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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
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COMMISSION FILE NUMBER 1-8533
DRS TECHNOLOGIES, INC.
DELAWARE 13-2632319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 SYLVAN WAY, PARSIPPANY, NEW JERSEY 07054
(973) 898-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.01 par value American Stock Exchange
8-1/2% Convertible Subordinated Debentures
due August 1, 1998 American Stock Exchange
9% Senior Subordinated Convertible Debentures
due October 1, 2003 American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
THE MARKET VALUE OF SHARES OF COMMON STOCK HELD BY NON-AFFILIATES, BASED ON
THE CLOSING PRICES FOR SUCH STOCK ON THE AMERICAN STOCK EXCHANGE ON JUNE 22,
1998, WAS APPROXIMATELY $78,000,000. THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AS OF JUNE 22, 1998 WAS 6,201,976 (EXCLUSIVE OF 402,461 SHARES OF
COMMON STOCK HELD IN THE TREASURY.)
DOCUMENTS INCORPORATED BY REFERENCE
1. 1998 Annual Report (for the fiscal year ended March 31, 1998), incorporated
in Part II.
2. Definitive Proxy Statement, dated July 2, 1998, for the Annual Meeting of
Stockholders, incorporated in Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
The registrant, DRS Technologies, Inc. (hereinafter the "Company" or "DRS")
was incorporated in 1968 and is a diversified, high-technology company serving
government and commercial niche markets worldwide. DRS develops and manufactures
a variety of leading edge systems and components used for the processing,
display and storage of data. These include combat display workstations,
electronic sensor systems, mission recording systems, digital imaging systems,
electro-optical systems, ship communications and flight safety systems. The
Company also provides a wide range of technical support and depot level
services. DRS's defense electronics products serve all branches of the U.S.
Armed Services and certain international military forces. The Company's
commercial and industrial products are used by the airline, banking, computer
disk drive, security, transportation, retail sales and broadcast industries.
STRATEGY
The Company believes that the nature of modern warfare has changed,
dictating increasing reliance on real-time, accurate battlefield information
derived from increasingly sophisticated defense systems and electronics.
Additionally, the nature of military procurement programs has changed, requiring
suppliers to become more efficient and adaptable to current and future market
needs. In recent years, the Company has implemented strategies to exploit the
changing nature of military procurement programs brought on by the end of the
Cold War and military budget constraints. In response to a 1992 mandate by the
Joint Chiefs of Staff, the Company focuses on "Commercial Off-The-Shelf"
("COTS") product designs, whereby commercial electronic components are
integrated, adapted, upgraded and "ruggedized "for application in harsh military
environments. In addition to winning contracts for new programs and supporting
existing military programs, the Company's strategies include:
o designing new products and adapting existing products for use by all
branches of the military;
o transferring technologies developed in the defense sector to
commercial and industrial markets; and
o acquiring businesses that provide a strategic complement to the
Company's existing products, services and technological capabilities
in both the defense and commercial marketplaces.
To effect these strategies, the Company has (i) made several acquisitions
in recent years, adding complementary military and commercial products and
technologies; (ii) entered into strategic relationships with other defense
suppliers, such as Lockheed Martin Tactical Defense Systems and
Northrop-Grumman, among others; (iii) emphasized the development of COTS-based
products, as well as products and systems that are easily adapted to similar
weapons platforms used by all branches of the military; and (iv) implemented
cost reduction initiatives to reduce its fixed-cost base to allow for growth and
to maintain the flexibility of its operations. The implementation of these
strategies has resulted in increased revenues and profits over the last five
fiscal years. Acquisitions and Related Activities: In July 1995, the Company
acquired substantially all of the assets of Opto-Mechanik, Inc., now known as
DRS Optronics, Inc. ("DRS Optronics"), located in Palm Bay, Florida. This
acquisition enabled the Company to expand its electro-optical targeting
products, add backlog in complementary product areas and consolidate certain
manufacturing activities in a lower-cost facility.
In February 1996, the Company acquired a 90% interest in DRS Medical
Systems, a partnership formed to develop, manufacture and market medical
ultrasound imaging equipment. Due to the fact that DRS Medical Systems did not
complement the Company's on-going strategies, on September 12, 1997, the Company
sold substantially all the net assets of DRS Medical Systems to United States
Surgical Corporation.
As part of the Company's strategy to diversify into non-defense markets,
the Company made four acquisitions that expanded its presence and existing
capabilities in the magnetic head marketplace. In February 1996, the Company
acquired substantially all of the assets of Mag-Head Engineering Company, Inc.,
a manufacturer of audio and flight recorder heads. In addition, in June 1996,
the Company acquired substantially all of the assets of Vikron, Inc. ("Vikron").
Located in St. Croix Falls, Wisconsin, Vikron manufactures data and recording
heads. In October 1996, the Company acquired certain assets of Nortronics
Company, Inc. ("Nortronics"), which also manufactures magnetic data recording
head products. Nortronics is located in Dassel, Minnesota. Effective February
26, 1997,
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these operations were merged with and into DRS Ahead Technology, Inc. to form a
single legal entity. In May 1997, the Company acquired 80% of the outstanding
equity of Magnetic Heads Company Ltd. ("MHC"). Located in Razlog, Bulgaria, MHC,
now known as DRS Ahead Technology--Bulgaria, is a manufacturer and supplier of
magnetic recording heads used primarily for commercial applications. The Company
currently is integrating these operations to further streamline its
manufacturing operations.
In October 1996, Pacific Technologies, Inc. merged with and into a
subsidiary of the Company. Based in San Diego, California, and renamed DRS
Technical Services, Inc., it provides systems and software engineering support
to the U.S. Navy for the testing of shipboard combat systems.
In October 1997, the Company acquired the assets of the Applied Systems
Division of Spar Aerospace Limited, a Canadian corporation, and 100% of the
stock of Spar Aerospace (UK) Limited, incorporated under the laws of England and
Wales. Headquartered in Carleton Place, Ontario, Canada, and operating under the
name DRS Flight Safety and Communications, the Applied Systems Division has been
an international provider of aviation and defense systems for over 30 years. It
designs, manufactures and markets sophisticated flight safety systems, naval
communications systems and other advanced electronics for government and
commercial customers around the world. It also provides custom manufacturing
services for complex electronic assemblies and systems.
In March 1998, the Company acquired Hadland Photonics Ltd., headquartered
in Tring, Hertfordshire, the United Kingdom, currently known as DRS Hadland Ltd.
("DRS Hadland"). The company has been a leader in ultra high-speed image capture
and analysis for over 40 years. It designs, manufactures and markets ultra
high-speed digital imaging cameras and avionics systems, including airborne
video recording and ground replay systems, for government and commercial
customers worldwide.
Cost-Reduction and Other Initiatives. During fiscal 1998 the Company integrated
the administrative and support functions of its magnetic head manufacturing
facilities into an operation in Plymouth, Minnesota. In addition, the Company
restructured certain operations by moving various display workstation product
lines from the Company's facility in Oakland, New Jersey to its operation in
Gaithersburg, Maryland and by relocating its multi-platform boresighting
equipment product lines, formerly located in Hauppauge, New York, to Oakland,
New Jersey. In connection with this restructuring, the Company sold the land and
building owned in Hauppauge, New York. The Company continues to focus on
opportunities to streamline its operations.
COTS Designs. The COTS concept was developed and mandated in response to both
decreasing military budgets and the increasing pace of technology. The use of
COTS designs entails the purchasing, refitting, upgrading and "ruggedization"
(repackaging, remounting and stress testing to ensure readiness for use in harsh
military environments) of available commercial components. Using COTS designs,
the Company develops and delivers its products with significantly less
development time and expense compared with traditional military product cycles,
generally resulting in shorter lead times, lower costs and the employment of the
latest information and computing technologies. The Company strives to apply COTS
designs to most of its new products. Management believes that the adaptation of
available commercial components to existing and newly developed military systems
offers three primary advantages over traditional military systems development
and procurement cycles: (i) it has the potential to save significant amounts of
time and cost with respect to product research and development; (ii) the
adaption of commercial technology to battlefield systems has the potential to
shorten military product cycles, as commercial product development and
production cycles are shorter than their military equivalents; and (iii) use of
COTS designs should ensure that the latest information and computing
technologies are employed in the design and manufacture of defense electronics
systems.
Adaptable Product Designs. The Company has focused on the design and development
of new products and the redesign of existing products for use by all branches of
the military. This has enabled the Company to increase revenues using its
existing product and technology base, reduce overall product development costs
and decrease reliance on U.S. Navy procurement programs. For instance, the
Company's display systems, originally designed under a U.S. Navy development
contract, are open-architecture information processing workstations that can be
adapted for use in other branches of the military. Similarly, the Company's
boresight products, originally designed for use with the U.S. Army's Apache
attack helicopter, were designed to be adaptable to other air, sea or land-based
weapons platforms. The boresight system has been applied successfully to the
U.S. Marine Corps' Cobra helicopter and to the U.S. Air Force's AC-130 Spectre
Gunship platforms.
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COMPANY ORGANIZATION
DRS is organized into four principal operating segments on the basis of
products and services offered: the Electronic Systems Group ("ESG"), the Data
Systems Group ("DSG"), the Electro-Optical Systems Group ("EOSG"), and Flight
Safety and Communications ("FS&C"). See Note 12 of Notes to Consolidated
Financial Statements for selected financial information by segment.
Electronic Systems Group
ESG consists of DRS Electronic Systems, Inc. ("DRS ESI"), located in
Gaithersburg, Maryland, DRS Laurel Technologies ("DRS Laurel"), located in
Johnstown, Pennsylvania, DRS Technical Services, Inc., based in San Diego,
California and a division of DRS ESI known as DRS Technical Services, located in
Chesapeake, Virginia.
ESI designs, manufactures and integrates complex systems using advanced
commercial technology to meet the performance and environmental requirements of
military customers. Current products include tactical processing and display
systems for military ships and aircraft, surveillance systems for coastal and
harbor regions, radar and acoustic sensor systems, and low-cost emulators of
legacy military systems for test and training support. ESG also provides
manufacturing services and technical support services for both DRS products and
those of other suppliers. Major products and contracts include:
o AN/UYQ-65: The AN/UYQ-65 is the first COTS-based tactical workstation
to be qualified by the U.S. Navy and was designed to comply with the
stringent requirements of the Aegis (DDG-51) shipbuilding program.
Replacing the sensor displays in the SQQ-89 ASW combat suite, it
employs dual processors enabling simultaneous I/O and graphics
processing. This new approach allows for required high bandwidth
processing, while maintaining response times for operator/machine
interfaces. The system architecture can be adapted to meet various
interface, cooling, memory, storage and processing requirements.
o AN/SQR-17A(V)3: The Mobile In-shore Undersea Warfare (MIUW) system is
deployed in land-based vans, utilizing sonobuoys and anchored passive
detectors for harbor defense, coastal defense and amphibious
operations surveillance, as well as for the enhancement of drug
interdiction efforts. This system currently is being procured for
utilization in 22 field installations. The Company is under contract
to provide various upgrades to these field installations.
DRS ESI also produces tactical (e.g., combat/attack) information systems
and training systems. Major products and contracts include:
o AN/UYQ-70: The AN/UYQ-70 is an advanced, open-architecture display
system designed for widespread application through software and
hardware modification, and for deployment on Aegis and other surface
ships, submarines and airborne platforms. This system was developed
for the U.S. Navy under subcontract with Lockheed Martin Tactical
Defense Systems. The AN/UYQ-70 is a self-contained,
microprocessor-based unit complete with mainframe interface software
and offers advanced computing and graphic capabilities. These units
replace previous generation units that are dependent upon a shipboard
mainframe computer at approximately 25% of the cost of the older
units. Based upon the size of the Naval surface fleet and the average
number of workstations to be deployed on each ship, the Company
believes that the potential market for this workstation product may be
in excess of 5,000 units over the next decade.
o Military Display Emulators: These workstations are functionally
identical to existing U.S. Navy shipboard display consoles built to
military specifications, but are manufactured using low-cost COTS
components suitable for land-based laboratory environments. These
Military Display Emulators are used in U.S. Navy development, test and
training sites as plug-compatible replacements for the more expensive
shipboard qualified units. The Company currently is delivering these
Military Display Emulators for use at land-based training sites for
the Aegis and other U.S. Navy programs.
o AN/SPS-67: The AN/SPS-67 Radar Systems are deployed on the U.S. Navy's
new DDG-51 Aegis class ships and provide ocean surveillance and
navigation data, including detection and tracking of low flying
aircraft and other targets. An integral part of the ships' command and
control combat system, the AN/SPS-67 is a below-deck system which the
Company believes has a potential market application on other surface
ships in the Navy's fleet, as well as on aircraft carriers and
amphibious operation assault ship platforms.
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DRS ESI also produces a line of Lightweight Portable Display Workstations
for the collection, display, storage and communication of data in the field,
Replacement Data Storage Systems for program loading and data archiving on P-3C
aircraft, and Flat Panel Display products, display subsystems and other computer
peripherals for integration primarily with military tactical display
workstations.
DRS Laurel, which is 80% owned by DRS through a partnership formed in
December 1993 with Sunburst Management, Inc., serves as a cost-efficient
manufacturing operation for the Company. DRS Laurel primarily manufactures and
integrates electronic systems, providing turn-key production, and performs
related electronic and electromechanical assembly and associated test services.
In addition, DRS Laurel specializes in cable and wire harness interconnect
products, primarily for large industrial customers that are involved in the
military and commercial aerospace industries. DRS Laurel currently produces both
the AN/UYQ-65 and AN/UYQ-70 workstations.
DRS Technical Services, Inc. and DRS Technical Services perform field
service and depot level repairs for ESG products, as well as other
manufacturers' systems, and also provide systems and software engineering
support to the U.S. Navy for the testing of shipboard combat systems. Both
facilities are located in close proximity to U.S. Naval bases in Norfolk,
Virginia and San Diego, California. Services, including equipment and field
change installation, configuration audit, repair, testing and maintenance, are
performed for the U.S. Navy and, to a lesser extent, commercial customers. DRS
Technical Services also has performed work for foreign navies, including those
of Australia, Egypt, Greece, the Republic of China and Turkey.
Data Systems Group
DSG consists of DRS Precision Echo, Inc. ("DRS Precision Echo"), located in
Santa Clara, California, and DRS Ahead Technology, Inc. ("DRS Ahead
Technology"), with locations in San Jose, California, Plymouth, Minnesota, St.
Croix Falls, Wisconsin, Dassel, Minnesota, and Razlog, Bulgaria.
DSG utilizes advanced commercial technology to design and manufacture
multisensor digital, analog and video data capture and recording products, as
well as high-capacity data storage devices for the harsh environments of
aerospace and defense applications. Through its commercial operations, DSG also
provides a variety of magnetic head products and services used in the commercial
aviation, airline, television and audio broadcast, computer disk drive,
security, transportation and retail sales industries that test or write and read
information on magnetic data storage media.
DRS Precision Echo manufactures a variety of digital and analog recording
systems utilized for military applications, including reconnaissance,
antisubmarine warfare (ASW) and other information warfare data storage
requirements and is a predominant U.S. manufacturer of Hi-8 millimeter military
recorders supplied to the U.S. armed forces. DRS Precision Echo's products
include:
o AN/USH-42: DRS Precision Echo is currently under contract to
manufacture these recording systems for use on the Navy's S-3B ASW
aircraft. The AN/USH-42 are used to record radar, infrared, bus,
navigation and voice data.
o WRR-818: This ruggedized video recorder uses certain components from
commercial video recording equipment and has been selected for use on
the U.S. Navy's F/A-18 and on the U.S. Air Force's A/OA-10 aircraft.
It also has been selected by the U.S. Army for use in its Kiowa
Warrior reconnaissance helicopters. A similar recorder, the WRR-812,
has been adapted for use in the Canadian Army's Light Armored
Reconnaissance Vehicles.
DRS Precision Echo also provides a line of high-capacity digital tape
drives and automated library systems for the archiving and back-up of very large
amounts of digital data, ranging from 378 GigaBytes to 2.6 PetaBytes of
uncompressed data.
DRS Ahead Technology manufactures burnish, glide and test heads used in the
production of computer disk drives. These consumable products are used by many
U.S. disk drive manufacturers to hone the surface and ensure the quality of
magnetic disks used in computer hard drives. In addition, DRS Ahead Technology
specializes in the manufacture and refurbishment of broadcast video and audio
heads, heads used in commercial flight data recorders and in a variety of
industries for reading, writing and verifying data on magnetic cards, tapes and
inks.
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Electro-Optical Systems Group
EOSG consists of DRS Photronics, Inc. ("DRS Photronics"), located in
Oakland, New Jersey, DRS Optronics, located in Palm Bay, Florida, and DRS
Hadland, based in Tring, Hertfordshire, the United Kingdom.
EOSG integrates advanced commercial technology with military requirements
to design and manufacture advanced electro-optical sighting, targeting, weapons
and aircraft optical alignment systems, assemblies and components used primarily
in the aerospace and defense industries. The Group is a leader in aircraft
boresighting equipment and high-speed digital imaging systems. EOSG also
produces night vision and directional devices, as well as eye-safe, laser-based
products for military applications.
DRS Photronics produces boresighting equipment used to align and harmonize
the navigation, targeting and weapons systems on rotary- and fixed-wing
aircraft. Multiple Platform Boresighting Equipment (MPBE) is DRS Photronics'
main product line. MPBE currently is used on the Army's Apache helicopters and
Apache Longbow helicopters, the Marine Corps' Cobra helicopters, and the Air
Force's AC-130 Spectre gunship radar. This technology is proprietary to the
Company.
In fiscal 1996, the Company was selected as the prime contractor on a
tri-service (Army, Navy and Air Force) program to develop the Advanced Digital
Imaging System ("ADIS") for the test and evaluation of weapons separation events
on board various fixed- and rotary-wing military aircraft. The system includes
an electronically-shuttered, fast-frame, high-resolution, digital imaging camera
and a high-density, digital data storage device. Upon completion of development,
the ADIS will incorporate a color readiness capability and will include a
miniaturized high-speed electronic camera to assure compatibility with multiple
air platforms, such as the Air Force's F-16.
DRS Optronics designs and manufactures electro-optical targeting and
sighting systems and various missile components. Major programs of DRS Optronics
include:
o Night Vision Binoculars: DRS Optronics is currently under contract to
develop and manufacture these units for the Israeli military. The
Night Vision Binocular is a hand-held viewing binocular that
incorporates an image intensifier tube, laser range finder and digital
compass in a compact lightweight system suited for infantry units,
special forces and night operations involving forward observers and
reconnaissance patrols. The Night Vision Binocular displays range and
azimuth data in the soldier's eyepiece, allowing identification of
targets and providing essential fire support data for nighttime
engagement. These units have a range of 20 to 2,000 meters.
o Gunners' Auxiliary Sight: This is an electro-optical device used as a
primary or back-up sighting system on M-1 Abrams battle tanks and
contains a very sophisticated electro-optical train and a laser
protective filter. DRS Optronics has produced more than 2,000 of these
instruments and continues to operate as a repair and retrofit facility
for the M-1A2 upgrade program. Options for additional units under this
program may be exercised through fiscal 2000.
o TOW Optical Sight: DRS Optronics is currently the only U.S. qualified
producer of two of the three critical assemblies in this device. This
complex electro-optical system is the main component of the U.S.'s
premier antitank weapons system.
o TOW Traversing Unit: This unit provides target tracking accuracy for
the TOW antitank weapon, acting as the mount for the TOW Optical Sight
and the associated missile launch tube. DRS Optronics currently is the
only qualified manufacturer of this tightly toleranced assembly, and
currently is working on modification and retrofit programs. DRS
Optronics also has been contracted to modify a version for use by an
overseas customer.
o Eye-Safe Laser Range Finder: DRS Optronics competed against the U.S.
Army's historical primary laser supplier for this contract and was
awarded an initial contract for preproduction units. DRS Optronics
also is currently manufacturing a laser range finder/target designator
for airborne use in the MILES AGES program. This effort includes
redesigning the target designator unit to accommodate DRS Optronics'
laser components.
o Missile Components: EOSG originally provided only the primary mirrors
used in the nose-mounted infrared seeker of Sidewinder and Stinger
missiles. Development efforts have resulted in the ability to provide
increased content to include the secondary, tertiary and fold mirrors,
housing and nose dome. The Company is currently under contract to
produce infrared components and subassemblies on many of the
next-generation infrared missile systems.
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DRS Hadland designs, manufactures and markets products for high-speed image
capture and analysis. Products include a comprehensive range of equipment for
the visual analysis of events lasting from hundreds of femtoseconds to
milliseconds. Many of these systems are used for multiple applications by
international military forces, ballistic test ranges, university and other
research institutes, laboratories and large corporations. DRS Hadland also
provides qualified airborne monitors, CCD cameras and airborne video tape
recording devices. Major products include:
o Framing Cameras: Framing cameras have the ability to take a sequence
of pictures at the same location at very high speeds. These cameras
are designed to produce images at equivalent speeds of several million
pictures per second, although in practice 4-8 frames are taken.
Framing cameras are used primarily for research in the areas of
electrical breakdown/discharge, ballistics, detonics and combustion.
o Electronic Ballistic Range Cameras: These cameras use digital imaging
to capture a single picture of a projectile in flight. Slower than
framing cameras but with better resolution, these cameras are used in
the development and proof testing of ballistics.
o Streak Cameras: These cameras are designed to capture quick events
analyzed over a very short, continuous period. Faster than framing or
range cameras, streak cameras are used to produce continuous cross
section images in one dimension, rather than full images, and are used
for such applications as laser development and testing.
