SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended February 3, 1996 Commission File Number 1-10512 Del Global Technologies Corp. (Exact name of registrant as specified in its charter) New York 13-1784308 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Commerce Park, Valhalla, NY 10595 (Address of principal executive offices) (Zip Code) (914) 686-3600 (Registrant's telephone number including area code) Del Electronics Corp. (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common Stock - 4,288,758 shares PART I Item 1. Financial Statements Consolidated Balance Sheets - February 3, 1996 and July 29, 1995. Consolidated Statements of Income for the Three Months and Six Months ended February 3, 1996 and January 28, 1995. Consolidated Statements of Cash Flows for the Six Months ended February 3, 1996 and January 28, 1995. Notes to Consolidated Financial Statements 1 DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS February 3, July 29, 1996 1995 ---- ---- CURRENT ASSETS Cash and cash equivalents .................. $ 162,052 $ 505,989 Investments available-for-sale ............. 497,790 378,534 Trade receivables .......................... 5,725,121 6,456,853 Cost and estimated earnings in excess of billings on uncompleted contracts ....... 404,030 395,847 Inventory .................................. 19,908,557 18,038,358 Prepaid expenses and other current assets .. 1,567,122 1,117,963 --------- --------- Total current assets .................... 28,264,672 26,893,544 ---------- ---------- FIXED ASSETS - NET ................................. 8,175,092 7,752,781 GOODWILL - NET ..................................... 2,802,018 2,865,408 DEFERRED CHARGES ................................... 801,665 876,638 OTHER ASSETS ....................................... 626,212 666,263 ------- ------- TOTAL ...................................... $40,669,659 $39,054,634 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt .......... $ 943,383 $ 943,383 Accounts payable - trade ................... 2,748,117 2,539,615 Accrued liabilities ........................ 2,137,886 2,484,435 Income taxes payable ....................... 544,598 277,830 ------- ------- Total current liabilities ............... 6,373,984 6,245,263 --------- --------- LONG-TERM LIABILITIES Long-term debt (less current portion above) 11,755,397 11,902,951 Other ...................................... 782,424 775,541 Deferred taxes payable ..................... 605,806 605,806 ------- ------- Total liabilities ....................... 19,517,611 19,529,561 ---------- ---------- SHAREHOLDERS' EQUITY Common stock, $.10 par value Authorized - 10,000,000 shares Issued and outstanding - February 3, 1996 - 4,346,983 July 29, 1995 - 4,253,486 ............... 434,698 412,960 Additional paid-in capital ................. 17,490,139 16,239,784 Retained earnings .......................... 3,563,896 3,189,244 --------- --------- 21,488,733 19,841,988 ---------- ---------- Less common shares in treasury - February 3, 1996 - 58,225, July 29, 1995 - 55,165 ..................... 336,685 316,915 ------- ------- Total shareholders' equity ................. 21,152,048 19,525,073 ---------- ---------- TOTAL ................................... $40,669,659 $39,054,634 =========== =========== See notes to consolidated financial statements 2 DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended ------------------ ---------------- Feb. 3, Jan 28, Feb. 3, Jan 28, 1996 1995 1996 1995 ---- ---- ---- ---- Net Sales .............................................................. $ 9,329,438 $ 7,579,366 $16,800,619 $13,715,422 Costs and expenses: Cost of sales ...................................................... 5,553,918 4,280,738 9,744,552 7,499,943 Research and development ........................................... 789,063 688,294 1,431,894 1,209,050 Selling, general & administrative .................................. 1,784,151 1,578,032 3,356,117 3,054,806 Interest expense - net ............................................. 285,984 305,287 595,211 576,293 ------- ------- ------- ------- 8,413,116 6,852,351 15,127,774 12,340,092 --------- --------- ---------- ---------- Income before provision for income taxes ................................................... 916,322 727,015 1,672,845 1,375,330 Provision for income taxes: ............................................ 