DRS Technologies, Inc.

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DRS Technologies, Inc.

5 Sylvan Way
Parsippany, New Jersey 07054
U.S.A.
Telephone: (973) 898-1500
Fax: (973) 898-4730
Web site: http://www.drs.com

Public Company
Incorporated: 1968
Employees: 3,750
Sales: $675.8 million (2003)
Stock Exchanges: New York
Ticker Symbol: DRS
NAIC: 334111 Electronic Computer Manufacturing; 334119 Other Computer Peripheral Equipment Manufacturing

DRS Technologies, Inc. (DRS) is a growing mid-tier defense electronics contractor. DRS has acquired many companies with complementary product lines and customer bases since the mid-1990s. Products include infrared sighting systems used with tanks, helicopters, and handheld weapons; tactical display workstations and power control systems for warships; and computer hardware made to withstand extreme conditions.

Origins in Anti-Submarine Warfare

Company founder Leonard Newman told Inc. magazine in 1983, “I’m a poor boy from the Bronx, who used the GI bill to go to school and built a $20 million company up from nothing. I believe in the American flag and the American way.” Newman had been an electrical engineer and manager at Loral Corporation before starting Diagnostic/Retrieval Systems Inc. with another engineer, David Gross. The company was incorporated on November 8, 1968, and began operations the next year. Start-up capital was $140,000, reported The Record of New Jersey.

Newman and Gross had developed a device that allowed surface ships to distinguish the sound of submarine engines from other ocean noises (passive sonar), without having to give away their locations by bouncing pulses of sound (“pings”) off the submarines’ hulls (active sonar). The device revolutionized the cat-and-mouse business of anti-submarine warfare.

The company moved its headquarters from Mount Vernon, New York, to Oakland, New Jersey, in 1980. The next year, DRS went public. During the Cold War, anti-submarine electronics had become a big industry. Crain’s New York Business reported the Defense Department was spending $5 billion a year on such technology in the mid-1980s. During this time, DRS had revenues of about $36 million a year and about 400 employees.

In 1984, DRS bought Precision Echo Inc., a Santa Clara, California, company that made magnetic recording devices. This helped reduce the company’s dependence on sales of its main product, the AN/SQR-17 sonar signal processor.

DRS won a U.S. Navy contract for advanced display workstations for anti-submarine vessels in the late 1980s. However, delay in authorizing the production component of the contract caused revenues to slip from $70 million to $58 million in fiscal 1990, producing a loss of $11 million. Internal restructuring and layoffs followed.

Acquisition Spree Begins in the 1990s

Mark Newman, son of the founder, became company president and CEO in 1994, when annual revenues were $60 million, and was named chairman the next year upon his father’s retirement. He had joined DRS in 1973. DRS relocated its headquarters to Parsippany, New York, in 1995.

The end of the Cold War had started a wave of consolidation among defense contractors. DRS took the initiative as an acquirer and sometimes teamed with other companies in partnerships and alliances. In 1994, DRS created a joint venture with Laurel Technologies of Johnstown, Pennsylvania, to produce electronic assemblies, cables, and harnesses for military systems.

DRS acquired the assets of Opto Mechanik Inc. (OMI) in July 1995. OMI, based in Melbourne, Florida, produced sighting and targeting systems such as those used in TOW missile launchers. (TOW stood for Tube-launched, Optically-tracked, Wire-guided.) OMI had revenues of about $6 million a year. The acquisition complemented DRS’s Photronics Corporation subsidiary in Hauppauge, New York, which produced electro-optical alignment systems and infrared missile components.

Vikron Inc. of St. Croix Falls, Wisconsin was acquired in June 1996. Vikron made recording heads for magnetic data recorders. A similar business, Nortronics Company Inc., was acquired four months later. Nortronics had been in business since the 1950s and had sales of $4 million a year.

