Attached files
| file | filename |
|---|---|
| 8-K/A - FORM 8-K/A - DYNAMICS RESEARCH CORP | form8-ka.htm |
| EX-99.2 - HPTI AUDITED FS - 3 YEARS ENDED 2010 - DYNAMICS RESEARCH CORP | ex99-2.htm |
| EX-23.1 - ARGY CONSENT - DYNAMICS RESEARCH CORP | ex23-1.htm |
| EX-99.1 - HPTI INTERIM FS - JUNE 30, 2011 - DYNAMICS RESEARCH CORP | ex99-1.htm |
Exhibit 99.3
DYNAMICS RESEARCH CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On June 30, 2011, the Dynamics Research Corporation (“DRC” or the “Company”) completed the merger for 100% of the outstanding shares of High Performance Technologies, Inc. ("HPTi") for $143 million in cash. HPTi is a leading provider of high-end technology services to the federal healthcare and military technology markets. The merger strengthens and expands the Company’s market presence as a provider of high-end services and solutions in the federal market. The terms of the transaction and the consideration paid by DRC to the Company were a result of arm’s length negotiations between the representatives of both parties. Prior to the completion of the transaction, the Company did not have a material relationship with DRC.
The unaudited pro forma combined condensed statements of income for the six months ended June 30, 2011 and the year ended December 31, 2010 were prepared to illustrate the estimated effects of the acquisition of HPTi by DRC as if the acquisition had occurred at January 1, 2010.
The purchase price and preliminary purchase price allocation associated with the HPTi merger is as follows:
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Cash consideration
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$ | 143,000 | ||
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Working capital adjustment
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973 | |||
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Cash acquired
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(1,151 | ) | ||
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Purchase price, net of cash acquired
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$ | 142,822 | ||
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Current assets, net of cash acquired
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$ | 23,056 | ||
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Property and equipment
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2,273 | |||
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Other noncurrent assets
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4 | |||
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Current liabilities
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(14,725 | ) | ||
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Goodwill and other intangible assets
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132,214 | |||
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Total purchase price allocation
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$ | 142,822 |
The unaudited pro forma combined condensed statements of income for the year ended December 31, 2010, have been derived from the audited financial statements of DRC, as filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, and of HPTi for that period. The unaudited pro forma combined condensed statements of income for the six months ended June 30, 2011, have been derived from the unaudited financial statements of DRC, as filed with the SEC in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2011, and the historical financial statements of HPTi for the six months ended June 30, 2011.
The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated as of January 1, 2010, nor is it necessarily indicative of future operating results. The unaudited pro forma combined financial information should be read in conjunction with the historical consolidated financial statements of DRC and related notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of DRC contained in DRC’s Quarterly Reports on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2010, and other information DRC has filed with the U.S. Securities and Exchange Commission.
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DYNAMICS RESEARCH CORPORATION
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PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
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FOR THE SIX MONTHS ENDED JUNE 30, 2011
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(in thousands, except share and per share data)
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Historical
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Historical
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Pro forma
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Pro forma
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DRC
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HPTi
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Adjustment
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Combined
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Revenue
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$ | 137,996 | $ | 53,567 | $ | - | $ | 191,563 | |||||||||
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Cost of revenue
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116,805 | 41,463 | 333 | (2) | |||||||||||||
| 97 | (2) | ||||||||||||||||
| (154 | ) | (1) | |||||||||||||||
| - | - | (800 | ) | (1) | 157,744 | ||||||||||||
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Gross profit on revenue
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21,191 | 12,104 | 524 | 33,819 | |||||||||||||
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Selling, general and administrative expenses
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12,478 | 4,358 | 53 | (2) | 16,889 | ||||||||||||
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Depreciation and amortization
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- | 333 | (333 | ) | (2) | - | |||||||||||
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Stock compensation expense
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- | 1,631 | (150 | ) | (2) | ||||||||||||
| (1,481 | ) | (1) | - | ||||||||||||||
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Amortization of intangible assets
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748 | - | 1,816 | (3) | 2,564 | ||||||||||||
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Operating income
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7,965 | 5,782 | 619 | 14,366 | |||||||||||||
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Interest expense, net
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(1,020 | ) | 21 | (4,358 | ) | (4) | (5,357 | ) | |||||||||
| (623 | ) | (5) | (623 | ) | |||||||||||||
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Other income
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163 | - | - | 163 | |||||||||||||
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Income before provision for income taxes
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7,108 | 5,803 | (4,362 | ) | 8,549 | ||||||||||||
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Provision for income taxes
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2,963 | 144 | 450 | (6) | 3,557 | ||||||||||||
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Net income
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$ | 4,145 | $ | 5,659 | $ | (4,812 | ) | $ | 4,992 | ||||||||
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Earnings per common share
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Basic
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$ | 0.42 | $ | 0.50 | |||||||||||||
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Diluted
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$ | 0.41 | $ | 0.49 | |||||||||||||
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Weighted average shares outstanding
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Basic
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9,971,411 | 9,971,411 | |||||||||||||||
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Diluted
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10,145,738 | 10,145,738 | |||||||||||||||
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The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
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DYNAMICS RESEARCH CORPORATION
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PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
