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 May 3, 1997
Commission File Number 1-10512
DEL GLOBAL TECHNOLOGIES CORP.
-----------------------------
(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 - 7,393,569
PART I
Item 1. - FINANCIAL STATEMENTS
Consolidated Balance Sheets - May 3, 1997 and August 3, 1996
Consolidated Statements of Income for the Three Months and Nine
Months ended May 3, 1997 and April 27, 1996
Consolidated Statements of Cash Flow for the Nine Months ended May
3, 1997 and April 27, 1996
Notes to Consolidated Financial Statements
-1-
DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
May 3, August 3,
1997 1996
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 5,757,769 $ 5,817,800
Investments available-for-sale 716,015 545,651
Trade receivables 9,856,026 9,221,328
Cost and estimated earnings in excess of
billings on uncompleted contracts 1,301,173 --
Inventory 25,084,130 23,819,882
Prepaid expenses and other current assets 2,161,281 1,675,039
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Total current assets 44,876,394 41,079,700
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FIXED ASSETS - Net 10,576,600 9,538,489
INTANGIBLES - Net 1,263,631 1,322,552
GOODWILL - Net 4,183,254 4,311,472
DEFERRED CHARGES 674,457 784,751
OTHER ASSETS 599,765 692,788
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TOTAL $62,174,101 $57,729,752
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 113,472 $ 120,078
Accounts payable - trade 4,664,404 3,693,580
Accrued liabilities 3,919,764 4,070,202
Income taxes 605,128 643,545
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Total current liabilities 9,302,768 8,527,405
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LONG-TERM LIABILITIES
Long-term debt (less current
portion included above) 467,531 499,852
Other 798,861 789,589
Deferred income taxes 843,378 843,378
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Total liabilities 11,412,538 10,660,224
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SHAREHOLDERS' EQUITY
Common stock, $.10 par value;
Authorized - 20,000,000 shares;
Issued and outstanding -
7,471,824 shares at May 3, 1997 and
7,440,108 shares at August 3, 1996 747,182 722,340
Additional paid-in capital 45,477,269 43,272,713
Retained earnings 5,052,747 3,411,160
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51,277,198 47,406,213
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Less common stock in treasury -
78,255 shares at May 3, 1997 and
58,255 shares at August 3, 1996 515,635 336,685
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Total shareholders' equity 50,761,563 47,069,528
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TOTAL $62,174,101 $57,729,752
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See notes to consolidated financial statements
-2-
DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
May 3, April 27, May 3, April 27,
1997 1996 1997 1996
------------ ------------ ------------ ------------
NET SALES $ 14,317,165 $ 12,555,138 $ 39,320,420 $ 29,355,757
- --------- ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 8,944,620 7,973,306 24,009,457 17,717,858
Research and development 1,190,800 869,886 3,383,239 2,301,780
Selling, general & administrative 2,365,075 2,232,346 7,124,822 5,588,463
Interest (income) or expense - net (30,355) 353,298 (77,651) 948,509
------------ ------------ ------------ ------------
12,470,140 11,428,836 34,439,867 26,556,610
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,847,025 1,126,302 4,880,553 2,799,147
PROVISION FOR INCOME TAXES 563,343 343,482 1,488,569 853,700
------------ ------------ ------------ ------------
NET INCOME $ 1,283,682 $ 782,820 $ 3,391,984 $ 1,945,447
============ ============ ============ ============
Per share amounts:
Net income per common share
and common share equivalents $ .15 $ .14 $ .40 $ .34
============ ============ ============ ============
Weighted average number of
common shares outstanding
and common share equivalents 8,467,700 5,781,557 8,507,759 5,721,441
============ ============ ============ ============
See notes to consolidated financial statements
-3-
DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
---------------------------
May 3, April 27,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,391,984 $ 1,945,447
Adjustments to reconcile net
income to net cash provided
by operating activities:
Imputed Interest 51,045 49,852
Depreciation 722,227 539,637
Amortization 390,621 307,647
Deferred income tax provision 195,337 72,657
Changes in assets and liabilities:
Increase in trade receivables (634,698) (2,641,087)
Increase in cost and estimated
earnings in excess of billings
on uncompleted contracts (1,301,173) (8,183)
Increase in inventory (1,264,248) (846,861)
Increase in prepaid and other current assets (383,702) (771,883)
(Increase) decrease in other assets (6,124) 54,142
Increase in accounts payable - trade 970,824 1,147,253
(Decrease) increase in accrued liabilities (423,312) 863,578
