SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 9, 2002
-----------------------------
DEL GLOBAL TECHNOLOGIES CORP.
-----------------------------
(Exact name of registrant as specified in its charter)
0-3319
------
(Commission File Number)
13-1784308
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(IRS Employer Identification Number)
New York
--------
(State of Incorporation)
1 Commerce Park, Valhalla, New York 10595
-----------------------------------------
(Address of principal executive offices)
914-686-3600
------------
(Registrant's Telephone Number, including area code)
Item 5. Other Events.
The Audited Consolidated Balance Sheets of the Registrant and its Subsidiaries
as of July 28, 2001 and July 29, 2000, and the Related Statements of Operations,
Stockholders' Equity, and Cash Flows for the Fiscal Year ended July 28, 2001 are
being filed as Exhibit 1 hereto.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DEL GLOBAL TECHNOLOGIES CORP.
By: /s/ Samuel E. Park
--------------------------------------
Dated: April 9, 2002 Samuel E. Park,
President and Chief Executive Officer
EXHIBIT 1
Del Global Technologies Corp.
and Subsidiaries
Independent Auditors' Report
Consolidated Financial Statements
Year Ended July 28, 2001
Consolidated Balance Sheet
July 29, 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Del Global Technologies Corp.
Valhalla, New York
We have audited the accompanying consolidated balance sheets of Del Global
Technologies Corp. and subsidiaries as of July 28, 2001 and July 29, 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the fiscal year ended July 28, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Del Global Technologies Corp. and
subsidiaries at July 28, 2001 and July 29, 2000, and the results of their
operations and their cash flows for the fiscal year ended July 28, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
New York, New York
March 25, 2002
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
July 28, July 29,
2001 2000
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,402 $ 888
Marketable securities 379 1,348
Trade receivables (net of allowance for doubtful
accounts of $607 and $604 for 2001 and 2000,
respectively) 19,026 19,167
Inventory (net of allowance of $5,198 and
$6,421 for 2001 and 2000, respectively) 27,528 29,234
Deferred income tax assets - current 4,643 3,586
Prepaid expenses and other current assets 391 1,265
------- -------
Total current assets 53,369 55,488
------- -------
NON-CURRENT ASSETS:
Refundable income taxes 3,829 3,341
Fixed assets, net 9,731 12,129
Deferred income tax assets - non-current 9,796 5,454
Goodwill, net 3,450 4,408
Other intangible assets, net 666 857
Other assets 817 1,128
------- -------
Total non-current assets 28,289 27,317
------- -------
TOTAL ASSETS $81,658 $82,805
======= =======
See notes to consolidated financial statements
-3-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except share data)
- --------------------------------------------------------------------------------
July 28, July 29,
2001 2000
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term credit facilities $ 4,450 $ 1,981
Callable debt 8,500 4,804
Current portion of long-term debt 790 667
Accounts payable - trade 7,823 12,060
Accrued liabilities 8,825 6,721
Deferred compensation liability 228 1,577
Income taxes payable 484 347
-------- --------
Total current liabilities 31,100 28,157
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt 4,703 5,952
Obligation to issue subordinated note 1,519 --
Other long-term liabilities 1,927 2,395
-------- --------
Total non-current liabilities 8,149 8,347
-------- --------
Total liabilities 39,249 36,504
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10) -- --
MINORITY INTEREST IN SUBSIDIARY 618 239
-------- --------
SHAREHOLDERS' EQUITY:
Common stock - $.10 par value;
authorized - 20,000,000 shares;
issued - 8,476,081 shares at July 28, 2001
and 8,557,951 shares at July 29, 2000 847 856
Additional paid-in capital 52,187 52,139
Obligation to issue shares and warrants 4,410 --
Accumulated other comprehensive loss (391) (189)
Accumulated deficit (9,760) (1,239)
Less common stock in treasury - 628,566 shares at
July 28, 2001 and 629,437 shares at July 29, 2000 (5,502) (5,505)
-------- --------
Total shareholders' equity 41,791 46,062
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 81,658 $ 82,805
======== ========
See notes to consolidated financial statements
-4-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share amounts)
- --------------------------------------------------------------------------------
Fiscal Year
Ended
July 28,
2001
-----------
NET SALES $ 92,955
--------
COST OF SALES 74,091
--------
GROSS MARGIN 18,864
--------
Selling, general and administrative 17,253
Research and development 2,876
Litigation settlement costs 9,759
Facilities reorganization costs 822
--------
Total operating expenses 30,710
OPERATING LOSS (11,846)
--------
Interest expense, net 1,308
Other income (74)
--------
LOSS BEFORE INCOME TAX BENEFIT
AND MINORITY INTEREST (13,080)
INCOME TAX BENEFIT (4,938)
--------
LOSS BEFORE MINORITY INTEREST (8,142)
MINORITY INTEREST 379
--------
NET LOSS $ (8,521)
========
NET LOSS PER BASIC AND DILUTED SHARES $ (1.09)
========
See notes to consolidated financial statements
-5-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JULY 28, 2001
(Dollars in Thousands)
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(8,521)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 2,955
Deferred income tax benefit (5,207)
Loss on sale of fixed assets 9
Non cash facilities reorganization charge 499
Gain on sale of marketable securities (272)
Loss on sale of investment 190
Non cash litigation settlement costs 5,929
Non cash pension cost 22
Non cash compensation expense 249
Minority Interest 379
Stock based compensation expense 150
Changes in operating assets and liabilities:
Decrease in trade receivables (525)
Decrease in inventory 1,165
Decrease in prepaid expenses and
other current assets 835
Increase in other assets (69)
Increase in refundable income taxes (488)
Decrease in accounts payable - trade (3,839)
Increase in accrued liabilities 2,274
Payment of deferred compensation liability (1,349)
Increase in income taxes payable 142
Decrease in other long-term liabilities (332)
-------
Net cash used in operating activities (5,804)
-------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed asset purchases (677)
Net proceeds from sale of marketable securities 1,241
Proceeds from sale of investment 60
-------
Net cash provided by investing activities 624
-------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 7,539
Repayment of bank borrowings (1,734)
Stock repurchase (108)
-------
