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 October 30, 1999
Commission File Number 0-3319
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
- ------------------------------- -----
(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 business on December 8,1999.
Common Stock - 7,814,916
PART I
Item 1. Financial Statements
Consolidated Balance Sheets - October 30, 1999 and July 31, 1999
Consolidated Statements of Income for the Three Months ended
October 30, 1999 and October 31, 1998
Consolidated Statements of Cash Flows for the Three Months ended
October 30, 1999 and October 31, 1998
Notes to Consolidated Financial Statements
-1-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
October 30, July 31,
1999 1999
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 626,113 $ 320,742
Investments available-for-sale 1,139,370 1,292,852
Trade receivables - net 14,912,641 15,624,433
Cost and estimated earnings in excess of
billings on uncompleted contracts 7,759,094 6,402,532
Inventory 37,212,350 36,599,587
Prepaid expenses and other current assets 1,576,066 1,216,145
----------- -----------
Total current assets 63,225,634 61,456,291
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FIXED ASSETS - Net 14,975,212 14,668,060
INTANGIBLES - Net 834,191 879,898
GOODWILL - Net 5,164,082 5,236,965
DEFERRED CHARGES 231,873 264,464
OTHER ASSETS 1,613,763 1,598,279
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TOTAL $86,044,755 $84,103,957
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 784,467 $ 516,654
Accounts payable - trade 6,255,667 6,295,586
Accrued liabilities 4,556,690 4,468,521
Deferred compensation liability 1,209,321 1,201,065
Income taxes 1,114,894 1,224,451
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Total current liabilities 13,921,039 13,706,277
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LONG-TERM LIABILITIES
LONG-TERM DEBT (less current portion
included above) 2,078,832 1,832,287
OTHER 573,505 594,272
DEFERRED INCOME TAXES 1,778,442 1,620,417
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Total liabilities 18,351,818 17,753,253
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SHAREHOLDERS' EQUITY
Common stock, $.10 par value;
Authorized 20,000,000 shares;
Issued and outstanding 8,354,316
shares at October 30, 1999 and
8,278,646 shares at July 31, 1999 835,433 827,866
Additional paid-in capital 51,058,863 50,798,502
Retained earnings 20,558,485 19,032,506
----------- -----------
72,452,781 70,658,874
Less common stock in treasury -
546,261 shares at October 30, 1999
and 490,393 shares at July 31, 1999 4,759,844 4,308,170
----------- -----------
Total shareholders' equity 67,692,937 66,350,704
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TOTAL $86,044,755 $84,103,957
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See notes to consolidated financial statements
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DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
---------------------------
October 30, October 31,
1999 1998
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NET SALES $15,712,024 $14,809,666
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COSTS AND EXPENSES:
Cost of sales 9,310,733 8,679,168
Research and development 1,543,154 1,431,314
Selling, general and administrative 2,603,174 2,621,162
Interest expense - net 62,037
----------- -----------
6,881
13,519,098 12,738,525
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,192,926 2,071,141
PROVISION FOR INCOME TAXES 666,948 642,054
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NET INCOME $ 1,525,978 $ 1,429,087
=========== ===========
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS:
BASIC $ .20 $ .19
=========== ===========
DILUTED $ .19 $ .18
=========== ===========
Weighted number of common
shares outstanding 7,786,004 7,648,413
=========== ===========
Weighted number of common
shares and common share
equivalents outstanding 8,171,777 8,142,557
=========== ===========
See notes to consolidated financial statements
-3-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
--------------------------
October 30, October 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,525,978 $ 1,429,087
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 555,560 413,419
Amortization 187,462 157,944
Imputed interest 19,706 10,974
Deferred income tax provision 147,495 94,745
Tax benefit from exercise of stock options
and warrants 188,849 18,019
Amortization of stock-based compensation 7,833 5,508
Changes in assets and liabilities:
Decrease (increase) in trade receivables 711,792 (869,725)
Increase in cost and estimated earnings in
excess of billings on uncompleted contracts (1,356,562) (908,225)
Increase in inventory (612,763) (2,072,986)
Increase in prepaid and other current assets (396,202) (539,657)
Increase in other assets (4,954) (6,776)
(Decrease) increase in accounts payable - trade (39,919) 1,170,993
Increase in accrued liabilities 85,072 145,842
Increase in deferred compensation liability 8,256 69,902
(Decrease) increase in income taxes payable (109,557) 378,790
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Net cash provided by (used in) operating activities 918,046 (502,146)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for fixed assets (862,712) (692,266)
Investment in marketable securities 153,482 (73,026)
Payments to former shareholders of subsidiary
acquired (17,707) (29,796)
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Net cash used in investing activities (726,937) (795,088)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank borrowing 514,358 498,737
Payment for repurchase of shares (451,674) (682,404)
Proceeds from exercise of stock options and
warrants 71,247 42,548
Other (19,669) (5,784)
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Net cash provided by (used in) financing activities 114,262 (146,903)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 305,371 (1,444,137)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 320,742 3,401,697
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 626,113 $ 1,957,560
=========== ===========
See notes to consolidated financial statements
-4-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
--------------------------
October 30, October 31,
1999 1998
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 6,359 $ 33,724
=========== ==========
Income taxes paid $ 482,440 $ 150,500
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See notes to consolidated financial statements
-5-
DEL GLOBAL TECHNOLOGIES CORP. AND 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 October 30, 1999 and
the results of its operations and its cash flows for the three months
ended October 30, 1999 and October 31, 1998.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements as of July 31, 1999.
