-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F1VmTKbSkejkW4y7ckXAa0QPQ3MQ2AJl7MF70WK3IlX7LHmKMu7gY4qyW9YDuJp/ 9GEUi5FkXMB+h1Dswz/0VQ== 0000028630-96-000007.txt : 19960216 0000028630-96-000007.hdr.sgml : 19960216 ACCESSION NUMBER: 0000028630-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960215 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAGNOSTIC RETRIEVAL SYSTEMS INC CENTRAL INDEX KEY: 0000028630 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 132632319 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08533 FILM NUMBER: 96521060 BUSINESS ADDRESS: STREET 1: 5 SYLVAN WAY CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 201-898-1500 MAIL ADDRESS: STREET 1: 16 THORNTON RD CITY: OAKLAND STATE: NJ ZIP: 07436 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1995 OR TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8533 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 13-2632319 (I.R.S. Employer Identification No.) 5 Sylvan Way, Parsippany, New Jersey 07054 (Address of principal executive offices) (Zip Code) 201-898-150 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of Class A Common Stock, $.01 par value, and Class B Common Stock, $.01 par value, outstanding as of February 12, 1996 was 3,307,324 and 2,154,808, respectively (exclusive of 432,639 shares of Class A Common Stock and 65,795 shares of Class B Common Stock held in the treasury). PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 1995 and March 31, 1995.........................................3 Condensed Consolidated Statements of Earnings - Three and Nine Months Ended December 31, 1995 and 1994................4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended December 31, 1995 and 1994.......................5 Notes to Condensed Consolidated Financial Statements...6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................9-13 PART 2. OTHER INFORMATION Item 1. Not Applicable Item 2. Not Applicable Item 3. Not Applicable Item 4. Submission of Matters to a Vote of Security Holders................................................14 Item 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K...............14 SIGNATURES.............................................15
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) December 31, 1995 March 31, 1995 ----------------- -------------- Assets Current Assets: Cash and cash equivalents ...................... $23,069,000 $11,197,000 Accounts receivable ............................ 20,594,000 17,432,000 Inventories, net of progress payments ......... 16,558,000 11,724,000 Other current assets ........................... 2,477,000 2,445,000 ----------- ----------- Total current assets 62,698,000 42,798,000 Property, plant and equipment, less accumulated depreciation and amortization of $25,230,000 and $23,812,000 at December 31, 1995 and March 31, 1995, respectively .................. 14,728,000 9,849,000 Intangible assets, less accumulated amortization of $3,883,000 and $3,457,000 at December 31,199 and March 31, 1995, respectively ............. 8,494,000 8,920,000 Other assets ..................................... 4,850,000 3,023,000 ----------- ----------- $90,770,000 $64,590,000 =========== =========== Liabilities and Stockholders' Equity Current liabilities .............................. $22,113,000 $22,481,000 Long-term debt, excluding current installments ... 35,319,000 11,732,000 Deferred income taxes ............................ 4,605,000 4,605,000 Other liabilities ................................ 3,826,000 3,263,000 ----------- --------- Total liabilities ................................ 65,863,000 42,081,000 Stockholders' equity: Class A Common Stock, $.01 par value per share Authorized 10,000,000 shares; issued 3,739,963 and 3,699,963 shares at December 31, 1995 and March 31, 1995, respectively.................... 37,000 37,000 Class B Common Stock, $.01 par value per share Authorized 20,000,000 shares; issued 2,216,353 and 2,163,253 shares at December 31, 1995 and March 31, 1995, respectively.................... 22,000 22,000 Additional paid-in capital ....................... 13,579,000 13,435,000 Retained earnings ................................ 13,414,000 10,919,000 ----------- ----------- 27,052,000 24,413,000 Treasury Stock, at cost; 432,639 shares of Class A Common Stock and 65,795 shares of Class B Common Stock ......... (1,918,000) (1,617,000) Unamortized restricted stock compensation ........ (227,000) (287,000) ----------- ----------- Net stockholders' equity ......................... 24,907,000 22,509,000 ----------- ----------- $90,770,000 $64,590,000 =========== ===========