Net cash provided by financing activities 5,697
-------
EFFECT OF EXCHANGE RATE CHANGES (3)
-------
CASH AND CASH EQUIVALENTS INCREASE FOR THE YEAR 514
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 888
-------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 1,402
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,229
Cash paid during the period for income taxes 488
See notes to consolidated financial statements
-6-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS
FOR THE FISCAL YEAR ENDED JULY 28, 2001
(Dollars in Thousands, except share data)
- --------------------------------------------------------------------------------
Obligation Accumulated
Common Stock Issued Additional to issue Other
------------------- Paid-In Shares & Comprehensive Accumulated Comprehensive
Shares Amount Capital Warrants Loss Deficit (Loss)
------ ------ ---------- ---------- ------------- ----------- -------------
BALANCE, JULY 29, 2000 8,557,951 $ 856 $ 52,139 $ (189) $ (1,239)
Shares and warrants to be issued
for litigation settlement $ 4,410
Shares repurchased
Compensation cost of
nonemployee stock options
and warrants issued 150
Stock Option exercise reversal (81,870) (9) (102)
Comprehensive Loss:
Foreign Exchange (202) $ (202)
Net loss (8,521) (8,521)
--------
Comprehensive Loss $ 8,723
========
--------- ------ --------- --------- ------- --------
BALANCE, JULY 28, 2001 8,476,081 $ 847 $ 52,187 $ 4,410 $ (391) $ (9,760)
========= ====== ========= ========= ======= ========
Treasury Stock
Shares Amount Total
-------- -------- ---------
BALANCE, JULY 29, 2000 629,437 $ (5,505) $ 46,062
Shares and warrants to be issued
for litigation settlement 4,410
Shares repurchased 11,500 (108) (108)
Compensation cost of
nonemployee stock options
and warrants issued 150
Stock Option exercise reversal (12,371) 111 --
Comprehensive Loss:
Foreign Exchange (202)
Net loss (8,521)
Comprehensive Loss
------- -------- -------
BALANCE, JULY 28, 2001 628,566 $ (5,502) $ 41,791
======= ========= ========
-7-
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 28, 2001 AND JULY 29, 2000 AND FOR THE
FISCAL YEAR ENDED JULY 28, 2001.
(Dollars in thousands, except share data)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business Activities - Del Global Technologies Corp. ("Del")
together with its subsidiaries (collectively, the "Company"), is engaged
in two major lines of business: Medical Imaging Systems and Power
Conversion subsystems and products. The Medical Imaging Systems segment
designs, manufactures and markets imaging and diagnostic systems
consisting of stationary and portable x-ray imaging systems,
radiographic/fluoroscopic systems, mammography systems and dental systems.
The Power Conversion Group segment designs, manufactures and markets
proprietary precision power conversion and noise suppression subsystems
and products for medical as well as critical industrial applications.
Principles of Consolidation - The consolidated financial statements
prepared on the accrual basis of accounting, which conform to accounting
principles generally accepted in the United States of America, include the
accounts of Del and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
Use of Estimates - The preparation of the consolidated financial
statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated balance sheets. Actual results could differ from those
estimates.
Significant estimates underlying the accompanying consolidated financial
statements include the allowance for doubtful accounts, allowance for
obsolete and excess inventory, realizability of deferred income tax
assets, recoverability of intangibles and other long-lived assets, and
future obligations associated with the Company's litigation.
Accounting Period - The Company's fiscal year-end is based on a 52/53-week
cycle ending on the Saturday nearest to July 31.
Cash and Cash Equivalents - The Company considers highly liquid
instruments readily convertible to known amounts of cash with original
maturities of three months or less measured from their acquisition date to
be cash equivalents.
Marketable Securities - The Company classifies all of its marketable
securities as trading. Trading securities are carried at fair value, with
the unrealized gains and losses reported as a component of income.
Marketable securities are classified in the consolidated balance sheets as
current assets. The cost of securities sold is based on the specific
identification method.
Inventories - Inventories are stated at the lower of cost or market value.
Cost comprises direct materials and, where applicable, direct labor costs
and those overheads that have been incurred in bringing the inventories to
their present location and condition. Engineering costs incurred to set up
products to be manufactured for a customer purchase order are capitalized
when the scope of the purchase order
-8-
indicates that such costs are recoverable. Such costs are included in
work-in-process inventory and amortized on a units shipped basis over the
life of the customer order from the date of first shipment. Cost is
calculated using the FIFO method. Market value represents the estimated
selling price less all estimated costs to completion and costs to be
incurred in marketing, selling and distribution.
Fixed Assets, Net - Fixed assets, net are stated at cost less accumulated
depreciation and amortization. Replacements and major improvements are
capitalized; maintenance and repairs are expensed as incurred. Gains or
losses on asset dispositions are included in the determination of net
income. Depreciation is computed utilizing the straight-line method. With
respect to leasehold improvements, the cost of leasehold improvements is
amortized over the shorter of the useful life or the term of the lease.
Depreciable lives are generally as follows:
Description Useful Lives
Buildings 25-33
Machinery and equipment 5-15
Furniture and fixtures 5-10
Transportation equipment 3-4
Computer and other equipment 3-7
Recoverability of Long-Lived Assets - The Company evaluates the carrying
amounts of long-lived assets (including intangibles) to determine if
events have occurred which would require modification to the carrying
values. In evaluating carrying values of long-lived assets, the Company
reviews certain indicators of potential impairment, such as undiscounted
projected cash flows and business Plans. In the event that impairment has
occurred, the fair value of the related asset is determined and the
Company records a charge to operations calculated by comparing the asset's
carrying value to the estimated fair value. The Company estimates fair
value based on the best information available making whatever estimates,
judgments and projections are considered necessary.