283,261 221,800 510,218 419,500 ------- ------- ------- ------- Net income ......................................................... $ 633,061 $ 505,215 $ 1,162,627 $ 955,830 =========== =========== =========== =========== Per share amounts: Net income per common share and common share equivalents, primary and fully diluted .......................................... $ .12 $ .10 $ .23 $ .19 =========== =========== =========== =========== Weighted average number of common shares outstanding and common share equivalents ....................................... 5,276,094 4,911,717 5,252,173 5,012,086 ========= ========= ========= ========= See notes to consolidated financial statements 3 DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended ---------------- Feb. 3, Jan. 28, 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................$1,162,627 $ 955,830 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Imputed interest ............................. 33,133 18,991 Depreciation ................................. 338,919 388,492 Amortization ................................. 194,617 202,500 Changes in assets and liabilities: Decrease in trade receivables ................ 731,732 946,817 (Increase) decrease in cost and estimated earnings in excess of billings on uncompleted contracts ........... (8,183) 168,445 Increase in inventory ........................ (1,870,199) (2,047,079) Increase in prepaid and other current assets .............................. (503,223) (196,453) Decrease (increase) in other assets .......... 37,861 (16,692) Increase (decrease) in accounts payable - trade ............................... 208,502 (686,763) (Decrease) increase in accrued liabilities ... (346,549) 12,804 Increase in income taxes payable ............. 266,768 96,162 ------- ------ Net cash provided by (used in) operating activities ................ 246,005 (156,946) ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for fixed assets ................ (761,231) (429,508) (Investment in) sale of marketable securities - net .................... (119,256) 52,731 Payments to former shareholders of subsidiary acquired ................. (26,250) (195,375) ------- -------- Net cash used in investing activities ........ (906,737) (572,152) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayment of) proceeds from bank borrowing ..........................(147,554) 578,105 Payment for repurchase of shares ................. (19,770) (122,554) Proceeds from exercise of stock options & warrants .............................. 491,867 62,446 Other ............................................ (7,748) (18,935) ------ ------- Net cash provided by financing activities 316,795 499,062 ------- ------- (continued) See notes to consolidated financial statements 4 DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended ---------------- Feb. 3, Jan. 28, 1996 1995 ---- ---- NET DECREASE IN CASH AND CASH EQUIVALENTS ........ $(343,937) $(230,036) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ... 505,989 445,597 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD ......... $ 162,052 $ 215,561 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid ........................... $ 569,505 $ 432,586 --------- --------- Incomes taxes paid ...................... $ 269,405 $ 98,930 --------- ---------- (concluded) See notes to consolidated financial statements 5 DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the results of the Company's financial position as of February 3, 1996 and January 28, 1995 and the results of its operations and its cash flows for the six months ended February 3, 1996 and January 28, 1995. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements as of July 29, 1995. The consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements as of July 29, 1995. NOTE 2 The results of operations for the three and six month periods ended February 3, 1996 are not necessarily indicative of the results to be expected for the full year. NOTE 3 PERCENTAGE OF COMPLETION ACCOUNTING Balance at February 3, 1996 ---------------- Costs incurred on uncompleted contracts ........ $344,309 Estimated earnings ............................. 94,921 ------ 439,230 Less: Billings to-date ........................ 35,200 ------ Costs and estimated earnings in excess of billings on uncompleted contracts ............................... $404,030 ======== The backlog of unshipped contracts being accounted for under the percentage of completion method of accounting was $625,570 at February 3, 1996. 6 NOTE 4 Inventory is stated at a lower of cost (first-in, first-out) or market. Inventories and their effect on cost of sales are determined by physical count for annual reporting purposes and are estimated by management for interim reporting purposes based on estimated gross margins. Inventory consists of the following: February 3, July 29, 1996 1995 ---- ---- Finished goods ....................... $ 4,853,706 $ 4,398,096 Work in process ...................... 