See accompanying notes to condensed consolidated financial statements.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited Three Months Ended December 31, Nine Months Ended December 31, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Revenues .................................... $25,563,000 $15,742,000 $65,628,000 $47,404,000 Costs and expenses .......................... 23,382,000 14,737,000 60,289,000 44,143,000 ----------- ----------- ----------- ---------- Operating income ...................... 2,181,000 1,005,000 5,339,000 3,261,000 Interest and related expenses ............... (978,000) (343,000) (1,675,000) (1,020,000) Other income, net ........................... 311,000 397,000 425,000 613,000 ----------- ----------- ----------- ----------- Earnings before income taxes .......... 1,514,000 1,059,000 4,089,000 2,854,000 Income taxes ................................ 590,000 425,000 1,594,000 1,142,000 ----------- ----------- ----------- ----------- Net earnings .......................... $ 924,000 $ 634,000 $ 2,495,000 $ 1,712,000 =========== =========== =========== ============ Earnings per share of Class A and Class B Common Stock: Primary .............................. $ 0.16 $ 0.13 $ 0.44 $ 0.34 Fully Diluted ........................ $ 0.16 $ 0.13 $ 0.44 $ 0.34 Weighted average number of shares of Class A and Class B Common Stock outstanding: Primary ............................. 5,677,000 4,889,000 5,647,000 5,026,000 Fully Diluted ....................... 8,303,000 4,889,000 6,552,000 5,026,000 See accompanying notes to condensed consolidated financial statements.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December 31, --------------------------------- 1995 1994 ------------ ------------ Cash flows from operating activities Net earnings ................................ $ 2,495,000 $ 1,712,000 Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation and amortization ............... 2,226,000 1,967,000 Other, net .................................. 305,000 (235,000) Changes in assets and liabilities, net of effects from net assets acquired: (Increase) decrease in accounts receivable... (2,859,000) 2,265,000 (Increase) in inventories ................... (4,141,000) (5,543,000) (Increase) decrease in other current assets.. 667,000 (130,000) (Decrease) in accounts payable and other .... (2,381,000) (182,000) Other, net .................................. 194,000 160,000 ------------ ------------ Net cash provided by (used in) operating activities .................................. (3,494,000) 14,000 ------------ ------------ Cash flows from investing activities Capital expenditures ........................ (3,712,000) (1,014,000) Sales of fixed assets ....................... 2,380,000 -- Purchase of net assets....................... (4,140,000) (1,514,000) Other, net .................................. -- 236,000 ------------ ------------ Net cash used in investing activities .................................. (5,472,000) (2,292,000) ------------ ------------ Cash flows from financing activities Net proceeds from short-term debt ........... 55,000 75,000 Payments on long-term debt .................. (374,000) (56,000) Repurchases of convertible subordinated debentures .................................. (2,242,000) (2,639,000) Net proceeds from issuance of senior subordinated convertible debentures ......... 23,360,000 -- Purchase of treasury stock .................. -- (2,900,000) Sale of treasury stock ...................... -- 2,625,000 Other, net .................................. 39,000 -- ------------ ------------ Net cash provided by (used in) financing activities .................................. 20,838,000 (2,895,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents ..................................... 11,872,000 (5,173,000) Cash and cash equivalents, beginning of period .. 11,197,000 15,465,000 ------------ ------------ Cash and cash equivalents, end of period ........ $ 23,069,000 $ 10,292,000 ============ ============
See accompanying notes to condensed consolidated financial statements. DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1) In the opinion of Management, the accompanying unaudited condensed consolidated financial statements of Diagnostic/Retrieval Systems, Inc. and subsidiaries (the "Company") contain all adjustments (consisting of only normal and recurring adjustments) necessary for the fair presentation of the Company's consolidated financial position as of December 31, 1995, the results of operations for the three and nine months ended December 31, 1995 and 1994 and cash flows for the nine months ended December 31, 1995 and 1994. The results of operations for the three and nine months ended December 31, 1995 are not necessarily indicative of the results to be expected for the full year. 2) On July 5, 1995 (the "Closing Date"), Photronics Corp., a New York corporation and a wholly-owned subsidiary of the Company ("Photronics"), acquired (through OMI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Photronics), substantially all of the assets of Opto Mechanik, Inc. ("OMI"), a Delaware corporation, pursuant to an Agreement for Acquisition of Assets dated May 24, 1995, as amended July 5, 1995, between Photronics and OMI (the "OMI Agreement"), and approved by the United States Bankruptcy Court for the Middle District of Florida on June 23, 1995. OMI, now located in Palm Bay, Florida, designs and manufactures electro-optical sighting and targeting