Deferred Financing Costs, Net - Financing costs, including fees,
commission and legal expenses are capitalized and amortized on a straight
line basis, which approximates the interest method, over the term of the
relevant loan. Amortization of deferred financing costs is included in
interest expense (income), net.
Goodwill, Net - Goodwill represents the excess of the cost of acquisitions
over the fair value of the identifiable assets acquired and liabilities
assumed. Goodwill is amortized on a straight-line basis over 15 to 25
years. Accumulated amortization for goodwill was $1,155 and $1,046 at July
28, 2001 and July 29, 2000, respectively.
Other Intangibles, Net - Other intangible assets are patents, trademarks,
manufacturing rights, customer lists and non-compete agreements acquired
with the purchase of certain assets of a subsidiary. Intangibles are being
amortized on a straight-line basis over their estimated useful lives,
which range from 5 to 10 years. The cost of renewing patents and
trademarks are charged to the operations as incurred. Accumulated
amortization for intangibles was $1,298 and $1,134 at July 28, 2001 and
July 29, 2000, respectively.
Revenue Recognition - Sales of goods are recognized when goods are shipped
and title has passed.
Research and Development Costs - Research and development costs are
recognized as an expense in the period in which they are incurred.
-9-
Income Taxes - Deferred income tax assets and liabilities represents the
effects of the differences between the income tax basis and financial
reporting basis of assets and liabilities at the tax rates expected at the
time the deferred tax liability or asset is expected to be settled or
realized.
Loss Per Share - Loss per share are computed by dividing net loss by the
weighted average number of common shares outstanding during the year.
Options to purchase common stock have been excluded from the calculation
of loss per share because their inclusion would be antidilutive.
Financial Instruments - The carrying amount of the Company's financial
instruments, which include cash equivalents, marketable securities,
accounts receivable, short-term credit facilities, callable debt and
accounts payable, approximates their fair value at July 28, 2001, and July
29, 2000.
Concentration of Credit Risk - Financial instruments, which potentially
subject the Company to concentrations of credit risk, are cash
equivalents, investments in marketable securities and trade receivables.
With respect to accounts receivable, the Company limits its credit risk by
performing ongoing credit evaluations and, when deemed necessary,
requiring letters of credit, guarantees or collateral. Management does not
believe significant risk exists in connection with the Company's
concentrations of credit at July 28, 2001.
Stock-Based Compensation - The Company accounts for stock based employee
compensation arrangements in accordance with Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and
complies with the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Under APB 25, compensation expense is based on
the difference, if any, between the fair value of the Company's stock and
the exercise price of the option. Options are generally granted at the
fair market value at the date of grant. The Company accounts for equity
instruments issued to non employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18
Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services. All
transactions in which goods or services are the consideration received for
the issuance of equity instruments are accounted for based on the fair
value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. The measurement
date of the fair value of the equity instruments issued is the date on
which the counter party's performance is complete.
Recent Accounting Pronouncements - Effective July 30, 2000, the Company
adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and its corresponding amendments under SFAS No. 138. SFAS 133
requires the Company to measure all derivatives, including certain
derivatives embedded in other contracts, at fair value and to recognize
them in the consolidated balance sheet as an asset or liability, depending
on the Company's rights or obligations under the applicable derivative
contract. The adoption of SFAS 133 as of July 30, 2000 did not have an
impact on the Company's consolidated financial statements.
During July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
the use of the purchase method of accounting for all business combinations
initiated after June 30, 2001. Additionally, this statement further
clarifies the criteria for recognition of intangible assets separately
from goodwill for all business combinations completed after June 30, 2001,
as well as requiring additional disclosures for business combinations.
SFAS No. 142 requires that goodwill acquired after June 30, 2001 no longer
be subject to amortization over their estimated useful lives. Beginning on
August 3, 2002, amortization of goodwill will no longer be permitted and
the Company will be required to assess these assets for impairment
annually, or more frequently if circumstances indicate a potential
impairment. Furthermore, this statement provides specific guidance for
testing goodwill for impairment. Transition-related impairment
-10-
losses, if any, which result from the initial assessment of goodwill and
certain intangible assets would be recognized by the Company as a
cumulative effect of accounting change on August 3, 2002. The Company has
not yet determined the impact, if any, that the adoption of this statement
will have on its consolidated financial statements.
SFAS No. 143, Accounting for Asset Retirement Obligations, was issued in
June 2001. This statement addresses financial accounting and reporting for
the obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is
effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Company has not yet determined the impact, if any, that
the adoption of this statement will have on its consolidated financial
statements.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, was issued in October 2001. SFAS No. 144 replaces SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. SFAS No. 144 requires that long-lived assets
whose carrying amount is not recoverable from its undiscounted cash flows
be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured
at net realizable or include amounts for operating losses that have not
yet occurred. SFAS No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can
be distinguished from the rest of the entity and that will be eliminated
from the ongoing operations of the entity in a disposal transaction. The
provisions of SFAS No. 144 are effective for financial statements issued
for fiscal years beginning after December 15, 2001 and are to be applied
prospectively. The Company has not yet determined the impact, if any, that
the adoption of this statement will have on its consolidated financial
statements.
Reclassifications - Certain reclassifications have been made to the 2000
balance sheet to conform with the presentation adopted in 2001.
2. MARKETABLE SECURITIES AND DEFERRED COMPENSATION
At July 28, 2001 and July 29, 2000, marketable securities consisted of
corporate debt, United States Treasury bonds, and equity securities
classified as trading and recorded at fair market value.
The cost and fair value of marketable securities classified as trading at
July 28, 2001 and July 29, 2000, based on maturity dates are as follows:
July 28, 2001 July 29, 2000
Maturity -------------------- --------------------
(Dollars in Thousands) Dates Cost Fair Value Cost Fair Value
Corporate debt securities 2001-2003 $353 $320 $640 $ 733
Equity securities 68 59 524 615
----- ----- ------- ------
Total $421 $379 $1,164 $1,348
==== ==== ====== ======
The Company's investments consisted of $59 and $1,311 at July 28, 2001 and
July 29, 2000, respectively, intended for use by management for the
deferred compensation of the Company's former Chief Executive Officer
("CEO") and certain key executives. Further, $23 and $106 of cash at July
28, 2001 and July 29, 2000, respectively, was intended for use by
management for deferred compensation for a total liability of $228 and
$1,577 at July 28, 2001 and July 29, 2000, respectively.
