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, 1998
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, 1998, 8,604,460 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, 1998
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial statements
Consolidated Balance Sheets
September 30, 1998, and June 30, 1998 3
Consolidated Statements of Income
Three Months Ended September 30, 1998
and 1997 5
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1998
and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- ----------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------
September 30, June 30,
1998 1998
(Unaudited) (Audited)
- ----------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 5,185,196 $4,608,427
Marketable securities 7,920,027 8,117,655
Receivable:
Trade, less allowance for doubtful accounts
of $3,221,000 at September 30, 1998
and $3,272,000 at June 30, 1998 28,404,171 24,285,511
Short-term financed accounts receivable 2,988,896 2,092,164
Other 949,123 929,179
- ----------------------------------------------------------------------------
32,342,190 27,306,854
Inventories 14,732,786 13,287,887
Deferred Income Taxes 1,768,000 1,618,000
Other Current Assets 661,052 350,360
- ----------------------------------------------------------------------------
Total Current Assets 62,609,251 55,289,183
Property, Plant and Equipment--At Cost:
Buildings and Improvements 2,614,875 2,420,058
Furniture and fixtures 939,464 876,813
Machinery and other equipment 7,440,393 6,630,755
- ----------------------------------------------------------------------------
10,994,732 9,927,626
Less Accumulated Depreciation and Amortization 5,546,157 5,086,141
- ----------------------------------------------------------------------------
5,448,575 4,841,485
Land 2,088,118 2,088,118
- ----------------------------------------------------------------------------
7,536,693 6,929,603
Long-term Financed Accounts Receivable 5,108,401 4,095,565
Long-term Marketable Securities 16,688,537 22,783,003
Patents and Other Intangibles, Net of
Accumulated Amortization of $1,593,223 at
September 30, 1998 and $1,512,781 at
June 30, 1998 561,396 809,468
Other 176,807 208,136
- ----------------------------------------------------------------------------
$92,681,085 $90,114,958
============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- ----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------
September 30, June 30,
1998 1998
(Unaudited) (Audited)
- ----------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 6,904,791 $ 4,881,399
Customer advances and deferred income 1,072,717 1,027,872
Income taxes payable 3,213,089 3,494,822
Accrued liabilities:
Commissions payable 2,336,360 2,186,040
Compensation payable 646,070 413,084
Property, payroll, and other taxes 190,081 155,683
Accrued warranty and installation expenses 2,410,000 2,145,000
Other 481,469 199,324
- ----------------------------------------------------------------------------
Total Current Liabilities 17,254,577 14,503,224
Shareholders' Equity:
Common stock--authorized 25,000,000 shares
of $.01 par value; issued and outstanding
8,604,460 shares at September 30, 1998 and
8,701,210 at June 30, 1998 86,045 87,012
Capital in excess of par value 23,525,874 24,936,811
- ----------------------------------------------------------------------------
23,611,919 25,023,823
Retained Earnings 51,722,826 50,568,281
Unrealized Appreciation in
Marketable Securities 168,642 136,932
Cumulative Translation Adjustment (76,879) (117,302)
- ----------------------------------------------------------------------------
75,426,508 75,611,734
- ----------------------------------------------------------------------------
$92,681,085 $90,114,958
============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
- ----------------------------------------------------------------------------
Three months ended
September 30, September 30,
1998 1997
- ----------------------------------------------------------------------------
Revenues $22,824,543 $18,662,508
- ----------------------------------------------------------------------------
Operating Expenses
Cost of sales 12,221,926 8,590,077
Research and development 2,046,620 1,705,299
Selling and marketing 5,693,407 4,624,846
General and administrative 1,093,790 995,677
- ----------------------------------------------------------------------------
21,055,743 15,915,899
- ----------------------------------------------------------------------------
Income from Operations 1,768,800 2,746,609
- ----------------------------------------------------------------------------
Other Income (Expense):
Interest income 346,666 478,499
Settlement of lawsuit (579,555) -
Other 88,634 (236,115)
- ----------------------------------------------------------------------------
(144,255) 242,384
- ----------------------------------------------------------------------------
Income Before Income Taxes 1,624,545 2,988,993
Income Tax Expense 470,000 976,000
- ----------------------------------------------------------------------------
Net Income $ 1,154,545 $ 2,012,993
============================================================================
Basic Earnings per Share $0.13 $0.23
============================================================================
Diluted Earnings per Share $0.13 $0.22
============================================================================
Weighted Average Number of
Common Shares 8,658,945 8,715,833
============================================================================
Weighted Average Number of
Common and Dilutive Potential
Common Shares 8,873,912 9,121,609
============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
- ----------------------------------------------------------------------------
Three months ended
September 30, September 30,
1998 1997
- ----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $1,154,545 $2,012,993
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 685,485 539,483
Changes in assets and liabilities:
Receivables (6,016,843) (1,080,882)
Inventories (1,444,899) (1,645,416)
Other current assets (310,692) (294,529)
Deferred income taxes (150,000) 941,000
Accounts payable 2,063,815 650,159
Customer advances and deferred income 44,845 117,406
Accrued liabilities 964,849 564,287
Income taxes payable (281,733) (196,694)
- ----------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (3,290,628) 1,607,807
- ----------------------------------------------------------------------------
Cash Flows from Investing Activities:
Sales and maturities of marketable securities 6,206,095 555,000
Additions to property, plant and equipment (1,067,106) (353,537)
Additions to patents and other intangibles (19,647) (41,647)
Write-off of patents 159,959 -
- ----------------------------------------------------------------------------
Net Cash Provided by Investing Activities 5,279,301 159,816
- ----------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 20,830 231,454
Income tax benefit from stock option exercises 3,866 184,699
Repurchase of common stock (1,436,600) (410,000)
- ----------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (1,411,904) 6,153
- ----------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 576,769 1,773,776
Cash and Cash Equivalents at Beginning of Period 4,608,427 14,417,155
- ----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 5,185,196 $16,190,931
============================================================================
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 917,000 $ 50,000
============================================================================
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, 1998, 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
included in the Company's Annual Report on Form 10-K for the year ended June
30, 1998.