Flight Safety and Communications
FS&C is headquartered in Carleton Place, Ontario, Canada, with locations in
Nepean, Ontario, Canada and Hayes, Middlesex, the United Kingdom. FS&C designs
and manufactures advanced flight safety systems, naval communications systems
and other advanced electronics primarily for defense and commercial aerospace
applications. Major products and services include:
o Aircraft Flight Incident Recorders: Designed to withstand the intense
destructive forces associated with an aircraft crash, deployable
flight incident recorders are flush-mounted to or located beneath the
airframe skin. Deployment commands provided by switch activation
trigger release of the unit and activation of the recorder. These
systems have been installed successfully on fighter aircraft such as
the German Tornado and the U.S. Navy F/A-18 Hornet and are used to
record both flight and voice data.
o Aircraft Crash Locator Beacons: Consisting of a composite airfoil
which encloses a radio transmitter and power source, crash locator
beacons are designed to deploy and activate either before or upon
impact. Used primarily on fixed-wing military aircraft, these crash
position locators enable rapid location of downed aircraft and the
timely rescue of survivors. FS&C also produces complete emergency
avionics systems, combining the functionality of a crash locator
beacon with a flight incident recorder for search, recovery and crash
analysis.
o Integrated Shipboard Communications Systems: Using the latest
available technology and COTS-based designs, FS&C produces integrated
digital shipboard communications systems which provide single-button
access to tactical interior, exterior and secured channels for joint
operations. These Shipboard Integrated Communications ("SHINCOM")
systems improve communication efficiency by eliminating the need for
multiple single-purpose communications systems, thus providing a
comprehensive system solution. FS&C's SHINCOM systems are capable of
handling shipboard interior communications; communications with other
aircraft, surface and undersea vessels; and satellite, UHF/VF, HF and
broadband communications with shore stations and cooperating units.
o Electronic Manufacturing and Systems Integration Services: FS&C is an
experienced provider of manufacturing, test and product support
services and currently performs contract manufacturing services for
various aerospace and military applications. FS&C's manufacturing
expertise and capabilities include: surface mount and through-hole
multi-layer CCA assembly; harness fabrication; power supply assembly
and testing; motherboard assembly and testing; and systems integration
services.
CUSTOMERS
A significant portion of the Company's products are sold to agencies of the
U.S. Government, primarily the Department of Defense, to foreign government
agencies or to prime contractors or subcontractors thereof. Approximately 74%,
71% and 78% of total consolidated revenues for fiscal 1998, 1997 and 1996,
respectively, were derived directly or indirectly from defense contracts for end
use by the U.S. Government and its agencies, principally the U.S. Navy. See
"Foreign Operations and Export Sales" below for information concerning sales to
foreign governments.
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BACKLOG
The following table sets forth the Company's backlog by major product group
(including enhancements, modifications and related logistics support) at the
dates indicated:
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- --------------
Government Products:
U.S. Government ............ $141,500,000 $ 85,900,000 $120,000,000
Foreign Government ......... 24,900,000 23,000,000 21,200,000
------------ ------------ ------------
166,400,000 108,900,000 141,200,000
Commercial Products ......... 11,000,000 9,500,000 4,400,000
------------ ------------ ------------
$177,400,000 $118,400,000 $145,600,000
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"Backlog" refers to the aggregate revenues remaining to be earned at a
specified date under contracts held by the Company, including, for U.S.
Government contracts, the extent of the funded amounts thereunder which have
been appropriated by Congress and allotted to the contract by the procuring
Government agency. Backlog also includes all firm orders for commercial
products. Fluctuations in backlog generally relate to the timing and amount of
defense contract awards.
At March 31, 1998, the Company's backlog of orders was approximately $177.4
million compared with $118.4 million at March 31, 1997. The increase in backlog
was due primarily to a significant increase in bookings, most notably for
display workstations, offset, in part, by the effect of increased revenues. The
change in backlog also reflects approximately $23.4 million of acquired backlog
from the FS&C and DRS Hadland acquisitions. New contract awards of approximately
$228.6 million were booked during the fiscal year ended March 31, 1998.
Approximately 80% of backlog as of March 31, 1998 is expected to result in
revenues during fiscal 1999.
RESEARCH AND DEVELOPMENT
The defense electronics sector is subject to rapid technological changes,
and the Company's future success will depend in large part upon its ability to
improve existing product lines and to develop new products and technologies in
the same or related fields. Thus, the Company's technological expertise is an
important factor affecting its growth. A portion of its research and development
activities has taken place in connection with customer-sponsored research and
development contracts. Revenues recorded by the Company for customer-sponsored
research and development were approximately $12,000,000, $13,000,000 and
$12,100,000 for fiscal 1998, 1997 and 1996, respectively. All such
customer-sponsored activities are the result of contracts directly or indirectly
with the U.S. Government. The Company also invests in internal research and
development ("IR&D"). Such expenditures were approximately $4,000,000,
$3,900,000 and $600,000 for fiscal 1998, 1997 and 1996, respectively. The
increase in IR&D expenditures in fiscal 1998 and 1997 reflects the Company's
investment in new technology and the diversification of its products.
CONTRACTS
The Company's contracts are normally for production, service or
development. Production and service contracts are typically of the fixed-price
variety with development contracts currently of the cost-type variety. Because
of their inherent uncertainties and consequent cost overruns, development
contracts historically have been less profitable than production contracts.
Fixed-price contracts may provide for a firm-fixed price or they may be
fixed-price-incentive contracts. Under the firm-fixed-price contracts, the
Company agrees to perform for an agreed-upon price and, accordingly, derives
benefits from cost savings, but bears the entire risk of cost overruns. Under
the fixed-price-incentive contracts, if actual costs incurred in the performance
of the contracts are less than estimated costs for the contracts, the savings
are apportioned between the customer and the Company. However, if actual costs
under such a contract exceed estimated costs, excess costs are apportioned
between the customer and the Company up to a ceiling. The Company bears all
costs that exceed the ceiling.
Cost-type contracts typically provide for reimbursement of allowable costs
incurred plus a fee (profit). Unlike fixed-price contracts in which the Company
is committed to deliver without regard to performance cost, cost-type contracts
normally obligate the Company to use its best efforts to accomplish the scope of
work within a specified
8
<PAGE>
time and a stated contract dollar limitation. In addition, U.S. Government
procurement regulations mandate lower profits for cost-type contracts because of
the Company's reduced risk. Under cost-plus-incentive-fee contracts, the
incentive may be based on cost or performance. When the incentive is based on
cost, the contract specifies that the Company is reimbursed for allowable
incurred costs plus a fee adjusted by a formula based on the ratio of total
allowable costs to target cost. Target cost, target fee, minimum and maximum fee
and adjustment formula are agreed upon when the contract is negotiated. In the
case of performance-based incentives, the Company is reimbursed for allowable
incurred costs plus an incentive, contingent upon meeting or surpassing stated
performance targets. The contract provides for increases in the fee to the
extent that such targets are surpassed and for decreases to the extent that such
targets are not met. In some instances, incentive contracts also may include a
combination of both cost and performance incentives. Under cost-plus-fixed-fee
contracts, the Company is reimbursed for costs and receives a fixed fee, which
is negotiated and specified in the contract. Such fees have statutory limits.
The percentages of revenues during fiscal 1998, 1997 and 1996 attributable
to the Company's contracts by contract type were as follows:
FISCAL YEARS ENDED MARCH 31,
------------------------------------------
1998 1997 1996
------ ------ -----
Firm-fixed-price ................... 85% 85% 87%
Cost-plus-incentive-fee ............ 4% 5% --
Cost-plus-fixed-fee ................ 11% 10% 13%
The consistent percentage and continued predominance of firm-fixed-price
contracts are reflective of the fact that production contracts comprise a
significant portion of the Company's U.S. Government contract portfolio.
The Company negotiates for and generally receives progress payments from
its customers of between 75-90% of allowable costs incurred on the previously
described contracts. Included in its reported revenues are certain amounts which
the Company has not billed to customers. These amounts, approximately $7.6
million, $3.8 million and $8.7 million as of March 31, 1998, 1997 and 1996,
respectively, consist of costs and related profits, if any, in excess of
progress payments for contracts on which sales are recognized on a
percentage-of-completion basis.
Under generally accepted accounting principles, all U.S. Government
contract costs, including applicable general and administrative expenses, are
charged to work-in-progress inventory and are written off to costs and expenses
as revenues are recognized. The Federal Acquisition Regulations ("FAR"),
incorporated by reference in U.S. Government contracts, provide that internal
research and development costs are allowable general and administrative
expenses. To the extent that general and administrative expenses are included in
inventory, research and development costs also are included. Unallowable costs,
pursuant to the FAR, have been excluded from costs accumulated on U.S.
Government contracts. Work-in-process inventory included general and
administrative costs (which include internal research and development costs) of
$10.1 million and $9.4 million at March 31, 1998 and 1997, respectively.
Defense contracts and subcontracts to which the Company is a party are
subject to audit, various profit and cost controls, and standard provisions for
termination at the convenience of the customer. Multiyear U.S. Government
contracts and related orders are subject to cancellation if funds for contract
performance for any subsequent year become unavailable. In addition, if certain
technical or other program requirements are not met in the developmental phases
of the contract, then the follow-on production phase may not be realized. Upon
termination other than for a contractor's default, the contractor normally is
entitled to reimbursement for allowable costs, but not necessarily all costs,
and to an allowance for the proportionate share of fees or earnings for the work
completed.
COMPETITION
The defense electronics sector is characterized by rapid technological
change. The Company's products are sold in markets containing a number of
competitors which are substantially larger than the Company, devote
substantially greater resources to research and development and generally have
greater financial resources. Certain competitors also are customers of and
suppliers to the Company. The extent of competition for any single project
generally varies according to the complexity of the product and the dollar
volume of the anticipated award. The Company believes that
9
<PAGE>
it competes on the basis of the performance of its products, its reputation for
prompt and responsive contract performance, and its accumulated technical
knowledge and expertise. The Company's future success will depend in large part
upon its ability to improve existing product lines and to develop new products
and technologies in the same or related fields.
In the military sector, the Company competes with many large and mid-tier
defense contractors on the basis of product performance, cost, overall value,
delivery and reputation. As the size of the overall defense industry has
decreased in recent years, there has been an increase in the number of
consolidations and mergers of defense suppliers, and this trend is expected to
continue. As the industry consolidates, the large defense contractors are
narrowing their supplier base and awarding increasing portions of projects to
strategic mid- and lower-tier suppliers, and, in the process, are becoming
oriented more toward system integration and assembly. Management believes that
the Company has benefited from this trend, as evidenced by the formation of
strategic alliances with several large suppliers.
PATENTS
The Company has patents on certain of its commercial and data recording
products. The Company does not believe patent protection to be significant to
its current operations; however, future products and programs may generate the
need for patent protection. Similarly, the Company and its subsidiaries have
certain registered trademarks, none of which are considered significant to
current operations. Further, the Company does not believe that the loss,
impairment or expiration of any existing patents would have a material effect on
the Company's financial position or future results of operations.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing process for its products, excluding optical
products, consists primarily of the assembly of purchased components and testing
of the product at various stages in the assembly process. Purchased components
include integrated circuits, circuit boards, sheet metal fabricated into
cabinets, resistors, capacitors, semiconductors, silicon wafers and other
conductive materials, insulated wire and cables. In addition, many of the
Company's products use machined castings and housings, motors and recording and
reproducing heads. Many of the purchased components are fabricated to Company
designs and specifications. The manufacturing process for the Company's optics
products includes the grinding, polishing and coating of various optical
materials and machining of metal components.
Although materials and purchased components generally are available from a
number of different suppliers, several suppliers are the Company's sole source
of certain components. If a supplier should cease to deliver such components,
other sources probably would be available; however, added cost and manufacturing
delays might result. The Company has not experienced significant production
delays attributable to supply shortages, but occasionally experiences quality
and other related problems with respect to certain components, such as
semiconductors and connectors. In addition, with respect to the Company's
optical products, certain exotic materials, such as germanium, zinc sulfide and
cobalt, may not always be readily available.
FOREIGN OPERATIONS AND EXPORT SALES
The Company currently sells several of its products and services in the
international marketplace to countries such as Canada, Israel, the Republic of
China and Spain. Foreign sales are derived under export licenses granted on a
case-by-case basis by the United States Department of State. The Company's
foreign contracts generally are payable in United States dollars. Export sales
were 10% or less of total revenues in each of the fiscal years in the three-year
period ended March 31, 1998.
Through the FS&C, the Company operates outside the United States, primarily
in Canada. Information on revenues, operating income and identifiable assets is
presented in Note 12 of Notes to Consolidated Financial Statements. Foreign
operations other than those of FS&C are not material to the financial position
or results of operations of the Company.
The addition of international businesses involve additional risks for the
Company, such as exposure to currency fluctuations, future investment
obligations and changes in foreign economic and political environments. In
addition, international transactions frequently involve increased financial and
legal risks arising from stringent contractual terms and conditions and widely
different legal systems, customs and practices in foreign countries (see
Management's Discussion & Analysis of Financial Condition and Results of
Operations--Business Considerations).
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the executive officers of the Company, their positions
and offices with the Company, and their ages are set forth below:
NAME POSITIONS WITH THE COMPANY AGE
---- -------------------------- ---
Mark S. Newman ........ Chairman of the Board, President, Chief Executive 48
Officer and Director
Nina L. Dunn .......... Executive Vice President, General Counsel 51
and Secretary
Nancy R. Pitek ........ Vice President, Finance and Treasurer 41
Paul G. Casner, Jr. ... Vice President; President of DRS Electronic 60
Systems Group
Stuart F. Platt ....... Vice President and Director; President of DRS Data 64
Systems Group
Richard Ross .......... Vice President; President of DRS Electro-Optical 43
Systems Group
Mark S. Newman has been employed by the Company since 1973, was named Vice
President, Finance, Chief Financial Officer and Treasurer in 1980 and Executive
Vice President in 1987. Mr. Newman became a Director of the Company in 1988. In
May 1994, Mr. Newman became the President and Chief Executive Officer of the
Company and in August 1995 became Chairman of the Board.
Nina L. Dunn joined the Company as Executive Vice President, General
Counsel and Secretary in July 1997. Prior to joining DRS, Ms. Dunn was a
director in the corporate law department of Hannoch Weisman, a Professional
Corporation, since 1993, where she served as the Company's outside legal
counsel. Ms. Dunn is admitted to practice law in New York and New Jersey and is
a member of the American, New York State and New Jersey State Bar Associations.
Nancy R. Pitek joined the Company in 1984 as Manager of Accounting. She
became Assistant Controller in 1985 and Director of Internal Audit in 1988. Ms.
Pitek became Director of Corporate Finance in 1990 and Controller in 1993. In
May 1994, she was appointed to the position of Treasurer and in May 1996 was
named Vice President, Finance.
Paul G. Casner, Jr. joined the Company in 1993 as President of Technology
Applications and Service Company ("TAS"), now DRS Electronic Systems, Inc. In
1994, he also became President of the DRS Electronic Systems Group and a Vice
President of the Company. Mr. Casner has over 30 years of experience in the
defense electronics industry and has held positions in engineering, marketing
and general management.
Stuart F. Platt has been a director of the Company since 1991 and became
the President of DRS Precision Echo, Inc. in July 1992. He was named Vice
President of the Company in May 1994 and also serves as President of the DRS
Data Systems Group. Rear Admiral Platt held various high level positions as a
military officer in the Department of the Navy, retiring as Competition Advocate
General of the Navy in 1987.
Richard Ross joined the Company as Assistant Vice President and Director of
Sales in 1986 and Assistant Vice President, Corporate Development in 1987. In
1988, he became a Vice President of the Company, and in 1990, he became
President of DRS Photronics, Inc. Mr. Ross also serves as President of the DRS
Electro-Optical Systems Group.
EMPLOYEES
As of March 31, 1998, the Company had approximately 1,470 employees, 1,045
of which were located in the United States. None of the Company's employees are
represented by labor unions, and the Company has experienced no work stoppages.
There is a continuing demand for qualified technical personnel, and the Company
believes that its future growth and success will depend upon its ability to
attract, train and retain such personnel.
11
<PAGE>
ITEM 2. PROPERTIES
The Company leases the following properties:
<TABLE>
<CAPTION>
SUBSIDIARY APPROXIMATE
OR SQUARE
DIVISION LOCATION ACTIVITIES FOOTAGE EXPIRATION
-------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Corporate
DRS Technologies, Inc. Parsippany, New Jersey Corporate Headquarters 10,800 Fiscal 2003
ESG
DRS Electronic Systems, Inc. Gaithersburg, Maryland Administrative, 40,000 Fiscal 2000
Engineering and
Manufacturing
DRS Technologies, Inc. Arlington, Virginia Administrative and 2,000 Fiscal 2000
Marketing
DRS Laurel Technologies Johnstown, Pennsylvania Administrative and 38,000 Fiscal 1999
Manufacturing
DRS Laurel Technologies Davidsville, Pennsylvania Manufacturing 65,800 Fiscal 1999
DRS Technical Services, Inc. San Diego, California Engineering Support 5,000 Fiscal 2000
Services
DRS Technical Services Chesapeake, Virginia Field Service and 20,600 Fiscal 2005
Engineering Support
EOSG
DRS Photronics, Inc. Oakland, New Jersey Administrative and 25,400 Fiscal 2003
Engineering
DRS Photronics, Inc. Oakland, New Jersey Administrative and 36,000 Fiscal 2003
Manufacturing
DRS Optronics, Inc. Palm Bay, Florida Administrative, 53,900 Fiscal 2006
Engineering and
Manufacturing
DRS Hadland, Inc. Cupertino, California Sales and Field Service 500 Fiscal 1999
DRS Hadland GmbH Munich, Germany Sales and Field Service 500 (1)
DSG
DRS Precision Echo, Inc. Santa Clara, California Administrative, 55,000 Fiscal 2001
Engineering and
Manufacturing
DRS Ahead Technology, Inc. San Jose, California Administrative, 32,000 Fiscal 2001
Product Development
and Manufacturing
DRS Ahead Technology, Inc. Plymouth, Minnesota Administrative and 13,700 Fiscal 2003
Manufacturing
DRS Ahead Technology, Inc. St. Croix Falls, Wisconsin Administrative and 24,000 Fiscal 2000
Manufacturing
DRS Ahead Technology, Inc. Dassel, Minnesota Administrative and 23,100 Fiscal 2002
Manufacturing
DRS Ahead Technology, Inc. Bloomington, Illinois Manufacturing 5,400 Fiscal 2000
FS&C
DRS Flight Safety and Kanata, Ontario, Canada Administrative, 70,000 Fiscal 1999
Communications Manufacturing and
Engineering
DRS Technologies (UK) Ltd. Middlesex, United Kingdom Administrative and 6,800 Fiscal 2001
Manufacturing
<FN>
- ----------
Note: (1) Lease has no set expiration date. Three months notice is required to terminate lease.
</FN>
</TABLE>
12
<PAGE>
During July 1998, in connection with the expiration of the lease for the
Kanata, Ontario, Canada facility, FS&C will relocate a substantial portion of
the Kanata operations to its facility in Carleton Place, Ontario, Canada and the
remainder to a leased facility in Nepean, Ontario, Canada.
The Company leases the building in Oakland, New Jersey from LDR Realty Co.,
a partnership wholly-owned by Leonard Newman and David E. Gross, co-founders of
the Company. The Company believes that this lease was consummated on terms no
less favorable than those that could have been obtained by the Company from an
unrelated third party in a transaction negotiated on an arms-length basis.
The Company owns the following properties:
<TABLE>
<CAPTION>
SUBSIDIARY APPROXIMATE
OR SQUARE
DIVISION LOCATION ACTIVITIES FOOTAGE
-------- -------- ---------- -------
<S> <C> <C> <C>
DSG
DRS Ahead Technology, Inc. Razlog, Bulgaria Manufacturing 64,100
EOSG
DRS Hadland Ltd. Tring, Hertfordshire, Administrative, 7,500
United Kingdom Engineering and
Manufacturing
FS&C
DRS Flight Safety and Carleton Place, Ontario, Canada Administrative and 128,500
Communications Manufacturing
</TABLE>
In fiscal 1998, the Company sold its 45,000 square foot building in
Hauppauge, New York, which previously housed DRS Photronics' administrative,
engineering and manufacturing operations (see Note 10 of Notes to Consolidated
Financial Statements).
Management believes that all of the Company's facilities are in good
condition, adequate for their intended use and sufficient for the Company's
immediate needs. It is not certain as to whether the Company will negotiate new
leases as existing leases expire. Determinations to that effect will be made as
existing leases approach expiration and will be based on an assessment of the
Company's capacity requirements at that time. Further, the Company believes that
it can obtain additional space, if necessary, based on prior experience and
current real estate market conditions.
Substantially all assets of the Company, including those properties
identified above, are pledged as collateral on borrowings of the Company (see
Note 6 of Notes to Consolidated Financial Statements).
ENVIRONMENTAL PROTECTION
The Company believes that its manufacturing operations and properties are,
in all material respects, in compliance with existing federal, state and local
provisions enacted or adopted to regulate the discharge of materials into the
environment or otherwise protect the environment. Such compliance has been
achieved without material effect on the Company's earnings or competitive
position.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions and claims arising in the
ordinary course of its business. In the Company's opinion, the Company has
adequate legal defenses for each of the actions and claims and believes that
their ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
In April and May of 1998, subpoenas were issued to the Company by the
United States Attorney for the Eastern District of New York seeking documents
related to certain equipment manufactured by DRS Photronics. The subpoenas were
issued in connection with United States v. Tress, a case involving a DRS
Photronics employee and related to the accuracy of test data for the equipment.
