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 September 30, 1997
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 XX No
------ ------
As of October 31, 1997, 8,764,585 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, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial statements
Consolidated Balance Sheets
September 30, 1997, and June 30, 1997.................................3
Consolidated Statements of Income
Three Months Ended September 30, 1997 and 1996........................5
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1997 and 1996........................6
Notes to Consolidated Financial Statements............................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................8
PART II - OTHER INFORMATION..................................................10
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,
1997 1997
(Unaudited) (Audited)
- ------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $16,190,931 $ 14,417,155
Marketable securities 6,586,471 5,891,350
Accounts receivable:
Trade, less allowance for doubtful accounts
of $2,602,000 at September 30, 1997
and $2,602,000 at June 30, 1997 24,731,725 25,468,881
Other 1,289,914 1,061,558
- ------------------------------------------------------------------------------
26,021,639 26,530,439
Inventories 11,018,906 9,373,490
Deferred income taxes 1,350,000 2,291,000
Other 379,319 84,790
- ------------------------------------------------------------------------------
Total current assets 61,547,266 58,588,224
Property, plant and equipment--at cost:
Buildings and improvements 2,378,950 2,376,763
Furniture and fixtures 684,836 680,413
Machinery and other equipment 5,623,194 5,276,267
- ------------------------------------------------------------------------------
8,686,980 8,333,443
Less accumulated depreciation
and amortization 4,225,529 3,889,838
- ------------------------------------------------------------------------------
4,461,451 4,443,605
Land 138,858 138,858
- ------------------------------------------------------------------------------
4,600,309 4,582,463
Long-term trade accounts receivable 4,076,520 2,485,022
Long-term marketable securities 15,280,405 16,592,053
Patent fees and other intangibles, net of
accumulated amortization of $1,282,873
September 30, 1997 and $1,185,613 at
June 30, 1997 795,254 850,867
Other 182,138 183,954
- ------------------------------------------------------------------------------
$86,481,892 $83,282,583
==============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- ------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
September 30, June 30,
1997 1997
(Unaudited) (Audited)
- ------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 4,863,256 $ 4,209,485
Customer advances and deferred income 757,113 639,707
Income taxes payable 2,179,261 2,375,955
Accrued liabilities:
Commission payable 2,310,924 2,146,189
Compensation payable 506,248 290,913
Property, payroll, and other taxes 110,297 141,906
Accrued warranty and installation expenses 3,164,000 2,984,000
Other 286,862 251,036
- ------------------------------------------------------------------------------
Total current liabilities 14,177,961 13,039,191
Shareholders' equity:
Common stock--authorized 25,000,000 shares
of $.01 par value; issued and outstanding
8,737,535 shares at September 30, 1997 and
8,721,425 at June 30, 1997 87,375 87,214
Capital in excess of par value 26,506,934 26,500,942
- ------------------------------------------------------------------------------
26,594,309 26,588,156
Retained earnings 45,719,132 43,706,139
Unrealized appreciation in
marketable securities 79,225 34,220
Cumulative translation adjustment (88,735) (85,123)
- ------------------------------------------------------------------------------
72,303,931 70,243,392
- ------------------------------------------------------------------------------
$86,481,892 $83,282,583
==============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
- ------------------------------------------------------------------------------
Three months ended
September 30, September 30,
1997 1996
- ------------------------------------------------------------------------------
REVENUES
Equipment sales and
other revenue $18,832,428 $18,914,639
- ------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales 8,786,725 8,377,478
Research and development 1,619,709 1,160,278
Selling and marketing 4,545,138 3,968,333
General and administrative 1,134,247 1,119,760
- ------------------------------------------------------------------------------
16,085,819 14,625,849
- ------------------------------------------------------------------------------
Earnings from operations 2,746,609 4,288,790
- ------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 478,499 342,821
Other (236,135) (197,649)
- ------------------------------------------------------------------------------
242,384 145,172
- ------------------------------------------------------------------------------
Earnings before provision
for income taxes 2,988,993 4,433,962
Provision for income taxes 976,000 1,533,000
- ------------------------------------------------------------------------------
NET INCOME $ 2,012,993 $ 2,900,962
==============================================================================
Net income per common and
common-equivalent share $0.22 $0.32
==============================================================================
