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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
---------------
Commission file number 1-8533
DRS TECHNOLOGIES, INC.
Delaware 13-2632319
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Sylvan Way, Parsippany, New Jersey 07054
(973) 898-1500
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
As of November 9, 2000, 10,711,552 shares of DRS Technologies, Inc.
Common Stock, $.01 par value, were outstanding.
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<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
-------------------
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets--
September 30, 2000 and March 31, 2000 ............... 1
Condensed Consolidated Statements of Earnings--
Three and Six Months Ended September 30, 2000
and 1999............................................. 2
Condensed Consolidated Statements of Cash Flows--
Six Months Ended September 30, 2000 and 1999 ........ 3
Notes to Condensed Consolidated Financial Statements... 4-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........ 10-16
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk..................... .............. 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...................................... 17
ITEM 4. Submission of Matters to a Vote of Security Holders.... 18
ITEM 6. Exhibits and Reports on Form 8-K....................... 18
SIGNATURES................................................................ 19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 8,566 $ 3,778
Accounts receivable, net .................................... 81,753 80,894
Inventories, net of progress payments ....................... 72,527 62,326
Prepaid expenses and other current assets ................... 7,420 6,326
Net current assets of discontinued operations ............... -- 5,309
--------- ---------
Total current assets ........................... 170,266 158,633
--------- ---------
Property, plant and equipment, less accumulated
depreciation and amortization of $32,113 and
$28,033 at September 30, 2000 and March 31, 2000,
respectively ................................................ 34,028 29,006
--------- ---------
Goodwill and related intangible assets, less accumulated
amortization of $18,087 and $14,821 at
September 30, 2000 and March 31, 2000, respectively ......... 126,465 125,321
--------- ---------
Deferred income taxes and other noncurrent assets ................... 6,158 7,138
--------- ---------
$ 336,917 $ 320,098
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt ...................... $ 6,564 $ 5,699
Short-term bank debt ........................................ 19,095 17,781
Accounts payable ............................................ 26,464 28,295
Accrued costs on acquired contracts ......................... 43,470 31,906
Accrued expenses and other current liabilities .............. 50,327 53,568
--------- ---------
Total current liabilities ...................... 145,920 137,249
Long-term debt, excluding current installments ...................... 89,195 97,695
Other noncurrent liabilities ........................................ 8,545 6,970
--------- ---------
Total liabilities .............................. 243,660 241,914
--------- ---------
Stockholders' equity:
Preferred Stock, no par value. Authorized 2,000,000 shares;
no shares issued at September 30, 2000 and March 31, 2000 ... -- --
Common Stock, $.01 par value per share
Authorized 20,000,000 shares; issued 11,100,003
and 9,717,020 shares at September 30, 2000 and
March 31, 2000, respectively ................................ 111 97
Additional paid-in capital .......................................... 61,438 48,584
Retained earnings ................................................... 36,184 32,047
Accumulated other comprehensive losses .............................. (2,126) (86)
Treasury stock, at cost:
440,939 shares of Common Stock at September 30, 2000
and March 31, 2000 .......................................... (1,988) (1,988)
Unamortized restricted stock compensation ........................... (362) (470)
--------- ---------
Net stockholders' equity .................................... 93,257 78,184
--------- ---------
Commitments and contingencies ....................................... $ 336,917 $ 320,098
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues ........................................ $ 107,227 $ 88,253 $ 201,748 $ 173,899
Costs and expenses .............................. (98,724) (83,134) (186,090) (163,506)
--------- -------- --------- ---------
Operating income ............................. 8,503 5,119 15,658 10,393
Other expense (income), net ..................... 32 (195) (42) (294)
Interest and related expenses ................... 3,537 2,934 6,644 6,079
--------- -------- --------- ---------
Earnings from continuing operations before
minority interests and income taxes ....... 4,934 2,380 9,056 4,608
Minority interests .............................. 270 291 595 570
--------- -------- --------- ---------
Earnings from continuing operations before
income taxes ................................ 4,664 2,089 8,461 4,038
Income taxes .................................... 2,425 884 4,324 1,631
--------- -------- --------- ---------
Earnings from continuing operations .......... 2,239 1,205 4,137 2,407
Loss from discontinued operations, net of tax
benefit of $101 and $62 ...................... -- (145) -- (379)
--------- -------- --------- ---------
Net earnings ................................. $ 2,239 $ 1,060 $ 4,137 $ 2,028
========= ======== ========= =========
Earnings per share of common stock
Basic earnings per share:
Earnings from continuing operations ....... $ 0.22 $ 0.13 $ 0.43 $ 0.26
Loss from discontinued operations,
net of tax ............................. -- (0.02) -- (0.04)
Net earnings .............................. $ 0.22 $ 0.11 $ 0.43 $ 0.22
Diluted earnings per share:
Earnings from continuing operations ....... $ 0.20 $ 0.13 $ 0.38 $ 0.26
Loss from discontinued operations,
net of tax ............................. -- (0.02) -- (0.04)
Net earnings .............................. $ 0.20 $ 0.11 $ 0.38 $ 0.22
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
2000 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net earnings ........................................... $ 4,137 $ 2,028
Adjustments to reconcile net earnings to cash
flows from operating activities:
Net loss from discontinued operations .................. -- 379
Depreciation and amortization .......................... 8,544 8,563
Other, net ............................................. (1,156) (133)
Changes in assets and liabilities, net of
effects from business combinations:
Decrease in accounts receivable ........................ 4,171 3,180
(Increase) decrease in inventories ..................... (3,896) 1,884
Decrease in prepaid expenses and
other current assets ................................ 765 1,144
Decrease in accounts payable ........................... (3,529) (3,116)
Increase (decrease) in accrued costs on
acquired contracts .................................. 11,564 (6,949)
Increase (decrease) in accrued expenses
and other current liabilities ....................... (3,078) (9,645)
Decrese in customer advances ........................... (3,187) (8,064)
Other, net ............................................. (893) 604
-------- -------
Net cash provided by (used in) operating
activities of continuing operations ................. 13,442 (10,125)
Net cash provided by operating activities of
