UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 October 31, 1996, 8,544,465 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 September 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial statements
Consolidated Balance Sheets
September 30, 1996, and June 30, 1996. . . . . . . . . . . . . . .3
Consolidated Statements of Income
Three Months Ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements . . . . . . . . . . . .7
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
- -----------------------------------------------------------------------------
September 30, June 30,
1996 1996
(Unaudited) (Audited)
- -----------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $11,149,014 $ 8,001,582
Marketable securities 1,466,575 2,347,400
Accounts receivable:
Trade, less allowance for doubtful accounts
of $2,635,000 at September 30, 1996
and $2,235,000 at June 30, 1996 29,349,664 27,966,620
Other 62,728 328,662
- -----------------------------------------------------------------------------
29,412,392 28,295,282
Inventories 9,965,662 8,675,487
Deferred income taxes 2,322,000 1,984,000
Other 321,351 161,829
- -----------------------------------------------------------------------------
Total current assets 54,636,994 49,465,580
Property, plant and equipment--at cost:
Buildings and improvements 2,203,036 2,203,036
Furniture and fixtures 688,541 669,284
Machinery and other equipment 4,255,984 3,554,535
- -----------------------------------------------------------------------------
7,147,561 6,426,855
Less accumulated depreciation and amortization 3,180,907 2,977,468
- -----------------------------------------------------------------------------
3,966,654 3,449,387
Land 138,858 138,858
- -----------------------------------------------------------------------------
4,105,512 3,588,245
Long-term trade accounts receivable 6,077,182 7,658,079
Long-term marketable securities 1,046,100 1,028,088
Patent fees and other intangibles, net of
accumulated amortization of $920,833 at
September 30, 1996 and $832,573 at June 30, 1996 929,807 990,382
Other 306,640 141,556
- -----------------------------------------------------------------------------
$67,102,235 $62,871,930
==============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------
September 30, June 30,
1996 1996
(Unaudited) (Audited)
- -----------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 3,126,705 $ 3,508,804
Customer advances and deferred income 555,493 565,364
Income taxes payable 2,056,942 551,852
Accrued liabilities:
Commission payable 1,624,731 2,502,323
Compensation payable 433,598 205,236
Property, payroll, and other taxes 126,649 331,139
Accrued warranty and installation expenses 2,910,000 2,570,000
Other 234,764 231,809
- -----------------------------------------------------------------------------
Total current liabilities 11,068,882 10,466,527
Shareholders' equity:
Common stock--authorized 25,000,000 shares
of $.01 par value; issued and outstanding
8,536,065 shares at September 30, 1996 and
8,486,250 at June 30, 1996 85,361 84,863
Capital in excess of par value 23,504,106 22,802,103
- -----------------------------------------------------------------------------
23,589,467 22,886,966
Retained earnings 32,321,276 29,420,314
Unrealized appreciation in
marketable securities 22,053 29,122
Cumulative translation adjustment 100,557 69,001
- -----------------------------------------------------------------------------
56,033,353 52,405,403
- -----------------------------------------------------------------------------
$67,102,235 $62,871,930
==============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
- -----------------------------------------------------------------------------
Three months ended
September 30, September 30,
1996 1995
- -----------------------------------------------------------------------------
REVENUES
Equipment sales and
other revenue $18,914,639 $12,359,989
- -----------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 8,377,478 5,374,713
Research and development 1,160,278 1,306,626
Selling and marketing 3,968,333 2,779,493
General and administrative 1,381,499 1,501,215
- -----------------------------------------------------------------------------
14,887,588 10,962,047
- -----------------------------------------------------------------------------
Earnings from operations 4,027,051 1,397,942
- -----------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 342,821 399,227
Other 64,090 (11,054)
- -----------------------------------------------------------------------------
406,911 388,173
- -----------------------------------------------------------------------------
Earnings before provision
for income taxes 4,433,962 1,786,115
Provision for income taxes 1,533,000 458,373
- -----------------------------------------------------------------------------
NET INCOME $ 2,900,962 $ 1,327,742
==============================================================================
Net income per common and
common-equivalent share $0.32 $0.15
==============================================================================
Weighted average number of
common and common-equivalent
shares 9,072,295 8,724,186
==============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