8,434,964 7,642,588 Raw material and purchased parts ..... 6,619,887 5,997,674 --------- --------- Total $19,908,557 $18,038,358 =========== =========== NOTE 5 FIXED ASSETS Fixed assets consist of the following: February 3, July 29, 1996 1995 ---- ---- Land ..................................... $ 694,046 $ 694,046 Building ................................. 2,146,025 2,146,025 Machinery and equipment .................. 7,164,933 6,624,296 Furniture and fixtures ................... 802,924 773,694 Leasehold improvements ................... 795,755 790,226 Construction in progress ................. 210,435 76,023 Transportation equipment ................. 11,425 10,987 ------ ------ 11,825,543 11,115,297 Less accumulated depreciation and amortization ....................... 3,650,451 3,362,516 --------- --------- $ 8,175,092 $ 7,752,781 =========== =========== Construction in progress relates to computer equipment and the computerization of certain of the Company's manufacturing and accounting systems. NOTE 6 Net income per common share was computed using the modified treasury stock method. This method was utilized since the number of shares of common stock obtainable upon the assumed exercise of outstanding options and warrants in the aggregate exceeded 20 percent of the number of common shares outstanding at the end of the period. The weighted average number of common shares and common share equivalents for the period and for all periods presented includes the effect of the 3 percent stock dividend declared on November 20, 1995 (see Note 7). 7 NOTE 7 On November 20, 1995, the Company declared a 3 percent stock dividend to holders of record on December 5, 1995, which was paid on December 21, 1995. NOTE 8 LONG-TERM DEBT AND ACQUISITION On March 5, 1996 the Company and its lending bank entered into an Amended and Restated Credit Agreement wherein the bank increased the Company's line of credit to $24,000,000, consisting of a $10,000,000 five-year term loan and a four-year revolving credit line of $14,000,000. Initial borrowings made under this credit line on March 6, 1996 were used to pay off existing term loans, the existing revolving credit loan balance and to fund the acquisition of certain assets of the GENDEX Medical Division ("GENDEX") of Dentsply International Inc. Borrowing under the revolving credit loan is based upon a formula based on 80 percent of eligible accounts receivable and 50 percent of inventory, with a $2,000,000 maximum sublimit for letters of credit. Interest will be computed at prime, or at the Company's option, at a rate tied to the London Interbank Borrowing Rate ("LIBOR"). On March 6, 1996, the Company and its newly-formed wholly-owned subsidiary, GENDEX-DEL Medical Imaging Corp. acquired certain assets, including inventories, fixed assets, intangibles and the use of the GENDEX trade name, of the GENDEX Medical Division of Dentsply International Inc. for $5,700,000 in cash and a subordinated term note of $1,800,000. The subordinated term note bears interest at 7.75 percent, which is payable quarterly, with principal payments beginning three years after closing. The Company assumed the lease for the GENDEX facility in Franklin Park, Illinois and will operate the business under the GENDEX-DEL name. The Company entered into a supply agreement with Dentsply International Inc. for certain components and parts used in the manufacture of medical x-ray equipment and systems of GENDEX. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company had a line of credit of $10,000,000 with $8,225,000 outstanding and outstanding balances on two term loans of approximately $1,821,000 and $2,625,000 on February 3, 1996. Borrowing under the line of credit were based on 85 percent of eligible accounts receivable and 50 percent of inventory, with a $1,000,000 maximum sub-limit for letters of credit. On March 5, 1996, the Company and its lending bank entered into an Amended and Restated Credit Agreement wherein the bank increased the Company's line of credit to $24,000,000, consisting of a five-year $10,000,000 term loan and a four-year revolving line of credit of $14,000,000. Borrowings under the revolving line of credit are based on 80 percent of eligible accounts receivable and 50 percent of inventory, with a $2,000,000 maximum sub-limit for letters of credit. Borrowings under this credit line were used to pay off the existing term loans and the existing revolving credit loan balance. Interest will be computed at prime, or at the Company's option, at a rate tied to LIBOR. Approximately $5,700,000 