Increase in income taxes payable 239,538 371,809
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Net cash provided by operating activities 1,948,319 1,084,008
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for fixed assets (1,760,338) (1,082,601)
Net cash paid on acquisition of subsidiaries (15,000) (5,815,540)
Investment in marketable securities - net (170,364) (142,644)
Payments to former shareholders of
subsidiary acquired (41,775) (39,422)
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Net cash used in investing activities (1,987,477) (7,080,207)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayment of) proceeds from bank borrowing (38,927) 4,803,572
Payment for repurchase of shares (178,950) (19,770)
Proceeds from exercise of stock options
and warrants 175,338 1,059,099
Other 21,666 (95,079)
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Net cash (used in) provided by financing
activities (20,873) 5,747,822
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(Continued)
See notes to consolidated financial statements
-4-
DEL GLOBAL TECHNOLOGIES CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
---------------------------
May 3, April 27,
1997 1996
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (60,031) $ (248,377)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,817,800 505,989
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,757,769 $ 257,612
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 36,109 $ 662,421
=========== ===========
Income taxes paid $ 1,091,188 $ 434,405
=========== ===========
SUPPLEMENTAL SCHEDULE OF INVESTING AND
FINANCING ACTIVITIES:
Acquisition of subsidiary $ 15,000 $ 7,707,915
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Subordinated note payable for acquisition 1,800,000
Acquisition costs in accrued expenses 92,375
-----------
1,892,375
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Cash paid to acquire subsidiary $ 15,000 $ 5,815,540
=========== ===========
Tax benefit related to exercise of stock
options and warrants $ 277,955 $ 139,397
=========== ===========
(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 May 3, 1997 and the results of its
operations and its cash flows for the nine months ended May 3,
1997 and April 27, 1996.
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 nine month period ended May 3,
1997 are not necessarily indicative of the results to be expected
for the full year.
NOTE 3 PERCENTAGE OF COMPLETION ACCOUNTING
Balance at
May 3, 1997
-----------
Costs incurred on uncompleted contracts $1,482,248
Estimated earnings 667,050
----------
2,149,298
Less: Billings to-date 848,125
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Costs and estimated earnings in excess
of billings on uncompleted contracts $1,301,173
==========
The backlog of unshipped contracts being accounted for under the
percentage of completion method of accounting was $4,279,640 at
May 3, 1997.
NOTE 4 INVENTORY
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:
May 3, 1997 Aug. 3, 1996
----------- ------------
Finished goods $ 5,769,350 $ 5,463,847
Work-in-process 10,033,652 9,538,081
Raw material and purchased parts 9,281,128 8,817,954
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Total $25,084,130 $23,819,882
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-6-
NOTE 5 FIXED ASSETS
Fixed assets consist of the following:
May 3, 1997 Aug. 3, 1996
----------- ------------
Land $ 694,046 $ 694,046
Building 2,146,025 2,146,025
Machinery and equipment 9,653,761 8,426,324
Furniture and fixtures 1,268,173 833,880
Leasehold improvements 1,156,676 1,043,996
Construction in progress 397,352 435,102
Transportation equipment 30,103 11,425
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15,346,136 13,590,798
Less accumulated depreciation
and amortization 4,769,536 4,052,309
----------- -----------
Net fixed assets $10,576,600 $ 9,538,489
=========== ===========
NOTE 6 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 7)
declared on November 19, 1996.
NOTE 7 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 8 ACQUISITION
As of March 6, 1996, the Company's wholly-owned subsidiary,
Gendex-Del Medical Imaging Corp., acquired certain selected
assets of the Gendex Medical Division of Dentsply International
Inc.
Unaudited pro-forma financial information for the 3 and 9 month
periods ended April 27, 1996, as if the Gendex Medical
acquisition occurred at the beginning of the respective periods,
is as follows:
Three Months Nine Months
Ended Ended
April 27, April 27,
1996 1996
----------- -----------
Net Sales $14,125,572 $39,778,604
=========== ===========
Income before provision
for income taxes $ 1,046,963 $ 2,302,594
=========== ===========
Net Income $ 727,639 $ 1,600,303
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Net income per common share
and common share equivalents
primary and fully diluted $ .13 $ .29
=========== ===========
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.