discontinued operations ............................. -- 205
-------- -------
Net cash provided by (used in) operating activities .... 13,442 (9,920)
-------- -------
Cash flows from investing activities
Capital expenditures ................................... (8,412) (2,051)
Payments pursuant to business combinations,
net of cash acquired ................................ (6,979) (8,364)
Proceeds from sale of discontinued operations .......... 3,000 --
Other, net ............................................. 361 --
-------- -------
Net cash used in investing activities of
continuing operations ............................... (12,030) (10,415)
Net cash used in investing activities of
discontinued operations ............................. -- (208)
-------- -------
Net cash used in investing activities .................. (12,030) (10,623)
-------- -------
Cash flows from financing activities
Net borrowings of short-term debt ...................... 1,478 12,391
Payments on long-term debt ............................. (5,487) (2,477)
Net proceeds from acquisition-related debt ............. 7,000 8,000
Other, net ............................................. 132 (681)
-------- -------
Net cash provided by financing activities .............. 3,123 17,233
-------- -------
Effect of exchange rates on cash and cash equivalents ..... 253 66
-------- -------
Net increase (decrease) in cash and cash equivalents ...... 4,788 (3,244)
Cash and cash equivalents, beginning of period ............ 3,778 10,031
-------- -------
Cash and cash equivalents, end of period .................. $ 8,566 $ 6,787
======== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of DRS Technologies, Inc. and
Subsidiaries (the Company) contain all adjustments (consisting of only
normal and recurring adjustments) necessary for the fair presentation of
the Company's consolidated financial position as of September 30, 2000, and
the results of operations and cash flows for the three- and six-month
periods ended September 30, 2000 and 1999. All significant intercompany
balances and transactions have been eliminated. On August 31, 2000 the
Company completed the sale of its magnetic tape head business units located
in St. Croix Falls, Wisconsin and Razlog, Bulgaria (see Note 2.
Discontinued Operation). Accordingly, the Company has restated its
financial statements for the periods ended September 30, 1999 to present
the operating results of these business units as discontinued operations.
Certain other items in the accompanying notes to the September 30, 1999
condensed consolidated financial statements have been reclassified to
conform to the fiscal 2001 presentation. The results of operations for the
three- and six-month periods ended September 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
2. DISCONTINUED OPERATION
On May 18, 2000, the Company's Board of Directors approved an agreement to
sell its magnetic tape head business units located in St. Croix Falls,
Wisconsin, and Razlog, Bulgaria and on August 31, 2000, the Company
completed the sale. In fiscal 2000, in anticipation of the sale of the
magnetic tape head business units, the Company recorded a $2.1 million
charge, net of tax, on the disposal of these operations in the period ended
March 31, 2000. Actual income from discontinued operations for the five
months ended August 31, 2000 was $135,000 greater than estimated at March
31, 2000. Other costs associated with the disposal substantially offset the
improvement in operating results and as such no adjustment to the loss on
disposal of discontinued operations recorded at March 31, 2000 was
required.
3. BUSINESS COMBINATIONS
On June 14, 2000, a newly formed subsidiary of the Company acquired the
assets of General Atronics Corporation for $7.5 million in cash and $4.0
million in stock (approximately 355,000 shares of DRS Common Stock). The
Company funded the cash portion of this acquisition through borrowings
under its revolving line of credit. Located in Wyndmoor, Pennsylvania, and
now operating as DRS Communications Company, LLC (DRS Communications
Company), the company designs, develops and manufactures military data link
components and systems, high-frequency communication modems, tactical and
secure digital telephone components, and radar surveillance systems for
U.S. and international militaries. DRS Communications Company is being
managed as part of the DRS Flight Safety and Communications Group. The
acquisition has been accounted for using the purchase method of accounting.
The excess of costs over the estimated fair value of identifiable net
assets acquired, and the appraised value of certain identified intangible
assets were approximately $2.6 million and $3.3 million, respectively, and
are being amortized on a straight-line basis over twenty years and ten
years, respectively. In connection with the acquisition, the Company
incurred approximately $369,000 in transaction costs. Purchase price
allocation has not yet been finalized, and actual purchase price allocation
may differ from that used in these Condensed Consolidated Financial
Statements. The results of the acquired business have been included in the
consolidated financial statements of the Company since the acquisition
date.
4
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the fourth quarter of fiscal 2000 the Company closed its Longmont,
Colorado facility, which was acquired as part of the Company's acquisition
of NAI Technologies, Inc. in the fourth quarter of fiscal 1999. Engineering
and production performed at this facility were transferred to other DRS
locations. Approximately $1.5 million was recorded in fiscal 2000, as an
adjustment to acquisition cost, for costs incurred in connection with
closing the facility. The following table reconciles the related liability
at March 31, 2000 to the liability as of September 30, 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)
LIABILITY AT UTILIZED LIABILITY AT
MARCH 31, 2000 FISCAL 2001 JUNE 30, 2000
-------------- ----------- -------------
<S> <C> <C> <C>
Severance / Employee costs ............ $ 1,195 $ 1,195 $ --
Estimated lease commitments and
related facility costs .............. 215 215 --
-------------- ----------- -------------
Total ................................. $ 1,410 $ 1,410 $ --
============== =========== =============
</TABLE>
4. INVENTORIES
Inventories are summarized as follows:
(IN THOUSANDS)
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
Work-in-process ................... $ 88,842 $ 79,058
Raw material and finished
goods ........................... 7,787 10,917
------------------ --------------
96,629 89,975
------------------ --------------
Less progress payments ............ (24,102) (27,649)
------------------ --------------
Total ............................. $ 72,527 $ 62,326
================== ==============
General and administrative costs included in work-in-process were
approximately $13.8 million and $12.7 million at September 30, 2000 and
March 31, 2000, respectively. General and administrative expenses included
in costs and expenses amounted to approximately $19.9 million and $16.4
million for the three-month periods ended September 30, 2000 and 1999,
respectively, and approximately $36.7 million and $31.5 million for the
six-month periods then ended. Included in those amounts are expenditures
for internal research and development amounting to approximately $2.0
million and $2.4 million for the fiscal quarters ended September 30, 2000
and 1999, respectively, and approximately $4.1 million and $3.8 million,
respectively, for the six-month periods then ended.
