FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FOR FISCAL YEAR ENDED JULY 29, 1995
COMMISSION FILE NUMBER 1-10512
DEL ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
13-1784308
(IRS Employer Identification No.)
1 Commerce Park, Valhalla, New York 10595
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-686-3600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, The American Stock Exchange, Inc.
$.10 Par Value
- --------------------------------------------------------------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant amounted to $24,428,993 at the close of business on October 24, 1995.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the close of business on October 24, 1995.
Common Stock - 4,074,434
<PAGE>
PART I
ITEM 1. BUSINESS
The Company is comprised of (i) Del Electronics Corp. ("Del"), a New
York corporation which was incorporated in 1954; (ii) RFI Corporation ("RFI"), a
Delaware corporation and wholly-owned subsidiary of the Company, which was
incorporated in 1961; (iii) Dynarad Corp. ("Dynarad"), a New York corporation
and wholly-owned subsidiary of the Company which was incorporated in 1992
(formerly known as Porta Ray, Inc. which was founded in 1975); (iv) Bertan High
Voltage Corp. ("Bertan"), a New York corporation and wholly-owned subsidiary of
the Company which was incorporated in 1994 (formerly known as Bertan Associates,
Inc. which was founded in 1969); and (v) Del Medical Systems Corp. ("Del
Medical"), a New York corporation and wholly-owned subsidiary of the Company
which was incorporated in 1994. The Company designs, manufactures and markets
medical imaging and specialty electronic components for medical, industrial and
defense applications and diagnostic OEM equipment. Examples of medical imaging
diagnostic OEM equipment are mammography, neo-natal and portable imaging
equipment including intra-oral dental imaging. Examples of applications for
specialty electronic components are CT scanning, MRI scanning, medical laser
surgery, nuclear medicine, industrial laser machining, energy exploration,
telecommunications, security systems for airports, courthouses, schools,
correctional facilities, computer systems, hazardous materials detection
equipment, ion implantation, voice and data communication systems, and a wide
variety of defense electronics systems. Such products are designed for a wide
range of applications and to meet stringent customer specifications. The
Company's principal products are medical imaging diagnostic equipment and high
voltage ("HV") power supplies, HV energy storage devices, HV transformers and
single and multi-circuit EMI interference and RFI interference filters. All of
the Company's sales of electronic noise suppression filters are attributable to
RFI, which was acquired in December, 1989. All of the Company's sales of medical
imaging equipment are attributable to Dynarad, which was acquired in September,
1992. Del Medical Systems Corp. is an international sales and marketing
organization which distributes products and systems used for medical imaging and
diagnostics. Examples are: high resolution video cameras and accessories; image
enhancement products; and disposable diagnostic kits.
Approximately 80% of the Company's power conversion components and
65% of its electronic filters are custom designed to meet customer
specifications. The Company is the sole source for various products.
The Company's strategy is to expand its business through the
development and sale of new products and selective acquisitions in complementary
product lines. The Company is concentrating its efforts on companies in the
medical and industrial applications fields.
High Voltage Power Conversion Components
The Company's power conversion components consist of HV power
conversion components such as power supplies, capacitors and transformers. HV
power supplies are used to transform commercially generated electric power from
low voltage to high voltage. The HV power supplies designed by the Company raise
the input voltage from the available level to the significantly higher level
required in order to operate the electronic equipment for which the customer's
equipment has been designed.
An HV power supply primarily consists of special purpose
transformers, HV capacitors and printed electronic circuit board assemblies. The
transformer is the component of the power supply which is responsible for
"transforming" the low voltage to high voltage. The capacitors store energy and
cause the power supply output to be relatively insensitive to output load
conditions. The printed electronic circuit board assemblies monitor and regulate
the performance of the power supply by measuring changes in conditions which
affect output voltage, output current and operating frequency. The design of the
power supply and specifically the relationships between the transformers,
capacitors and control circuitry are critical in providing precise output
voltage and power. The Company's power supplies deliver precisely regulated
output power while operating over a very wide range of temperatures, altitudes,
humidity, shock and vibration conditions. The Company designs its products to
meet its customer's requirements for performance and size. The Company has
designed power supplies that deliver power over a range from several watts up to
60 kilowatts with output voltage ranging from hundreds of volts up to several
hundred thousand volts. Operating frequencies range from 60 hertz up to 100
kilohertz.
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EMI and RFI Noise Suppression Electronic Filters
EMI and RFI interference filters designed, manufactured and marketed
by the Company are used to reduce or eliminate interfering signals generated by
internal or external electronic components and equipment which otherwise could
interfere with the normal operation of electronic equipment and systems. A
filter may range in size from the miniature type, which utilizes the Company's
discoidal ceramic monolithic capacitors (miniature capacitors made of ceramic
material), to multi-circuit assemblies handling high power requirements and
weighing thousands of pounds.
The effects of radio frequency interference in the environment can
be readily appreciated when there is poor radio or television reception as a
result of the operation of nearby electronic devices which generate unwanted
electrical signals. This problem is severely compounded in many commercial and
defense environments where there are a large number of electronic devices in a
confined area, such as an airplane, ship, weapon system or in voice or data
communications systems. These specialty filters are required by various types of
equipment manufacturers in order to comply with government specifications and
commercial standards. These filters may be integrated within the electronic
equipment for which they have been designed or, in the case of large power
filters, connected externally to such equipment, or to an external power source
which may power an entire facility.
The Company offers standardized and custom designed electronic
filters to meet customer specifications. The Company's catalog contains
approximately 1,200 standard electronic filters. During Fiscal 1995
approximately 65% of the Company's filter sales were attributable to custom
designed filters and approximately 35% were attributable to standard filters .
Applications
The Company has developed precision HV power supplies for CT
scanners and has been for approximately 10 years a key source of supply of HV
power supplies for CT scanners to certain companies. The Company has developed a
new generation of equipment, which is intended to provide approximately twice
the power level in a significantly smaller unit than the current generation of
equipment. Since 1988 the Company has been active in developing and selling
medical laser surgery HV power supplies to several manufacturers in the medical
laser surgery field. The Company believes that it is well positioned to
participate in the development of technology for this expanding medical area.
The Company has also been a supplier of miniature HV power supplies used in
detection systems for hazardous materials, serving this market for approximately
20 years.
Filter products are designed to assure that equipment manufactured
for defense applications meets the rigid standards for interference generation
and susceptibility. In addition, filters are designed to prevent classified
cryptographic and data signals used in defense and industrial applications from
accidentally emanating and compromising military or industrial intelligence.
The Company's electronic filters are used in voice and data
communications equipment, computer equipment and defense systems. The Company is
a key supplier of electronic filters for use in telephone switching equipment.
Product Development
The Company has an ongoing research and development program. As of
July 29, 1995, the Company employed 44 persons in research and development, who
are engaged in the design of customized products for customer specifications and
for the Company's ongoing research and development activities. The Company's
expenditures for research and development were approximately $2,861,000 in
Fiscal 1995, $2,253,000 in Fiscal 1994, and $1,713,000 in Fiscal 1993.
Approximately 80% of new products are designed and developed to customer
specifications for use as a component in the customer's equipment, with the
rights to such technology remaining with the Company. For example, the Company
has developed a "ruggedized" miniature HV oil exploration probe for a Fortune 50
multi-national corporation. Pursuant to the terms of an agreement between the
Company and such corporation executed in 1987, the Company retains all of the
3
<PAGE>
technology developed in connection with such probes, exclusive of any oil
exploration use. The Company believes, although there can be no assurance, that
it will be the sole source supplier for this technology.
Certain new products are developed as standard products for industry
at large after the Company has evaluated their potential. Standard products
recently developed by the Company include standardized HV, high frequency rack
mounted power supplies and associated modules for use as precision test
equipment by industrial laboratories, universities and research facilities. In
addition, many new custom designed electronic filter components are eventually
made available as standard products in the Company's catalog.
The Company has computer-assisted design systems (CAD) to facilitate
the design of printed circuit boards for its power conversion components and
assist in the mechanical design of its products, thereby enhancing product
development and customized design services. The Company utilizes the CAD in the
mechanical design of its electronic filters in order to optimize the
miniaturization and packaging of its electronic filters.
As part of its ongoing quality assurance program, the Company has
installed an expanded computerized quality control center for the testing of its
electronic filters under a wide range of environmental conditions.
The Company's long term customer relationships have facilitated and
enhanced product development since many customers consult with the Company
concerning their product development programs, enabling the Company to custom
design HV power components and electronic filters for new generations of
customer products.
Marketing
The Company markets its products through 17 in-house sales personnel
and approximately 48 non-exclusive independent sales representatives in the
United States and approximately 90 non-exclusive international agents
principally in the Middle East, Canada, Europe, Asia, Australia and India. Sales
representatives are compensated primarily on a commission basis; the
international agents are compensated either on a commission basis or act as
independent distributors. The Company's marketing efforts and expertise
emphasize its ability to custom engineer products to optimal performance
specifications and the Company's record for quality and reliability.
The Company's products are sold directly to medical equipment
distributors, health professionals and to original equipment manufacturers and
various governmental agencies. Although the Company stresses its custom design
capabilities, it also markets its products through catalogs of standardized
products and through advertisements in trade journals and participation in
industry shows.
The Company's marketing staff works closely with its engineering
department in designing and customizing medical imaging diagnostic equipment and
power conversion components and electronic filters to a customer's specific
requirements. The Company believes that its ability to provide such customized
services has enabled it to be a key source of supply for many of its products.
Manufacturing
The Company manufactures its HV power conversion components in two
facilities, one in Valhalla, New York and a second in Hicksville, New York. The
Company manufactures all of its electronic noise suppression filters and
capacitor components at its facility in Bay Shore, New York. The Company
manufactures its cost effective medical imaging products at its facility in Deer
Park, New York.
The Company maintains a complete engineering laboratory for quality
control and environmental testing. In particular, the Company has an extensive
environmental testing department for the testing of its products against
temperature fluctuations, vibration, shock, humidity, electro-magnetic pulse and
other adverse environmental conditions.
4
<PAGE>
The Company utilizes proprietary information in the design and
manufacture of its products. However, the Company does not own any patents nor
does it intend to apply for patent protection for such manufacturing processes
or designs. The Company owns the Filtron(R) trademark for interference filters
manufactured by RFI.
The Company has multiple sources of supply for material and
components which are used in the manufacture of its products. The Company has
not encountered any difficulty in obtaining such supplies and believes that if
any current source of supply for a particular material or component became
unavailable, alternate sources of supply would be available at comparable prices
and delivery schedules.
Export Sales
During the three fiscal years ended July 29, 1995, July 30, 1994,
and July 31, 1993, export sales accounted for approximately 36%, 28%, and 21%,
respectively, of the Company's revenues. Export sales are made principally in
the Middle East, Canada, Europe and the Far East.
The Company's backlog at July 29, 1995 was approximately $18.9
million compared to a backlog of approximately $17.2 million at July 30, 1994,
and approximately $17.1 million at July 31, 1993. Substantially all of the
backlog will result in shipments in Fiscal 1996.
Competition
The markets for the Company's products are highly competitive. Many
of the Company's competitors are larger than the Company and have greater
financial and other resources. The Company believes that it has maintained its
competitive position based on its reputation and engineering ability to
customize products to clients' specific requirements and its testing and quality
control programs. There can be no assurance that other companies will not
successfully compete with the Company with respect to those products for which
the Company is a sole source of supply or a key supplier.
Government Regulation
The Company is subject to various United States government
guidelines and regulations relating to the qualification of its products for
inclusion in Government Qualified Product Lists in order to be eligible to
receive purchase orders from a government agency or for inclusion of a product
in a system which will ultimately be used by a governmental agency. The Company
has had many years of experience in designing, testing and qualifying its
products for sale to governmental agencies. Certain government contracts are
subject to cancellation rights. The Company has experienced no material
termination of a government contract and is not aware of any pending
terminations of government contracts. The Company's government related sales are
primarily for defense applications in existing programs or as spare parts.
The Company has not experienced in Fiscal 1995, and does not
anticipate, any material expenditures in connection with its compliance with
Federal, State or local environmental laws or regulations.
EMPLOYEES
As of July 29, 1995, the Company had approximately 335 employees,
including 9 executive officers, 22 persons in general administration, 17 persons
in marketing, 243 persons in manufacturing and 44 persons in research and
development. The Company believes that its employee relations are good.
5
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ITEM 2. PROPERTIES
The Company's executive headquarters are located in a facility in
Valhalla, New York in which the Company leases approximately 37,000 square feet.