systems used primarily in military fire control devices and in various weapons systems. Pursuant to the OMI Agreement, the Company paid a total of $5,450,000 consisting of i) $1,150,000 in cash to PNC Bank, Kentucky, Inc. ("PNC"), ii) a note to PNC in the principal amount of $1,450,000 payable in forty eight (48) equal monthly installments of principal and interest commencing with the first day of the month subsequent to the Closing Date (the "PNC Note"), iii) $2,550,000 in cash to MetLife Capital Corporation and iv) a note in the principal amount of $300,000 to OMI payable in six (6) equal monthly installments of principal and interest commencing on August 5, 1995 (the "OMI Note"). The PNC Note bears interest at a floating rate equal to the lesser of i) PNC's stated prime interest rate plus 0.5% or ii) the prime rate as reported by the Wall Street Journal plus 0.5%. The OMI Note bears interest at a rate of 9.5% per annum. Professional fees and other costs associated with the acquisition were capitalized as part of the total purchase price. Total cash consideration paid in the acquisition was obtained from the Company's working capital. The acquisition of the assets of OMI has been accounted for under the purchase method. The operating results of OMI Acquisition Corp., the acquiring corporation, have been included in reported operating results since the date of acquisition. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed. 3) On September 29, 1995 (the "Debenture Closing Date"), the Company completed a private placement of $20,000,000 in principal amount of Debentures. Net proceeds from the private placement were approximately $19,000,000. On November 3, 1995, the Company completed the placement of an additional $5,000,000 in principal amount of Debentures, as provided for under the over-allotment option provisions of the Purchase Agreement between the Company and Forum Capital Markets L.P. ("Forum"), dated September 22, 1995. Net proceeds from this secondary placement were approximately $4,750,000. Pursuant to the related Registration Rights Agreement dated September 22, 1995 between the Company and Forum, acting on behalf of holders of the Debentures (the "Agreement"), the Company has agreed to file a shelf registration statement relating to the Debentures and the shares of Class A Common Stock which are issuable from time to time upon conversion of the Debentures, within ninety (90) days after the Debenture Closing Date, and to cause the registration statement to become effective within one hundred fifty (150) days after the Debenture Closing Date. In addition, the Company has agreed to use its reasonable best efforts to keep the registration statement effective until at least the third anniversary of the issuance of the Debentures. On November 30, 1995, the Company filed a Registration Statement on Form S-2 (No. 33-64641) with the Securities and Exchange Commission (the "Commission"), pursuant to the terms of the Agreement. The registration statement has not yet been declared effective by the Commission. In connection with these transactions, the Company expects to incur approximately $500,000 of professional fees and other costs. These costs, together with Forum's commissions, will be amortized ratably through the maturity date of the Debentures. Interest on the Debentures is payable semi-annually on April 1 and October 1, commencing April 1, 1996. The Debentures are convertible at any time prior to maturity, unless previously redeemed or repurchased, into shares of the Company's Class A Common Stock, $0.01 par value, at a conversion price of $8.85 per share, subject to adjustment under certain circumstances. The Debentures become due and payable in full on October 1, 2003; there are no sinking fund payments required prior to maturity. The Company may redeem outstanding Debentures, in whole or in part, on or after October 1, 1998, at redemption prices ranging from 100% to 105% of par value, plus accrued interest. The related Indenture Agreement between the Company and The Trust Company of New Jersey dated September 29, 1995 (the "Indenture") contains certain restrictions, covenants and agreements with respect to the operations and financial reporting requirements of the Company, including, but not limited to, the maintenance of a certain level of consolidated net worth, limitations on the amount and types of indebtedness incurred by the Company, limitations on liens upon the assets of the Company, limitations on investments, dividends and other distributions, limitations on transactions with related persons and limitations on the sale or transfer of corporate assets. As of December 31, 1995, the Company was in compliance with these covenants. Under the terms of the Indenture, the Debentures are subject to partial mandatory redemption should consolidated net worth (as defined in the Indenture) fall below $18,000,000 for any two (2) consecutive fiscal quarters. The Debentures are also subject to mandatory redemption upon a change in control (as defined in the Indenture). 