Weighted average number of
common and common-equivalent 9,121,609 9,072,295
shares
==============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
- ------------------------------------------------------------------------------
Three months ended
September 30, September 30,
1997 1996
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $2,012,993 $2,900,962
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 539,483 295,843
Changes in assets and liabilities:
Receivables (1,080,882) 298,703
Inventories (1,645,416) (1,290,175)
Other current assets (294,529) (159,522)
Deferred income taxes 941,000 (338,000)
Accounts payable 650,159 (350,543)
Customer advances and deferred income 117,406 (9,871)
Accrued liabilities 564,287 (510,765)
Income taxes payable (196,694) 1,505,090
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,607,807 2,341,722
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Maturities of marketable securities 555,000 851,600
Additions to property, plant and equipment (353,537) (720,706)
Patent fees (41,647) (27,685)
- ------------------------------------------------------------------------------
Net cash provided by investing activities 159,816 103,209
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 231,454 86,591
Income tax benefit from stock option exercises 184,699 615,910
Repurchase of common stock (410,000) -
- ------------------------------------------------------------------------------
Net cash provided by financing activities 6,153 702,501
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,773,776 3,147,432
Cash and cash equivalents at
beginning of period 14,417,155 8,001,582
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period $16,190,931 $11,149,014
==============================================================================
Supplemental disclosure of cash flow
information:
Income taxes paid $50,000 $ 1,151,000
==============================================================================
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,
1997, 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, 1997, included in the Company's Form 10-K as filed with the
Securities and Exchange Commission on September 26, 1997.
The consolidated balance sheet as of September 30, 1997, the consolidated
statements of income for the three months ended September 30, 1997 and 1996,
and the consolidated statements of cash flows for the three months ended
September 30, 1997 and 1996 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 months
ended September 30, 1997, are not necessarily indicative of the results to be
expected for the entire fiscal year ending June 30, 1998.
(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,
1997 1997
(Unaudited) (Audited)
- ------------------------------------------------------------------------------
Finished goods and work in progress $ 3,892,228 $2,909,854
Materials and purchased parts 7,126,678 6,463,636
----------- ----------
$11,018,906 $9,373,490
=========== ==========
(3) SHAREHOLDERS' EQUITY
On April 22, 1997, the Company approved a stock repurchase program
pursuant to which it may repurchase up to 1,000,000 shares of its common
stock from time to time based upon market conditions and other factors.
The Company has repurchased 55,000 shares under this program as of
November 13, 1997.
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overall equipment sales and other revenue decreased $83,000 to
$18,832,000 in the three months ended September 30, 1997 from
$18,915,000 in the three months ended September 30, 1996.
Sales by product line are summarized as follows:
Revenues by Product
in thousands)
Three Months Ended
-------------------------------
September 30, September 30,
1997 1996
------------- -------------
X-ray densitometry $12,856 $15,285
Ultrasound densitometry 1,328 1,189
Orthopedic Imaging 2,694 1,181
Service Revenue 1,407 804
Other 547 456
------------- -------------
$18,832 $18,915
============= =============
The Company attributes the decrease in X-ray densitometry sales to
customer uncertainty over 1998 Medicare reimbursement rates as originally
proposed in June 1997. At that time, the Health Care Financing
Administration (HCFA) had indicated that the 1998 rate for axial bone
measurement tests would decrease to $40 from $121. On October 31, 1997,
HCFA proposed an increase in the reimbursement rate for axial bone
measurement tests from $121 to $131. Similarly, the reimbursement for
peripheral bone measurements will increase from $38 to $69. These
increases are scheduled to become effective January 1, 1998.
The increase in Orthopedic Imaging sales is primarily due to increased
unit sales of Artoscan dedicated MRI and Orthopedic C-Arm (ORCA) systems.
The increase in service revenue is primarily due to the expanded number of
installed units in the United States.
Cost of sales as a percentage of equipment sales averaged approximately
47% in the three month period ended September 30, 1997, compared to 44% in the
three month period ended September 30, 1996. The increase is the result of a
higher mix of orthopedic imaging equipment which have a higher cost of sales.
Research and development expenditures increased to $1,620,000 in the three
months ended September 30, 1997 from $1,160,000 in the three months ended
September 30, 1996. The Company increased research and development
expenditures for ultrasound and peripheral X-ray densitometry products during
the quarter ended September 30, 1997.