The consolidated financial statements should be read in conjunction
with the notes to the financial statements as of July 31, 1999.
Certain reclassifications have been made in the prior period's
financial statements to correspond to the current period's
presentation.
NOTE 2 The results of operations for the three-month period ended October 30,
1999 are not necessarily indicative of the results to be expected for
the full year.
NOTE 3 INVESTMENTS
Investments available-for-sale at October 30, 1999 and July 31, 1999
include $1,209,321and $1,201,065, respectively, for the Company's
President's deferred compensation and certain key executives. At
October 30, 1999 and July 31, 1999, $118,514 and $213,411,
respectively, were classified as cash and $1,090,808 and $987,654,
respectively, were recorded as investments. The liabilities of
$1,209,321 and $1,201,065, respectively, are recorded as deferred
compensation liability. Gains and losses on the investments held to
fund the deferred compensation, either recognized or unrealized, inure
to the benefit or detriment of the President's or key executives'
deferred compensation. At October 30, 1999, the balance of investments
available-for-sale of $48,562 are equity securities held by the Company
for its own account. Realized and unrealized gains and losses on these
securities for the period ended October 30, 1999 were not material and
are recorded in the financial statements.
NOTE 4 PERCENTAGE OF COMPLETION ACCOUNTING
October 30, July 31,
1999 1999
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Costs incurred on uncompleted
contracts $15,206,728 $15,012,158
Estimated earnings 9,906,018 9,329,220
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25,112,746 24,341,378
Less billings to date 17,353,652 17,938,846
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Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 7,759,094 $ 6,402,532
=========== ===========
The backlog of unshipped contracts being accounted for under the
percentage of completion method of accounting was approximately $4.7
million at October 30, 1999.
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NOTE 5 INVENTORY
Inventory is stated at the 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:
October 30, July 31,
1999 1999
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Finished goods $ 7,820,260 $ 5,414,095
Work-in-process 17,246,575 14,814,766
Raw material and purchased parts 12,145,515 16,370,726
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Total $37,212,350 $36,599,587
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NOTE 6 FIXED ASSETS
Fixed assets consist of the following:
October 30, July 31,
1999 1999
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Land $ 694,046 $ 694,046
Building 2,178,025 2,161,025
Machinery and equipment 16,520,067 15,967,619
Furniture and fixtures 2,021,237 1,914,396
Leasehold improvements 2,367,296 2,180,873
Transportation equipment 30,103 30,103
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23,810,774 22,948,062
Less accumulated depreciation and amortization 8,835,562 8,280,002
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Net fixed assets $14,975,212 $14,668,060
=========== ===========
NOTE 7 SEGMENTS
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter of the
year ended July 31, 1999. SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial
statements and requires selected information about operating segments
in interim financial statements. It also establishes standards for
related disclosures about products and services, major customers and
geographic areas. Operating segments are defined as components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief decision maker, or decision making
group, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision making group is
comprised of the Chief Executive Officer and the senior executives of
the Company's operating segments.
