UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 January 31, 1999, 8,605,760 shares of the registrant's Common Stock,
$0.01 par value, were outstanding.
LUNAR CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the quarterly period ended December 31, 1998
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION Page
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Item 1. Financial statements
Consolidated Balance Sheets
December 31, 1998, and June 30, 1998. . . . . . . . . . . . . . . . 3
Consolidated Statements of Income
Three and Six Months Ended December 31, 1998
and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
Six Months Ended December 31, 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 . . . . . . . . . . . . . . . . . . . . . . .14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .14
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
- -------------------------------------------------------------------------------
December 31, June 30,
1998 1998
(Unaudited) (Audited)
- -------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 6,945,363 $4,608,427
Marketable securities 4,166,757 8,117,655
Receivables:
Trade, less allowance for doubtful
Accounts of $3,414,000 at
December 31, 1998 and $3,272,000
at June 30, 1998 30,735,082 24,285,511
Short-term financed accounts
receivable 3,624,069 2,092,164
Other 556,511 929,179
- -------------------------------------------------------------------------------
34,915,662 27,306,854
Inventories 15,815,489 13,287,887
Deferred Income Taxes 2,121,000 1,618,000
Other Current Assets 505,886 350,360
- -------------------------------------------------------------------------------
Total Current Assets 64,470,157 55,289,183
Property, Plant and Equipment--At Cost:
Buildings and improvements 2,287,356 2,287,356
Furniture and fixtures 928,790 876,813
Machinery and other equipment 8,130,047 6,630,755
- -------------------------------------------------------------------------------
11,346,193 9,794,924
Less Accumulated Depreciation and
Amortization 5,784,709 5,086,141
- -------------------------------------------------------------------------------
5,561,484 4,708,783
Land 2,088,118 2,088,118
Construction in progress 981,587 132,702
- -------------------------------------------------------------------------------
8,631,189 6,929,603
- -------------------------------------------------------------------------------
Long-term Financed Accounts Receivable 5,632,484 4,095,565
Long-term Marketable Securities 14,535,781 22,783,003
Patents and Other Intangibles, Net of
Accumulated Amortization of $655,783 at
December 31, 1998 and $1,512,781 at
June 30, 1998 503,417 809,468
Other 172,341 208,136
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$93,945,369 $90,114,958
===============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------
December 31, June 30,
1998 1998
(Unaudited) (Audited)
- -------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 6,759,126 $ 4,881,399
Customer advances and deferred income 1,312,216 1,027,872
Income taxes payable 3,090,094 3,494,822
Accrued liabilities:
Commissions payable 2,824,273 2,186,040
Compensation payable 436,164 413,084
Property, payroll, and other taxes 279,552 155,683
Accrued warranty and installation
expenses 2,670,000 2,145,000
Other 353,606 199,324
- -------------------------------------------------------------------------------
Total Current Liabilities 17,725,031 14,503,224
Shareholders' Equity:
Common stock--authorized 25,000,000
shares of $.01 par value; issued
and outstanding 8,604,760 shares
at December 31, 1998 and
8,701,210 at June 30, 1998 86,048 87,012
Capital in excess of par value 23,528,098 24,936,811
- -------------------------------------------------------------------------------
23,614,146 25,023,823
Retained Earnings 52,458,487 50,568,281
Accumulated Comprehensive Income 147,705 19,630
- -------------------------------------------------------------------------------
76,220,338 75,611,734
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$93,945,369 $90,114,958
===============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
- -------------------------------------------------------------------------------
Three months ended Six Months Ended
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
Revenues $23,410,259 $21,435,498 $46,234,802 $40,098,006
- -------------------------------------------------------------------------------
Operating Expenses
Cost of sales 13,331,918 9,687,592 25,553,844 18,277,669
Research and development 1,767,573 1,832,397 3,814,193 3,537,696
Selling and marketing 6,654,667 4,784,158 12,348,074 9,409,004
General and
Administrative 1,300,237 956,849 2,394,027 1,952,526
