-----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, GakqILIlHDKhlf4VXIJ2GxdnNELOH0WkI5Fz4t0exoi8RuOTODk71n61BxOndtLk +PqA4UxcS7TAGApGKB/hjQ== 0000028630-96-000012.txt : 19960816 0000028630-96-000012.hdr.sgml : 19960816 ACCESSION NUMBER: 0000028630-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE 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: 96614877 BUSINESS ADDRESS: STREET 1: 3RD FLOOR STREET 2: 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 June 30, 1996 period ended OR TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition to period from Commission file 1-8533 number DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 13-2632319 (State or other (I.R.S. jurisdiction of Employer incorporation or Identificati organization) on No.) 5 Sylvan Way, Parsippany, 07054 New Jersey (Address of principal (Zip Code) executive offices) 201-898-1500 (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 ___ As of August 7, 1996, 5,509,824 shares of the registrant's Common Stock, $.01 par value were outstanding (exclusive of 463,942 shares of held in treasury). DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1996 and 3 March 31, 1996 Condensed Consolidated Statements of Earnings - Three Months Ended June 30, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended June 30, 1996 and 5 1995 Notes to Condensed Consolidated Financial 6-7 Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II. OTHER INFORMATION Item 1. Not Applicable Item 2. Not Applicable Item 3. Not Applicable Item 4. Submission of Matters to a Vote of Security 11 Holders Item 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) June 30, 1996 March 31, 1996 Assets Current Assets: Cash and cash equivalents $ 10,057,000 $ 22,785,000 Accounts receivable 23,065,000 22,942,000 Inventories, net of progress payments 21,055,000 19,449,000 Other current assets 1,474,000 1,464,000 ------------ ------------ Total current assets 55,651,000 66,640,000 Property, plant and equipment, less accumulated depreciation and amortization of $25,861,000 and $25,744,000 at June 30, 1996 and March 31, 1996, respectively 17,723,000 16,191,000 Intangible assets, less accumulated amortization of $4,169,000 and $4,027,000 at June 30, 1996 and March 31, 1996, respectively 10,347,000 8,498,000 Other assets 5,749,000 5,922,000 ----------- ------------ $ 89,470,000 $ 97,251,000 Liabilities and Stockholders' Equity Current liabilities $ 23,917,000 $ 32,650,000 Long-term debt, excluding current installments 32,577,000 32,608,000 Deferred income taxes 2,607,000 2,607,000 Other liabilities 2,643,000 2,820,000 ------------ ------------ Total liabilities 61,744,000 70,685,000 Stockholders' equity: Common Stock, $.01 par value per share Authorized 20,000,000 shares; issued 5,969,066 shares at June 30, 1996 60,000 - Class A Common Stock, $.01 par value per share Authorized 10,000,000 shares; issued 3,739,963 at March 31, 1996 37,000 Class B Common Stock, $.01 par value per share Authorized 20,000,000 shares; issued 2,223,603 at March 31, 1996 22,000 Additional paid-in capital 13,788,000 13,639,000 Retained earnings 16,142,000 15,022,000 ----------- ---------- 29,990,000 28,720,000 Treasury Stock, at cost: 463,859 shares of Common Stock at June 30, 1996; 432,639 shares of Class A Common Stock and 65,795 shares of Class B Common Stock at March 31, 199 (1,785,000) (1,918,000) Unamortized restricted stock compensation (479,000) (236,000) ----------- ---------- Net stockholders' equity 27,726,000 26,566,000 Commitments and Contingencies $ 89,470,000 $ 97,251,000
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited) Three Months Ended June 30, 1996 1995 Revenues $ 27,423,000 $ 17,279,000 Costs and expenses 24,955,000 15,965,000 ------------ ------------ Operating income 2,468,000 1,314,000 Interest and related expenses (832,000) (325,000) ------------- ------------- Other income, net 200,000 87,000 Earnings before income taxes 1,836,000 1,076,000 Income taxes 716,000 420,000 ------------ ------------ Net earnings $ 1,120,000 $ 656,000 Earnings per share: Primary $ 0.20 $ 0.12 Fully Diluted $ 0.18 $ 0.12 Weighted average number of shares outstanding: Primary 5,680,000 5,606,000 Fully Diluted 8,877,000 5,621,000