of this credit line was used to purchase certain assets of the GENDEX Medical Division from Dentsply International Inc., on March 6, 1996. In connection with such purchase, the Company delivered a seven-year $1,800,000 subordinated note to Dentsply with interest at 7.75 percent, payable quarterly. After the acquisition, the Company had outstanding borrowings of $10,000,000 under the term loan and $8,300,000 under the revolving credit loan. The unused and available portion of the line of credit was approximately $3,243,000, after deducting outstanding letters of credit of approximately $652,000. The Company believes its current financial resources, future operating revenue and existing credit lines will be sufficient to meet its foreseeable working capital requirements. Working capital was approximately $21,891,000 at February 3, 1996, compared to approximately $20,648,000 at July 29, 1995, an increase of 6.0 percent. The current ratio increased to 4.43 to 1 at February 3, 1996 from 4.31 to 1 at July 29, 1995. Investments available-for-sale of approximately $498,000 at February 3, 1996 consist primarily of corporate debt securities and equities. These investments are used to fund a deferred compensation plan for a key Company employee. Trade receivables at February 3, 1996 decreased approximately $732,000 as compared to July 29, 1995 as the result of collections and lower sales levels in the quarter ended February 3, 1996 as compared to the quarter ended July 29, 1995. This is primarily attributable to more workdays in the last quarter of the Company's fiscal year as compared to the second quarter of its fiscal year due to plant shutdowns for the calendar year end holidays. 9 Unbilled contract revenues were approximately $404,000 at February 3, 1996 as compared to $396,000 at July 29, 1995 due to work performed on contracts which utilize the percentage of completion method of accounting. Inventory at February 3, 1996 increased approximately $1,870,000 as compared to July 29, 1995. Major new orders received in the six months ended February 3, 1996 resulted in the increase of inventory levels. Prepaid expenses and other current assets increased approximately $503,000 at February 3, 1996 as compared to July 29, 1995. This increase was primarily attributable to advanced payments for inventory for Del Medical Systems under its exclusive distribution agreement for diagnostic medical image enhancers, worker's compensation insurance policy premiums and costs incurred relating to the acquisition of certain assets of the GENDEX Medical Division of Dentsply International Inc. Capital expenditures for the six months ended February 3, 1996 were approximately $761,000. These expenditures were primarily for assembly and test equipment for improved manufacturing efficiencies. Depreciation expense was approximately $339,000 for the six months ended February 3, 1996 as compared to approximately $388,000 for the six months ended January 28, 1995, because certain classes of fixed assets have been fully depreciated. There were no material open commitments for capital equipment expenditures at February 3, 1996. The funds for capital expenditure improvements were derived from operations and short-term borrowing. The Company's long-term debt at February 3, 1996 decreased approximately $148,000 as compared to July 29, 1995. The decrease is due primarily to collections of trade receivables during the period. RESULTS OF OPERATIONS Net sales for the three months ended February 3, 1996 were approximately $9,329,000 compared to approximately $7,579,000, an increase of approximately 23.1 percent over the corresponding period in the prior year. Net sales for the six months ended February 3, 1996 were approximately $16,801,000 compared to approximately $13,715,000, an increase of approximately 22.5 percent over the corresponding period in the prior year. These increases were due to higher sales levels of products supplied by the Company to its customers manufacturing end-user medical diagnostic and industrial products. Cost of sales, as a percentage of net sales for the three months ended February 3, 1996, was 59.5 percent compared to 56.5 percent for the prior corresponding period. Cost of sales, as a percentage of net sales for the six months ended February 3, 1996, was 58.0 percent compared to 54.7 percent for the prior corresponding period. These changes were due to the change in product mix in the periods. Research and development expenses increased to approximately $789,000 for the three months ended February 3, 1996 from approximately $688,000 for the three months ended January 28, 1995. Research and development expenses increased to approximately $1,432,000 for the six months ended February 3, 1996 from approximately $1,209,000 for the six months ended January 28, 1995. The Company continues to invest in research and development in order to introduce new state-of-the-art products for its medical and industrial markets. 