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 September 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 Identifica
organization) tion 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 November 4, 1996, 5,512,424 shares of the registrant's Common Stock,
$.01 par value, were outstanding (exclusive of 463,942 shares held in treasury).
<PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX
2
PART 1. FINANCIAL
INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1996 and 3
March 31, 1996
Condensed Consolidated Statements of Earnings
- Three and Six Months Ended September 30, 4
1996 and 1995
Condensed Consolidated Statements of Cash
Flows - Six Months Ended September 30, 1996 5
and 1995
Notes to Condensed Consolidated Financial 6-7
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
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 12
Holders
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 1996 March 31, 1996
Assets
Current Assets:
Cash and cash equivalents $ 8,496,000 $ 22,785,000
Accounts receivable 28,660,000 22,942,000
Inventories, net of progress payments 19,752,000 19,449,000
Other current assets 1,941,000 1,464,000
Total current assets 58,849,000 66,640,000
Property, plant and equipment, less accumulated
depreciation and amortization of $26,707,000
and $25,744,000 at September 30, 1996 and
March 31, 1996, respectively 17,770,000 16,191,000
Intangible assets, less accumulated amortization of
$4,379,000 and $4,027,000 at September 30, 1996
and March 31, 1996, respectively 10,537,000 8,498,000
Other assets 5,666,000 5,922,000
$ 92,822,000 $ 97,251,000
Liabilities and Stockholders' Equity
Current liabilities $ 25,771,000 $ 32,650,000
Long-term debt, excluding current installments 32,524,000 32,608,000
Deferred income taxes 2,607,000 2,607,000
Other liabilities 2,717,000 2,820,000
Total liabilities 63,619,000 70,685,000
Stockholders' equity:
Common Stock, $.01 par value per share
Authorized 20,000,000 shares; issued 5,976,366
shares at September 30, 1996 60,000 -
Class A Common Stock, $.01 par value per share
Authorized 10,000,000 shares; issued 3,739,963
shares at March 31, 1996 - 37,000
Class B Common Stock, $.01 par value per share
Authorized 20,000,000 shares; issued 2,223,603
shares at March 31, 1996 - 22,000
Additional paid-in capital 13,825,000 13,639,000
Retained earnings 17,538,000 15,022,000
31,423,000 28,720,000
Treasury Stock, at cost;
463,942 shares of Common Stock at September 30, 1996;
432,639 shares of Class A Common Stock and
65,795 shares of Class B Common Stock (1,786,000) (1,918,000)
Unamortized restricted stock compensation (434,000) (236,000)
Net stockholders' equity 29,203,000 26,566,000
$ 92,822,000 $ 97,251,000
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed ConsolIdated Statements of Earnings
(Unaudited)
Three Months Six Months
Ended September 30 Ended September 30
<S> <S> <C> <C> <C> <C>
1996 1995 1996 1995
Revenues 33,440,000 22,786,000 60,863,000 40,065,000
Costs and expenses 30,408,000 20,942,000 55,363,000 36,907,000
Operating income 3,032,000 1,844,000 5,500,000 3,158,000
Interest and related expenses (903,000) (372,000) (1,735,000) (697,000)
Other income, net 160,000 27,000 360,000 114,0000
Earnings before income taxes 2,289,000 1,499,000 4,125,000 2,575,000
Income taxes 893,000 584,000 1,609,000 1,004,000
Net earnings $1,396,000 $ 915,000 $2,516,000 $1,571,000
Earnings per share:
Primary $ 0.24 $ 0.16 $ 0.44 $ 0.28
Fully Diluted $ 0.21 $ 0.16 $ 0.38 $ 0.28
Weighted average number of shares outstanding:
Primary 5,743,000 5,658,000 5,712,000 5,632,000
Fully Diluted 8,907,000 5,721,000 8,892,000 5,672,000
See accompanying notes to condensed consolidated financial statements.