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended June 30, 1996 1995 --------------------------- Cash flows from operating activities Net earnings $ 1,120,000 $ 656,000 Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation and amortization 1,022,000 626,000 Other, net 498,000 164,000 Changes in assets and liabilities, net of effects from net assets acquired: (Increase) decrease in accounts receivable 377,000 (867,000) (Increase) decrease in inventories (1,454,000) 2,684,000 Decrease in other current assets 193,000 303,000 (Decrease) in current and other liabilities (8,271,000) (4,282,000) Other, net 93,000 186,000 ------------ ----------- Net cash used in operating activities (6,422,000) (530,000) Cash flows from investing activities Capital expenditures (1,093,000) (1,057,000) Payments pursuant to business combinations, net of cash acquired (3,892,000) (450,000) Other, net - (180,000) ------------ ----------- Net cash used in investing activities (4,985,000) (1,687,000) Cash flows from financing activities Net (repayments of) proceeds from short-term deb (1,093,000) 55,000 Payments on long-term debt (239,000) (20,000) Repurchases of convertible subordinated debenture - (61,000) Other, net 11,000 151,000 ------------ ----------- Net cash provided by (used in) financing activities (1,321,000) 125,000 Net decrease in cash and cash equivalents (12,728,000) (2,092,000) Cash and cash equivalents, beginning of period 22,785,000 11,197,000 ------------ ------------ Cash and cash equivalents, end of period $ 10,057,000 $ 9,105,000
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 June 30, 1996, the results of operations for the three months ended June 30, 1996 and 1995 and cash flows for the three months ended June 30, 1996 and 1995. The results of operations for the three months ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year. 2)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 June 30, 1996, the contingent liability of the Company as guarantor under the letter of credit was approximately $1,726,000. 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, and (iii) a certain minimum balance of billed and unbilled accounts receivable. As a result of the issuance of the Company's 9% Senior Subordinated Convertible Debentures, the Debt Ratio at June 30, 1996 was below the required minimum ratio. The Company has obtained a waiver, renewable quarterly, from the issuing bank of the required debt ratio and accordingly is in compliance with all covenants under the letter of credit. 3)Until March 31, 1996, the Company had three authorized classes of stock: a class consisting of 10,000,000 shares of Class A Common Stock, a class consisting of 20,000,000 shares of Class B Common Stock, a class consisting of 2,000,000 shares of Preferred Stock (none of which has been issued). The holders of the Class A and Class B Common Stock were entitled to one vote per share and one-tenth vote per share, respectively. On February 7, 1996, the Board of Directors of the Company approved and recommended for submission to the stockholders of the Company by a majority vote the consideration and approval of an Amended and Restated Certificate of Incorporation (the "Restated Certificate"), which amended and restated the Company's certificate to (i) effect a reclassification of each share of Class A Common Stock and each share of Class B Common Stock into one share of Common Stock of the Company, (ii) provide that action by the stockholders may be taken only at a duly called annual or special meeting and not by written consent and (iii) provide that the stockholders of the Company would have the right to make, adopt, alter, amend or repeal the by-laws of the Company only upon the affirmative vote of not less than 66 2/3% of the outstanding capital stock entitled to vote thereon. On March 26, 1996, the stockholders approved the Restated Certificate. The Restated Certificate was filed with the Secretary of State of the State of Delaware and became effective April 1, 1996. Accordingly, the Condensed Consolidated Balance Sheet as of March 31, 1996 presents Class A and Class B Common Stock: the Condensed Consolidated Balance Sheet as of June 30, 1996 presents the new, single class of Common Stock. 4) On June 18, 1996, a second-tier subsidiary of Precision Echo, Inc., a wholly-owned subsidiary of the Company, acquired substantially all the assets of Vikron, Inc. ("Vikron") for approximately $3.7 million. Vikron, located in St. Croix Falls, Wisconsin, manufacturers data and recording heads. The acquisition has been accounted for using the purchase method of accounting. The operating results of the acquiring company have been included in the Company's reported operating results since April 1, 1996, the effective date of the acquisition. The excess of cost over the estimated fair value of net assets acquired was approximately $2.0 million and will be amortized on a straight-line basis over 15 years. 