-11-
Gains and losses, either recognized or unrealized, are for the benefit or
detriment of these key executives' individual deferred compensation.
In connection with the termination of employment of the Company's former
Chief Executive Officer, and certain other executives during the second
and third quarters of fiscal year 2001, $1,442 of the amounts included in
deferred compensation was paid to the terminated executives by liquidating
the investments.
3. INVENTORY
Inventory consists of the following:
July 28, 2001 July 29, 2000
------------- -------------
Raw materials and purchased parts $ 13,671 $ 13,889
Work-in-process 15,069 13,333
Finished goods 3,986 8,433
-------- --------
32,726 35,655
Less allowance for obsolete and
excess inventory (5,198) (6,421)
-------- --------
Total inventory, net $ 27,528 $ 29,234
======== ========
The Company has pledged all of its inventories in the United States of
America having a carrying amount of approximately $20,400 and $24,000 at
July 28, 2001 and July 29, 2000, respectively, to secure its credit
facilities with its bank.
4. FIXED ASSETS
Fixed assets consist of the following:
July 28, 2001 July 29, 2000
------------- -------------
Land $ 694 $ 694
Buildings 4,832 5,065
Machinery and equipment 13,620 13,720
Furniture and fixtures 1,379 1,537
Leasehold improvements 1,408 1,524
Transportation equipment 19 35
Computers and other equipment 3,245 3,090
-------- --------
25,197 25,665
Less accumulated depreciation and
amortization (15,466) (13,536)
-------- --------
Fixed assets, net $ 9,731 $ 12,129
======== ========
The Company has pledged all of its machinery and equipment in the United
States of America having a carrying amount of approximately $6,284 and
$8,370 at July 28, 2001 and July 29, 2000, respectively, to secure its
credit facilities with its bank.
Depreciation expense for fiscal year ended 2001 was $2,172.
-12-
5. DEBT AND OBLIGATION TO ISSUE SUBORDINATED NOTE
Callable debt is summarized as follows:
July 28, 2001 July 29, 2000
------------- -------------
Due Within Due Within
One Year One Year
Acquisition credit line $ -- $1,199
Revolving line of credit 8,500 3,500
Other Loans -- 105
------ ------
$8,500 $4,804
====== ======
As a result of the delay in issuing the July 29, 2000 financial
statements, the Company is not in compliance with the terms of its U.S.
credit agreement, and the amounts outstanding under such agreement ($8,500
and $4,804 at July 28, 2001, and July 29, 2000, respectively), are
callable by the lenders. The Company's U.S. subsidiaries' cash and
investment balances at July 28, 2001, are not sufficient to fund the
repayment of the amounts owed under the U.S. subsidiaries' debt agreement.
On March 21, 2002, the Company signed a commitment letter for working
capital financing with a replacement lender. This new credit facility is
for $10 million. Conditions for closing of this new credit facility are
customary for these types of agreements, and management believes that it
will be able to close this new financing during the fourth quarter of
fiscal 2002.
The Company's current credit facility at its US subsidiaries with its
lending bank is comprised of an acquisition credit line of $15,000 and a
revolving line of credit of $10,000. At July 28, 2001, the Company has
letters of credits outstanding of $1,327 with its bank.
Interest under the U.S. credit facility is at prime, or at the Company's
option, at a rate tied to LIBOR. The interest rate on the revolving line
of credit is at prime, which was 7.0% and 8.0% at July 28, 2001 and July
29, 2000, respectively. The credit facility is subject to commitment fees
of 1/4% on the daily-unused portion of the facility, payable quarterly.
Management believes that its debt obligations are stated at fair value,
because the interest rates on its credit lines are indexed with either the
Prime Rate or LIBOR.
Borrowings under this U.S. credit facility were on an unsecured basis;
however, in April 2001, the Company granted a security interest to the
lender in certain accounts receivable, inventory, and machinery and
equipment. Because of the continued non-compliance with the terms of the
credit agreement, the Company negotiated a Forbearance Agreement with the
lender in June 2001. The Forbearance Agreement provided that the lender
would forbear from instituting any remedies under the credit agreement for
the period of the Forbearance Agreement. In exchange for this forbearance,
the Company paid the lender $100. In addition, as of June 1, 2001, the
lender increased the interest rate on the credit facility 2%, the default
rate pursuant to the credit agreement. The Forbearance Agreement initially
covered the period to September 15, 2001. In September 2001, the Company
and the lender extended the Forbearance Agreement until November 30, 2001,
and agreed that the Company would make up to $750 of repayments under the
facility prior to November 30, 2001, and would pay an $80 forbearance fee.
The Forbearance Agreement has not been extended beyond November 30, 2001.
The lender has not taken action against the company or called the debt.
-13-
In addition to the credit facilities at the US subsidiaries discussed
above, the Company's Italian subsidiary has certain short-term credit
facilities, with interest rates ranging from 5.5% to 12.6%. The total
amount outstanding on the short-term credit facilities at July 28, 2001
was $4,450.
Long-Term Debt - Long-term debt was comprised of long-term debt on the
Company's Italian subsidiary of $5,255 and $6,169 at July 28, 2001 and
July 29, 2000, respectively, and a note payable of $238 and $450 at July
28, 2001 and July 29, 2000, respectively, with an effective interest rate
of 12% in connection with the acquisition of a domestic subsidiary.