- -------------------------------------------------------------------------------
23,054,395 17,260,996 44,110,138 33,176,895
- -------------------------------------------------------------------------------
Income from Operations 355,864 4,174,502 2,124,664 6,921,111
- -------------------------------------------------------------------------------
Other Income (Expense):
Interest income 346,217 477,404 692,883 955,903
Settlement of lawsuit - - (579,555) -
Other 289,580 (603,176) 378,214 (839,291)
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635,797 (125,772) 491,542 116,612
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Income Before Income Taxes 991,661 4,048,730 2,616,206 7,037,723
Income Tax Expense 256,000 1,320,000 726,000 2,296,000
- -------------------------------------------------------------------------------
Net Income $735,661 $2,728,730 $1,890,206 $4,741,723
===============================================================================
Basic Earnings per Share $0.09 $0.31 $0.22 $0.54
===============================================================================
Diluted Earnings per Share $0.08 $0.30 $0.21 $0.52
===============================================================================
Weighted Average Number of
Common Shares 8,604,509 8,759,643 8,631,728 8,737,739
===============================================================================
Weighted Average Number of
Common and Dilutive Potential
Common Shares 8,813,397 9,109,849 8,843,154 9,111,073
===============================================================================
See accompanying notes to consolidated financial statements
LUNAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
- -------------------------------------------------------------------------------
Six months ended
December 31, December 31,
1998 1997
- -------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $1,890,206 $4,741,723
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,127,845 1,089,283
Write-off of patents 159,959 -
Changes in assets and liabilities:
Receivables (9,109,932) 221,133
Inventories (2,527,602) (3,981,919)
Other current assets (155,526) (311,899)
Deferred income taxes (503,000) 941,000
Accounts payable 1,920,934 (204,854)
Customer advances and deferred income 284,344 173,194
Accrued liabilities 1,464,464 462,946
Income taxes payable (404,728) 309,677
- -------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Operating Activities (5,853,036) 3,440,284
- -------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchases of marketable securities - (14,512,714)
Sales and maturities of marketable securities 12,069,230 2,095,000
Additions to property, plant and equipment (2,400,154) (628,502)
Additions to patents and other intangibles (69,427) (74,159)
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Net Cash Provided by (Used in)
Investing Activities 9,599,649 (13,120,375)
- -------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 22,678 380,043
Income tax benefit from stock option exercises 4,245 659,221
Repurchase of common stock (1,436,600) (1,078,125)
- -------------------------------------------------------------------------------
Net Cash Used in Financing Activities (1,409,677) (38,861)
- -------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Cash Equivalents 2,336,936 (9,718,952)
Cash and Cash Equivalents at Beginning of Period 4,608,427 14,417,155
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 6,945,363 $4,698,203
- -------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 1,380,401 $ 413,496
===============================================================================
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 December 31, 1998, the consolidated
statements of income for the three and six months ended December 31, 1998 and
1997, and the consolidated statements of cash flows for the six months ended
December 31, 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 and six months ended December 31,
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:
- -------------------------------------------------------------------------------
December 31, June 30,
1998 1998
(Unaudited) (Audited)
- -------------------------------------------------------------------------------
Finished goods and work in process $ 7,820,255 $ 4,682,086
Materials and purchased parts 7,995,234 8,605,801
----------- -----------
$15,815,489 $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 January 31, 1999.
(4) EARNINGS PER SHARE
The difference between the weighted average number of common shares and
the weighted average number of common and dilutive potential common shares is
due to the effect of dilutive stock options.