The facility is held under a lease expiring on July 31, 2002. The current annual
base rent for such premises is approximately $285,000. RFI owns a 55,000 square
foot facility located on four acres in Bay Shore, Long Island, where it engages
in electronic filter design and manufacturing and designs and manufactures its
power conversion components. Dynarad Corp. leases approximately 24,000 square
feet at its facility in Deer Park, New York, under a lease expiring August 31,
2002. The current annual base rent for such premises is approximately $250,000.
Bertan leases approximately 38,000 square feet at its facility in Hicksville,
New York under a lease expiring May 31, 2004. The current annual base rent for
such premises is approximately $383,000. The Company believes that its current
facilities are sufficient for its present requirements.
ITEM 3. LEGAL PROCEEDINGS
RFI Corporation is a defendant in an action pending in the Supreme
Court of the State of New York, Kings County on July 25, 1994. The plaintiffs,
Mark Palmer Hansen and the other individuals named in the pleading, claim that
while they were employed by Unisys, they were injured as a result of exposure to
an allegedly toxic substance contained in certain filters manufactured by
Filtron Co., Inc. The principal defendants in the action are Filtron Co., Inc.,
RFI Corporation and Paramax Systems Corporation. Plaintiff's exposure to the
alleged toxic substance occurred prior to the Company's purchase of selected
assets of Filtron Co., Inc. from ARX, Inc. Furthermore, Filtron Co., Inc. and
ARX, Inc. are contractually obligated to indemnify the Company in connection
with this claim. The Company's product liability insurance carrier has appointed
counsel to defend this action. The Company believes it has meritorious defenses
to the claim.
The Company is a defendant in a proceeding in which the plaintiff,
Terry Joe Groom, an employee of Schlumberger Technology Corp., claims that he
was injured while employed in Texas as a result of exposure to allegedly high
energy electromagnetic radiation during testing of projects for use by
Schlumberger. The plaintiff alleges that the Company was involved in the supply
of a component used in connection with the projects. The Company's product
liability insurance carrier has appointed counsel to defend this action. The
Company believes it has meritorious defenses to the claim.
Management does not believe that the resolution of the above legal
proceedings will have a material effect on the Company's consolidated financial
condition and results of operations.
6
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Del Electronics Corp. began trading on the
American Stock Exchange (AMEX) on April 18, 1990 under the symbol DEL. The
following table shows the high and low prices for the past twelve quarters.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994 Fiscal 1993
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter 6 3/4 5 1/2 5 7/8 4 7/8 5 7/8 4 3/4
Second Quarter 6 1/4 4 3/4 7 1/8 5 1/2 6 3/8 4 5/8
Third Quarter 6 5 1/8 8 1/4 6 6 4 7/8
Fourth Quarter 7 5 1/2 7 5/8 5 1/2 5 7/8 4 5/8
</TABLE>
o The above prices have been restated to give retroactive effect to a 3% stock
dividend declared in May, 1995, a 3% stock dividend declared in November, 1994,
a 3% stock dividend declared in May, 1994, a 3% stock dividend declared in
November, 1993, a 3% stock dividend declared in April, 1993 and a 6% stock
dividend declared in November, 1992.
o The approximate number of holders of record of common stock $.10 par value as
of July 29, 1995 was 1,062.
o The Company has not paid any cash dividends, except for the payment of cash in
lieu of fractional shares, since 1983.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
DEL ELECTRONICS CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------
July 29 July 30, July 31, August 1, August 3,
1995(b) 1994(b) 1993(b) 1992 1991
------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $32,596,312 $24,327,015 $22,287,315 $18,948,930 $17,323,205
----------- ----------- ----------- ----------- -----------
Cost and expenses:
Cost of sales 19,177,999 15,179,081 13,455,261 11,754,344 10,672,288
Research and development 2,861,844 2,253,412 1,712,881 1,262,263 845,945
Selling, general and
administrative 6,622,690 4,862,519 4,390,267 3,473,622 3,453,222
Interest expenses -- net 1,191,142 576,832 360,149 308,525 874,058
----------- ----------- ----------- ----------- -----------
29,853,675 22,871,844 19,918,558 16,798,754 15,845,513
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes 2,742,637 1,455,171 2,368,757 2,150,176 1,477,692
Provision for income taxes 837,428 341,525 708,000 657,792 395,734
Cumulative effect of adoption of
SFAS-109 -- 76,363 -- -- --
----------- ----------- ----------- ----------- -----------
Net income $ 1,905,209 $ 1,190,009 $ 1,660,757 $ 1,492,384 $ 1,081,958
=========== =========== =========== =========== ===========
Income before cumulative effect of
of change in accounting principle $.40 $.23 $.38 $.35 $.36
Cumulative effect of adoption
of SFAS-109 -- .02 -- -- --
----------- ----------- ----------- ----------- -----------
Net income per common share and
common share equivalents (a)
primary and fully diluted $.40 $.25 $.38 $.35 $.36
=========== =========== =========== =========== ===========
Number of shares used in
computation of primary
earnings per share (a) 4,897,374 4,754,260 4,439,513 4,296,864 3,045,438
=========== =========== =========== =========== ===========
Number of shares used in
computation of fully diluted
earnings per share (a) 4,918,032 4,754,260 4,442,198 4,310,090 3,045,438
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of
----------------------------------------------------------------------
July 29, July 30, July 31, August 1, August 3,
1995(c) 1994(c) 1993(c) 1992 1991
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $20,648,281 $18,530,176 $13,856,981 $11,307,592 $ 10,209,886
=========== =========== =========== =========== ============
Total assets $39,054,634 $36,198,373 $24,969,136 $19,412,572 $ 18,299,270
=========== =========== =========== =========== ============
Long-term debt $11,902,951 $11,485,722 $ 5,639,290 $ 3,901,622 $ 3,964,800
=========== =========== =========== =========== ============
Shareholders' equity $19,525,073 $17,698,507 $15,634,240 $12,773,226 $ 10,815,414
=========== =========== =========== =========== ============
Common shares outstanding 4,074,434 4,073,332 3,789,534 3,464,948 3,091,786
=========== =========== =========== =========== ============
</TABLE>
(a) Net income per common share and common stock equivalents have been
restated to give effect to stock dividends in 1995, 1994, 1993 and
1991. See footnote 1 of notes to the consolidated financial
statements for computation of earnings per share.
(b) The fiscal years ended July 29, 1995, July 30, 1994 and July 31,
1993 include the operations of Dynarad; fiscal years ended July
29, 1995 and July 30, 1994 includes the operations of Bertan.
(c) Common shares outstanding for 1995, 1994 and 1993 are reduced by
55,165, 16,656 shares and 4,000 shares of treasury stock,
respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
For the three years ended July 29, 1995, the Company has financed
its operations through operating revenue and bank borrowing. These sources have
been sufficient to meet the Company's cash flow requirements.
The Company currently has a line of credit of $10,000,000 and
outstanding balances on two term loans of $2,035,722 and $2,875,000 at July 29,
1995, which were $2,464,290 and $3,375,000, respectively, at July 30, 1994
("Fiscal 1994"). Borrowings under the line of credit are limited to 85 percent
of eligible accounts receivable and 50 percent of inventory, and such line of
credit has a $1,000,000 maximum sub-limit for letters of credit. As of July
29,1995 ("Fiscal 1995") the amount outstanding under the line of credit was
$7,900,000 and the unused and available portion of the line of credit was
approximately $1,596,000. Letters of credit outstanding were approximately
$504,000.
The Company believes that its current financial resources, future
operating revenue and existing credit lines will be sufficient to meet its
foreseeable working capital requirements.
Working capital was $20,648,000 at July 29, 1995, compared to
$18,530,000 for Fiscal 1994, an increase of 11.4 percent, due to increased
profitability in Fiscal 1995. The current ratio increased to 4.31 to 1 at July
29, 1995 from 4.16 to 1 at July 30, 1994.
Investments available-for-sale of approximately $378,500 for Fiscal
1995 consist primarily of corporate debt securities and equities. These
investments are used to fund a deferred compensation plan for a key Company
employee.
The Company's trade receivables at July 29, 1995 increased
approximately $336,000 as compared to July 30, 1994. The Company's cost and
estimated earnings in excess of billings on uncompleted contracts at Fiscal 1995
decreased approximately $155,000 as compared to Fiscal 1994 due to shipments and
billings made on contracts which utilize the percentage of completion method of
accounting.
The Company's inventory during Fiscal 1995 increased approximately
$1,965,000 as compared to Fiscal 1994. The increase was principally due to
higher sales levels and work-in-process related to major open customer orders
which will not be delivered until fiscal 1996.
Prepaid expenses and other current assets increased approximately
$261,000 for Fiscal 1995 as compared to Fiscal 1994 principally due to
additional current provision for deferred taxes and a refund receivable from the
Company's worker's compensation insurance carrier.
The Company's capital expenditures for Fiscal 1995 were
approximately $1,337,500. These expenditures were primarily for assembly and
test equipment for improved manufacturing efficiencies. There were no material
open commitments for fixed asset acquisitions as of July 29, 1995. The funds for
the Company's capital improvement expenditures were derived from operations and
bank borrowings.
The Company repurchased 38,509 shares of its common stock for
approximately $217,000 during the Fiscal 1995.
Goodwill at July 29, 1995 relates primarily to the Bertan
acquisition.
Deferred charges for Fiscal 1995 decreased $160,000 as compared to
Fiscal 1994. The decrease is due to amortization for the year.
Accrued liabilities in Fiscal 1995 increased approximately $197,000
as compared to Fiscal 1994, due to higher commissions, incentive and deferred
compensation in Fiscal 1995. For Fiscal 1994 accrued liabilities included
$170,000 payable to the former Bertan shareholders which was paid in Fiscal
1995.
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Other liabilities represent the net present value of future
non-compete payments to two of the former shareholders of Bertan.
Deferred income taxes relate to income taxes required to be paid in
future periods relating to temporary differences in book to tax accounting
treatment.
Results of Operations
Net sales in the specialty electronic components segment ("specialty
components") for Fiscal 1995 were $27,027,000 compared to $19,436,000 for Fiscal
1994, an increase of approximately 39.1 percent. The increase was due to
internal growth of approximately $1,260,000 and the inclusion of the Bertan
subsidiary for all of Fiscal 1995, approximately $6,331,000. Net sales in the
specialty components segment for Fiscal 1994 were $19,436,000 compared to
$18,134,000 for Fiscal 1993, an increase of approximately 7.2 percent. The
increase was due principally to Bertan. Net sales in the medical imaging and
diagnostic products segment ("medical diagnostic") were $5,570,000 in Fiscal
1995 compared to $4,891,000 in Fiscal 1994. Net sales in the medical imaging and
diagnostic products segment were $4,891,000 in Fiscal 1994 compared to
$4,153,000 in Fiscal 1993. The net sales in the medical diagnostic segment were
principally due to the operations of Dynarad in all three years.
Cost of sales, as a percentage of net sales, in the specialty
components segment, decreased from 62.3 percent in Fiscal 1994 to 55.5 percent
in Fiscal 1995. The cost of sales as a percentage of sales increased from 59.3
percent in Fiscal 1993 to 62.3 percent in Fiscal 1994. Cost of sales, as a
percentage of net sales, in the specialty components segment, decreased from
Fiscal 1994 due to improved manufacturing efficiencies and increased sales
volume in this segment. Cost of sales, as a percentage of net sales, in the
specialty components segment, increased from Fiscal 1993 due to the mix of goods
sold and increased competitive pricing pressure in certain markets which this
segment serves. The cost of sales, as a percentage of net sales, in the medical
diagnostic segment was 75.0 percent in Fiscal 1995 as compared to 62.9 percent
in Fiscal 1994. The increase was due to an increase in the cost of materials
purchased in this segment as the Fiscal 1994 period had one contract which
accounted for approximately 28 percent of this segment's sales. The cost of
sales, as a percentage of net sales, in the medical diagnostic segment was 62.9
percent in Fiscal 1994 as compared to 65 percent in Fiscal 1993.
Research and development costs, in the specialty components segment,
increased to $2,709,000 in Fiscal 1995 from $1,835,000 in Fiscal 1994. The
inclusion of Bertan for all of Fiscal 1995 was the primary reason for this
increase. Research and development costs, in the specialty components segment,
increased to $1,835,000 in Fiscal 1994 from $1,539,000 in Fiscal 1993. Research
and development costs, in the medical diagnostic segment, were $153,000 in
Fiscal 1995 as compared to $418,000 in 1994. Research and development costs, in
the medical diagnostic segment , were $418,000 in Fiscal 1994 as compared to
$174,000 in Fiscal 1993. The Company continues to invest in research and
development in order to introduce new state-of-the-art products for its medical
diagnostic, medical, industrial and defense electronics markets.