To date, no claim has been made or threatened against the Company in connection
with this matter. At this time, the Company is unable to determine if any such
claim will be made. DRS Photronics currently is unable to ship certain equipment
related to the case, resulting in delays in the Company's recognition of
revenues. At this time, the Company is unable to quantify the effect of the
delayed shipments on its results of operations or financial position, or to
predict when such shipments ultimately will be made, although the delays are
expected to impact fiscal 1999's first quarter results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1998.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has not paid any cash dividends since 1976. The Company intends
to retain future earnings for use in its business and does not expect to declare
cash dividends on its Common Stock in the foreseeable future. The indentures
relating to the Company's 8-1/2% Convertible Subordinated Debentures and 9%
Senior Subordinated Convertible Debentures and the Company's bank lines of
credit restrict the Company's ability to pay dividends or make other
distributions on its Common Stock. See Note 6 of Notes to Consolidated Financial
Statements for information concerning restrictions on the declaration or payment
of dividends. Any future declaration of dividends will be subject to the
discretion of the Board of Directors of the Company. The timing, amount and form
of any future dividends will depend, among other things, on the Company's
results of operations, financial condition, cash requirements, plans of
expansion and other factors deemed relevant by the Board of Directors.
The information required by this item with respect to the market prices for
the Company's common equity securities is incorporated herein by reference to
page 41 of the DRS 1998 Annual Report (for the fiscal year ended March 31,
1998).
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference herein
to page 14 of the DRS 1998 Annual Report (for the fiscal year ended March 31,
1998).
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by this item is incorporated by reference herein
to pages 15 through 23 of the DRS 1998 Annual Report (for the fiscal year ended
March 31, 1998).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference herein
to pages 24 through 41 of the DRS 1998 Annual Report (for the fiscal year ended
March 31, 1998).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
The information required by Items 10. through 13. of this Part is
incorporated herein by reference to the Definitive Proxy Statement of the
Company, dated July 2, 1998, for the 1998 Annual Meeting of Stockholders.
Reference also is made to the information under "Executive Officers of the
Registrant" in Part I of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements
The following financial statements of DRS Technologies, Inc. and
subsidiaries have been incorporated by reference to the DRS 1998
Annual Report (for the fiscal year ended March 31, 1998), pursuant to
Item 8 of this report:
1998 ANNUAL
REPORT PAGE(S)
--------------
Independent Auditors' Report 42
Consolidated Balance Sheets--March 31, 1998 and 1997 24
Consolidated Statements of Earnings--Years Ended March 31,
1998, 1997 and 1996 25
Consolidated Statements of Stockholders' Equity--Years
Ended March 31, 1998, 1997 and 1996 25
Consolidated Statements of Cash Flows--Years Ended March 31,
1998, 1997 and 1996 26
Notes to Consolidated Financial Statements 27-41
2. Financial Statement Schedules See Appendix A hereto.
3. Exhibits
Incorporated by reference to the Exhibit Index at the end of this
report.
(b) Reports on Form 8-K
Filed as of January 12, 1998: Amendment No. 1 to Current Report on
Form 8-K dated as of October 29, 1997, with respect to the acquisition
of the net assets of the Applied Systems Division of Spar Aerospace
Limited, a Canadian corporation, and 100% of the stock of Spar
Aerospace (UK) Ltd.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DRS TECHNOLOGIES, INC.
Dated: June 26, 1998
/s/ MARK S. NEWMAN
---------------------------------------
Mark S. Newman, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MARK S. NEWMAN Chairman of the Board, President, June 26, 1998
- ----------------------- Chief Executive Officer and Director
Mark S. Newman
/s/ NANCY R. PITEK Vice President, Finance and Treasurer June 26, 1998
- -----------------------
Nancy R. Pitek
/s/ IRA ALBOM Director June 26, 1998
- -----------------------
Ira Albom
/s/ THEODORE COHN Director June 26, 1998
- -----------------------
Theodore Cohn
/s/ DONALD C. FRASER Director June 26, 1998
- -----------------------
Donald C. Fraser
/s/ WILLIAM F. HEITMANN Director June 26, 1998
- -----------------------
William F. Heitmann
/s/ MARK N. KAPLAN Director June 26, 1998
- -----------------------
Mark N. Kaplan
/s/ STUART F. PLATT Vice President, President of DRS Data June 26, 1998
- ----------------------- Systems Group and Director
Stuart F. Platt
/s/ JACK RACHLEFF Director June 26, 1998
- -----------------------
Jack Rachleff
16
<PAGE>
APPENDIX A
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Independent Auditors' Report
Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other financial statement schedules have been omitted because they are
either not required, not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
A-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
DRS Technologies, Inc.:
Under date of May 11, 1998, we reported on the consolidated balance sheets
of DRS Technologies, Inc. and subsidiaries as of March 31, 1998 and 1997, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended March 31, 1998, as
contained in the 1998 Annual Report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
Annual Report on Form 10-K for the fiscal year 1998. In connection with our
audits of the aforementioned consolidated financial statements we also have
audited the related consolidated financial statement schedule as listed in the
accompanying index. The consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 11, 1998
<PAGE>
<TABLE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS (a) DEDUCTIONS (b)
--------------------------- ---------------------------
(1) (2) (1) (2)
CHARGED TO CREDITED TO
BALANCE AT CHARGED TO OTHER CREDITED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS-- COSTS AND ACCOUNTS-- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE EXPENSES DESCRIBE PERIOD
------------- ------------- ------------- ------------- ------------- ------------- -------------
INVENTORY RESERVE
<S> <C> <C> <C> <C> <C> <C>
Year ended March 31, 1998 .......... $ 741,000 $ 666,000 $ 988,000(c) $ 532,000 $ 166,000(d) $1,695,000
Year ended March 31, 1997 .......... $1,069,000 $ 46,000 $2,166,000(c) $ 400,000 $2,138,000(d) $ 741,000
Year ended March 31, 1996 .......... $1,400,000 $ 670,000 $2,139,000(c) $ 8,000 $3,132,000(d) $1,069,000
LOSSES & FUTURE COSTS ACCRUED ON
UNCOMPLETED CONTRACTS
Year ended March 31, 1998 .......... $2,204,000 $4,834,000 $ 166,000(c) $2,346,000 $ 738,000(e) $4,120,000
Year ended March 31, 1997 .......... $3,850,000 $1,564,000 $ 16,000(c) $1,060,000 $2,166,000(e) $2,204,000
Year ended March 31, 1996 .......... $4,555,000 $2,026,000 $ 353,000(c) $ 945,000 $2,139,000(e) $3,850,000
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended March 31, 1998 .......... $ 136,000 $ 313,000 $ 71,000(c) $ 34,000 $ -- $ 486,000
Year ended March 31, 1997 .......... $ 136,000 $ -- $ -- $ -- $ -- $ 136,000
Year ended March 31, 1996 .......... $ 129,000 $ 7,000 $ -- $ -- $ -- $ 136,000
OTHER
Year ended March 31, 1998 .......... $ 0 $ -- $ -- $ -- $ -- $ 0
Year ended March 31, 1997 .......... $ 0 $ -- $ -- $ -- $ -- $ 0
Year ended March 31, 1996 .......... $ 290,000 $ -- $ -- $ 290,000 $ -- $ 0
- -------------------
</TABLE>
(a) Represents, on a full-year basis, net credits to reserve accounts.
(b) Represents, on a full-year basis, net charges to reserve accounts.
(c) Represents amounts reclassified from related reserve accounts.
(d) Represents amounts utilized and credited to related asset accounts.
(e) Represents amounts reclassified to related reserve accounts.
<PAGE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk (*) are
filed herewith. Certain of the following exhibits, designated with a "P", are
being filed on paper, pursuant to a hardship exemption under Rule 202 of
Regulation S-T. The exhibits not so designated have been previously filed with
the Commission and are incorporated herein by reference to the documents
indicated in brackets following the descriptions of such exhibits.
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
3.1 -- Restated Certificate of Incorporation of the
Company [Registration Statement No. 2-70062-NY,
Amendment No. 1, Exhibit 2(a)]
3.2 -- Certificate of Amendment of the Restated
Certificate of Incorporation of the Company, as
filed July 7, 1983 [Registration Statement on Form
8-A of the Company, dated July 13, 1983, Exhibit
2.2]
3.3 -- Composite copy of the Restated Certificate of
Incorporation of the Company, as amended
[Registration Statement No. 2-85238, Exhibit 3.3]
3.4 -- Amended and Restated Certificate of Incorporation
of the Company, as filed April 1, 1996
[Registration Statement No. 33-64641,
Post-Effective Amendment No. 1, Exhibit 3.4]
3.5 -- By-laws of the Company, as amended to November 7,
1994 [Form 10-K, fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.4]
3.6 -- Certificate of Amendment of the Certificate of
Incorporation of Precision Echo Acquisition Corp.,
as filed March 10, 1995 [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-8533, Exhibit
3.5]
3.7 -- Form of Advance Notice By-Laws of the Company
[Form 10-Q, quarter ended December 31, 1995, File
No. 1-8533, Exhibit 3]
3.8 -- Amended and Restated By-Laws of the Company, as of
April 1, 1996 [Registration Statement No.
33-64641, Post-Effective Amendment No. 1, Exhibit
3.8]
4.1 -- Indenture, dated as of September 22, 1995, between
the Company and The Trust Company of New Jersey,
as Trustee, in respect of the Company's 9% Senior
Subordinated Convertible Debentures Due 2003
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 4.1]
4.2 -- Form of 9% Senior Subordinated Convertible
Debenture Due 2003 (included as part of Exhibit
4.1)[Registration Statement No.33-64641, Amendment
No. 1, Exhibit 4.2]
4.3 -- Registration Rights Agreement, dated as of
September 22, 1995 between the Company and Forum
Capital Markets L.P.[Registration Statement
No.33-64641, Amendment No. 1, Exhibit 4.3]
<PAGE>
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
10.1 -- Stock Purchase Agreement, dated as of August 6,
1993, among TAS Acquisition Corp., Technology
Applications and Service Company, Paul G. Casner,
Jr. and Terrence L. DeRosa [Form 10-Q, quarter
ended December 31, 1993, File No. 1-8533, Exhibit
6(a)(1)]
10.2 -- Waiver Letter, dated as of September 30, 1993,
among TAS Acquisition Corp., Technology
Applications and Service Company, Paul G. Casner,
Jr. and Terrence L. DeRosa [Form 10-Q, quarter
ended December 31, 1993, File No. 1-8533, Exhibit
6(a)(2)]
10.3 -- Joint Venture Agreement, dated as of November 3,
1993, by and between DRS Systems Management
Corporation and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31, 1993, File No.
1-8533, Exhibit 6(a)(3)]
10.4 -- Waiver Letter, dated as of December 13, 1993, by
and between DRS Systems Management Corporation and
Laurel Technologies, Inc. [Form 10-Q, quarter
ended December 31, 1993, File No. 1-8533, Exhibit
6(a)(4)]
10.5 -- Partnership Agreement, dated December 13, 1993, by
and between DRS Systems Management Corporation and
Laurel Technologies, Inc. [Form 10-Q, quarter
ended December 31, 1993, File No. 1-8533, Exhibit
6(a)(5)]
10.6 -- Lease, dated June 28, 1979, between the Company
and J.L. Williams & Co., Inc. ("Williams")
[Registration Statement No. 2-70062-NY, Exhibit
9(b)(4)(i)]
10.7 -- Lease, dated as of June 1, 1983, between LDR
Realty Co. and the Company [Form 10-K, fiscal year
ended March 31, 1984, File No. 1-8533, Exhibit
10.7]
10.8 -- Renegotiated Lease, dated June 1, 1988, between
LDR Realty Co. and the Company [Form 10-K, fiscal
year ended March 31, 1989, File No. 1-8533,
Exhibit 10.8]
10.9 -- Lease, dated July 20, 1988, between Precision
Echo, Inc. and Bay 511 Corporation [Form 10-K,
fiscal year ended March 31, 1991, File No. 1-8533,
Exhibit 10.9]
10.10 -- Amendment to Lease, dated July 1, 1993, between
Precision Echo, Inc. and Bay 511 Corporation [Form
10-K, fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.12]
10.11 -- Second Amendment to Lease, dated October 17, 1995
between Precision Echo, Inc. and Bay 511
Corporation [Registration Statement No.33-64641,
Amendment No. 1, Exhibit 10.11]
10.12 -- Lease Modification Agreement, dated February 22,
1994, between Technology Applications and Service
Company and Atlantic Real Estate Partners II [Form
10-K, fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.13]
<PAGE>
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
10.13 -- Amendment to Lease Modification, dated June 1,
1994, between Technology Applications and Service
Company and Atlantic Estate Partners II [Form
10-K, fiscal year ended March 31, 1995, File No.
1-8533, Exhibit 10.11]
10.14 -- Triple Net Lease, dated October 22, 1991, between
Technology Applications and Service Company and
Marvin S. Friedberg [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.14]
10.15 -- Lease, dated November 10, 1993, between DRS
Systems Management Corp. and Skateland Roller
Rink, Inc. [Form 10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit 10.17]
10.16 -- Lease, dated March 23, 1992, between Ahead
Technology Corporation and Vasona Business Park
[Form 10-K, fiscal year ended March 31, 1995, File
No. 1-8533, Exhibit 10.15]
10.17 -- Amendment to Lease, dated May 21, 1992, between
Ahead Technology Corporation and Vasona Business
Park [Form 10-K, fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.16]
10.18 -- Revision to Lease Modification, dated August 25,
1992, between Ahead Technology Corporation and
Vasona Business Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533, Exhibit 10.17]
10.19 -- Lease, dated January 13, 1995, between the Company
and Sammis New Jersey Associates [Form 10-K,
fiscal year ended March 31, 1995, File No. 1-8533,
Exhibit 10.18]
10.20 -- Lease, dated April 3, 1996, by and between the
Company and Los Alamos Economic Development
Corporation [Form 10-K, fiscal year ended March
31, 1996, File No. 1-8533, Exhibit 10.20]
10.21 -- 1991 Stock Option Plan of the Company
[Registration Statement No. 33-42886, Exhibit
28.1]
10.22 -- Contract No. N00024-92-C-6102, dated September 28,
1992, between the Company and the Navy [Form 10-K,
fiscal year ended March 31, 1993, File No. 1-8533,
Exhibit 10.45]
10.23 -- Modification No. P00005, dated August 24, 1994, to
Contract No. N00024-92-C-6102 [Form 10-K, fiscal
year ended March 31, 1995, File No. 1-8533,
Exhibit 10.22]
10.24 -- Modification No. P00006, dated September 7, 1994,
to Contract No. N00024-92-C6102 [Form 10-K, fiscal
year ended March 31, 1995, File No. 1-8533,
Exhibit 10.23]
10.25 -- Contract No. N00024-92-C-6308, dated April 1,
1992, between the Company and the Navy [Form 10-K,
fiscal year ended March 31, 1993, File No. 1-8533,
Exhibit 10.46]
10.26 -- Modification No. P00001, dated July 30, 1992, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No. 1-8533,
Exhibit 10.47]
10.27 -- Modification No. P00002, dated September 25, 1992,
to Contract No. N00024-92-C-6308 [Form 10-K,
fiscal year ended March 31, 1993, File No. 1-8533,
Exhibit 10.48]
10.28 -- Modification No. P00003, dated October 22, 1992,
to Contract No. N00024-92-C-6308 [Form 10-K,
fiscal year ended March 31, 1993, File No. 1-8533,
Exhibit 10.49]
<PAGE>
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
10.29 -- Modification No. P00004, dated February 24, 1993,
to Contract No. N00024-92-C-6308 [Form 10-K,
fiscal year ended March 31, 1993, File No. 1-8533,
Exhibit 10.50]
10.30 -- Modification No. P00005, dated June 11, 1993, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.26]
10.31 -- Modification No. P00006, dated March 26, 1993, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No. 1-8533,
Exhibit 10.51]
10.32 -- Modification No. P00007, dated May 3, 1993, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.28]
10.33 -- Modification No. PZ0008, dated June 11, 1993, to
Contract No. N00024-92-C-6302 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.29]
10.34 -- Contract No. N39998-94-C-2228, dated November 30,
1993, between the Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.30]
10.35 -- Order No. 87KA-SG-51484, dated December 10, 1993,
under Contract No. N00024-93-G-6336, between the
Company and Westinghouse Electric Corporation
Oceanic Division [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.31]
10.36 -- Purchase Order Change Notice Order No.
87KA-SX-51484-P, dated April 21, 1994, under
Contract No. N00024-93-G-6336, between the Company
and Westinghouse Electric Corporation Oceanic
Division [Form 10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit 10.35]
10.37 -- Letter Subcontract No. 483901(L), dated February
18, 1994, under Contract No. N00024-94-D-5204,
between the Company and Unisys Government Systems
Group [Form 10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit 10.32]
10.38 -- Subcontract No. 483901(D), dated June 24, 1994,
under Contract No. N00024-94-D-5204, between the
Company and Unisys Corporation Government Systems
Group [Form 10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit 10.37]
10.39 -- Contract No. N00019-90-G-0051, dated March 1,
1990, between Precision Echo, Inc. and the Navy
[Form 10-K, fiscal year ended March 31, 1994, File
No. 1-8533, Exhibit 10.35]
10.40 -- Amendment 1A, dated February 26, 1992, to Contract
No. N00019-90-G-0051 [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.36]
10.41 -- Amendment 1B, dated April 23, 1993, to Contract
No. N00019-90-G-0051 [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.37]
10.42 -- Contract No. N00019-93-C-0041, dated January 29,
1993, between Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31, 1993, File No.
1-8533, Exhibit 10.54]
10.43 -- Modification No. P00001, dated March 29, 1993, to
Contract No. N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.39]
<PAGE>
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
10.44 -- Modification No. PZ0002, dated November 12, 1993,
to Contract No. N00019-93-C-0041 [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.40]
10.45 -- Modification No. P00003, dated February 1, 1994,
to Contract No. N00019-93-C-0041 [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.41]
10.46 -- Modification No. P00004, dated January 29, 1993,
to Contract No. N00019-93-C-0041 [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.46]
10.47 -- Modification No. P00005, dated January 29, 1993,
to Contract No. N00019-93-C-0041 [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.47]
10.48 -- Modification No. P00006, dated March 20, 1996, to
Contract No. N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1996, File No. 1-8533,
Exhibit 10.48]
10.49 -- Contract No. N00019-93-C-0202, dated August 30,
1993, between Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.42]
10.50 -- Modification No. P00001, dated March 30, 1994, to
Contract No. N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.43]
10.51 -- Modification No. P00002, dated April 29, 1994, to
Contract No. N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.44]
10.52 -- Modification No. P00003, dated August 9, 1994, to
Contract No. N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No. 1-8533,
Exhibit 10.55]
10.53 -- Modification No. P00004, dated March 30, 1994, to
Contract No. N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No. 1-8533,
Exhibit 10.56]
10.54 -- Modification No. P00005, dated August 30, 1993, to
Contract No. N00019-93-C-0202 [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.53]
10.55 -- Modification No. P00006, dated August 30, 1993, to
Contract No. N00019-93-C-0202 [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.54]
10.56 -- Contract No. N00024-93-C-5204, dated November 18,
1992, between Technology Applications and Service
Company and the Navy [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.53]
10.57 -- Modification No. P00001, dated May 6, 1993, to
Contract No. N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.54]
10.58 -- Modification No. P00002, dated August 24, 1993, to
Contract No. N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.55]
10.59 -- Modification No. PZ0003, dated September 30, 1993,
to Contract No. N00024-93-C-5204 [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.56]
<PAGE>
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
10.60 -- Contract No. N00174-94-D-0006, dated February 17,
1994, between Technology Applications & Service
Company and the Navy [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.57]
10.61 -- Modification No. P00001, dated March 7, 1994, to
Contract No. N00174-94-D-0006 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.58]
10.62 -- Modification No. P00003, dated May 19, 1994, to
Contract No. N00174-94-D-0006 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.59]
10.63 -- Purchase Order No. 2285, dated June 6, 1994,
between Photronics Corp. and International
Precision Products N.V. [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-8533, Exhibit
10.73]
10.64 -- Amendment No. 1, dated January 30, 1996, to
Purchase Order No. 2285 [Form 10-K, fiscal year
ended March 31, 1996, File No. 1-8533, Exhibit
10.64]
10.65 -- Purchase Order No. 2286, dated June 6, 1994,
between Photronics Corp. and International
Precision Products N.V. [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-8533, Exhibit
10.75]
10.66 -- Purchaser Order No. CN74325, dated December 14,
1994, between Precision Echo and Lockheed
Aeronautical Systems Company [Form 10-K, fiscal
year ended March 31, 1995, File No. 1-8533,
Exhibit 10.76]
10.67 -- Amendment, dated February 14, 1995, to Purchase
Order No. CN74325, between Precision Echo and
Lockheed Aeronautical Systems Company
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.67]
10.68 -- Amendment, dated April 4, 1995, to Purchase Order
No. CN74325, between Precision Echo and Lockheed
Aeronautical Systems Company [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.68]
10.69 -- Amendment, dated June 20, 1995, to Purchase Order
No. CN74325, between Precision Echo and Lockheed
Aeronautical Systems Company [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.69]
10.70 -- Amendment, dated September 28, 1995, to Purchase
Order No. CN74325, between Precision Echo and
Lockheed Aeronautical Systems Company
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.70]
10.71 -- Amendment, dated November 7, 1995, to Purchase
Order No. CN74325, between Precision Echo and
Lockheed Aeronautical Systems Company
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.71]
10.72 -- Contract No. N39998-94-C-2239, dated July 26,
1993, between the Company and the Navy [Form 10-K,
fiscal year ended March 31, 1995, File No. 1-8533,
Exhibit 10.77]
10.73 -- Contract No. N00019-95-C-0057, dated December 16,
1994, between Precision Echo, Inc. and Naval Air
Systems Command [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533, Exhibit 10.78]
10.74 -- Employment, Non-Competition and Termination
Agreement, dated July 20, 1994, between
Diagnostic/Retrieval Systems, Inc. and David E.
