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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15 (d)OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31,1999
COMMISSION FILE NUMBER 0-3319
DEL GLOBAL TECHNOLOGIES CORP.
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(Exact name of registrant as specified in its charter)
New York 13-1784308
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 Commerce Park, Valhalla, New York 10595
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-686-3600 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, The Nasdaq Stock Market
$.10 Par Value
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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 _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant amounted to $34,613,980 at the close of business on October 29, 1999.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the close of business on October 29, 1999.
Common Stock - 7,806,025
PART I
ITEM 1. BUSINESS
The Company is comprised of (i) Del Global Technologies Corp.
("Del"), a New York corporation which was incorporated in 1954; (ii) RFI
Corporation ("RFI"), a Delaware corporation and wholly-owned subsidiary of the
Company; (iii) Dynarad Corp. ("Dynarad"), a New York corporation and
wholly-owned subsidiary of the Company; (iv) Bertan High Voltage Corp.
("Bertan"), a New York corporation and wholly-owned subsidiary of the Company
and (v) Gendex-Del Medical Imaging Corp. ("Gendex-Del"), a Delaware corporation
and a wholly-owned subsidiary of the Company.
Del Global Technologies Corp. has two reportable segments which are
Medical Imaging Systems and Critical Electronic Subsystems. The Medical Imaging
Systems Segment designs, manufactures and markets state-of-the-art,
cost-effective medical imaging and diagnostic systems consisting of stationary
and portable imaging systems, radiographic/fluoroscopic systems, mammography
systems and a neo-natal imaging system. The Critical Electronic Subsystems
Segment designs, manufactures and markets proprietary precision power conversion
and noise suppression subsystems for medical as well as critical industrial
applications.
The Company's medical imaging systems and critical electronic
subsystems are designed to meet the needs of the healthcare industry to reduce
medical imaging and diagnostic costs. The Company focuses its sales, marketing
and development efforts primarily on medical imaging systems and critical
electronic subsystems priced under $150,000 per unit. The Company believes that
its products offer price performance advantages compared to products typically
priced higher. The Company's cost-effective medical imaging systems and
subsystems also meet the increasing international demand for such products.
Several of the world's largest radiographic system manufacturers
have had entire radiographic systems designed and manufactured to their
specifications in order to reduce their product costs. This process, called
outsourcing, has benefitted the Company's Medical Imaging System Segment.
The Company's Critical Electronic Subsystems are custom engineered
to complex customer performance specifications and include high voltage power
subsystems, such as power supplies, capacitors, transformers, pulse forming
networks and electronic noise suppression subsystems. These products are
utilized by original equipment manufacturers ("OEMs") for medical imaging and
diagnostic products having a broad range of applications such as computerized
tomography (CT), magnetic resonance imaging (MRI), minimally invasive surgery,
bone densitometry, radiography, blood analysis, medical laser surgery, nuclear
medicine and positron emission tomography (PET) scanning. As a result of its
record for quality and reliability, the Company has developed close working
relationships with its OEM customers. These relationships often result in the
selection of the Company by its OEM customers as sole source provider of these
critical electronic subsystems.
During the past five years the Company has grown internally and
through acquisitions into a company whose predominant business is serving the
medical imaging and diagnostic markets. Most significantly, in March, 1996 the
Company completed the acquisition of certain assets of Gendex. The Company's
sales of medical imaging systems and critical electronic subsystems for medical
applications increased from approximately $14.4 million or approximately 44% of
total net sales in fiscal 1995 to approximately $49.2 million or approximately
72% of total net sales in fiscal 1999. Reflecting worldwide demand for its
products and increased international sales efforts, the Company has increased
export sales from approximately $11.7 million in fiscal 1995 to approximately
$31.4 million in fiscal 1999. Export sales consist of direct sales of the
Company's products and sales of subsystems that are incorporated into OEM's
products for export.
Industry Background
Medical Imaging Systems. Medical imaging systems of the types
manufactured by the Company use x-ray technology to produce images of matter
beneath an opaque surface. An imaging system principally consists of a high
voltage power supply, an x-ray tube and an image recording system, which is
usually film. X-rays are generated as a result of high voltage being applied to
the x-ray tube. The performance of the x-ray system, including image resolution,
is directly linked to the precision performance of the high voltage power
supply. The object to be imaged is placed between the x-ray tube and the film.