Selling, general and administrative expenses, as a percentage of
sales, in the specialty components segment, were 19.9 percent in Fiscal 1995,
19.1 percent in Fiscal 1994 and 19.3 percent in Fiscal 1993. The Company
recognized as an addition to its selling, general and administrative expenses,
the amount of $108,000 in Fiscal 1994, which amount relates to the tax treatment
of the acquisition of RFI, resulting in an offsetting tax benefit of $108,000 in
Fiscal 1994. Selling, general and administrative expenses as a percentage of net
sales increased to 20.0 percent in Fiscal 1994 from 19.3 percent in Fiscal 1993.
This increase was principally attributable to increased commissions at RFI and
the addition of a chief financial officer in 1993. The Company recognized as an
addition to its selling, general and administrative expenses, the amount of
$117,000 in Fiscal 1993 which relates to the tax treatment of its acquisition of
RFI. Without such charge, selling, general and administrative expenses would
have been 18.6 percent of net sales in Fiscal 1994 and 18.7 percent of net sales
in Fiscal 1993. Selling, general and administrative expenses, as a percentage of
net sales, in the medical diagnostic segment, were 22.2 percent of net sales in
Fiscal 1995 as compared to 23.5 percent in Fiscal 1994 and 21.4 percent in
fiscal 1993.
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<PAGE>
Interest expense, net of interest income, for Fiscal 1995, 1994 and
1993 was approximately $1,191,000, $577,000, and $360,000, respectively.
Interest expense increased in Fiscal 1995 compared to 1994 and 1993 due to
higher levels of borrowing due to the Bertan acquisition, working capital
requirements and higher interest rates. Interest expenses increased in Fiscal
1994 due to higher levels of borrowing primarily due to Dynarad.
Income tax expense increased to 30.5 percent of pre-tax income in
Fiscal 1995 from 23.5 percent in Fiscal 1994 due to an increase in pre-tax
earnings in Fiscal 1995 over Fiscal 1994. Income tax expense for Fiscal 1994
would have been 28.8 percent if not for a reduction of $108,000 due to tax
benefits in Fiscal 1994, resulting from the RFI acquisition which were realized
on the Company's tax return in Fiscal 1994. A corresponding charge of $108,000
was included in selling, general and administrative expenses. Income tax expense
for Fiscal 1993 would have been 33.2 percent if not for a reduction of $117,000
due to the benefits resulting from the RFI acquisition. Income tax expense
decreased from 33.5 percent of pre-tax income in Fiscal 1992 to 30.6 percent in
Fiscal 1993 due to increased tax credits available in Fiscal 1993. There was a
cumulative effect of change in method for accounting for income taxes of $76,000
in Fiscal 1994 due to the adoption of SFAS 109.
Net income for Fiscal 1995 was approximately $1,905,000, an increase
of approximately 60.1 percent from $1,190,000 in Fiscal 1994. Net income in
Fiscal 1994 decreased approximately 28.4 percent from $1,661,000 in Fiscal 1993.
The primary and fully diluted earnings per share were $.40, an increase of $.15
per share which represents a 48 percent increase from primary and fully diluted
earnings per share of $.25 in Fiscal 1994. The number of outstanding shares and
common share equivalents increased 9.3 percent from Fiscal 1994 to Fiscal 1995.
The primary and fully diluted earnings per share before cumulative effect of
change in method for accounting for income taxes for Fiscal 1994 was $.23 per
share, a decrease of 37.5 percent from Fiscal 1993. For Fiscal 1994, primary and
fully diluted earnings per share were $.25 per share. This represents a decrease
of 32.5 percent from $.38 primary and fully diluted earnings per share in Fiscal
1993, while the number of outstanding shares and common share equivalents
increased 7 percent. The increase in net income for Fiscal 1995 was due to
internal growth, the improved operating efficiency of our Bertan High Voltage
subsidiary, and the inclusion of this subsidiary's operations for all of Fiscal
1995. The decrease in net income for Fiscal 1994 was primarily attributable to
increased research and development costs primarily for the development of new
medical imaging products, increased marketing expenses due to establishing an
international distribution network and the formation of Del Medical Systems, the
continuing pricing pressure in the defense electronics markets, and higher
interest costs primarily due to borrowings for the acquisition of Bertan and
Bertan working capital and increasing interest rates.
The backlog of unshipped orders at July 29, 1995, July 30, 1994 and
July 31, 1993 was approximately $18.9 million, $17.2 million and $17.1 million,
respectively.
The Company's strategy is to endeavor to expand its business through
the development and sale of new products and selective acquisitions which will
allow the Company to complement and expand existing product lines. The Company
is concentrating its acquisition search on companies in the medical imaging and
diagnostic fields. The Company currently has no agreements or understandings
concerning any acquisitions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Financial Statements and Supplementary Data
attached hereto and made a part hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors consists of six members. All Directors are to
be elected for a term of one year and until their respective successors are
elected and qualified.
Set forth below is the name and age of each Director, his position
in the Company and his principal occupation at present and during the past five
years.
Principal Occupation,
Name, Age and Position Business Experience,
with the Company Directorships
---------------------- ----------------------
LEONARD A. TRUGMAN, 57 Chairman of the Board, Chief Executive
Chairman of the Board, Officer and President of the Company
Chief Executive Officer and since 1985.
President
NATAN BERTMAN, 66 Partner of Bertman & Levine since
Director 1967 and a Director of the Company
since 1985.
RAYMOND KAUFMAN, 78 Former Chairman of the Board,
Director Chief Executive Officer and President
of the Company from 1976 to 1985.
Director of the Sherman Dean Fund.
DAVID MICHAEL, 58 President of David Michael & Co.,
Director P.C., C.P.A. since 1983 and a Director
of the Company since 1985.
SEYMOUR RUBIN, 65 Co-founder of RFI Corporation, a
Director & Vice President wholly-owned subsidiary of the
Company. President of RFI Corporation
since 1990. Director of the Company
since 1990. Executive Vice President
of RFI from 1968 to 1990.
JAMES TIERNAN, 71 Vice President of the Chase Manhattan
Director Bank, N.A., from 1971 to 1985 and a
Director of the Company since 1985.
12
<PAGE>
The following table sets forth the names and ages of all executive
officers and significant employees of the Company and their positions with the
Company.
Name Position Age
---- -------- ---
LEONARD A. TRUGMAN Chairman of the Board, 57
Chief Executive Officer and President
from 1985 to present.
HOWARD BERTAN President of Bertan High Voltage, Inc. 60
from April 1994 to present. President
and part owner of Bertan Associates Inc.
from 1969 to 1994.
LOUIS J. FARIN, SR. Vice President & General Manager 52
of Del Power Conversion Division
from 1994 to present. Senior Vice
President from 1986 to present.
LEONARD MICHAELS Co-Founder of Dynarad Corp. and 57
Vice President from 1992 to present.
President of Dynarad Corp. from
1991 to present. President of
Porta Ray, Inc. from 1975 to 1991.
SEYMOUR RUBIN Vice President from 1990 to present. 65
President of RFI Corp. from 1990
to present.
GEORGE SOLOMON Vice President and General Manager 50
of Dynarad Corp. from 1993 to present.
President of Del Medical Systems Corp.
from 1994 to present. General Manager
of Fujinon from 1989 to 1993.
MICHAEL TABER Chief Financial Officer from 1993 50
to present. Secretary from 1994 to
present. Assistant General Manager of
RFI Corp. from 1991 to 1992. President
of Filtron Co. Inc. from 1990 to 1992.
Vice President Finance of Comtech Inc.
from 1983 to 1990.
The officers of the Company, with the exception of Mr. Trugman, are
elected or appointed by the Board of Directors to hold office until the meeting
of the Board of Directors following the next annual meeting of stockholders.
Subject to the right of the Company to remove officers pursuant to its By-Laws,
officers serve until their successors are chosen and have qualified. Mr. Trugman
holds his position pursuant to an employment agreement which expires on July 31,
2000.
13
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth, for the three fiscal years ended
July 29, 1995, certain compensation information with respect to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers, based upon salary and bonus earned by such executive
officers in the fiscal year ended July 29, 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-term Compensation
Annual Compensation Awards
------------------------------------------------------ ----------------------
Securities
Restricted Underlying All Other
Name and Principal Other Annual Stock Options/ Compensation
Position Year Salary($) Bonus($) Compensation($) Awards($ SARS (#) ($)(1)
- ------------------ ---- --------- -------- --------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard A. Trugman 1995 275,625 257,273(2) -- -- 51,500 40,356
Chairman, CEO 1994 262,500 164,000(2) -- -- -- 38,728
and President 1993 250,000 255,685(2) -- -- -- 39,061
Seymour Rubin 1995 210,000 50,000 -- -- -- 8,539
Vice President 1994 200,000 50,000 -- -- 21,218 5,709
and President 1993 185,000 40,000 -- -- -- 6,729
of RFI Corp.
Howard Bertan 1995 139,192 72,154 -- -- -- 1,000
President of Bertan 1994 45,769(3) 25,493(3) -- -- 38,245 --
High Voltage Corp. 1993 -- -- -- -- --
Leonard Michaels 1995 168,404 -- -- -- -- 60,800(6)
Vice President 1994 160,385 -- -- -- -- 61,285(6)
and President 1993 138,461(4) 277,363(5) -- -- 21,836 313,967(7)
of Dynarad Corp.
George Solomon 1995 155,392 5,000 -- -- -- 1,000
Vice President and 1994 119,534 -- -- -- 10,609 1,000
General Manager of 1993 -- -- -- -- -- --
Dynarad Corp.,
President of Del
Medical Systems Corp.
</TABLE>
- --------------
(1) Includes insurance premiums where families of the officers are
beneficiaries and automobile expense allowances.
(2) Includes deferred compensation in the amounts of $125,000, $100,000 and
$125,000 for the 1995, 1994 and 1993 fiscal years, respectively.
(3) Based on 17 weeks of employment for Fiscal 1994. Bertan was acquired in
April 1994.
(4) Based on 48 weeks of compensation for Fiscal 1993. Dynarad was acquired in
September 1992.
(5) Includes employment agreement signing bonus of $250,000.
(6) Includes annual non-compete payment of $52,000.
(7) Includes a one time payment of $257,400 for covenant not-to-compete and
$47,667 of annual non-compete payment of $52,000 in fiscal year ended July
31, 1993.
14
<PAGE>
Stock Options Granted to Certain Executive Officers During the Last Fiscal Year
The following table sets forth certain information regarding options
for the purchase of the Company's Common Stock that were awarded to the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers, based upon salary and bonus earned by such
executive officers in fiscal year ended July 29, 1995.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR Potential Realizable
Value at Assumed
Annual Rates of
Individual Grants (1) for Option Term
--------------------- ----------------------
% of Total
Options
Granted to Exercise or
Options Employees Base Price Expiration
Name Granted(#) In Fiscal Year ($)(Sh) Date 5% ($) (1) 10%($)(1)
---- ---------- -------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leonard A.Trugman 51,500 54% $4.85 01/25/03 $ 499,679 $1,256,123
Seymour Rubin 10,300 11% $4.85 01/25/03 $ 99,936 $251,225
Howard Bertan -- -- -- -- -- --
Leonard Michaels -- -- -- -- -- --
George Solomon -- -- -- -- -- --
</TABLE>
- ----------------
(1) Fair market value of stock on grant date compounded annually at rate
shown in column heading, for the option term, less exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding options
for the purchase of the Company's Common Stock that were exercised and or held
by the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers, based upon salary and bonus earned by such
executive officers in fiscal year ended July 29, 1995.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year-End at Fiscal Year-End ($)(2)
Name Exercise(#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Leonard A. Trugman -- -- 594,423 / 92,205 $2,949,413 / $196,613
Seymour Rubin -- -- 75,941 / 45,688 $ 213,258 / $87,871
Howard Bertan -- -- 19,122 / 19,122 $ 11,268 / $11,268
Leonard Michaels -- -- 12,288 / 12,288 $ 26,051 / $26,051
George Solomon -- -- 2,814 / 8,441 $ 5,318 / $15,953
</TABLE>
- ----------------
(1) Difference between the fair market value of the common stock purchased
and the exercise price on the date of exercise.
(2) Difference between the fair market value of the underlying common stock
and the exercise price for in-the-money options on July 29, 1995 ($7.00).
15
<PAGE>
Directors of the Company did not receive compensation for their
services as such except a fee of $500.00 for each meeting of the Board of
Directors which they attend. Messrs. Trugman and Rubin have waived their right
to receive such compensation.