The Company has two reportable segments which are Medical Imaging
Systems and Critical Electronic Subsystems. The Medical Imaging Systems
Segment designs, manufactures and markets state-of-the-art,
cost-effective medical imaging and diagnostic systems consisting of
stationary and portable imaging systems, radiographic/fluoroscopic
systems, mammography systems and a neo-natal imaging system. The
Critical Electronic Subsystems Segment designs, manufactures and
markets proprietary precision power conversion and noise suppression
subsystems for medical as well as critical industrial applications.
Selected financial data of these segments is as follows:
-7-
Medical Critical
Imaging Electronic
Systems Subsystems Total
------------ ----------- -----------
For the Three Months Ended October 30, 1999:
Net sales to external customers $ 7,883,898 $ 7,828,126 $15,712,024
============ =========== ===========
Income before provision for income taxes $ 614,991 $ 1,577,935 $ 2,192,926
============ =========== ===========
Segment assets $ 11,817,441 $74,227,314 $86,044,755
============ =========== ===========
Medical Critical
Imaging Electronic
Systems Subsystems Total
------------ ----------- -----------
For the Three Months Ended October 31, 1998:
Net sales to external customers $ 7,345,710 $ 7,463,956 $14,809,666
============ =========== ===========
Income before provision for income taxes $ 611,836 $ 1,459,305 $ 2,071,141
============ =========== ===========
Segment assets $ 8,210,220 $67,293,568 $75,503,788
============ =========== ===========
-8-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management Discussion and Analysis of Financial Condition and Results of
Operations contains forward looking statements. Such statements involve various
risks that may cause actual results to differ materially. These risks include,
but are not limited to, the ability of the Company to grow internally or by
acquisition and to integrate acquired businesses, changing industry or
competitive conditions, and other risks referred to in the Company's
registration statements and periodic reports filed with the Securities and
Exchange Commission.
OVERVIEW
The Company's net sales have increased as a result of both
internal growth and acquisitions. The Company has completed five acquisitions in
the past six years: Dynarad (a designer and manufacturer of medical imaging
systems and critical electronic subsystems) in fiscal 1993; Bertan (a designer
and manufacturer of precision high voltage power supplies and instrumentation
for medical and industrial applications) in fiscal 1994; Gendex-Del (a
manufacturer of medical imaging systems) in fiscal 1996; X-Ray Technologies,
Inc. (a manufacturer of medical imaging systems) in fiscal 1998 and Acoma
Medical Imaging Inc. (a designer and manufacturer of medical imaging systems) in
fiscal 1999.
During the past five years the Company has grown internally and
through acquisitions into a company whose predominant business is serving the
medical imaging and diagnostic markets. The Company's net sales attributable to
medical imaging products have increased from approximately $14.4 million or 44%
of total net sales in fiscal 1995 to approximately $49.2 million or 72% of total
net sales in fiscal 1999.
Management believes that recent cost containment trends in the
healthcare industry have created opportunities for its cost-effective medical
imaging products in domestic and international markets. Some of these trends are
increased demand for lower cost medical equipment, the outsourcing of systems
and critical electronic subsystems by leading original equipment manufacturers
("OEMs"), increased demand for certain diagnostic procedures and lower cost
medical services in the global marketplace.
RESULTS OF OPERATIONS
Net sales for the three months ended October 30, 1999 were
approximately $15.7 million as compared to approximately $14.8 million for the
three months ended October 31, 1998, an increase of 6.1%. The increase is due to
internal growth from existing operations.
Cost of sales, as a percentage of net sales for the three
months ended October 30, 1999, was 59.3% compared to 58.6% for the prior
corresponding period. This decrease in gross margins is due to the change in
product mix in the period.
Research and development expenses increased to approximately
$1.5 million for the three months ended October 30, 1999 from approximately $1.4
million for the three months ended October 31, 1998, an increase of 7.8%. The
increase was primarily due to new product development. 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
$2.6 million, or 16.6% of net sales, for the three months ended October 30, 1999
as compared to approximately $2.6 million, or 17.7% of net sales, for the same
period in the prior year, a decrease of 0.7%.
Net interest expense was approximately $62,000 for the three
months ended October 30, 1999 as compared to approximately $7,000 for the
corresponding period in the prior year. This increase is due to higher levels of
long-term debt for the quarter.
Income tax expense was 30.4% of pretax income for the three
months ended October 30, 1999 and 31% for the three months ended October 31,
1998. 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 $1.5 million for the
three months ended October 30, 1999, an increase of 6.8% from approximately $1.4
million for the prior corresponding period. Basic earnings per share at October
30, 1999 increased to $.20 from $.19 at October 31, 1998, an increase of 4.9%.