Gross [Form 10-Q, quarter ended June 30, 1994,
File No. 1-8533, Exhibit 1]
10.75 -- Stock Purchase Agreement, dated as of July 20,
1994, between Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q, quarter ended June
30, 1994, File No. 1-8533, Exhibit 2]
<PAGE>
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
10.76 -- Asset Purchase Agreement, dated October 28, 1994,
Acquisition by PE Acquisition Corp., a subsidiary
of Precision Echo, Inc. of all of the Assets of
Ahead Technology Corporation [Form 10-Q, quarter
ended December 31, 1994, File No. 1-8533, Exhibit 1]
10.77 -- Amendment to Agreement for Acquisition of Assets,
dated July 5, 1995, between Photronics Corp. and
Opto Mechanik, Inc. [Form 8-K, Amendment No. 1,
July 5, 1995, File No. 1-8533, Exhibit 1]
10.78 -- Contract No. N00421-95-D-1067, dated September 30,
1995, between the Company and the Navy
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.78]
10.79 -- Lease, dated August 17, 1995, between Ahead
Technology, Inc. and South San Jose Interests
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.79]
10.80 -- Contract No. DAAH01-95-C-0308, dated July 21,
1995, between Photronics Corp. and the Army
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.80]
10.81 -- Modification No. PZ0001, dated January 24, 1996,
to Contract No. DAAH01-95-C-0308 [Form 10-K,
fiscal year ended March 31, 1996, File No. 1-8533,
Exhibit 10.81]
10.82 -- Modification No. P00002, dated February 24, 1996,
to Contract No. DAAH01-95-C-0308 [Form 10-K,
fiscal year ended March 31, 1996, File No. 1-8533,
Exhibit 10.82]
10.83 -- Modification No. P00003, dated March 28, 1996, to
Contract No. DAAH01-95-C-0308 [Form 10-K, fiscal
year ended March 31, 1996, File No. 1-8533,
Exhibit 10.83]
10.84 -- Lease, dated May 25, 1995, between Technology
Applications and Service Company and Sports Arena
Village, Ltd., L.P. [Registration Statement
No.33-64641, Amendment No. 1, Exhibit 10.81]
10.85 -- Contract No. 2025, dated December 20, 1993,
between Opto Mechanik, Inc. and the Government of
Israel, Ministry of Defense [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.82]
10.86 -- Amendment to Contract No. 2025, dated August 31,
1995 between Opto Mechanik, Inc. and the
Government of Israel, Ministry of Defense
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.83]
10.87 -- Lease, dated August, 1995, by and between OMI
Acquisition Corp. and Fred E. Sutton and Harold S.
Sutton d/b/a Sutton Properties [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.84]
10.88 -- Lease, dated August, 1995, by and between OMI
Acquisition Corp. and Fred E. Sutton and Harold S.
Sutton d/b/a Sutton Properties [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.85]
10.89 -- Lease, dated August, 1995, by and between OMI
Acquisition Corp. and Fred E. Sutton and Harold S.
Sutton d/b/a Sutton Properties [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.86]
10.90 -- Memorandum of Lease, dated August, 1995, by and
between OMI Acquisition Corp. and Fred E. Sutton
and Harold S. Sutton d/b/a Sutton Properties
[Registration Statement No.33-64641, Amendment No.
1, Exhibit 10.87]
<PAGE>
PAGE NO.
EXHIBIT NO. DESCRIPTION OF PAPER FILING
----------- ----------- ---------------
10.91 -- Master Lease, dated August 31, 1995, between OMI
Acquisition Corp. and General Electric Capital
Corp. [Registration Statement No. 33-64641,
Post-Effective Amendment No. 1, Exhibit 10.88]
10.92 -- Schedule No. 001, dated September 1, 1995, to
Master Lease between OMI Acquisition Corp. and
General Electric Capital Corp. [Registration
Statement No. 33-64641, Post-Effective Amendment
No. 1, Exhibit 10.89]
10.93 -- Schedule No. 002, dated October 20, 1995, to
Master Lease between OMI Acquisition Corp. and
General Electric Capital Corp. [Registration
Statement No.33-64641, Amendment No. 1, Exhibit
10.90]
10.94 -- Joint Venture Agreement, dated as of February 6,
1996, by and among DRS/MS, Inc., Universal Sonics
Corporation, Ron Hadani, Howard Fidel and Thomas
S. Soulos [Registration Statement No.33-64641,
Amendment No. 1, Exhibit 10.91]
10.95 -- Partnership Agreement, dated as of February 6,
1996, by and between DRS/MS, Inc. and Universal
Sonics Corporation [Registration Statement
No.33-64641, Amendment No. 1, Exhibit 10.92]
10.96 -- Asset Purchase Agreement, dated as of February 9,
1996, by and among Mag-Head Engineering, Company,
Inc. and Ahead Technology Acquisition Corporation,
a subsidiary of Precision Echo, Inc. [Registration
Statement No. 33-64641, Post-Effective Amendment
No. 1, Exhibit 10.93]
10.97 -- Employment, Non-Competition and Termination
Agreement, dated March 28, 1996, between the
Company and Leonard Newman [Registration Statement
No. 33-64641, Post-Effective Amendment No. 1,
Exhibit 10.94]
10.98 -- Contract No. N00024-95-G-5609, dated January 25,
1996, between Technology Applications and Service
Company and the Navy [Form 10-K, fiscal year ended
March 31, 1996, File No. 1-8533, Exhibit 10.98]
10.99 -- Asset Purchase Agreement, dated June 17, 1996, by
and among Vikron, Inc., Northland Aluminum, Inc.,
Ahead Wisconsin Acquisition Corporation, a
third-tier subsidiary of the Company, and Ahead
Technology, Inc., a second-tier subsidiary of the
Company [Form 10-K, fiscal year ended March 31,
1997, File No. 1- 8533, Exhibit 10.99]
10.100 -- Agreement and Plan of Merger, dated September 30,
1996, by and among PTI Acquisition Corp., a
subsidiary of the Company, Pacific Technologies,
Inc., David A. Leedom, Karen A. Mason, Robert T.
Miller, Carl S. Ito and Barry S. Kindig[Form 10-K,
fiscal year ended March 31, 1997, File No.
1-8533, Exhibit 10.101]
10.101 -- Asset Purchase Agreement, dated October 22, 1996,
by and among Ahead Technology, Inc., a second-tier
subsidiary of the Company, Nortronics Acquisition
Corporation, a third-tier subsidiary of the
Company, Nortronics Company, Inc., Alan Kronfeld,
Thomas Philipich and Robert Liston [Form 10-K,
fiscal year ended March 31, 1997, File No. 1-
8533, Exhibit 10.102]
10.102 -- Purchase Agreement, dated as of September 19,
1997, between DRS Technologies, Inc. and Spar
Aerospace Limited. [Form 8-K, October 27, 1997,
File No. 1-8533, Exhibit 1]
10.103 -- Revolving Credit Loan and Term Loan Agreement,
dated as of October 29, 1997, by and among DRS
Technologies, Inc., DRS Technologies Canada
Company/Compagnie DRS Technologies Canada, DRS
Technologies Canada, Inc. and Mellon Bank, N.A.
[Form 8-K, October 27, 1997, File No. 1-8533,
Exhibit 2]
*11 -- Computation of earnings per share
*13 -- Portions of the 1998 Annual Report to Stockholders of the Company
*21 -- List of subsidiaries of the Company as of March 31, 1998
*23.1 -- Consent of KPMG Peat Marwick LLP
*27 -- Financial Data Schedule
<TABLE>
<CAPTION>
EXHIBIT 11
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
1998 1997 1996
----------------------- ----------------------- ----------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Weighted average number of shares
of common stock outstanding 5,625,788 5,625,788 5,524,803 5,524,803 5,470,028 5,470,028
Effect of dilutive common stock
options -- 282,929 -- 227,804 -- 177,475
Effect of 8-1/2% convertible
subordinated debenbentures (1) -- 332,800 -- 332,800 -- --
Effect of 9% senior subordinated
convertible debentures -- 2,803,189 -- 2,824,859 -- 1,373,839
---------- ---------- --------- ---------- ---------- ----------
Adjusted shares 5,625,788 9,044,706 5,524,803 8,910,266 5,470,028 7,021,342
========== ========== ========== ========== ========== ==========
Net Earnings:
Net earnings for the year $6,372,000 $6,372,000 $5,663,000 $5,663,000 $4,103,000 $4,103,000
Effect of assumed conversion of 8 1/2%
convertible subordinated
debentures (1) -- 278,000 -- 259,000 -- --
Effect of assumed conversion of 9%
senior subordinated convertible
debentures -- 1,793,000 -- 1,536,000 -- 748,000
---------- ---------- ---------- ----------- ---------- ---------
Adjusted net earnings $6,372,000 $8,443,000 $5,663,000 $7,458,000 $4,103,000 $4,851,000
========== ========== ========== ========== ========== ==========
Earnings per share (adjusted net earnings
divided by adjusted shares) $ 1.13 $ 0.93 $ 1.03 $ 0.84 $ 0.75 $ 0.69
========== ========== ========== ========== ========== ==========
- --------------
<FN>
(1) The 8-1/2% convertible subordinated debentures are excluded from the calculation of fully diluted earnings per share for fiscal
years 1996, as they would have an antidilutive effect on earnings per share.
</FN>
</TABLE>
<TABLE>
DRS Technologies, Inc. and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<CAPTION>
Years ended March 31, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues ................................. $190,854,000 $143,578,000 $101,454,000 $69,930,000 $57,820,000
Cost and expenses ........................ 176,595,000 130,996,000 92,907,000 64,836,000 54,372,000
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Operating income ......................... 14,259,000 12,582,000 8,547,000 5,094,000 3,448,000
Interest and related expenses ............ (5,098,000) (3,592,000) (2,681,000) (1,372,000) (1,574,000)
Interest and other income, net ........... 1,377,000 698,000 971,000 655,000 802,000
Minority interest ........................ (874,000) (404,000) (110,000) (121,000) 32,000
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes ............. 9,664,000 9,284,000 6,727,000 4,256,000 2,708,000
Income taxes ............................. 3,292,000 3,621,000 2,624,000 1,652,000 1,093,000
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NET EARNINGS ............................. $ 6,372,000 $ 5,663,000 $ 4,103,000 $ 2,604,000 $ 1,615,000
PER-SHARE DATA(1)
Basic earnings per share ................. $ 1.13 $ 1.03 $ 0.75 $ 0.51 $ 0.30
Diluted earnings per share ............... $ 0.93 $ 0.84 $ 0.69 $ 0.50 $ 0.30
Book value per share ..................... $ 7.16 $ 5.90 $ 4.86 $ 4.16 $ 3.70
SUMMARY OF FINANCIAL POSITION
Working capital .......................... $ 42,126,000 $ 32,838,000 $ 33,990,000 $20,317,000 $19,803,000
Net property, plant and equipment ........ $ 22,972,000 $ 19,987,000 $ 16,191,000 $ 9,849,000 $ 8,893,000
Total assets ............................. $163,473,000 $ 97,673,000 $ 97,251,000 $64,590,000 $58,836,000
Long-term debt, excluding
current installments ................... $ 56,532,000 $ 30,801,000 $ 32,608,000 $11,732,000 $14,515,000
Net stockholders' equity ................. $ 44,335,000 $ 32,987,000 $ 26,566,000 $22,509,000 $19,759,000
FINANCIAL RATIOS
Pretax return on revenues ................ 5.1% 6.5% 6.6% 6.1% 4.7%
After tax return on revenues ............. 3.3% 3.9% 4.0% 3.7% 2.8%
Return on average stockholders' equity ... 16.5% 19.0% 16.7% 12.3% 8.5%
Current ratio ............................ 1.8 2.2 2.0 1.9 2.1
Long-term debt, excluding current
installments, to capitalization ........ 56.0% 48.3% 55.1% 34.3% 42.3%
SUPPLEMENTAL INFORMATION
Capital expenditures ..................... $ 6,570,000 $ 5,228,000 $ 6,331,000 $ 2,543,000 $ 988,000
Depreciation and amortization ............ $ 7,059,000 $ 5,027,000 $ 3,170,000 $ 2,480,000 $ 2,558,000
Internal research and development ........ $ 4,049,000 $ 3,852,000 $ 649,000 $ 795,000 $ 537,000
Employees(2) ............................. 1,470 1,107 809 565 548
Revenues per employee(3) ................. $ 124,000 $ 129,000 $ 137,000 $ 130,000 $ 137,000
- ----------------
(1) Earnings per share for all prior-year periods have been restated to conform with the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (See Note 1 of Notes to Consolidated Financial Statements). No cash
dividends have been distributed in any of the years in the five-year period ended March 31, 1998.
(2) Indicates the number of employees at March 31 for each of the fiscal years presented. Included in fiscal 1998, 1997, 1996 and
1995 are approximately 428, 188, 155 and 46 employees, respectively, from new operations. (See Note 11 of Notes to
Consolidated Financial Statements.)
(3) Based on average number of employees.
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</TABLE>
14
<PAGE>
DRS Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the consolidated
financial condition and results of operations of DRS Technologies, Inc. and
subsidiaries (hereinafter, the Company or DRS) as of March 31, 1998 and 1997,
and for each of the fiscal years in the three-year period ended March 31, 1998.
This discussion should be read in conjunction with the audited consolidated
financial statements and related notes.
The following discussion and analysis contains certain forward looking
statements, within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. Forward looking
statements in this report are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Persons reading this report
are cautioned that such forward looking statements involve risks and
uncertainties that could cause the Company's actual results to differ materially
from the results suggested by these forward looking statements. Factors that
could cause actual results to differ materially from the forward looking
statements include, without limitation, the effect of the Company's acquisition
strategy on future operating results; the uncertainty of acceptance of new
products and successful bidding for new contracts; the effect of technological
changes or obsolescence relating to the Company's products and services; the
effects of government regulation or shifts in government policy, as they may
relate to the Company's products and services; competition; and other matters
referred to in this report.
BUSINESS OVERVIEW
DRS is a diversified, high-technology company serving government and
commercial niche markets worldwide. The Company develops and manufactures a
variety of leading edge systems and components used for the processing, display
and storage of data. These include combat display workstations, electronic
sensor systems, mission recording systems, digital imaging systems,
electro-optical systems, ship communications and flight safety systems. The
Company also provides a wide range of technical support and depot-level repair
services. DRS's defense electronics products serve all branches of the U.S.
Armed Services and certain international military forces. The Company's
commercial and industrial products are used by the airline, banking, computer
disk drive, security, transportation, retail sales and broadcast industries.
The fiscal year ended March 31, 1998 marked the sixth consecutive year of
growth for the Company. Over the past five fiscal years, revenues and net
earnings have grown at compounded average annual rates of approximately 35% and
41%, respectively. DRS's revenue growth in fiscal 1998, fueled both internally
and through acquisitions, was approximately 33%. The increase in the Company's
core business (represented by existing businesses at March 31, 1997) was
approximately 23%.
This growth has been achieved while operating in an industry characterized
by consolidation, reduced spending and technological transition. To address the
challenges of its business environment, DRS has employed a four-part strategy
of: expanding its core technological capabilities in electronic processing and
display, data storage and electro-optical systems; designing new products and
adapting existing products for use by all branches of the military; transferring
technologies from the defense sector to commercial and industrial markets; and
acquiring new businesses which provide a strategic complement to the Company's
existing products and technological capabilities.
COMPANY ORGANIZATION AND PRODUCTS
DRS is organized into four principal operating segments: the Electronic
Systems Group (ESG), the Data Systems Group (DSG), the Electro-Optical Systems
Group (EOSG), and Flight Safety and Communications (FS&C).
ESG designs, manufactures and integrates complex systems using advanced
commercial technology to meet the performance and environmental requirements of
military customers. Current products include tactical display and processing
systems for military ships and aircraft, littoral surveillance systems for
coastal and harbor regions, radar and acoustic sensor systems, and low-cost
emulators of legacy military systems for test and training support. ESG also
provides manufacturing services and technical support services for both DRS
products and those of other suppliers.
DSG utilizes advanced commercial technology to design and manufacture
multisensor digital, analog and video data capture and recording products, as
well as high-capacity data storage devices for the harsh environments of
aerospace and defense applications. Through its commercial operations, DSG also
provides a variety of magnetic head products and services used in the commercial
aviation, airline, television and audio broadcast, computer disk drive,
security, transportation and retail sales industries that test or write and read
information on magnetic data storage media.
EOSG integrates advanced commercial technology with military requirements
to design and manufacture advanced electro-optical sighting, targeting, weapons
and aircraft optical alignment systems, assemblies and components used primarily
in the aerospace and defense industries. The Group is a leader in aircraft
boresighting equipment and ultra high-speed digital imaging systems. EOSG also
produces night vision and directional devices, as well as eye-safe, laser-based
products for military applications.
FS&C designs and manufactures advanced flight safety systems, naval
communications systems and other advanced electronics primarily for defense and
commercial aerospace applications. FS&C is a prominent global supplier of
deployable aircraft locator beacons and flight data recorders used in
emergencies to locate aircraft. Its shipboard communications systems integrate
commercial technology and are used in conjunction with surveillance satellites.
FS&C also provides custom manufacturing services for complex electronic systems.
15
<PAGE>
ACQUISITIONS AND RELATED ACTIVITIES
On July 5, 1995, DRS Optronics, Inc. (DRS Optronics), a second-tier
subsidiary of the Company, acquired substantially all of the assets of
Opto-Mechanik, Inc., pursuant to an asset acquisition agreement, for a total of
$5.5 million, consisting of $3.7 million in cash and $1.8 million in notes
payable. DRS Optronics, 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.
On February 6, 1996, a wholly-owned subsidiary of the Company entered into
a partnership with Universal Sonics Corporation and its shareholders (DRS
Medical Systems or the Partnership) for the purpose of developing, manufacturing
and marketing medical ultrasound imaging equipment. The Company's contribution
to DRSMedical Systems consisted of $.4 million in cash, certain managerial
expertise and manufacturing capabilities, representing a 90% interest in the
Partnership. On September 12, 1997, the Company sold substantially all of the
net assets of DRS Medical Systems to United States Surgical Corporation for
approximately $1.9 million in cash. The sale resulted in a gain of approximately
$.1 million and the reversal of accrued obligations of $.3 million. The results
of operations of this Partnership were not material to the consolidated
operating results of the Company during the periods presented.
On February 9, 1996, DRS Ahead Technology, Inc. (DRS Ahead Technology)
acquired, through a wholly-owned subsidiary, certain assets and assumed certain
liabilities (principally, obligations under property leases) of Mag-Head
Engineering Company, Inc. (Mag-Head), pursuant to an asset purchase agreement,
for approximately $.4 million in cash. Mag-Head produces audio and flight
recorder heads.
On June 18, 1996, DRS Ahead Technology acquired, through a wholly-owned
subsidiary, substantially all the assets of Vikron, Inc. (Vikron) for
approximately $3.7 million in cash. The excess of cost over the estimated fair
value of net assets acquired was approximately $1.6 million and is being
amortized on a straight-line basis over fifteen years. Vikron, located in St.
Croix Falls, Wisconsin, manufactures data and recording heads.
On October 24, 1996, DRS Ahead Technology acquired, through a wholly-owned
subsidiary, certain assets of Nortronics Company, Inc. (Nortronics) for
approximately $2.4 million in cash. Located in Dassel, Minnesota, Nortronics
manufactures data and recording heads.
On October 30, 1996, Pacific Technologies, Inc., a California corporation,
merged with and into a wholly-owned subsidiary of the Company for stock and cash
valued at approximately $.5 million. Based in San Diego, California and renamed
DRS Technical Services, Inc., it provides systems and software engineering
support to the U.S. Navy for the testing of shipboard combat systems.
On May 13, 1997, a subsidiary of the Company acquired approximately 80% of
the outstanding equity of Magnetic Heads Company Ltd. (MHC)for approximately $.3
million in cash. Located in Razlog, Bulgaria, MHC, now known as DRS Ahead
Technology -- Bulgaria, is a manufacturer and supplier of magnetic recording
heads used primarily for commercial applications. In connection with this
acquisition, the Company has agreed to make additional investments in DRS Ahead
Technology -- Bulgaria totaling approximately $2.3 million over a five-year
period. For purposes of this agreement, investments include transfer of
technology and related intangible assets, transfer of inventory and other
productive assets, employee training and other similar transfers and
expenditures.
On October 29, 1997 (the Closing Date), DRS acquired, through certain of
its subsidiaries, the assets of the Applied Systems Division of Spar Aerospace
Limited (Spar), a Canadian corporation, and 100% of the stock of Spar Aerospace
(UK) Limited, incorporated under the laws of England and Wales (the
Acquisition), pursuant to a purchase agreement (the Agreement) dated as of
September 19, 1997 between DRS and Spar. The Company paid approximately $35.4
million in cash for the Acquisition (which included $6.9 million for cash
acquired in connection with the transaction), subject to a certain working
capital adjustment as provided for in the Agreement. The amount of such working
capital adjustment, if any, remains the subject of dispute between DRS and Spar.
Although the Company cannot, at this time, predict the outcome of such dispute,
management does not expect that its resolution will have a material impact on
the Company's consolidated results of operations or financial position. The
excess of cost over the estimated fair value of net assets acquired was
approximately $20.0 million and is being amortized on a straight-line basis over
30 years. DRS incurred professional fees and other costs related to the
Acquisition of approximately $1.5 million, which were capitalized as part of the
total purchase price. Purchase price allocation has not yet been finalized, and
actual purchase price allocation may differ from that used in these Consolidated
Financial Statements. Headquartered in Carleton Place, Ontario, Canada, and
operating under the name DRS Flight Safety and Communications, the company has
been an international provider of aviation and defense systems for over 30
years. It designs, manufactures and markets sophisticated flight safety systems,
naval communications systems and other advanced electronics for government and
commercial customers around the world. It also provides custom manufacturing
services for complex electronic assemblies and systems.