-7-
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended May 3, 1997 were approximately
$14.3 million compared to approximately $12.6 million for the three months ended
April 27, 1996, an increase of 14.0 percent over the corresponding period in the
prior year. Net sales for the nine months ended May 3, 1997 were approximately
$39.3 million as compared to approximately $29.4 million for the nine months
ended April 27, 1996, an increase of 33.9 percent. These increases are due to
the inclusion of net sales from the Gendex-Del subsidiary and internal growth.
Cost of sales, as a percentage of net sales for the three months ended
May 3, 1997, was 62.5 percent compared to 63.5 percent for the three months
ended April 27, 1996. Cost of sales, as a percentage of net sales, for the nine
months ended May 3, 1997 was 61.1 percent as compared to 60.4 percent for the
nine months ended April 27, 1996. 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 $1.2
million for the three months ended May 3, 1997 from approximately $870,000 for
the three months ended April 27, 1996. Research and development expenses
increased to approximately $3.4 million for the nine months ended May 3, 1997
from approximately $2.3 million for the nine months ended April 27, 1996. The
increase was attributable to Gendex-Del and increases 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 $2.4
million for the three months ended May 3, 1997 as compared to approximately $2.2
million for the same period in the prior year. Selling, general and
administrative expenses increased to approximately $7.1 million for the nine
months ended May 3, 1997 from approximately $5.6 million for the same period in
the prior year. These increases are primarily attributable to the inclusion of
the selling, general and administrative expenses of Gendex-Del.
Net interest income was approximately $30,000 for the three months ended
May 3, 1997 as compared to net interest expense of approximately $353,000 for
the corresponding period in the prior year. Net interest income was
approximately $78,000 for the nine months ended May 3, 1997 as compared to
approximately $949,000 of interest expense for the corresponding prior period.
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 are in
money market instruments and high grade commercial paper.
Income tax expense was 30.5 percent of pre-tax income for the nine
months ended May 3, 1997 and for the nine months ended April 27, 1996. 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.
-8-
Net income increased to approximately $1.3 million for the three months
ended May 3, 1997, an increase of 64.0 percent from approximately $783,000 for
the prior corresponding period. Net income per common share for the three months
ended May 3, 1997 increased to $.15 from $.14, on a primary and full diluted
basis, even though the weighted number of common shares outstanding and common
share equivalents increased 46.5 percent to 8,467,700 from 5,781,557 shares in
the prior corresponding period. Net income increased to approximately $3.4
million for the nine months ended May 3, 1997, an increase of 74.4 percent from
approximately $1.9 million for the prior corresponding period. Net income per
common share for the nine months ended May 3, 1997 increased to $.40 from $.34,
on a primary and fully diluted basis, even though the weighted number of common
shares outstanding and common share equivalents increased 48.7 percent to
8,507,759 from 5,721,441 shares in the prior corresponding period. The increases
in net income for the three and nine month periods ended May 3, 1997 are
primarily due to higher sales to the Company's medical imaging and diagnostic
product customers and the reduction of interest expense.
The Company's growth strategy continues to be to grow internally by
expanded product development and marketing and by acquisition and/or joint
ventures with specific focus on cost-effective medical imaging and diagnostic
products.
The backlog of unshipped orders at May 3, 1997 was approximately $22.1
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.
Working Capital. At May 3, 1997 and August 3, 1996, the Company's
working capital was approximately $35.6 million and $32.6 million, respectively.
On May 3, 1997 and August 3, 1996 the Company had approximately $5.8 million in
cash and cash equivalents.
Inventory at May 3, 1997 increased approximately $1.3 million as
compared to August 3, 1996. Major new orders received in the quarter ended May
3, 1997 resulted in the increase of inventory levels.
Credit Facility and Borrowing. At May 3, 1997, 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 $13.7 million,
after deducting outstanding letters of credit of approximately $169,000, and
approximately $9.6 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
$623,000 and $1.8 million for capital equipment for the three month and nine
month periods ended May 3, 1997, respectively.
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-
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
-10-
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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
-11-
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
---------------------
Michael H. Taber
Vice President - Finance,
Secretary and Chief
Accounting Officer
Dated: June 13, 1997