- -----------------------------------------------------------------------------
Three months ended
September 30, September 30,
1996 1995
- -----------------------------------------------------------------------------
Cash flows from operating activities:
Net income $2,900,962 $1,327,742
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 295,843 357,072
Changes in assets and liabilities:
Receivables 298,703 479,434
Inventories (1,290,175) (1,919,648)
Prepaid expenses (159,522) (40,288)
Deferred income taxes (338,000) (53,000)
Accounts payable (350,543) 15,926
Customer advances and deferred income (9,871) 27,509
Accrued liabilities (510,765) 81,951
Income taxes payable 1,505,090 (29,638)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 2,341,722 247,060
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of marketable securities 851,600 2,339,600
Additions to property, plant and equipment (720,706) (94,296)
Patent fees (27,685) (64,770)
- -----------------------------------------------------------------------------
Net cash provided by investing activities 103,209 2,180,534
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 86,591 72,435
Income tax benefit from stock option exercises 615,910 118,166
- -----------------------------------------------------------------------------
Net cash provided by financing activities 702,501 190,601
- -----------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,147,432 2,618,195
Cash and cash equivalents at beginning of period 8,001,582 2,577,655
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $11,149,014 $5,195,850
==============================================================================
Supplemental disclosure of cash flow information:
Income taxes paid $ 1,151,000 $ 422,450
==============================================================================
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,
1996, 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,
1996, included in the Company's Form 10-K as filed with the Securities and
Exchange Commission on September 27, 1996.
The consolidated balance sheet as of September 30, 1996, the consolidated
statements of income for the three months ended September 30, 1996 and 1995, and
the consolidated statements of cash flows for the three months ended September
30, 1996 and 1995 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 ended September 30, 1996, are not
necessarily indicative of the results to be expected for the entire fiscal year
ending June 30, 1997.
(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:
- -----------------------------------------------------------------------------
September 30, June 30,
1996 1996
(Unaudited) (Audited)
- -----------------------------------------------------------------------------
Finished goods and work in progress $5,109,697 $3,920,431
Materials and purchased parts 4,855,965 4,755,056
---------- ----------
$9,965,662 $8,675,487
========== ==========
(3) STOCK DIVIDEND
The Company distributed a 3-for-2 stock split in the form of a stock dividend
on Decmeber 21, 1995. All share and per-share data has been adjusted to reflect
the stock dividend.
(4) TECHNOLOGY TRANSFER AND SPIN-OFF OF SUBSIDIARY
In October 1995, the Company contributed its ownership of Continental Assays
Corporation and certain assets with a book value of $175,867 for 1,698,674
shares of common stock of Bone Care International, Inc. ("Bone Care"), a
subsidiary of the Company. In October 1995, the Company also exchanged $634,683
of loans receivable from Bone Care for 107,401 shares of Bone Care common stock.
These transactions created a single vitamin D development business owned by Bone
Care.
On April 18, 1996, the Board of Directors of the Company declared a dividend,
payable to holders of record of its common stock at the close of business on
April 24, 1996 (the "record date"), of one share of Bone Care common stock for
every two shares of the Company's common stock. The distribution occurred on
May 8, 1996 (the "distribution date"). Prior to the distribution, the Company
made a capital contribution of $10,725,000 in exchange for additional common
stock of Bone Care and to pay for federal income tax benefits received from Bone
Care. As a result of the distribution, the Company's 97.3% ownership of Bone
Care's common stock was distributed to holders of the Company's common stock as
of the record date. Bone Care's total assets as of the distribution date were
approximately $12,650,000.
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Equipment sales and other revenue increased 53% to $18,915,000 in the three
months ended September 30, 1996 from $12,360,000 in the three months ended
September 30, 1995. Sales by product line are summarized as follows:
Revenues by Product
(in thousands)
Three Months Ended
September 30, September 30,
1996 1995
------------- -------------
DPX $14,465 $ 7,294
EXPERT 820 1,658
Achilles 1,189 1,757
Artoscan 1,091 894
Other 1,350 757
------- -------
$18,915 $12,360
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 several new drug therapies during the last 12
months. Achilles sales decreased in the quarter ended September 30, 1996 as
compared to the quarter ended September 30, 1995 due to lower sales in Japan.