5
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EARNINGS PER SHARE
The following table presents a reconciliation of the numerators and
denominators of basic and diluted earnings per share (EPS):
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
Basic EPS Computation
<S> <C> <C> <C> <C>
Net earnings from continuing operations ...................... $ 2,239 $ 1,205 $ 4,137 $ 2,407
Net loss from discontinued operations, net of tax ............ -- (145) -- (379)
------- ------- ------- -------
Net earnings ................................................. $ 2,239 $ 1,060 $ 4,137 $ 2,028
------- ------- ------- -------
Weighted average common shares outstanding ..................... 10,001 9,276 9,677 9,260
------- ------- ------- -------
Basic earnings (losses) per share:
Net earnings from continuing operations ...................... $ 0.22 $ 0.13 $ 0.43 $ 0.26
Net loss from discontinued operations, net of tax ............ -- (0.02) -- (0.04)
------- ------- ------- -------
Net earnings ................................................. $ 0.22 $ 0.11 $ 0.43 $ 0.22
======= ======= ======= =======
Diluted EPS Computation
Net earnings from continuing operations ...................... $ 2,239 $ 1,205 $ 4,137 $ 2,407
Interest and expenses related to convertible debentures ...... 196 -- 436 --
------- ------- ------- -------
Adjusted net earnings from continuing operations ............. 2,435 1,205 4,573 2,407
Net loss from discontinued operations, net of tax ............ -- (145) -- (379)
------- ------- ------- -------
Adjusted net earnings ........................................ $ 2,435 $ 1,060 $ 4,573 $ 2,028
------- ------- ------- -------
Diluted common shares outstanding:
Weighted average common shares outstanding ................... 10,001 9,276 9,677 9,260
Stock options ................................................ 535 169 493 151
Convertible debentures ....................................... 1,808 -- 1,984 --
------- ------- ------- -------
Diluted common shares outstanding .............................. 12,344 9,445 12,154 9,411
------- ------- ------- -------
Diluted earnings (losses) per share:
Net earnings from continuing operations ...................... $ 0.20 $ 0.13 $ 0.38 $ 0.26
Net loss from discontinued operations, net of tax ............ -- (0.02) -- (0.04)
------- ------- ------- -------
Net earnings ................................................. $ 0.20 $ 0.11 $ 0.38 $ 0.22
======= ======= ======= =======
</TABLE>
In the computation of earnings per common share for the six-month periods
ended September 30, 1999, the assumed conversion of the Company's 9% Senior
Subordinated Convertible Debentures were excluded because their inclusion
would have been antidilutive. The Company's 12% Convertible Subordinated
Promissory Notes (which were fully liquidated in the second quarter of
fiscal 2000) were also excluded from the computation of earnings per share
for the year to date period ended September 30, 1999 as their inclusion
would have been antidilutive.
6
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Comprehensive earnings
Net earnings ................................ $ 2,239 $ 1,060 $ 4,137 $ 2,028
------- ------- ------- -------
Other comprehensive (losses) earnings:
Foreign currency translation adjustment.. (469) 959 (2,040) 1,119
------- ------- ------- -------
Comprehensive earnings ...................... $ 1,770 $ 2,019 $ 2,097 $ 3,147
======= ======= ======= =======
</TABLE>
7. RESTRUCTURING CHARGE
During fiscal 2000, the Company recorded restructuring charges totaling
approximately $2.2 million. The Company's restructuring initiatives
impacted the Electro-Optical Systems Group (EOSG) and Flight Safety and
Communications Group (FSCG) operating segments and DRS Corporate
Headquarters. EOSG recorded a restructuring charge of approximately
$831,000 primarily for costs relating to consolidating two facilities into
one in Oakland, New Jersey, as of March 31, 2000. FSCG recorded a
restructuring charge of approximately $669,000 and $143,000 at its DRS
Hadland Ltd. ("DRS Hadland") and DRS Precision Echo, Inc. operating units,
respectively, for severance and other employee related costs. The DRS
Hadland restructuring charge was recorded in connection with the transition
of the day-to-day management of DRS Hadland's operations from EOSG to FSCG
in the second half of fiscal 2000. In addition, DRS Corporate Headquarters
recorded a restructuring charge of approximately $560,000 for severance and
other employee related costs. Severance and other employee costs were
recorded in connection with the termination of 13 employees. As of March
31, 2000, all terminations had occurred. A portion of the termination
benefits will be paid in accordance with contractual terms over the next
two years. The following table reconciles the restructuring liability at
March 31, 2000 to the restructuring liability as of September 30, 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)
LIABILITY AT UTILIZED LIABILITY AT
MARCH 31, 2000 FISCAL 2001 SEPTEMBER 30, 2000
-------------- ----------- ------------------
<S> <C> <C> <C>
Estimated lease commitments
and related facility costs ............... $ 328 $ 187 $ 141
Severance / Employee costs ................. 690 219 471
-------------- ----------- ------------------
Total ...................................... $ 1,018 $ 406 $ 612
============== =========== ==================
</TABLE>
7
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. OPERATING SEGMENTS
DRS operates in three principal business segments on the basis of products
and services offered. Each operating unit is comprised of separate and
distinct businesses: the Electronic Systems Group (ESG); the
Electro-Optical Systems Group (EOSG), and the Flight Safety and
Communications Group (FSCG). All other operations are grouped in "Other."