July 28, 2001 July 29, 2000 Interest Rate
------------- ------------- -------------
Italian subsidiary's total long-term debt:
Capital lease obligation $ 2,430 $ 2,703 6.7%
Medium-term credit facilities with
commercial institutions: variable rate 1,316 1,432 Euribor + 1.0%
fixed rate 128 418 5.7%
Italian Government long-term loans 1,381 1,616 3.4%
------- --------
5,255 6,169
U.S. subsidiary long-term debt 238 450 12%
------- --------
5,493 6,619
Less: current portion (790) (667)
------- --------
Long-term debt $ 4,703 $ 5,952
======= ========
The variable interest rate at July 29, 2001 on the medium-term credit
facility, based on the formula Euribor + 1%, amounts to 5.4%.
The principal of medium-term credit facility at a variable interest rate
is payable on a semi-annual basis, interest payments are due on a
quarterly basis. Payments are due from September 2001 until March 2007.
The outstanding balance for the medium-term credit facility at a fixed
rate is due on September 2001, which represents the last payment. Payments
relating to the two Italian Government long-term loans are due annually
from February 2002 until February 2010 and from September 2002 until
September 2010, respectively. The U.S. subsidiary long-term debt is
payable annually, with the last payment due November 2001.
Obligation to Issue Subordinated Note - In connection with the preliminary
settlement reached on July 26, 2001 with the plaintiffs in the class
action litigation, the Company recorded the present value at 12% of a
$2,000 subordinated note to be issued and due five years after issuance.
The note which will be issued in April 2002, bears interest at 6% per
annum and with a discounted present value of $1,519 at July 28, 2001.
-14-
The Company is obligated to make principal payments under its long-term
debt and obligation to issue subordinated note ("Debt") and capital lease
as follows:
Capital
Fiscal Year Ending Debt Lease Total
2002 $ 717 $ 235
2003 353 245
2004 358 258
2005 362 258
2006 and beyond 2,792 1,939
Purchase option -- 658
------ ------
Total payments 4,582 3,593
Less imputed interest -- (1,163)
------ ------
Total $4,582 $2,430 $7,012
====== ====== ======
6. EMPLOYEE BENEFITS
The Company has employee benefit Plans for eligible employees. One of the
Plans is a profit sharing Plan, which provides for contributions as
determined by the Board of Directors. The contributions can be paid to the
Plan in cash or common stock of the Company. No contribution was
authorized for fiscal year ended 2001. The Plan also incorporates a 401(k)
Retirement Plan that is available to substantially all employees, allowing
them to defer a portion of their salary. The Company also has a defined
benefit Plan frozen effective February 1, 1986.
7. SEGMENT REPORTING
The Company has two reportable segments which are Medical Imaging Systems
and Power Conversion Group. 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 evaluates its operating segments
based on operating income/(loss).
Other represents the costs associated with the litigation settlement.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Revenues are attributable
to geographic areas based on the location of the customers.
-15-
Selected financial data of these segments is as follows:
Medical Power
Imaging Conversion
Systems Group Other Total
-------- -------- -------- ---------
Net sales to external customers $ 46,528 $ 46,427 $ -- $ 92,955
-------- -------- -------- ---------
Cost of sales 37,234 36,857 -- 74,091
-------- -------- -------- ---------
Gross Margin 9,294 9,570 -- 18,864
Selling, general and administrative 7,334 9,919 -- 17,253
Research and development 1,552 1,324 -- 2,876
Litigation settlement costs -- -- 9,759 9,759
Facilities reorganization costs 52 770 -- 822
-------- -------- -------- ---------
Total operating expenses 8,938 12,013 9,759 30,710
-------- -------- -------- ---------
Operating income / (loss) $ 356 $ (2,443) $ (9,759) (11,846)
======== ======== ======== =========
Interest expense 1,308
Other income (74)
---------
Loss before income tax benefit
and minority interest $(13,080)
=========
Depreciation $ 267 $ 1,905 -- $ 2,172
Amortization 369 414 -- 783
Segment Assets 30,603 32,786 18,269 81,658
Expenditures for segment assets, net 485 192 -- 677
Intersegment sales were $33 for fiscal year ended July 28, 2001. Segment
assets of $19,502 are located in Italy.
Major Customers and Export Sales - During fiscal year ended July 28, 2001,
no one customer accounted for more than 10% of the Company's consolidated
net sales.
Export sales were 30% of the Company's consolidated net sales in fiscal
year ended July 28, 2001.
Net sales by geographic areas were:
United States $65,381 70%
Europe 17,900 19%
Other North America 3,647 4%
Far East 2,765 3%
South America 1,444 2%
Africa 951 1%
Middle East 749 1%
Australia 118 0%
------- ---
$92,955 100%
======= ===
-16-
8. SHAREHOLDERS' EQUITY
Obligation to issue Shares and Warrants - The Company's Obligation to
issue shares and warrants included in the shareholder's equity section,
reflect the terms of the settlement reached in July 2001 in connection
with a class action complaint brought by shareholders against the Company
and other parties. As a result of the settlement, the Company is obligated
to issue subordinated notes, shares and warrants to certain shareholders.
The equity portion of the settlement totaled $4,410 and appears as
"Obligation to issue Shares and Warrants" in the consolidated balance
sheet and consolidated statement of shareholders' equity. Common shares
were valued at $3,750 and warrants at $660. These shares and warrants were
revalued at January 29, 2002 when final court approval was obtained, with
a resulting increase in value of $7,000.
Stock Buy-Back Program - In September 2000, the Board of Directors
approved an additional repurchase of $3,000 of the Company's common stock
bringing the total authorized to $7,500. Prior year approvals were made in
April of 1997, 1998 and 1999 for $1,500 each. During the fiscal years
ended July 28, 2001 and July 29, 2000, the Company repurchased a total of
489,806 and 478,306 shares for $4,502 and $4,389, respectively. Of the
total purchases, 189,200 of these shares were repurchased from the
Company's former Chief Executive Officer for $1,851.