Cost of sales as a percentage of equipment sales averaged approximately 44% in
the three month period ended September 30, 1996, compared to 43% in the three
month period ended September 30, 1995.
Research and development expenditures decreased to $1,160,000 in the three
months ended September 30, 1996 from $1,307,000 in the three months ended
September 30, 1995. The Company spun-off Bone Care to its shareholders on May
8, 1996 in a transaction intended to qualify as a tax-free distribution. The
costs of these clinical trials and any other costs related to the research and
development of vitamin D compounds are no longer included in the Company's
consolidated net income. Vitamin D-related expenses were $259,000 in the three
months ended September 30, 1995.
Sales and marketing expenses were $3,968,000 in the three months ended
September 30, 1996 and $2,779,000 in the three months ended September 30, 1995,
representing a decrease to 21% from 22% as a percentage of equipment sales.
General and administrative expenses decreased to $1,381,000 in the three months
ended September 30, 1996 from $1,501,000 in the three months ended September 30,
1995. The decrease is primarily attributable to lower legal expenses. Lunar
had been involved in several patent lawsuits initiated in September 1994 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 $343,000 in the three months ended September 30, 1996
compared to $399,000 in the three months ended September 30, 1995. This
decrease is primarily the result of decreased cash balances partially offset by
increases in the amount of financed receivables. The Company had contributed
$10,725,000 to Bone Care prior to the spinoff of Bone Care in May 1996.
The effective tax rate averaged 35% in the three month period ended September
30, 1996 compared to 26% in the three month period ended September 30, 1995.
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 the Company's foreign sales corporation, Lunar FSC, Inc. The rate for the
three month period ended September 30, 1995 is below the 34% federal statutory
rate as a result of the tax benefit from foreign sales corporation treatment and
tax-exempt interest income, but offset by the provision for state income taxes.
Liquidity and Capital Resources
Cash and cash equivalents increased $3,147,000 to $11,149,000 in the three
months ended September 30, 1996. The Company also has a laddered portfolio of
high-grade municipal bonds with various maturities not exceeding 48 months. The
Company owned approximately $2,513,000 in municipal securities as of September
30, 1996, which are readily marketable.
The Company's accounts receivable decreased 1% to $35,490,000 at September 30,
1996 from $35,953,000 at June 30, 1996. Inventories increased 15% to $9,966,000
at September 30, 1996 from $8,675,000 at June 30, 1995. The increase in
finished goods and work in progress is primarily attributable to increases in
Artoscan MRI units. 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
None
Item 5. Other Information
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995: Certain statements in this filing, and elsewhere (such as in
other filings by the Company with the Securities and Exchange Commission,
press releases, presentations by the Company or its management, and oral
statements) constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance, or
achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things,
regulation, technical risks associated with the development of new
products, regulatory policies in the United States and other countries,
reimbursement policies of public and private health care payors,
introduction and acceptance of new drug therapies, competition from
existing products and from new products or technologies, and market and
general economic factors.
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 September 30, 1996.
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: November 13, 1996 Richard B. Mazess
-----------------
Richard B. Mazess
President
(Principal Executive Officer)
Date: November 13, 1996 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 September 30, 1996
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
September 30, September 30,
1996 1995
------------- -------------
Net income $2,900,962 $1,327,742
========== ==========
Weighted average shares
outstanding 8,513,892 7,998,513
Stock options calculated
according to the treasury
stock method 558,403 725,673
Weighted average number of
common and common-equivalent
shares outstanding 9,072,295 8,724,186
========== ==========
Net income per common and
common-equivalent shares $0.32 $0.15
===== =====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Form 10-Q for the three months ended
September 30, 1996, and is qualified in its entirety by
reference to such financial statements.
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<PERIOD-TYPE> 3-MOS
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<PERIOD-END> SEP-30-1996
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<ALLOWANCES> 2,635
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<CURRENT-ASSETS> 54,637
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<DEPRECIATION> 3,181
<TOTAL-ASSETS> 67,102
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<BONDS> 0
<COMMON> 85
0
0
<OTHER-SE> 55,948
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<SALES> 18,915
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<CGS> 8,377
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<INCOME-TAX> 1,533
<INCOME-CONTINUING> 2,901
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