4) The Company's industrial revenue bonds, due 1998, are supported by an irrevocable, direct-pay letter of credit in an amount equal to the principal balance plus interest thereon for 45 days. At December 31, 1995, the contingent liability of the Company as guarantor under the letter of credit was approximately $1,930,000. The Company has collateralized the letter of credit with accounts receivable and has also agreed to certain financial covenants, including the maintenance of: (i) a certain minimum ratio of consolidated tangible net worth to total debt (the "Debt Ratio"), (ii) a certain minimum quarterly ratio of earnings before interest and taxes to interest (the "Interest Ratio"), and (iii) a certain minimum balance of billed and unbilled accounts receivable ("Eligible Receivables"). At December 31, 1995, the covenants required: (i) a Debt Ratio of 0.6:1, (ii) an Interest Ratio of 1.5:1 and (iii) Eligible Receivables of $2,500,000. As a result of the issuance of the Debentures as described in Note 4 above, the Debt Ratio at December 31, 1995 was 0.4:1. The Company has obtained a waiver, renewable quarterly, from the bank of the required debt ratio and is in compliance with all covenants under the letter of credit. 5) On February 6, 1996, pursuant to a Joint Venture Agreement, dated February 6 , 1996, by and among DRS/MS, Inc. ("DRS/MS"), a wholly-owned subsidiary of the Company, Universal Sonics Corporation ("Universal Sonics"), a New Jersey corporation, Ron Hadani, Howard Fidel and Thomas S. Soulos, and a Partnership Agreement, dated February 6, 1996, by and between DRS/MS and Universal Sonics, the Company entered into a partnership with Universal Sonics (the "Partnership") for the purpose of developing, manufacturing and marketing medical ultrasound imaging equipment. The Company's contribution to the Partnership consisted of $400,000 in cash and certain managerial expertise and manufacturing capabilities, representing a 90% interest in the Partnership. 6) On February 9, 1996, Precision Echo, Inc. ("PE"), a wholly- owned subsidiary of the Company, acquired (through Ahead Technology Acquisition Corporation ("Ahead"), a Delaware corporation and a wholly-owned subsidiary of PE), certain assets and assumed certain liabilities (principally, obligations under property leases) of Mag-Head Engineering Company, Inc. ("Mag-Head"), a Minnesota corporation, pursuant to an Asset Purchase Agreement, dated as of February 9, 1996, by and among Mag-Head and Ahead, for approximately $400,000 in cash. Mag-Head produces audio and flight recorder heads. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth items in the Condensed Consolidated Statements of Earnings as a percent of revenues and presents the percentage increase or decrease of those items as compared to the prior period. Percent of Revenues Percent of Revenues ------------------- ------------------- Three Months Ended Percent Six Months Ended Percent September 30, Changes September 30, Changes ------------------- ------------ ------------------- ------------ 1995 1994 1995 vs 1994 1995 1994 1995 vs 1994 ---- ---- ------------ ---- ---- ------------ Revenues................... 100.0% 100.0% 62.4% 100.0% 100.0% 38.4% Costs and expenses......... 91.5% 93.6% 58.7% 91.9% 93.1% 36.6% ------ ------ ------ ------ Operating Income....... 8.5% 6.4% 117.0% 8.1% 6.9% 63.7% Interest & Related Expenses -3.8% -2.2% 185.1% -2.5% -2.2% 64.2% Other Income, net.......... 1.2% 2.5% -21.7% 0.6% 1.3% -30.7% ---- ---- ---- ---- Earnings before income taxes...................... 5.9% 6.7% 43.0% 6.2% 6.0% 43.3% Income taxes............... 2.3% 2.7% 38.8% 2.4% 2.4% 39.6% ---- ---- ---- ---- Net Earnings........... 3.6% 4.0% 45.7% 3.8% 3.6% 45.7% ==== ==== ==== ====
Revenues for the three-month period ended December 31, 1995 increased 62.4% to $25.6 million from $15.7 million for the same three-month period in fiscal 1995. On a year-to-date basis, revenues increased 38.4% to $65.6 million from $47.4 million for the same nine-month period in fiscal 1995. The revenue growth was due primarily to increased shipments of display work- stations and data storage systems, as well as from higher commercial product sales. In addition, revenue growth during both periods was partialy due to higher sales of electro-optical systems following the acquisition of sub- stantially all of the assets of Opto Mechanik, Inc. on July 5, 1995 (the "OMI Asset Acquisition"). Operating income for the three-month period ended December 31, 1995 increased 117.0% to $2.2 million from $1.0 million for the same three-month period in fiscal 1995. On a year-to-date basis, operating income increased 63.7% to $5.3 million from $3.3 million for the same nine-month period in fiscal 1995. Operating income as a percentage of revenues was 8.5% and 8.1% for the three- month and nine-month periods ended December 31, 1995, respectively, as compared with 6.4% and 6.9%, respectively, for the comparable prior year periods. Higher operating income in both peiods was due primarily to the overall increase in revenues, together