Information about the Company's operations in these segments for the fiscal
quarters and six-month periods ended September 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
ESG EOSG FSCG OTHER TOTAL
--------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Quarter Ended September 30, 2000
Total Revenues .................... $ 45,688 $ 39,792 $ 19,127 $ 2,636 $ 107,243
Intersegment Revenues ........... $ -- $ (16) $ -- $ -- $ (16)
External Revenues ................. $ 45,688 $ 39,776 $ 19,127 $ 2,636 $ 107,227
Operating income (loss) ........... $ 3,762 $ 5,122 $ (689) $ 308 $ 8,503
Identifiable assets ............... $ 104,148 $ 137,980 $ 78,173 $ 16,616 $ 336,917
Depreciation and amortization ..... $ 909 $ 1,936 $ 1,003 $ 554 $ 4,402
Capital expenditures .............. $ 1,019 $ 3,194 $ 805 $ 814 $ 5,832
Quarter Ended September 30, 1999
Total Revenues .................... $ 41,777 $ 32,814 $ 11,905 $ 2,293 $ 88,789
Intersegment Revenues ........... $ (93) $ (395) $ (48) $ -- $ (536)
External Revenues ................. $ 41,684 $ 32,419 $ 11,857 $ 2,293 $ 88,253
Operating income (loss) ........... $ 2,872 $ 1,743 $ 522 $ (18) $ 5,119
Identifiable assets ............... $ 96,807 $ 144,868 $ 59,182 $ 21,642 $ 322,499
Depreciation and amortization ..... $ 795 $ 2,027 $ 745 $ 541 $ 4,108
Capital expenditures .............. $ 408 $ 137 $ 103 $ 164 $ 812
<CAPTION>
(IN THOUSANDS)
ESG EOSG FSCG OTHER TOTAL
--------- --------- -------- -------- ---------
Six Months Ended September 30, 2000
Revenues .......................... $ 87,225 $ 79,347 $ 30,418 $ 4,818 $ 201,808
Intersegment Revenues ........... $ -- $ (60) $ -- $ -- $ (60)
External Revenues ................. $ 87,225 $ 79,287 $ 30,418 $ 4,818 $ 201,748
Operating income .................. $ 6,262 $ 8,952 $ 256 $ 188 $ 15,658
Identifiable assets ............... $ 104,148 $ 137,980 $ 78,173 $ 16,616 $ 336,917
Depreciation and amortization ..... $ 1,790 $ 3,854 $ 1,798 $ 1,102 $ 8,544
Capital expenditures .............. $ 1,514 $ 4,037 $ 1,848 $ 1,013 $ 8,412
Six Months Ended September 30, 1999
Revenues .......................... $ 85,328 $ 61,946 $ 23,089 $ 4,175 $ 174,538
Intersegment Revenues ........... $ (93) $ (498) $ (48) $ -- $ (639)
External Revenues ................. $ 85,235 $ 61,448 $ 23,041 $ 4,175 $ 173,899
Operating income (loss) ........... $ 6,059 $ 3,802 $ 1,434 $ (902) $ 10,393
Identifiable assets ............... $ 96,807 $ 144,868 $ 59,182 $ 21,642 $ 322,499
Depreciation and amortization ..... $ 1,707 $ 4,189 $ 1,491 $ 1,176 $ 8,563
Capital expenditures .............. $ 777 $ 508 $ 378 $ 388 $ 2,051
</TABLE>
8
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. CASH FLOW INFORMATION
(IN THOUSANDS)
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
2000 1999
--------- ----------
Cash paid for:
Income taxes ........................... $ 4,917 $ 5,935
Interest ............................... $ 6,686 $ 6,807
During the six-months ended September 30, 2000, holders of approximately
$8.7 million of the Company's 9% Senior Subordinated Convertible debentures
converted their debentures into approximately 1.0 million shares of the
Company's common stock. The Company recorded an approximately $305,000
non-cash charge in connection with the conversion.
In connection with the sale of the magnetic tape head businesses the
Company received a $2.0 million promissory note from the buyer.
10. CONTINGENCIES
The Company is party to various legal actions and claims arising in the
ordinary course of its business. In Management's opinion, the Company has
adequate legal defenses for each of the actions and claims and that their
ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
In April and May 1998, subpoenas were issued to the Company by the United
States Attorney for the Eastern District of New York seeking documents
related to a governmental investigation of certain equipment manufactured
by DRS Photronics, Inc. (Photronics). These subpoenas were issued in
connection with United States v. Tress, a case involving a product
substitution allegation against an employee of Photronics. On June 26,
1998, the complaint against the employee was dismissed without prejudice.
Although additional subpoenas were issued to the Company on August 12, 1999
and May 10, 2000, to date, no claim has been made against the Company or
Photronics. During the Government's investigation, until October 29, 1999,
Photronics was unable to ship certain equipment related to the case,
resulting in delays in the Company's recognition of revenues. On October
29, 1999, Photronics received authorization to ship its first boresight
system since the start of the investigation
The Company is presently involved in a dispute in arbitration with Spar
Aerospace Limited (Spar) with respect to the working capital adjustment, if
any, provided for in the purchase agreement between the Company and Spar
dated as of September 19, 1997, pursuant to which the Company acquired,
through certain of its subsidiaries, certain assets of Spar. The Company is
also in a dispute with Raytheon Company (Raytheon) with respect to the
working capital adjustment (not to exceed $7.0 million), if any, provided
for in the purchase agreement between the Company and Raytheon dated as of
July 28, 1998, pursuant to which the Company acquired, through certain
subsidiaries, certain assets of Raytheon.
9
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the consolidated
financial condition and results of continuing operations of DRS Technologies,
Inc. and Subsidiaries (hereinafter, the Company or DRS) as of September 30, 2000
and for the three- and six-month periods ended September 30, 2000 and 1999. This
discussion should be read in conjunction with the audited consolidated financial
statements and related notes.