10 Selling, general and administrative expenses were approximately $1,784,000 in the three months ended February 3, 1996 as compared to approximately $1,578,000 in the same period in the prior year. Selling, general, and administrative expenses increased to approximately $3,356,000 for the six months ended February 3, 1996 from approximately $3,055,000 for the same period in the prior year. These increases were primarily attributable to increased selling expenses, advertising and commissions due to increased sales levels in the respective periods. Net interest expense was approximately $286,000 for the three months ended February 3, 1996 compared to approximately $305,000 for the corresponding prior period. This decrease was attributable to lower interest rates. Net interest expense was approximately $595,000 for the six months ended February 3, 1996 compared to approximately $576,000 for the corresponding prior period. This increase is due to higher average credit balances outstanding in the six months ended February 3, 1996, partly offset by lower interest rates. Income tax expense was 30.5 percent of pre-tax income in the six months ended February 3, 1996 and the six months ended January 28, 1995. The decrease from statuatory rates is primarily due to sales being made through the Company's Foreign Sales Corporation, research and development and other tax credits. Net income increased to approximately $633,000 for the three months ended February 3, 1996, an increase of approximately 25.3 percent from $505,000 for the prior corresponding period. Net income per common share increased to $.12 from $.10 even though the weighted number of common shares outstanding and common share equivalents increased approximately 7.4 percent to 5,276,094 from 4,911,717. Net income increased to approximately $1,163,000 for the six months ended February 3, 1996, an increase of approximately 21.6 percent from approximately $956,000 for the prior corresponding period. For the six months ended February 3, 1996 primary and fully diluted net income per share was $.23 as compared to $.19 for the six months ended January 28, 1995. the number of outstanding shares and common share equivalents increased 4.8 percent from the six month period ended January 28, 1995. The increases in net income for the three and six months are primarily due to higher sales levels to its customers manufacturing end-user medical diagnostic and industrial products. The backlog of unshipped orders at February 3, 1996 was approximately $21.0 million. 11 PART II Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults on Senior Securities - None Item 4. Submission to a Vote of Security Holders At the annual meeting of stockholders of the Company held on February 14, 1996, the stockholders: (a) Elected the following directors: Natan V. Bertman, Raymond Kaufman, David Michael, Seymour Rubin, James Tiernan, Leonard A. Trugman. Election of Directors --------------------- For Withheld --- -------- L.A. Trugman ................................ 3,698,097 59,332 N.V. Bertman ................................ 3,703,838 53,591 R. Kaufman .................................. 3,703,246 54,183 D. Michael .................................. 3,715,254 42,175 S. Rubin .................................... 3,704,382 53,047 J. Tiernan .................................. 3,699,274 58,155 (b) Approved the Company's name change to Del Global Technologies Corp. For Against Abstain --- ------- ------- 3,697,546 43,679 16,204 (c) Approved the proposal to amend the Company's Non-qualified Stock Option Plan to increase by 250,000 the number of shares of common stock reserved for issuance thereunder. For Against Abstain Broker No Vote --- ------- ------- -------------- 2,089,426 313,647 57,347 1,297,009 Item 5. Other Information (a) Exhibits: Exhibit 11 - Computation of Earnings per Common Share Exhibit 27 - Financial Data Schedule (b) Report on Form 8-K: As filed with Commission on March 21, 1996. 12 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEL GLOBAL TECHNOLOGIES CORP. /S/LEONARD A. TRUGMAN --------------------- Leonard A. Trugman Chairman of the Board, Chief Executive Officer and President /S/MICHAEL H. TABER ------------------- Michael H. Taber Vice President Finance and Secretary Chief Accounting Officer Dated: March 22, 1996 13