X-rays, which are not reflected by opaque surfaces, pass through the object and
expose the film. However, if the object is comprised of areas of varying
densities or chemical compositions,
2
x-rays will be absorbed in proportion to the density or chemical composition of
the matter. As a result, the film will be exposed to a varying degree, thereby
producing an image of the density or chemical variation within the object. For
example, since bone has a greater density than the surrounding tissue in the
body, x-rays can be used to produce an image of a skeleton.
X-ray systems are differentiated by a number of key characteristics
such as image resolution, accuracy, portability, size and cost. The design of an
x-ray system requires complex engineering which determines the performance
factors required of the various components of the system.
Critical Electronic Subsystems. Critical electronic subsystems for
medical imaging and non-medical applications of the types manufactured by the
Company consist of high voltage power conversion components such as power
supplies, capacitors, transformers and noise suppression systems. High voltage
power supplies are used to transform commercially generated electric power from
low voltage to high voltage. High voltage power supplies raise the input voltage
from the available level to the significantly higher level required to operate
the customer's electronic equipment. They must be designed to meet specific
requirements and involve complex engineering including specialty high voltage
magnetics, specialty engineering materials and unique manufacturing processes,
as well as special testing and evaluation techniques. Noise suppression products
are used to reduce or eliminate interfering signals generated by internal or
external electronic components and equipment which otherwise could interfere
with the normal operation of electronic equipment and systems. Noise suppression
products are required by various types of equipment manufacturers in order to
comply with government regulations and specifications and commercial standards.
These products may be integrated within the electronic equipment for which they
have been designed or, in the case of large noise suppression products,
connected externally to such equipment, or to an external power source which may
power an entire facility.
Medical Imaging Systems
Medical Imaging Systems. The Company's medical imaging systems are
sold under the GENDEX, UNIVERSAL, X-Tek, Dynarad and Acoma brand names. The
prices of the Company's medical x-ray systems range from approximately $9,000 to
$150,000 per unit.
Mammography Systems. The Company's mammography systems permit
imaging of the breast for both screening and diagnostic procedures. The
MAMEX(TM) high frequency mammography system uses a microprocessor controlled,
constant potential, high frequency generator for greater energy efficiency at
lower kV outputs, resulting in images with higher contrast. The system's
sophisticated "Autocomp" automatic kV program ensures proper selection of kV
within the first 50 milliseconds of exposure, regardless of breast tissue type.
The NOVA SC mammography system features "PNEUFLO" pneumatic, patient controlled
breast compression to reduce procedural discomfort, increase x-ray penetration
and produce superior image resolution. The NOVA SC Mammography System also
features a fully integrated micro-processor driven data management system.
Neo-Natal Imaging Systems. The Company markets and manufactures a
Neo-Natal mobile imaging system designed to address the critical imaging
requirements of a hospital's Neo-Natal department. This mobile imaging system
provides a high frequency, high resolution image over a 40-70 kVp range and is
specifically designed for imaging of neo-natal and pediatric patients.
Stationary Medical X-ray Systems. Under the GENDEX brand name, the
Company produces a full product line of high frequency medical x-ray generators
which economically provide superior quality x-ray generation associated with
high frequency technology, resulting in lower patient dosage, extended tube life
and less blurring due to patient motion when compared to single phase
generators.
The Company also produces a broad line of single phase radiographic
generators, floor and wall tube mounts, tables and film holders. The EV-200
elevating x-ray table has a four-way float top and adjustable height features to
ease the positioning of non-ambulatory and casted patients. The Company also
markets a floor rotating tubestand.
The Company's premium x-ray products, the ATC 725/525 line of
products, are anatomically programmed high frequency generators. The technician
needs only to input the body region to be imaged, the desired view of that
region and patient thickness. The generators, through microprocessor
controllers, will then automatically select the
3
proper exposure parameters from the database of 2,400 possible combinations. A
total of 120 different examinations covering eight body regions and up to 15
views per region can be preprogrammed into the unit's Anatomically Programmed
Radiology ("APR") memory. These controls assure the production of consistent
films for a given examination regardless of the technician performing the
examination.
This year the Company added a new 90/90 Radiographic/Fluoroscopic
System to its product line. This R/F system provides a wide range of
applications from routine radiography, barium studies and myelograms to stepped
angiography. It is designed to provide superior imaging results, minimal x-ray
dosage and enhanced ease of operation.