The following discussion and analysis contains certain forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements in this report are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Persons reading this report
are cautioned that risks and uncertainties are inherent to forward-looking
statements. Accordingly, the Company's actual results could differ materially
from those suggested by such forward-looking statements.
DISCONTINUED OPERATION
On May 18, 2000, the Company's Board of Directors approved an agreement to sell
its magnetic tape head businesses located in St. Croix Falls, Wisconsin, and
Razlog, Bulgaria, and on August 31, 2000, the Company completed the sale. The
sale of the magnetic tape head business represents a strategic decision by the
Company to focus its resources on its core businesses. The Company has restated
its financial statements for the three- and six-month periods ended September
30, 1999, to reflect these business units as discontinued operations.
BUSINESS COMBINATIONS
On June 14, 2000, a newly formed subsidiary of the Company acquired the assets
of General Atronics Corporation for $7.5 million in cash and $4.0 million in
stock (approximately 355,000 shares of DRS Common Stock). The Company funded the
cash portion of this acquisition through borrowings under its revolving credit
facility. Located in Wyndmoor, Pennsylvania, and now operating as DRS
Communications Company, LLC (DRS Communications Company), the company designs,
develops and manufactures military data link components and systems,
high-frequency communication modems, tactical and secure digital telephone
components, and radar surveillance systems for U.S. and international
militaries. DRS Communications Company is being managed as part of the DRS
Flight Safety and Communications Group. The acquisition of DRS Communications
Company added approximately $25.9 million to the Company's backlog as of the
acquisition date. The acquisition has been accounted for using the purchase
method of accounting. The excess of costs over the estimated fair value of
identifiable net assets acquired, and the appraised value of certain identified
intangible assets were approximately $2.6 million and $3.3 million,
respectively, and are being amortized on a straight-line basis over twenty years
and ten years, respectively. In connection with the acquisition, the Company
incurred approximately $369,000 in transaction costs. Purchase price allocation
has not yet been finalized, and actual purchase price allocation may differ from
that used in these Condensed Consolidated Financial Statements. The results of
the acquired business have been included in the consolidated financial
statements since the acquisition date.
10
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
RESTRUCTURING CHARGE
During fiscal 2000, the Company recorded restructuring charges totaling
approximately $2.2 million. The Company's restructuring initiatives impacted the
Electro-Optical Systems Group (EOSG) and Flight Safety and Communications Group
(FSCG) operating segments and DRS Corporate Headquarters. EOSG recorded a
restructuring charge of approximately $831,000 primarily for costs relating to
consolidating two facilities into one in Oakland, New Jersey, as of March 31,
2000. FSCG recorded a restructuring charge of approximately $669,000 and
$143,000 at its DRS Hadland Ltd. ("DRS Hadland") and DRS Precision Echo, Inc.
operating units, respectively, for severance and other employee related costs.
The DRS Hadland restructuring charge was recorded in connection with the
transition of the day-to-day management of DRS Hadland's operations from EOSG to
FSCG in the second half of fiscal 2000. In addition, DRS Corporate Headquarters
recorded a restructuring charge of approximately $560,000 for severance and
other employee related costs.
Severance and other employee costs were recorded in connection with the
termination of 13 employees. As of March 31, 2000, all terminations had
occurred. A portion of the termination benefits will be paid in accordance with
contractual terms over the next two years. The following table reconciles the
restructuring liability at March 31, 2000 to the restructuring liability as of
September 30, 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)
LIABILITY AT UTILIZED LIABILITY AT
MARCH 31, 2000 FISCAL 2001 SEPTEMBER 30, 2000
-------------- ----------- ------------------
<S> <C> <C> <C>
Estimated lease commitments
and related facility costs ........ $ 328 $ 187 $ 141
Severance / Employee costs .......... 690 219 471
------- ----- -----
Total ............................... $ 1,018 $ 406 $ 612
======= ===== =====
</TABLE>
RESULTS OF OPERATIONS
The Company's operating cycle is long-term and involves various types of
production contracts and varying production delivery schedules. Accordingly,
results of a particular quarter, or quarter-to-quarter comparisons of recorded
revenues and earnings, may not be indicative of future operating results. The
following comparative analysis should be viewed in this context
CONSOLIDATED SUMMARY
Consolidated revenues for the three- and six-month periods ended September 30,
2000 increased $19.0 million and $27.8 million, respectively, as compared with
the corresponding prior year periods. The revenue growth in the first half of
fiscal 2001 was primarily attributable to increased shipments of the Company's
second generation ground electro-optical sighting systems and infrared
detectors, as well as increases in electro-optical contract manufacturing and
AN/UYQ-70 Advanced Display System engineering. Operating income increased
approximately 66% and 51% for the three- and six-month periods ended September
30, 2000, respectively, as compared to the same periods in fiscal 2000. The
increases in operating income was due to the overall increase in revenues and
lower operating expenses at certain operating units. Also impacting the
increases in revenue and operating income during the first half of fiscal 2001,
as compared to the corresponding prior year period, was the inclusion of the
operating results of the Company's fiscal 2001 acquisition of DRS Communications
Company. See discussion of operating segments below for additional information.
Interest and related expenses increased approximately $603,000 and $565,000 for
the three- and six-month periods ended September 30, 2000, respectively, as
compared with the corresponding prior year periods. These increases were
primarily driven by an approximately $305,000 charge relating to the conversion
of the Company's 9% Senior Subordinated Convertible Debentures during the second
quarter of fiscal 2001,
11
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
and higher interest rates during the three- and six-month periods ended
September 30, 2000, as compared with the same periods in fiscal 1999.
The provision for income taxes for the first half of fiscal 2001 reflects an
annual estimated effective income tax rate of approximately 51%, versus 40% for
fiscal 2000. The increase in the effective tax rate for fiscal 2001 is primarily
due to the following: the continued improvement in domestic earnings, which are
taxed at higher overall rates in comparison to the Company's foreign tax
jurisdictions; losses in the Company's U.K. operations which may not be
deductible; the effect of non-deductible goodwill and the Company's expectation
that certain domestic and foreign tax benefits recognized in fiscal 2000 will
not be recurring in fiscal 2001.
