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).
</PAGE>
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
</PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
June 30, 1996 March 31, 1996
<S> <C> <C>
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
</TABLE>
</PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
Three Months Ended June 30,
1996 1995
<S> <C> <C>
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
</TABLE>
</PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Three Months Ended June 30,
1996 1995
---------------------------
<S> <C> <C>
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
</TABLE>
</PAGE>
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
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
EXHIBIT 11
SCHEDULE OF COMPUTATIONS OF PER SHARE EARNINGS
<TABLE>
Three Months Ended June 30,
1996 1995
----------------------------
<S> <C> <C>
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
</TABLE>
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<CIK> 0000028630
<NAME> DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,057,000
<SECURITIES> 0
<RECEIVABLES> 23,065,000
<ALLOWANCES> 0
<INVENTORY> 21,055,000
<CURRENT-ASSETS> 55,651,000
<PP&E> 43,584,000
<DEPRECIATION> 25,861,000
<TOTAL-ASSETS> 89,470,000
<CURRENT-LIABILITIES> 23,917,000
<BONDS> 32,577,000
0
0
<COMMON> 60,000
<OTHER-SE> 27,666,000
<TOTAL-LIABILITY-AND-EQUITY> 89,470,000
<SALES> 27,423,000
<TOTAL-REVENUES> 27,423,000
<CGS> 24,955,000
<TOTAL-COSTS> 24,955,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 832,000
<INCOME-PRETAX> 1,836,000
<INCOME-TAX> 716,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,120,000
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.18
</TABLE>