(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 Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net Income $ 735,661 $2,728,730 $1,890,206 $4,741,723
Other Comprehensive Income:
Unrealized adjustment in
marketable securities 53,157 15,561 84,867 60,566
Foreign currency translation
adjustments 2,785 (17,372) 43,208
(20,984)
---------- ---------- ---------- ----------
Comprehensive income $ 791,603 $2,726,919 $2,018,281 $4,781,305
========== ========== ========== ==========
(6) SETTLEMENT OF LAWSUIT
Expenses were incurred in the three months ended September 30, 1998 associated
with the settlement of a lawsuit between the Company and Osteometer Meditech
A/S and Rapiscan Security Systems Inc. During the quarter ended September 30,
1998, the Company was able to reasonably estimate the expenses that would 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 9% to $23,410,000 in the three
months ended December 31, 1998 from $21,435,000 in the three months ended
December 31, 1997. For the six months ended December 31, 1998, equipment sales
and other revenue increased 15% to $46,235,000 from $40,098,000 in the six
months ended December 31, 1997. Sales by product line are summarized as
follows:
Revenues by Product
(in thousands)
Three Months Ended Six Months Ended
-------------------------- --------------------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
X-ray densitometry $14,517 $16,253 $29,902 $29,110
Ultrasound densitometry 2,363 1,381 3,778 2,708
Orthopedic Imaging 4,406 2,180 8,486 4,874
Service Revenue 1,745 1,361 3,436 2,768
Other 379 260 633 638
------------ ------------ ------------ ------------
$23,410 $21,435 $46,235 $40,098
============ ============ ============ ============
The decrease in x-ray densitometry sales in the three months ended December 31,
1998 is primarily attributable to a decrease in average selling prices. This
decrease is due to competitive pricing pressures and increased sales to
distributors in the United States at lower average selling prices than direct
sales to end users. The increase in ultrasound densitometry is primarily due to
increased sales in the United States. 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 attributable
to a growing installed base of densitometers in the United States.
Cost of sales as a percentage of equipment sales averaged approximately 57% and
55% in the three and six month periods ended December 31, 1998, respectively,
compared to 45% and 46% in the three and six month periods ended December 31,
1997, respectively. The increase in the cost of sales as a percentage of
equipment sales is primarily a result of the aforementioned decrease in average
selling prices. Gross profit margins were also lower due to a higher mix of
orthopedic imaging equipment sales, which carry lower gross profit margins.
Research and development expenditures decreased to $1,768,000 in the three
months ended December 31, 1998 from $1,832,000 in the three months ended
December 31, 1997, and increased to $3,814,000 in the six months ended December
31, 1998 from $3,538,000 in the six months ended December 31, 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 $6,655,000 in the three months ended
December 31, 1998, compared to $4,784,000 in the three months ended December
31, 1997, representing an increase to 28% from 22% as a percentage of equipment
sales. For the six months ended December 31, 1998, selling and marketing
expenses were $12,348,000 compared to $9,409,000 for the six months ended
December 31, 1997, representing an increase to 27% from 23% as a percentage of
equipment sales. These increases are primarily the result of increased sales
and marketing efforts to address the expanding primary care market for
densitometry.
General and administration expenses increased to $1,300,000 in the three months
ended December 31, 1998 from $957,000 in the three months ended December 31,
1997, and increased to $2,394,000 in the six months ended December 31, 1998
from $1,953,000 in the six months ended December 31, 1997. The increases were
primarily attributable to an increase in the number of employees and an
increase in property taxes related to the new building under construction.
Interest income was $346,000 and $693,000 in the three and six months ended
December 31, 1998, compared to $477,000 and $956,000 in the three and six
months ended December 31, 1997. This decrease is primarily the result of
decreases in the amount of investments.
The effective tax rate averaged 26% and 28% in the three and six month periods
ended December 31, 1998, compared to 33% in the three and six month periods
ended December 31, 1997. The effective tax rate is lower in the three and six
month periods ended December 31, 1998 versus the comparable prior year period
due to an increased proportion of tax-exempt interest income and a higher
benefit from the foreign sales corporation. The rate for the three and six
month periods ended December 31, 1998 and December 31, 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 $2,337,000 to $6,945,000 in the six months
ended December 31, 1998. The Company has a $18,703,000 laddered portfolio of
high-grade, readily marketable municipal bonds with various maturities not
exceeding 48 months.
