-----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, RpFYftZkT5JvK3wIBTEIgvln+2FG9SllbXOXZgTTrQ8Ujf+F+lHFbaA1zuXVRyFY LdVXQfVZD7ZOKJkQfIp1sA== /in/edgar/work/0000950110-00-001192/0000950110-00-001192.txt : 20001114 0000950110-00-001192.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950110-00-001192 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRS TECHNOLOGIES INC CENTRAL INDEX KEY: 0000028630 STANDARD INDUSTRIAL CLASSIFICATION: [3812 ] IRS NUMBER: 132632319 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08533 FILM NUMBER: 757857 BUSINESS ADDRESS: STREET 1: 3RD FLOOR STREET 2: 5 SYLVAN WAY CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 9738981500 MAIL ADDRESS: STREET 1: 16 THORNTON RD CITY: OAKLAND STATE: NJ ZIP: 07436 FORMER COMPANY: FORMER CONFORMED NAME: DIAGNOSTIC RETRIEVAL SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 |_| TRANSITION 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 DRS TECHNOLOGIES, INC. Delaware 13-2632319 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 Sylvan Way, Parsippany, New Jersey 07054 (973) 898-1500 --------------- 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 and 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 November 9, 2000, 10,711,552 shares of DRS Technologies, Inc. Common Stock, $.01 par value, were outstanding. ================================================================================ DRS TECHNOLOGIES, INC. AND SUBSIDIARIES ------------------- INDEX TO QUARTERLY REPORT ON FORM 10-Q PART I. FINANCIAL INFORMATION PAGE NO. -------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets-- September 30, 2000 and March 31, 2000 ............... 1 Condensed Consolidated Statements of Earnings-- Three and Six Months Ended September 30, 2000 and 1999............................................. 2 Condensed Consolidated Statements of Cash Flows-- Six Months Ended September 30, 2000 and 1999 ........ 3 Notes to Condensed Consolidated Financial Statements... 4-9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 10-16 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..................... .............. 16 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings...................................... 17 ITEM 4. Submission of Matters to a Vote of Security Holders.... 18 ITEM 6. Exhibits and Reports on Form 8-K....................... 18 SIGNATURES................................................................ 19 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- DRS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 30, 2000 MARCH 31, 2000 ------------------ -------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ................................... $ 8,566 $ 3,778 Accounts receivable, net .................................... 81,753 80,894 Inventories, net of progress payments ....................... 72,527 62,326 Prepaid expenses and other current assets ................... 7,420 6,326 Net current assets of discontinued operations ............... -- 5,309 --------- --------- Total current assets ........................... 170,266 158,633 --------- --------- Property, plant and equipment, less accumulated depreciation and amortization of $32,113 and $28,033 at September 30, 2000 and March 31, 2000, respectively ................................................ 34,028 29,006 --------- --------- Goodwill and related intangible assets, less accumulated amortization of $18,087 and $14,821 at September 30, 2000 and March 31, 2000, respectively ......... 126,465 125,321 --------- --------- Deferred income taxes and other noncurrent assets ................... 6,158 7,138 --------- --------- $ 336,917 $ 320,098 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt ...................... $ 6,564 $ 5,699 Short-term bank debt ........................................ 19,095 17,781 Accounts payable ............................................ 26,464 28,295 Accrued costs on acquired contracts ......................... 43,470 31,906 Accrued expenses and other current liabilities .............. 50,327 53,568 --------- --------- Total current liabilities ...................... 145,920 137,249 Long-term debt, excluding current installments ...................... 89,195 97,695 Other noncurrent liabilities ........................................ 8,545 6,970 --------- --------- Total liabilities .............................. 243,660 241,914 --------- --------- Stockholders' equity: Preferred Stock, no par value. Authorized 2,000,000 shares; no shares issued at September 30, 2000 and March 31, 2000 ... -- -- Common Stock, $.01 par value per share Authorized 20,000,000 shares; issued 11,100,003 and 9,717,020 shares at September 30, 2000 and March 31, 2000, respectively ................................ 111 97 Additional paid-in capital .......................................... 61,438 48,584 Retained earnings ................................................... 36,184 32,047 Accumulated other comprehensive losses .............................. (2,126) (86) Treasury stock, at cost: 440,939 shares of Common Stock at September 30, 2000 and March 31, 2000 .......................................... (1,988) (1,988) Unamortized restricted stock compensation ........................... (362) (470) --------- --------- Net stockholders' equity .................................... 93,257 78,184 --------- --------- Commitments and contingencies ....................................... $ 336,917 $ 320,098 ========= ========= See accompanying Notes to Condensed Consolidated Financial Statements.
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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------- 2000 1999 2000 1999 ---------------- ---------------- ---------------- ---------------- Revenues ........................................ $ 107,227 $ 88,253 $ 201,748 $ 173,899 Costs and expenses .............................. (98,724) (83,134) (186,090) (163,506) --------- -------- --------- --------- Operating income ............................. 8,503 5,119 15,658 10,393 Other expense (income), net ..................... 32 (195) (42) (294) Interest and related expenses ................... 3,537 2,934 6,644 6,079 --------- -------- --------- --------- Earnings from continuing operations before minority interests and income taxes ....... 4,934 2,380 9,056 4,608 Minority interests .............................. 270 291 595 570 --------- -------- --------- --------- Earnings from continuing operations before income taxes ................................ 4,664 2,089 8,461 4,038 Income taxes .................................... 2,425 884 4,324 1,631 --------- -------- --------- --------- Earnings from continuing operations .......... 2,239 1,205 4,137 2,407 Loss from discontinued operations, net of tax benefit of $101 and $62 ...................... -- (145) -- (379) --------- -------- --------- --------- Net earnings ................................. $ 2,239 $ 1,060 $ 4,137 $ 2,028 ========= ======== ========= ========= Earnings per share of common stock Basic earnings per share: Earnings from continuing operations ....... $ 0.22 $ 0.13 $ 0.43 $ 0.26 Loss from discontinued operations, net of tax ............................. -- (0.02) -- (0.04) Net earnings .............................. $ 0.22 $ 0.11 $ 0.43 $ 0.22 Diluted earnings per share: Earnings from continuing operations ....... $ 0.20 $ 0.13 $ 0.38 $ 0.26 Loss from discontinued operations, net of tax ............................. -- (0.02) -- (0.04) Net earnings .............................. $ 0.20 $ 0.11 $ 0.38 $ 0.22 See accompanying Notes to Condensed Consolidated Financial Statements.