Portable Medical X-Ray Systems. The Company is also a leader in the
portable x-ray market with its HF- 110A and PHANTOM systems. Both of these
portable systems utilize high frequency, microprocessor controlled technology to
produce consistent quality x-rays with the added advantages of being smaller,
lighter in weight and more cost-effective than stationary x-ray systems. Both
systems are FDA certified, UL recognized and meet international safety and
quality standards.
Critical Electronic Subsystems
Medical Applications. The Company's research and development program
is often conducted in conjunction with its customers in order to obtain custom
solutions for end use requirements. As a result, the Company is often the sole
source provider to its OEM customers. The Company's high voltage power supplies
deliver precisely regulated output power while operating over a very wide range
of temperatures, altitudes, humidity, shock and vibration conditions. The
Company has designed power supplies that deliver power over a range from several
watts up to 60 kilowatts with output voltage ranging from hundreds of volts up
to several hundred thousand volts. Operating frequencies range from 60 hertz up
to 100 kilohertz. These subsystems are used in computerized tomography (CT),
magnetic resonance imaging (MRI), minimally invasive surgery, bone densitometry,
radiography, blood analysis, medical laser surgery, nuclear medicine and
positron emission tomography (PET) scanning.
Industrial Applications. The Company's critical electronic
subsystems for high voltage power conversion applications consist of high
voltage DC power supplies, high and low voltage power supplies and high voltage
transformers. Such products are used in many leading-edge high technology
scientific and industrial applications by OEMs, universities and private
research laboratories.
The Company has developed state-of-the-art, multi-channel critical
electronic subsystems for industrial laser machining, ion implantation, airport
explosives detection, energy exploration, electrostatic deposition, photo
multiplier tube, x-ray tube, traveling wave tube, cathode ray tube and ion pump
applications, food processing and steel rolling. In addition, critical
subsystems of the Company's high voltage DC power supplies are included in
analytical and material research equipment, nuclear instrumentation, process
control equipment, automatic test equipment, scanning electron microscopes and
semi-conductor manufacturing equipment. The Company's noise suppression products
are used in voice and data communications equipment, computer equipment and
government communications systems, cellular telephone relay sites (cells) and
other state-of-the-art voice and data transmission modalities. Major suppliers
of telephone and cellular services use the Company's noise suppression
subsystems to isolate subscribers' calls and markedly improve overall system
performance.
Marketing, Sales and Distribution
The Company's medical imaging systems are distributed in the United
States and certain foreign countries, by a network of approximately 350 dealers.
Medical imaging systems dealers are supported by the Company's regional
managers, product line managers and technical support groups, who train dealer
sales personnel and participate in customer calls. Technical support in the
selection, use and maintenance of the Company's products is provided to dealers
and professionals by customer service representatives. The Company also
maintains telephone hotlines to provide technical assistance to dealers and
professionals. Additional product and dealer support is provided through
participation in medical equipment exhibitions and trade advertising. The
Company exhibits its products at the Radiological Society of North American
Conference in Chicago, the MEDICA Medical Conference in Dusseldorf, Germany and
the European College of Radiology Conference in Vienna, Austria.
The Company markets its critical electronic subsystems for both
medical and non-medical products through 24 in-house sales personnel,
approximately 32 exclusive independent sales representatives in the United
States and
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approximately 40 exclusive international agents principally in Europe, Asia, the
Middle East, Canada, Australia and India. Sales representatives are compensated
primarily on a commission basis; the international agents are compensated either
on a commission basis or act as independent distributors. The Company's
marketing efforts emphasize its ability to custom engineer products to optimal
performance specifications and the Company's record for quality and reliability.
The Company emphasizes team selling where a sales representative, a Company
engineer and management personnel work together to market the Company's
products. The Company also markets its products through its catalogs and through
trade journals and participation in industry shows.
Product Development
The Company has an extensive ongoing research and development
program. As of July 31, 1999, the Company employed 66 persons in research and
development, who are engaged both in the design of customized products and in
the Company's ongoing research and development activities. The Company's
expenditures for research and development were approximately $6.5 million in
fiscal 1999, $5.9 million in fiscal 1998 and $4.5 million in fiscal 1997.
Approximately 80% of all new critical electronic subsystems produced by the
Company are designed and developed to customer specifications for use as
components of the customer's equipment. The Company generally retains all custom
technology developed to meet customer specifications in connection with new
electronic subsystems.
Certain new products are developed by the Company as standard
products for industry at large after the Company has evaluated their potential.
Such products include standardized HV, high frequency rack mounted power
supplies and associated modules for use as precision test equipment by
industrial laboratories, universities and research facilities. In addition, many
new custom designed noise suppression products are eventually made available as
standard products in the Company's catalog.