Earnings before interest, income taxes, depreciation and amortization (EBITDA)
for the three- and six-month periods ended September 30, 2000 was $12.6 million
and $23.6 million, respectively, an increase of approximately 35% and 26% over
the three- and six-month periods ended September 30, 1999, respectively.
OPERATING SEGMENTS
DRS operates in three principal business segments on the basis of products and
services offered. Each operating unit is comprised of separate and distinct
businesses: the Electronic Systems Group (ESG); the Electro-Optical Systems
Group (EOSG), and the Flight Safety and Communications Group (FSCG). All other
operations are grouped in "Other."
o ESG is a leading provider of naval computer workstations used to process
and display integrated combat information. ESG produces rugged computers
and peripherals, surveillance, radar and tracking systems, acoustic signal
processing and display equipment, and combat control systems for U.S. and
international military organizations. ESG performs field service and depot
level repairs for its products, as well as other manufacturers' systems,
and also provides systems and software engineering support to the U.S. Navy
for the testing of shipboard combat systems. ESG products are used on
front-line platforms, including Aegis destroyers and cruisers, aircraft
carriers, submarines and surveillance aircraft. ESG's products also are
used in the U.S. Army's ongoing battlefield digitization programs. ESG
markets directly to various U.S. Government agencies, primarily in the
intelligence community, and has teamed with leading corporations, such as
General Dynamics and Lockheed Martin.
o EOSG produces systems and subsystems for infrared night vision and
targeting products used in some of the U.S. Army's most important
battlefield platforms, including the Abrams Main Battle Tank, Bradley
Infantry Fighting Vehicle and the HMMWV scout vehicle. EOSG designs,
manufactures and markets products that allow operators to detect, identify
and target objects based upon their infrared signatures regardless of the
ambient light level. This Group is also a leading designer and manufacturer
of eye-safe laser range finders and multiple-platform weapons calibration
systems for such diverse air platforms as the Apache attack helicopter and
AC-130U gunship. EOSG is leveraging its technology base by expanding into
related non-defense markets and manufactures electro-optical modules for a
commercial device used in corrective laser eye surgery.
o FSCG is a leading manufacturer of deployable flight emergency or "black
box" recording equipment. These complete emergency avionics systems combine
the functionality of a crash locator beacon with a flight incident recorder
for search, recovery and crash analysis. This Group uses advanced
commercial technology in the design and manufacture of multi-sensor
digital, analog and video data capture and recording products, as well as
high-capacity data storage devices for harsh aerospace and defense
environments. FSCG also manufactures shipboard communications and infrared
laser warning and range finder displays for Canadian and other foreign
navies and is a leading manufacturer of ultra high-speed digital imaging
systems. FSCG is also the leading supplier of Link 11 Data Terminal Systems
for NATO and allied international navies and manufactures and markets ship
and ground surveillance radar and infrared imaging systems.
12
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
o Other includes the activities of the parent company, DRS Corporate
Headquarters, DRS Ahead Technology, Inc. (DRS Ahead) and certain
non-operating subsidiaries of the Company. DRS Ahead produces magnetic head
components used in the manufacturing process of computer disk drives, which
burnish and verify the quality of disk surfaces. DRS Ahead also services
and manufactures video heads used in broadcast television equipment.
The following tables set forth, by operating segment, revenues, operating
income, and operating margin and the percentage increase or decrease of those
items as compared with the prior period:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBEER 30, PERCENT CHANGES SEPTEMBER 30, PERCENT CHANGES
----------------------- --------------------- ----------------------- -------------------
2000 1999 2000 VS. 1999 2000 1999 2000 VS. 1999
----------- ----------- --------------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
ESG
External Revenues $45,688 $41,684 9.6% $87,225 $85,235 2.3%
Operating income $ 3,762 $ 2,872 31.0% $ 6,262 $ 6,059 3.4%
Operating margin 8.2% 6.9% 19.5% 7.2% 7.1% 1.0%
EOSG
External Revenues $39,776 $32,419 22.7% $79,287 $61,448 29.0%
Operating income $ 5,122 $ 1,743 193.9% $ 8,952 $ 3,802 135.5%
Operating margin 12.9% 5.4% 139.5% 11.3% 6.2% 82.5%
FSCG
External Revenues $19,127 $11,857 61.3% $30,418 $23,041 32.0%
Operating (loss) income $ (689) $ 522 (232.0%) $ 256 $ 1,434 (82.1%)
Operating margin (3.6%) 4.4% (181.8%) 0.8% 6.2% (86.5%)
OTHER
External Revenues $ 2,636 $ 2,293 15.0% $ 4,818 $ 4,175 15.4%
Operating income (loss) $ 308 $ (18) 1811.1% $ 188 $ (902) 120.8%
Operating margin 11.7% (0.8%) 1588.5% 3.9% (21.6%) 118.1%
</TABLE>
ESG: ESG's increase in revenues for the three-month period ended September 30,
2000, as compared with the three-month period ended September 30, 1999, was due
primarily to an increase in engineering relating to the AN/UYQ-70 Advanced
Display System, increased shipments of Explorer portable workstations and
AN/SPS-67(V)3 search and navigation radar systems, offset in part by a decrease
in shipments of certain rugged computers and peripherals in Europe. The increase
in operating income and operating margin in the second quarter of fiscal 2001,
as compared to the corresponding prior period, was driven by the increase in
revenues, the realization of cost savings associated with the consolidation of
certain production facilities, and a change in product mix. Revenues and
operating income for the six-month period ended September 30, 2000 increased
slightly, as compared with prior year results for the same period. This increase
was driven by higher fiscal 2001 second quarter revenue and operating income, as
discussed above, offset in part by a decrease in first and second quarter
shipments of certain rugged computer and peripheral products in Europe with
corresponding lower margins due to less favorable absorption of fixed operating
expenses associated with lower production volumes.
