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 November 2, 1996
Commission File Number 1-10512
DEL GLOBAL TECHNOLOGIES CORP.
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(Exact name of registrant as specified in its charter)
New York 13-1784308
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Park, Valhalla, NY 10595
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(Address of principal executive offices) (Zip Code)
(914) 686-3600
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(Registrant's telephone number including area code)
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 - 7,403,834
PART I
Item 1. Financial Statements
Consolidated Balance Sheets - November 2, 1996 and August 3, 1996
Consolidated Statements of Income for the Three Months ended
November 2, 1996 and October 28, 1995
Consolidated Statements of Cash Flows for the Three Months ended
November 2, 1996 and October 28, 1995
Notes to Consolidated Financial Statements
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DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 2, August 3,
ASSETS 1996 1996
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 5,804,358 $ 5,817,800
Investments available-for-sale 579,346 545,651
Trade receivables 8,984,846 9,221,328
Inventory 24,700,070 23,819,882
Prepaid expenses and other current assets 1,740,221 1,675,039
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Total current assets 41,808,841 41,079,700
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FIXED ASSETS - Net 9,914,660 9,538,489
INTANGIBLES - Net 1,302,912 1,322,552
GOODWILL - Net 4,263,785 4,311,472
DEFERRED CHARGES 750,524 784,751
OTHER ASSETS 680,693 692,788
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TOTAL $58,721,415 $57,729,752
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 120,076 $ 120,078
Accounts payable - trade 3,668,495 3,693,580
Accrued liabilities 3,621,148 4,070,202
Income taxes 666,013 643,545
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Total current liabilities 8,075,732 8,527,405
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LONG-TERM LIABILITIES
LONG-TERM DEBT (less current
portion included above) 822,854 499,852
OTHER 792,618 789,589
DEFERRED INCOME TAXES 843,378 843,378
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Total liabilities 10,534,582 10,660,224
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SHAREHOLDERS' EQUITY
Common stock, $.10 par value;
Authorized 10,000,000
shares; Issued and
outstanding - 7,463,837
shares at November 2, 1996
and 7,440,108 shares at
August 3, 1996 746,209 722,340
Additional paid-in capital 45,129,820 43,272,713
Retained earnings 2,647,489 3,411,160
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48,523,518 47,406,213
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Less common stock in treasury -
60,003 shares at
November 2, 1996 and 60,003
shares at August 3, 1996 336,685 336,685
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Total shareholders' equity 48,186,833 47,069,528
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TOTAL $58,721,415 $57,729,752
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See notes to consolidated financial statements
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DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
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November 2, October 28,
1996 1995
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NET SALES $ 12,311,384 $ 7,471,181
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COSTS AND EXPENSES
Cost of sales 7,506,238 4,190,634
Research and development 1,076,827 642,831
Selling, general and administrative
administrative 2,325,539 1,571,966
Interest (income) or expense - net (19,456) 309,227
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10,889,148 6,714,658
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INCOME BEFORE PROVISION FOR INCOME TAXES 1,422,236 756,523
PROVISION FOR INCOME TAXES 433,782 226,957
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NET INCOME $ 988,454 $ 529,566
============ ============
PER SHARE AMOUNTS:
NET INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS PRIMARY AND
FULLY DILUTED $ .12 $ .10
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING AND
COMMON SHARE EQUIVALENTS 8,463,327 5,546,650
============ ============
See notes to consolidated financial statements
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DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
--------------------------
November 2, October 28,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 988,454 $ 529,566
Adjustments to reconcile net
income to net cash provided
by operating activities:
Imputed interest 16,954 16,532
Depreciation 231,625 160,610
Amortization 132,391 97,308
Changes in assets and liabilities:
Decrease in trade receivables 236,482 1,226,429
Increase in cost and estimated
earnings in excess of billings
on uncompleted contracts -- (8,183)
Increase in inventory (880,188) (1,086,773)
Increase in prepaid and other current assets (78,208) (362,808)
(Increase) decrease in other assets (1,831) 31,458
Decrease in accounts payable - trade (25,085) (2,091)
Decrease in accrued liabilities (478,201) (30,189)
Increase in income taxes payable 51,614 147,979
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Net cash provided by operating activities 194,007 719,838
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for fixed assets (607,796) (371,072)
Investment in marketable securities (33,695) (35,347)
Payments to former shareholder of
subsidiary acquired (13,925) (13,125)
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Net cash used in investing activities (655,416) (419,544)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayment of) from
bank borrowing 323,000 (511,819)
Proceeds from exercise of stock
options and warrants 138,352 7,132
Payment for repurchase of shares -- (6,215)
Other (13,385) --
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Net cash provided by (used in) financing
activities 447,967 (510,902)
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(Continued)
See notes to consolidated financial statements
-4-
DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
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November 2, October 28,
1996 1995
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NET DECREASE IN CASH AND CASH EQUIVALENTS $ (13,442) $ (210,608)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 5,817,800 505,989
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,804,358 $ 295,381
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 14,340 $ 119,543
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Income taxes paid $ 407,739 $ 78,978
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(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's management, 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 November 2, 1996 and the results of
its operations and its cash flows for the three months ended
November 2, 1996 and October 28, 1995. The accounting policies
followed by the Company are set forth in Note 1 to the
Company's financial statements as of August 3, 1996. The
consolidated financial statements should be read in conjunction
with the notes to the financial statements as of August 3,
1996.
NOTE 2 The results of operations for the three month period ended
November 2, 1996 are not necessarily indicative of the results
to be expected for the full year.
NOTE 3 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.