The consolidated balance sheet as of September 30, 1998, the
consolidated statements of income for the three months ended September 30,
1998 and 1997, and the consolidated statements of cash flows for the three
months ended September 30, 1998 and 1997 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,
1998, are not necessarily indicative of the results to be expected for the
entire fiscal year ending June 30, 1999.
(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,
1998 1998
(Unaudited) (Audited)
- ----------------------------------------------------------------------------
Finished goods and work in process $ 5,866,853 $ 4,682,086
Materials and purchased parts 8,865,933 8,605,801
----------- -----------
$14,732,786 $13,287,887
=========== ===========
(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 294,400 shares under this program as of October
31, 1998.
(4) EARNINGS PER SHARE
Reconciliations of the numerators and denominators of the basic and diluted
earnings per share computations for the three months ended September 30, 1998
and 1997 are as follows:
Three Months Ended
September 30, 1998
------------------
Per Share
Income Shares Amount
---------------------------------------
Basic earnings per share $ 1,154,545 8,658,945 $ 0.13
Effect of dilutive stock options --- 214,967 ========
-------------------------
Dilutive earnings per share $ 1,154,545 8,873,912 $ 0.13
========================= ========
Three Months Ended
September 30, 1997
------------------
Per Share
Income Shares Amount
---------------------------------------
Basic earnings per share $ 2,012,993 8,715,833 $ 0.23
Effect of dilutive stock options --- 405,776 ========
-------------------------
Dilutive earnings per share $ 2,012,993 9,121,609 $ 0.22
========================= ========
(5) COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" which
establishes standards to report and display comprehensive income and its
components in a full set of general purpose financial statements. The
Company's comprehensive income was as follows:
Three Months Ended September 30,
1998 1997
---------- ----------
Net Income $1,154,545 $2,012,993
Other Comprehensive Income:
Unrealized adjustment in marketable securities 31,710 45,005
Foreign currency translation adjustments 40,423 (3,612)
---------- ----------
Comprehensive income $1,226,678 $2,054,386
========== ==========
(6) SETTLEMENT OF LAWSUIT
Expenses were incurred associated with the settlement of a lawsuit
between the Company and Osteometer Meditech A/S and RapiScan Security
Systems Inc. During the quarter, the Company was able to make a
determination as to an estimate of expenses that will be incurred as a
result of the settlement of the lawsuit. This amount includes legal
expenses, a settlement payment, and a patent write-off.
Item 2. Management Discussion and Analysis of Financial Condition and
-------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
Equipment sales and other revenue increased 22% to $22,825,000 in the
three months ended September 30, 1998 from $18,663,000 in the three months
ended September 30, 1997. Sales by product line are summarized as follows:
Revenues by Product
(in thousands)
Three Months Ended
----------------------------
September 30, September 30,
1998 1997
------------ ------------
X-ray densitometry $15,385 $12,856
Ultrasound densitometry 1,415 1,328
Orthopedic Imaging 4,080 2,694
Service Revenue 1,691 1,407
Other 254 378
------- -------
$22,825 $18,663
======= =======
The Company's increase in x-ray densitometry sales is attributable to
increased sales to U.S. customers. This increase is primarily due to the
Company's new distributor agreements with McKesson General Medical and
Caligor for distribution to primary care physicians. The increase in
Orthopedic Imaging sales for the current fiscal year is primarily due to
increased unit sales of the Artoscan dedicated MRI system. The increase in
service revenue is primarily due to the growing installed base of
densitometers in the United States.
