 FRONTAGE ROAD, ANDOVER, MASSACHUSETTS 01810 TEL. 978/475-9090 FAX: 978/474-9204

DYNAMICS RESEARCH CORPORATION
REPORTS THIRD QUARTER 2006 RESULTS

Andover, Mass.—November 1, 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 third quarter ended September 30, 2006.

Financial Results

The company reported revenue for the third quarter of 2006 of $63.2 million, compared with $79.1 million for the same period a year ago. Net income was $0.9 million, or $0.10 per diluted share, for the quarter ended September 30, 2006, compared with $3.1 million, or $0.34 per diluted share, for the third quarter of 2005. Diluted earnings per share includes a $0.02 effect of FAS 123R for the third quarter of 2006. For the nine months ended September 30, 2006 revenue was $198.7 million, compared with $228.8 million for the same period in 2005. Net income was $2.6 million, or $0.27 per diluted share, for the nine months ended September 30, 2006, compared with $8.5 million, or $0.92 per diluted share, for the first nine months of 2005. Lower than expected subcontracted revenues under the Aeronautical Systems Center and Electronics Systems Center contracts resulted in third quarter revenues lower than previously provided guidance.

Business Highlights

“I am pleased to report that leading indicators of revenue growth have continued to trend very positively in the most recently ended period. Our new business wins for the quarter, measured in revenue value for the first contract year, were $24 million, up 53% over the third quarter of 2005, bringing the year-to-date total to $55 million. Key wins since we last reported our financial results include new or expanded contracts with the Air Force Tanker Program, Air Force Depots, Lockheed Martin and the Air Force’s Air Operations Center, the NAVAIR AIRSpeed program and the FDIC. Adding to our confidence in these positive developments for the quarter just ended our new business win rate was very strong at 45 percent.

“From a profits viewpoint, we expected and saw a significant improvement in results for the third quarter, compared with the second quarter of this year. Earnings results were at the high end of our guidance for the quarter and investments in business development activities continued at a high level,” reported James P. Regan, DRC chairman and chief executive officer.

Company Guidance

For the year 2006, the company estimates revenues in the range of $258 to $261 million and earnings per diluted share in the range of $0.40 to $0.43. For the fourth quarter of the year the company expects to book revenues in the range of $59 to $62 million and report earnings per diluted share of $0.13 to $0.16.

Conference Call

The company will conduct a third quarter 2006 conference call on Thursday, November 2, 2006 at 10:30 a.m. ET. The call will be available via telephone at (800) 319-9003, and accessible via Web cast at www.drc.com. Recorded replays of the conference call will be available on Dynamics Research Corporation’s investor relations home page at www.drc.com and by telephone at (888) 203-1112, passcode #2492094, beginning at 1:30 p.m. ET November 2, 2006 through 11:59 p.m. ET November 9, 2006.

About Dynamics Research Corporation

DRC is headquartered in Andover, Massachusetts and has major offices in Vienna, Virginia and Fairborn, Ohio. The company has 27 additional field offices throughout the United States providing direct support to all branches of the Department of Defense and several state government agencies.

Dynamics Research Corporation is an innovative solutions provider that partners with its customers to apply proven processes and technologies. For more than 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 our 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: David Keleher, Senior Vice President and Chief Financial Officer
(978) 289-1615

ATTACHMENT I

DYNAMICS RESEARCH CORPORATION

RESULTS OF OPERATIONS (unaudited)
(in thousands, except share and per share data)

	Three months ended
	September 30,
	2006			2005
Contract revenue	$	61,547		$	77,334
Product sales		1,614			1,779
Total revenue		63,161			79,113
Cost of contract revenue		53,756			64,174
Cost of product sales		1,217			1,242
Selling, general and administrative expenses		5,559			6,722
Amortization of intangible assets		702			760
Total operating costs and expenses		61,234			72,898
Operating income		1,927			6,215
Interest expense, net		(558	)		(1,061	)
Other income		78			119
Income before provision for income taxes		1,447			5,273
Provision for income taxes		526			2,136
Net income	$	921		$	3,137
Earnings per common share
Basic	$	0.10		$	0.35
Diluted	$	0.10		$	0.34
Weighted average shares outstanding
Basic		9,133,552			8,846,245
Diluted		9,395,360			9,264,137