with higher margins on the company's commercial products. Interest and related expenses were $1.0 million and $1.7 million for the third quarter and nine months ended December 31, 1995, respectively as compared to $0.3 million and $1.0 million for the comparable prior year periods. The increase for both periods was primarily due to the increase in debt associated with the private placement of $25,000,000 in principal amount of 9% Senior Subordinated Convertible Debentures (the "Debentures"), offset in part by a reduction in interest resulting from repurchases of the Company's 8 1/2% Convertible Subordinated Debentures (the"8 1/2% Debentures"), in satisfaction of the August 1, 1995 sinking fund requirement for this debt. Other income, net was $0.3 million and $0.4 million for the three-month and nine-month periods ended December 31, 1995, respectively, representing decreases from $0.4 million and $0.6 million, respectively, in the comparable prior year periods. These decreases were due to a gain on the sale of fixed assets of approximately $0.2 million in the third quarter of fiscal 1995, offset in part by interest earned on higher average cash balances this fiscal year, primarily resulting from the net proceeds generated from the Debentures. The Company's effective tax rate for the three-month and nine-month periods ended December 31, 1995 was 39%, as compared to 40% in each of the comparable prior year periods. The Company records income tax expense based on an estimated effective income tax rate for the full fiscal year. The effective income tax rate and the components of income tax expense for the third quarter and the nine months ended December 31, 1995 did not significantly change from those of the fiscal year ended March 31, 1995. The provisions for income taxes includes all estimated income taxes payable to federal and state governments as applicable. Financial Condition and Liquidity Cash and Cash Flow: Cash and cash equivalents at December 31, 1995 and March 31, 1995 represented approximately 25% and 17%, respectively, of total assets. During the nine-month period ended December 31, 1995, cash increased by approximately $11.9 million. This increase was primarily the result of the private placement of $20.0 million in principal amount of Debentures on September 29, 1995, and the additional placement of $5.0 million in principal amount of Debentures, pursuant to an over-allotment option, completed on November 3, 1995 (the "private placement transactions"). In addition, approx- imately $2.4 million was generated from sales of certain fixed assets. These contributions to cash were offset by uses of: i) approximately $4.1 million in the OMI Asset Acquisition; ii) approximately $2.2 million for repurchases of outstanding 8 1/2% Debentures, in satisfaction of the August 1, 1995 sinking fund requirement for such debt and iii) approximately $3.7 million for capital expenditures. Additionally, approximately $3.5 million was used in support of operations, primarily for material procurement. Capital expenditures, excluding assets acquired as a result of the OMI Asset Acquisition, are expected to approximate $4.4 million for the fiscal year ending March 31, 1996. The majority of these expenditures will be for facilities improvements, as well as for computer and laboratory-related equipment. Working capital as of December 31, 1995 was $41.0 million, as compared to $20.3 million at March 31, 1995. The increase was primarily due to higher cash balances resulting from the private placement transactions. Net proceeds from the private placement transactions will be used to repurchase $5.0 million in principal amount of outstanding 8 1/2% Debentures, for working capital requirements and for future acquisition-related transactions. During the first quarter of fiscal 1996, the Company obtained a $5.0 million un- secured line of credit from NatWest Bank, in order to supplement its working capital needs. This line of credit expired on December 31, 1995 and has not been renewed. The Company believes that its current working capital position is sufficient to support operational needs as well as its near-term business objectives. Accounts Receivable and Inventories: Accounts receivable increased approx- imately $3.3 million in the nine-month period ended December 31, 1995, primarily resulting from increased billings associated with certain contracts and, to a lesser extent, from the OMI Asset Acquisition. Generally, there are no contract provisions for retainage, and all accounts receivable are expected to be collected within one year. Inventories increased by approx- imately $6.7 million from March 31, 1995, primarily due to increased material procurement related to higher production activity on certain display work- station programs. The increase was also due, in part, to the OMI Acquisition. The following table sets forth items in the Condensed Consolidated Statements of Earnings as a percent of revenues and presents the percentage increase or decrease of those items as compared to the prior period.