Diluted earnings per share increased to $.19 at October 30, 1999 from $.18 at
October 31, 1998, an increase of 6.4%. The weighted number
-9-
of common shares outstanding increased to 7,786,004 at October 30, 1999 from
7,648,413 at October 31, 1998 and the number of common shares and common share
equivalents outstanding increased to 8,171,777 at October 30, 1999 from
8,142,557 at October 31, 1998. The increase in net income for the three-month
period ended October 30, 1999 is primarily due to higher sales.
The backlog of unshipped orders at October 30, 1999 was
approximately $39 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 October 30, 1999 and July 31, 1999, the
Company's working capital was approximately $49.3 million and $47.8 million,
respectively. At such dates the Company had approximately $626,000 and $321,000,
respectively, in cash and cash equivalents.
Trade receivables at October 30, 1999 decreased approximately
$712,000 as compared to July 31, 1999, primarily due to lower revenue levels in
the three-month period ended October 30, 1999 as compared to the three-month
period ended July 31, 1999.
Cost and estimated earnings in excess of billings on
uncompleted contracts increased to approximately $7.8 million at October 30,
1999 from approximately $6.4 million at July 31, 1999 due to additional work
performed in the quarter on long-term contracts accounted for under the
percentage of completion method of accounting.
Inventory at October 30, 1999 increased approximately $613,000
as compared to July 31, 1999 primarily because of additional production
requirements of major medical OEM contracts.
Prepaid expenses and other current assets at October 30, 1999
increased approximately $360,000 as compared to July 31, 1999 due to additional
prepaid expenses related to increased acquisition activity.
Credit Facility and Borrowing. At October 30, 1999 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 $12.7
million, after deducting outstanding letters of credit of approximately $15,000
and $8.6 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 $863,000 for capital equipment for the three-month period ended
October 30, 1999.
The Company anticipates that cash generated from operations and
amounts available under its bank lending facilities will be sufficient to
satisfy its currently projected operating cash needs.
Shareholders' Equity. Shareholders' equity increased to
approximately $67.7 million at October 30, 1999 from approximately $66.4 million
at July 31, 1999, primarily due to the results of operations. Additionally,
during the period 75,670 stock options were exercised, with proceeds of $71,247
and 48,775 shares of common stock were repurchased at a cost of $383,192.
Year 2000. The Company has initiated a company-wide program and
developed a formal plan to identify, evaluate and implement changes to products,
computer systems, applications and infrastructure necessary to achieve a year
2000 date conversion with no effect on customers or disruption to business
operations. These actions are necessary to ensure that all systems and business
applications will recognize and process the year 2000 and beyond.
The Company uses purchased software programs for a variety of
functions, including drafting and design, general accounting and manufacturing
applications. Currently, all of the Company's products and software for design
and drafting applications are fully compliant. The Company's systems for general
accounting and manufacturing have been evaluated and steps to achieve compliance
have been implemented and these systems are expected to be fully compliant. At
this time, the Company believes that it does not have any internal
mission-critical year 2000 issues that it cannot remedy.
-10-
As part of the year 2000 readiness process, significant
customers, service providers, vendors and suppliers who are believed to be
crucial to business operations after January 1, 2000 have been identified and
steps have been taken to ascertain their state of readiness. All
mission-critical third parties have indicated that they are or will be year 2000
compliant. The Company has surveyed them primarily through written
correspondence. Despite its efforts to ascertain the readiness of its customers,
suppliers and service providers, the Company cannot be certain as to the actual
year 2000 readiness of these third parties or the impact their noncompliance may
have on the Company's future financial position, the results of its operations
or its cash flows.
With respect to the Company's internal year 2000 compliance,
the Company has incurred internal staff costs, as well as consulting and other
expenses and the total costs incurred for all year 2000 compliance related
projects did not have a material effect on the Company's financial position,
results of its operations or its cash flows.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
Disclosures about Derivative Instruments and Hedging
Activities. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 is effective for all fiscal years beginning after
December 15, 1999. Management does not anticipate that this statement will have
any affect on the Company's consolidated financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-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
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
-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
Chief Financial Officer,
Vice President of Finance
and Secretary
Dated: December 9, 1999
-13-