SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended November 1, 1997
Commission File Number 0-3319
DEL GLOBAL TECHNOLOGIES CORP.
-----------------------------
(Exact name of registrant as specified in its charter)
New York 13-1784308
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Park, Valhalla, NY 10595
-------------------------------------
(Address of principal executive offices)
(Zip Code)
(914)686-3600
-------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the business on December 11, 1997.
Common Stock - 7,471,463
<PAGE>
PART I
Item 1. Financial Statements
Consolidated Balance Sheets - November 1, 1997 and August 2, 1997
Consolidated Statements of Income for the Three Months ended
November 1, 1997 and November 2, 1996
Consolidated Statements of Cash Flows for the Three Months ended
November 1, 1997 and November 2, 1996
Notes to Consolidated Financial Statements
-1-
<PAGE>
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
November 1, August 2,
1997 1997
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 6,444,734 $ 6,070,608
Investments available-for-sale 959,457 722,566
Trade receivables - net 12,113,684 11,211,357
Cost and estimated earnings in excess of 2,283,259 1,868,002
billings on uncompleted contracts
Inventory 25,209,188 24,681,348
Prepaid expenses and other current assets 1,868,212 1,808,762
----------- -----------
Total current assets 48,878,534 46,362,643
----------- -----------
FIXED ASSETS - Net 11,452,745 11,159,010
INTANGIBLES - Net 1,070,104 1,112,991
GOODWILL - Net 4,087,565 4,135,409
DEFERRED CHARGES 476,978 507,933
OTHER ASSETS 849,656 851,824
----------- -----------
TOTAL $66,815,582 $64,129,810
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 126,067 $ 127,999
Accounts payable - trade 4,568,043 3,936,529
Accrued liabilities 3,717,297 3,699,188
Deferred compensation liability 784,427 722,566
Income taxes 1,008,438 868,949
----------- -----------
Total current liabilities 10,204,272 9,355,231
----------- -----------
LONG-TERM LIABILITIES
LONG-TERM DEBT (less current
portion included above) 377,840 411,127
OTHER 717,691 725,258
DEFERRED INCOME TAXES 1,165,323 1,107,964
----------- -----------
Total liabilities 12,465,126 11,599,580
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.10 par value;
Authorized 20,000,000 shares;
Issued and outstanding -
7,611,718 shares at November 1,
1997 and 7,516,234 shares at
August 2, 1997 761,171 751,622
Additional paid-in capital 46,535,304 45,909,517
Retained earnings 7,829,305 6,572,318
----------- -----------
55,125,780 53,233,457
Less common stock in treasury -
111,255 shares at November 1, 1997
and 104,255 at August 2, 1997 775,324 703,227
----------- -----------
Total shareholders' equity 54,350,456 52,530,230
----------- -----------
TOTAL $66,815,582 $64,129,810
=========== ===========
See notes to consolidated financial statements
-2-
<PAGE>
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
-----------------------------
November 1, November 2,
1997 1996
------------ ------------
NET SALES $ 13,480,069 $ 12,311,384
------------ ------------
COSTS AND EXPENSES:
Cost of sales 8,047,545 7,506,238
Research and development 1,235,889 1,076,827
Selling, general and administrative 2,402,399 2,325,539
Interest income - net (54,275) (19,456)
------------ ------------
11,631,558 10,889,148
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,848,511 1,422,236
PROVISION FOR INCOME TAXES 591,524 433,782
------------ ------------
NET INCOME $ 1,256,987 $ 988,454
============ ============
Per share amounts:
Net income per common share
and common share equivalents $ .15 $ .12
============ ============
Weighted average number of
common shares outstanding
and common share equivalents 8,609,984 8,463,327
============ ============
See notes to consolidated financial statements
-3-
<PAGE>
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
--------------------------
November 1, November 2,
1997 1996
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,256,987 $ 988,454
Adjustments to reconcile net
income to net cash provided
by operating activities:
Imputed interest 16,570 16,954
Depreciation 320,596 231,625
Amortization 132,931 132,391
Changes in assets and liabilities:
(Increase) decrease in trade receivables (902,327) 236,482
Increase in cost and estimated earnings
in excess of billings on uncompleted
contracts (415,257) --
Increase in inventory (527,840) (880,188)
Increase in prepaid and other current assets (69,493) (78,208)
Increase in other assets (4,038) (1,831)
Increase (decrease) in accounts payable- trade 631,514 (25,085)
Increase (decrease) in accrued liabilities 18,112 (511,896)
Increase in deferred compensation liability 61,861 33,695
Increase in income taxes payable 201,852 51,614
----------- -----------
Net cash provided by operating activities 721,468 194,007