4
</TABLE>
<PAGE>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended September 30,
1996 1995
Cash flows from operating activities
Net earnings $ 2,516,000 $ 1,571,000
Adjustments to reconcile net earnings to cash
flows from operating activities:
Depreciation and amortization 2,235,000 1,289,000
Other, net (188,000) 171,000
Changes in assets and liabilities, net of effects from
business combinations:
(Increase) in accounts receivable (5,219,000) (1,184,000)
(Increase) in inventories (751,000) (992,000)
(Increase) decrease in other current assets 74,000 (17,000)
(Decrease) in accounts payable and other (7,901,000) (4,356,000)
Other, net 85,000 268,000
Net cash used in operating activities (9,149,000) (3,250,000)
Cash flows from investing activities
Capital expenditures (1,619,000) (1,959,000)
Sales of fixed assets 122,000 2,380,000
Payments pursuant to business combinations,
net of cash acquired (3,892,000) (4,095,000)
Net cash used in investing activities (5,389,000) (3,674,000)
Cash flows from financing activities
Net proceeds from short-term debt 667,000 123,000
Payments on long-term debt (465,000) (114,000)
Repurchases of convertible subordinated debentur - (2,225,000)
Net proceeds from issuance of senior subordinated
convertible debentures - 18,900,000
Other, net 47,000 40,000
Net cash provided by financing activities 249,000 16,724,000
Net increase (decrease) in cash and cash
equivalents (14,289,000) 9,800,000
Cash and cash equivalents, beginning of period 22,785,000 11,197,000
Cash and cash equivalents, end of period $ 8,496,000 $ 20,997,000
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
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 September 30, 1996, the
results of operations for the three and six months ended September 30, 1996
and 1995 and cash flows for the six months ended September 30, 1996 and 1995.
The results of operations for the six months ended September 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 September 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 September 30, 1996 was
below the required minimum ratio. The Company has obtained a waiver from the
issuing bank, expiring as of October 1, 1997, 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, and 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 September 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, manufactures data and recording heads.
<PAGE>
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, related results of operations 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.
5) On October 24, 1996, a second-tier subsidiary of Precision Echo, Inc., a
wholly-owned subsidiary of the Company, acquired substantially all the assets
of Nortronics Company, Inc. ("Nortronics"), a Minnesota corporation, for
approximately $2.4 million. Nortronics manufactures magnetic data
recording head products.
Effective October 31, 1996, Pacific Technologies, Inc. ("PTI"), a California
corporation, merged with and into a subsidiary of the Company, for stock
and cash valued at approximately $0.5 million. Based in San Diego, California,
PTI provides systems and software engineering support to the U.S.
Navy for the testing of shipboard combat systems.
<PAGE>
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
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1996 vs. 1995 1996 1995 1996 vs.1995
Revenues 100.0 % 100.0 % 46.8% 100.0 % 100.0 % 51.9%
Cost and expenses 90.9 91.9 45.2% 91.0 92.1 50.0%
Operating income 9.1 8.1 64.4% 9.0 7.9 74.2%
Interest and related
expenses (2.7) (1.6) 142.7% (2.9) (1.7) 148.9%
Other income, net 0.5 0.1 492.6% 0.6 0.3 215.8%
Earnings before
income taxes 6.9 6.6 52.7% 6.7 6.5 60.2%
Income taxes 2.7 2.6 52.9% 2.6 2.5 60.3%
Net earnings 4.2 % 4.0 % 52.6% 4.1 % 4.0 % 60.2%
</TABLE>
<PAGE>
Revenues for the three-month period ended September 30, 1996 increased
46.8% to $33.4 million from $22.8 million for the same three-month period in
fiscal 1996. On a year-to-date basis, revenues increased 51.9% to $60.9 million
from $40.1 million for the same six-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, which include revenues from businesses
acquired within the last nine months.