Cost of sales as a percentage of equipment sales averaged approximately
54% in the three month period ended September 30, 1998 compared to 46% in the
three month period ended September 30, 1997. The increase is primarily the
result of lower gross profit margins on sales of densitometry equipment as a
result of competitive pricing pressures and increased sales to the new U.S.
distributors which have lower gross profit margins. In addition, overall
gross profit margins were lower due to a higher mix of orthopedic imaging
equipment which have lower gross profit margins.
Research and development expenditures increased to $2,047,000 in the
three months ended September 30, 1998 from $1,705,000 in the three months
ended September 30, 1997. The Company increased research and development
expenditures for ultrasound and x-ray densitometry products during the three
month period ended September 30, 1998.
Selling and marketing expenses were $5,693,000 in the three months
ended September 30, 1998, compared to $4,625,000 in the three months ended
September 30, 1997, representing 25% as a percentage of equipment sales for
both periods.
General and administration expenses increased to $1,094,000 in the
three months ended September 30, 1998 from $996,000 in the three months
ended September 30, 1997.
Interest income was $347,000 in the three months ended September 30,
1998, compared to $478,000 in the three months ended September 30, 1997.
This decrease is primarily the result of decreases in the amount of
investments and in the amount of interest from financed receivables.
The effective tax rate averaged 29% in the three month period ended
September 30, 1998, compared to 33% in the three month period ended
September 30, 1997. The effective tax rate is lower in the three month
period ended September 30, 1998 versus the comparable prior year period due
to an increased proportion of tax-exempt interest income and a higher benefit
of the foreign sales corporation. The rate for the three month period ended
September 30, 1998 and September 30, 1997 is below the 34% federal statutory
rate as a result of tax-exempt interest income and the benefit of the foreign
sales corporation offset by the provision for state income taxes.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased $577,000 to $5,185,000 in the three
months ended September 30, 1998. The Company has a $24,609,000 laddered
portfolio of high-grade, readily marketable municipal bonds with various
maturities not exceeding 48 months.
The Company's trade accounts receivable increased $6,049,000 to
$37,451,000 at September 30, 1998 from $31,402,000 at June 30, 1998. The
increase in accounts receivable is primarily due to an increase in
receivables from Latin American customers and an increase in sales compared
to the quarter ended June 30, 1998.
Inventories increased 11% to $14,733,000 at September 30, 1998 from
$13,288,000 at June 30, 1998. The increase in finished goods is
attributable to increases in densitometry units and in Artoscan MRI units.
The increase in materials and purchased parts is primarily attributable to
higher service inventories as a result of higher sales in the United States.
The Company purchased a 25-acre parcel of land in January 1998 for
$1,949,000. The Company began construction of an assembly, warehouse, and
office building in October 1998. Total construction costs are projected to
be approximately $11,000,000. 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.
New Accounting Pronouncements
- -----------------------------
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way
that public business enterprises report financial and descriptive
information about reportable operating segments in annual financial
statements and interim financial reports issued to stockholders. The
Company is evaluating the new Statement's provision and will adopt SFAS No.
131, as required, in fiscal 1999.
SFAS No. 132, "Employers' Disclosure About Pensions and Other
Postretirement Benefits" is effective for fiscal years beginning after
December 31, 1997. SFAS No. 132 revises employers' disclosures about
pensions and other postretirement benefit plans. The Company is evaluating
the new Statement's provisions and will adopt SFAS No. 132, as required, in
fiscal 1999.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for financial statements for periods beginning
after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and hedging activities. The Company
is evaluating the new Statement's provisions.
Year 2000 Compliance
- --------------------
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. To
distinguish 21st century from 20th century dates, these date code fields
must be able to accept four-digit entries.
The Company has reviewed its existing financial and other business
information systems and believes that its computer systems will be able to
manage and manipulate all material data involving the transition from 1999
to 2000 without functional or data abnormality and without inaccurate
results related to such data. During fiscal 1998, the Company replaced its
manufacturing and financial accounting software package at a cost of
approximately $230,000. This new software package is year 2000 compliant.
The Company does not expect to incur significant additional costs to
complete its year 2000 compliance program.
It is possible that third parties, such as suppliers and distributors,
may have noncompliant computer systems or programs, which may not interface
properly with the Company's computer systems or may otherwise result in a
disruption of the Company's operations. The Company is requesting
assurances from third parties with which it has a material relationship
that their computers, systems, and programs be year 2000 compliant.
The Company currently anticipates that the expenses and capital
expenditures associated with its year 2000 compliance program will not have
a material effect on its financial position or results of operations.
