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DRS – CONTIUNING THE UPWARDS SPIRAL

DRS – CONTIUNING THE UPWARDS SPIRAL
By Julian Nettlefold, Editor

05 Nov 04. Frank Lanza at L-3 must be kicking himself for making such a blunt hostile bid for DRS at a time when L-3 star is waning and DRS is advancing on all fronts. Sources suggest that Mark Newman’s rebuff to Lanza makes it unlikely that he will return for another shot. These results may put the company out of L-3’s reach. Having stopped acquisitions in 2004 to digest those of 2004, the company is now believed to be running its slide rule over a number of European and US bid prospects, watch this space!

On November 5th, DRS Technologies, Inc. (NYSE:DRS – News) reported record financial results for the second quarter and six-month period ended September 30, 2004. Fiscal 2005 second quarter results included significant gains in revenues, operating income, net earnings and earnings per share. A second quarter record in new orders for products and services increased funded backlog at the end of the period to an all-time high.

“DRS reported excellent results for the second quarter and completed the first half of fiscal 2005 in an exceptional position,” said Mark S. Newman, chairman, president and chief executive officer of DRS Technologies. “Higher sales and profitability were achieved during both periods. Free cash flow and bookings for both periods were very strong, and we ended the quarter with a new high in funded backlog.”

Fiscal 2005 Second Quarter Results

Fiscal 2005 second quarter revenues were $328.0m, a 59 percent increase over revenues of $206.2m for last year’s second quarter. Record revenues for the three-month period primarily were attributable to strong organic growth and the addition of sales from the company’s acquisition of Integrated Defense Technologies, Inc. (IDT) completed during the third quarter of fiscal 2004. Organic revenue growth accounted for approximately 9.4 percent of the increase in the quarter.

Operating income of $34.5m was 62 percent higher than the $21.2m reported for the same quarter of fiscal 2004. Record operating income for the second quarter of fiscal 2005 was attributable to the higher overall sales volume and the solid performance of the company’s operating segments. Operating income as a percentage of sales was 10.5 percent, compared with 10.3 percent for the same three-month period in the prior fiscal year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $45.2m for the second quarter, 71 percent higher than EBITDA of $26.4m reported for the comparable period a year earlier. EBITDA as a percentage of sales was 13.8 percent, compared with 12.8 percent for the same period a year earlier.

Net earnings for the second quarter of fiscal 2005 were 53 percent higher than a year ago at $14.4m, or $0.52 per diluted share, (2003: $9.4m, or $0.41). Second quarter net earnings per share were 27 percent higher than a year ago, despite the 21 percent increase in weighted average diluted shares outstanding for the period of 27.8m, (2003: 23.0m). The issuance of shares in connection with company’s acquisition of IDT in the third quarter of fiscal 2004 was the principal factor for the increase in the number of shares outstanding.

Free cash flow (net cash provided by operating activities less capital expenditures) for the second quarter of fiscal 2005 was strong at $19.4m, slightly higher than last year.

New Contract Awards and Backlog

DRS secured a second quarter record of $344.3m in new orders for products and services for the three-month period, reflecting a 56 percent increase over bookings for the comparable prior-year period. For the first half of fiscal 2005, the company was awarded $699.6m in new contracts, 69 percent higher than the same six-month period in the previous year. Funded backlog at September 30, 2004 climbed to $1.29bn, 43 percent above $899.7m in funded backlog at the

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