Employment Agreements
Mr. Leonard Trugman has an amended and restated employment agreement
with the Company, effective as of August 1, 1992 which was subsequently amended
on July 20, 1994 and September 1, 1994, pursuant to which he has agreed to serve
as Chairman, President and Chief Executive Officer of the Company. Mr. Trugman's
annual base salary was $275,625 for the fiscal year ended July 29, 1995. His
annual base salary for the fiscal year July 30, 1995 through August 3, 1996 is
determined by multiplying $275,625 by the greater of five percent or the
increase in the Consumer Price Index as of August 1, 1995 over the amount of
such index as of August 1, 1994. Mr. Trugman also receives a bonus each year
equal to five percent of the Company's pre-tax net income for such year. Mr.
Trugman's contract also provides for a deferred compensation account whereby the
Company shall deposit (a) $100,000 annually and (b) after receipt of the
Company's audited financial statements with respect to each fiscal year, an
amount equal to the lesser of (x) $25,000 or (y) five (5%) percent of the
Company's pre-tax net income for such fiscal year less $100,000. Also included
in Mr. Trugman's agreement are certain benefits in the event of a change of
control. Either upon completion of the term of the agreement or upon request at
any time, Mr. Trugman may opt for a five year extension in the form of a
consulting contract at a rate specified within the agreement. The employment
agreement contains standard confidentiality and non-compete provisions.
Mr. Leonard Michaels, who joined the Company as of September 1, 1992,
has an employment agreement with Dynarad Corp., which commenced as of September
1, 1992 and expires on July 29, 1997. Pursuant to the terms of such agreement,
Mr. Michaels agreed to serve as President of Dynarad Corp. Upon his execution of
such employment agreement, Mr. Michaels received a signing bonus of $250,000 in
the fiscal year ended July 31, 1993. The employment agreement provides for the
payment of a base salary of $150,000 per annum, subject to increases on an
annual basis, and certain bonuses if the net income goals specified in such
employment agreement are achieved. Mr. Michaels' annual base salary for the
fiscal year ended July 29, 1995 was $168,404. Upon the completion of the five
year term of the agreement, Mr. Michaels may opt for a five year extension in
the form of a consulting contract at a rate specified within the agreement. In
consideration of Mr. Michaels' covenant not to compete for ten years as set
forth in the employment agreement, he received upon execution thereof a payment
of $257,400 during the fiscal year ended July 30, 1994, and during the ten year
term thereof shall receive annual non-compete payments of $52,000.
Mr. Howard Bertan has an employment agreement with Bertan High Voltage
Corp. which commenced on April 24, 1994 and terminates on April 23, 1997, unless
extended for up to an additional two (2) year period. Pursuant to the terms of
such agreement, Mr. Bertan agreed to serve as President and Chief Operating
Officer of Bertan High Voltage Corp. The employment agreement provides for the
payment of a base salary of $147,000 for the period commencing on April 24, 1995
and terminating on April 23, 1996, subject to increases each twelve months
thereafter during the term. Mr. Bertan also receives a bonus with respect to
each fiscal year equal to five (5%) percent of the Bertan High Voltage Corp.'s
pre-tax net income for such year. The employment agreement contains standard
confidentiality and non-compete provisions.
In consideration of Mr. Howard Bertan's covenant not-to-compete for a
period of ten years after the completion of his employment agreement, he will
receive $500,000 payable in equal quarterly payments for a period of ten years
after his period of active employment. Such payments are subject to adjustment
to reflect the greater of (i) 5% or (ii) increases in the Consumer Price Index
for the United States.
Mr. Lester Bertan, former Chairman and part owner of Bertan Associates,
Inc., has a non-compete agreement for a period of ten years, wherein he will
receive $500,000 payable in equal quarterly payments, commencing sixty days
after April 1, 1994 for a period of ten years. Such payments are subject to
adjustment to reflect the greater of (i) 5% or (ii) increases in the Consumer
Price Index for the United States.
16
<PAGE>
Stock Option Plans
Non-Qualified Stock Option Plan
The Company's Non-Qualified Stock Option Plan provides for a total of
2,158,882 shares of Common Stock authorized to be granted under such plan. For
the year ended July 29, 1995, options to purchase an aggregate of 1,502,476
shares were outstanding at an average exercise price of $3.48 per share, having
a range of expiration dates from September 2000 to March 2010. During fiscal
1995, the Company granted options to purchase 102,738 shares of common stock at
an average exercise price of $4.88. During fiscal 1995, 115,044 options were
exercised or expired and 296,042 shares were available for future grant under
such plan. The Company's Non-Qualified Stock Option Plan provides for the grant
of options to its key employees, directors and consultants in order to give such
employees a greater personal interest in the success of the Company and an added
incentive to continue and advance in their employment. The Company's
Non-Qualified Stock Option Plan provides for a fifteen year expiration period
for each option granted thereunder and allows for the exercise of options by
delivery by the optionee of previously owned Common Stock of the Company having
a fair market value equal to the option price, or by a combination of cash and
Common Stock.
As of October 24, 1995, the Company had granted options to purchase
802,562 shares to Leonard A. Trugman, 38,245 shares to Howard Bertan, 24,577
shares to Leonard Michaels, 42,624 shares to Louis Farin, 121,629 shares to
Seymour Rubin, 11,255 shares to George Solomon and 16,574 shares to Michael
Taber at an average exercise price of $2.84 per share. No options issued to
officers were either exercised or expired during the year.
Stock Purchase Plan
Employee Stock Purchase Plan
The Company has an employee stock purchase plan which is funded by
payroll deductions. Shares acquired pursuant to such plan by employees of the
Company are purchased in the open market by the custodian of the plan. All
shares so purchased are held in street name until an employee requests that the
shares to which he is entitled, or a portion thereof, be issued to him.
Substantially all employees of the Company are eligible to participate in such
plan. As of October 24, 1995, 1,601, 327, 2,740, 222, 474 and 5,364 shares have
been purchased on behalf of Leonard A. Trugman, Howard Bertan, Seymour Rubin,
George Solomon, Michael Taber and all executive officers as a group,
respectively.
Employee Benefit Plans
Defined Benefit Plan
The Company has a defined benefit pension plan which provides
retirement benefits for some employees ("Participants"). Pursuant to the plan,
Participants will receive a benefit, computed by an actuary at retirement based
upon their number of years of credited service and average total annual
compensation during five consecutive years of their service, reduced by a
portion of the benefits received under social security. Effective February 1,
1986, the plan was frozen so that future salary increases are not considered in
determining a Participant's pension benefit, contributions by Participants are
no longer permitted and participation in the plan is limited to those
Participants as of August 1, 1984. The Company continues to fund the plan with
contributions determined on an actuarial basis.
The following table illustrates, for representative average annual
covered compensation and years of credited service classifications, the
estimated annual retirement benefits payable to employees under this plan upon
retirement at age 65 based on the plan's normal form of benefit and social
security benefits frozen as of August 1, 1984. Benefits under the plan are
limited to the extent required by the Employee Retirement Income Security Act of
1974.
17
<PAGE>
PENSION PLAN TABLE
Average Annual Years of Credited Service
Covered Compensation 15 or more
-------------------- -------------------------
$ 40,000 $13,000
$ 50,000 $17,000
$ 75,000 $27,000
$100,000 $37,000
The executive officers named in the Summary Compensation Table do
not participate in the plan.
During the fiscal year ended July 29, 1995, the Pension Plan was
submitted to the Internal Revenue Service. As of October 24, 1995, a
determination letter is still pending.
401(K) Plan
Effective August 1, 1984, the Company established a 401(k) plan
under which employees may elect to defer a portion of their annual salary. This
plan was modified as of October 1, 1993, and combined with the RFI Corporation
plan. Also, employees of Dynarad were allowed to participate. As of December 1,
1994, the Plan was merged with the Bertan plan which used the same plan
administrator, Connecticut General Life Insurance Company (CIGNA). All employees
with over 90 days of service and over the age of 21 may elect to defer from 2%
to 15% of their annual salary. The modified plan is administered by CIGNA and
employees may elect where their deferred salary will be invested. Highly
compensated employees' salary deferrals are limited by the contribution levels
of all other eligible participants. Distributions are made at retirement or upon
termination of employment. During the fiscal year ended July 29, 1995, the
merged plan was submitted to the Internal Revenue Service and a favorable
determination letter was received.
On February 1, 1986 the Company initiated a profit sharing plan as
part of the 401(k) plan which allows substantially all of the Company's
employees to participate in the profits of the Company, regardless of whether or
not the employee elected to contribute to the 401(k) plan in any year. Since the
profit sharing plan is part of the 401(k) plan, eligibility, participation and
other requirements are governed by the provisions of the 401(k) plan.
Contributions to the plan are determined based upon a calculation directly
related to the Company's sales volume and pre-tax profits. The Company's
Compensation Committee approved a $32,500 profit sharing contribution for the
period ended July 29, 1995. There was a $15,000 contribution for the period
ended July 31, 1993.
18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information concerning the shares of
Common Stock beneficially owned as of October 24, 1995 by the Directors and by
all Directors, Officers and significant employees of the Company as a group
without naming them and each person who is known by the Company to be the
beneficial owner of more than five (5%) percent of the Common Stock as of such
date.
Shares of Common
Stock Beneficially
Name and Address of Owned as of Percent
Beneficial Owner October 24, 1995(1) of Class
------------------- --------------------- ---------
LEONARD A. TRUGMAN 813,227(2) 16.6%
c/o Del Electronics Corp.
1 Commerce Park
Valhalla, NY 10595
NATAN BERTMAN 104,544(3) 2.5%
c/o Bertman & Levine
945 Manhattan Avenue
Brooklyn, NY 11222
RAYMOND KAUFMAN 54,435(4) 1.3%
c/o Del Electronics Corp.
One Commerce Park
Valhalla, NY 10595
DAVID MICHAEL 146,835(5) 3.5%
c/o David Michael & Co., P.C
Seven Penn Plaza
New York, NY 10001
SEYMOUR RUBIN 98,292(6) 2.4%
c/o RFI Corporation
100 Pine Aire Drive
Bay Shore, NY 11706
JAMES TIERNAN 7,992(7) *
7 Patriot Court
New City, NY 10956
LEONARD MICHAELS 113,720(8) 2.7%
c/o Dynarad Corp.
19 Jefryn Boulevard
Deer Park, NY 11729
GEORGE SOLOMON 5,628(9) *
c/o Dynarad Corp.
19 Jefryn Boulevard
Deer Park, NY 11729
HOWARD BERTAN 118,717(10) 2.8%
c/o Bertan High Voltage Corp.
121 New South Road
Hicksville, NY 11801
All Officers and Directors
(11) as a Group 1,501,862(11) 26.9%
19
<PAGE>
* Represents less than 1% of the outstanding shares of Common Stock of the
Company including shares issuable under options which are presently
exercisable or will become exercisable within 60 days of October 24, 1995
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to the shares shown as beneficially owned by such
person.
(2) Includes 635,128 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
(3) Includes 68,126 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
(4) Does not include shares owned by Mrs. Kaufman as to which Dr. Kaufman
disclaims beneficial ownership.
(5) Includes 111,857 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
(6) Includes 91,117 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
(7) Includes 7,992 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
(8) Includes 12,288 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
(9) Includes 5,628 shares, for which are presently exercisable or will
become exercisable within 60 days of October 24, 1995
(10) Includes 19,123 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
(11) Includes 980,736 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 24, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 1, 1994, Bertan High Voltage Corp., a wholly owned
subsidiary of the Company, acquired the assets of Bertan Associates, Inc. The
Company paid to Howard Bertan, Lester Bertan and another former shareholder of
Bertan Associates, Inc. (i) $2,600,000 in cash and (ii) 200,000 shares of the
Company's common stock, $.10 par value per share. The Company and Bertan High
Voltage Corp. entered into various employment, consulting, option and
non-compete agreements with Howard Bertan and Lester Bertan, former officers and
shareholders of Bertan Associates, Inc. The Company entered into a ten year
lease agreement for the facility of Bertan Associates, Inc. in Hicksville, New
York with a New York general partnership, of which Howard Bertan and Lester
Bertan are general partners. The lease provides for minimum annual payments of
$383,380 plus all utilities and increases in real estate taxes. Bertan High
Voltage Corp. has an option to renew the lease for a period of five years at a
fair market rental value upon the expiration of the initial term of the lease.
The Company believes that the lease was entered into on terms no less than
favorable than could be obtained from unaffiliated third parties. The lease was
approved by all of the directors of the Company who have no principal interest
in the transaction.
On May 1995, upon approval of the Company's Board of Directors, the
Company repurchased 10,000 shares of common stock owned by Mr. Leonard A.