Because the Company's software programs are year 2000 compliant, and the
Company does not believe any material problems will arise if a third party
is not year 2000 compliant, the Company has not developed any contingency
plan.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company's exposure to market risk for changes in interest rates
relate primarily to the Company's investment portfolio. The Company does
not use derivative financial instruments in its investment portfolio. The
Company places its investments with high credit quality issuers and, by
policy, limits the amount of credit exposure to any one issuer. As stated
in its policy, the Company is adverse to principal loss and ensures the
safety and preservation of its invested funds by limiting default risk,
market risk, and reinvestment risk. The Company mitigates default risk by
investing in only high credit quality securities. The portfolio includes
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity. All investments mature, by policy, in 48 months or less.
The Company uses forward currency contracts in its management of
foreign currency exposures. The contracts are in German Deutsche Marks and
generally have maturities that do not exceed three months. Realized gains
and losses on such contracts are included in other income at the time the
hedged transaction occurs. There were no deferred gains or losses at
September 30, 1998. These contracts are entered into with major financial
institutions thereby minimizing the risk of credit loss.
The table below provides information about the Company's market
sensitive financial instruments and constitutes a "forward-looking statement."
All items described below are non-trading and are stated in U.S. dollars.
During fiscal year ended June 30,
--------------------------------------
Maturity Dates 1999 2000 2001 2002
- -----------------------------------------------------------------------------
ASSETS
Cash Equivalents
Variable taxable rate $5,120,504
Average taxable interest rate 5.00%
Variable tax-exempt rate $64,692
Average tax-exempt rate 3.33%
Marketable securities
Fixed tax-exempt rate $5,655,000 $7,294,400 $7,663,600 $3,245,000
Average tax-exempt rate 3.93% 4.12% 4.21% 4.17%
Forward contract
German DM denominated $1,019,918
Contracted exchange rate 1.6668:1
(DM to US$)
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. Terms of a
settlement in principal have been read into the court record and negotiations
of final settlement documentation are ongoing. The Company does not believe
these lawsuits will have a material adverse effect on the results of
operations or financial condition of the Company.
Other Matters
- -------------
The Company is a defendant from time to time in actions arising out of
its ordinary business operations. There are no other legal proceedings known
to the Company at this time, which it believes, would likely have a material
adverse impact on the results of operations or financial condition of the
Company. To the Company's knowledge, there are no material legal proceedings
to which any director, officer, affiliate or more than 5% shareholder of the
Company (or any associate of the foregoing persons) is a party adverse to the
Company or any of its subsidiaries or has a material interest adverse to 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,
currency exchange risks, 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:
(10.1) Lunar Corporation Deferred Compensation Plan
(10.2) Form of Deferred Compensation Agreement
(11) Statement Re: Computation of Earnings Per Share
(27.1) Financial Data Schedule, September 30, 1998
(27.2) Financial Data Schedule, September 30, 1997
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1998.
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 11, 1998 /s/ Richard B. Mazess
- ------------------------ -------------------------
Richard B. Mazess
President
(Principal Executive Officer)
Date: November 11, 1998 /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, 1998
No. Description
- --- -----------
10.1 Lunar Corporation Deferred Compensation Plan
10.2 Form of Deferred Compensation Agreement
11 Statement Regarding Computation of Earnings Per Share
27.1 Financial Data Schedule, September 30, 1998
27.2 Financial Data Schedule, September 30, 1997
Exhibit 10.1
LUNAR CORPORATION
Deferred Compensation Plan
Section 1. Introduction. The purpose of the Lunar Corporation
Deferred Compensation Plan (the "Plan") is to permit certain key employees
of Lunar Corporation, a Wisconsin corporation (the "Company"), and certain
of its Subsidiaries (as defined below) to defer receipt of the base salary,
commissions or bonuses, or any of them, earned by or payable to such
employees until such times as set forth herein.
Section 2. Definitions. For purposes of the Plan, the following
capitalized terms shall have the meanings set forth below.
2.1 "Account" shall mean an account kept on the books and records of the
Company established on behalf of a Participant to which amounts deferred by
such Participant and earnings thereon are credited.
2.2 "Agreement" shall mean the written instrument between the Company and a
Participant evidencing such Participant's election to defer compensation
hereunder.
2.3 "Beneficiary" shall mean the beneficiary or beneficiaries (including any
contingent beneficiary) designated pursuant to Section 4.5.
2.4 "Board" shall mean the Board of Directors of the Company.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "Committee" shall mean the two or more members of the Board who are
selected by the Board to administer the Plan.
2.7 "Company" shall mean Lunar Corporation, a Wisconsin corporation, or any
successor thereto.
2.8 "Disability" shall mean the inability, as determined solely by the
Committee, of any Employee to perform substantially his or her duties and
responsibilities for a continuous period of at least six months.
2.9 "Eligible Employee" shall mean an employee of an Employer whose base
salary for a Deferral Year is scheduled to be at least $100,000 as of the
first day of such Deferral Year (or such other amount determined by the
Committee from time to time).
2.10 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
2.11 "Effective Date" shall mean September 1, 1997.