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. Revenues for the three-month period ended June 30, 1996 increased 58.7% to $27.4 million from $17.3 million for the same three-month period in fiscal 1996. The revenue growth was due primarily to increased shipments associated with the Company's display workstations and electro-optical system product lines, as well as to increases in commercial product sales. Operating income for the three-month period ended June 30, 1996 increased 87.8% to $2.5 million from $1.3 million for the same three-month period in fiscal 1996. Operating income as a percentage of revenues was 9.0% for the three-month period ended June 30, 1996, as compared with 7.6% in the comparable prior year period. Higher operating income was due primarily to the overall increase in revenues, together with higher margins on the Company's commercial products. Interest and related expenses were $0.8 million for the three-month period ended June 30, 1996, as compared to $0.3 million in the prior year. The increase was primarily due to the increase in long-term debt associated with the private placement in fiscal 1996 of $25.0 million aggregate principal amount of 9% Senior Subordinated Convertible Debentures due 2003, offset in part by a reduction in interest resulting from repurchases of the Company's 8% Convertible Subordinated Debentures, mainly in the second and fourth quarters of fiscal 1996. Other income, net was $0.2 million for the three-month period ended June 30, 1996, respectively, as compared to $0.1 million in the first quarter of fiscal 1996, primarily due to interest earned on higher average cash balances. The Company's effective tax rate for the three-month periods ended June 30, 1996 and 1995 was 39%. 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 fiscal quarter ended June 30, 1996 did not significantly change from those of the fiscal year ended March 31, 1996. The provision 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 June 30, 1996 and March 31, 1996 represented approximately 11% and 23%, respectively, of total assets. During the three-month period ended June 30, 1996, cash decreased by approximately $12.7 million. This decrease resulted from the use of: i) approximately $3.9 million in the Vikron acquisition; ii) approximately $1.3 million for repayment of balances due under an existing line of credit and certain long-term debt obligations and iii) approximately $1.1 million for capital expenditures. Additionally, approximately $6.4 million was used in support of operations, primarily in settlement of accounts payable balances associated with increased material procurement in the fourth quarter of fiscal 1996. Capital expenditures, excluding assets acquired as a result of business combinations or other similar transactions, are expected to approximate $5 million for the fiscal year ending March 31, 1997. The majority of these expenditures will be for computer and production-related equipment. Working capital as of June 30, 1996 was $31.7 million, as compared to $34.0 million at March 31, 1996. The decrease was primarily due to lower cash balances, offset by lower accounts payable balances. On May 31, 1996, the Company entered into a revolving line of credit loan agreement with Mellon Bank, N.A. for a three-year $15 million unsecured revolving line of credit (the "Line of Credit"). The Line of Credit was used to refinance approximately $1.3 million of existing debt obligations of the Company at more favorable interest rates; the remaining unused credit line is available for working capital and for letters of credit. Interest on borrowings under the Line of Credit is charged at the prime rate or at the London Interbank Offered Rate plus 175 basis points. The Company believes that its current working capital position and available financing are sufficient to support operational needs, as well as its near-term business objectives. Accounts Receivable and Inventories: Accounts receivable increased approximately $0.2 million in the three-month period ended June 30, 1996. Generally, there are no contract provisions for retainage, and all accounts receivable are expected to be collected within one year. Inventories increased by approximately $1.6 million from March 31, 1996, primarily due to increased material procurement and production activity on certain electro-optical, data recording and commercial products. The increase was also due, in part, to the Vikron acquisition. June 30, 1996 March 31, 1996 Quick ratio 1.4 