Operating income for the three-month period ended September 30, 1996
increased 64.4% to $3.0 million from $1.8 million for the same three-month
period in fiscal 1996. On a year-to-date basis, operating income increased
74.2% to $5.5 million from $3.2 million for the same six-month period in fiscal
1996. Operating income as a percentage of revenue was 9.1% and 9.0% for the
three-month and six-month periods ended September 30, 1996, respectively, as
compared with 8.1% and 7.9%, respectively, for the comparable prior year
periods. The increase in 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 $0.9 million and $1.7 million for the
three-month and six-month periods ended September 30, 1996, as compared to $0.4
million and $0.7 million in the prior year. The increase was primarily due to
the increase in long-term debt associated with the private placement on
September 29, 1995, and November 3, 1995, 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 and $0.4 million for the three-month and
six-month periods ended September 30, 1996, respectively, as compared to
$27,000 and $0.1 million in the comparable periods of fiscal 1996. The increase
was primarily due to interest earned on higher average cash balances, in
addition to a gain of approximately $0.1 million on the sale of certain fixed
assets in the second quarter of fiscal 1997.
The Company's effective tax rate for the three-month and six-month periods
ended September 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 September 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 September 30, 1996 and
March 31, 1996 represented approximately 9% and 23%, respectively, of total
assets. During the six-month period ended September 30, 1996, cash decreased by
approximately $14.3 million. This decrease resulted from the use of
approximately $3.9 million in the Vikron acquisition and approximately $1.6
million for capital expenditures. Additionally, approximately $9.1 million was
used in support of operations, primarily in settlement of accounts payable
balances associated with material procurement in the fourth quarter of fiscal
1996. This material was purchased in anticipation of production activity,
primarily for display workstations, scheduled for fiscal 1997.
Capital expenditures, excluding assets acquired as a result of business
combinations are expected to approximate $3 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 September 30, 1996 was $33.1 million, as compared to
$34.0 million at March 31, 1996. The decrease was primarily due to lower cash
and accounts payable balances, partially offset by higher accounts receivable
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 its current operational needs.
Accounts Receivable and Inventories: Accounts receivable increased by
approximately $5.2 million in the six-month period ended September 30, 1996, net
of the effect of assets acquired pursuant to business combinations. The
increase was primarily the result of a cumulative adjustment to the progress
payment percentage associated with one of the Company's display workstation
contracts, billed at the end of the second quarter. Generally, there are no
contract provisions for retainage, and all accounts receivable are expected to
be collected within one year.
<PAGE>
Inventories increased by approximately $0.8 million from March 31, 1996,
net of the effect of assets acquired pursuant to business combinations. The
increase was due primarily to increased material procurement and production
activity on certain electro-optical, data recording and commercial products.
<TABLE>
<S> <C> <C>
September 30, March 31, 1996
1996
Quick ratio 1.5 1.4
Current ratio 2.3 2.0
Liabilities-to-equity 2.2 2.7
ratio
Long-term debt,
excluding current 52.7% 55.1%
installments, to
capitalization
</TABLE>
Backlog: At September 30, 1996, the Company's backlog of orders was
approximately $130.2 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 $44 million were booked
during the six-month period ended September 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, manufactures data and recording heads.
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, related results of operations 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.
On October 24, 1996, a second-tier subsidiary of Precision Echo, Inc., a
wholly-owned subsidiary of the Company, acquired certain assets of Nortronics
Company, Inc. ("Nortronics"), a Minnesota corporation, for approximately $2.4
million. Nortronics manufactures magnetic data recording head products.
Effective October 31, 1996, Pacific Technologies, Inc. ("PTI"), a
California corporation, merged with and into a subsidiary of the Company, for
stock and cash valued at approximately $0.5 million. Based in San Diego,
California, PTI provides systems and software engineering support to the U.S.
Navy for the testing of shipboard combat systems.
<PAGE>
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 September 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 September 30, 1996 was below the required minimum ratio. The
Company has obtained a waiver from the issuing bank, expiring as of October 1,
1997, of the required debt ratio and accordingly 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
On August 7, 1996, the Company held its Annual Meeting of Stockholders
at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York. The following matters were submitted for
a vote of stockholders:
(i) to elect three Class I directors, each to hold office for a term
of three years;
(ii) to consider and act upon a proposal to adopt the 1996
Omnibus Plan; and
(iii) to ratify the grant of options to non-employee directors of
the Company pursuant to the 1991 Stock option plan.