Trugman, Chairman, at a fair market value of $6.375 per share.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page Number
-----------
CONSOLIDATED FINANCIAL STATEMENTS OF
DEL ELECTRONICS CORP. AND SUBSIDIARIES:
Independent Auditors' Report F-1
Consolidated Balance Sheets as of July 29, 1995 and
July 30, 1994 F-2
Consolidated Statements of Income for the Fiscal
Years Ended July 29, 1995, July 30, 1994 and July 31,
1993 F-3
Consolidated Statements of Shareholders' Equity for
the Fiscal Years Ended July 29, 1995, July 30, 1994,
and July 31, 1993 F-4
Consolidated Statements of Cash Flows for the Fiscal
Years Ended July 29, 1995, July 30, 1994, and July
31, 1993 F-5- F-6
Notes to Consolidated Financial Statements for the
Fiscal Years Ended July 29, 1995, July 30, 1994, and
July 31, 1993 F-7 - F17
Unaudited Selected Quarterly Financial Data F-18
2. (a) Exhibit
Number Description of Document Footnotes
------- ----------------------- ---------
3.1 Certificate of Incorporation dated October
25, 1954 (1)
3.2 Certificate of Amendment of Certificate of
Incorporation dated January 28, 1957 (1)
3.3 Certificate of Amendment of Certificate of
Incorporation dated July 12, 1960 (1)
3.4 Certificate of Amendment of Certificate of
Incorporation dated March 15, 1989 (2)
3.5 Certificate of Amendment of Certificate of
Incorporation dated January 19, 1989 (3)
3.6 By-Laws of Del Electronics Corp. (1)
4.1 Warrant Certificate of ARX, Inc. (4)
4.2 Warrant Certificate of LB Capital, Inc. (4)
21
<PAGE>
4.3 Stock Purchase Warrants of Laidlaw
Equities, Inc. and Colman Abbe (5)
4.4 Registration Rights Agreement by and among
Del Electronics Corp., Bertan Associates,
Inc. Lester Bertan, Howard Bertan and Karl
Reuchlein dated April 1, 1994 (6)
4.5 Warrant Agreement between Del Electronics
Corp., and Chase Manhattan Investment
Holdings, Inc., dated January 27, 1995 (7)
4.6 Amendment to Warrant Agreement between Del
Electronics Corp. and Chase Manhattan
Investment Holdings, Inc., dated January
27, 1995 (8)
4.7 Warrant Certificate of Stanley Wunderlich. (9)
4.8 Warrant Certificate of Chatfield Dean &
Co., Inc. (10)
4.9 Warrant Certificate of Russell J.
Breenberg. (11)
4.10 Warrant Certificate of Shail B. Sheth. (12)
4.11 Warrant Certificate of Kenneth L.
Greenberg. (13)
4.12 Warrant Certificate of J. Shain Gross. (14)
4.13 Warrant Certificate of Rebecca Miller. (15)
4.14 Copy of Del Electronics Corp. Amended and
Restated Stock Option Plan (the "Plan"). (16)
4.15 Stock Purchase Plan (17)
4.16 Option Agreement, substantially in the form
used in connection with options granted
under the Plan (18)
10.1 Amended and Restated Executive Employment
Agreement of Leonard A. Trugman (19)
10.2 Amendment No. 1 to Amended and Restated
Employment Agreement of Leonard A. Trugman (20)
10.3 Amendment No. 2 to Amended and Restated
Employment Agreement of Leonard A. Trugman (21)
10.4 Employment Agreement of Leonard A. Michaels (22)
10.5 Employment Agreement of Howard Bertan (23)
22
<PAGE>
10.6 Modified and Restated Credit Agreement
dated as of May 10, 1994 among Del
Electronics Corp., RFI Corp., Dynarad
Corp., Bertan High Voltage Corp. and the
Chase Manhattan Bank, N.A. (24)
10.7 First Amendment to Modified and Restated
Credit Agreement dated November 4, 1994
among Del Electronics Corp., RFI Corp.,
Dynarad Corp., Del Medical Systems Corp.
and the Chase Manhattan Bank, N.A. (25)
10.8 Second Amendment to Modified and Restated
Credit Agreement dated November 11, 1994
among Del Electronics Corp., RFI
Corporation, Dynarad Corp., Bertan High
Voltage Corp., Del Medical Systems Corp.,
and The Chase Manhattan Bank, N.A. (26)
10.9 Third Amendment to Modified and Restated
Credit Agreement dated January 27, 1995
among Del Electronics Corp., RFI
Corporation, Dynarad Corp., Bertan High
Voltage Corp., Del Medical Systems Corp.,
and The Chase Manhattan Bank, N.A. (27)
10.10 Lease Agreement dated April 7, 1992 between
Messenger Realty and the Company (28)
10.11 Lease made as of September 1, 1992 between
Arleigh Construction and Del Acquisition
Corp. (29)
10.12 Lease and Guaranty of Lease dated May 25,
1994 between Leshow Enterprises and Bertan
High Voltage Corp. (30)
10.13 Consulting Agreement between Del
Acquisition Corp. and Harvey Schechter (31)
10.14 Consulting Agreement between Del
Acquisition Corp. and Mark Weiss (32)
*11 Computation of earnings per Common Share
and Common Share Equivalents for year ended
July 29, 1995
*21 Subsidiaries of Del Electronics Corp.
*23 Consent of Deloitte & Touche LLP
*27 Financial Data Schedule
* Filed herewith
23
<PAGE>
(1) Filed as Exhibit to Del Electronics Corp., Registration Statement on Form
S-1 (No. 2-16839) and incorporated herein by reference.
(2) Filed as Exhibit 3.5 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended August 2, 1986 and incorporated herein by reference.
(3) Filed as Exhibit 4.5 to Del Electronics Corp., Form S-3 (No. 33-30446)
filed August 10, 1989 and incorporated herein by reference.
(4) Filed as Exhibits 4.2, 4.5 and 4.6 to Del Electronics Corp., Annual Report
on Form 10-K filed November 6, 1991 and incorporated herein by reference.
(5) Filed as Exhibit 4.2 to Del Electronics Corp., Pre-Effective Amendment No.
1 to Registration Statement on Form S-2 (No. 33- 40314) and incorporated
herein by reference.
(6) Filed as Exhibit 4.1 to Del Electronics Corp., Report on Form 8-K dated
June 10, 1994 and incorporated herein by reference.
(7) Filed as Exhibit 4.5 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(8) Filed as Exhibit 4.6 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(9) Filed as Exhibit 4.7 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(10) Filed as Exhibit 4.8 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(11) Filed as Exhibit 4.9 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(12) Filed as Exhibit 4.10 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(13) Filed as Exhibit 4.11 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(14) Filed as Exhibit 4.12 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(15) Filed as Exhibit 4.13 to Del Electronics Corp., Registration Statement on
Form S-3 (No. 33-61025) and incorporated herein by reference.
(16) Filed as Exhibit A to Del Electronics Corp., Proxy Statement dated January
26, 1994 and incorporated herein by reference.
(17) Filed as Exhibit 4.9 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended July 29, 1989 and incorporated herein by reference.
(18) Filed as Exhibit 4.8 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended July 30, 1994 and incorporated herein by reference.
(19) Filed as Exhibit 10.1 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended July 31, 1993 and incorporated herein by reference.
(20) Filed as Exhibit 10.2 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended July 30, 1994 and incorporated herein by reference.
(21) Filed as Exhibit 10.3 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended July 30, 1994 and incorporated herein by reference.
(22) Filed as Exhibit 28.1 to Del Electronics Corp., Current Report on Form 8-K
dated November 9, 1992 and incorporated herein by reference.
(23) Filed as Exhibit 2.2 to Del Electronics Corp., Current Report on Form 8-K
dated June 10, 1994 and incorporated herein by reference.
24
<PAGE>
(24) Filed as Exhibit 10.6 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended July 30, 1994 and incorporated herein by reference.
(25) Filed as Exhibit 10.7 to Del Electronics Corp., Annual Report on Form 10-K
for the year ended July 30, 1994 and incorporated herein by reference.
(26) Filed as Exhibit 10.1 to Del Electronics Corp., Quarterly Report on Form
10-Q for the quarter ended January 28, 1995 and incorporated herein by
reference.
(27) Filed as Exhibit 10.2 to Del Electronics Corp., Quarterly Report on Form
10-Q for the quarter ended January 28, 1995 and incorporated herein by
reference.
(28) Filed as Exhibit 6(a) to Del Electronics Corp., Quarterly Report on Form
10-Q for the quarter ended May 2, 1992 and incorporated herein by reference
(29) Filed as Exhibit 28.6 to Del Electronics Corp., Current Report on Form 8-K
dated November 9, 1992 and incorporated herein by reference.
(30) Filed as Exhibit 2.5 to Del Electronics Corp., Current Report on Form 8-K
dated June 10, 1994 and incorporated herein by reference.
(31) Filed as Exhibit 28.4 to Del Electronics Corp., Current Report on Form 8-K
dated November 9, 1992 and incorporated herein by reference.
(32) Filed as Exhibit 28.5 to Del Electronics Corp., Current Report on Form 8-K
dated November 9, 1992 and incorporated herein by reference.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Del Electronics Corp. and Subsidiary
Valhalla, New York
We have audited the accompanying consolidated balance sheets of Del Electronics
Corp. and subsidiaries as of July 29, 1995 and July 30, 1994 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three fiscal years in the period ended July 29, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 our
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 Electronics Corp. and
subsidiaries at July 29, 1995 and July 30, 1994, and the results of their
operations and their cash flows for each of three fiscal years in the period
ended July 29, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective August 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109.
S/DELOITTE & TOUCHE LLP
- -----------------------
DELOITTE & TOUCHE LLP
New York, New York
October 23, 1995
F-1
<PAGE>
DEL ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 29, July 30,
1995 1994
-------- ---------
ASSETS (Note 6)
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 505,989 $ 445,597
Investments available-for-sale
(Notes 1, 2 and 10) 378,534 346,270
Trade receivables (net of allowance
for doubtful accounts of $144,431
at July 29,1995 and $164,675 at
July 30, 1994) 6,456,853 6,120,457
Cost and estimated earnings in
excess of billings on uncompleted
contracts (Note 3) 395,847 551,301
Inventory (Notes 1 and 4) 18,038,358 16,072,933
Prepaid expenses and other current
assets (Note 11) 1,117,963 856,969
----------- -----------
Total current assets 26,893,544 24,393,527
----------- -----------
FIXED ASSETS - At cost (Notes 1
and 5) 11,115,297 9,777,788
Less accumulated depreciation and
amortization 3,362,516 2,612,930
----------- -----------
7,752,781 7,164,858
----------- -----------
GOODWILL (net of accumulated
amortization of $216,951 at
July 29, 1995 and $90,169 at
July 30, 1994) (Notes 1 and 11) 2,865,408 2,992,191
DEFERRED CHARGES (Note 11) 876,638 1,036,785
OTHER ASSETS (Notes 7, 9
and 11) 666,263 611,012
----------- -----------
TOTAL $39,054,634 $36,198,373
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt (Note 6) $ 943,383 $ 928,568
Accounts payable - trade 2,539,615 2,477,101
Accrued liabilities (Note 11) 2,484,435 2,457,682
Income taxes (Notes 1 and 9) 277,830
----------- -----------
Total current liabilities 6,245,263 5,863,351
LONG-TERM LIABILITIES:
LONG-TERM DEBT (Less current
portion included above) (Note 6) 11,902,951 11,485,722
OTHER (Note 11) 775,541 757,410
DEFERRED INCOME TAXES
(Notes 1 and 9) 605,806 393,383
----------- -----------
Total liabilities 19,529,561 18,499,866
----------- -----------
COMMITMENTS AND
CONTINGENCIES (Notes 6,
7,8,10 and 11)
SHAREHOLDERS' EQUITY
(Notes 1, 7 and 8):
Common stock - $.10 par
value; Authorized - 10,000,000
shares; Issued and outstanding --
4,129,599 at July 29, 1995 and
3,856,162 shares at July 30, 1994 412,960 385,616
Additional paid-in capital 16,239,784 14,828,924
Retained earnings 3,189,244 2,583,817
----------- -----------
19,841,988 17,798,357
Less common stock in treasury --
55,165 at July 29, 1995 and
16,656 at July 30, 1994 shares
at cost 316,915 99,850
----------- -----------
Total shareholders' equity 19,525,073 17,698,507
----------- -----------
TOTAL $39,054,634 $36,198,373
=========== ===========
See notes to consolidated financial statements.