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for fixed assets (614,333) (607,796)
Investment in marketable securities (236,891) (33,695)
Payments to former shareholders of subsidiary
acquired (24,137) (13,925)
----------- -----------
Net cash used in investing activities (875,361) (655,416)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayment of) proceeds from bank
borrowing (35,219) 323,000
Payment for repurchase of shares (72,097) --
Proceeds from exercise of stock options
and warrants 638,548 138,352
Other (3,213) (13,385)
----------- -----------
Net cash provided by financing activities 528,019 447,967
----------- -----------
(Continued)
See notes to consolidated financial statements
-4-
<PAGE>
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------------
November 1, November 2,
1997 1996
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 374,126 $ (13,442)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,070,608 5,817,800
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,444,734 $ 5,804,358
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 18,005 $ 14,340
========== ===========
Income taxes paid $ 389,672 $ 407,739
========== ===========
Tax benefit related to
exercise of stock options
and warrants $ -- $ 139,397
========== ===========
See notes to consolidated financial statements
-5-
<PAGE>
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
results of the Company's financial position as of November 1, 1997 and
the results of its operations and its cash flows for the three months
ended November 1, 1997 and November 2, 1996.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements as of August 2, 1997.
The consolidated financial statements should be read in conjunction
with the notes to the financial statements as of August 2, 1997.
NOTE 2 The results of operations for the three month period ended November 1,
1997 are not necessarily indicative of the results to be expected for
the full year.
NOTE 3 INVESTMENTS
Investments available-for-sale at November 1, 1997 and August 2, 1997
include $784,427 and $722,566, respectively, for the Company's
President's deferred compensation, pursuant to the terms of his
employment contract. The liabilities of $784,427 and $722,566,
respectively, are recorded as deferred compensation liability. Gains
and losses on the investments held to fund the deferred compensation,
either recognized or unrealized, inure to the benefit or detriment of
the President's deferred compensation, based upon a contractual
arrangement between the President and the Company. At November 1, 1997,
the balance of investments available-for-sale of $175,030 are equity
securities held by the Company for its own account. Realized and
unrealized gains and losses on these securities for the period ended
November 1, 1997 were not material and are recorded in the financial
statements.
NOTE 4 PERCENTAGE OF COMPLETION ACCOUNTING
Three Months
Ended
November 1, August 2, November 1,
1997 1997 1997
----------- ---------- -----------
Costs incurred on
uncompleted contracts $4,047,633 $3,086,020 $ 961,613
Estimated earnings 2,153,236 1,578,126 575,110
---------- ---------- ----------
6,200,869 4,664,146 1,536,723
Less: Billings to date 3,917,610 2,796,144 1,121,466
---------- ---------- ----------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $2,283,259 $1,868,002 $ 415,257
========== ========== ==========
There were no contracts accounted for under the percentage of
completion method of accounting for the three months ended November 2,
1996. The backlog of unshipped contracts being accounted for under the
percentage of completion method of accounting was approximately
$3,639,000 at November 1, 1997.
-6-
<PAGE>
NOTE 5 INVENTORY
Inventory is stated at a lower of cost (first-in, first-out) or market.
Inventories and their effect on cost of sales are determined by
physical count for annual reporting purposes and are estimated by
management for interim reporting purposes.
Inventory consists of the following:
November 1, August 2,
1997 1997
----------- -----------
Finished goods $ 3,942,391 $ 3,859,842
Work-in-process 9,979,753 9,770,789
Raw material and purchased ts 11,287,044 11,050,717
----------- -----------
Total $25,209,188 $24,681,348
=========== ===========
NOTE 6 FIXED ASSETS
Fixed assets consist of the following:
November 1, August 2,
1997 1997
----------- -----------
Land $ 694,046 $ 694,046
Building 2,146,025 2,146,025
Machinery and equipment 11,439,108 10,865,897
Furniture and fixtures 1,302,072 1,280,216
Leasehold improvements 1,248,258 1,228,992
Transportation equipment 30,103 30,103
----------- -----------
16,859,612 16,245,279
Less accumulated depreciation
and amortization 5,406,867 5,086,269
----------- -----------
Net fixed assets $11,452,745 $11,159,010
=========== ===========
NOTE 7 Net income per common share was computed using the treasury stock
method.