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DRS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED SEPTEMBER 30, ------------------------------ 2000 1999 ------------- ------------ Cash flows from operating activities Net earnings ........................................... $ 4,137 $ 2,028 Adjustments to reconcile net earnings to cash flows from operating activities: Net loss from discontinued operations .................. -- 379 Depreciation and amortization .......................... 8,544 8,563 Other, net ............................................. (1,156) (133) Changes in assets and liabilities, net of effects from business combinations: Decrease in accounts receivable ........................ 4,171 3,180 (Increase) decrease in inventories ..................... (3,896) 1,884 Decrease in prepaid expenses and other current assets ................................ 765 1,144 Decrease in accounts payable ........................... (3,529) (3,116) Increase (decrease) in accrued costs on acquired contracts .................................. 11,564 (6,949) Increase (decrease) in accrued expenses and other current liabilities ....................... (3,078) (9,645) Decrese in customer advances ........................... (3,187) (8,064) Other, net ............................................. (893) 604 -------- ------- Net cash provided by (used in) operating activities of continuing operations ................. 13,442 (10,125) Net cash provided by operating activities of discontinued operations ............................. -- 205 -------- ------- Net cash provided by (used in) operating activities .... 13,442 (9,920) -------- ------- Cash flows from investing activities Capital expenditures ................................... (8,412) (2,051) Payments pursuant to business combinations, net of cash acquired ................................ (6,979) (8,364) Proceeds from sale of discontinued operations .......... 3,000 -- Other, net ............................................. 361 -- -------- ------- Net cash used in investing activities of continuing operations ............................... (12,030) (10,415) Net cash used in investing activities of discontinued operations ............................. -- (208) -------- ------- Net cash used in investing activities .................. (12,030) (10,623) -------- ------- Cash flows from financing activities Net borrowings of short-term debt ...................... 1,478 12,391 Payments on long-term debt ............................. (5,487) (2,477) Net proceeds from acquisition-related debt ............. 7,000 8,000 Other, net ............................................. 132 (681) -------- ------- Net cash provided by financing activities .............. 3,123 17,233 -------- ------- Effect of exchange rates on cash and cash equivalents ..... 253 66 -------- ------- Net increase (decrease) in cash and cash equivalents ...... 4,788 (3,244) Cash and cash equivalents, beginning of period ............ 3,778 10,031 -------- ------- Cash and cash equivalents, end of period .................. $ 8,566 $ 6,787 ======== =======
See accompanying Notes to Condensed Consolidated Financial Statements. 3 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited condensed consolidated financial statements of DRS Technologies, 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 September 30, 2000, and the results of operations and cash flows for the three- and six-month periods ended September 30, 2000 and 1999. All significant intercompany balances and transactions have been eliminated. On August 31, 2000 the Company completed the sale of its magnetic tape head business units located in St. Croix Falls, Wisconsin and Razlog, Bulgaria (see Note 2. Discontinued Operation). Accordingly, the Company has restated its financial statements for the periods ended September 30, 1999 to present the operating results of these business units as discontinued operations. Certain other items in the accompanying notes to the September 30, 1999 condensed consolidated financial statements have been reclassified to conform to the fiscal 2001 presentation. The results of operations for the three- and six-month periods ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. 2. DISCONTINUED OPERATION On May 18, 2000, the Company's Board of Directors approved an agreement to sell its magnetic tape head business units located in St. Croix Falls, Wisconsin, and Razlog, Bulgaria and on August 31, 2000, the Company completed the sale. In fiscal 2000, in anticipation of the sale of the magnetic tape head business units, the Company recorded a $2.1 million charge, net of tax, on the disposal of these operations in the period ended March 31, 2000. Actual income from discontinued operations for the five months ended August 31, 2000 was $135,000 greater than estimated at March 31, 2000. Other costs associated with the disposal substantially offset the improvement in operating results and as such no adjustment to the loss on disposal of discontinued operations recorded at March 31, 2000 was required. 3. BUSINESS COMBINATIONS On June 14, 2000, a newly formed subsidiary of the Company acquired the assets of General Atronics Corporation for $7.5 million in cash and $4.0 million in stock (approximately 355,000 shares of DRS Common Stock). The Company funded the cash portion of this acquisition through borrowings under its revolving line of credit. Located in Wyndmoor, Pennsylvania, and now operating as DRS Communications Company, LLC (DRS Communications Company), the company designs, develops and manufactures military data link components and systems, high-frequency communication modems, tactical and secure digital telephone components, and radar surveillance systems for U.S. and international militaries. DRS Communications Company is being managed as part of the DRS Flight Safety and Communications Group. The acquisition has been accounted for using the purchase method of accounting. The excess of costs over the estimated fair value of identifiable net assets acquired, and the appraised value of certain identified intangible assets were approximately $2.6 million and $3.3 million, respectively, and are being amortized on a straight-line basis over twenty years and ten years, respectively. In connection with the acquisition, the Company incurred approximately $369,000 in transaction costs. Purchase price allocation has not yet been finalized, and actual purchase price allocation may differ from that used in these Condensed Consolidated Financial Statements. The results of the acquired business have been included in the consolidated financial statements of the Company since the acquisition date. 4 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) In the fourth quarter of fiscal 2000 the Company closed its Longmont, Colorado facility, which was acquired as part of the Company's acquisition of NAI Technologies, Inc. in the fourth quarter of fiscal 1999. Engineering and production performed at this facility were transferred to other DRS locations. Approximately $1.5 million was recorded in fiscal 2000, as an adjustment to acquisition cost, for costs incurred in connection with closing the facility. The following table reconciles the related liability at March 31, 2000 to the liability as of September 30, 2000:
(IN THOUSANDS) LIABILITY AT UTILIZED LIABILITY AT MARCH 31, 2000 FISCAL 2001 JUNE 30, 2000 -------------- ----------- ------------- Severance / Employee costs ............ $ 1,195 $ 1,195 $ -- Estimated lease commitments and related facility costs .............. 215 215 -- -------------- ----------- ------------- Total ................................. $ 1,410 $ 1,410 $ -- ============== =========== =============
4. INVENTORIES Inventories are summarized as follows: (IN THOUSANDS) SEPTEMBER 30, 2000 MARCH 31, 2000 ------------------ -------------- Work-in-process ................... $ 88,842 $ 79,058 Raw material and finished goods ........................... 7,787 10,917 ------------------ -------------- 96,629 89,975 ------------------ -------------- Less progress payments ............ (24,102) (27,649) ------------------ -------------- Total ............................. $ 72,527 $ 62,326 ================== ============== General and administrative costs included in work-in-process were approximately $13.8 million and $12.7 million at September 30, 2000 and March 31, 2000, respectively. General and administrative expenses included in costs and expenses amounted to approximately $19.9 million and $16.4 million for the three-month periods ended September 30, 2000 and 1999, respectively, and approximately $36.7 million and $31.5 million for the six-month periods then ended. Included in those amounts are expenditures for internal research and development amounting to approximately $2.0 million and $2.4 million for the fiscal quarters ended September 30, 2000 and 1999, respectively, and approximately $4.1 million and $3.8 million, respectively, for the six-month periods then ended. 5 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. EARNINGS PER SHARE The following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per share (EPS):
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Basic EPS Computation Net earnings from continuing operations ...................... $ 2,239 $ 1,205 $ 4,137 $ 2,407 Net loss from discontinued operations, net of tax ............ -- (145) -- (379) ------- ------- ------- ------- Net earnings ................................................. $ 2,239 $ 1,060 $ 4,137 $ 2,028 ------- ------- ------- ------- Weighted average common shares outstanding ..................... 10,001 9,276 9,677 9,260 ------- ------- ------- ------- Basic earnings (losses) per share: Net earnings from continuing operations ...................... $ 0.22 $ 0.13 $ 0.43 $ 0.26 Net loss from discontinued operations, net of tax ............ -- (0.02) -- (0.04) ------- ------- ------- ------- Net earnings ................................................. $ 0.22 $ 0.11 $ 0.43 $ 0.22 ======= ======= ======= ======= Diluted EPS Computation Net earnings from continuing operations ...................... $ 2,239 $ 1,205 $ 4,137 $ 2,407 Interest and expenses related to convertible debentures ...... 196 -- 436 -- ------- ------- ------- ------- Adjusted net earnings from continuing operations ............. 2,435 1,205 4,573 2,407 Net loss from discontinued operations, net of tax ............ -- (145) -- (379) ------- ------- ------- ------- Adjusted net earnings ........................................ $ 2,435 $ 1,060 $ 4,573 $ 2,028 ------- ------- ------- ------- Diluted common shares outstanding: Weighted average common shares outstanding ................... 10,001 9,276 9,677 9,260 Stock options ................................................ 535 169 493 151 Convertible debentures ....................................... 1,808 -- 1,984 -- ------- ------- ------- ------- Diluted common shares outstanding .............................. 12,344 9,445 12,154 9,411 ------- ------- ------- ------- Diluted earnings (losses) per share: Net earnings from continuing operations ...................... $ 0.20 $ 0.13 $ 0.38 $ 0.26 Net loss from discontinued operations, net of tax ............ -- (0.02) -- (0.04) ------- ------- ------- ------- Net earnings ................................................. $ 0.20 $ 0.11 $ 0.38 $ 0.22 ======= ======= ======= =======
In the computation of earnings per common share for the six-month periods ended September 30, 1999, the assumed conversion of the Company's 9% Senior Subordinated Convertible Debentures were excluded because their inclusion would have been antidilutive. The Company's 12% Convertible Subordinated Promissory Notes (which were fully liquidated in the second quarter of fiscal 2000) were also excluded from the computation of earnings per share for the year to date period ended September 30, 1999 as their inclusion would have been antidilutive. 6 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. COMPREHENSIVE EARNINGS
(IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Comprehensive earnings Net earnings ................................ $ 2,239 $ 1,060 $ 4,137 $ 2,028 ------- ------- ------- ------- Other comprehensive (losses) earnings: Foreign currency translation adjustment.. (469) 959 (2,040) 1,119 ------- ------- ------- ------- Comprehensive earnings ...................... $ 1,770 $ 2,019 $ 2,097 $ 3,147 ======= ======= ======= =======
7. RESTRUCTURING CHARGE During fiscal 2000, the Company recorded restructuring charges totaling approximately $2.2 million. The Company's restructuring initiatives impacted the Electro-Optical Systems Group (EOSG) and Flight Safety and Communications Group (FSCG) operating segments and DRS Corporate Headquarters. EOSG recorded a restructuring charge of approximately $831,000 primarily for costs relating to consolidating two facilities into one in Oakland, New Jersey, as of March 31, 2000. FSCG recorded a restructuring charge of approximately $669,000 and $143,000 at its DRS Hadland Ltd. ("DRS Hadland") and DRS Precision Echo, Inc. operating units, respectively, for severance and other employee related costs. The DRS Hadland restructuring charge was recorded in connection with the transition of the day-to-day management of DRS Hadland's operations from EOSG to FSCG in the second half of fiscal 2000. In addition, DRS Corporate Headquarters recorded a restructuring charge of approximately $560,000 for severance and other employee related costs. Severance and other employee costs were recorded in connection with the termination of 13 employees. As of March 31, 2000, all terminations had occurred. A portion of the termination benefits will be paid in accordance with contractual terms over the next two years. The following table reconciles the restructuring liability at March 31, 2000 to the restructuring liability as of September 30, 2000:
(IN THOUSANDS) LIABILITY AT UTILIZED LIABILITY AT MARCH 31, 2000 FISCAL 2001 SEPTEMBER 30, 2000 -------------- ----------- ------------------ Estimated lease commitments and related facility costs ............... $ 328 $ 187 $ 141 Severance / Employee costs ................. 690 219 471 -------------- ----------- ------------------ Total ...................................... $ 1,018 $ 406 $ 612 ============== =========== ==================
7 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8. OPERATING SEGMENTS DRS operates in three principal business segments on the basis of products and services offered. Each operating unit is comprised of separate and distinct businesses: the Electronic Systems Group (ESG); the Electro-Optical Systems Group (EOSG), and the Flight Safety and Communications Group (FSCG). All other operations are grouped in "Other." Information about the Company's operations in these segments for the fiscal quarters and six-month periods ended September 30, 2000 and 1999 are as follows:
(IN THOUSANDS) ESG EOSG FSCG OTHER TOTAL --------- --------- -------- -------- --------- Quarter Ended September 30, 2000 Total Revenues .................... $ 45,688 $ 39,792 $ 19,127 $ 2,636 $ 107,243 Intersegment Revenues ........... $ -- $ (16) $ -- $ -- $ (16) External Revenues ................. $ 45,688 $ 39,776 $ 19,127 $ 2,636 $ 107,227 Operating income (loss) ........... $ 3,762 $ 5,122 $ (689) $ 308 $ 8,503 Identifiable assets ............... $ 104,148 $ 137,980 $ 78,173 $ 16,616 $ 336,917 Depreciation and amortization ..... $ 909 $ 1,936 $ 1,003 $ 554 $ 4,402 Capital expenditures .............. $ 1,019 $ 3,194 $ 805 $ 814 $ 5,832 Quarter Ended September 30, 1999 Total Revenues .................... $ 41,777 $ 32,814 $ 11,905 $ 2,293 $ 88,789 Intersegment Revenues ........... $ (93) $ (395) $ (48) $ -- $ (536) External Revenues ................. $ 41,684 $ 32,419 $ 11,857 $ 2,293 $ 88,253 Operating income (loss) ........... $ 2,872 $ 1,743 $ 522 $ (18) $ 5,119 Identifiable assets ............... $ 96,807 $ 144,868 $ 59,182 $ 21,642 $ 322,499 Depreciation and amortization ..... $ 795 $ 2,027 $ 745 $ 541 $ 4,108 Capital expenditures .............. $ 408 $ 137 $ 103 $ 164 $ 812 (IN THOUSANDS) ESG EOSG FSCG OTHER TOTAL --------- --------- -------- -------- --------- Six Months Ended September 30, 2000 Revenues .......................... $ 87,225 $ 79,347 $ 30,418 $ 4,818 $ 201,808 Intersegment Revenues ........... $ -- $ (60) $ -- $ -- $ (60) External Revenues ................. $ 87,225 $ 79,287 $ 30,418 $ 4,818 $ 201,748 Operating income .................. $ 6,262 $ 8,952 $ 256 $ 188 $ 15,658 Identifiable assets ............... $ 104,148 $ 137,980 $ 78,173 $ 16,616 $ 336,917 Depreciation and amortization ..... $ 1,790 $ 3,854 $ 1,798 $ 1,102 $ 8,544 Capital expenditures .............. $ 1,514 $ 4,037 $ 1,848 $ 1,013 $ 8,412 Six Months Ended September 30, 1999 Revenues .......................... $ 85,328 $ 61,946 $ 23,089 $ 4,175 $ 174,538 Intersegment Revenues ........... $ (93) $ (498) $ (48) $ -- $ (639) External Revenues ................. $ 85,235 $ 61,448 $ 23,041 $ 4,175 $ 173,899 Operating income (loss) ........... $ 6,059 $ 3,802 $ 1,434 $ (902) $ 10,393 Identifiable assets ............... $ 96,807 $ 144,868 $ 59,182 $ 21,642 $ 322,499 Depreciation and amortization ..... $ 1,707 $ 4,189 $ 1,491 $ 1,176 $ 8,563 Capital expenditures .............. $ 777 $ 508 $ 378 $ 388 $ 2,051
8 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9. CASH FLOW INFORMATION (IN THOUSANDS) SIX MONTHS ENDED SEPTEMBER 30, ------------------------------ 2000 1999 --------- ---------- Cash paid for: Income taxes ........................... $ 4,917 $ 5,935 Interest ............................... $ 6,686 $ 6,807 During the six-months ended September 30, 2000, holders of approximately $8.7 million of the Company's 9% Senior Subordinated Convertible debentures converted their debentures into approximately 1.0 million shares of the Company's common stock. The Company recorded an approximately $305,000 non-cash charge in connection with the conversion. In connection with the sale of the magnetic tape head businesses the Company received a $2.0 million promissory note from the buyer. 10. CONTINGENCIES The Company is party to various legal actions and claims arising in the ordinary course of its business. In Management's opinion, the Company has adequate legal defenses for each of the actions and claims and that their ultimate disposition will not have a material adverse effect on the Company's consolidated financial position or results of operations. In April and May 1998, subpoenas were issued to the Company by the United States Attorney for the Eastern District of New York seeking documents related to a governmental investigation of certain equipment manufactured by DRS Photronics, Inc. (Photronics). These subpoenas were issued in connection with United States v. Tress, a case involving a product substitution allegation against an employee of Photronics. On June 26, 1998, the complaint against the employee was dismissed without prejudice. Although additional subpoenas were issued to the Company on August 12, 1999 and May 10, 2000, to date, no claim has been made against the Company or Photronics. During the Government's investigation, until October 29, 1999, Photronics was unable to ship certain equipment related to the case, resulting in delays in the Company's recognition of revenues. On October 29, 1999, Photronics received authorization to ship its first boresight system since the start of the investigation The Company is presently involved in a dispute in arbitration with Spar Aerospace Limited (Spar) with respect to the working capital adjustment, if any, provided for in the purchase agreement between the Company and Spar dated as of September 19, 1997, pursuant to which the Company acquired, through certain of its subsidiaries, certain assets of Spar. The Company is also in a dispute with Raytheon Company (Raytheon) with respect to the working capital adjustment (not to exceed $7.0 million), if any, provided for in the purchase agreement between the Company and Raytheon dated as of July 28, 1998, pursuant to which the Company acquired, through certain subsidiaries, certain assets of Raytheon. 