December 31, 1995 March 31, 1995 ----------------- -------------- Quick ratio 1.8 1.3 Current ratio 2.7 1.9 Liabilities-to-equity ratio 2.7 1.9 Long-term debt, excluding current installments, to capitalization 58.6% 34.3%
Backlog: At December 31, 1995, the Company's backlog of orders was approx- imately $147 million as compared to $126 million at March 31, 1995. The increase in backlog this year was due to the net effect of bookings, partially offset by revenues, and the addition of approximately $16 million of backlog from the OMI Asset Acquisition. New contract awards of approximately $71 million were booked during the nine-month period ended December 31, 1995. Acquisitions and Related Activities On July 5, 1995 (the "Closing Date"), Photronics Corp., a New York corpora- tion and a wholly-owned subsidiary of the Company ("Photronics"), acquired (through OMI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Photronics), substantially all of the assets of Opto Mechanik, Inc. ("OMI"), a Delaware corporation, pursuant to an Agreement for Acquisition of Assets dated May 24, 1995, as amended July 5, 1995, between Photronics and OMI (the "OMI Agreement"), and approved by the United States Bankruptcy Court for the Middle District of Florida on June 23, 1995. OMI, now located in Palm Bay, Florida, designs and manufactures electro-optical sighting and targeting systems used primarily in military fire control devices and in various weapons systems. Pursuant to the OMI Agreement, the Company paid a total of $5,450,000 consisting of i) $1,150,000 in cash to PNC Bank, Kentucky, Inc. ("PNC"), ii) a note to PNC in the principal amount of $1,450,000 payable in forty eight (48) equal monthly installments of principal and interest commencing with the first day of the month subsequent to the Closing Date (the "PNC Note"), iii) $2,550,000 in cash to MetLife Capital Corporation and iv) a note in the principal amount of $300,000 to OMI payable in six (6) equal monthly installments of principal and interest commencing on August 5, 1995 (the "OMI Note"). The PNC Note bears interest at a floating rate equal to the lesser of i) PNC's stated prime interest rate plus 0.5% or ii) the prime rate as reported by the Wall Street Journal plus 0.5%. The OMI Note bears interest at a rate of 9.5% per annum. Professional fees and other costs associated with the acquisition were capitalized as part of the total purchase price. Total cash consideration paid in the acquisition was obtained from the Company's working capital. The acquisition of the assets of OMI has been accounted for under the purchase method. The operating results of OMI Acquisition Corp., the acquiring corporation, have been included in reported operating results since the date of acquisition. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed. On February 6, 1996, pursuant to a Joint Venture Agreement, dated February 6, 1996, by and among DRS/MS, Inc. ("DRS/MS"), a wholly-owned subsidiary of the Company, Universal Sonics Corporation ("Universal Sonics"), a New Jersey corporation, Ron Hadani, Howard Fidel and Thomas S. Soulos, and a Partnership Agreement, dated February 6, 1996, by and between DRS/MS and Universal Sonics, the Company entered into a partnership with Universal Sonics (the "Partnership") for the purpose of developing, manufacturing and marketing medical ultrasound imaging equipment. The Company's contribution to the Partnership consisted of $400,000 in cash and certain managerial expertise and manufacturing capabilities, representing a 90% interest in the Partnership. On February 9, 1996, Precision Echo, Inc. ("PE"), a wholly-owned subsidiary of the Company, acquired (through Ahead Technology Acquisition Corporation ("Ahead"), a Delaware corporation and wholly-owned subsidiary of PE), certain assets and assumed certain liabilities (principally, obligations under property. leases) of Mag-Head Engineering Company, Inc. ("Mag-Head"), a Minnesota corp- oration, pursuant to an Asset Purchase Agreement, dated as of February 9, 1996, by and among Mag-Head and Ahead, for approximately $400,000 in cash. Mag-Head produces audio and flight recorder heads. Private Offering of Convertible Debentures On September 29, 1995 (the "Debenture Closing Date"), the Company completed a private placement of $20,000,000 in principal amount of Debentures. Net proceeds from the private placement were approximately $19,000,000. On November 3, 1995, the Company completed the placement of an additional $5,000,000 in principal amount of Debentures, as provided for under the over-allotment option provisions of the Purchase Agreement between the Company and Forum Capital Markets L.P. ("Forum"), dated September 22, 1995. Net proceeds from this secondary placement were approximately $4,750,000. Pursuant to the related Registration Rights Agreement dated September 22, 1995 between