NOTE 8 EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Earnings Per Share. In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." This statement is
effective for financial statements issued for periods ending after
December 15, 1997. Management has evaluated the effect on its financial
reporting from the adoption of this statement and believes it will be
significant. If SFAS No. 128 were effective for the quarter ended
November 1, 1997, the effect of implementation would have resulted in
"Basic Earnings per Share" of $.17 and "Diluted Earnings per Share" of
$.15.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management Discussion and Analysis of Financial Condition and Results of
Operations contains forward looking statements. Such statements involve various
risks that may cause actual results to differ materially. These risks include,
but are not limited to, the ability of the Company to grow internally or by
acquisition and to integrate acquired businesses, changing industry or
competitive conditions, and other risks referred to in the Company's
registration statements and periodic reports filed with the Securities and
Exchange Commission.
OVERVIEW
The Company's net sales have increased as a result of both
internal growth and acquisitions. The Company has completed three acquisitions
in the past five years: Dynarad (a designer and manufacturer of medical imaging
systems and critical electronic subsystems) in fiscal 1993; Bertan (a designer
and manufacturer of precision high voltage power supplies and instrumentation
for medical and industrial applications) in fiscal 1994; and Gendex-Del (a
manufacturer of medical imaging systems) in fiscal 1996. The Company's net sales
have increased from approximately $18.9 million in fiscal 1992 to approximately
$54.7 million in fiscal 1997, a compounded annual growth rate of 23.6%.
During the past five years the Company has grown internally and
through acquisitions into a company whose predominant business is serving the
medical imaging and diagnostic markets. The Company's net sales attributable to
medical imaging products have increased from approximately $3.4 million or 17.7%
of total net sales in fiscal 1992 to approximately $25.7 million or 59% of total
net sales and approximately $35.6 million or 65.1% of total net sales in fiscal
years 1996 and 1997, respectively.
Management believes that recent cost containment trends in the
healthcare industry have created opportunities for its cost-effective medical
imaging products in domestic and international markets. Some of these trends are
increased demand for lower cost medical equipment, outsourcing of systems and
critical electronic subsystems by leading Original Equipment Manufacturers
("OEMs"), increased demand for certain diagnostic procedures and lower cost
medical services in the global marketplace.
RESULTS OF OPERATIONS
Net sales for the three months ended November 1, 1997 were
approximately $13.5 million as compared to approximately $12.3 million for the
three months ended November 2, 1996, an increase of 9.5%. The increase is due to
internal growth from existing operations.
Cost of sales, as a percentage of net sales for the three
months ended November 1, 1997, was 59.7% compared to 61% for the prior
corresponding period. This improvement in margins is due to reduced
manufacturing costs from efficiencies implemented in all existing operations.
Research and development expenses increased to approximately
$1.2 million for the three months ended November 1, 1997 from approximately $1.1
million, an increase of 14.8%, for the three months ended November 2, 1996. The
increase was primarily due to new product development. The Company continues to
invest in research and development in order to introduce new state-of-the-art
products for its medical and industrial markets.
Selling, general and administrative expenses were approximately
$2.4 million, or 17.8% of net sales, for the three months ended November 1, 1997
as compared to approximately $2.3 million, or 18.9% of net sales, for the same
period in the prior year, an increase of 3.3%. This increase was due to higher
levels of advertising, increased trade show attendance and the acceleration of
amortization of certain intangible assets.
Net interest income was approximately $54,000 for the three
months ended November 1, 1997 as compared to approximately $19,000 for the
corresponding period in the prior year. Interest income resulted from the
investment of a portion of the proceeds from the public offering of the
Company's common stock, which are invested in money market
-8-
<PAGE>
instruments and high grade commercial paper.
Income tax expense was 32% of pre-tax income for the three
months ended November 1, 1997 and 30.5% for the three months ended November 2,
1996. The decrease from statutory rates is primarily due to sales being made
through the Company's Foreign Sales Corporation, research and development and
other tax credits.
Net income increased to approximately $1,257,000 for the three
months ended November 1, 1997, an increase of approximately 27% from
approximately $988,000 for the prior corresponding period. Net income per common
share at November 1, 1997 increased to $.15 from $.12 at November 2, 1996, an
increase of 25%. The number of common shares outstanding and common share
equivalents increased to 8,609,984 at November 1, 1997 from 8,463,327 at
November 2, 1996. The increase in net income for the three month period ended
November 1, 1997 is primarily due to internal growth and improved gross margins.
The backlog of unshipped orders at November 1, 1997 was
approximately $33 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and acquisitions through
a combination of cash flow from operations, bank borrowing and the issuance of
the Company's common stock.