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FOR THE YEAR ENDED DECEMBER 31, 2010
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(in thousands, except share and per share data)
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Historical
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Historical
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Pro forma
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Pro forma
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DRC
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HPTi
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Adjustment
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Combined
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Revenue
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$ | 272,065 | $ | 90,471 | $ | - | $ | 362,536 | |||||||||
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Cost of revenue
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228,175 | 72,867 | 668 | (2) | |||||||||||||
| - | - | 889 | (2) | 302,599 | |||||||||||||
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Gross profit on revenue
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43,890 | 17,604 | (1,557 | ) | 59,937 | ||||||||||||
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Selling, general and administrative expenses
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21,534 | 7,853 | 479 | (2) | 29,866 | ||||||||||||
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Depreciation and amortization
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- | 668 | (668 | ) | (2) | - | |||||||||||
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Stock compensation expense
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- | 1,368 | (1,368 | ) | (2) | - | |||||||||||
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Amortization of intangible assets
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1,541 | - | 4,420 | (3) | 5,961 | ||||||||||||
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Operating income
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20,815 | 7,715 | (4,420 | ) | 24,110 | ||||||||||||
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Interest expense, net
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(1,084 | ) | (6 | ) | (9,524 | ) | (4) | (10,614 | ) | ||||||||
| (1,624 | ) | (5) | (1,624 | ) | |||||||||||||
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Other income
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453 | - | - | 453 | |||||||||||||
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Income from continuing operations before provision for income taxes
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20,184 | 7,709 | (15,568 | ) | 12,325 | ||||||||||||
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Provision for income taxes
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7,871 | 33 | (3,200 | ) | (6) | 4,704 | |||||||||||
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Income from continuing operations
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12,313 | 7,676 | (12,368 | ) | 7,621 | ||||||||||||
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Gain from discontinued operations
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392 | - | - | 392 | |||||||||||||
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Net income
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$ | 12,705 | $ | 7,676 | $ | (12,368 | ) | $ | 8,013 | ||||||||
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Earnings per common share
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Basic
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Income from continuing operations
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$ | 1.24 | $ | 0.77 | |||||||||||||
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Gain from discontinued operations
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0.04 | 0.04 | |||||||||||||||
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Net income
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$ | 1.28 | $ | 0.81 | |||||||||||||
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Diluted
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Income from continuing operations
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$ | 1.22 | $ | 0.76 | |||||||||||||
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Gain from discontinued operations
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0.04 | 0.04 | |||||||||||||||
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Net income
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$ | 1.26 | $ | 0.80 | |||||||||||||
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Weighted average shares outstanding
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|||||||||||||||||
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Basic
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9,893,322 | 9,893,322 | |||||||||||||||
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Diluted
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10,078,937 | 10,078,937 | |||||||||||||||
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The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
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DYNAMICS RESEARCH CORPORATION
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
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(1)
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To eliminate the following non-recurring charges directly associated with the acquisition: (i) acceleration of stock options of $1,481 (ii) bonuses of $154 and (iii) $800 of payroll taxes associated with the exercise of stock options.
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(2)
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To reclass certain accounts to conform with the Company's financial statement presentation. This footnote includes the reclassification of (i) HPTi’s depreciation and amortization to cost of revenue and (ii) 65% of HPTi’s stock compensation expense to cost of revenue and 35% to selling, general and administrative.
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(3)
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To record amortization expense on the identifiable intangible assets arising from the acquisition. A portion of the excess of purchase price over fair value of net assets acquired were allocated on a preliminary basis to customer relationships, contractual backlog and trade name. The amount allocable to these intangible assets was estimated to be $20.0 million, and DRC estimates it to have a weighted average useful life of 7.6 years, based upon a preliminary independent appraisal. Accordingly, DRC is amortizing these intangible assets over their respective periods, based upon the estimated future cash flows of the individual contracts related to this asset.
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(4)
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To record interest expense on the outstanding principal balance of the term loan and subordinated loan, assuming principal payments in accordance with the financing arrangements entered into on June 30, 2011, as described in the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2011. The weighted average rates used to calculate interest expense for the term loan was 4.75% based on committed and current rates. The rate used to calculate interest expense for the subordinated loan was 13.0%.
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(5)
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To record amortization expense on the deferred financing costs related to the term loan and subordinated loan.
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(6)
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To record income tax expense on the historical results of and pro forma adjustments of HPTi. The statutory tax rate used was 41.2% for the six months ended June 30, 2011 and 40.3% for the year ended December 31, 2010. Prior to the acquisition, HPTi was treated as an S Corporation which in lieu of corporate income taxes, the shareholders separately accounted for their pro-rata share of HPTi’s items of income, deductions, losses and credits. Consequently, HPTi was not liable for federal or state income taxes, except to the extent that HPTi operated in jurisdictions that did not recognize the S Corporation status.
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