On March 10, 1998, a subsidiary of the Company acquired Hadland Photonics
Ltd. for approximately $6.5 million in cash. Headquartered in Tring,
Hertfordshire, the United Kingdom, and operating under the name DRS Hadland, the
company has been a leader in ultra high-speed image capture and analysis for
over 40 years. It designs, manufactures and markets ultra high-speed digital
imaging cameras and avionics systems, including airborne video recording and
ground replay systems, for government and commercial customers worldwide. The
excess of cost over the estimated fair value of net assets acquired was
approximately $4.0 million and is being amortized on a straight-line basis over
30 years. Purchase price allocation has not yet been finalized, and actual
purchase price allocation may differ from that used for purposes of these
Consolidated Financial Statements.
The aforementioned acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the results of operations of the acquired
businesses were included in the Company's reported operating results from their
respective effective dates of acquisition. Except for the Spar Acquisition, the
financial position and results of operations of these businesses were not
significant to those of the Company as of their respective effective dates of
acquisition (see Note 11 of Notes to Consolidated Financial Statements).
16
<PAGE>
The Company continues to seek acquisition opportunities consistent with its
business strategy and is engaged in preliminary discussions regarding several
other potential acquisitions. There can be no assurance, however, that
definitive agreements will be reached or that any further acquisitions will be
consummated.
RESULTS OF OPERATIONS
The following table sets forth items in the Consolidated Statements of
Earnings as a percentage of revenues and the percentage increase or decrease of
those items as compared with the prior period:
<TABLE>
<CAPTION>
Percent of Revenues Percent Changes
--------------------------------- ----------------------------
Years Ended March 31, 1998 1997 1996 1998 vs. 1997 1997 vs. 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... 100.0% 100.0% 100.0% 32.9% 41.5%
Costs and expenses ................ 92.5% 91.2% 91.6% 34.8% 41.0%
- ----------------------------------------------------------------------------------------------------------
Operating income .................. 7.5% 8.8% 8.4% 13.3% 47.2%
Interest and related expenses ..... (2.7%) (2.5%) (2.6%) 41.9% 34.0%
Interest and other income, net .... 0.8% 0.5% 1.0% 97.3% (28.1%)
Minority interest ................. (0.5%) (0.4%) (0.2%) 116.3% 267.3%
- ----------------------------------------------------------------------------------------------------------
Earnings before income taxes ...... 5.1% 6.4% 6.6% 4.1% 38.0%
Income taxes ...................... 1.7% 2.5% 2.6% (9.1%) 38.0%
- ----------------------------------------------------------------------------------------------------------
Net earnings ...................... 3.3% 3.9% 4.0% 12.5% 38.0%
The following tables set forth, by operating segment, revenues, operating
income, operating margin and the percentage increase or decrease of those items
as compared with the prior period:
<CAPTION>
(dollars in thousands)
Years Ended March 31, Percent Changes
--------------------------------- -----------------------------
ESG 1998 1997 1996 1998 vs. 1997 1997 vs. 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $95,054 $81,157 $47,844 17.1% 69.6%
Operating income .................. $ 9,454 $ 6,348 $ 3,181 48.9% 99.6%
Operating margin .................. 9.9% 7.8% 6.6% 27.2% 17.6%
<CAPTION>
Years Ended March 31, Percent Changes
--------------------------------- -----------------------------
DSG 1998 1997 1996 1998 vs. 1997 1997 vs. 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $49,310 $33,852 $31,427 45.7% 7.7%
Operating income .................. $ 2,306 $ 5,231 $ 6,023 (55.9%) (13.1%)
Operating margin .................. 4.7% 15.5% 19.2% (69.7%) (19.4%)
<CAPTION>
Years Ended March 31, Percent Changes
--------------------------------- ------------------------------
EOSG 1998 1997 1996 1998 vs. 1997 1997 vs. 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $31,396 $25,134 $22,122 24.9% 13.6%
Operating income .................. $ 1,134 $ 1,295 $ 781 (12.4%) 65.8%
Operating margin .................. 3.6% 5.2% 3.5% (29.9%) 45.9%
<CAPTION>
Years Ended March 31, Percent Changes
--------------------------------- -----------------------------
FS&C 1998 1997 1996 1998 vs. 1997 1997 vs. 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $13,384 $ -- $ -- -- --
Operating income .................. $ 1,222 $ -- $ -- -- --
Operating margin .................. 9.1% -- -- -- --
</TABLE>
COMPARISON OF FISCAL 1998 WITH FISCAL 1997
Revenues from ESG for the fiscal year ended March 31, 1998 increased 17.1%
to $95.1 million from $81.2 million in fiscal 1997. The revenue growth was
attributable primarily to increased shipments of the Group's military display
workstations and coastal surveillance systems. ESG's operating income for fiscal
1998 increased 48.9% to $9.5 million, compared with $6.3 million reported in the
prior year. Operating margins were 9.9% and 7.8% for the fiscal years ended
March 31, 1998 and 1997, respectively. The increase in ESG's operating income
and operating margin in fiscal 1998 resulted from the overall increase in
revenues, coupled with operating efficiencies and the net cost savings derived
from the consolidation and transfer of certain of the Group's military display
product lines to its Gaithersburg, Maryland operation.
17
<PAGE>
Revenues from DSG for the fiscal year ended March 31, 1998 increased 45.7%
to $49.3 million from $33.9 million in fiscal 1997. The increase in revenues was
attributable primarily to increased shipments of the Group's military data
storage and recording products. DSG's operating income for fiscal 1998 decreased
55.9% to $2.3 million, compared with $5.2 million reported a year ago. Operating
margins were 4.7% and 15.5% for the fiscal years ended March 31, 1998 and 1997,
respectively. The decrease in DSG's operating income and operating margin in
fiscal 1998 was the result of revenue mix and increased general and
administrative costs associated with the Group's military product lines,
principally attributable to higher company-sponsored research and development
expenditures during the year for new 8mm recording products. In addition, the
Group experienced margin pressure on its commercial magnetic head products. The
decline in margin reflected the effects of the decrease in orders in the second
half of fiscal 1998, related to the general downturn and consolidation in the
computer disk drive industry, the delayed start up of the Group's Bulgarian
operation and higher selling, general and administrative costs. The market
factors affecting the disk drive industry are expected to continue to impact
margins for the Group's commercial product lines during the first half of fiscal
1999.
Revenues from EOSG for the fiscal year ended March 31, 1998 increased 24.9%
to $31.4 million from $25.1 million in fiscal 1997. The increase in revenues was
attributable primarily to increased shipments of the Group's electro-optical
systems product lines and to revenues from the acquisition of DRSHadland in
March 1998. EOSG's operating income for fiscal 1998 decreased 12.4% to $1.1
million, compared with $1.3 million in the prior year. Operating margins were
3.6% and 5.2% for the fiscal years ended March 31, 1998 and 1997, respectively.
The decrease in EOSG's operating income and operating margin in fiscal 1998
reflected the effect of restructuring and other costs related to the closure of
the Group's Hauppauge, New York facility and relocation of its operations to
Oakland, New Jersey.
Results for fiscal 1998 include those of FS&C from the date of its
acquisition in October 1997. Revenues from FS&C were $13.4 million in the fiscal
year ended March 31, 1998 and were attributable to shipments of the Group's
flight safety and communications products and from contract manufacturing
services. FS&C's operating income for fiscal 1998 was $1.2 million and operating
margin was 9.1%.
Consolidated revenues in fiscal 1998 and 1997 included approximately $1.7
million and $3.4 million, respectively, from DRS Medical Systems. Substantially
all of the net assets of DRS Medical Systems were sold on September 12, 1997.
Operating income of the Partnership was not significant to the consolidated
results of operations of the Company in fiscal 1998 and 1997 (see Acquisitions
and Related Activities).
Interest and related expenses increased 41.9% to $5.1 million for the
fiscal year ended March 31, 1998, as compared with $3.6 million in the prior
fiscal year. The increase was attributable primarily to the increase in debt
associated with the acquisition of FS&C and higher average working capital
borrowings.
Interest and other income, net increased by approximately $.7 million, or
97.3%, in fiscal 1998 to $1.4 million. This increase principally was due to the
interest earned on higher average cash balances primarily resulting from cash
acquired with FS&C.
Minority interest increased from $.4 million in fiscal 1997 to $.9 million
in fiscal 1998. The increase was due to the continued growth of the DRS Laurel
Technologies partnership (DRS Laurel), in which the Company has an 80% interest.
DRS Laurel manufactures many of the Company's military display workstations.
The Company's effective tax rates for the fiscal years ended March 31, 1998
and 1997 were 34% and 39%, respectively. The lower effective income tax rate in
fiscal 1998 reflects the benefit of the utilization of U.S. Federal capital loss
carryforwards against the capital gain resulting from the sale of the Company's
Hauppauge, New York facility, combined with the effect of lower overall
effective tax rates of newly acquired foreign operations. The provision for
income taxes includes all estimated income taxes payable to federal, state and
foreign governments, as applicable.
As a result of the above, net earnings for fiscal 1998 were approximately
$6.4 million, up 12.5% from $5.7 million generated in fiscal 1997. Diluted
earnings per share of $.93 were 10.7% higher than $.84 per share earned a year
ago.
COMPARISON OF FISCAL 1997 WITH FISCAL 1996
Revenues from ESG for the fiscal year ended March 31, 1997 increased 69.6%
to $81.2 million from $47.8 million in fiscal 1996, primarily due to increased
shipments of the Group's AN/UYQ-65 military display workstations. ESG's
operating income for fiscal 1997 increased 99.6% to $6.3 million, compared with
$3.2 million reported in the prior year. Operating margins were 7.8% and 6.6% in
the fiscal years ended March 31, 1997 and 1996, respectively. The increase in
ESG's operating income resulted from the overall increase in revenues.
Revenues from DSG for the fiscal year ended March 31, 1997 increased 7.7%
to $33.9 million from $31.4 million in fiscal 1996. The increase in revenues
resulted from a substantial increase in commercial magnetic head shipments due,
in part, to acquisitions completed during fiscal 1997. Higher overall commercial
product sales offset lower revenues from shipments of the Group's military data
storage and recording products. The decrease in revenues from military products
was due primarily to the delayed receipt of orders for certain 8mm products,
coupled with the completion, in fiscal 1996, of a contract for mission recorder
systems. DSG's operating income for fiscal 1997 decreased 13.1% to $5.2 million,
compared with $6.0 million reported in fiscal 1996. Operating margins were 15.5%
and 19.2% for the fiscal years ended March 31, 1997 and 1996, respectively. The
decrease in DSG's operating income and operating margin in fiscal 1997 was the
result of revenue mix and increased general and administrative costs associated
with acquisitions. Operating income also included the effect of additional
product design and development costs on certain of the Group's 8mm data
recording products.
18
<PAGE>
Revenues from EOSG for the fiscal year ended March 31, 1997 increased 13.6%
to $25.1 million from $22.1 million in fiscal 1996. The increase in revenues
reflected the full-year impact from revenues attributable primarily to the
acquisition of DRS Optronics in July 1995. EOSG's operating income for fiscal
1997 increased 65.8% to $1.3 million, compared with $.8 million in the prior
year. Operating margins were 5.2% and 3.5% for the fiscal years ended March 31,
1997 and 1996, respectively. The increase in EOSG's operating income and
operating margin in fiscal 1997 reflected the effect of the increase in revenues
and improved margins on sales of the Group's multi-platform boresight equipment.
Consolidated revenues in fiscal 1997 included approximately $3.4 million
from DRS Medical Systems; revenues were insignificant in fiscal 1996. Operating
income from this operation was immaterial to the consolidated results of
operations of the Company in both fiscal years.
Interest and related expenses increased 34% to $3.6 million for the fiscal
year ended March 31, 1997, as compared with $2.7 million in the prior fiscal
year. The increase was due to the issuance of the Company's $25.0 million
aggregate principal amount of 9% Senior Subordinated Convertible Debentures due
2003 (the 9% Debentures), which were outstanding throughout fiscal 1997 and for
a portion of fiscal 1996. A portion of the proceeds from the issuance of the 9%
Debentures was used to repurchase approximately $5.0 million of the 8-1/2%
Convertible Subordinated Debentures due 1998 (the 8-1/2% Debentures) in the
fourth quarter of fiscal 1996, partially offsetting the increase in interest
relating to the 9% Debentures.
Interest and other income, net decreased by approximately $.3 million or
28% in fiscal 1997 to $.7 million. This decrease principally was due to the
change in interest earned on lower average cash balances, which resulted from a
net use of cash in fiscal 1997, mostly for acquisitions and capital
expenditures.
Minority interest increased from $.1 million in fiscal 1996 to $.4 million
in fiscal 1997. The increase was due to the growth of DRS Laurel Technologies.
The Company's effective tax rate for the fiscal years ended March 31, 1997
and 1996 was 39%. The provision for income taxes included all estimated income
taxes payable to federal and state governments, as applicable.
As a result of the above, net earnings for fiscal 1997 were approximately
$5.7 million, up 38% from $4.1 million generated in fiscal 1996. Diluted
earnings per share of $.84 were 22% higher than $.69 per share earned the
previous year, and reflected the dilutive effect of the assumed conversion of
the 9% Debentures issued in fiscal 1996.
FINANCIAL CONDITION AND LIQUIDITY
On October 29, 1997, the Company entered into a $60 million secured credit
facility (the Secured Credit Facility) with Mellon Bank, N.A. (Mellon Bank)
consisting of a $20 million term loan (the Term Loan) and a $40 million
revolving line of credit (the Secured Line of Credit). The Secured Credit
Facility was used to finance the acquisition of DRS Flight Safety and
Communications (see Note 11 of Notes to Consolidated Financial Statements) and
replaced a previous revolving line of credit and equipment line of credit
facility. The Secured Line of Credit is available for working capital, general
corporate purposes and acquisitions and expires on March 31, 2003.
As of March 31, 1998, approximately $48.3 million was outstanding against
the Secured Credit Facility, of which $4.9 million was contingently payable
under letters of credit, as compared with amounts outstanding under the previous
revolving line of credit at March 31, 1997 of $5.3 million and $2.3 million,
respectively.
Working capital as of March 31, 1998 was approximately $42.1 million, as
compared with $32.8 million at March 31, 1997. The increase was primarily due to
the net effect of higher accounts receivable and inventory levels, offset, in
part, by higher accounts payable balances and short-term debt. In addition, the
change in working capital reflects the effect of an increase in current
installments of long-term debt attributable to the amortization of a portion of
the Term Loan and the maturity in fiscal 1999 of the Company's outstanding
8-1/2% Debentures (approximately $1.5 million and $5.0 million, respectively).
The Company believes that its current working capital position and
available bank financing are sufficient to support operational needs in fiscal
1999; however, the Company is assessing certain financing alternatives to
support its near-term business objectives.
Accounts Receivable: Accounts receivable increased approximately $22.9
million in the fiscal year ended March 31, 1998, primarily due to the addition
of $10.8 million in accounts receivable from entities acquired during the fiscal
year and the increased level of March shipments. The Company receives progress
payments on certain contracts from the U.S. Government of between 75-90% of
allowable costs incurred. The remainder, including profits and incentive fees,
is billed to customers based upon delivery and final acceptance of products and
services. The Company also may bill its customers based upon units delivered.
Included in accounts receivable at March 31, 1998 is $.8 million arising from
retainage provisions in certain contracts with the Canadian government, a
portion of which may not be collected within one year.
Inventories: Inventories increased by approximately $9.0 million in fiscal
1998, net of $4.5million attributable to business acquisitions. The increase in
inventories was due primarily to higher overall business volume. In addition,
increased material procurement at fiscal year-end, in anticipation of production
requirements on several military programs, contributed to the higher inventory
balance.
Debt: Total debt outstanding increased by approximately $34.1 million
during the fiscal year ended March 31, 1998 to $69.1 million, primarily due to
the borrowings associated with the acquisition of FS&C, offset, in part, by the
conversion, in March 1998, of $5.0 million aggregate principal amount of the 9%
Debentures.
19
<PAGE>
Stockholders' Equity: Net stockholders' equity increased by approximately
$11.3 million during the fiscal year ended March 31, 1998 to approximately $44.3
million, primarily as a result of net earnings for the fiscal year and the
conversion of $5.0 million aggregate principal amount of the 9% Debentures.
Backlog: Backlog at March 31, 1998 was approximately $177.4 million, as
compared with $118.4 million a year ago. The increase was primarily attributable
to the significant level of bookings achieved for the year, most notably on
display workstations, offset, in part, by the effect of increased revenues. The
change in backlog also reflects approximately $23.4 million of acquired backlog
from the FS&C and DRS Hadland acquisitions.
Due to the general nature of defense procurement and contracting, the
operating cycle for the Company's military business typically has been long
term. Military backlog currently consists of various production and development
contracts with varying delivery schedules and project time tables. However,
there has been a recent trend in the Company's backlog to include a higher
percentage of commercial product orders and Commercial Off-The-Shelf
(COTS)-based systems for the military, both of which favor shorter lead times.
Accordingly, revenues for a particular year, or year-to-year comparisons of
reported revenues, may not be indicative of future results.
New contract awards of approximately $228.6 million were booked in fiscal
1998. ESG secured $135.7 million in new contracts, including significant awards
of approximately $86.3 million in additional production and engineering
contracts for AN/UYQ-70 Advanced Display Systems; $14.7 million for littoral
surveillance systems; $8.7 million for AN/SPS-67 Radar Systems; and $6.3 million
on the JSTARS program. DSG booked $38.5 million in new business in fiscal 1998,
including $24.7 million for its specialty magnetic head products and $4.7
million for 8mm recorders for use on F/A-18 aircraft. Total awards of $28.7
million for EOSG included $7.5 million for high-speed digital imaging systems;
$5.0 million to produce upper optics modules for optical laser surgery
equipment; and $2.1 million for Multi-Platform Boresight Equipment. FS&C
received a total of $22.7 million in awards following the acquisition in October
1997, including approximately $9.6 million for flight incident recorders and
locator beacons and $8.2 million for advanced manufacturing services. Contract
awards also included approximately $3.0 million for medical ultrasound equipment
booked by DRS Medical Systems (see Acquisitions and Related Activities).
Internal Research and Development: In addition to customer-sponsored
research and development, the Company also engages in internal research and
development (IR&D). IR&D expenditures reflect the Company's continued investment
in new technology and diversification of its products. Expenditures for IR&D in
fiscal 1998, 1997 and 1996 were $4.0 million, $3.9 million and $.6 million,
respectively.
Business Considerations: The Company primarily is engaged in the design and
manufacture of high-technology systems and products used for the processing,
display and storage of electronic data. Although DRS has diversified into
commercial products and markets, a significant portion of the Company's revenues
continue to be derived directly or indirectly from defense industry contracts
with the U.S. Government. In recent years, the Federal defense budget has been
reduced dramatically in inflation-adjusted terms. However, the overall level of
spending for defense electronics has increased, given the nature of modern
warfare and its increasing reliance on sophisticated weaponry and support
systems. In addition, the U.S. Government has determined that it is often more
cost effective to retrofit and upgrade existing weapons platforms than to
replace them. These factors have affected the nature and extent of defense
procurement and have precipitated a consolidation of the defense industry and a
focus principally on cost competitiveness and efficiency of operations. DRS has
participated successfully in this industry consolidation through strategic
business acquisitions and by streamlining its existing operations. The Company
also has focused on supporting and improving existing products and programs, as
well as identifying opportunities to develop and manufacture new products.
The defense electronics sector is characterized by rapid technological
change. The nature of modern warfare also has changed, with increasing reliance
on timely and accurate battlefield information, both to ensure that increasingly
costly assets are deployed efficiently and to minimize the destruction of
non-military targets. In response to these factors, as well as to a 1992 mandate
by the Joint Chiefs of Staff, the Company focuses on COTS product designs,
whereby commercial electronic components are integrated, adapted, upgraded and
"ruggedized" for applications in harsh military environments. Using COTS
designs, the Company is able to develop and deliver its products with
significantly less development time and expense compared with traditional
military product cycles. The COTS approach generally results in shorter lead
times, lower product costs and the employment of the latest available
information and computing technologies. The design and manufacture of COTS-based
products is a complex process requiring specific engineering capabilities,
extensive knowledge of military platforms in which the equipment will be
installed and an in-depth understanding of military operating environments and
requirements. The Company believes that it has the personnel and technical
expertise required to address the technological challenges confronting the
defense electronics sector.
The Company is subject to other inherent risks associated with defense
contracting, including changes in government policies and dependence on
congressional support, primarily for appropriations and allocation of funds to
products and programs supported by the Company. In recent years, the Company's
products and programs have been well supported. However, uncertainty exists with
respect to the size and scope of future defense budgets and their possible
impact on existing or future products and programs. Further, the Company's
existing defense contracts are subject to termination, either at the convenience
of the customer or as a result of cancellation of funding. The Company's
contracts and operations also are subject to governmental oversight,
particularly with respect to business practices, contract performance and cost
accounting practices. Governmental investigations may lead to claims against the
Company, the outcome of which cannot be predicted. As described in Note 9 of
Notes to the Consolidated Financial Statements, in fiscal 1999, the Government
commenced a case against an employee of DRS Photronics, Inc., a subsidiary of
the Company, relating to the accuracy of test data. To date, no claim has been
made or threatened against the Company or the subsidiary. The subsidiary is
currently unable to ship certain equipment related to the case, resulting in
delays in the Company's recognition of revenues. At this time, the Company is
unable to quantify the effect of the delayed shipments on its results of
operations or financial position, or to predict when such shipments ultimately
will be made, although the delays are expected to impact fiscal 1999 first
quarter results.
20
<PAGE>
The additions of international businesses involve additional risks for the
Company, such as exposure to currency fluctuations, future investment
obligations and changes in foreign economic and political environments. In
addition, international transactions frequently involve increased financial and
legal risks arising from stringent contractual terms and conditions and widely
differing legal systems, customs and practices in foreign countries. The Company
expects that international sales as a percentage of the overall sales of the
Company will continue to increase in future years as a result of, among other
factors, the Company's growth strategy and continuing changes in the United
States defense industry.