Working Capital. At November 1, 1997 and August 2, 1997, the
Company's working capital was approximately $38.7 million and $37.0 million,
respectively. At such dates the Company had approximately $6.4 million and $6.1
million, respectively, in cash and cash equivalents.
Trade receivables at November 1, 1997 increased approximately
$902,000 as compared to August 2, 1997 primarily due to increased sales levels.
Cost and estimated earnings in excess of billings on
uncompleted contracts increased to approximately $2.3 million at November 1,
1997 from approximately $1.9 million at August 2, 1997 due to additional work
performed in the quarter on long term contracts accounted for under the
percentage of completion method of accounting.
Inventory at November 1, 1997 increased approximately $528,000
as compared to August 2, 1997, primarily because of additional production
requirements of a major new OEM contract which commenced in the third quarter of
fiscal 1997.
Trade accounts payable increased approximately $632,000 at
November 1, 1997 from August 2, 1997 primarily because of the increased
inventory requirements of a major new OEM contract.
Credit Facility and Borrowing. At November 1, 1997, the Company
had a $14 million revolving credit line and a $10 million acquisition credit
line. The available portion of the revolving credit line was approximately $13.7
million, after deducting outstanding letters of credit of approximately $180,000
and $9.7 million was available under its acquisition credit line.
Capital Expenditures. The Company continues to invest in
capital equipment, principally for its manufacturing operations, in order to
improve its manufacturing capability and capacity. The Company has expended
approximately $614,000 for capital equipment for the three month period ended
November 1, 1997.
The Company anticipates that cash generated from operations and
amounts available under its bank lending facilities will be sufficient to
satisfy its current operating cash needs.
Shareholders' Equity. Shareholders' equity increased to
approximately $54.4 million at November 1, 1997 from approximately $52.5 million
at August 2, 1997, primarily due to the results of operations. Additionally,
during the period approximately 95,000 stock options and warrants were
exercised, with proceeds of approximately $639,000 and
-9-
<PAGE>
7,000 shares of common stock were repurchased at a cost of approximately
$72,000.
Effects of New Accounting Pronouncements
Earnings Per Share. In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." This statement is effective for
financial statements issued for periods ending after December 15, 1997.
Management has evaluated the effect on its financial reporting from the adoption
of this statement and believes it will be significant. If SFAS No. 128 were
effective for the quarter ended November 1, 1997, the effect of implementation
would have resulted in "Basic Earnings per Share" of $.17 and "Diluted Earnings
per Share" of $.15.
-10-
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 11 - Computation of Earnings per Common
Share Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K: None
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEL GLOBAL TECHNOLOGIES CORP.
/S/LEONARD A. TRUGMAN
---------------------
Leonard A. Trugman
Chairman of the Board,
Chief Executive Officer
and President
/S/MICHAEL H. TABER
---------------------
Michael H. Taber
Vice President - Finance,
Secretary and Chief
Accounting Officer
Dated: December 12, 1997
-12-
EXHIBIT 11
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS ENDED NOVEMBER 1, 1997
Fully
Primary Diluted
---------- ----------
Net income $1,256,987 $1,256,987
========== ==========
Reconciliation of weighted
average number of shares
outstanding to amount used
in earnings per share computation:
Weighted average number
of shares outstanding 7,439,410 7,439,410
Add - shares issuable from assumed
exercise of options under the
Treasury Stock method 1,170,574 1,170,574
---------- ----------
Weighted average number of shares
outstanding as adjusted 8,609,984 8,609,984
========== ==========
Net income per common share $ .15 $ .15
========== ==========
The Company utilized the Treasury Stock method for computing net income per
common share.
<TABLE> <S> <C>
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<NAME> DEL GLOBAL TECHNOLOGIES CORP.
<S> <C>
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<FISCAL-YEAR-END> AUG-01-1998
<PERIOD-START> AUG-03-1997
<PERIOD-END> NOV-01-1997
<CASH> 6,444,734
<SECURITIES> 959,457
<RECEIVABLES> 12,194,366
<ALLOWANCES> 80,682
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<CURRENT-ASSETS> 48,878,534
<PP&E> 16,859,612
<DEPRECIATION> 5,406,867
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<CURRENT-LIABILITIES> 10,204,272
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0
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<COMMON> 761,171
<OTHER-SE> 53,589,285
<TOTAL-LIABILITY-AND-EQUITY> 66,815,582
<SALES> 13,480,069
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