Sales and marketing expenses increased $577,000 to $4,545,000 in the three
months ended September 30, 1997, compared to $3,968,000 in the three months
ended September 30, 1996. The increase is primarily the result of a higher mix
of sales directly to international end-users, whereby the Company pays agent
commissions.
Interest income was $478,000 in the three months ended September 30, 1997
compared to $343,000 in the three months ended September 30, 1996. This
increase is primarily the result of increased investments in marketable
securities partially offset by decreases in the amount of financed receivables.
The effective tax rate averaged 33% in the three month period ended
September 30, 1997 compared to 35% in the three month period ended
September 30, 1996. The effective tax rate is lower in the quarter ended
September 30, 1997 versus the comparable prior year period due to increased tax
exempt interest income. The rate for the three month period ended September 30,
1997 is below the 34% federal statutory rate as a result of the tax benefit of
tax-exempt interest income and from foreign sales corporation treatment, offset
by the provision for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $1,774,000 to $14,417,000 in the three
months ended September 30, 1997. Additionally, the Company has a laddered
portfolio of high-grade municipal bonds with various maturities not exceeding
48 months. The Company owned approximately $21,867,000 in municipal securities
as of September 30, 1997, which are readily marketable.
The decrease in the current portion of accounts receivable at September
30,
1997 is primarily a result of a reduction in revenues compared to the quarter
ended June 30, 1997. The increase in long-term accounts receivable is
primarily
due to the Company not selling any Latin American receivables during the
quarter ended September 30, 1997. Inventories increased 18% to $11,019,000 at
September 30, 1997 from $9,373,000 at June 30, 1997. The increase in finished
goods is primarily attributable to increases in Artoscan MRI units.
The Company entered into an agreement to purchase a 25-acre parcel of
land for approximately $1,950,000 for the future construction of a assembly,
warehouse and office building. The purchase agreement is subject to customary
closing conditions. The Company does not have any other 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: On March 5, 1996, the Company and University of
Alabama-Birmingham Research Foundation (UAB) (collectively the co-plaintiffs)
sued EG&G Astrophysics (EG&G) of Long Beach, California, in the United States
District Court for the Western District of Wisconsin for infringement of U.S.
Patent 4,626,688 (the '688 Patent) by EG&G's dual-energy baggage scanners. A
trial of the matter in December of 1996 concluded with a verdict in favor of
the co-plaintiffs. The Company and UAB were awarded $4.2 million in damages
which was divided between the co-plaintiffs after deducting legal expenses.
The co-plaintiffs also entered into a Settlement and License Agreement with
EG&G whereby EG&G was licensed under the '688 patent and a related U.S. patent.
The license agreement provides for payment of royalties to the co-plaintiffs on
EG&G's dual-energy baggage scanners manufactured or sold in the United States.
The license agreement ends on December 2, 2003.
The Company is presently co-defendant and counterclaim co-plaintiff with
the UAB in two declaratory judgment actions filed in the United States District
Court for the Central District of California. Both actions seek a
determination of non-infringement and invalidity of the '688 Patent. The first
declaratory judgment action was filed on January 21, 1997 by RapiScan Security
Systems, Inc. ("RapiScan"). RapiScan manufactures and sells baggage scanning
equipment and is a competitor of EG&G. The second declaratory judgment action
was filed on February 26, 1997 by Osteometer Meditech A/S ("Osteometer"), a
competitor of the Company. Osteometer manufactures and sells bone densitometry
products and is located in Denmark. The Company intends to vigorously defend
against these lawsuits. The Company does not believe these lawsuits will have
a material effect on the results of operations or financial condition of the
Company.
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, 1997.
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, 1997 /s/ Richard B. Mazess
------------------------
Richard B. Mazess
President
(Principal Executive Officer)
Date: November 13, 1997 /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 September 30, 1997
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,
1997 1996
------------- -------------
Net income $2,012,993 $2,900,962
============= =============
Weighted average shares outstanding 8,715,833 8,513,892
Stock options calculated according
to the treasury stock method 405,776 558,403
Weighted average number of common
and common-equivalent shares
outstanding 9,121,609 9,072,295
============= ============
Net income per common and
common-equivalent shares $0.22 $0.32
===== =====
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<LEGEND> This schedule contains summary financial information
extracted from Form 10-Q for the three months ended
September 30, 1997, and is qualified in its entirety by
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