DRS has continued to grow despite these circumstances and conditions.
However, future growth will be dependent on the Company's ability to adapt to
these and other changing market and industry conditions.
Inflation: The Company has experienced the effects of inflation through
increased costs of labor, services and raw materials. Although a majority of the
Company's revenues are derived from long-term contracts, the selling prices of
such contracts generally reflect estimated costs to be incurred in the
applicable future periods.
ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes
standards for the reporting of financial and descriptive information about
operating segments of publicly-held companies in their respective interim and
annual financial statements. SFAS 131 also requires additional disclosures with
respect to products and services, geographic areas of operations and other
related data. The Statement is effective for fiscal years beginning after
December 31, 1997; however, DRS has elected to adopt this standard in fiscal
1998. See Note 12 of Notes to Consolidated Financial Statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June of 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). The Company will
adopt this Statement in fiscal 1999. Its adoption is not expected to have a
material impact on the Company's financial position or results of operations, as
it requires changes or additions to current disclosures.
OTHER MATTERS
The Company has signed a non-binding letter of intent to acquire NAI
Technologies, Inc. (NAI). NAI, based in Huntington, New York, is a diversified,
international electronics company. It is a leading provider of rugged computers,
peripheral equipment and integrated systems for military, government and
commercial applications. NAI reported revenues of approximately $52 million for
the year ended December 31, 1997. The transaction is subject to the negotiation
of a definitive merger agreement, completion of due diligence investigations,
and receipt of stockholder and regulatory approvals.
YEAR 2000
The Company is in the process of completing its assessment of computer
systems affected by the Year 2000 issue, and it plans to resolve any issues
identified. These plans provide for the Company's main business application
systems to be Year 2000 compliant by the end of fiscal 1999. Based on the
information currently available from the work performed, management does not
expect that the amounts to be expended for Year 2000 activities in fiscal 1999
will have a material impact on the Company's consolidated results of operations
or financial position.
21
<PAGE>
<TABLE>
<CAPTION>
DRS Technologies, Inc. and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------------------------------------------
March 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ........................................................... $ 9,673,000 $ 9,455,000
Accounts receivable, net (Note 2) ................................................... 47,273,000 24,343,000
Inventories, net of progress payments (Note 3) ...................................... 38,637,000 25,169,000
Prepaid expenses and other current assets ........................................... 1,849,000 1,389,000
Total current assets ................................................................ 97,432,000 60,356,000
- ---------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost (Note 4) ..................................... 55,429,000 48,286,000
Less accumulated depreciation and amortization ...................................... 32,457,000 28,299,000
Net property, plant and equipment ................................................... 22,972,000 19,987,000
- ---------------------------------------------------------------------------------------------------------------------------------
Intangible assets, less accumulated amortization of $6,061,000
and $4,827,000 at March 31, 1998 and 1997, respectively ........................ 33,070,000 10,915,000
Other assets ........................................................................ 9,999,000 6,415,000
Total assets ........................................................................ $163,473,000 $97,673,000
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Current installments of long-term debt (Notes 6 and 11) ............................. $ 7,514,000 $ 2,255,000
Short-term bank debt (Note 6) ....................................................... 5,100,000 1,994,000
Accounts payable and other current liabilities (Note 5) ............................. 42,692,000 23,269,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities ........................................................... 55,306,000 27,518,000
Long-term debt, excluding current installments (Notes 6 and 11) ..................... 56,532,000 30,801,000
Deferred income taxes (Note 7) ...................................................... 3,897,000 3,367,000
Other liabilities (Notes 8 and 9) ................................................... 3,403,000 3,000,000
Total liabilities ................................................................... $119,138,000 $64,686,000
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (Notes 6 and 8)
Preferred Stock, no par value. Authorized 2,000,000 shares;
no shares issued at March 31, 1998 and 1997 .................................... $ -- $ --
Common Stock, $.01 par value per share. Authorized 20,000,000 shares;
issued 6,596,237 and 6,007,786 shares at March 31, 1998 and 1997,
respectively ................................................................... 66,000 60,000
Additional paid-in capital .......................................................... 19,399,000 14,208,000
Retained earnings ................................................................... 27,057,000 20,685,000
Cumulative translation adjustment ................................................... (135,000) --
Treasury Stock, at cost: 402,461 and 420,893 shares of Common Stock
at March 31, 1998 and 1997, respectively ....................................... (1,561,000) (1,622,000)
Unamortized restricted stock compensation ........................................... (491,000) (344,000)
Net stockholders' equity ............................................................ 44,335,000 32,987,000
Commitments and contingencies (Note 9) -- --
Total liabilities and stockholders' equity .......................................... $163,473,000 $97,673,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
<TABLE>
<CAPTION>
DRS Technologies, Inc. and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Earnings
Years Ended March 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues .................................................... $190,854,000 $143,578,000 $101,454,000
Costs and expenses (Note 3) ................................. 176,595,000 130,996,000 92,907,000
- -----------------------------------------------------------------------------------------------------------------------------
Operating income ............................................ 14,259,000 12,582,000 8,547,000
Interest and related expenses ............................... (5,098,000) (3,592,000) (2,681,000)
Interest and other income, net .............................. 1,377,000 698,000 971,000
Minority interest ........................................... (874,000) (404,000) (110,000)
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes ................................ 9,664,000 9,284,000 6,727,000
Income taxes (Note 7) ....................................... 3,292,000 3,621,000 2,624,000
Net earnings ................................................ $ 6,372,000 $ 5,663,000 $ 4,103,000
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share of Common Stock (Note 1)
BASIC .................................................. $ 1.13 $ 1.03 $ 0.75
DILUTED ................................................ $ 0.93 $ 0.84 $ 0.69
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
DRS Technologies, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Additional Cumulative
(Note 8) Paid-In Retained Translation
Shares Amount Capital Earnings Adjustment
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT
MARCH 31, 1995 ....................... 5,863,216 $59,000 $13,435,000 $10,919,000 $ --
Net earnings ...................... -- -- -- 4,103,000 --
Stock options exercised ........... 100,350 -- 250,000 -- --
Compensation relating
to stock options, net ........... -- -- 30,000 -- --
Other ............................. -- -- (76,000) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31, 1996 ....................... 5,963,566 59,000 13,639,000 15,022,000 --
Net earnings ...................... -- -- -- 5,663,000 --
Stock options exercised ........... 44,220 1,000 101,000 -- --
Compensation relating
to stock options, net ........... -- -- (29,000) -- --
Restricted stock bonus
awards ......................... -- -- 167,000 -- --
Shares reissued from
treasury for acquisitions ....... -- -- 330,000 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31, 1997 ....................... 6,007,786 60,000 14,208,000 20,685,000 --
Net earnings ...................... -- -- -- 6,372,000 --
Stock options exercised ........... 23,480 -- 145,000 -- --
Compensation relating
to stock options, net ........... -- -- 199,000 -- --
Restricted stock bonus
awards ......................... -- -- 139,000 -- --
Conversion of 9%
Debentures (Note 6) ............. 564,971 6,000 4,708,000 -- --
Foreign currency
translation adjustment ......... -- -- -- -- (135,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 1998 ....................... 6,596,237 $66,000 $19,399,000 $27,057,000 $(135,000)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unamortized
Treasury Stock Restricted Net
(Note 8) Stock Stockholders'
Shares Amount Compensation Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES AT
MARCH 31, 1995 ....................... 454,258 $(1,617,000) $(287,000) $22,509,000
Net earnings ...................... -- -- -- 4,103,000
Stock options exercised ........... -- -- -- 250,000
Compensation relating
to stock options, net ........... -- -- 51,000 81,000
Other ............................. 44,176 (301,000) -- (377,000)
- ------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31, 1996 ....................... 498,434 (1,918,000) (236,000) 26,566,000
Net earnings ...................... -- -- -- 5,663,000
Stock options exercised ........... 300 (3,000) -- 99,000
Compensation relating
to stock options, net ........... -- -- 109,000 80,000
Restricted stock bonus
awards ......................... (34,575) 133,000 (217,000) 83,000
Shares reissued from
treasury for acquisitions ....... (43,266) 166,000 -- 496,000
- ------------------------------------------------------------------------------------------------------------------
BALANCES AT
MARCH 31, 1997 ....................... 420,893 (1,622,000) (344,000) 32,987,000
Net earnings ...................... -- -- -- 6,372,000
Stock options exercised ........... 224 (2,000) -- 143,000
Compensation relating
to stock options, net ........... -- -- (101,000) 98,000
Restricted stock bonus
awards ......................... (18,656) 63,000 (46,000) 156,000
Conversion of 9%
Debentures (Note 6) ............. -- -- -- 4,714,000
Foreign currency
translation adjustment ......... -- -- -- (135,000)
- ------------------------------------------------------------------------------------------------------------------
Balances at
March 31, 1998 ....................... 402,461 $(1,561,000) $(491,000) $44,335,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
DRS Technologies, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings .................................................................. $6,372,000 $5,663,000 $ 4,103,000
Adjustments to reconcile net earnings to cash flows
from operating activities:
Depreciation and amortization ....................................... 7,059,000 5,027,000 3,170,000
Deferred income taxes ............................................... (121,000) 701,000 (159,000)
Other, net .......................................................... 572,000 (215,000) (1,003,000)
Changes in assets and liabilities, net of effects from business
combinations:
(Increase) in accounts receivable ................................... (17,051,000) (200,000) (4,640,000)
(Increase) in inventories ........................................... (10,985,000) (5,485,000) (4,926,000)
(Increase) decrease in prepaid expenses and
other current assets ........................................... (393,000) 779,000 (265,000)
Increase (decrease) in accounts payable and
other current liabilities ...................................... 14,018,000 (6,894,000) 8,630,000
Other, net .......................................................... (703,000) (1,090,000) (59,000)
Net cash provided by (used in) operating activities ........................... (1,232,000) (1,714,000) 4,851,000
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures .......................................................... (6,570,000) (3,634,000) (5,942,000)
Sales of capital assets ....................................................... 2,277,000 151,000 2,638,000
Payments pursuant to business combinations,
net of cash acquired ..................................................... (34,183,000) (6,285,000) (4,669,000)
Proceeds from sale of partnership net assets .................................. 1,890,000 -- --
Other, net .................................................................... 227,000 -- --
Net cash used in investing activities ......................................... (36,359,000) (9,768,000) (7,973,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Payments on long-term debt .................................................... (2,294,000) (840,000) (1,112,000)
Repurchases of convertible subordinated debentures -- -- (7,212,000)
Net proceeds from issuance of long-term debt .................................. 35,578,000 -- 23,127,000
Other borrowings (repayments), net ............................................ 4,706,000 (1,107,000) (163,000)
Other, net .................................................................... (168,000) 99,000 70,000
Net cash provided by (used in) financing activities ........................... 37,822,000 (1,848,000) 14,710,000
Effect of exchange rates on cash and cash equivalents ......................... (13,000) -- --
Net increase (decrease) in cash and cash equivalents .......................... 218,000 (13,330,000) 11,588,000
Cash and cash equivalents, beginning of year .................................. 9,455,000 22,785,000 11,197,000
Cash and cash equivalents, end of year ........................................ $9,673,000 $9,455,000 $22,785,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
Note 1:
Summary of Significant
Accounting Policies
A. ORGANIZATION
DRS Technologies, Inc. (hereinafter DRS or the Company) is a diversified,
high-technology company serving government and commercial niche markets
worldwide. DRS develops and manufactures a variety of leading edge systems and
components used for the processing, display and storage of data. The Company
provides its customers with a broad range of products, including electronic
sensor, electronic imaging and electro-optical systems, and offers a full
complement of technical support services. DRS's defense electronics products
serve all branches of the U.S. Armed Services and certain international military
forces. The Company's commercial and industrial products are used by the
airline, banking, computer disk drive, security, transportation, retail sales
and broadcast industries.
B. BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of DRS
Technologies, Inc., its subsidiaries (all of which are wholly or majority owned)
and a joint venture consisting of an 80% controlling partnership interest. All
significant intercompany transactions and balances have been eliminated in
consolidation. Certain items in the fiscal 1997 consolidated financial
statements have been reclassified to conform to the fiscal 1998 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C. TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are translated into U.S. dollars at the
approximate prevailing rate at the time of the transaction. The operations of
the Company's Canadian and U.K. subsidiaries are translated from the local
(functional) currencies into U.S. dollars in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation".
The rates of exchange at each balance sheet date are used for translating
balance sheet accounts, and an average rate of exchange is used for translating
the statement of earnings. Gains or losses resulting from these translation
adjustments are included in the accompanying Consolidated Balance Sheets as a
separate component of stockholders' equity. The functional currency of the
Company's Bulgarian subsidiary is the U.S. dollar.
26
<PAGE>
D. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
E. REVENUE RECOGNITION
Revenues related to long-term, firm fixed-price contracts, which
principally provide for the manufacture and delivery of finished units, are
recognized as shipments are made. The estimated profits applicable to such
shipments are recorded pro rata based upon estimated total profit at completion
of the contracts. Revenues from commercial product sales also are recognized
upon shipment.
Revenues on contracts with significant engineering as well as production
requirements are recorded using the percentage-of-completion method measured by
the costs incurred on each contract to estimated total contract costs at
completion (cost-to-cost) with consideration given for risk of performance and
estimated profit. Revenues related to incentive-type contracts also are
determined on a percentage-of-completion basis measured by the cost-to-cost
method. Revenues from cost-reimbursement contracts are recorded, together with
the fees earned, as costs are incurred.
Revenues recognized under the cost-to-cost percentage-of-completion basis
during fiscal 1998, 1997 and 1996 approximated 9%, 7% and 10% of total revenues,
respectively, with remaining revenues recognized as deliveries of finished units
are made, or as costs are incurred under cost-reimbursement contracts. Included
in revenues for fiscal 1998, 1997 and 1996 were $11,774,000, $12,995,000 and
$12,051,000, respectively, of customer-sponsored research and development.
Revisions in profit estimates are reflected in the year in which the facts,
which require the revisions, become known, and any estimated losses and other
future costs are accrued in full.
Approximately 74%, 71% and 78% of the Company's revenues in fiscal 1998,
1997 and 1996, respectively, were derived directly or indirectly from
defense-industry contracts with the United States Government (principally the
U.S. Navy). In addition, approximately 9% in fiscal 1998 and 1997, and 10% in
fiscal 1996 of the Company's revenues were derived directly or indirectly from
sales to foreign governments.
F. INVENTORIES
Commercial and other non-contract inventories are stated at the lower of cost
(which includes material, labor and manufacturing overhead) or net realizable
value. Costs accumulated under contracts are stated at actual cost, not in
excess of estimated net realizable value, including, for long-term government
contracts, applicable amounts of general and administrative expenses which
include research and development costs, where such costs are recoverable under
customer contracts.
In accordance with industry practice, inventories include amounts
relating to contracts having production cycles longer than one year, and a
portion thereof will not be realized within one year.
G. DEPRECIATION AND AMORTIZATION OF PLANT AND EQUIPMENT
Depreciation and amortization have been provided on the straight-line method.
The ranges of estimated useful lives are: office furnishings, motor vehicles and
equipment, 3-10 years; building and building improvements, 15-40 years; and
leasehold improvements, over the shorter of the estimated useful lives or the
life of the lease.
Maintenance and repairs are charged to operations as incurred; renewals
and betterments are capitalized. The cost of assets retired, sold or otherwise
disposed of are removed from the accounts, and any gains or losses thereon are
reflected in results of operations.
H. INTANGIBLE ASSETS
Substantially all intangible assets consist of intangibles resulting from
acquisitions and represent the excess of cost of the investments over the fair
values of the underlying net assets at the dates of investment. All intangibles
are being amortized on the straight-line method over three to thirty years.
I. CONVERTIBLE DEBENTURES
The Company's outstanding 9% Senior Subordinated Convertible Debentures due
2003 (9% Debentures) and 8-1/2% Convertible Subordinated Debentures due 1998
(8-1/2% Debentures) are convertible at any time into shares of the Company's
Common Stock at the election of the bondholders. Upon conversion, the Company's
policy is to credit stockholders' equity for the aggregate principal amount of
Debentures converted, net of a pro-rata portion of unamortized issuance costs at
the conversion date. In the event the conversion occurs before an interest
payment record date, the related liability for accrued and unpaid interest also
would be credited to stockholders' equity.
J. STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-based Compensation"(SFAS 123). This
Statement stipulates, among other requirements, that companies make pro forma
disclosures of net earnings and earnings per share as if the fair value-based
method of accounting for stock options, as defined in the Statement, had been
applied.
As permitted under SFAS 123, the Company applies Accounting Principles
Board Opinion No. 25 in accounting for its stock option plans and, accordingly,
compensation cost has been recognized for its stock options in the financial
statements only as it relates to non-qualified stock options for which the
exercise price was less than the fair market value of the Company's Common Stock
as of the date of grant.
27
<PAGE>
K. INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
recognizes deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. A valuation
allowance is provided when it is more likely than not that some portion or all
of a deferred tax asset will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
L. EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" (SFAS
128). This Statement simplified standards for computing earnings per share
(EPS), as specified in Accounting Principles Board Opinion No. 15, "Earnings per
Share" (APB 15). Under SFAS 128, the presentation of primary EPS was replaced by
the presentation of basic EPS. For companies with complex capital structures,
the presentation of fully diluted EPS was replaced by diluted EPS. Diluted EPS
is computed similarly to fully diluted EPS, pursuant to APB 15. The Company
adopted this standard in fiscal 1998 beginning with the fiscal quarter ended
December 31, 1997, and its adoption did not have a material impact on reported
earnings per share for current or restated prior periods.
Basic earnings per share is computed by dividing net earnings by the sum of
the weighted averages of all classes of Common Stock outstanding during each
period. The computation of diluted earnings per share includes the effect of
shares from the assumed exercise of dilutive stock options and the effect of the
assumed conversion of the Company's outstanding 9% Debentures and 8-1/2%
Debentures. The following table provides the components of the per-share
computations:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPScomputation
Net earnings .................................................... $6,372 $5,663 $4,103
Weighted average common shares outstanding ...................... 5,626 5,525 5,470
Basic earnings per share ........................................ $ 1.13 $ 1.03 $ 0.75
- -------------------------------------------------------------------------------------------------------------------------
Diluted EPScomputation
Net earnings .................................................... $6,372 $5,663 $4,103
Interest and expenses related to convertible debentures ......... 2,071 1,795 748
- -------------------------------------------------------------------------------------------------------------------------
Adjusted earnings ............................................... $8,443 $7,458 $4,851
Weighted average common shares outstanding ...................... 5,626 5,525 5,470
Stock options ................................................... 283 228 177
Convertible Debentures:
8-1/2% Debentures .......................................... 333 333 --
9% Debentures .............................................. 2,803 2,824 1,374
- -------------------------------------------------------------------------------------------------------------------------
Diluted common shares outstanding ............................... 9,045 8,910 7,021
Diluted earnings per share ...................................... $ 0.93 $ 0.84 $ 0.69
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
M. IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
Whenever events or changes in circumstances indicate that the carrying
amount of a long-lived or intangible asset may not be recoverable, the Company's
policy is to evaluate the realizability of such assets based upon the
expectations of non-discounted cash flows or operating income for each
subsidiary or acquired business having a material acquisition-related intangible
asset balance. If the sum of the expected future undiscounted cash flows is less
than the carrying amount of the asset, a loss would be recognized for the
difference between the fair value and the carrying amount.
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts payable and
certain debt reported in the Consolidated Balance Sheets equal or approximate
fair values. The market values as of March 31, 1998 and 1997 of the Company's
8-1/2% Debentures and 9% Debentures, which are convertible into shares of the
Company's Common Stock, are disclosed herein (see Note 6).
O. SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes
standards for the reporting of financial and descriptive information about
operating segments of publicly-held companies in their respective interim and
annual financial statements. SFAS 131 also requires additional disclosures with
respect to products and services, geographic areas of operations and other
related data. The Statement is effective for fiscal years beginning after
December 31, 1997; however, DRS has elected to adopt this standard in fiscal
1998 (see Note 12).
28
<PAGE>
Note 2:
Accounts Receivable
The component elements of accounts receivable, net of allowances for
doubtful accounts of $486,000 and $136,000, respectively, are as follows:
<TABLE>
<CAPTION>
March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government:
Amounts billed ............................................................................ $10,042,000 $ 4,062,000
Recoverable costs and accrued profit on
progress completed, not billed ......................................................... 1,592,000 2,817,000
11,634,000 6,879,000
- ------------------------------------------------------------------------------------------------------------------------------------
Other Defense Contracts:
Amounts billed ............................................................................ 24,058,000 10,777,000
Recoverable costs and accrued profit on
progress completed, not billed ......................................................... 4,925,000 952,000
Other Trade Receivables ................................................................... 6,656,000 5,735,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ..................................................................................... $47,273,000 $24,343,000
</TABLE>
Included in accounts receivable at March 31, 1998 is $784,000 arising
from retainage provisions in certain contracts with the Canadian government, a
portion of which may not be collected within one year. The Company receives
progress payments on certain contracts from the U.S. Government of between
75-90% of allowable costs incurred; the remainder, including profits and
incentive fees, if any, is billed upon delivery and final acceptance of the
product. In addition, the Company may bill based upon units delivered.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
Note 3:
Inventories
March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Work in process ........................................................................... $63,000,000 $38,740,000
Raw materials and finished goods .......................................................... 5,813,000 3,874,000
- ------------------------------------------------------------------------------------------------------------------------------------
66,813,000 42,614,000
Less progress payments .................................................................... (30,176,000) (17,445,000)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ..................................................................................... $38,637,000 $25,169,000
</TABLE>
General and administrative costs included in work in process were
$10,092,000 and $9,449,000 at March 31, 1998 and 1997, respectively. General and
administrative costs included in costs and expenses amounted to $35,394,000,
$31,599,000 and $21,956,000 in fiscal 1998, 1997 and 1996, respectively.