Nonqualified Stock Option Plan and Warrants - The Company has a
nonqualified stock option plan under which a total of 3,874,293 options to
purchase common stock may be granted. Substantially, all of the options
granted under this Plan provide for graded vesting and vest at a rate of
25% per year, beginning one year from the date of grant, expiring fifteen
years from the date they are granted. The option price per share is
determined by the Board of Directors, but cannot be less than 85 percent
of fair market value of a share at the date of grant. All options to date
have been granted at the fair market value of the Company's stock at the
date of grant. No options can be granted under this plan subsequent to
December 31, 2009.
As of July 28, 2001, the Company granted a total of 936,870 options during
the fiscal year 2001, 50,000 in July and September at prices ranging from
$8.63 to $9.13, 81,870 in December at $1.36 and 805,000 granted in April
2001 at $1.00 per share. Newly appointed Corporate Officers received
310,000 options while various employees, directors and consultants
received 545,000. No options were exercised during the fiscal year ended
July 28, 2001.
In December 2000, the Company's Board of Directors approved the recession
of 81,870 shares previously exercised by one of its members. The
transaction has been reflected in the consolidated statement of changes in
shareholder equity. Shares originally used to exercise the option recorded
as treasury have also been adjusted and reflected in the consolidated
statement of changes in shareholder equity. The Company recorded an
expense in connection with the recession and deferred tax assets were
adjusted accordingly for the previous tax benefit recognized.
In December 2000, the Board of Directors approved an extension of time to
exercise for all stock option holders. The extension covers all options
which would have expired during the period from the stock de-listing date
up to the date that the shares finally become re-listed. This extension
will allow stock option holders a period of six months from the date of
re-listing to exercise vested options which may have expired without the
extension.
As of July 29, 2000, the Company has granted options to purchase 1,051,974
shares to the former Chief Executive Officer and 372,149 shares to former
officers. At July 29, 2000, the former Chief Executive Officer had 463,007
outstanding options, and former officers who left during fiscal 2001 had
141,888 outstanding options all of which were subsequently cancelled or
expired. One retired former officer was granted 178,667 options, which are
still outstanding. In addition, one former officer was
-17-
granted 77,790 shares and 1,651,920 shares were granted to various
employees and consultants. Former officers and directors' exercised
230,251 options and various employees and consultants exercised 43,193
options during the fiscal year ended July 29, 2000.
Option Activity
The following stock option information is as of:
July 28, 2001 July 29, 2000
Granted and outstanding, beginning of year 1,503,683
Granted 936,870
Exercised --
Cancelled and forfeited (615,498)
----------
Outstanding at end of year 1,825,055 1,503,683
========== ==========
Exercisable at end of year 1,064,935 1,001,673
========== ==========
As of July 28, 2001 the distribution of stock option exercise prices is as
follows:
Options Outstanding Options Exercisable
------------------------------------- ---------------------------------
Number of Weighted Remaining Shares Weighted Remaining
Exercise Price Range Options Shares Exercise Price Exercisable Exercise Price
$1.00 - $2.49 1,041,074 $1.15 474,822 $1.33
$4.28 - $6.18 315,674 5.10 315,675 5.10
$7.00 - $8.25 338,598 7.62 196,479 7.65
$8.56 - $10.00 129,709 9.36 77,959 9.44
---------- ----- --------- -----
1,825,055 $3.62 1,064,935 $4.21
========= ===== ========= =====
At July 28, 2001 and July 29, 2000 there were outstanding warrants of
65,000 and 127,813 respectively. Of these warrants 52,813 had been granted
to the Company's lending bank and 10,000 had been granted to a consultant
which expired in fiscal 2001 and 50,000 were granted to the former
majority shareholder of Villa Sistemi Medicali S.p.A ("Villa") in
connection with the acquisition of Villa and 15,000 were granted to
consultants for services rendered.
As of July 28, 2001 the distribution of warrants is as follows:
Exercise Price Number of Warrants Expiration Date
$7.94 50,000 December 2005
$7.69 15,000 October 2004
------
65,000
------
The fair value of options and warrants granted to non-employees was $150
and $271 at July 28, 2001 and July 29, 2000, respectively.
-18-
The Company follows the provisions of APB 25 to account for its stock
option plan. The fair value of the options were determined on the date of
grant using a Black-Scholes option pricing model. These options were
valued based on the following assumptions: an estimated life of seven
years, volatility of 90%, risk free interest rate 6.2%, and no dividend
yield.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the methods recommended by SFAS No. 123, the Company's net
loss and net loss per share for the fiscal year ended July 28, 2001, would
have been stated at the pro forma amounts indicated below:
For fiscal year ended
July 28, 2001
Net loss:
As reported $ (8,521)
Pro forma $ (9,127)
Basic and diluted loss per share (as reported) $ (1.09)
Basic and diluted loss per share (pro forma) $ (1.16)
Weighted average number of shares outstanding 7,847,515
---------
Accumulated Other Comprehensive Loss - Accumulated other comprehensive
loss is comprised of a foreign currency translation loss of $391 at July
28, 2001. At July 29, 2000 accumulated other comprehensive loss was
comprised of a foreign currency translation loss of $167 and an
accumulated unfunded obligation for pension trust of $22, net of the
income tax benefit of $14.
9. LOSS PER SHARE
Year Ended July 28,2000
Numerator:
Net loss $ (8,521)
===========
Denominator:
Denominator for basic loss per share:
Weighted average shares outstanding 7,847,515
Effect of dilutive securities --
-----------
Denominator for diluted loss per share 7,847,515
===========
Loss per basic and diluted common share $ (1.09)
-----------
Common shares outstanding for the year ended July 28, 2001 were reduced by
628,566 shares of treasury stock.
The computation of diluted shares outstanding does not include 1,825,055
employee stock options and 65,000 warrants to purchase company common
stock, since the effect of their assumed conversion would be antidilutive.