ATTACHMENT II

DYNAMICS RESEARCH CORPORATION

RESULTS OF OPERATIONS (unaudited)
(in thousands, except share and per share data)

	Nine months ended
	September 30,
	2006			2005
Contract revenue	$	194,026		$	223,712
Product sales		4,626			5,131
Total revenue		198,652			228,843
Cost of contract revenue		168,985			187,927
Cost of product sales		3,771			3,948
Selling, general and administrative expenses		18,151			19,429
Amortization of intangible assets		2,107			2,279
Total operating costs and expenses		193,014			213,583
Operating income		5,638			15,260
Interest expense, net		(1,693	)		(3,193	)
Other income		429			2,221
Income before provision for income taxes		4,374			14,288
Provision for income taxes		1,803			5,787
Net income (1)	$	2,571		$	8,501
Earnings per common share
Basic (1)	$	0.28		$	0.97
Diluted (1)	$	0.27		$	0.92
Weighted average shares outstanding
Basic		9,079,601			8,761,800
Diluted		9,424,170			9,208,054

(1) Includes $84, or $0.01 per common share, attributable to the cumulative effect of the change in accounting principle for the adoption of SFAS 123R in 2006.

ATTACHMENT III

DYNAMICS RESEARCH CORPORATION

CONDENSED BALANCE SHEETS
(in thousands)

	September 30,		December 31,
	2006		2005
	(unaudited)		(audited)
Assets
Cash and cash equivalents	$	584	$	1,020
Accounts receivable, net		35,372		32,894
Unbilled expenditures and fees on contracts in process		41,070		60,210
Prepaid expenses and other current assets		2,308		1,483
Total current assets		79,334		95,607
Property, plant and equipment, net		11,869		12,252
Goodwill		63,055		63,055
Intangible assets, net		6,373		8,480
Other noncurrent assets		7,046		8,359
Total assets	$	167,677	$	187,753
Liabilities and stockholders’ equity
Current portion of long-term debt	$	—	$	10,170
Accounts payable		20,268		25,668
Deferred income taxes		12,420		19,825
Accrued payroll and employee benefits		15,094		18,761
Other accrued expenses		3,741		6,392
Total current liabilities		51,523		80,816
Long-term debt		21,692		15,242
Other long-term liabilities		14,524		17,508
Stockholders’ equity		79,938		74,187
Total liabilities and stockholders’ equity	$	167,677	$	187,753

ATTACHMENT IV

DYNAMICS RESEARCH CORPORATION

SUPPLEMENTAL INFORMATION (unaudited)
(dollars in thousands)

Contract revenues were earned from the following sectors:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
National defense and intelligence agencies	$	50,579	$	63,970	$	158,995	$	179,961
Federal civilian agencies		6,634		6,785		22,983		24,560
State and local government agencies		3,966		5,946		11,236		16,996
Other		368		633		812		2,195
	$	61,547	$	77,334	$	194,026	$	223,712

Revenues by contract type as a percentage of contract revenue were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Time and materials		64	%		55	%		62	%		56	%
Cost reimbursable		17	%		21	%		19	%		20	%
Fixed price, including service-type contracts		19	%		24	%		19	%		24	%
		100	%		100	%		100	%		100	%
Prime contact		67	%		68	%		68	%		68	%
Sub-contract		33	%		32	%		32	%		32	%
		100	%		100	%		100	%		100	%

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2006		2005			2006		2005
Net cash provided by (used in) operating activities	$	2,026	$	(2,585	)	$	3,372	$	7,835
Capital expenditures	$	492	$	947		$	2,063	$	3,373
Depreciation	$	805	$	915		$	2,425	$	2,823
Bookings	$	60,205	$	72,305		$	191,992	$	210,938

	September 30,
	2006		2005
Funded backlog	$	97,911	$	147,470
Employees		1,541		1,829