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