The Company's trade accounts receivable increased $9,146,000 to $40,548,000 at
December 31, 1998 from $31,402,000 at June 30, 1998. The increase in accounts
receivable is primarily attributable to higher accounts receivable from
financed customers in Latin America as a result of the Company's decision not
to sell these receivables, higher accounts receivable from Artoscan MRI
customers which generally have longer payment terms.
The Company has approximately $7,475,000 in financed accounts receivable from
Brazilian customers as of December 31, 1998. Two finance companies also have
recourse against the Company for a maximum of approximately $1,395,000 for
financed Brazilian accounts receivable that have been sold. All of the
Brazilian accounts receivable are denominated in U.S. dollars. In January 1999
the Brazilian government allowed its currency, the real, to freely trade
against the U.S. dollar. As of early February 1999, this policy change resulted
in approximately a 35% devaluation of the real as compared to the U.S. dollar.
The Company expects to incur some payment delays from Brazilian customers and
possibly lower future sales in Brazil as a result of this devaluation.
Inventories increased 19% to $15,815,000 at December 31, 1998 from $13,288,000
at June 30, 1998. The increase is primarily attributable to an increase in
finished goods in Artoscan and densitometry.
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
$10,140,000, of which $981,587 had been paid as of December 31, 1998. 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. 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 December 31, 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 $5,925,416
Average taxable interest rate 4.15%
Variable tax-exempt rate $1,019,947
Average tax-exempt rate 3.14%
Marketable securities
Fixed tax-exempt rate $2,905,000 $4,241,900 $7,663,600 $3,245,000
Average tax-exempt rate 3.99% 4.24% 4.23% 4.19%
Forward contract
German DM denominated $1,196,172
Contracted exchange rate 1.6720:1
(DM to US$)
PART II - OTHER INFORMATION
LUNAR CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings
PATENT LITIGATION: As reported in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998, the Company was co-defendant and
counterclaim co-plaintiff with the University of Alabama-Birmingham Research
Foundation ("UAB") in two declaratory judgement actions filed in the United
States District Court for the Central District of California. Both actions
sought a determination of non-infringement and invalidity of U.S. patent number
4,626,688 (the '688 patent). The first declaratory judgement action was filed
January 21, 1997 by Rapiscan Security Systems, Inc. ("Rapiscan"). Rapiscan
manufactures and sells baggage scanning equipment. The second declaratory
judgement 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. The above-described litigation has now been
settled. Under the terms of the Settlement Agreement with Rapiscan, Rapiscan
has agreed to a paid up license under the '688 patent and the Company agreed to
a payment to settle Rapiscan claims. The balance of the settlement resulted in
the Company making a $400,000 payment to Rapiscan. The Settlement Agreement
between UAB, the Company and Osteometer provides for Osteometer to make a lump
sum payment of $250,000 to the Company and also provides for the payment of
future royalties to UAB and the Company on Osteometer's sales of bone
densitometry products.
On May 21, 1998 the Company filed suit against IMRO Medical Research Ottawa
("IMRO") for infringement of the Company's Canadian patent number 1,323,090
(the '090 patent). IMRO manufactures and sells ultrasound bone densitometers in
Canada and has manufactured ultrasound densitometers for Norland Medical
Systems, Inc. for distribution and sales throughout the world. This suit is
pending in the Federal Court of Canada-Trial Division.
On June 30, 1998 the Company and Stanford University filed suit against Norland
Corporation and its parent company Norland Medical Systems, Inc. in the United
States District Court for the Western District of Wisconsin for infringement of
U.S. patent number 4,686,695 (the '695 patent). The '695 patent is owned by
Stanford University and is licensed to the Company for the field of medical
devices. The parties have entered into a Settlement and License Agreement
whereby Norland will make payment of royalties to the Company and Stanford
University on Norland's axial bone densitometers.
On November 24, 1998 Lunar was issued U.S. patent number 5, 841,832 (the '832
patent). On January 20, 1999 the Company brought suit against EG&G Astrophysics
Research Corporation and its parent company EG&G, Inc. (collectively referred
to as "EG&G") in the United States District Court for the Western District of
Wisconsin for infringement of the '832 patent by EG&G's dual-energy baggage
scanners.