-19-
10. INCOME TAXES
Provision (benefit) for income taxes consists of the following:
Fiscal Year Ended July 28,2001
Current Tax Expense:
Foreign $ 269
Deferred (Benefit):
Federal (4,325)
State and local (798)
Foreign (84)
-------
Net Benefit $(4,938)
=======
The following is a reconciliation of the statutory Federal and effective
income tax rates:
Fiscal Year Ended
July 28,2001
Statutory Federal income tax rate (Benefit) (34.0)%
State tax (Benefit), less Federal tax effect (4.0)%
Foreign 1.4%
Other (1.2)%
----
Effective tax benefit rate (37.8)%
====
Deferred income tax assets (liabilities) are comprised of the following:
July 28, 2001 July 29, 2000
Deferred income tax assets:
Federal net operating loss carryforward $ 6,129 $ 3,192
Foreign net operating loss carryforward 1,774 3,944
Litigation settlement costs 2,229 --
State tax credits and operating
loss carryforward 2,235 1,682
Federal R&D tax credits 604 604
Reserve for inventory obsolescence 1,902 2,127
Allowances and reserves not
currently deductible 735 1,494
Amortization 454 454
Accumulated comprehensive loss -- 14
Defined benefit pension 57 (98)
-------- --------
Gross deferred income tax assets 16,119 13,413
-------- --------
Less valuation allowance (955) (3,589)
-------- --------
Deferred income tax assets 15,164 9,824
-------- --------
-20-
July 28, 2001 July 29, 2000
Deferred income tax liabilities:
Federal effect of state tax credits (336) (336)
Depreciation (355) (355)
Difference in basis of fixed assets -- (59)
Inventory (34) (34)
--------- --------
Gross deferred income tax liabilities (725) (784)
Net deferred income tax assets $ 14,439 $ 9,040
========= ========
Deferred income tax assets are recorded in the consolidated balance sheets
as follows:
July 28, 2001 July 29, 2000
Deferred tax assets - current $ 4,643 $ 3,586
Deferred tax assets - non-current 9,796 5,454
------- -------
$14,439 $ 9,040
======= =======
Valuation allowance has been recorded for New York State tax credits and
for foreign subsidiary net operating loss carryforward not expected to be
realized before expiring. The portion of the valuation allowance
attributable to the foreign subsidiary net operating loss carryforward
decreased from $2,994 at 2000 to $297 at 2001.
At July 28, 2001, for income tax purposes, the Company had Federal net
operating loss carryforwards of approximately $18,026, State net operating
loss carryforwards of $15,644 and research and development tax credit
carryforwards of $604, which will expire in 2018 through 2021.
For foreign tax purposes, the Company's subsidiary has net operating loss
carryforwards of approximately $1,449, which will expire in 2002 through
2004.
Refundable income taxes of $3,829 and $3,341 at July 28, 2001 and July 29,
2000, respectively, are comprised of refunds that will be requested from
federal and state government agencies, by the filing of amended tax
returns for the fiscal years 1997, 1998, 1999, and 2000 as well as refunds
that will be requested with the filing of the July 28, 2001 corporate tax
returns.
11. COMMITMENTS AND CONTINGENCIES
a. Security and Exchange Commission ("SEC") Investigation - On December
11, 2000, the Division of Enforcement of the SEC issued a formal
Order Directing Private Investigation, designating SEC officers to
take testimony and requiring the production of certain documents, in
connection with matters giving rise to the need to restate the
Company's previously issued financial statements. The Company has
provided numerous documents to and continues to cooperate fully with
the SEC staff. In connection with the ongoing SEC investigation,
there is a possibility that the SEC will assess some monetary fine
against the Company in connection with the accounting practices
under review. The likelihood or the dollar amount of such a fine or
penalty is unknown at this time. Management of the Company cannot
predict the duration of such investigation or its potential outcome.
-21-
b. Class Action Litigation - A consolidated class action complaint
against the Company, certain of its former officers and directors
and its auditors has been filed in the United States District Court
for the Southern District of New York. The complaint alleged
violations of the federal securities laws and sought to recover
damages on behalf of all purchasers of the Company's common stock
during the class period November 6, 1997 to November 6, 2000. The
complaint sought rescission of the purchase of shares of the
Company's Common Stock or alternatively, unspecified compensatory
damages, along with costs and expenses including attorney's fees.
On July 26, 2001, the Company and certain other defendants reached
an agreement in principle to settle the complaint. Under the terms
of the settlement, the Company will provide the plaintiffs: (i) a
$2,000 subordinated note due five years from the date of issuance
with interest accrued at 6% per annum; (ii) 2.5 million shares of
the Company's common stock; and, (iii) 1 million warrants to
purchase the Company's Common Stock at $2 per share. The Warrants
are callable by the Company at $0.25 per share if the Company stock
trades at a price in excess of $4 for 10 days or more. This
settlement was approved by the United States District Court for the
Southern District of New York on January 29, 2002.
Management of the Company believes the terms of the agreement in
principle provided a reasonable basis to estimate the value of the
Company's portion of the settlement as of July 28, 2001 and,
accordingly, recorded a charge of $9,759 in fiscal year 2001. This
amount was calculated using a discount factor of 12% to present
value the subordinated note, the per share price of $1.50 that was
the closing price of the Company's stock in the over the counter
market on July 28, 2001, and an option pricing model to value the
warrants. Also included in the charge are legal and other
specialized fees incurred through July 2001 of $3,572 and an accrual
of legal and related fees to be incurred in the future of $821.
When the Court approved the class action settlement on January 29,
2002, and opportunities for appeal expired on March 21, 2002, all
uncertainty regarding the final value of the securities issued by
the Company in the settlement had been eliminated. Therefore, in the
Third Quarter of Fiscal Year 2002, the Company will recognize an
additional charge related to the increase in the value of the common
stock and warrants from July 28, 2001, to January 29, 2002. This
additional charge will be approximately $7,000.
c. Department of Defense Investigation - On March 8, 2002, RFI
Corporation, a subsidiary of the Company and part of the Power
Conversion Group segment, was served with a subpoena by US Attorney
Eastern District of New York. RFI supplies noise suppression filters
for communications and defense applications. A portion of RFI's
sales is to prime contractors to the US Government, and
approximately 14% to 17% of RFI's sales over each of the last three
years has been sales directly to the Department of Defense ("DoD"),
Defense Supply Centers ("DSC") or to the US Armed Forces.