13
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
EOSG: For the three- and six-month periods ended September 30, 2000 revenues
increased by approximately $7.4 million and $17.8 million, respectively, as
compared with the three- and six-month periods ended September 30, 1999. The
increases in revenues were driven by increased shipments of the Group's second
generation ground electro-optical sighting systems, infrared detectors, and
boresighting systems, as well as increases in electro-optical contract
manufacturing. Operating income for the three- and six-month periods ended
September 30, 2000, increased $3.4 million and $5.2 million as compared with the
corresponding prior periods. The increases in operating income were primarily
driven by the increases in revenues, a change in product mix, and the
realization of management's fiscal 2000 reductions in overall production costs
on a certain long-term production program. Shipments under the current
production contract for such program commenced in the third quarter of fiscal
2000, and as such the benefits of management's fiscal 2000 efforts to reduce
overall production costs (primarily by identifying and procuring certain
materials and subassemblies from alternate suppliers) are not reflected in the
fiscal 2000 second quarter operating results. Operating income for the three-
and six-month periods ended September 30, 2000 also include a $1.1 million
cumulative profit adjustment relating to a certain long-term production program
acquired in connection with a purchase business combination. Estimates to
complete this program were revised this quarter to reflect the benefit of
management's efforts to reduce general and administrative expenses. EOSG's
operating income for the three- and six-month periods ended September 30, 2000
also include charges of approximately $880,000 for revisions to estimates to
complete on other long-term production programs. Also driving the increases in
fiscal 2001 operating income and operating margins, as compared with the prior
year period, was the fact that EOSG's operating income for the six-month period
ended September 30, 1999 included a charge of $450,000 for certain product
warranty reserve issues.
FSCG: Revenue increased $7.2 million and $7.4 million for the three- and
six-month periods ended September 30, 2000, respectively, as compared with the
corresponding prior periods. The increases in revenues are primarily attributed
to the acquisition of General Atronics Corporation (now operating as DRS
Communications Company, LLC) during the first quarter of fiscal 2001, as well as
continued growth in the Group's contract manufacturing and shipboard
communications businesses. These increases were partially offset by delayed and
decreased orders for the Group's high-speed cameras and certain mission data
recording systems. The General Atronics acquisition contributed to the FSCG
operating segment approximately $8.3 million in revenues. Operating income
decreased $1.2 million for the three- and six-month periods ended September 30,
2000. These decreases in operating income and the corresponding decreases in
operating margin were primarily due to the decreases in revenues for the Group's
high-speed cameras and certain mission data recording systems, as discussed
above. In addition, the Group recorded a charge of approximately $1.4 million in
the second quarter of fiscal 2001 for additional charges expected to be incurred
in connection with the completion of the development of a new mission data
recording system for the U.S. Navy. Partially offsetting such decreases, DRS
Communications Company LLC contributed approximately $711,000 of operating
income to the Group for the three-month period ended September 30, 2000.
Other: The increase in revenues for the three- and six-month periods ended
September 30, 2000, as compared with the corresponding prior periods, was
primarily due to increased shipments of components used to manufacture disk
drive media. This revenue growth resulted from the improvement in the computer
disk drive marketplace and improved marketing of DRS Ahead's products and
services. The increase in operating income and improvement in operating margins
was a result of increased revenues and the impact of previously implemented cost
reduction initiatives at DRS Ahead. In addition to the cost reduction
initiatives, the increase in operating income reflects the allocation of certain
costs to the operating units, which had previously been recorded at DRS
Corporate.
14
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
FINANCIAL CONDITION AND LIQUIDITY
CASH AND CASH FLOW
The following table provides cash flow data for the Company for the six-month
periods ended September 30, 2000 and September 30 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS)
SIX MONTHS ENDED SEPTEMBER 30,
---------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities .................. $ 13,442 $ (9,920)
Net cash used in investing activities ................................ $ (12,030) $ (10,623)
Net cash provided by financing activities ............................ $ 3,123 $ 17,233
</TABLE>
Operating cash flow for the six-months ended September 30, 2000 improved by
approximately $23.4 million as compared with the corresponding prior year
period. This improvement primarily results from increased earnings (net of
adjustments for non-cash items), increases in cash flows from changes in certain
liabilities and a decrease in liquidation of advanced payments.
Net cash used in investing activities for the six-month period ended September
30, 2000 included approximately $7.0 million relating to the acquisition of
General Atronics Corporation and $8.4 million for capital expenditures. These
uses of cash were partially offset by a $3.0 million payment received in
connection with the sale of the Company's magnetic tape head businesses.
Net cash provided by financing activities is primarily due to increased
borrowings under the Company's $80 million (subject to a borrowing base
calculation) revolving line of credit with Mellon Bank, N.A, as agent (Mellon
Bank), maturing on October 20, 2003 (Line of Credit). During the six-month
period ended September 30, 2000, the Company borrowed approximately $37.4
million under the Line of Credit and repaid approximately $29.0 million. Of the
total $37.4 million borrowed, approximately $7.0 million was used to acquire the
net assets of General Atronics Corporation during the first quarter of fiscal
2001 and is classified as long-term debt. Other than cash flows from operations,
the Line of Credit is the Company's primary source of liquidity. As of September
30, 2000, the Company had approximately $40.8 million available under the Line
of Credit, after satisfaction of its borrowing base requirement. The Company
also has a term loan facility with Mellon Bank, in the form of two term loans.
During the six-months ended September 30, 2000, the Company paid $5.4 million in
principal payments against these term loans.
During the six-months ended September 30, 2000, holders of approximately $8.7
million of the Company's 9% Senior Subordinated Convertible debentures elected
to convert their debentures into approximately 1.0 million shares of the
Company's common stock.