9 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of the consolidated financial condition and results of continuing operations of DRS Technologies, Inc. and Subsidiaries (hereinafter, the Company or DRS) as of September 30, 2000 and for the three- and six-month periods ended September 30, 2000 and 1999. This discussion should be read in conjunction with the audited consolidated financial statements and related notes. The following discussion and analysis contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Persons reading this report are cautioned that risks and uncertainties are inherent to forward-looking statements. Accordingly, the Company's actual results could differ materially from those suggested by such forward-looking statements. DISCONTINUED OPERATION On May 18, 2000, the Company's Board of Directors approved an agreement to sell its magnetic tape head businesses located in St. Croix Falls, Wisconsin, and Razlog, Bulgaria, and on August 31, 2000, the Company completed the sale. The sale of the magnetic tape head business represents a strategic decision by the Company to focus its resources on its core businesses. The Company has restated its financial statements for the three- and six-month periods ended September 30, 1999, to reflect these business units as discontinued operations. BUSINESS COMBINATIONS On June 14, 2000, a newly formed subsidiary of the Company acquired the assets of General Atronics Corporation for $7.5 million in cash and $4.0 million in stock (approximately 355,000 shares of DRS Common Stock). The Company funded the cash portion of this acquisition through borrowings under its revolving credit facility. Located in Wyndmoor, Pennsylvania, and now operating as DRS Communications Company, LLC (DRS Communications Company), the company designs, develops and manufactures military data link components and systems, high-frequency communication modems, tactical and secure digital telephone components, and radar surveillance systems for U.S. and international militaries. DRS Communications Company is being managed as part of the DRS Flight Safety and Communications Group. The acquisition of DRS Communications Company added approximately $25.9 million to the Company's backlog as of the acquisition date. The acquisition has been accounted for using the purchase method of accounting. The excess of costs over the estimated fair value of identifiable net assets acquired, and the appraised value of certain identified intangible assets were approximately $2.6 million and $3.3 million, respectively, and are being amortized on a straight-line basis over twenty years and ten years, respectively. In connection with the acquisition, the Company incurred approximately $369,000 in transaction costs. Purchase price allocation has not yet been finalized, and actual purchase price allocation may differ from that used in these Condensed Consolidated Financial Statements. The results of the acquired business have been included in the consolidated financial statements since the acquisition date. 10 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES RESTRUCTURING CHARGE During fiscal 2000, the Company recorded restructuring charges totaling approximately $2.2 million. The Company's restructuring initiatives impacted the Electro-Optical Systems Group (EOSG) and Flight Safety and Communications Group (FSCG) operating segments and DRS Corporate Headquarters. EOSG recorded a restructuring charge of approximately $831,000 primarily for costs relating to consolidating two facilities into one in Oakland, New Jersey, as of March 31, 2000. FSCG recorded a restructuring charge of approximately $669,000 and $143,000 at its DRS Hadland Ltd. ("DRS Hadland") and DRS Precision Echo, Inc. operating units, respectively, for severance and other employee related costs. The DRS Hadland restructuring charge was recorded in connection with the transition of the day-to-day management of DRS Hadland's operations from EOSG to FSCG in the second half of fiscal 2000. In addition, DRS Corporate Headquarters recorded a restructuring charge of approximately $560,000 for severance and other employee related costs. Severance and other employee costs were recorded in connection with the termination of 13 employees. As of March 31, 2000, all terminations had occurred. A portion of the termination benefits will be paid in accordance with contractual terms over the next two years. The following table reconciles the restructuring liability at March 31, 2000 to the restructuring liability as of September 30, 2000:
(IN THOUSANDS) LIABILITY AT UTILIZED LIABILITY AT MARCH 31, 2000 FISCAL 2001 SEPTEMBER 30, 2000 -------------- ----------- ------------------ Estimated lease commitments and related facility costs ........ $ 328 $ 187 $ 141 Severance / Employee costs .......... 690 219 471 ------- ----- ----- Total ............................... $ 1,018 $ 406 $ 612 ======= ===== =====
RESULTS OF OPERATIONS The Company's operating cycle is long-term and involves various types of production contracts and varying production delivery schedules. Accordingly, results of a particular quarter, or quarter-to-quarter comparisons of recorded revenues and earnings, may not be indicative of future operating results. The following comparative analysis should be viewed in this context CONSOLIDATED SUMMARY Consolidated revenues for the three- and six-month periods ended September 30, 2000 increased $19.0 million and $27.8 million, respectively, as compared with the corresponding prior year periods. The revenue growth in the first half of fiscal 2001 was primarily attributable to increased shipments of the Company's second generation ground electro-optical sighting systems and infrared detectors, as well as increases in electro-optical contract manufacturing and AN/UYQ-70 Advanced Display System engineering. Operating income increased approximately 66% and 51% for the three- and six-month periods ended September 30, 2000, respectively, as compared to the same periods in fiscal 2000. The increases in operating income was due to the overall increase in revenues and lower operating expenses at certain operating units. Also impacting the increases in revenue and operating income during the first half of fiscal 2001, as compared to the corresponding prior year period, was the inclusion of the operating results of the Company's fiscal 2001 acquisition of DRS Communications Company. See discussion of operating segments below for additional information. Interest and related expenses increased approximately $603,000 and $565,000 for the three- and six-month periods ended September 30, 2000, respectively, as compared with the corresponding prior year periods. These increases were primarily driven by an approximately $305,000 charge relating to the conversion of the Company's 9% Senior Subordinated Convertible Debentures during the second quarter of fiscal 2001, 11 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES and higher interest rates during the three- and six-month periods ended September 30, 2000, as compared with the same periods in fiscal 1999. The provision for income taxes for the first half of fiscal 2001 reflects an annual estimated effective income tax rate of approximately 51%, versus 40% for fiscal 2000. The increase in the effective tax rate for fiscal 2001 is primarily due to the following: the continued improvement in domestic earnings, which are taxed at higher overall rates in comparison to the Company's foreign tax jurisdictions; losses in the Company's U.K. operations which may not be deductible; the effect of non-deductible goodwill and the Company's expectation that certain domestic and foreign tax benefits recognized in fiscal 2000 will not be recurring in fiscal 2001. Earnings before