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
The 1998 Annual Meeting of Shareholders ("Annual Meeting") of the Company was
held on November 20, 1998. The total number of shares of the Company's common
stock, $0.1 par value per share, outstanding as of October 9, 1998, the record
date of the Annual Meeting, was 8,604,460. Management of the Company solicited
proxies pursuant to Section 14 of the Securities Exchange Act of 1934 and
Regulation 14A promulgated thereunder for the Annual Meeting. Two (2)
directors, Samuel E. Bradt and Richard B. Mazess, were elected to serve until
the 2001 Annual Meeting of Shareholders. The directors were elected by a vote
of 7,993,145 votes "FOR" and 19,098 votes "WITHHELD AUTHORITY."
Item 5. Other Information
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS: 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 Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. 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 and approvals 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, the uncertainty of the Company's patent positions
and proprietary rights, and market and general economic factors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits furnished:
(27.1) Financial Data Schedule, December 31, 1998
(27.2) Financial Data Schedule, December 31, 1997
(b) Reports on Form 8-K
A Form 8-K dated December 16, 1998 was filed on December 23, 1998 under Item 4
of Form 8-K (Changes in Registrant's Certifying Accountant) relating to the
change of the Company's independent accountant to Arthur Andersen LLP from
KPMG Peat Marwick LLP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUNAR CORPORATION
(Registrant)
Date: February 12, 1999 /s/ Richard B. Mazess
---------------------
Richard B. Mazess
President
(Principal Executive Officer)
Date: February 12, 1999 /s/ Robert A. Beckman
---------------------
Robert A. Beckman
Vice President of Finance
and Treasurer
(Principal Financial and
Accounting Officer)
LUNAR CORPORATION AND SUBSIDIARIES
Exhibit Index
For the Quarterly Period Ended December 31, 1998
No. Description
- ---- -----------
27.1 Financial Data Schedule, December 31, 1998
27.2 Financial Data Schedule, December 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Form 10-Q for the six months ended
December 31, 1998, and is qualified in its entirety by
reference to such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 6,945
<SECURITIES> 18,703
<RECEIVABLES> 43,962
<ALLOWANCES> 3,414
<INVENTORY> 15,815
<CURRENT-ASSETS> 64,470
<PP&E> 14,416
<DEPRECIATION> 5,785
<TOTAL-ASSETS> 93,945
<CURRENT-LIABILITIES> 17,725
<BONDS> 0
<COMMON> 86
0
0
<OTHER-SE> 76,134
<TOTAL-LIABILITY-AND-EQUITY> 93,945
<SALES> 46,235
<TOTAL-REVENUES> 46,235
<CGS> 25,554
<TOTAL-COSTS> 44,110
<OTHER-EXPENSES> 201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,616
<INCOME-TAX> 726
<INCOME-CONTINUING> 1,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,890
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Form 10-Q for the six months ended
December 31, 1997, and is qualified in its entirety by
reference to such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 4,698
<SECURITIES> 34,745
<RECEIVABLES> 31,468
<ALLOWANCES> 2,670
<INVENTORY> 13,335
<CURRENT-ASSETS> 54,296
<PP&E> 9,101
<DEPRECIATION> 4,568
<TOTAL-ASSETS> 88,787
<CURRENT-LIABILITIES> 13,801
<BONDS> 0
<COMMON> 88
0
0
<OTHER-SE> 74,898
<TOTAL-LIABILITY-AND-EQUITY> 88,787
<SALES> 40,098
<TOTAL-REVENUES> 40,098
<CGS> 18,278
<TOTAL-COSTS> 33,177
<OTHER-EXPENSES> 839
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,038
<INCOME-TAX> 2,296
<INCOME-CONTINUING> 4,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,742
<EPS-PRIMARY> .54
<EPS-DILUTED> .52
</TABLE>