DRS became the first U.S. firm to acquire a Bulgarian high-tech company when it bought 80 percent of the shares of Magnetic Heads Co. Ltd. in May 1997. It was renamed DRS Ahead Technology after the purchase. It was the leading manufacturer of magnetic digital recording heads in Eastern Europe and employed 92 people.

The tape head businesses in Wisconsin and Bulgaria were sold off in 2000. Together, they accounted for just 2 percent of DRS’s sales at the time.

DRS had revenues of $144 million and 1,000 employees in 1996. It was working to become a middle-tier contractor amid a wave of consolidation in the defense industry. Diagnostic/Retrieval Systems Inc. (DRS) began doing business under the name of DRS Technologies Inc. on March 31, 1997 and officially changed its name on August 8, 1997. The company had sold off a medical services operation at this time, while DRS’s naval workstations business had landed the company its largest contract to date, worth $64 million.

Hadland Photonics was acquired in the spring of 1997 for $6.4 million. This English maker of ultra-high speed cameras had been formed in 1956 as John Hadland Photographic Instrumentation Ltd.

A few months later, DRS bought the military communications business of Spar Aerospace Ltd. of Canada for C$40 million. The division employed 330 people making naval communications systems, flight data recorders (“black boxes”) for military aircraft, beacons, and custom circuit boards and electronic assemblies. It had been owned by Leigh Instruments until that company went bankrupt in 1990.

NAI Technologies Inc. of Huntington, New York, makers of computers and telephone equipment for the military, was acquired in a $23 million stock swap deal in August 1998. NAI’s electronic gear was built to survive extreme conditions.

DRS bought two businesses from Raytheon Co. for $45 million in cash in October 1998. The U.S. government had ordered Raytheon to divest its Second Generation Ground Electro-Optical Systems (Ground EO) and part of its Focal Plane Array (FPA) business as part of Raytheon’s acquisition of the defense businesses of Hughes. The purchase significantly enhanced DRS’s position as a supplier of ground-based sighting and weapons systems for military ground vehicles. The company now became a supplier of systems rather than exclusively a contractor.

Revenues reached $273 million in 1998; by then, DRS had 2,100 employees. Most revenue came from government contracts, but the company had begun to work for other branches of the armed forces besides the Navy. Half of DRS’s contracts were for Army equipment such as night-vision systems.

DRS continued to follow a growth-by-acquisition strategy even as its shares encountered something of a bear market. “No defense company has ever grown internally,” explained CEO Mark Newman to Aerospace Daily. DRS exploited niche markets in which the Big Three defense contractors (Raytheon, Boeing, Lockheed Martin) did not have expertise, one official of the company told Aerospace Daily.

General Atronics Corporation, a naval defense technologies firm, was acquired in June 2000 in an $11 million cash and stock deal. It was renamed DRS Communications Company LLC. A couple of months later, DRS bought an electronic sensor and systems unit from Boeing Co. for $84 million. Boeing had acquired the unit as part of Rockwell’s aerospace business. It had sales of $75 million a year and 300 employees.

Emphasis on Defense after 9/11

After the September 11, 2001 terrorist attacks on the United States, DRS’s high tech surveillance- and intelligence-related electronics equipment became even more in demand. The following year, there were numerous mergers and acquisitions in the defense sector, and DRS completed its share of deals. The company bought the unmanned aerial vehicle (UAV) business of Meggitt PLC in April 2002. UAVs became the darlings of military planners during the campaign to oust the Taliban in Afghanistan, and they offered a new platform for DRS’s electro-optical targeting technology.

DRS expanded its traditional naval business when it acquired the Navy Controls Division of Eaton Corporation for $92.2 million in May 2002. This unit made electrical power conversion and control systems for naval vessels, including nuclear ones. The business was renamed DRS Power & Control Technologies. It had 700 employees in Connecticut and Wisconsin. Also in May, DRS shares migrated from the American Stock Exchange to the New York Stock Exchange.

