UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
-----------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-18643
LUNAR CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 3845 39-1200501
(State of (Primary Standard Industry (IRS Employer
Incorporation) Classification Code Number) Identification No.)
313 West Beltline Highway
Madison, Wisconsin 53713
608-274-2663
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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
--- ---
As of January 31, 1996, 8,220,775 shares of the registrant's Common Stock,
$0.01 par value, were outstanding.
LUNAR CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the quarterly period ended December 31, 1995
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1995, and June 30, 1995 . . . . . . . . . . . . . .3
Consolidated Statements of Income
Three and Six Months Ended December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements . . . . . . . . . . .8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . .9
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------
December 31, June 30,
1995 1995
(Unaudited) (Audited)
- -----------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 6,359,857 $ 2,577,655
Marketable securities 8,884,682 11,647,041
Accounts receivable:
Trade, less allowance for doubtful accounts
of $1,670,000 at December 31, 1995
and $1,150,000 at June 30, 1995 21,613,737 19,109,561
Other 618,598 422,728
- -----------------------------------------------------------------------------
22,232,335 19,532,289
Inventories 8,471,085 6,650,726
Deferred income taxes 1,447,000 1,180,000
Other 210,671 156,451
- -----------------------------------------------------------------------------
Total current assets 47,605,630 41,744,162
Property, plant and equipment--at cost:
Buildings and improvements 2,223,033 2,219,148
Furniture and fixtures 614,871 582,206
Machinery and other equipment 3,497,953 3,043,258
- -----------------------------------------------------------------------------
6,335,857 5,844,612
Less accumulated depreciation and amortization 2,835,694 2,456,356
- -----------------------------------------------------------------------------
3,500,163 3,388,256
Land 138,858 138,858
- -----------------------------------------------------------------------------
3,639,021 3,527,114
Long-term trade accounts receivable 5,937,776 4,496,457
Long-term marketable securities 3,457,884 4,322,629
Excess of cost over fair value of net assets
of subsidiary acquired, net of accumulated
amortization of $508,788 at December 31, 1995
and $464,064 at June 30, 1995 851,129 895,853
Patent fees and other intangibles, net of
accumulated amortization of $883,515 at
December 31, 1995 and $682,995 at June 30, 1995 1,339,346 1,371,269
Other 332,524 342,484
- -----------------------------------------------------------------------------
$63,163,310 $56,699,968
=============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------
December 31, June 30,
1995 1995
(Unaudited) (Audited)
- -----------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 2,880,880 $ 2,258,695
Customer advances and deferred income 514,865 462,050
Income taxes payable 1,529,796 2,201,898
Accrued liabilities:
Commissions payable 2,160,898 1,767,139
Compensation payable 207,829 89,532
Property, payroll, and other taxes 201,295 146,219
Accrued warranty and installation expenses 1,722,000 1,555,000
Other 201,066 123,669
- -----------------------------------------------------------------------------
Total current liabilities 9,418,629 8,604,202
Minority interest in subsidiary 60,752 -
Shareholders' equity:
Common stock--authorized 10,000,000 shares
of $.01 par value; issued and outstanding
8,172,555 shares at December 31, 1995
and 7,988,190 at June 30, 1995 81,726 53,255
Capital in excess of par value 17,394,924 15,438,402
- -----------------------------------------------------------------------------
17,476,650 15,491,657
Retained earnings 36,193,770 32,622,240
Unrealized appreciation in
marketable securities 42,839 -
Cumulative translation adjustment (29,330) (18,131)
- -----------------------------------------------------------------------------
53,683,929 48,095,766
- -----------------------------------------------------------------------------
$63,163,310 $56,699,968
=============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
- -----------------------------------------------------------------------------
Three months ended Six months ended
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
- -----------------------------------------------------------------------------
REVENUES
Equipment sales and
other revenue $16,934,285 $10,450,226 $29,294,274 $19,563,508
- -----------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 7,677,353 4,167,632 13,052,066 7,721,116
Research and development 1,564,806 1,076,447 2,871,432 2,004,603
Selling and marketing 3,559,406 2,522,872 6,338,899 4,546,898
General and administrative 1,380,357 726,088 2,881,572 1,603,006
- -----------------------------------------------------------------------------
14,181,922 8,493,039 25,143,969 15,875,623
- -----------------------------------------------------------------------------
Earnings from operations 2,752,363 1,957,187 4,150,305 3,687,885