F-2
<PAGE>
DEL ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
July 29, July 30, July 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES (Notes 1, 3 and 12) $32,596,312 $24,327,015 $22,287,315
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 19,177,999 15,179,081 13,455,261
Research and development (Note 1) 2,861,844 2,253,412 1,712,881
Selling, general and administrative 6,622,690 4,862,519 4,390,267
Interest expense -- net of interest
income of $3,419 in 1995, $1,813 in
1994, and $17,350 in 1993 1,191,142 576,832 360,149
----------- ----------- -----------
29,853,675 22,871,844 19,918,558
----------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,742,637 1,455,171 2,368,757
PROVISION FOR INCOME TAXES
(Notes 1 and 9) 837,428 341,525 708,000
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN METHOD FOR ACCOUNTING
FOR INCOME TAXES 1,905,209 1,113,646 1,660,757
CUMULATIVE EFFECT OF CHANGE IN METHOD
FOR ACCOUNTING FOR INCOME TAXES
(Notes 1 and 9) 76,363
----------- ----------- -----------
NET INCOME $ 1,905,209 $ 1,190,009 $ 1,660,757
=========== =========== ===========
PER SHARE AMOUNTS (Note 1):
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN METHOD FOR ACCOUNTING
FOR INCOME TAXES $ .40 $ .23 $ .38
----------- ----------- -----------
CUMULATIVE EFFECT OF CHANGE IN METHOD
FOR ACCOUNTING FOR INCOME TAXES (Note 9) $ -- $ .02 $ --
----------- ----------- -----------
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS PRIMARY
AND FULLY DILUTED $ .40 $ .25 $ .38
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
DEL ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock Additional
------------------- ------------------ Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- AUGUST 1, 1992 2,819,713 $281,971 $9,514,367 $2,976,888 $12,773,226
Shares issued related
to acquisition (Note 11) 168,422 16,842 983,158 1,000,000
Stock dividends --
6% December 1992 and 3%
May 1993 (Note 8) 276,367 27,637 1,708,282 (1,741,583) (5,664)
Exercise of stock options
and warrants (Note 8) 106,450 10,645 45,509 56,154
Shares repurchased (Note 8) 4,000 $(23,567) (23,567)
Costs of registering stock
and options (Note 8) (14,666) (14,666)
Tax benefit related to exercise
of stock options (Note 8) 188,000 188,000
Net Income 1,660,757 1,660,757
--------- --------- ------ ---------- ----------- ---------- -----------
BALANCE -- JULY 31, 1993 3,370,952 337,095 4,000 (23,567) 12,424,650 2,896,062 15,634,240
Shares issued related
to acquisition (Note 11) 200,000 20,000 851,429 871,429
Stock dividends -- 3%
December 1993 and
June 1994 (Note 8) 212,407 21,240 1,473,677 (1,502,254) (7,337)
Exercise of stock options
and warrants (Note 8) 70,658 7,066 43,000 50,066
Shares repurchased (Note 8) 12,656 (76,283) (76,283)
Tax benefit related to exercise
of stock options (Note 8) 39,857 39,857
Other 2,145 215 (3,689) (3,474)
Net Income 1,190,009 1,190,009
--------- --------- ------ ---------- ----------- ---------- -----------
BALANCE - JULY 30, 1994 3,856,162 385,616 16,656 (99,850) 14,828,924 2,583,817 17,698,507
Stock dividends -- 3%
December 1994 and
June 1995 (Note 8) 233,446 23,345 1,270,112 (1,299,782) (6,325)
Exercise of stock options
and warrants (Note 8) 39,991 3,999 108,710 112,709
Shares repurchased (Note 8) 38,509 (217,065) (217,065)
Tax benefit related to exercise
of stock options (Note 8) 32,038 32,038
Net Income 1,905,209 1,905,209
--------- --------- ------ ---------- ----------- ---------- -----------
BALANCE -- JULY 29, 1995 4,129,599 $ 412,960 55,165 $ (316,915) $16,239,784 $3,189,244 $19,525,073
========= ========= ====== ========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DEL ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
July 29, July 30, July 31,
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,905,209 $ 1,190,009 $ 1,660,757
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities net of effects from purchase of
Bertan & Dynarad
Imputed interest 68,963
Depreciation 749,586 684,786 606,389
Amortization 493,257 331,746 298,999
Deferred income tax provision (benefit) 36,452 (135,265) 138,600
Changes in assets and liabilities:
Increase in trade receivables (336,396) (73,085) (56,784)
Decrease (increase) in cost and
estimated earnings in excess of
billings on uncompleted contracts 155,454 46,346 (597,647)
Increase in inventory (1,965,425) (1,782,521) (2,430,090)
Increase in prepaid and
other current assets (219,232) (153,368) (123,474)
Increase in deferred charges (1,181,944)
(Increase) decrease in other assets (37,097) (200,862) 54,546
Increase (decrease) in
accounts payable - trade 62,514 (70,113) 466,943
Increase (decrease) in accrued liabilities 197,128 (66,833) (520,348)
Increase in income taxes payable 245,792 30,746 163,517
----------- ----------- -----------
Net cash provide by (used in)
operating activities 1,356,205 (198,414) (1,520,536)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid on acquisition of
subsidiaries (2,784,282) (196,929)
Payments to former shareholders of
subsidiary acquired (221,208)
Expenditures for fixed assets (1,337,509) (1,694,344) (1,252,006)
Investment in marketable securities (152,264) (395,404)
Sale of marketable securities 120,000 25,223
Other current assets (16,024)
----------- ----------- -----------
Net cash used in investing
activities (1,590,981) (4,864,831) (1,448,935)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank borrowing 432,044 5,175,928 1,049,117
Payment for repurchase of shares (217,065) (76,283) (23,567)
Proceeds from exercise of stock options 112,709 50,066 56,154
Other (32,520) (25,827) (20,330)
----------- ----------- -----------
Net cash provided by
financing activities 295,168 5,123,884 1,061,374
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements. (Continued)
F-5
<PAGE>
DEL ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
July 29, July 30, July 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 60,392 $ 60,639 $(1,908,097)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 445,597 384,958 2,293,055
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 505,989 $ 445,597 $ 384,958
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 1,084,332 $ 474,010 $ 374,727
=========== =========== ===========
Income taxes paid $ 355,006 $ 595,570 $ 404,838
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
ACQUISITION OF SUBSIDIARIES $ 4,816,153 $ 1,235,329
----------- -----------
Deferred tax liability acquired
in acquisition 146,902
Cash acquired in acquisition 6,130 5,400
Common stock issued 871,429 1,000,000
Payment due under non-compete agreement 807,410
Acquisition costs in accrued liabilities 200,000 33,000
----------- -----------
2,031,871 1,038,400
----------- -----------
Cash paid to acquire subsidiaries $ 2,784,282 $ 196,929
=========== ===========
TAX BENEFIT RELATED TO EXERCISE OF
STOCK OPTIONS $ 32,038 $ 39,857 $ 188,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
(Concluded)
F-6
<PAGE>
DEL ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JULY 29, 1995, JULY 30, 1994, JULY 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business Activities - Del Electronics Corp. ("Del")
together with its wholly owned subsidiaries, RFI Corporation ("RFI"),
Dynarad Corp. ("Dynarad"), Bertan High Voltage Corp. ("Bertan") and
Del Medical Systems Corp. ("Del Medical") (collectively the
"Company"), are engaged in two major lines of business. Del, RFI,
Bertan and to a lesser extent Dynarad are engaged in the design and
manufacture of specialty electronic components for medical,
industrial and military applications. Dynarad is also engaged in the
design and manufacture of cost-efficient medical imaging systems
including high frequency portable X-ray systems and mammography units
which are used in the medical diagnostic industry. Del Medical is
also engaged in the distribution of cost-effective, medical
diagnostic products.
b. Principles of Consolidation - The consolidated financial statements
include the accounts of Del, RFI, Dynarad, Bertan and Del Medical.
All material intercompany accounts and transactions have been
eliminated. Del purchased all of the common stock of Dynarad on
September 1, 1992 and the assets of Bertan on April 1, 1994. Del
Medical Systems was formed on June 1, 1994. (Note 11).
c. Accounting Period - The Company's fiscal year-end is based on a
52/53-week cycle ending on the Saturday nearest to July 31.
d. Revenue Recognition - The Company recognizes revenues upon shipment
of its products except for certain products which have long-term
production cycles and high dollar value. Revenues for these products
are recognized using the percentage of completion method of
accounting in proportion to costs incurred.
e. Inventory Valuation - Inventory is stated at the lower of cost
(first-in, first-out) or market.
f. Depreciation and Amortization - Depreciation and amortization are
computed by the straight-line method at rates adequate to allocate
the cost of applicable assets over their expected useful lives, which
range from 3 to 40 years.
g. Research and Development Costs - Research and development costs are
charged to expense in the year incurred.
h. Net Income per Common Share and Common Share Equivalent - Net income
per common share and common share equivalent is based on the net
income for each year divided by the weighted average number of shares
outstanding during such year adjusted for stock dividends. Net income
per common share and common share equivalent utilizing the Modified
Teasury Stock method in accordance with APB 15, also includes the
dilutive effect of shares issuable upon exercise of stock options.
For purposes of the calculation, this method increases net income by
$53,997, $17,256, and $0, in fiscal 1995, 1994, and 1993,
respectively, for primary earnings per share. Net income was
increased by $47,954, $10,336, and $0 in 1995, 1994, and 1993,
respectively, for purposes of computing fully diluted earnings per
share. The number of shares of common stock and common share
equivalents used in the calculation were 4,897,374, 4,754,260, and
4,439,513 in fiscal 1995, 1994, and 1993, respectively (Note 8).
F-7
<PAGE>
i. Income Taxes - Income taxes provided include deferred taxes due to
timing differences between financial and tax reporting (Note 9).
The Company adopted Statement of Financial Accounting Standard
No. 109 "Accounting for Income Taxes" ("SFAS-109") effective
August 1, 1993. The cumulative effect of adopting SFAS No. 109
was to increase net income by $76,363 in the year ended July 30,
1994. SFAS No. 109 provides for the recognition of deferred tax
assets and liabilities for temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes
and for tax credit carryovers.
j. Cash and Cash Equivalents - The Company generally considers
short-term instruments with original maturities of three months or
less measured from their acquisition date and highly liquid
instruments readily convertible to known amounts of cash to be cash
equivalents.
k. Investments - During the year ended July 30, 1994, the Company
adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
(SFAS No. 115"). SFAS No. 115 requires an enterprise to classify debt
and equity securities into one of three categories: held-to-maturity,
available-for-sale, or trading. Investments classified as available
for sale are measured at fair value. The investments classified as
available-for-sale are used to fund a deferred compensation plan
established for one of the Company's key employees. Gains and losses,
either recognized or unrealized, inure to the benefit or detriment of
this employee's deferred compensation, based upon a contractual
arrangement between the employee and the Company.
l. Goodwill - Cost in excess of the net assets of companies acquired is
being amortized on a straight-line basis over twenty-five years. The
carrying value of intangible assets is periodically reviewed by the
Company and impairments will be recognized when the undiscounted
expected future cash flows, computed after interest expense derived
from the related operations, is less than their carrying value.
m. Long-Lived Assets - In March 1995, the Financial Accounting Standards
Board issued Statement Number 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement is effective for fiscal years beginning after December 15,
1995. The Company does not expect the effect on its consolidated
financial condition from the adoption of this statement to be
material.
2. INVESTMENTS
At July 29, 1995 investments consist principally of corporate debt
securities and equity securities classified as available-for-sale.
At July 29, 1995 the fair value of investments classified as
available-for-sale based on maturity dates, are as follows:
Fiscal Year Fair Value
----------- ----------
1996 $ 43,892
1997-2001 310,512
2002-2006 24,130
--------
$378,534
========
F-8
<PAGE>
3. PERCENTAGE OF COMPLETION ACCOUNTING
Year Ended Year Ended
July 29, 1995 July 30, 1994
------------- -------------
Costs incurred on uncompleted contracts $337,863 $ 427,392
Estimated earnings 93,184 163,109
431,047 590,501
Less: Billings to date 35,200 39,200
-------- ---------
Costs and estimated earnings in excess
of billings on uncompleted contracts $395,847 $ 551,301
======== =========
The backlog of unshipped contracts being accounted for under the
percentage of completion method of accounting was $ 633,753 at July 29,
1995 and $762,524 at July 30, 1994.