2.12 "Employer" shall mean the Company and each Subsidiary, other than a
Subsidiary, if any, which the Committee excludes from participation in the
Plan.
2.13 "Participant" shall mean an Eligible Employee who has elected to defer
compensation pursuant to the terms of the Plan.
2.14 "Subsidiary" shall mean any corporation other than the Company in an
unbroken chain of corporations beginning with the Company if, at the time of
reference, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock voting generally in the election of
directors in one of the other corporations in such chain.
Section 3. Participation and Deferrals.
3.1 Participation. In General. Each Eligible Employee may participate in
the Plan by executing an Agreement with the Company prior to the beginning of
any calendar month.
3.2 Deferral Elections. An Eligible Employee may elect to defer for each
calendar month the receipt of (i) between 1% and 50% of base salary payable
to or earned by such employee during such month (or such greater percentage
specified for such Eligible Employee in such Eligible Employee's Agreement,
or determined from time to time by the Committee), (ii) between 5% and 100%
of any commissions payable to or earned by such Eligible Employee during
such month and (iii) between 5% and 100% of any bonuses payable to or earned
by such Eligible Employee during such month. In no event shall an Agreement
apply to compensation earned prior to the date on which an Agreement is
received by the Company. A Participant may not revoke or change an election
to defer compensation for a calendar month after the beginning of such month,
but may change or revoke his or her election for any subsequent month by
executing with the Company a new Agreement prior to the month for which the
change or revocation is to become effective.
3.3 Deferred Compensation Account. (a) Establishment of Account;
Crediting Deferred Compensation. Any compensation deferred by a Participant
shall be credited to such Participant's Account as of the date on which,
absent such election, such compensation would have been payable to the
Participant.
(b) Earnings. For bookkeeping purposes only, until a Participant's
Account has been paid in its entirety, such Account shall be credited
quarterly in arrears as of the last calendar day of each fiscal quarter of
the Company at a rate of interest equal to one percent (1%) per quarter. A
Participant's Account shall bear interest from and including the first day
on which an amount is credited to the Account, or from and including the
most recent last calendar day of a fiscal quarter on which interest was
credited to such Account, to but excluding the date as of which interest is
credited. Although the Participant's Employer or the Company may actually
invest (or cause an agent holding assets on behalf of the Employer or the
Company to invest) an amount equal to each Participant's Account balance in
interest bearing accounts or other investment vehicles to facilitate the
payment of Account balances, neither the Company nor the Employer is required
to do so nor to set aside any amount to pay such Account balances.
(c) Notices. Each Participant shall receive written notice of his or
her Account balance as soon as practicable following the last day of each
calendar quarter.
Section 4. Payments of Deferred Compensation.
4.1 Timing. Except as otherwise provided herein, the balance of a
Participant's Account shall be paid or commence to be paid to such
Participant on the date(s) elected by the Participant in such Participant's
Agreement; provided, however, that the date(s) elected by the Participant
shall be at least one year after the execution of the Participation's
Agreement or, if earlier, the participant's termination of employment with
the Company. Notwithstanding the foregoing, the Committee may, in its sole
discretion, defer the payment of all or any portion of a Participant's
Account to the extent it determines that the payment of such amount at the
time elected by the Participant would cause the Company or the Participant's
Employer to be unable to deduct any portion of the Participant's compensation
as a result of the limitations prescribed by Section 162(m) of the Code.
4.2 Manner of Payment. Each Participant shall receive payment of the
amount credited to his or her Account either in a single lump sum or in
monthly, quarterly or annual installments at least equal to $1,000 over a
period of years not to exceed 20 years, as permitted by the Committee and
elected by the Participant. In the event the Participant's employment
terminates by reason of death, the Participant's Beneficiary shall receive
or continue to receive payment of the unpaid balance of the Participant's
Account at the same time and in the same manner as such Account balance
would have been paid to the Participant had he or she survived; provided,
however, that the Committee may accelerate the payment of such Account in
its sole discretion.
4.3 Emergency Payments. In the event of an Unforeseeable Financial
Emergency (as defined below), a Participant may file a written request with
the Company to receive all or any portion of the balance of such
Participant's Account in an immediate lump sum payment. A Participant's
written request for such a payment shall describe in reasonable detail the
circumstances which the Participant believes justify the payment and an
estimate of the amount necessary to eliminate the Unforeseeable Financial
Emergency. An "Unforeseeable Financial Emergency" shall mean unforeseeable
severe financial hardship resulting from (i) the Participant's Disability,
(ii) a sudden and unexpected illness or accident of the Participant or a
dependent of the Participant, (iii) loss of the Participant's property due
to casualty or (iv) such other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee. Unforeseeable Financial
Emergency payments shall be made only to the extent necessary to satisfy the
emergency need and shall not be made to the extent the need is or may be
relieved through reimbursement or compensation, by insurance or otherwise,
by cessation of deferrals under the Plan or by liquidation of the
Participant's assets (to the extent such liquidation itself would not cause
severe financial hardship). Any Unforeseeable Financial Emergency payment
from a Participant's Account shall be deemed to cancel any deferral election
of the Participant then in effect and, unless otherwise determined by the
Committee, the Participant shall be suspended from making further deferral
elections under the Plan during the remainder of the Deferral Year in which
such payment is made and the Deferral Year immediately thereafter.