the Company and Forum, acting on behalf of holders of the Debentures (the "Agreement"), the Company has agreed to file, within ninety (90) days after the Debenture Closing Date, a shelf registration statement relating to the Debentures and the shares of Class A Common Stock which are issuable from time to time upon conversion of the Debentures, and to cause the registration statement to become effective within one hundred fifty (150) days after the Debenture Closing Date. In addition, the Company has agreed to use its reasonable best efforts to keep the registration statement effective until at least the third anniversary of the issuance of the Debentures. On November 30, 1995, the Company filed a Registration Statement on Form S-2 (No. 33-64641) with the Securities and Exchange Commission (the "Commission"), pursuant to the terms of the Agreement. The registration statement has not yet been declared effective by the Commission. In connection with these transactions, the Company expects to incur approx- imately $500,000 in professional fees and other costs. These costs, together with Forum's commissions, will be amortized ratably through the maturity date of the Debentures. Interest on the Debentures is payable semi-annually on April 1 and October 1, commensing April 1, 1996. The Debentures are convertible at any time prior to maturity, unless previously redeemed or repurchased, into shares of the Company's Class A Common Stock, $0.01 par value, at a conversion price of $8.85 per share, subject to adjustment under certain circumstances. The Debentures become due and payable in full on October 1, 2003; there are no sinking fund payments required prior to maturity. The Company may redeem outstanding Debentures, in whole or in part, on or after October 1, 1998, at at redemption prices ranging from 100% to 105% of par value, plus accrued interest. The related Indenture Agreement between the Company and The Trust Company of New Jersey dated September 29, 1995 (the "Indenture") contains certain restrictions, covenants and agreements with respect to the opertions and financial reporting requirements of the Company, including, but not limited to, the maintenance of a certain level of consolidated net worth, limitations on the amount and types of indebtedness incurred by the Company, limitations on leins upon the assets of the Company, limitations on investments, dividends and other distributions, limitations on transactions with related persons and limitations on the sale or transfer of corporate assets. As of December 31, 1995, the Company was in compliance with these covenants. Under the terms of the Indenture, the Debentures are subject to partial mandatory redemption should consoidated net worth (as defined in the Indenture) fall below $18,000,000 for any two (2) consecutive fiscal quarters. The Debentures are also subject to mandatory redemption upon a change in control (as defined in the Indenture). Letter of Credit The Company's industrial revenue bonds, due 1998, are supported by an irrevocable, direct-pay letter of credit in an amount equal to the principal balance plus interest thereon for 45 days. At December 31, 1995, the contingent liability of the Company as guarantor under the letter of credit was approximately $1,930,000. The Company has collateralized the letter of credit with accounts receivable and has also agreed to certain financial covenants, including the maintenance of: (i) a certain minimum ratio of consolidated tangible net worth to total debt (the "Debt Ratio"), (ii) a certain minimum quarterly ratio of earnings before interest and taxes to interest (the "Interest Ratio"), and (iii) a certain minimum balance of billed and unbilled accounts receivable ("Eligible Receivables"). At December 31, 1995, the covenants required: (i) a Debt Ratio of 0.6:1, (ii) an Interest Ratio of 1.5:1 and (iii) Eligible Reeceivables of $2,500,000. As a result of the issuance of the Debentures as described in Note 4 above, the Debt Ratio at December 31, 1995 was 0.4:1. The Company has obtained a waiver, renewable quarterly, from the bank of the required debt ratio and is in compliance with all covenants under the letter of credit. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3. Form of Advance Notice By-Laws of Diagnostic/Retrieval Systems, Inc. 11. Schedule of Computations of Per Share Earnings 27. Financial Data Schedule (b) Reports on Form 8-K None. DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES 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 thereunto duly authorized. DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. Registrant Date: February 14, 1996 /s/ Nancy R. Pitek ----------------------- Nancy R. Pitek Controller, Treasurer and Secretary EX-3 2 FORM OF ADVANCE NOTICE BY-LAWS ARTICLE II Section 7. Nature of Business. No business may be transacted at an annual meeting of Stockholders, other than business that is either: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 7. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of the stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever occurs first. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (b) the name and record address of such stockholder; (c) the class or series and number of shares of capital stock which are owned beneficially or of record by such stockholder; (d) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (e) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with this Section 7; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 7 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. Section 8. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 8 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 8. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 8. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. EX-11 3 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. EXHIBIT 11 SCHEDULE OF COMPUTATIONS OF PER SHARE EARNINGS Three Months Ended December 31, Nine Months Ended December 31, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- PRIMARY Net earnings for primary earnings per share .............. $ 924,000 $ 634,000 $2,495,000 $1,712,000 ========== ========== ========== ========== Weighted average number of shares of Class A and Class B Common Stock outstanding ................................. 5,497,000 4,889,000 5,473,000 5,026,000 Add - common equivalent shares (determined using the "treasury stock" method) representing shares issuable upon exercise of employee stock options (1) ................... 180,000 -- 174,000 -- Weighted average number of shares of Class A and Class B Common Stock used in calculation of primary earnings per share .................................................... 5,677,000 4,889,000 5,647,000 5,026,000 ---------- ---------- ---------- ---------- Primary earnings per share ............................... $ 0.16 $ 0.13 $ 0.44 $ 0.34 ========== ========== ========== ========== FULLY DILUTED Net earnings ............................................. $ 924,000 $ 634,000 $2,495,000 $1,712,000 ========== ========== ========== ========== Add - interest on 8.5% Convertible Subordinated Debentures, net of applicable income taxes (2) ........... -- -- -- -- Add - interest on 9% Senior Subordinated Convertible Debentures, net of applicable income taxes ............... 332,000 -- 332,000 -- Add - amortization of deferred issuance costs relating to 9% Senior Subordinated Convertible Debentures, net of applicable income taxes .................................. 31,000 -- 31,000 -- ---------- ---------- ---------- ---------- Net earnings for fully diluted earnings per share ........ $1,287,000 $ 634,000 $2,858,000 $1,712,000 ========== ========== ========== ========== Weighted average number of shares of Class A and Class B Common Stock used in calculation of primary earnings per share .................................................... 5,677,000 4,889,000 5,647,000 5,026,000 Add (deduct) incremental shares representing: Shares issuable upon exercise of stock options included in primary earnings per share calculation (1) ............... (180,000) -- (174,000) -- Shares issuable upon exercise of stock options based on period-end market prices ................................. 184,000 -- 185,000 -- Shares issuable upon conversion of 8.5% Convertible Subordinated Debentures (2) .............................. -- -- -- -- Shares issuable upon conversion of 9% Senior Subordinated Convertible Debentures ................................... 2,622,000 -- 894,000 -- ---------- ---------- ---------- ---------- Weighted average number of shares of Class A and Class B Common Stock used in calculation of fully diluted earnings per share ................................................ 8,303,000 4,889,000 6,552,000 5,026,000 ========== ========== ========== ========== Fully diluted earnings per share ......................... $ 0.16 $ 0.13 $ 0.44 $ 0.34 ========== ========== ========== ========== (1) No adjustment made for prior year periods, as the effect on reported per share earnings was not material. (2) No adjustments made for all periods presented, as the effect on reported per share earnings was antidilutive.
EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATINO EXTRACTED FROM DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000028630 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES 1 U.S. DOLLARS 3-MOS MAR-31-1996 OCT-01-1995 DEC-31-1995 1 23,069,000 0 20,594,000 0 16,558,000 62,698,000 39,958,000 25,230,000 90,770,000 22,113,000 35,319,000 0 0 59,000 24,848,000 90,770,000 25,563,000 25,563,000 23,382,000 23,382,000 0 0 978,000 1,514,000 590,000 0 0 0 0 924,000 0.16 0.16
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