interest, income taxes, depreciation and amortization (EBITDA) for the three- and six-month periods ended September 30, 2000 was $12.6 million and $23.6 million, respectively, an increase of approximately 35% and 26% over the three- and six-month periods ended September 30, 1999, respectively. OPERATING SEGMENTS DRS operates in three principal business segments on the basis of products and services offered. Each operating unit is comprised of separate and distinct businesses: the Electronic Systems Group (ESG); the Electro-Optical Systems Group (EOSG), and the Flight Safety and Communications Group (FSCG). All other operations are grouped in "Other." o ESG is a leading provider of naval computer workstations used to process and display integrated combat information. ESG produces rugged computers and peripherals, surveillance, radar and tracking systems, acoustic signal processing and display equipment, and combat control systems for U.S. and international military organizations. ESG performs field service and depot level repairs for its products, as well as other manufacturers' systems, and also provides systems and software engineering support to the U.S. Navy for the testing of shipboard combat systems. ESG products are used on front-line platforms, including Aegis destroyers and cruisers, aircraft carriers, submarines and surveillance aircraft. ESG's products also are used in the U.S. Army's ongoing battlefield digitization programs. ESG markets directly to various U.S. Government agencies, primarily in the intelligence community, and has teamed with leading corporations, such as General Dynamics and Lockheed Martin. o EOSG produces systems and subsystems for infrared night vision and targeting products used in some of the U.S. Army's most important battlefield platforms, including the Abrams Main Battle Tank, Bradley Infantry Fighting Vehicle and the HMMWV scout vehicle. EOSG designs, manufactures and markets products that allow operators to detect, identify and target objects based upon their infrared signatures regardless of the ambient light level. This Group is also a leading designer and manufacturer of eye-safe laser range finders and multiple-platform weapons calibration systems for such diverse air platforms as the Apache attack helicopter and AC-130U gunship. EOSG is leveraging its technology base by expanding into related non-defense markets and manufactures electro-optical modules for a commercial device used in corrective laser eye surgery. o FSCG is a leading manufacturer of deployable flight emergency or "black box" recording equipment. These complete emergency avionics systems combine the functionality of a crash locator beacon with a flight incident recorder for search, recovery and crash analysis. This Group uses advanced commercial technology in the design and manufacture of multi-sensor digital, analog and video data capture and recording products, as well as high-capacity data storage devices for harsh aerospace and defense environments. FSCG also manufactures shipboard communications and infrared laser warning and range finder displays for Canadian and other foreign navies and is a leading manufacturer of ultra high-speed digital imaging systems. FSCG is also the leading supplier of Link 11 Data Terminal Systems for NATO and allied international navies and manufactures and markets ship and ground surveillance radar and infrared imaging systems. 12 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES o Other includes the activities of the parent company, DRS Corporate Headquarters, DRS Ahead Technology, Inc. (DRS Ahead) and certain non-operating subsidiaries of the Company. DRS Ahead produces magnetic head components used in the manufacturing process of computer disk drives, which burnish and verify the quality of disk surfaces. DRS Ahead also services and manufactures video heads used in broadcast television equipment. The following tables set forth, by operating segment, revenues, operating income, and operating margin and the percentage increase or decrease of those items as compared with the prior period:
(IN THOUSANDS, EXCEPT FOR PERCENTAGES) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED SEPTEMBEER 30, PERCENT CHANGES SEPTEMBER 30, PERCENT CHANGES ----------------------- --------------------- ----------------------- ------------------- 2000 1999 2000 VS. 1999 2000 1999 2000 VS. 1999 ----------- ----------- --------------------- ----------- ----------- ------------------- ESG External Revenues $45,688 $41,684 9.6% $87,225 $85,235 2.3% Operating income $ 3,762 $ 2,872 31.0% $ 6,262 $ 6,059 3.4% Operating margin 8.2% 6.9% 19.5% 7.2% 7.1% 1.0% EOSG External Revenues $39,776 $32,419 22.7% $79,287 $61,448 29.0% Operating income $ 5,122 $ 1,743 193.9% $ 8,952 $ 3,802 135.5% Operating margin 12.9% 5.4% 139.5% 11.3% 6.2% 82.5% FSCG External Revenues $19,127 $11,857 61.3% $30,418 $23,041 32.0% Operating (loss) income $ (689) $ 522 (232.0%) $ 256 $ 1,434 (82.1%) Operating margin (3.6%) 4.4% (181.8%) 0.8% 6.2% (86.5%) OTHER External Revenues $ 2,636 $ 2,293 15.0% $ 4,818 $ 4,175 15.4% Operating income (loss) $ 308 $ (18) 1811.1% $ 188 $ (902) 120.8% Operating margin 11.7% (0.8%) 1588.5% 3.9% (21.6%) 118.1%
ESG: ESG's increase in revenues for the three-month period ended September 30, 2000, as compared with the three-month period ended September 30, 1999, was due primarily to an increase in engineering relating to the AN/UYQ-70 Advanced Display System, increased shipments of Explorer portable workstations and AN/SPS-67(V)3 search and navigation radar systems, offset in part by a decrease in shipments of certain rugged computers and peripherals in Europe. The increase in operating income and operating margin in the second quarter of fiscal 2001, as compared to the corresponding prior period, was driven by the increase in revenues, the realization of cost savings associated with the consolidation of certain production facilities, and a change in product mix. Revenues and operating income for the six-month period ended September 30, 2000 increased slightly, as compared with prior year results for the same period. This increase was driven by higher fiscal 2001 second quarter revenue and operating income, as discussed above, offset in part by a decrease in first and second quarter shipments of certain rugged computer and peripheral products in Europe with corresponding lower margins due to less favorable absorption of fixed operating expenses associated with lower production volumes. 