Included in these amounts are expenditures for internal research and
development, amounting to approximately $4,049,000, $3,852,000 and $649,000 in
fiscal 1998, 1997 and 1996, respectively.
Property, plant and equipment at March 31, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
Note 4:
Property, Plant
and Equipment
March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land ...................................................................................... $ 1,780,000 $ 1,350,000
Building and building improvements ........................................................ 736,000 2,427,000
Office furnishings, equipment and other ................................................... 5,034,000 4,292,000
Laboratory and production equipment ....................................................... 29,279,000 25,075,000
Computer equipment ........................................................................ 10,329,000 8,878,000
Leasehold improvements .................................................................... 8,271,000 6,264,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ..................................................................................... $55,429,000 $48,286,000
</TABLE>
Depreciation and amortization of plant and equipment amounted to
$4,983,000, $3,542,000 and $2,311,000 in fiscal 1998, 1997 and 1996,
respectively.
In fiscal 1997, the Company financed approximately $1,594,000 of capital
expenditures with long-term notes and other available lines of credit (see Note
6).
29
<PAGE>
The component elements of accounts payable and other current liabilities are as
follows:
<TABLE>
<CAPTION>
Note 5:
Accounts Payable and
Other Current Liabilities
March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Payrolls, other compensation and related expenses ......................................... $ 5,693,000 $ 4,427,000
Income taxes payable ...................................................................... 1,342,000 1,959,000
Losses and future costs accrued on uncompleted contracts .................................. 4,120,000 2,204,000
Other ..................................................................................... 8,358,000 4,516,000
- ------------------------------------------------------------------------------------------------------------------------------------
19,513,000 13,106,000
Accounts payable .......................................................................... 23,179,000 10,163,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ..................................................................................... $42,692,000 $23,269,000
</TABLE>
A summary of debt is as follows:
<TABLE>
<CAPTION>
Note 6:
Debt
March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9% Senior Subordinated Convertible Debentures due October 1, 2003 ......................... $20,000,000 $25,000,000
8-1/2% Convertible Subordinated Debentures due August 1, 1998 ............................. 4,992,000 4,992,000
Term note ................................................................................. 19,794,000 --
Revolving line of credit .................................................................. 23,556,000 3,010,000
Variable rate industrial revenue bonds due January 1, 1998 ................................ -- 1,595,000
Other obligations ......................................................................... 804,000 453,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt ................................................................................ 69,146,000 35,050,000
Current installments of long-term debt .................................................... (7,514,000) (2,255,000)
Short-term bank debt ...................................................................... (5,100,000) (1,994,000)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT ...................................................................... $56,532,000 $30,801,000
</TABLE>
The 9% Debentures were issued in fiscal 1996 for an aggregate principal
amount of $25,000,000. These Debentures are convertible at their face amount any
time prior to maturity into shares of Common Stock (see Note 8), unless
previously redeemed, at a conversion price of $8.85 per share, subject to
adjustment under certain circumstances. In March 1998, $5,000,000 aggregate
principal amount of these Debentures were converted into 564,971 shares of
Common Stock, at the election of the bondholders.
As of October 1, 1998, the 9% Debentures will be redeemable at the option
of the Company, in whole or in part, together with accrued interest to the
redemption date, at a redemption price of 105% of face value, diminishing by one
percent each year to 100% on or after the fifth anniversary of such initial
redemption date. There is no sinking fund requirement associated with the 9%
Debentures.
The 9% Debentures are subordinated to the prior payment of principal and
interest on all senior indebtedness of the Company and are senior in right of
payment to the Company's 8-1/2% Debentures. The indenture for the 9% Debentures
contains certain restrictions, including a restriction on the payment of
dividends on the capital stock of the Company, a limitation on the issuance of
additional debt and certain other restrictions. Under the indenture, the Company
also is required to maintain a minimum level of consolidated net worth. As of
March 31, 1998, the Company was in compliance with these covenants.
The 8-1/2% Debentures are convertible at their face amount any time prior
to maturity into shares of Common Stock of the Company (see Note 8), unless
previously redeemed, at a conversion price of $15.00 per share, subject to
adjustment under certain conditions. The 8-1/2% Debentures currently are
redeemable at the option of the Company, in whole or in part, at face value,
together with interest accrued to the redemption date. As of March 31, 1998, the
Company had repurchased $20,008,000 of the 8-1/2% Debentures and has satisfied
all sinking fund requirements under the related indenture.
The 8-1/2% Debentures are subordinate to the prior payment in full of the
principal and interest on all senior indebtedness of the Company. The indenture
contains certain dividend payment and other restrictions. As of March 31, 1998,
the Company was in compliance with these covenants.
The 8-1/2% Debentures and the 9% Debentures are listed for trading on the
American Stock Exchange. The aggregate market values, based on closing prices,
of the principal amount of the outstanding 8-1/2% Debentures and 9% Debentures
were approximately $5,042,000 and $25,400,000, respectively, as of March 31,
1998 and approximately $5,004,000 and $34,000,000, respectively, as of March 31,
1997.
The variable rate demand industrial development revenue refunding bonds
(Bonds) were issued to refinance a prior bond issue, which provided funds for
the construction of manufacturing facilities for DRS Photronics, Inc., a
wholly-owned subsidiary of the Company. The Bonds were redeemed at maturity in
January 1998.
On October 29, 1997, the Company entered into a $60 million secured credit
facility (the Secured Credit Facility) with Mellon Bank, N.A. (Mellon Bank)
consisting of a $20 million term loan (the Term Loan) and a $40 million
revolving line of credit (the Secured Line of Credit). The Secured Credit
Facility expires on March 31, 2003. The Secured Credit Facility was used to
finance the acquisition of Flight Safety and Communications (see Note 11) and
replaced a previous revolving line of credit and equipment line of credit
facility.
30
<PAGE>
The Secured Credit Facility is secured by substantially all of the assets
of the Company. Borrowings can be in United States dollars at rates based on
LIBOR or United States Prime or in Canadian dollars at rates based on LIBOR,
Canadian Prime or the Canadian Bankers Acceptance Rate. The Term Loan and
approximately $4.3 million of revolving lines of credit borrowings were
denominated in Canadian dollars at March 31, 1998. Quarterly principal
installments are required on the Term Loan beginning on June 30, 1998.
The Secured Line of Credit is available for working capital, general
corporate purposes and acquisitions. The Secured Credit Facility contains
certain covenants and restrictions, including maintenance of a minimum level of
consolidated net worth, a restriction on the payment of dividends on the capital
stock of the Company, a limitation on the issuance of additional debt and
certain other restrictions. The Company was in compliance with all covenants
under its line of credit arrangements at March 31, 1998 and 1997.
As of March 31, 1998, approximately $48,294,000 was outstanding against the
Secured Credit Facility, of which $4,944,000 was contingently payable under
letters of credit, as compared with amounts outstanding under the previous
revolving line of credit at March 31, 1997 of $5,316,000 and $2,306,000,
respectively.
Weighted average borrowings under revolving lines of credit for the fiscal
years endedMarch 31, 1998 and 1997 were approximately $11,325,000 and
$3,148,000, respectively. The weighted average interest rates on outstanding
revolving line of credit borrowings as of March 31, 1998 and 1997 were 7.8% and
7.3%, respectively. As of March 31, 1998, the interest rate on the Term Loan was
7.0%.
Cash payments for interest during fiscal 1998, 1997 and 1996 were
$3,874,000, $3,032,000 and $1,169,000, respectively.
The aggregate maturities of long-term debt for the five years ending March
31, 2003 are as follows: 1999, $7,514,000; 2000, $4,136,000; 2001, $4,488,000;
2003, $4,488,000 and 2003, $23,180,000.
Note 7:
Income Taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
Years Ended March 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
Federal .................................................. $2,186,000 $2,673,000 $2,421,000
State .................................................... 698,000 247,000 362,000
Foreign .................................................. 529,000 -- --
3,413,000 2,920,000 2,783,000
- -----------------------------------------------------------------------------------------------------------------------
DEFERRED:
Federal .................................................. 117,000 596,000 602,000
State .................................................... 34,000 105,000 (761,000)
Foreign .................................................. (272,000) -- --
(121,000) 701,000 (159,000)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL .................................................... $3,292,000 $3,621,000 $2,624,000
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The tax effects of temporary differences that
gave rise to significant portions of the deferred tax assets and deferred tax
liabilities at March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
State net operating loss carryforwards .......................................... $2,840,000 $2,774,000
Inventory capitalization ........................................................ 1,984,000 1,361,000
Costs accrued on uncompleted contracts .......................................... 1,112,000 1,063,000
Other ........................................................................... 1,503,000 1,443,000
- ------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets ................................................. 7,439,000 6,641,000
Less valuation allowance ........................................................ (1,455,000) (1,411,000)
NET DEFERRED TAX ASSETS ......................................................... 5,984,000 5,230,000
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Depreciation and amortization ................................................... 4,255,000 4,012,000
General and administrative costs ................................................ 4,248,000 3,584,000
Federal impact of the state benefits ............................................ 749,000 727,000
Other ........................................................................... 1,326,000 487,000
Total gross deferred tax liabilities ............................................ 10,578,000 8,810,000
- ------------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES .................................................... $4,594,000 $3,580,000
</TABLE>
31
<PAGE>
A valuation allowance is provided when it is more likely than not that some
portion or all of a deferred tax asset will not be realized. The Company has
established a valuation allowance for a portion of the deferred tax asset
attributable to state net operating loss carryforwards, due to the uncertainty
of future Company earnings attributable to various states and the status of
applicable statutory regulation that could limit or preclude utilization of
these benefits in future periods. A deferred tax liability of $697,000 and
$213,000 is included in Accounts Payable and Other Current Liabilities in the
Consolidated Balance Sheets as of March 31, 1998 and 1997, respectively. At
March 31, 1998, approximately $23,585,000 of state net operating loss
carryforwards, which will expire between fiscal years 1999 and 2012, were
available in various tax jurisdictions.
A reconciliation of the statutory U.S. Federal income tax rate to the
effective tax rate follows:
<TABLE>
<CAPTION>
Years Ended March 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory tax rate ................................................... 34% 34% 34%
Difference between U.S. and foreign tax rates ............................. (1) -- --
State income tax, net of Federal income tax benefit ....................... 4 3 4
Utilization of capital loss carryforward .................................. (2) -- --
Other ..................................................................... (1) 2 1
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ..................................................................... 34% 39% 39%
</TABLE>
The provision for income taxes includes all estimated income taxes payable
to Federal, state and foreign governments, as applicable.
Cash payments for income taxes during fiscal 1998, 1997 and 1996 amounted
to $4,449,000, $2,813,000 and $2,809,000, respectively.
Note 8:
Common Stock
Stock Option Plans and
Employee Benefit Plans
On March 26, 1996, the stockholders of the Company approved an Amended and
Restated Certificate of Incorporation, which amended and restated the Company's
certificate primarily to effect a reclassification (the Reclassification) of
each share of Class A and Class B Common Stock into one share of Common Stock of
the Company. The Reclassification became effective April 1, 1996.
The following table presents the capital structure of the Company prior to
the Reclassification. The summarized totals have been used in the Consolidated
Statements of Stockholders' Equity for presentation purposes to give effect to
the Reclassification as if it had been completed on March 31, 1995:
<TABLE>
<CAPTION>
Number of Shares
Common Stock,
$.01 par Value Authorized Issued Held in Treasury Outstanding
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of March 31, 1995 Class A 10,000,000 3,699,963 432,639 3,267,324
Class B 20,000,000 2,163,253 21,619 2,141,634
- ------------------------------------------------------------------------------------------------------------------------------
30,000,000 5,863,216 454,258 5,408,958
As of March 31, 1996 Class A 10,000,000 3,739,963 432,639 3,307,324
Class B 20,000,000 2,223,603 65,795 2,157,808
- ------------------------------------------------------------------------------------------------------------------------------
30,000,000 5,963,566 498,434 5,465,132
</TABLE>
As a result of the Reclassification, the 8-1/2% Debentures and 9%
Debentures are convertible into an equivalent number of shares of Common Stock.
Also, options granted under the Company's 1991 Stock Option Plan are exercisable
for an equivalent number of shares of Common Stock.
On February 7, 1991, the Board adopted the 1991 Stock Option Plan (Stock
Option Plan), which authorized the issuance of up to 600,000 shares of Common
Stock. The Stock Option Plan was approved by the Company's stockholders on
August 8, 1991. Under the terms of the Stock Option Plan, options to purchase
shares of Common Stock may be granted to key employees, directors and
consultants of the Company. Options granted under the Stock Option Plan are at
the discretion of the Board (Stock Option Committee) and may be incentive stock
options or non-qualified stock options, except that incentive stock options may
be granted only to employees. The option price is determined by the Stock Option
Committee and must be a price per share which is not less than the par value per
share of the Common Stock, and in the case of an incentive stock option, may not
be less than the fair-market value of the Common Stock on the date of the grant.
Options may be exercised during the exercise period, as determined by the Stock
Option Committee, except that no option may be exercised within six months of
its grant date, and in the case of an incentive stock option, generally, the
exercise period may not exceed ten years from the date of the grant. As of March
31, 1998, 151,550 shares were reserved for future grants under the Stock Option
Plan.
On June 17, 1996, the Board adopted, and on August 7, 1996, the
stockholders approved the 1996 Omnibus Plan (Omnibus Plan). An aggregate of
500,000 shares of Common Stock is reserved for issuance under this plan, subject
to adjustment under certain circumstances. Awards under the Omnibus Plan are at
the discretion of the Stock Option Committee and may be made in the form of (i)
incentive stock options, (ii) non-qualified stock options, (iii) stock
appreciation rights, (iv) restricted stock, (v) phantom stock, (vi) stock
bonuses and (vii) other awards. Awards may be granted to employees, officers,
directors and consultants of the Company. The total number of shares of the
Company's stock subject to awards granted to any participant of this plan during
32
<PAGE>
any tax year of the Company may not exceed 200,000 shares. The Omnibus Plan also
provides for automatic grants of non-qualified stock options to non-employee
directors of the Company. Unless the Stock Option Committee expressly provides
otherwise, options granted under the Omnibus Plan are not exercisable prior to
one year after the date of grant and become exercisable as to 25% of the shares
granted on each of the first four anniversaries of the date of grant. The Stock
Option Committee will determine each option's expiration date, provided,
however, that no incentive stock option may be exercised more than ten years
after the date of grant. Additionally, the Stock Option Committee will establish
the option price, provided, however, that in the case of an incentive stock
option, the option price may not be set below the market value of a share of the
Company's Common Stock on the date of grant. As of March 31, 1998, 143,300
shares were reserved for future grants under the Omnibus Plan. Pursuant to the
terms of exercise under the grant, the excess of the fair-market value of shares
under option at the date of grant over the option price may be charged to
unamortized restricted stock compensation or to earnings as compensation expense
and credited to additional paid-in capital. The unamortized restricted stock
compensation, if any, is charged to expense as the options become exercisable,
in accordance with the terms of the grant. The amount of compensation charged to
earnings in fiscal 1998, 1997 and 1996 was $98,000, $80,000 and $81,000,
respectively, and related solely to options granted under the Stock Option Plan.
When stock is issued on exercise of options, the par value of each share
($.01) is credited to Common Stock and the remainder of the option price is
credited to paid-in capital. No charge is made to operations.
A summary of all transactions under the Stock Option and Omnibus Plans follows:
<TABLE>
<CAPTION>
Number of Shares Weighted Average
of Common Stock Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at (of which 185,425 shares were exercisable) 389,625 $2.68
March 31, 1995 Granted 159,000 $7.56
Exercised (100,350) $2.40
Expired (11,475) $2.66
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at (of which 137,100 shares were exercisable) 436,800 $4.52
March 31, 1996 Granted 165,900 $9.88
Exercised (44,220) $2.29
Expired (17,700) $5.03
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at (of which 218,280 shares were exercisable) 540,780 $6.33
March 31, 1997 Granted 204,800 $9.72
Exercised (23,480) $3.70
Expired (16,000) $9.41
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at (of which 303,100 shares were exercisable) 706,100 $7.33
March 31, 1998
</TABLE>
Information regarding all options outstanding at March 31, 1998 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted
Number Average Average Number Weighted
of Exercise Remaining of Average
Options Price Contractual Life Options Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Range of
Exercise Price Less than $5.00 228,200 $ 2.61 1.7 years 182,200 $ 2.73
$5.00 - $9.99 288,650 $ 8.80 7.9 years 104,900 $ 8.00
Greater than $9.99 189,250 $10.77 9.2 years 16,000 $10.55
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 706,100 $ 7.33 6.3 years 303,100 $ 4.96
</TABLE>
Pro forma information regarding net earnings and earnings per share, as
required by SFAS 123, has been determined as if the Company had accounted for
its employee stock options under the fair-value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions: risk-free interest rate
of 6.0% in 1998, and 6.5% in 1997 and 1996; dividend yield of 0%; volatility
factor related to the expected market price of the Company's Common Stock of
.2824 in 1998, and .2764 in 1997 and 1996; and weighted-average expected option
life of five years. The weighted-average fair values of options granted at
market during fiscal 1998, 1997 and 1996 were $3.94, $3.68 and $3.31 per share,
respectively. The per share weighted-average fair value and exercise price of
options granted with an exercise price less than market during 1998 were $9.99
and $0.01, respectively. For purposes of pro forma disclosures, the options'
estimated fair values are amortized to expense over the options' vesting
periods. Accordingly, the pro forma results for fiscal 1998, 1997 and 1996
presented below include 67%, 49% and 6%, respectively, of the total pro
33
<PAGE>
forma expense for options awarded in each year. The pro forma amounts may not be
representative of the effects on reported earnings for future years. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net earnings ....................................... $5,869 $5,446 $4,077
Pro forma earnings per common share
Basic ................................................ $ 1.04 $ 0.99 $ 0.75
Diluted .............................................. $ 0.88 $ 0.81 $ 0.69
</TABLE>
The Company also maintains defined contribution plans covering
substantially all domestic full-time eligible employees. The Company's
contributions to these plans for fiscal 1998, 1997 and 1996 amounted to
$743,000, $629,000 and $414,000, respectively.
Certain employees of DRS Hadland and DRS Flight Safety and Communications
participate in defined benefit pension plans sponsored by the Company. Plan
assets are invested in publicly traded equity and fixed income securities.
Retirement benefits are based on various factors, including remuneration and
years of service. The plans will be funded by DRS in accordance with independent
actuarial valuations. Current actuarial valuations are pending, in connection
with the finalization of purchase price allocations related to the acquisitions
of these businesses in fiscal 1998 (see Note 11). However, management believes
that the net pension obligations and related expenses associated with these
plans are not material to the consolidated financial position and results of
operations of the Company.
On February 1, 1996, the Company established a Supplemental Executive
Retirement Plan (the SERP) for the benefit of certain key executives. Pursuant
to the SERP, the Company will provide retirement benefits to each key executive,
based on years of service and final average annual compensation as defined
therein. In addition, the Company will advance premiums for life insurance
policies providing a death benefit equal to five times the participants' salary
at time of death. In the event of a change in control, as defined therein,
benefits become fully vested. The SERP is non-contributory and unfunded.
Benefits under the SERP currently are being funded from working capital. As of
March 31, 1998 and 1997, the Company's liability for benefits accrued under the
SERP was approximately $1,377,000 and $1,060,000, respectively, and is included
in Other Liabilities in the Consolidated Balance Sheets. Charges of $436,000 and
$270,000 relating to the SERP were included in the results of operations for
fiscal 1998 and 1997, respectively.
Note 9:
Commitments,
Contingencies and
Related Party Transactions
At March 31, 1998, the Company was party to various noncancellable
operating leases (principally for administration, engineering and production
facilities) with minimum rental payments as follows:
-----------------------------------------------------
1999 .................................. $4,201,000
2000 .................................. 3,844,000
2001 .................................. 2,570,000
2002 .................................. 1,978,000
2003 .................................. 1,295,000
Thereafter ............................ 1,441,000
-----------------------------------------------------
TOTAL ................................. $15,329,000
It is not certain as to whether the Company will negotiate new leases as
existing leases expire. Determinations to that effect will be made as existing
leases approach expiration and will be based on an assessment of the Company's
capacity requirements at that time.
Total rent expense aggregated $3,788,000, $3,237,000 and $3,115,000 in
fiscal 1998, 1997 and 1996, respectively.
In April 1984, the Board of Directors approved a lease agreement with LDR
Realty Co. (wholly owned by the former Chairman of the Board of Directors and
former President) for additional office and manufacturing space for the Company.
In August 1997, the lease was amended, extending the term of the lease through
June 2002. The Company pays an annual rent of $233,000 and is required to pay
all real-estate taxes, maintenance and repairs to the facility.
Effective July 20, 1994, the Company entered into an Employment,
Non-Competition and Termination Agreement (the Gross Agreement) with David E.
Gross, who retired as President and Chief Technical Officer of the Company on
May 12, 1994. Under the terms of the Gross Agreement, Mr. Gross will receive a
total of $600,000 as compensation for his services under a five-year consulting
agreement with the Company and $750,000 as consideration for a five-year
non-compete arrangement. The payments are being charged to expense over the
five-year term as services are performed and obligations are fulfilled by Mr.
Gross. He also will receive, at the conclusion of such initial five-year period,
an aggregate of approximately $1.3 million payable over a nine-year period as
deferred compensation. The approximate net present value of the deferred
compensation payments to be made to Mr. Gross is included in Other Liabilities
in the Consolidated Balance Sheets.
The Company's Flight Safety and Communications segment receives assistance
from the Canadian Government for research and development activities which is
applied to reduce the cost of the related expenditures. Government assistance in
the amount of approximately $2.9 million is repayable through royalties in the
event the related research and development projects successfully are
commercialized. The royalties are calculated on the basis of 2 to
34
<PAGE>
3% of total related sales and continue in effect until the assistance received
has been repaid or until the technology ceases to contribute to
commercialization of related products.