4.4 Distributions to Minor and Disabled Persons. If a payment is to be
made to a minor or to an individual who, in the opinion of the Committee, is
unable to manage his or her financial affairs by reason of illness or mental
incompetency, such distribution may be made to or for the benefit of any such
individual in such of the following ways as the Committee shall direct: (a)
directly to any such minor individual if, in the opinion of the Committee, he
or she is able to manage his or her financial affairs, (b) to the legal
representative of any such individual, (c) to a custodian under a Uniform
Gifts to Minors Act (or similar law) for any such minor individual, or (d)
to some near relative of any such individual to be used for the latter's
benefit. Neither the Committee nor any Employer shall be required to see to
the application by any third party of any payment made to or for the benefit
of a Participant or Beneficiary pursuant to this Section.
4.5 Beneficiaries. A Participant shall have the right to designate a
Beneficiary, and amend or revoke such designation at any time, in writing.
Such designation, amendment or revocation shall be effective upon receipt of
the Participant's written designation by the Company. If no Beneficiary
survives the Participant, the Company shall direct that payment of any
balance to the Participant's Account be made in the following order of
priority:
(a) to the Participant's spouse; or if none,
(b) to the Participant's descendants, per stirpes; or if none,
(c) to the Participant's estate.
Section 5. Administration. The Plan shall be administered by the
Committee, which shall have full power and authority to interpret, construe
and administer the Plan in accordance with the provisions herein set forth.
The Committee's interpretation and construction hereof, and actions
hereunder, or the amount or recipient of the payments to be made herefrom,
shall be conclusive and binding on all persons for all purposes. In this
connection, the Committee may delegate to any Employer, committee or
individual, whether or not an employee of an Employer, the duty to act for
the Committee hereunder. No officer or employee of the Company or any
Employer shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of the Plan unless
attributable to his or her own willful misconduct or lack of good faith.
The expenses of administering the Plan shall be paid by the Employers and
shall not be charged against the Plan.
Section 6. Miscellaneous.
6.1 Unfunded Status and Application of ERISA. The Plan is intended to be
an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management or highly compensated employees
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and
Department of Labor Regulation section 2520.104-23. In order to meet the
deferred obligations hereunder, the Company and the Employers may, but shall
not be required to, set aside or earmark an amount necessary to provide
payments equal to the aggregate balances of the Participants' Accounts. In
the event that the Company or an Employer sets aside any amounts to provide
payments hereunder, such amounts, and all income attributable to such
amounts, shall remain (until made available to a Participant or Beneficiary)
solely the property and rights of the Company or such Employer (without being
restricted to the provision of benefits under the Plan) and shall be subject
to the claims of the Company's or the Employer's general creditors. The
Company's and each Employer's obligations hereunder shall constitute general,
unsecured obligations, payable solely out of its general assets, and no
Participant or Beneficiary shall have any right to any specific assets. The
Plan constitutes a mere promise by the Company and each Employer to make
benefit payments in the future.
6.2 Immunity. Neither the establishment of the Plan nor the payment of any
Account hereunder shall be construed as giving or granting any person any
legal or equitable rights against the Company, any Employer, the Board, the
Committee, or any of their officers, trustees, associates, or agents, other
than such as are specifically conferred by the express terms of the Plan.
6.3 Nonassignability. No compensation deferred under the Plan or any
amount credited to an Account shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of any Participant or any Beneficiary, and any
attempt to transfer or encumber the same shall be void, other than pursuant
to a qualified domestic relations order as defined in Title I of ERISA.
6.4 Amendment of the Plan. The Board may, in its sole discretion and
without the consent of any Participant or Beneficiary, amend the Plan at
any time and in any manner by duly adopted resolutions, including, without
limitation, the acceleration of the payment of any Accounts hereunder;
provided, however, that no amendment shall reduce the amount credited to the
Account of any Participant immediately prior to such amendment.
6.5 Withdrawal by an Employer; Termination of the Plan. Each Employer
may, in its sole discretion without the consent of any Participant or
Beneficiary, terminate its participation in the Plan at any time by giving
written notice thereof to the Committee and each Participant employed by
such Employer. Notwithstanding any Participant's deferral election set
forth in an Agreement pursuant to Section 3.1 and Section 3.2, the amount
credited to each Account shall be paid to the person entitled thereto at
such time and in such manner as the Committee shall determine, but not
later than the date or dates payments would have been made had such
Employer's participation in the Plan not been terminated. The Company
may, in its sole discretion, terminate the Plan without the consent of, or
notification to, any person. Upon the termination of the Plan, all Account
balances shall be paid to Participants and Beneficiaries.