13 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES EOSG: For the three- and six-month periods ended September 30, 2000 revenues increased by approximately $7.4 million and $17.8 million, respectively, as compared with the three- and six-month periods ended September 30, 1999. The increases in revenues were driven by increased shipments of the Group's second generation ground electro-optical sighting systems, infrared detectors, and boresighting systems, as well as increases in electro-optical contract manufacturing. Operating income for the three- and six-month periods ended September 30, 2000, increased $3.4 million and $5.2 million as compared with the corresponding prior periods. The increases in operating income were primarily driven by the increases in revenues, a change in product mix, and the realization of management's fiscal 2000 reductions in overall production costs on a certain long-term production program. Shipments under the current production contract for such program commenced in the third quarter of fiscal 2000, and as such the benefits of management's fiscal 2000 efforts to reduce overall production costs (primarily by identifying and procuring certain materials and subassemblies from alternate suppliers) are not reflected in the fiscal 2000 second quarter operating results. Operating income for the three- and six-month periods ended September 30, 2000 also include a $1.1 million cumulative profit adjustment relating to a certain long-term production program acquired in connection with a purchase business combination. Estimates to complete this program were revised this quarter to reflect the benefit of management's efforts to reduce general and administrative expenses. EOSG's operating income for the three- and six-month periods ended September 30, 2000 also include charges of approximately $880,000 for revisions to estimates to complete on other long-term production programs. Also driving the increases in fiscal 2001 operating income and operating margins, as compared with the prior year period, was the fact that EOSG's operating income for the six-month period ended September 30, 1999 included a charge of $450,000 for certain product warranty reserve issues. FSCG: Revenue increased $7.2 million and $7.4 million for the three- and six-month periods ended September 30, 2000, respectively, as compared with the corresponding prior periods. The increases in revenues are primarily attributed to the acquisition of General Atronics Corporation (now operating as DRS Communications Company, LLC) during the first quarter of fiscal 2001, as well as continued growth in the Group's contract manufacturing and shipboard communications businesses. These increases were partially offset by delayed and decreased orders for the Group's high-speed cameras and certain mission data recording systems. The General Atronics acquisition contributed to the FSCG operating segment approximately $8.3 million in revenues. Operating income decreased $1.2 million for the three- and six-month periods ended September 30, 2000. These decreases in operating income and the corresponding decreases in operating margin were primarily due to the decreases in revenues for the Group's high-speed cameras and certain mission data recording systems, as discussed above. In addition, the Group recorded a charge of approximately $1.4 million in the second quarter of fiscal 2001 for additional charges expected to be incurred in connection with the completion of the development of a new mission data recording system for the U.S. Navy. Partially offsetting such decreases, DRS Communications Company LLC contributed approximately $711,000 of operating income to the Group for the three-month period ended September 30, 2000. Other: The increase in revenues for the three- and six-month periods ended September 30, 2000, as compared with the corresponding prior periods, was primarily due to increased shipments of components used to manufacture disk drive media. This revenue growth resulted from the improvement in the computer disk drive marketplace and improved marketing of DRS Ahead's products and services. The increase in operating income and improvement in operating margins was a result of increased revenues and the impact of previously implemented cost reduction initiatives at DRS Ahead. In addition to the cost reduction initiatives, the increase in operating income reflects the allocation of certain costs to the operating units, which had previously been recorded at DRS Corporate. 14 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES FINANCIAL CONDITION AND LIQUIDITY CASH AND CASH FLOW The following table provides cash flow data for the Company for the six-month periods ended September 30, 2000 and September 30 1999:
(IN THOUSANDS) SIX MONTHS ENDED SEPTEMBER 30, --------------------------------- 2000 1999 --------- --------- Net cash provided by (used in) operating activities .................. $ 13,442 $ (9,920) Net cash used in investing activities ................................ $ (12,030) $ (10,623) Net cash provided by financing activities ............................ $ 3,123 $ 17,233
Operating cash flow for the six-months ended September 30, 2000 improved by approximately $23.4 million as compared with the corresponding prior year period. This improvement primarily results from increased earnings (net of adjustments for non-cash items), increases in cash flows from changes in certain liabilities and a decrease in liquidation of advanced payments. Net cash used in investing activities for the six-month period ended September 30, 2000 included approximately $7.0 million relating to the acquisition of General Atronics Corporation and $8.4 million for capital expenditures. These uses of cash were partially offset by a $3.0 million payment received in connection with the sale of the Company's magnetic tape head businesses. Net cash provided by financing activities is primarily due to increased borrowings under the Company's $80 million (subject to a borrowing base calculation) revolving line of credit with Mellon Bank, N.A, as agent (Mellon Bank), maturing on October 20, 2003 (Line of Credit). During the six-month period ended September 30, 2000, the Company borrowed approximately $37.4 million under the Line of Credit and repaid approximately $29.0 million. Of the total $37.4 million borrowed, approximately $7.0 million was used to acquire the net assets of General Atronics Corporation during the first quarter of fiscal 2001 and is classified as long-term debt. Other than cash flows from operations, the Line of Credit is the Company's primary source of liquidity. As of September 30, 2000, the Company had approximately $40.8 million available under the Line of Credit, after satisfaction of its borrowing base requirement. The Company also has a term loan facility with Mellon Bank, in the form of two term loans. During the six-months ended September 30, 2000, the Company paid $5.4 million in principal payments against these term loans. During the six-months ended September 30, 2000, holders of approximately $8.7 million of the Company's 9% Senior Subordinated Convertible debentures elected to convert their debentures into approximately 1.0 million shares of the Company's common stock. The Company actively seeks to finance its business in a manner that preserves financial flexibility, while minimizing borrowing costs to the extent practicable. Management continually reviews the changing financial, market and economic conditions to manage the types, amounts and maturities of the Corporation's indebtedness. The Company's total debt to trailing twelve-month EBITDA improved to 2.4x at September 30, 2000, from 3.6x at September 30, 1999. The improvement in fiscal 2001 was driven by increased earnings as well as a $21.7 million reduction in total debt from September 30, 1999 to September 30, 2000. 