The Company believes that the DoD has launched an investigation into
RFI's quality control practices and record keeping. In addition, the
DoD appears to be investigating other suppliers, some of whom may be
distributors who sell many different components to the DoD,
including some parts that may be manufactured by RFI.
-22-
The Company is fully cooperating with this investigation, and has
retained special counsel to represent the Company on this matter.
Management of the Company cannot predict the duration of such
investigation or its potential outcome.
d. ERISA Matters - During the year ended July 28, 2001, management of
the Company concluded that violations of the Employee Retirement
Income Security Act, ("ERISA") existed relating to a defined benefit
Plan for which accrual of benefits had been frozen as of February 1,
1986. The violations related to excess concentrations of the Common
Stock of the Company in the Plan assets. In July 2001, management of
the Company decided to terminate this Plan, and as a result in the
fourth quarter of the year ended July 28, 2001, the Company recorded
a charge of approximately $461 as the amount to fund this Plan to
the termination value.
e. Employment Matters - The Company had an employment agreement with
the former Chief Executive Officer through July 2005. The agreement
provided a minimum base salary, deferred compensation and bonuses,
as defined. The Company accrued deferred compensation at a rate of
5% of pretax income with a minimum of $100 and a maximum of $125.
The accumulated amount at July 28, 2001 and July 29, 2000 was $0 and
$1,261, respectively.
July 28, 2001 July 29, 2000
Deferred compensation liabilities:
Former Chief Executive Officer $ -- $1,261
Other officers 228 316
------ ------
Total deferred compensation liabilities $ 228 $1,577
====== ======
In the third quarter of fiscal 2001, the employment of the former Chief
Executive Officer was terminated. In connection with the termination of
the former Chief Executive Officer's employment, there is a possibility of
the former Chief Executive Officer making certain claims under his
employment agreement. The likelihood or the dollar amount of such a claim
is unknown at this time. The Company believes that is has substantiated
counterclaims that it could assert in any such action and, therefore,
believes that its exposure to such a potential claim is not material to
the Company's consolidating financial statements.
The Company has entered into an employment agreement with its new Chief
Executive Officer for the period July 2001 to April 2004. The terms of
this agreement provide base salary, bonuses and deferred compensation. The
new Chief Executive Officer may earn a bonus, which will be based on a
percentage of his base salary, if certain performance goals established by
the board are achieved. The new Chief Executive Officer's agreement
provides that the new Chief Executive Officer will have the option to
defer a portion of his bonus. In addition, the new Chief Executive
Officer's employment agreement provides for certain payments in the event
of death, disability or change in the control of the Company.
In connection with the acquisition of a subsidiary, the Company has a
deferred compensation agreement with the former president of the acquired
company. Under the terms of the agreement, the Company will accrue
deferred compensation at a base compensation rate of $20 per year,
increased by 4% per year for 10 years. The accumulated amount of deferred
compensation liability was $228 and $227 as of July 28, 2001 and July 29,
2000, respectively. This liability is intended to be funded by management
by part of the Company's marketable securities of $59 and $68 as of July
28, 2001 and July 29, 2000, respectively, and cash of $23. Gains and
losses, either recognized or unrealized, are for the benefit or detriment
of this individual's deferred compensation.
-23-
f. Other Legal Matters - The Company is a defendant in several other
legal actions arising from normal course of business. On the advice
of counsel, management believes the Company has meritorious defenses
to such actions and that the outcomes will not be material to the
Company's consolidated results of operations or consolidated
financial condition.
g. Non-compete Agreements - In connection with the acquisition of a
subsidiary in 1992, the Company entered into a ten-year non-compete
agreement with the former president of the acquired company. The
Company has recorded a non-compete intangible, net of accumulated
amortization of $44 and $91 as of July 28, 2001 and July 29, 2000,
respectively. The net present value of future obligations relating
to this obligation was $51 and $204 as of July 28, 2001, and July
29, 2000, respectively. In connection with the acquisition of a
subsidiary, in April 1998 the former president of the acquired
company became a technical consultant to the Company. The Company
and the technical consultant have agreed to a ten-year non-compete
agreement at a minimum annual rate of $50 as adjusted for the
greater of five percent per annum or increases to the cost of living
index. Additionally, in June 1994, the Company entered into a
ten-year non-compete agreement with the former Chairman of the
acquired company with the same terms. As of July 28, 2001 and July
29, 2000, the Company has recorded non-compete intangibles net of
accumulated amortization of $323 and $402 in connection with these
agreements, respectively. The amount recorded in the accompanying
consolidated financial statements for the net present value of
future obligations relating to these agreements was $547 and $635,
classified as other long-term liabilities as of July 28, 2001 and
July 29, 2000, respectively.
h. Lease Commitments - The Company leases facilities for its
manufacturing operations with expiration dates ranging from July
2002 through April 2004. In addition, the Company has various auto
leases accounted for as operating leases. The future minimum annual
lease commitments as of July 28, 2001 are as follows:
Fiscal Year Amount
2002 $1,296
2003 727
2004 433
2005 126
2006 and thereafter --
------
$2,582
------
Rent expense for fiscal 2001 was $1,241
12. RESTRUCTURING CHARGES
In 2001, the Company's management decided to close its Dynarad
manufacturing in Deer Park New York and recorded a restructuring charge of
$770. This charge included a $349 write off of the carrying value of fixed
assets, a $150 charge for impairment of goodwill, severance and
outplacement cost related to the termination of 5 individuals for $10, and
$261 of rent expense relating to the remaining commitment on the lease of
the closed facility. In addition in 2001, the Company's management decided
to terminate a lease for a small facility used by Del Medical Imaging, and
recorded a restructuring charge of $52. At July 28, 2001, amounts due in
connection with restructuring plan are $271 which are included in accrued
expenses and are expected to be paid in fiscal 2002.
* * * * * *