1.4 Current ratio 2.3 2.0 Liabilities-to-equity 2.2 2.7 ratio Long-term debt, excluding current 54.0% 55.1% installments, to capitalization Backlog: At June 30, 1996, the Company's backlog of orders was approximately $138.6 million as compared to $145.6 million at March 31, 1996. The decrease in backlog was due to the net effect of revenues, partially offset by bookings. New contract awards of approximately $19 million were booked during the three- month period ended June 30, 1996. Acquisitions and Related Activities On June 18, 1996, a second-tier subsidiary of Precision Echo, Inc., a wholly-owned subsidiary of the Company, acquired substantially all the assets of Vikron, Inc. ("Vikron") for approximately $3.7 million. Vikron, located in St. Croix Falls, Wisconsin, manufacturers data and recording heads. The acquisition has been accounted for using the purchase method of accounting. The operating results of the acquiring company have been included in the Company's reported operating results since April 1, 1996, the effective date of the acquisition. The excess of cost over the estimated fair value of net assets acquired was approximately $2.0 million and will be amortized on a straight-line basis over 15 years. 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 June 30, 1996, the contingent liability of the Company as guarantor under the letter of credit was approximately $1,726,000. 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, and (iii) a certain minimum balance of billed and unbilled accounts receivable. As a result of the issuance of the Company's 9% Senior Subordinated Convertible Debentures, the Debt Ratio at June 30, 1996 was below the required minimum ratio. The Company has obtained a waiver, renewable quarterly, from the issuing bank of the required debt ratio and accordingly 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 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: August 14, 1996 /s/ Nancy R. Pitek Nancy R. Pitek Vice President, Finance Treasurer and Secretary EX-11 2 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. EXHIBIT 11 SCHEDULE OF COMPUTATIONS OF PER SHARE EARNINGS Three Months Ended June 30, 1996 1995 ---------------------------- PRIMARY Net earnings for primary earnings per share $1,120,000 $ 656,000 Weighted average number of shares outstanding 5,473,000 5,434,000 Add - common equivalent shares (determined using the "treasury stock" method) representing shares issuable upon exercise of employee stock options 207,000 172,000 ---------- ----------- Weighted average number of shares used in calculation of primary earnings per share 5,680,000 5,606,000 Primary earnings per share $0.20 $0.12 FULLY DILUTED Net earnings $1,120,000 $ 656,000 Add - interest on 8.5% Convertible Subordinated Debentures, net of applicable income taxes (1) 65,000 - Add - interest on 9% Senior Subordinated Convertible Debentures, net of applicable income taxes (2) 347,000 - Add - amortization of deferred issuance costs relating to 9% Senior Subordinated Convertible Debentures, net of applicable income taxes (2) 36,000 - ---------- ----------- Net earnings for fully diluted earnings per share $1,568,000 $ 656,000 Weighted average number of shares used in calculation of primary earnings per share 5,680,000 5,606,000 Add (deduct) incremental shares representing: Shares issuable upon exercise of stock options included in primary earnings per share calculation (207,000) (172,000) Shares issuable upon exercise of stock options based on period-end market prices 246,000 187,000 Shares issuable upon conversion of 8.5% Convertible Subordinated Debentures (1) 333,000 - Shares issuable upon conversion of 9% Senior Subordinated Convertible Debentures (2) 2,825,000 - --------- ----------- Weighted average number of shares used in calculation of fully diluted earnings per share 8,877,000 5,621,000 Fully diluted earnings per share $ 0.18 $ 0.12
(1) No adjustments made for the prior year period, as the effect on reported per share earnings was antidilutive. (2) No adjustments made for the prior year period, as these Debentures were issued subsequent to June 30, 1995. EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 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-31-1997 APR-01-1996 JUN-30-1996 1 10,057,000 0 23,065,000 0 21,055,000 55,651,000 43,584,000 25,861,000 89,470,000 23,917,000 32,577,000 0 0 60,000 27,666,000 89,470,000 27,423,000 27,423,000 24,955,000 24,955,000 0 0 832,000 1,836,000 716,000 0 0 0 0 1,120,000 0.20 0.18
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