4. INVENTORY
Inventory consists of the following:
July 29, 1995 July 30, 1994
------------- -------------
Finished goods $ 4,398,096 $ 2,825,816
Work-in-process 7,642,588 7,201,564
Raw materials and purchased parts 5,997,674 6,142,965
----------- -----------
18,038,358 16,170,345
Less progress payments 97,412
----------- -----------
$18,038,358 $16,072,933
=========== ===========
5. FIXED ASSETS
Fixed assets consist of the following:
July 29, 1995 July 30, 1994
------------- -------------
Land $ 694,046 $ 694,046
Buildings 2,146,025 2,146,025
Machinery and equipment 6,624,296 5,475,652
Furniture and fixtures 773,694 707,846
Leasehold improvements 790,226 749,219
Construction in Progress 76,023
Transportation equipment 10,987 5,000
------------ -----------
11,115,297 9,777,788
Less accumulated depreciation and
amortization 3,362,516 2,612,930
------------ -----------
Net Fixed Assets $ 7,752,781 $ 7,164,858
============ ===========
F-9
<PAGE>
6. DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
July 29, 1995 July 30, 1994
-------------------------- ---------------------------
Due Within Due After Due Within Due After
One Year One Year One Year One Year
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Term note payable --
Bank $428,568 $ 1,607,154 $ 428,568 $ 2,035,722
Additional term note payable --
Bank 500,000 2,375,000 500,000 2,875,000
Credit line loan
payable - Bank 7,900,000 6,575,000
Other Loan 14,815 20,797
-------- ----------- --------- -----------
$943,383 $11,902,951 $ 928,568 $11,485,722
======== =========== ========= ===========
</TABLE>
The Company's credit facility with its lending bank is composed of two
term notes and a revolving credit line. The total facility aggregates
$14,910,722 at July 29, 1995. The facilities include the balance of a
seven year term note of $2,035,722 with interest at prime plus 1/2
percent which was eight and three quarter percent at July 29 1995; an
additional five year term note of $3,500,000, with a balance outstanding
of $2,875,000 at July 29, 1995, with interest at a prime plus 3/4
percent, which was used to purchase Bertan; and a revolving credit line
of $10,000,000 with interest at prime, with a letter of credit sub-limit
of $1,000,000. The revolving credit facility is subject to commitment
fees of 1/4 percent on the average daily unused portion of the facility,
payable quarterly. Borrowings are collateralized by all of the assets of
the Company and a $1,000,000 life insurance policy on the life of the
Company's president, up to the limit of the indebtedness. The Credit
Agreement also requires the Company to maintain minimum annual net worth
and working capital ratios, limits additional indebtedness and the
payment of cash dividends and contains other restrictive covenants.
Under the most restrictive terms, as of July 29, 1995, $10,000 is
available for cash dividends.
The Company and its lending bank further amended its credit agreement in
January 1995, whereby the Company, if it meets certain ratios in six
month increments, is able to borrow at rates which are lower than the
stated rate in its loan agreement. Based on financial ratios achieved
during the six month period ended January 28, 1995, the interest rate on
all of the Company's loans was reduced by 1/2 percent. Based on the
Company's financial ratios at July 29, 1995 and for the six months then
ended, the interest rate for the next six months will again be reduced
1/2 percent.
The weighted average interest rate on the Company's borrowings under its
credit facility was 8.84% and 6.21% for the years ended July 29, 1995
and June 30, 1994, respectively.
In order to protect against adverse interest rate fluctuations, the
Company entered into two three-year interest rate protection agreements
with its bank with a combined cost of approxmately $145,000. The
interest protection agreements protect the Company against any
fluctuation in interest expense above nine percent at $5,500,000 of
borrowings, and on any fluctuation in interest expense above ten percent
on the next $3,000,000 of borrowings. The second level of protection is
reduced on a pro-rata basis as the additional term note is repaid. Both
agreements terminate in July 1997.
As of July 29, 1995 the revolving credit line had an outstanding balance
of $7,900,000 and an unused portion of $1,596,000. Under the letter of
credit facility, letters of credit of $504,000 were outstanding at July
29, 1995.
F-10
<PAGE>
Long-term debt matures as follows:
Fiscal Year Ending
------------------
1996 (included in current portion) $ 943,383
1997 8,843,499
1998 934,434
1999 1,803,568
2000 and after 321,450
-----------
$12,846,334
===========
7. EMPLOYEE BENEFITS
The Company has employee benefit plans for eligible employees. Included
in 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. Expense for the
fiscal years ended in 1995, 1994, and 1993 was $32,500, $0, and $15,000,
respectively. 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.
8. SHAREHOLDERS' EQUITY
a. Stock Dividends - On May 16, 1995, the Company declared a three
percent stock dividend to holders of record on June 7, 1995,
payable on June 23, 1995. On November 23 , 1994, the Company
declared a three percent stock dividend to holders of record on
December 8, 1994, payable on December 27, 1994. On May 4, 1994,
the Company declared a three percent stock dividend to holders of
record on May 18, 1994, payable June 20, 1994. On November 22,
1993, The Company declared a three percent stock dividend to
holders of record on December 9, 1993, payable December 23, 1993.
On April 19, 1993, the Company declared a three percent stock
dividend to holders of record on May 3, 1993. On November 17,
1992 the Company declared a six percent stock dividend to holders
of record on December 3, 1992. The effects of these stock
dividends have been reflected in the financial statements and
notes for all periods presented.
b. Nonqualified Stock Option Plan - The Company has a nonqualified
stock option plan under which a total of 2,158,882 options to
purchase common stock can be granted. As of July 29, 1995, the
Company has granted options to purchase 802,562 shares to the
current president, 268,437 shares to former officers, 255,302
shares to current officers and 672,563 shares to various
employees and directors. A former officer exercised 16,045
options, and various employees exercised 2,500 options during the
fiscal year ended July 29,1995. Various employees exercised
18,127 options in the fiscal year ended July 30, 1994. The
president exercised 115,9273 options, former officers exercised
22,562 options, a current officer exercised 3,419 options, and
various employees exercised 9,274 options in the fiscal year
ending July 31, 1993.
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 September 25, 1995.
F-11
<PAGE>
The following stock option information is as of:
<TABLE>
<CAPTION>
July 29, July 30, July 31,
Options 1995 1994 1993
------- -------- -------- --------
<S> <C> <C> <C>
Granted and outstanding
at beginning of year 1,514,782 1,224,205 1,293,856
Granted 102,738 337,203 84,198
Expired (86,231) (28,499) (2,458)
Exercised (28,813) (18,127) (151,391)
----------- ----------- -----------
Outstanding at end of year 1,502,476 1,514,782 1,224,205
=========== =========== ===========
Exercisable at end of year 1,138,893 1,032,580 881,845
=========== =========== ===========
Exercise prices $1.02-$6.51 $1.02-$6.51 $1.02-$6.51
=========== =========== ===========
</TABLE>
Under the Company's stock option plan, options are exercisable 25
percent a year, commencing at the end of the first year they are
outstanding and expiring fifteen years from the date they are
granted.
c. There were warrants, all of which were granted at no less than
fair market value, outstanding aggregating 321,574 shares at July
29, 1995. They are as follows:
1. In connection with an underwriting in June 1991, the
underwriter was granted warrants to purchase 130,256 shares of
common stock at an exercise price of $5.52.
2. The Company has granted warrants to the seller of selected
Filtron assets to purchase 97,691 shares of common stock at an
exercise price of $6.06.
3. In connection with an amendment to a bank financing completed
in May 1994, the Company issued warrants to purchase 30,000
shares of common stock at an exercise price of $7.16. In
connection with its incentive pricing amendment with the same
bank, the Company reduced the exercise price to $5.50. At July
29, 1995, the bank held warrants for 31,827 shares at an
exercise price of $5.34.
4. The Company has granted 25,750 warrants to its Corporate
Development Consultant. At July 29, 1995, the consultant held
warrants for 25,750 shares at an exercise price of $5.34.
5. The Company has granted 36,050 warrants to an Investment
Advisory firm and its key personnel. At July 29, 1995, they
held warrants for 36,050 shares at an exercise price of $5.34.
9. INCOME TAXES
Provision for income taxes consists of the following:
Fiscal Year Ended
------------------------------------------
July 29, July 30, July 31,
1995 1994 1993
-------- -------- --------
Current:
Federal $692,064 $316,812 $509,400
State 108,912 83,000 60,000
-------- -------- --------
800,976 399,812 569,400
Deferred:
Federal and state 36,452 (58,287) 138,600
-------- -------- --------
$837,428 $341,525 $708,000
======== ======== ========
F-12
<PAGE>
Deferred tax liabilities (assets) are comprised of the following:
July 29, July 30,
1995 1994
-------- --------
Depreciation $401,880 $ 213,664
Pension 83,914 77,712
Federal effect of New York State tax credits 77,570 55,145
Difference in basis of fixed assets 110,200 120,595
Revenue recognition 35,289 52,534
-------- --------
Gross deferred tax liabilities 708,853 519,650
-------- --------
Amortization 72,382 (6,704)
Inventory (153,119) (122,073)
Bad debt reserve (45,434) (50,809)
Deferred compensation (264,831) (124,621)
NYS tax credits (228,146) (162,190)
-------- --------
Gross deferred tax assets (619,148) (466,397)
-------- --------
$ 89,705 $ 53,253
======== ========
Deferred tax liabilities and assets are recorded in the consolidated balance
sheets as follows:
July 29, July 30,
1995 1994
-------- --------
Liabilities:
Deferred income taxes $ 605,806 $ 393,383
Assets:
Prepaid expenses and other current assets (287,956) (177,940)
Other assets (228,145) (162,190)
---------- ---------
$ 89,705 $ 53,253
========= =========
The New York State tax credits expire at various dates through 2002.
The following is a reconciliation of the statutory Federal and effective income
tax rates:
Fiscal Year Ended
------------------------------------
July 29, July 31, July 31,
1995 1994 1993
-------- -------- --------
% of % of % of
Pretax Pretax Pretax
Income Income Income
------ ------ ------
Statutory Federal income tax expense rate 34.0% 34.0% 34.0%
State taxes, less Federal tax effect 1.5 (.4) 2.9
Tax benefit from write-off of inventory
for tax purposes (4.3) (3.4)
Permanent differences 2.8 3.9 2.4
Tax benefits on foreign sales corp (3.3) (3.3)
Federal tax credits and other (4.5) (6.7) (6.2)
---- ---- ----
30.5% 23.2% 29.7%
==== ==== ====
F-13
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
a. The Company entered into an operating lease commencing August 1, 1992
and expiring July 31, 2002 for Del's offices and operating facility in
Valhalla, New York. This lease includes escalations for real estate
taxes and operating expenses. In September 1992 the Company entered
into an operating lease for Dynarad's facility in Deer Park, N.Y. This
lease provides escalation for real estate taxes. In May 1994 the
Company entered into an operating lease for Bertan's facility in
Hicksville, New York. This lease provides for escalation for real
estate taxes. In addition, the Company has various auto leases
accounted for as operating leases. The future minimum annual lease
commitments as of July 29, 1995 are as follows:
Fiscal Year Ended Amount
----------------- ------
1996 $1,026,953
1997 982,341
1998 942,923
1999 935,779
2000 935,779
Thereafter 2,590,738
----------
$7,414,513
==========
Rent expense, including real estate taxes of $296,142 in 1995,
$225,025 in 1994, and $180,504 in 1993 was $1,111,300 in 1995,
$604,665 in 1994, and $614,318 in 1993.
b. The Company has an employment agreement with its President through
July 2000. The agreement provides for minimum base salary, deferred
compensation and bonuses as defined. Under the terms of the agreement
with the President, the Company will accrue deferred compensation at a
rate of five percent of pretax income with a minimum of $100,000 and a
maximum of $125,000. Such liability is funded by the Company's
investments classified as available-for-sale. Gains and losses, either
recognized or unrealized, inure to the benefit or detriment of this
employee's deferred compensation, based upon a contractual arrangement
between the President and the Company. Bonus will accrue at five
percent of pretax income. Also included in the President's agreement
are certain benefits in the event of death or disability, as well as
certain benefits in the event of a change of control. Upon completion
of the term of the agreement, the President may opt for a five year
extension in the form of a consulting contract at a rate specified
within the agreement.
In connection with the acquisition of Dynarad, the Company has an
employment agreement with one Vice President through 1997. The
agreement provides for a minimum base salary of $157,500 per annum
(subject to upward adjustment on an annual basis) and certain bonuses
if certain income goals of Dynarad specified in the agreement are
achieved. Upon the completion of the five year term of the agreement,
the Vice President may opt for a five year extension in the form of a
consulting contract at a rate specified within the agreement.
In connection with the acquisition of Dynarad, the Company entered
into an employment agreement with a key employee which provides for
bonuses based on growth of revenues. As of July 30, 1994, the employee
has been engaged as a consultant at a rate specified within the
agreement.