The Company actively seeks to finance its business in a manner that preserves
financial flexibility, while minimizing borrowing costs to the extent
practicable. Management continually reviews the changing financial, market and
economic conditions to manage the types, amounts and maturities of the
Corporation's indebtedness.
The Company's total debt to trailing twelve-month EBITDA improved to 2.4x at
September 30, 2000, from 3.6x at September 30, 1999. The improvement in fiscal
2001 was driven by increased earnings as well as a $21.7 million reduction in
total debt from September 30, 1999 to September 30, 2000.
15
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
BACKLOG
Backlog at September 30, 2000 was approximately $426.2 million as compared with
$388.1 million at March 31, 2000. The Company booked approximately $218.7
million in new orders in the first six months of fiscal 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risks
relating to fluctuations in interest rates and foreign currency exchange risk.
The Company does not enter into derivatives or other financial instruments for
trading or speculative purposes.
INTEREST RATE RISK
As the Company seeks debt financing to maintain its ongoing operations and
sustain its growth, it is exposed to interest rate risk. Borrowings under the
Company's $160 million secured credit facility with Mellon Bank, N.A., as agent,
are sensitive to changes in interest rates as such borrowings bear interest at
variable rates. In January 1998, and January 1999 the Company entered into
interest rate collar agreements (the Collar Agreements) to limit the impact of
interest rate fluctuations on cash flow and interest expense. A summary of the
interest rate collar agreements in place as of September 30, 2000 and March 31,
2000 follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Effective Expiration Notional Amount Variable Rate Ceiling Floor
Date Date September 30, 2000 March 31, 2000 Base Rate Rate
-------------- --------------- ------------------ -------------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
April 8, 1998 January 8, 2001 $ 6,200 $ 6,200 CAD-BA* 6.35% 4.84%
April 26, 1999 January 26, 2002 $ 20,000 $ 20,000 LIBOR** 5.75% 4.80%
* - Canadian Bankers Acceptance Rate
** - London Interbank Offered Rate
</TABLE>
The variable interest rates established under the Collar Agreements for the
Company's LIBOR and Canadian Bankers Acceptance Rate-based collars as of
September 30, 2000 were 6.71% and 5.87%, respectively.
FOREIGN CURRENCY EXCHANGE RISK
DRS operates and conducts business in foreign countries and as a result is
exposed to fluctuations in foreign currency exchange rates. More specifically,
our net equity is impacted by the conversion of the net assets of foreign
subsidiaries for which the functional currency is not the U.S. Dollar for U.S.
reporting purposes. The Company believes that its exposure to foreign currency
exchange risk related to its foreign operations is not material to the Company's
results of operations, cash flows or financial position. The Company, at
present, does not hedge this risk, but continues to evaluate such foreign
currency translation risk exposure.
16
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to various legal actions and claims arising in the ordinary
course of our business. In our opinion, we have adequate legal defenses for each
of the actions and claims, and we believe that their ultimate disposition will
not have a material adverse effect on our consolidated financial position or
results of operations.
In April and May 1998, subpoenas were issued to the Company by the United States
Attorney for the Eastern District of New York seeking documents related to a
governmental investigation of certain equipment manufactured by DRS Photronics,
Inc. (Photronics). These subpoenas were issued in connection with United States
v. Tress, a case involving a product substitution allegation against an employee
of Photronics. On June 26, 1998, the complaint against the employee was
dismissed without prejudice. Although additional subpoenas were issued to the
Company on August 12, 1999 and May 10, 2000, to date, no claim has been made
against the Company or Photronics. During the Government's investigation, until
October 29, 1999, Photronics was unable to ship certain equipment related to the
case, resulting in delays in the Company's recognition of revenues. On October
29, 1999, Photronics received authorization to ship its first boresight system
since the start of the investigation
We are presently involved in a dispute in arbitration with Spar Aerospace
Limited (Spar) with respect to the working capital adjustment, if any, provided
for in the purchase agreement between the Company and Spar dated as of September
19, 1997, pursuant to which we acquired, through certain of our subsidiaries,
certain assets of Spar. We are also in a dispute with Raytheon Company
(Raytheon) with respect to the working capital adjustment, if any, provided for
in the purchase agreement between the Company and Raytheon dated as of July 28,
1998, pursuant to which we acquired, through certain subsidiaries, certain
assets of Raytheon.
17
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 9, 2000, the Company held its Annual Meeting of Stockholders at the
offices of Mellon Bank, N.A., 200 Park Avenue, New York, New York. The following
matters were submitted to a vote of stockholders:
(i) to amend Article III, Section 2 of the Company's By-Laws to increase the
minimum and maximum number of directors so that the whole Board of
Directors shall be constituted of not less than seven nor more than eleven
members;
(ii) to elect three Class II directors, each to hold office for a term of three
years;
(iii) to amend DRS' 1996 Omnibus Plan (the Plan) to increase the number of
shares of DRS Common Stock reserved for issuance under the Plan by 975,000
shares of Common Stock;
(iv) to consider and vote upon a proposal to ratify and approve the designation
of KPMG LLP as the independent certified public accountants for the Company
With respect to the aforementioned matters, votes were tabulated and the
stockholders of the Company approved both proposals as follows:
For Against Abstaining
--- ------- ----------
Proposal (i): 8,146,518 46,449 28,409
Proposal (ii):
Mark N. Kaplan 8,181,220 40,156 0
Ira Albom 8,180,995 40,381 0
General Dennis J. Reimer, USA (Ret.) 8,181,493 39,883 0
Proposal (iii): 3,108,364 438,872 28,462
Proposal (iv): 8,180,013 28,095 13,268
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
18
<PAGE>
DRS TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRS TECHNOLOGIES, INC.
----------------------
Registrant
Date: November 9, 2000 /s/ RICHARD A. SCHNEIDER
----------------------------------------------
Richard A. Schneider
Executive Vice President, Chief Financial
Officer and Treasurer
19