6.6 No Contractual Rights to Serve. Nothing in the Plan shall be
interpreted as conferring any right on any employee to remain employed by an
Employer for any stated period of time or otherwise change the employee's
employment relationship with his or her Employer from an employment at will
relationship.
6.7 Tax Withholding, Etc. Any payment required under the Plan shall be
subject to all requirements of the law with regard to withholding taxes,
filings, and making of reports, and each Employer and Participant shall use
its or his or her best efforts to satisfy promptly all such requirements, as
applicable.
6.8 Applicable Law. The Plan and all rights hereunder and all
determinations made and actions taken pursuant thereto, to the extent not
otherwise governed by the Code or the laws of the United States, shall be
governed by the laws of the State of Wisconsin and construed in accordance
therewith without giving effect to the principles of conflicts of laws.
Exhibit 10.2
LUNAR CORPORATION
Deferred Compensation Agreement
THIS AGREEMENT is made and entered into this _____ day of __________,
199_, by and between Lunar Corporation, a Wisconsin corporation (the
"Company"), and _________________________ (the "Participant").
WITNESSETH:
WHEREAS, the Company has a Deferred Compensation Plan (the "Plan") in
which the Participant is eligible to participate; and
WHEREAS, the Participant desires to defer a portion of the
Participant's base salary, commissions and/or all or a portion of any bonus
award earned by or payable to the Participant, in accordance with the terms
and conditions of the Plan and this Agreement:
NOW, THEREFORE, the parties hereto agree as follows:
1. Participant's Election to Defer Base Salary. The Participant
hereby irrevocably elects, except as provided for in Section 4.3 of the
Plan, to defer payment of ____% (insert a whole number between 1% and 50%)
of the Participant's future base salary payments. Such base salary shall be
deferred for each pay period of the Company (up to a maximum of $______ in
any fiscal year) beginning with the pay period commencing _______, 199_.
The Participant may revoke or change the foregoing election in accordance
with Section 3.2 of the Plan.
2. Participant's Election to Defer Commissions. The Participant
hereby irrevocably elects, except as provided in Section 4.3 of the Plan, to
defer payment of _____% (insert a whole number between 5% and 100%) of any
future commissions earned by and otherwise payable to the Participant.
3. Participant's Election to Defer Bonus Award. The Participant
hereby irrevocably elects, except as provided in Section 4.3 of the Plan, to
defer payment of _____% (insert a whole number between 5% and 100%) of any
future bonus award earned by and otherwise payable to the Participant.
4. Agreement of the Company to Defer Base Salary, Commissions and/or
Bonus Award. The Company agrees to establish a separate account on its books
for the benefit and in the name of the Participant ("Account") in which the
amount of base salary, commissions and/or bonus award deferred by the
Participant ("Deferred Compensation") under this Agreement shall be credited.
Deferred Compensation shall be credited to the Account as of the date on
which such Deferred Compensation would have been paid to the Participant but
for the Participant's election to defer payment of such amount(s). Interest
shall be credited to the Account in accordance with Section 3.3(b) of the
Plan. The Account shall be maintained by the Company in accordance with
Section 3.3 of the Plan.
5. Payment of Deferred Compensation. (a) The Participant hereby
elects to receive payment of, and the Company hereby agrees to pay the
Participant, the Deferred Compensation as follows (check one and complete if
necessary):
_____ A lump sum payment in ________________(insert month and year at
least one year after the execution of this Agreement); or
_____ A lump sum payment in the first full calendar month following
the effective date of the Participant's termination of employment with the
Company; or
_____ ANNUAL; ____ QUARTERLY; ____ MONTHLY installments commencing on
January 1, ____ (insert year at least one year after the execution of this
Agreement) and ending on the earlier to occur of (i) January 1, ____ and (ii)
the date on which the amount credited to the Account is zero; or
_____ ANNUAL; ____ QUARTERLY; ____ MONTHLY installments commencing in
the first full calendar month following the effective date of the
Participant's termination of employment with the Company and ending on the
earlier to occur of (i) ____ months after the commencement of installment
payments and (ii) the date on which the amount credited to the Account is zero.
(b) The lump sum payment or each such installment payment shall be
paid together with interest thereon as determined in Section 3.3 of the Plan.
6. Calculation of Installment Payment Amounts. The amount of any
installment payment shall equal the amount determined by dividing the current
balance in the Account as of a specified payment date (which amount shall
include interest accrued from and including the most recent date to which
interest has been credited to but excluding such payment date) by the number
of remaining installment payments.