In April and May 1998, subpoenas were issued to the Company by the United
States Attorney for the Eastern District of New York seeking documents related
to certain equipment manufactured by DRS Photronics, Inc., a subsidiary of the
Company. The subpoenas were issued in connection with United States v. Tress, a
case involving a DRS Photronics' employee and related to the accuracy of test
data for the equipment. To date, no claim has been made or threatened against
the Company in connection with this matter. At this time, the Company is unable
to determine if any such claim will be made.
The Company itself is a party to various legal actions and claims arising
in the ordinary course of its business. In management's opinion, the Company has
adequate legal defenses for each of the actions and claims and believes that
their ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Since a substantial amount of the Company's revenues are derived from
contracts or subcontracts with the U.S. Government and foreign governments,
future revenues and profits will be dependent upon continued contract awards,
Company performance and volume of Government business. The books and records of
the Company are subject to audit and post-award review by the Defense Contract
Audit Agency and similar foreign agencies.
Note 10:
Restructuring
During fiscal 1998, the Company moved certain of its military display
workstation product lines from the Company's facility in Oakland, New Jersey to
its operation in Gaithersburg, Maryland and relocated its multi-platform
boresighting equipment product lines, formerly located in Hauppauge, New York,
to Oakland, New Jersey. In connection with this relocation, the Company sold the
land and building owned in Hauppauge, New York. The Company recorded a
restructuring charge of $634,000 in the year ended March 31, 1998 in connection
with these relocations. This restructuring charge did not include costs
associated with the relocation of employees, equipment and inventory, nor did it
include retraining costs for new personnel and the cost of leasehold
improvements for the Oakland, New Jersey production facility. These costs were
charged to operations or capitalized, as appropriate, when incurred.
The following table reconciles the restructuring charge to the related
reserve account balance as of March 31, 1998:
Fiscal 1998 restructuring charge .................. $634,000
Cash outflows for severance payments .............. (519,000)
Cash outflows for idle plant costs ................ (115,000)
- --------------------------------------------------------------
Balance at March 31, 1998 ......................... $ 0
Note 11:
Business Combinations
On July 5, 1995, DRS Optronics, Inc. (DRS Optronics), a second-tier
subsidiary of the Company, acquired substantially all of the assets of
Opto-Mechanik, Inc., pursuant to an asset acquisition agreement for a total of
$5.5 million, consisting of $3.7 million in cash and $1.8 million in notes
payable. DRS Optronics, 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.
On February 6, 1996, a wholly-owned subsidiary of the Company entered into
a partnership with Universal Sonics Corporation and its shareholders (DRS
Medical Systems or the Partnership) for the purpose of developing, manufacturing
and marketing medical ultrasound imaging equipment. The Company's contribution
to DRS Medical Systems consisted of $.4 million in cash, certain managerial
expertise and manufacturing capabilities, representing a 90% interest in the
Partnership. On September 12, 1997, the Company sold substantially all of the
net assets of DRS Medical Systems to United States Surgical Corporation for
approximately $1.9 million in cash. The sale resulted in a gain of approximately
$.1 million and the reversal of accrued obligations of $.3 million. The results
of operations of this Partnership were not material to the consolidated
operating results of the Company during the periods presented.
On February 9, 1996, DRS Ahead Technology, Inc. (DRS Ahead Technology)
acquired, through a wholly-owned subsidiary, certain assets and assumed certain
liabilities (principally, obligations under property leases) of Mag-Head
Engineering Company, Inc. (Mag-Head), pursuant to an asset purchase agreement,
for approximately $.4 million in cash. Mag-Head produces audio and flight
recorder heads.
On June 18, 1996, DRS Ahead Technology acquired, through a wholly-owned
subsidiary, substantially all the assets of Vikron, Inc. (Vikron) for
approximately $3.7 million in cash. The excess of cost over the estimated fair
value of net assets acquired was approximately $1.6 million and is being
amortized on a straight-line basis over fifteen years. Vikron, located in St.
Croix Falls, Wisconsin, manufactures data and recording heads.
On October 24, 1996, DRS Ahead Technology acquired, through a wholly-owned
subsidiary, certain assets of Nortronics Company, Inc. (Nortronics) for
approximately $2.4 million in cash. Located in Dassel, Minnesota, Nortronics
manufactures data and recording heads.
On October 30, 1996, Pacific Technologies, Inc., a California corporation,
merged with and into a wholly-owned subsidiary of the Company for stock and cash
valued at approximately $.5 million. Based in San Diego, California, and renamed
DRS Technical Services, Inc., it provides systems and software engineering
support to the U.S. Navy for the testing of shipboard combat systems.
On May 13, 1997, a subsidiary of the Company acquired approximately 80% of
the outstanding equity of Magnetic Heads Company Ltd. (MHC) for approximately
$.3 million in cash. Located in Razlog, Bulgaria, MHC, now known as DRS Ahead
Technology -- Bulgaria, is a manufacturer and supplier of magnetic recording
heads used primarily for commercial applications. In connection with this
acquisition,the Company agreed to make additional investments in DRS Ahead
Technology -- Bulgaria totaling approximately $2.3 million over a five-year
period. For purposes of this agreement, investments include transfer of
technology and related intangible assets, transfer of inventory and other
productive assets, employee training and other similar transfers and
expenditures.
35
<PAGE>
On October 29, 1997 (the Closing Date), DRS acquired, through certain of
its subsidiaries, the assets of the Applied Systems Division of Spar Aerospace
Limited (Spar), a Canadian corporation, and 100% of the stock of Spar Aerospace
(UK) Limited, incorporated under the laws of England and Wales (the
Acquisition), pursuant to a purchase agreement (the Agreement) dated as of
September 19, 1997 between DRS and Spar. The Company paid approximately $35.4
million in cash for the Acquisition (which included $6.9 million for cash
acquired in connection with the transaction), subject to a certain working
capital adjustment as provided for in the Agreement. The amount of such working
capital adjustment, if any, remains the subject of dispute between DRS and Spar.
Although the Company cannot, at this time, predict the outcome of such dispute,
management does not expect that its resolution will have a material impact on
the Company's consolidated financial position or results of operations. The
excess of cost over the estimated fair value of net assets acquired was
approximately $20 million and is being amortized on a straight-line basis over
thirty years. DRS incurred professional fees and other costs related to the
Acquisition of approximately $1.5 million, which were capitalized as part of the
total purchase price. Purchase price allocation has not yet been finalized, and
actual purchase price allocation may differ from that used in these Consolidated
Financial Statements. Headquartered in Carleton Place, Ontario, Canada, and
operating under the name DRS Flight Safety and Communications, the company has
been an international provider of aviation and defense systems for over 30
years. It designs, manufactures and markets sophisticated flight safety systems,
naval communications systems and other advanced electronics for government and
commercial customers around the world. It also provides custom manufacturing
services for complex electronic assemblies and systems.
The following unaudited pro forma financial information shows the results
of operations for the years ended March 31, 1998 and 1997, as though the
Acquisition had occurred at the beginning of each period presented. In addition
to combining the historical results of operations of the two companies, the pro
forma calculations include: the amortization of the excess of cost over the
estimated fair value of net assets acquired; the reversal of revenue in
connection with a certain contract which is not included in reported results of
operations subsequent to the Closing Date; interest expense on the debt
associated with the Acquisition; and the related tax effect of these adjustments
for each pro forma period presented. For purposes of this pro forma financial
information, adjustments to conform the revenue recognition method and the
treatment of general and administrative expenses between DRS and the acquired
companies prior to the Closing Date have not been made, as it was not
practicable to conform the revenue recognition method. Management believes that
the effect of any adjustment to conform the treatment of general and
administrative expenses would be immaterial.
Years Ended March 31, 1998 1997
- ----------------------------------------------------------------------------
Revenues .................................. $205,228,000 $172,690,000
Net earnings before extraordinary items ... $ 5,668,000 $ 5,153,000
Earnings per share:
Basic ............................. $ 1.01 $ 0.93
Diluted ........................... $ 0.86 $ 0.78
The pro forma financial information is not necessarily indicative either of
the results of operations that would have occurred had the acquisition been made
at the beginning of the period or of the future results of operations of the
combined companies.
On March 10, 1998, a subsidiary of the Company acquired Hadland Photonics
Ltd. for approximately $6.5 million in cash. Headquartered in Tring,
Hertfordshire, the United Kingdom, and operating as DRS Hadland, the company has
been a leader in ultra high-speed image capture and analysis for over 40 years.
It designs, manufactures and markets ultra high-speed digital imaging cameras
and avionics systems, including airborne video recording and ground replay
systems, for government and commercial customers worldwide. The excess of cost
over the estimated fair value of net assets acquired was approximately $4.0
million and is being amortized on a straight-line basis over thirty years.
Purchase price allocation has not yet been finalized, and actual purchase price
allocation may differ from that used for purposes of these Consolidated
Financial Statements.
The aforementioned acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the results of operations of the acquired
businesses were included in the Company's reported operating results from their
respective effective dates of acquisition. Except for the Spar Acquisition, the
financial position and results of operations of the aforementioned acquired
businesses were not significant to those of the Company as of their respective
effective dates of acquisition.
Note 12:
Operating Segments
DRS is organized into four principal operating segments on the basis of
products and services offered: the Electronic Systems Group (ESG), the Data
Systems Group (DSG), the Electro-Optical Systems Group (EOSG) and Flight Safety
and Communications (FS&C). Each operating segment is comprised of separate and
distinct businesses.
ESG consists of DRS Electronic Systems, Inc., located in Gaithersburg,
Maryland, DRS Laurel Technologies, located in Johnstown, Pennsylvania, DRS
Technical Services, Inc., based in San Diego, California, and the DRS Technical
Services division, located in Chesapeake, Virginia. The Group designs,
manufactures and integrates complex systems using advanced commercial technology
to meet the performance and environmental requirements of military customers.
Current products include tactical display and processing systems for military
ships and aircraft, littoral surveillance systems for coastal and harbor
regions, radar and acoustic sensor systems, and low-cost emulators of legacy
military systems for test and training support. ESG also provides manufacturing
services and technical support services for both DRS products and those of other
suppliers.
36
<PAGE>
DSG consists of DRS Precision Echo, Inc., located in Santa Clara,
California, and DRS Ahead Technology, headquartered in San Jose, California.
DRS Ahead Technology operates five manufacturing plants based in: Plymouth,
Minnesota; St. Croix Falls, Wisconsin; Dassel, Minnesota; Bloomington, Illinois;
and Razlog, Bulgaria. The Group utilizes advanced commercial technology to
design and manufacture multisensor digital, analog and video data capture and
recording products, as well as high-capacity data storage devices for the harsh
environments of aerospace and defense applications. Through its commercial
operations, DSG also provides a variety of magnetic head products and services
used in the commercial aviation, airline, television and audio broadcast,
computer disk drive, security, transportation and retail sales industries that
test or write and read information on magnetic data storage media.
EOSG consists of DRS Photronics, Inc., now based in Oakland, New Jersey,
DRS Optronics, located in Palm Bay, Florida and DRS Hadland, headquartered in
Tring, Hertfordshire, United Kingdom. DRS Hadland also has service offices in
Cupertino, California and Munich, Germany. The Group integrates advanced
commercial technology with military requirements to design and manufacture
advanced electro-optical sighting, targeting, weapons and aircraft optical
alignment systems, assemblies and components used primarily in the aerospace and
defense industries. The Group is a leading supplier of aircraft boresighting
equipment and ultra high-speed digital imaging systems. EOSG also produces night
vision and directional devices, as well as eye-safe, laser-based products for
military applications.
FS&C consists of DRS Flight Safety and Communications, located in Carleton
Place, Ontario, Canada, and DRS Technologies (UK) Ltd., based in Hayes,
Middlesex, United Kingdom. The Group designs and manufactures advanced flight
safety systems, naval communications systems and other advanced electronics
primarily for defense and commercial aerospace applications. FS&C is a leading
global supplier of deployable aircraft beacons and flight data recorders used in
emergencies to locate aircraft. Its shipboard communications systems integrate
commercial technology and are used in conjunction with surveillance satellites.
FS&C also provides custom manufacturing services for complex electronic systems.
Corporate operations include the activities of the parent company, DRS
Technologies, Inc., and several non-operating subsidiaries of the Company.
Included in Corporate operations are the results of operations from DRS Medical
Systems (see Note 11).
The accounting policies of the segments are consistent with those described
in the Summary of Significant Accounting Policies (see Note 1). The Company
evaluates segment level performance based on revenues and operating income as
presented in the Consolidated Statements of Earnings. Operating income, as
shown, includes amounts allocated from Corporate operations. Revenues and
identifiable assets of foreign operations other than those of FS&C (disclosed
herein) are immaterial to the Company's consolidated financial statements.
Information about the Company's operations in these segments for the three
years ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
(dollars in thousands) ESG DSG ESOG FS&C Corporate Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1998:
Revenues ............................... $95,054 $49,310 $31,396 $13,384 $ 1,710 $190,854
Operating income ....................... $ 9,454 $ 2,306 $ 1,134 $ 1,222 $ 143 $ 14,259
Identifiable assets .................... $35,706 $35,119 $42,401 $39,236 $11,011 $163,473
Depreciation and amortization .......... $ 923 $ 2,543 $ 2,037 $ 571 $ 985 $ 7,059
Capital expenditures ................... $ 1,091 $ 1,803 $ 2,461 $ 149 $ 1,066 $ 6,570
Fiscal 1997:
Revenues ............................... $81,157 $33,852 $25,134 $ -- $ 3,435 $143,578
Operating income ....................... $ 6,348 $ 5,231 $ 1,295 $ -- $ (292) $ 12,582
Identifiable assets .................... $27,354 $34,212 $21,755 $ -- $14,352 $ 97,673
Depreciation and amortization .......... $ 1,310 $ 1,669 $ 1,286 $ -- $ 762 $ 5,027
Capital expenditures ................... $ 1,766 $ 2,473 $ 449 $ -- $ 540 $ 5,228
Fiscal 1996:
Revenues ............................... $47,844 $31,427 $22,122 $ -- $ 61 $101,454
Operating income ....................... $ 3,181 $ 6,023 $ 781 $ -- $(1,438) $ 8,547
Identifiable assets .................... $26,198 $19,899 $25,456 $ -- $25,698 $ 97,251
Depreciation and amortization .......... $ 935 $ 931 $ 1,036 $ -- $ 268 $ 3,170
Capital expenditures ................... $ 1,394 $ 1,841 $ 2,982 $ -- $ 114 $ 6,331
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
DRS Technologies, Inc. and Subsidiaries
- ------------------------------------------------------------------------
Note 13:
Quarterly Financial
Information (Unaudited)
The following table sets forth unaudited quarterly financial information for
fiscal 1998 and 1997:
First Quarter 1998 1997
- ------------------------------------------------------------------------
Revenues ............................. $38,997,000 $27,423,000
Operating income ..................... $ 2,899,000 $ 2,468,000
Income taxes ......................... $ 788,000 $ 716,000
Net earnings ......................... $ 1,343,000 $ 1,120,000
Net earnings per share
of common stock
Basic ........................ $ 0.24 $ 0.20
Diluted ...................... $ 0.20 $ 0.18
Second Quarter 1998 1997
- ------------------------------------------------------------------------
Revenues ............................. $38,738,000 $33,440,000
Operating income ..................... $ 3,285,000 $ 3,032,000
Income taxes ......................... $ 863,000 $ 893,000
Net earnings ......................... $ 1,467,000 $ 1,396,000
Net earnings per share
of common stock
Basic ........................ $ 0.26 $ 0.25
Diluted ...................... $ 0.21 $ 0.21
Third Quarter 1998 1997
- ------------------------------------------------------------------------
Revenues ............................. $49,915,000 $38,379,000
Operating income ..................... $ 3,715,000 $ 3,254,000
Income taxes ......................... $ 916,000 $ 898,000
Net earnings ......................... $ 1,560,000 $ 1,406,000
Net earnings per share
of common stock
Basic ........................ $ 0.28 $ 0.25
Diluted ...................... $ 0.22 $ 0.21
Fourth Quarter 1998 1997
- ------------------------------------------------------------------------
Revenues ............................. $63,204,000 $44,336,000
Operating income ..................... $ 4,360,000 $ 3,828,000
Income taxes ......................... $ 725,000 $ 1,114,000
Net earnings ......................... $ 2,002,000 $ 1,741,000
Net earnings per share
of common stock
Basic ........................ $ 0.35 $ 0.31
Diluted ...................... $ 0.29 $ 0.24
38
<PAGE>
DRS Technologies, Inc. and Subsidiaries
- ------------------------------------------------------------------------
COMMON STOCK
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
As traded on the American Stock Exchange High Low High Low High Low
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter ..................................... 11 3/8 9 5/8 11 5/8 7 1/4 6 13/16 4 3/4
Second Quarter .................................... 15 1/8 10 1/4 11 5/8 8 3/8 7 7/8 5 3/4
Third Quarter ..................................... 14 13/16 11 7/8 12 1/2 9 1/4 8 6 3/4
Fourth Quarter .................................... 14 7/8 11 1/4 13 10 1/8 8 3/4 7 3/8
</TABLE>
As of June 1, 1998, the Common Stock of the Company was held by 335 stockholders
of record.
DRS Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
To the Board of Directors and Stockholders,
DRS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of DRS
Technologies, Inc. and subsidiaries as of March 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DRS
Technologies, Inc. and subsidiaries as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1998 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
May 11, 1998
40
<TABLE>
<CAPTION>
EXHIBIT 21
DRS TECHNOLOGIES, INC.
SUBSIDIARIES OF THE COMPANY AS OF MARCH 31, 1998
SUBSIDIARY PLACE OF INCORPORATION
---------- ----------------------
<S> <C>
DRS Electronic Systems, Inc. United States of America (Delaware)
DRS Technical Services, Inc. United States of America (Delaware)
DRS Systems Management Corporation United States of America (Delaware)
DRS Laurel Technologies United States of America (Delaware)
DRS Precision Echo, Inc. United States of America (Delaware)
DRS Ahead Technology, Inc. United States of America (Delaware)
DRS Photronics, Inc. United States of America (New York)
DRS Optronics, Inc. United States of America (Delaware)
DRS Technologies Canada, Inc. United States of America (Delaware)
DRS Nova Scotia Canada (Nova Scotia)
DRS Technologies Canada Company Canada (Nova Scotia)
DRS Technologies (Europe) Ltd. United Kingdom
DRS Technologies (UK) Ltd. United Kingdom
DRS Hadland Ltd. United Kingdom
DRS Hadland GmbH Federal Republic of Germany
DRS Hadland, Inc. United States of America (Delaware)
DRS Air, Inc. United States of America (Delaware)
DRS/MS, Inc. United States of America (Delaware)
DRS International, Inc. United States of America (Delaware)
Diagnostic/Retrieval Systems (DRS) Technologies Parsippany B.V. Netherlands
Magnetic Heads Co. Ltd. Republic of Bulgaria
</TABLE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
DRS Technologies, Inc.:
We consent to the incorporation by reference in the registration statements
(No. 2-87303, No. 2-99986, and No. 333-14487) on Form S-8 and (No. 2-97784, No.
33-33125, No. 33-42886, No. 33-64641, and No. 333-04929) on Form S-3 of DRS
Technologies, Inc. of our reports dated May 11, 1998, relating to the
consolidated balance sheets of DRS Technologies, Inc. as of March 31, 1998 and
1997, and the related consolidated statements of earnings, stockholders' equity,
and cash flows and related consolidated financial statement schedule for each of
the years in the three-year period ended March 31, 1998, which reports appear or
are incorporated by reference in the March 31, 1998 Annual Report on Form 10-K
of DRS Technologies, Inc.
KPMG Peat Marwick LLP
Short Hills, New Jersey
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DRS TECHNOLOGIES, INC. FORM 10-K FOR THE FISCAL PERIOD ENDED MARCH 31,
1998, AND RESTATED INFORMATION FOR THE FISCAL PERIODS ENDED MARCH 31,
1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS YEAR
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997 MAR-31-1996
<PERIOD-END> MAR-31-1998 MAR-31-1997 MAR-31-1996
<CASH> 9,673,000 9,455,000 22,785,000
<SECURITIES> 0 0 0
<RECEIVABLES> 47,759,000 24,343,000 22,942,000
<ALLOWANCES> (486,000) 0 0
<INVENTORY> 38,637,000 25,169,000 19,449,000
<CURRENT-ASSETS> 97,432,000 60,356,000 66,640,000
<PP&E> 55,429,000 48,286,000 41,935,000
<DEPRECIATION> 32,457,000 28,299,000 25,744,000
<TOTAL-ASSETS> 163,473,000 97,673,000 97,251,000
<CURRENT-LIABILITIES> 55,306,000 27,518,000 32,650,000
<BONDS> 56,532,000 30,801,000 32,608,000
0 0 0
0 0 0
<COMMON> 66,000 60,000 59,000
<OTHER-SE> 44,269,000 32,927,000 26,507,000
<TOTAL-LIABILITY-AND-EQUITY> 163,473,000 97,673,000 97,251,000
<SALES> 190,854,000 143,578,000 101,454,000
<TOTAL-REVENUES> 190,854,000 143,578,000 101,454,000
<CGS> 176,595,000 130,996,000 92,907,000
<TOTAL-COSTS> 176,595,000 130,996,000 92,907,000
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 5,098,000 3,592,000 2,681,000
<INCOME-PRETAX> 9,664,000 9,284,000 6,727,000
<INCOME-TAX> 3,292,000 3,621,000 2,624,000
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,372,000 5,663,000 4,103,000
<EPS-PRIMARY> 1.13 1.03 0.75
<EPS-DILUTED> 0.93 0.84 0.69
</TABLE>