With respect to the aforementioned matters, votes were tabulated and
all three proposals were approved by the stockholders of the Company
as follows:
For Against Withheld
Proposal (i):
Mark S. Newman 4,952,929 0 17,450
Theodore Cohn 4,932,279 0 38,100
Donald C. Fraser 4,950,135 0 20,244
Proposal (ii) 3,641,565 294,066 279,780
Proposal (iii) 4,558,525 113,098 284,786
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.95 Modification No. PZ0020, dated as of September 19,
1996, to Contract No. N00024-92-C-6308 [P]
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: November 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
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
PRIMARY
Net earnings for primary
earnings per share $ 1,396,000 $ 915,000 $2,516,000 $1,571,000
Weighted average number of
shares outstanding (1) 5,510,000 5,488,000 5,492,000 5,461,000
Add - common equivalent shares
(determined using the "treasury
stock" method) representing shares
issuable upon exercise of employee
stock options 233,000 170,000 220,000 171,000
Weighted average number of shares
used in calculation of primary
earnings per share 5,743,000 5,658,000 5,712,000 5,632,000
Primary earnings per share $ 0.24 $ 0.16 $ 0.44 $ 0.28
FULLY DILUTED
Net earnings $ 1,396,000 $ 915,000 $2,516,000 $1,571,000
Add - interest on 8.5% Convertible
Subordinated Debentures, net of
applicable income taxes (2) 65,000 - 130,000 -
Add - interest on 9% Senior
Subordinated Convertible
Debentures, net of applicable
income taxes 351,000 - 698,000 -
Add - amortization of deferred
issuance costs relating to
9% Senior Subordinated Convertible
Debentures, net of applicable
income taxes 36,000 - 72,000 -
Net earnings for fully diluted
earnings per share $ 1,848,000 $ 915,000 $3,416,000 $1,571,000
Weighted average number of shares
used in calculation of primary
earnings per share 5,743,000 5,658,000 5,712,000 5,632,000
Add (deduct) incremental shares representing:
Shares issuable upon exercise
of stock options included in
primary earnings per share
calculation (233,000) (170,000) (220,000) (171,000)
Shares issuable upon exercise
of stock options based on
period-end market prices 239,000 233,000 242,000 211,000
Shares issuable upon conversion
of 8.5% Convertible
Subordinated Debentures (2) 333,000 - 333,000 -
Shares issuable upon conversion
of 9% Senior Subordinated
Convertible Debentures 2,825,000 - 2,825,000 -
Weighted average number of shares
used in calculation
of fully diluted earnings 8,907,000 5,721,000 8,892,000 5,672,000
Fully diluted earnings
per share $ 0.21 $ 0.16 $ 0.38 $ 0.28
(1) Effective April 1, 1996, Class A and Class B Common Stock were reclassified
into a new single class of Common Stock. See Note 3 to Condensed Consolidated
Financial Statements.
(2) No adjustment made for all prior year periods, as the effect on reported
per share earnings was antidilutive.
<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
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000028630
<NAME> DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,496,000
<SECURITIES> 0
<RECEIVABLES> 28,660,000
<ALLOWANCES> 0
<INVENTORY> 19,752,000
<CURRENT-ASSETS> 58,849,000
<PP&E> 44,477,000
<DEPRECIATION> 26,707,000
<TOTAL-ASSETS> 92,822,000
<CURRENT-LIABILITIES> 25,771,000
<BONDS> 32,524,000
0
0
<COMMON> 60,000
<OTHER-SE> 29,143,000
<TOTAL-LIABILITY-AND-EQUITY> 92,822,000
<SALES> 33,440,000
<TOTAL-REVENUES> 33,440,000
<CGS> 30,408,000
<TOTAL-COSTS> 30,408,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 903,000
<INCOME-PRETAX> 2,289,000
<INCOME-TAX> 893,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,396,000
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.21
</TABLE>