7. Death of Employee. In the event that the Participant shall die
prior to the payment of the unpaid balance of the Deferred Compensation in
the Participant's Account, such unpaid balance shall be paid to the
beneficiary(ies) designated on the attached Exhibit A or, if no
beneficiary(ies) is designated, in accordance with Section 4.5 of the Plan.
8. Incorporation of Deferred Compensation Plan. The terms and
conditions of the Plan are hereby incorporated by reference and form a part
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
LUNAR CORPORATION
By:___________________________________
Name:
Title:
Participant's Signature
______________________________________
Print Name
______________________________________
Home Address
______________________________________
Participant's Social Security Number
Exhibit A
LUNAR CORPORATION
Deferred Compensation Plan
BENEFICIARY DESIGNATION FORM
Deferred Compensation Agreement (the "Agreement")
dated:_______________________
You may designate a primary beneficiary and a secondary beneficiary. You
may name more than one person as a primary or secondary beneficiary. For
example, you may wish to name your spouse as primary beneficiary and your
children as secondary beneficiaries. Your secondary beneficiary(ies) will
receive nothing if any of your primary beneficiaries survive you. All
primary beneficiaries will share equally unless you indicate otherwise. The
same rule applies for secondary beneficiaries.
Designate Your Beneficiary(ies):
Primary Beneficiary(ies) (give name, address and relationship to you):
___________________________________________________
___________________________________________________
___________________________________________________
Secondary Beneficiary(ies) (give name, address and relationship to you):
___________________________________________________
___________________________________________________
___________________________________________________
I certify that my designation of beneficiary set forth above is my free
act and deed.
If you marry or become divorced after the date of this Form, your marriage
will be deemed to revoke any prior beneficiary designation, and your divorce
will be deemed to revoke any prior designation of your divorced spouse, if
written evidence of such marriage or divorce is received by the Secretary
before payment of any deferred compensation subject to the Agreement.
Therefore, if you are married or divorced after making a beneficiary
designation, you should file a new designation even if you want your
beneficiary designation(s) to remain the same.
______________________________ ________________________________
Name (Please Print) Signature
________________________________
Date
This Beneficiary Designation Form shall be effective on the day it is
actually received by the Secretary of the Company at 313 West Beltline
Highway, Madison, Wisconsin 53713. This Form shall be delivered to the
Secretary by personal delivery, United States registered or certified mail
(return receipt requested, postage prepaid) or by a nationally recognized
overnight courier service; provided, however, that if this Form is not
received during regular business hours, it shall be deemed to be received on
the next succeeding business day of the Company.
NOTICE: The signature on this Beneficiary Designation Form shall correspond
to the name set forth in the Agreement.
Exhibit 11
LUNAR CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
(Unaudited)
Three months ended
September 30, September 30,
1998 1997
------------ ------------
Net income $1,154,545 $2,012,993
========== ==========
Weighted average number of
common shares 8,658,945 8,715,833
Stock options calculated according
to the treasury stock method 214,967 405,776
---------- ----------
Weighted average number of common
and potential common shares 8,873,912 9,121,609
========= =========
Basic earnings per share $0.13 $0.23
===== =====
Diluted earnings per share $0.13 $0.22
===== =====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Form 10-Q for the three months ended
September 30, 1998, and is qualified in its entirety by
reference to such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 5,185
<SECURITIES> 24,609
<RECEIVABLES> 40,672
<ALLOWANCES> 3,221
<INVENTORY> 14,733
<CURRENT-ASSETS> 62,609
<PP&E> 13,083
<DEPRECIATION> 5,546
<TOTAL-ASSETS> 92,681
<CURRENT-LIABILITIES> 17,255
<BONDS> 0
<COMMON> 86
0
0
<OTHER-SE> 75,340
<TOTAL-LIABILITY-AND-EQUITY> 92,681
<SALES> 22,825
<TOTAL-REVENUES> 22,825
<CGS> 12,222
<TOTAL-COSTS> 21,056
<OTHER-EXPENSES> 491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,625
<INCOME-TAX> 470
<INCOME-CONTINUING> 1,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,155
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<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
reference to such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 16,191
<SECURITIES> 21,867
<RECEIVABLES> 32,700
<ALLOWANCES> 2,602
<INVENTORY> 11,019
<CURRENT-ASSETS> 61,547
<PP&E> 8,826
<DEPRECIATION> 4,226
<TOTAL-ASSETS> 86,482
<CURRENT-LIABILITIES> 14,178
<BONDS> 0
<COMMON> 87
0
0
<OTHER-SE> 72,217
<TOTAL-LIABILITY-AND-EQUITY> 86,482
<SALES> 18,663
<TOTAL-REVENUES> 18,663
<CGS> 8,590
<TOTAL-COSTS> 15,916
<OTHER-EXPENSES> 236
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,989
<INCOME-TAX> 976
<INCOME-CONTINUING> 2,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,013
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
</TABLE>