Company Perspectives

It is the mission ofDRS Technologies to be a leading, mid-tier defense technology company by earning the respect of our customers, suppliers, competitors and fellow employees through out commitment to the highest standards of ethics, quality, and responsiveness. We also work to enhance stockholder value through our commitment to internal growth and to the acquisition of companies that complement our business, expand our market position, or benefit from the transfer of our technologies.

Other deals followed in close succession, including the acquisition of Nytech Integrated Infrared Systems Inc., a private manufacturer of thermal imaging systems for portable weapons. In the fall of 2002, DRS agreed to acquire Paravant Inc. in a deal worth $105 million. Paravant made computer systems for use by intelligence agencies and upgraded systems in military aircraft. The Paravant buy greatly expanded DRS’s relationship with the U.S. Air Force and with the intelligence community.

The Navy was retiring its Aegis class of destroyers, for which DRS had supplied control panels. In February 2003, DRS bought Power Technology Inc., the supplier of power and propulsion systems for the new DD(X) series destroyer. DRS paid $35 million for the unit. Power Technology had 75 employees; it had been started in 1998 with just three. DRS was supporting prime contractors in other military platforms of the future, including the CVN(X) aircraft carrier and Virginia class submarine.

In January 2003, DRS bought a Massachusetts-based power and control business, the Electromagnetics Development Center (EDC) of Kaman Corporation. EDC made electric motors and generators for industry and defense and employed 76 people in Connecticut.

Revenues and earnings rose to record levels in fiscal 2003. Total sales were $675.8 million, while net earnings rose 48 percent to $30.2 million. Mark Newman was aiming to make the company a $1 billion player.

Principal Subsidiaries

DRS Communications Company LLC; DRS Data & Imaging Systems, Inc.; DRS Data & Imaging Systems Ltd. (United Kingdom; DRS Data Systems (Europe) Ltd. (United Kingdom); DRS Electric Power Technologies, Inc.; DRS Electronic Systems, Inc.; DRS FPA, Inc.; DRS Power & Control Technologies, Inc.; DRS Engineering Development Labs, Inc.; DRS Hadland GmbH (Germany); DRS Hadland, Inc.; DRS Hadland Ltd. (United Kingdom); DRS Infrared Technologies, LP; DRS International, Inc.; DRS Nytech Imaging Systems, Inc.; DRS Optronics, Inc.; DRS Power Technology, Inc.; DRS Rugged Systems (Australia) Pty. Ltd; DRS Rugged Systems (Europe) Products Ltd. (United Kingdom); DRS Sensors & Targeting Systems, Inc.; DRS Signal Recording Technologies, Inc.; DRS Signal Technologies, Inc.; DRS Systems, Inc.; DRS Systems Management Corporation; DRS Surveillance Support Systems, Inc.; DRS Tactical Systems, Inc.; DRS Tactical Systems, Ltd. (United Kingdom); DRS Tactical Systems (West), Inc.; DRS Technical Services, Inc; DRS Technologies Canada, Inc.; DRS Technologies Canada Company; DRS Technologies Canadian Capital Corporation; DRS Technologies Capital Company, Inc. (Canada); DRS Unmanned Technologies, Inc.; Laurel Technologies Partnership; NAI Technologies, Inc.; Paravant Inc.

Principal Divisions

Avionics; Commercial Products; Communications; Electro-Optics; Electronics.

Principal Competitors

Aeroflex Inc.; General Dynamics Corporation; EDO Corporation; Sparton Corporation.

Key Dates

1969:: Diagnostic/Retrieval Systems Inc. begins operations.
1981:: DRS goes public.
1984:: Precision Echo acquired.
1995:: Assets of Opto Mechanik are acquired; the company’s headquarters are moved to Parsippany, New Jersey.
1997:: The company’s name is changed to DRS Technologies Inc.; Spar Aerospace and Hadland businesses are acquired.
2000:: General Atronics and Boeing sensors unit are bought.
2002:: Eaton Corporation’s Navy Controls Division, Paravant Inc., and Meggitt’s UAV business are bought.
2003:: Power Technology and EDC are acquired.