15 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES BACKLOG Backlog at September 30, 2000 was approximately $426.2 million as compared with $388.1 million at March 31, 2000. The Company booked approximately $218.7 million in new orders in the first six months of fiscal 2001. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company is exposed to market risks relating to fluctuations in interest rates and foreign currency exchange risk. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. INTEREST RATE RISK As the Company seeks debt financing to maintain its ongoing operations and sustain its growth, it is exposed to interest rate risk. Borrowings under the Company's $160 million secured credit facility with Mellon Bank, N.A., as agent, are sensitive to changes in interest rates as such borrowings bear interest at variable rates. In January 1998, and January 1999 the Company entered into interest rate collar agreements (the Collar Agreements) to limit the impact of interest rate fluctuations on cash flow and interest expense. A summary of the interest rate collar agreements in place as of September 30, 2000 and March 31, 2000 follows:
(IN THOUSANDS) Effective Expiration Notional Amount Variable Rate Ceiling Floor Date Date September 30, 2000 March 31, 2000 Base Rate Rate - -------------- --------------- ------------------ -------------- ------------- ------- ------ April 8, 1998 January 8, 2001 $ 6,200 $ 6,200 CAD-BA* 6.35% 4.84% April 26, 1999 January 26, 2002 $ 20,000 $ 20,000 LIBOR** 5.75% 4.80% * - Canadian Bankers Acceptance Rate ** - London Interbank Offered Rate
The variable interest rates established under the Collar Agreements for the Company's LIBOR and Canadian Bankers Acceptance Rate-based collars as of September 30, 2000 were 6.71% and 5.87%, respectively. FOREIGN CURRENCY EXCHANGE RISK DRS operates and conducts business in foreign countries and as a result is exposed to fluctuations in foreign currency exchange rates. More specifically, our net equity is impacted by the conversion of the net assets of foreign subsidiaries for which the functional currency is not the U.S. Dollar for U.S. reporting purposes. The Company believes that its exposure to foreign currency exchange risk related to its foreign operations is not material to the Company's results of operations, cash flows or financial position. The Company, at present, does not hedge this risk, but continues to evaluate such foreign currency translation risk exposure. 16 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to various legal actions and claims arising in the ordinary course of our business. In our opinion, we have adequate legal defenses for each of the actions and claims, and we believe that their ultimate disposition will not have a material adverse effect on our consolidated financial position or results of operations. In April and May 1998, subpoenas were issued to the Company by the United States Attorney for the Eastern District of New York seeking documents related to a governmental investigation of certain equipment manufactured by DRS Photronics, Inc. (Photronics). These subpoenas were issued in connection with United States v. Tress, a case involving a product substitution allegation against an employee of Photronics. On June 26, 1998, the complaint against the employee was dismissed without prejudice. Although additional subpoenas were issued to the Company on August 12, 1999 and May 10, 2000, to date, no claim has been made against the Company or Photronics. During the Government's investigation, until October 29, 1999, Photronics was unable to ship certain equipment related to the case, resulting in delays in the Company's recognition of revenues. On October 29, 1999, Photronics received authorization to ship its first boresight system since the start of the investigation We are presently involved in a dispute in arbitration with Spar Aerospace Limited (Spar) with respect to the working capital adjustment, if any, provided for in the purchase agreement between the Company and Spar dated as of September 19, 1997, pursuant to which we acquired, through certain of our subsidiaries, certain assets of Spar. We are also in a dispute with Raytheon Company (Raytheon) with respect to the working capital adjustment, if any, provided for in the purchase agreement between the Company and Raytheon dated as of July 28, 1998, pursuant to which we acquired, through certain subsidiaries, certain assets of Raytheon. 17 DRS TECHNOLOGIES, INC. AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 9, 2000, the Company held its Annual Meeting of Stockholders at the offices of Mellon Bank, N.A., 200 Park Avenue, New York, New York. The following matters were submitted to a vote of stockholders: (i) to amend Article III, Section 2 of the Company's By-Laws to increase the minimum and maximum number of directors so that the whole Board of Directors shall be constituted of not less than seven nor more than eleven members; (ii) to elect three Class II directors, each to hold office for a term of three years; (iii) to amend DRS' 1996 Omnibus Plan (the Plan) to increase the number of shares of DRS Common Stock reserved for issuance under the Plan by 975,000 shares of Common Stock; (iv) to consider and vote upon a proposal to ratify and approve the designation of KPMG LLP as the independent certified public accountants for the Company With respect to the aforementioned matters, votes were tabulated and the stockholders of the Company approved both proposals as follows: For Against Abstaining --- ------- ---------- Proposal (i): 8,146,518 46,449 28,409 Proposal (ii): Mark N. Kaplan 8,181,220 40,156 0 Ira Albom 8,180,995 40,381 0 General Dennis J. Reimer, USA (Ret.) 8,181,493 39,883 0 Proposal (iii): 3,108,364 438,872 28,462 Proposal (iv): 8,180,013 28,095 13,268 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K None 18 DRS TECHNOLOGIES, 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. DRS TECHNOLOGIES, INC. ---------------------- Registrant Date: November 9, 2000 /s/ RICHARD A. SCHNEIDER ---------------------------------------------- Richard A. Schneider Executive Vice President, Chief Financial Officer and Treasurer 19 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DRS TECHNOLOGIES, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000028630 0 1000 U.S. DOLLARS 3-MOS MAR-31-2001 APR-01-2000 SEP-30-2000 1 8,566 0 82,475 722 72,527 170,266 66,122 32,094 336,917 145,920 89,195 0 0 111 93,146 336,917 107,227 107,227 98,724 98,724 302 0 3,537 4,664 2,425 2,239 0 0 0 2,239 0.22 0.20
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