The Company entered into ten year consulting agreements through 2002
with two of the former shareholders of Dynarad. The agreements call
for annual payments of $28,000 and $21,000, respectively.
In connection with the acquisition of Bertan, the Company entered into
a three year employment agreement with a key employee who is President
of Bertan which provides for a minimum base salary of $140,000 per
annum (subject to upward adjustment on an annual basis) and a bonus
equal to five percent of pretax income. Upon completion of the three
year term of the agreement, the Company may opt for a two year
extension of this agreement. Upon completion of the employment phase
of the agreement, the Company and the employee have agreed to a ten
year non-compete agreement at a minimum annual rate of $50,000 as
adjusted for the greater of five percent per annum or increases in the
cost of living. Additionally, the Company has entered into a ten year
non-compete agreement with the former Chairman of Bertan at a minimum
annual rate of $50,000 as adjusted for the greater of five percent per
annum or increases in the cost of living.
F-14
<PAGE>
c. The Company is a defendant in several legal actions arising from the
normal course of business. Management believes the Company has
meritorious defenses to such actions and that the outcomes will not be
material to the consolidated financial condition and results of
operations.
11. ACQUISITIONS
Bertan
As of April 1, 1994, the Company acquired the net assets and business of
Bertan Associates, Inc., which has been consolidated as of that date. The
Company paid the selling shareholders $2,600,000 in cash and 218,545 shares
of common stock valued at $871,429. The Company also entered into an
employment and non-compete agreements with one of the former shareholders
of Bertan Associates, Inc. and a non-compete agreement with another of the
former shareholders. The Company entered into a ten year lease agreement
for its operating facility in Hicksville, New York. One of Bertan's
officers is a partner in the real estate company that owns this building.
The Company believes that the lease between the Company and the partnership
was entered into on terms no less favorable than could be obtained from
unaffiliated third parties. The lease provides for minimum annual payments
of $383,380, inclusive of real estate taxes.
The acquisition has been accounted for as a purchase and, accordingly, the
original purchase price was allocated to assets and liabilities acquired
based upon the estimated fair value at the date of acquisition. The
transaction resulted in an excess of cost over fair value of net assets
acquired of $2,809,095 which is included in goodwill. Such excess is being
amortized over a 25 year period. The charge to income for the year ended
July 29, 1995 and for the four months ended July 30, 1994 was $111,666 and
$37,455, respectively.
Unaudited pro forma financial information for the 12 month periods ended
July 30, 1994 and July 31, 1993, as if the Bertan acquisition occurred at
the beginning of the respective periods, is as follows:
Year Ended Year Ended
July 30, July 31,
1994 1993
---------- ----------
Net Sales $29,834,149 $30,919,753
=========== ===========
Income before provision for
income taxes $ 1,015,417 $ 1,587,022
=========== ===========
Net Income $ 779,525 $ 1,127,022
=========== ===========
Net income per common share
and common share equivalents
primary and fully diluted $ .15 $ .24
=========== ===========
The pro forma financial information presented above is not necessarily
indicative of the operating results which would have been achieved had the
Company acquired Bertan at the beginning of the respective periods or of
results to be achieved in the future.
12. MAJOR CUSTOMERS AND EXPORT SALES
In the Specialty Electronic Components segment, no one customer accounts
for more than ten percent of the Company's sales. In the Medical Imaging
and Diagnostic Products segment one customer, the U.S. Government,
accounted for 17 percent, 28 percent and 22 percent of sales in 1995, 1994
and 1993, respectively.
Export sales were 36 percent, 28 percent, and 21 percent of total sales in
1995, 1994 and 1993, respectively. For the years ended July 29, 1995, July
30, 1994, and July 31, 1993, export sales by geographic areas were:
F-15
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Europe $ 3,892,719 33% $2,321,259 34% $ 831,466 18%
Far East 3,336,147 28% 741,142 11% 220,490 5%
Middle East 3,256,903 28% 2,356,638 35% 2,472,02 54%
North America 627,777 6% 1,143,215 17% 1,005,529 22%
Other 614,149 5% 191,295 3% 47,765 1%
----------- --- ---------- --- ---------- ---
Total export sales $11,727,695 100% $6,753,549 100% $4,577,277 100%
=========== === ========== === ========== ===
</TABLE>
13. SEGMENT REPORTING
The following analysis provides segment information for the two industries
in which the Company operates (see Note 1):
Specialty Medical Imaging
Electronic and Diagnostic
1995 Components Products Total
---- ---------- --------------- ----------
Net Sales (a) $27,026,761 $ 5,569,551 $32,596,312
Operating expenses 23,097,275 5,565,258 28,662,533
----------- ----------- -----------
Operating profit $ 3,929,486 $ 4,293 3,933,779
=========== =========== ===========
Interest expense 1,191,142
Provision for income taxes 837,428
-----------
Net income $ 1,905,209
===========
Identifiable assets $33,062,025 $ 5,992,609 $39,054,634
=========== =========== ===========
Capital expenditures $ 1,140,242 $ 197,267 $ 1,337,509
=========== =========== ===========
Depreciation and amortization $ 965,478 $ 277,365 $ 1,242,843
=========== =========== ===========
(a) For the fiscal year ended July 29, 1995, sales of the Specialty
Electronic Components segment included sales of approximately
$8,834,000 to customers for medical imaging and diagnostic
applications. Aggregate medical sales for fiscal 1995 were
approximately $14,403,000 or 44% of total sales.
F-16
<PAGE>
Specialty Medical Imaging
Electronic and Diagnostic
1994 Components Products Total
---- ---------- --------------- -----------
Net Sales $19,436,334 $ 4,890,681 $24,327,015
Operating expenses 17,654,075 4,640,937 22,295,012
----------- ----------- -----------
Operating profit $ 1,782,259 $ 249,744 2,032,003
=========== ===========
Interest expense 576,832
Provision for income taxes 341,525
FASB-109 tax adjustment 76,363
-----------
Net income $ 1,190,009
===========
Identifiable assets $28,833,760 $ 7,364,613 $36,198,373
=========== =========== ===========
Capital expenditures $ 1,626,358 $ 406,590 $ 2,032,948
=========== =========== ===========
Depreciation and amortization $ 813,226 $ 203,306 $ 1,016,532
=========== =========== ===========
Specialty Medical Imaging
Electronic and Diagnostic
1993 Components Products Total
---- ---------- --------------- ----------
Net Sales $18,134,429 $ 4,152,886 $22,287,315
Operating expenses 15,732,200 3,826,209 19,558,409
----------- ----------- -----------
Operating profit $ 2,402,229 $ 326,677 2,728,906
=========== ===========
Interest expense 360,149
Provision for income taxes 708,000
-----------
Net income $ 1,660,757
=========== =========== ===========
Identifiable assets $23,745,219 $ 1,223,917 $24,969,136
=========== =========== ===========
Capital expenditures $ 1,102,229 $ 142,167 $ 1,244,396
=========== =========== ===========
Depreciation and amortization $ 747,341 $ 158,047 $ 905,388
=========== =========== ===========
F-17
<PAGE>
DEL ELECTRONICS CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
YEAR ENDED JULY 29, 1995:
<S> <C> <C> <C> <C>
Net sales $6,136,056 $7,579,366 $8,945,910 $9,934,980
========== ========== ========== ==========
Gross profit $2,916,851 $3,298,628 $3,589,889 $3,612,945
========== ========== ========== ==========
Net income $ 450,615 $ 505,215 $ 521,916 $ 427,463
========== ========== ========== ==========
Primary and fully diluted
earnings per share $ .09 $ .11 $ .11 $ .09
========== ========== ========== ==========
First(1) Second Third Fourth(2)
----- ------ ----- ------
YEAR ENDED JULY 30, 1994:
Net sales $5,336,091 $5,380,435 $5,592,496 $8,017,993
========== ========== ========== ==========
Gross profit $2,179,485 $2,193,193 $2,540,120 $2,235,136
========== ========== ========== ==========
Net income (loss) $ 484,287 $ 445,612 $ 503,543 $(243,433)
Primary and fully diluted ========== ========== ========== ==========
earnings (loss) per share $ .11 $ .09 $ .10 $ (.05)
========== ========== ========== ==========
</TABLE>
(1) Includes the cumulative effect of change in the method for accounting
for income taxes of $76,363.
(2) The Company estimates gross profit for interim reporting purposes. The
fourth quarter results for the period ended July 30, 1994 were
adversely impacted by a decline in gross profit determined as a result
of physical inventories taken at year end.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
DEL ELECTRONICS CORP.
By: /S/ Leonard A. Trugman
---------------------
Leonard A.Trugman
Chairman of the Board
Chief Executive Officer and
President
By: /S/Michael Taber
---------------
Michael Taber
Chief Financial Officer,
Secretary and Principal
Accounting Officer
Dated: October 25, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the
dates indicated.
/S/Natan Bertman October 25, 1995
- ---------------------------
Natan Bertman, Director
/S/Raymond Kaufman October 25, 1995
- ---------------------------
Raymond Kaufman, Director
/S/David Michael October 25, 1995
- ---------------------------
David Michael, Director
/S/Seymour Rubin October 25, 1995
- ---------------------------
Seymour Rubin, Director
/S/James Tiernan October 25, 1995
- ---------------------------
James Tiernan, Director
/S/Leonard A. Trugman October 25, 1995
- ---------------------------
Leonard A. Trugman
Chairman of the Board,
Chief Executive Officer and
President
Exhibit 11
DEL ELECTRONICS CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FISCAL YEAR ENDED JULY 29, 1995
Fully
Primary Diluted
---------- ----------
Reconciliation of net income per
statement of income to amount used
in earnings per computation:
Net Income $1,905,209 $1,905,209
Assumed reduction of - Interest on
short-term debt, net of tax effect
on application of assumed proceeds
from exercise of options subject
to limitations under the Modified
Treasury Stock method 53,997 47,954
---------- ----------
Net income, as adjusted $1,959,206 $1,953,163
========== ==========
Reconciliation of weighted average
number of shares outstanding to
amount used in earnings per share
computation:
Weighted average number of shares
outstanding 4,072,337 4,072,337
Add - shares issuable from assumed
exercise of options subject to
limitations under the Modified
Treasury Stock method 825,037 845,695
---------- ----------
Weighted average number of shares
outstanding as adjusted 4,897,374 4,918,032
========== ==========
Net income per common share $ .40 $ .40
========== ==========
The Company utilized the Modified Treasury Stock method for computing
net income per common share. Under this method, the funds obtained by
the assumed exercise of all options and warrants were applied to
repurchase common stock at the average market price but limited to an
amount of repurchased shares to no greater than 20% of the then
outstanding actual common shares. Any assumed funds still available
after the repurchase of 20% of outstanding actual common shares were
assumed to be utilized to reduce the existing short-term debt. The
adjustment to net income has been shown net of tax effect of 30.5%.
Exhibit 21
SUBSIDIARIES OF DEL ELECTRONICS CORP.
RFI Corporation
Dynarad Corporation
Bertan High Voltage Corporation
Del Medical Systems Corporation
Del Electronics Foreign Sales Corporation
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement No.
33-61025 of Del Electronics Corp. and subsidiaries on Form S-3 of our report
dated October 23, 1995, appearing in this Annual Report on Form 10-K of Del
Electronics Corp. and subsidiaries for the fiscal year ended July 29, 1995.
/S/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
New York, New York
November 6, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000027748
<NAME> DEL ELECTRONICS CORP.
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUL-29-1995
<PERIOD-START> JUL-31-1994
<PERIOD-END> JUL-29-1995
<CASH> 505,989
<SECURITIES> 378,534
<RECEIVABLES> 6,601,284
<ALLOWANCES> (144,431)
<INVENTORY> 18,038,358
<CURRENT-ASSETS> 26,893,544
<PP&E> 11,115,297
<DEPRECIATION> 3,362,516
<TOTAL-ASSETS> 39,054,634
<CURRENT-LIABILITIES> 6,245,263
<BONDS> 0
<COMMON> 412,960
0
0
<OTHER-SE> 19,112,113
<TOTAL-LIABILITY-AND-EQUITY> 39,054,634
<SALES> 32,596,312
<TOTAL-REVENUES> 32,596,312
<CGS> 19,177,999
<TOTAL-COSTS> 19,177,999
<OTHER-EXPENSES> 9,227,990
<LOSS-PROVISION> 256,544
<INTEREST-EXPENSE> 1,191,142
<INCOME-PRETAX> 2,742,637
<INCOME-TAX> 837,428
<INCOME-CONTINUING> 1,905,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,905,209
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