- -----------------------------------------------------------------------------
OTHER INCOME
Interest income 385,023 316,443 784,250 625,219
Other (76,815) 61,387 (87,869) 134,746
- -----------------------------------------------------------------------------
308,208 377,830 696,381 759,965
- -----------------------------------------------------------------------------
Earnings before provision
for income taxes 3,060,571 2,335,017 4,846,686 4,447,850
Provision for income taxes 816,783 583,521 1,275,156 1,131,925
- -----------------------------------------------------------------------------
NET INCOME $ 2,243,788 $ 1,751,496 $ 3,571,530 $ 3,315,925
=============================================================================
Net income per common and
common equivalent share $0.24 $0.20 $0.39 $0.38
=============================================================================
Weighted average number of
common and common equivalent
shares 9,226,295 8,822,376 9,162,620 8,741,235
=============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
- -----------------------------------------------------------------------------
Six months ended
December 31, December 31,
1995 1994
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income $3,571,530 $3,315,925
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 754,925 686,180
Minority interest in subsidiary 60,752 (37,489)
Changes in assets and liabilities:
Receivables (4,131,405) (3,978,475)
Inventories (1,820,359) (1,598,494)
Prepaid expenses (54,220) (28,819)
Deferred income taxes (267,000) (154,000)
Accounts payable 610,986 203,979
Customer advances and deferred income 52,815 21,238
Accrued liabilities 811,529 397,091
Income taxes payable (672,102) (34,828)
- -----------------------------------------------------------------------------
Net cash used in operating activities (1,082,549) (1,207,692)
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities - (1,042,910)
Maturities of marketable securities 3,539,600 2,816,830
Additions to property, plant and equipment (491,245) (602,245)
Patent fees (168,597) (142,620)
Distributor fee - (45,200)
- -----------------------------------------------------------------------------
Net cash provided by investing activities $2,879,758 $ 983,855
- -----------------------------------------------------------------------------
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
- -----------------------------------------------------------------------------
Six months ended
December 31, December 31,
1995 1994
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 678,860 206,468
Income tax benefit from stock option exercises 1,306,133 201,822
- -----------------------------------------------------------------------------
Net cash provided by financing activities 1,984,993 408,290
- -----------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,782,202 184,453
Cash and cash equivalents at beginning of period 2,577,655 702,581
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $6,359,857 $ 887,034
=============================================================================
Supplemental disclosure of cash flow information:
Incomes taxes paid $ 907,450 $1,118,930
=============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements of Lunar Corporation (the
"Company") presented herein, without audit except for balance sheet
information at June 30, 1995, have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do
not include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the year ended June 30, 1995, included in the Company's Form 10-K as filed
with the Securities and Exchange Commission on September 27, 1995.
The consolidated balance sheet as of December 31, 1995, the consolidated
statements of income for the three and six months ended December 31, 1995 and
1994, and the consolidated statements of cash flows for the six months ended
December 31, 1995 and 1994 are unaudited but, in the opinion of management,
include all adjustments (consisting of normal, recurring adjustments)
necessary for a fair presentation of results for these interim periods. The
Company has reclassified the presentation of certain prior year information
to conform with the current presentation format.
The results of operations for the three and six months ended December 31,
1995, are not necessarily indicative of the results to be expected for the
entire fiscal year ending June 30, 1996.
(2) INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined
principally by the first-in, first-out method. Inventories are broken down
as follows:
- -----------------------------------------------------------------------------
December 31, June 30,
1995 1995
(Unaudited) (Audited)
- -----------------------------------------------------------------------------
Finished goods and work in progress $3,900,677 $3,661,586
Materials and purchased parts 4,570,408 2,989,140
---------- ----------
$8,471,085 $6,650,726
========== ==========
(3) MARKETABLE SECURITIES
Effective December 31, 1995, the Company reclassified its marketable
securities portfolio from held-to-maturity to available-for-sale.
(4) STOCK DIVIDEND
The Company distributed a 3-for-2 stock split in the form of a stock
dividend on December 21, 1995. All share and per-share data has been
adjusted to reflect the stock dividend.
Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Equipment sales and other revenue increased 62% to $16,934,000 in the
three months ended December 31, 1995 from $10,450,000 in the three months
ended December 31, 1994. For the six months ended December 31, 1995,
equipment sales and other revenue increased 50% to $29,294,000 from
$19,564,000 in the six months ended December 31, 1994. Sales by product line
are broken down as follows:
Revenues by Product
(000's Omitted)
Three Months Ended Six Months Ended
----------------------------- ----------------------------
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
EXPERT $ 4,052 $ 1,149 $ 5,709 $ 1,754
DPX 8,548 5,748 15,842 10,928
Achilles 1,244 1,257 3,000 3,720
Artoscan 2,105 1,671 2,998 1,956
Other 985 625 1,745 1,206
------- ------- ------- -------
$16,934 $10,450 $29,294 $19,564
======= ======= ======= =======
Prior to the quarter ended December 31, 1995, EXPERT sales had been
constrained by delays caused by a supplier of a key component. This problem
has been resolved, and EXPERT sales have been positively impacted. Absent
such delays, additional EXPERT systems would have shipped in the quarter
ended September 30, 1995 versus the quarter ended December 31, 1995. The
increase in DPX sales in the current fiscal year is primarily attributable to
increased shipments in the United States, which the Company believes are
related to the introduction of Fosamax, a new drug therapy for osteoporosis
introduced by Merck in October 1995. Achilles sales were flat in the quarter
ended December 31, 1995 as compared to the quarter ended December 31, 1994
due to lower sales in Japan, offset by increased sales to customers in
Europe.
Cost of sales as a percentage of equipment sales averaged approximately
45% in the three and six month periods ended December 31, 1995, up from 40%
and 39% in the three and six month periods ended December 31, 1994. This
increase is primarily a result of increased sales of the lower-margin EXPERT
and Artoscan extremity MRI products and proportionately less sales of the
higher-margin Achilles.
Research and development expenditures increased to $1,565,000 in the
three months ended December 31, 1995 from $1,076,000 in the three months
ended December 31, 1994, and to $2,871,000 in the six months ended December
31, 1995 from $2,005,000 in the six months ended December 31, 1994. These
increases are primarily attributable to expenditures related to the
development of a new imaging device scheduled for introduction in calendar
1996. Bone Care International, the Company's 96% owned pharmaceutical
development subsidiary, also increased expenditures for clinical testing of
1-alpha-D2 in the treatment of renal osteodystrophy.
Lunar intends to spin off Bone Care International to shareholders in a
tax- free transaction within the next few months. This spinoff is contingent
upon a favorable tax opinion from the Company's outside accountants. If the
spinoff is executed, Lunar will no longer be responsible for the costs of
these clinical trials, which totaled $457,000 in the six months ended
December 31, 1995.
Sales and marketing expenses were $3,559,000 in the three months ended
December 31, 1995 and $2,523,000 in the three months ended December 31, 1994,
a decrease to 21% from 24% as a percentage of equipment sales. This decrease
is attributable to a decrease in agent commissions due to a lower mix of
sales made directly to end users. For the six months ended December 31,
1995, sales and marketing expenses were $6,339,000 as compared to $4,547,000
for the six months ended December 31, 1994, representing a decrease to 22%
from 23% as a percentage of equipment sales.
General and administrative expenses increased to $1,380,000 in the three
months ended December 31, 1995 from $726,000 in the three months ended
December 31, 1994, and to $2,882,000 in the six months ended December 31,
1995 from $1,603,000 in the six months ended December 31, 1994. These
increases are primarily attributable to higher legal expenses. Lunar had
been involved in several patent lawsuits with Hologic, Inc., a
Massachusetts-based competitor, related to x-ray and ultrasound
densitometers. These lawsuits were settled on November 22, 1995.
Interest income was $385,000 in the three months ended December 31, 1995
compared to $316,000 in the three months ended December 31, 1994, and
$784,000 in the six months ended December 31, 1995, as compared to $625,000
in the six months ended December 31, 1995. These increases are primarily the
result of increases in the amount of financed receivables.
The effective tax rate averaged 27% and 26% in the three and six month
periods ended December 31, 1995 compared to 25% in the three and six month
periods ended December 31, 1994. These rates are below the 34% federal
statutory rate as a result of the benefit of Lunar FSC, Inc., and tax-exempt
interest income, but offset by the provision for state income taxes. The
effective tax rate has been trending higher in the current fiscal year due to
increased profits from sales within the United States, which do not benefit
from FSC treatment.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased $3,782,000 to $6,360,000 in the six
months ended December 31, 1995. The Company also has a laddered portfolio of
high-grade municipal bonds with various maturities not exceeding 48 months.
The Company owned approximately $12,343,000 in municipal securities as of
December 31, 1995, which are readily marketable. The Company plans to
contribute approximately $10,000,000 in cash and municipal securities to Bone
Care in exchange for additional equity prior to the spinoff. The Company
believes this additional capital contribution will be sufficient to fund the
expected losses of Bone Care during the next several years.