Inventory consists of the following:
November 2, 1996 August 3, 1996
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Finished goods $ 5,681,016 $ 5,463,847
Work-in-process 9,880,028 9,538,081
Raw material and
purchased parts 9,139,026 8,817,954
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Total $24,700,070 $23,819,882
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NOTE 4 FIXED ASSETS
Fixed assets consist of the following:
November 2, 1996 August 3, 1996
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Land $ 694,046 $ 694,046
Building 2,146,025 2,146,025
Machinery and equipment 8,915,308 8,426,324
Furniture and fixtures 1,198,910 833,880
Leasehold improvements 1,072,462 1,043,996
Construction in progress 136,740 435,102
Transportation equipment 35,103 11,425
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14,198,594 13,590,798
Less accumulated depreciation
and amortization 4,283,934 4,052,309
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Net fixed assets $ 9,914,660 $ 9,538,489
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NOTE 5 Net income per common share was computed using the treasury
stock method. 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
(see Note 6) declared on November 19, 1996.
NOTE 6 On November 19, 1996, the Company declared a 3 percent stock
dividend to holders of record on December 4, 1996, payable
December 23, 1996.
NOTE 7 ACQUISITION
As of March 6, 1996, the Company acquired certain selected
assets of the Gendex Medical Division of Dentsply International
Inc. ("Dentsply"), which have been consolidated as of that
date. The new entity formed is the Gendex-Del Medical Imaging
Corp. ("Gendex-Del").
Unaudited pro-forma financial information for the 3 month
period ended October 28, 1995, as if the Gendex Medical
acquisition occurred at the beginning of the period, is as
follows:
Three Months Ended
October 28, 1995
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Net Sales $ 12,327,000
Income before provision
for income taxes $ 547,000
=============
Net Income $ 383,000
=============
Net income per common share
and common share equivalents
primary and fully diluted $ .07
=============
The pro forma financial information presented above is not
necessarily indicative of the operating results which would
have been achieved had the Company acquired Gendex Medical at
the beginning of the periods presented or of the results to be
achieved in the future.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales for the three months ended November 2, 1996 were
approximately $12.3 million as compared to approximately $7.5 million for the
three months ended October 28, 1995, an increase of approximately 64.8 percent.
This increase is due to net sales from the newly formed Gendex-Del subsidiary
and internal growth from existing operations.
Cost of sales, as a percentage of net sales for the three months ended
November 2, 1996, was 61.0 percent compared to 56.0 percent for the prior
corresponding period. This change was due to the change in product mix in the
periods. The current year period includes the gross margins of medical imaging
systems manufactured by Gendex-Del.
Research and development expenses increased to approximately $1.1
million for the three months ended November 2, 1996 from approximately $643,000
for the three months ended October 28, 1995. The increase was primarily
attributable to Gendex-Del and the increase in other research and development
activities. 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.
Selling, general and administrative expenses were approximately $2.3
million for the three months ended November 2, 1996 as compared to approximately
$1.6 million for the same period in the prior year. This increase was primarily
attributable to the inclusion of the selling, general and administrative
expenses of Gendex-Del.
Net interest income was approximately $19,000 for the three months
ended November 2, 1996 as compared to net interest expense of approximately
$309,000 for the corresponding period in the prior year. Interest expense was
significantly reduced as the Company paid off substantially all of its debt.
Interest income resulted from the investment of some of the proceeds from the
public offering of the Company's common stock, which were in money market
instruments and high grade commercial paper.
Income tax expense was 30.5 percent of pre-tax income for the three
months ended November 2, 1996 and 30.0 percent for the three months ended
October 28, 1995. The decrease from statutory 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 $988,000 for the three months
ended November 2, 1996, an increase of approximately 86.7 percent from
approximately $530,000 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 52.6
percent to 8,463,327 from 5,546,650. The increase in net income for the three
month period ended November 2, 1996 is primarily due to higher sales to the
Company's medical imaging and diagnostic product customers.
The backlog of unshipped orders at November 2, 1996 was approximately
$23.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and acquisitions through a
combination of cash flow from operations, bank borrowing and the issuance of
the Company's common stock.
-8-
Working Capital. At November 2, 1996 and August 3, 1996, the Company's
working capital was approximately $33.7 million and $32.6 million, respectively.
At such dates the Company had approximately $5.8 million in cash and cash
equivalents.
Inventory at November 2, 1996 increased approximately $880,000 as
compared to August 3, 1996. Major new orders received in the quarter ended
November 2, 1996 resulted in the increase of inventory levels.
Credit Facility and Borrowing. At November 2, 1996, the Company had a
$14.0 million revolving credit line and a $10.0 million acquisition credit line.
The available portion of the revolving credit line was approximately $13.3
million, after deducting outstanding letters of credit of approximately $368,000
and $9.5 million was available under its acquisition credit line.
Capital Expenditures. The Company continues to invest in capital
equipment, principally for its manufacturing operations, in order to improve its
manufacturing capability and capacity. The Company has expended approximately
$608,000 for capital equipment for the three month period ended November 2,
1996.
The Company may expand its technical and marketing capabilities and
product lines through the acquisition of other companies, businesses or
technologies that are complementary to the Company's current business.
The Company anticipates that cash generated from operations and amounts
available under its bank lending facilities will be sufficient to satisfy its
current operating cash needs.
-9-
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
None
Item 5. Other Information
(i) On November 19, 1996, the Registrant declared a 3
percent stock dividend payable on December 23, 1996 to
holders of record on December 4, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 11 - Computation of Earnings per
Common Share
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K: None
-10-
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
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Leonard A. Trugman
Chairman of the Board,
Chief Executive Officer
and President
/S/MICHAEL H. TABER
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Michael H. Taber
Vice President - Finance,
Secretary and Chief
Accounting Officer
Dated: December 11, 1996
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