The Company's accounts receivable increased 17% to $28,170,000 at
December 31, 1995 from $24,029,000 at June 30, 1995. This increase is
primarily due to a 33% increase in sales in the second quarter of fiscal year
1996 as compared to the fourth quarter of fiscal year 1995. Inventories
increased 27% to $8,471,000 at December 31, 1995 from $6,651,000 at June 30,
1995. The increase in finished goods and work in progress is primarily
attributable to increases in Artoscan MRI units offset by decreases in EXPERT
systems. The increase in materials and purchased parts is primarily due to
an increase in production of EXPERT and DPX systems. The Company does not
have any pending material commitments for capital expenditures.
Management believes the current level of cash and short-term investments
is adequate to finance the Company's operations for the foreseeable future.
PART II - OTHER INFORMATION
LUNAR CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings
Patent Litigation: During fiscal 1995 and part of fiscal year
1996, the Company was involved in patent litigation with Hologic,
Inc., a Massachusetts-based competitor. On November 22, 1995, the
Company announced the signing of a definitive agreement with
Hologic settling all disputes between the parties. The agreement
provides for certain continuing payments between the companies
related to future sales, the net effect of which Lunar does not
believe will be material to its revenues or earnings. The
agreement also provides that the companies will not engage each
other in patent litigation in the area of x-ray densitometry and
ultrasound for a ten-year period.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The 1995 Annual Meeting of Shareholders ("Annual Meeting") of
the Company was held on November 17, 1995. The total number of
shares of the Company's common stock, $.01 par value per share,
outstanding as of October 6, 1995, the record date of the Annual
Meeting, was 5,340,360. Management of the Company solicited proxies
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, and Regulation 14A promulgated thereunder for the Annual
Meeting. Two (2) directors, Samuel E. Bradt and Richard B. Mazess,
Ph.D., were elected to serve until the 1998 Annual Meeting of
Shareholders. The directors were elected by a vote of 5,113,821
votes "FOR" and 537 votes "WITHHELD AUTHORITY." The selection of
KPMG Peat Marwick LLP as the Company's independent auditors was
also
approved. The selection was approved by a vote of 5,112,494 votes
"FOR," 810 votes "AGAINST," and 1,054 votes "ABSTAIN."
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits furnished:
(11) Statement Re: Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUNAR CORPORATION
(Registrant)
Date: February 12, 1996 /s/ Richard B. Mazess
- ------------------------ -----------------------------
Richard B. Mazess
President
(Principal Executive Officer)
Date: February 12, 1996 /s/ Robert A. Beckman
- ------------------------ ----------------------------
Robert A. Beckman
Vice President of Finance
and Treasurer
(Principal Financial and
Accounting Officer)
LUNAR CORPORATION AND SUBSIDIARIES
Exhibit Index
For the Quarterly Period Ended December 31, 1995
No. Description Page
11 Statement Regarding Computation of Earnings Per Share . . . . . . . . 14
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit 11
LUNAR CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
(Unaudited)
Three months ended Six months ended
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
Net income $2,243,788 $1,751,496 $3,571,530 $3,315,925
========== ========== ========== ==========
Weighted average shares
outstanding 8,093,978 7,882,347 8,046,246 7,865,193
Stock options calculated
according to the treasury
stock method 1,132,317 940,029 1,116,374 876,042
Weighted average number of
common and common-equivalent
shares outstanding 9,226,295 8,822,376 9,162,620 8,741,235
========== ========== ========== ==========
Net income per common and
common-equivalent shares $0.24 $0.20 $0.39 $0.38
===== ===== ===== =====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Form 10-Q for the six months ended
December 31, 1995, and is qualified in its entirety by
reference to such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 6,360
<SECURITIES> 12,343
<RECEIVABLES> 29,840
<ALLOWANCES> 1,670
<INVENTORY> 8,471
<CURRENT-ASSETS> 47,606
<PP&E> 6,475
<DEPRECIATION> 2,836
<TOTAL-ASSETS> 63,163
<CURRENT-LIABILITIES> 9,419
<BONDS> 0
<COMMON> 82
0
0
<OTHER-SE> 53,602
<TOTAL-LIABILITY-AND-EQUITY> 63,163
<SALES> 29,294
<TOTAL-REVENUES> 29,294
<CGS> 13,052
<TOTAL-COSTS> 25,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,847
<INCOME-TAX> 1,275
<INCOME-CONTINUING> 3,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,572
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