The Company has computer-assisted design (CAD) systems to facilitate
the design of printed circuit boards for its power conversion products and to
assist in the mechanical design of its products, thereby enhancing product
development and customized design services. The Company utilizes the CAD systems
in the mechanical design of its noise suppression products in order to optimize
the miniaturization and packaging of such products.
The Company's long term customer relationships have facilitated and
enhanced product development. Many customers have consulted with the Company
concerning their product development programs, enabling the Company to custom
design critical electronic subsystems and noise suppression products for new
generations of customer products.
Manufacturing
The Company manufactures its HV power conversion subsystems in two
facilities, one in Valhalla, New York and one in Hicksville, New York. The
Company manufactures all of its electronic noise suppression filters and
capacitor subsystems at its facility in Bay Shore, New York. The Company
manufactures its medical imaging systems at its facilities in Deer Park, New
York, Franklin Park, Illinois and Lincolnwood, Illinois.
The Company maintains a complete engineering laboratory for quality
control and environmental testing. Specifically, the Company has an extensive
environmental testing department for the testing of its products against
temperature fluctuations, vibration, shock, humidity, electro-magnetic pulse and
other adverse environmental conditions.
All of the raw materials used by the Company in the manufacture of
its products are purchased from various suppliers and are available from
numerous sources. No single supplier accounts for a significant percentage of
the Company's raw material requirements. The Company has not encountered any
difficulty in obtaining such supplies and believes that if any current source of
supply for a particular material or component became unavailable, alternate
sources of supply would be available at comparable prices and delivery
schedules.
Export Sales
During the three fiscal years ended July 31, 1999, August 1, 1998
and August 2, 1997, export sales accounted for approximately 46%, 46%, and 40%,
respectively, of the Company's revenues. Export sales are made
5
principally in Europe, North America, the Far East, Middle East and South
America. During the current fiscal year, the Company's export sales have
increased, despite the current global economic climate.
Backlog
The Company's backlog at July 31, 1999 was approximately $42.1
million compared to a backlog of approximately $35.9 million at August 1, 1998,
and approximately $23.9 million at August 2, 1997. Substantially all of the
backlog will result in shipments within the next 12 months.
Competition
The markets for the Company's products are highly competitive and
subject to technological change and evolving industry requirements and
standards. The Company believes that these trends will continue into the
foreseeable future. Some of the Company's current and potential competitors have
substantially greater financial, marketing and other resources than the Company.
As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than the Company.
Competition could increase if new companies enter the market or if existing
competitors expand their product lines or intensify efforts within existing
product lines. Although the Company believes that its products are more
cost-effective than those of its primary competitors, certain competing products
may have other advantages which may limit the Company's market. There can be no
assurance that continuing improvements in current or new products will not make
them technically equivalent or superior to the Company's products in addition to
providing cost or other advantages. There can be no assurance that the Company's
current products, products under development or ability to introduce new
products will enable it to compete effectively.
Trademarks and Patents
The Company's trademark properties contribute to the Company's
marketing position. To safeguard these properties, the Company maintains
trademark registrations in the United States and in significant international
markets for its products. As part of its acquisition of certain assets of
Gendex, the Company acquired the UNIVERSAL trade name and has been granted a
license to use, in conjunction with the word "medical," the GENDEX trade name
for medical imaging systems for five years from March 1996. The Company owns the
FILTRON(R) trademark for noise suppression products. The Company does not
consider that its business is materially dependent on patent protection.
Government Regulation
The Company's medical imaging systems are subject to regulation
under both the Federal Food, Drug, and Cosmetics Act and the Radiation Control
for Health and Safety Act. These statutes, in combination and individually,
impose strict requirements dealing with the safety, effectiveness and other
properties of the products to which they apply and address elements relating to
the testing, manufacturing standards and procedures, distribution, record
keeping, report making, labeling, promotion and radiation emitting qualities of
these products. Failure to comply can result in, among other things, the
imposition of fines, criminal prosecution, recall and seizure of products,
injunctions restricting or precluding production or distribution, the denial of
new product approvals and the withdrawal of existing product approvals.
Prior to commercial distribution in the United States, most medical
products, including the Company's, must be filed with the FDA and the facilities
in which they are manufactured must be registered with the FDA. Additionally,
prior to distribution, the products are required to be subjected to a review
process by the FDA to assess whether they qualify for marketing under a "510(k)"
Premarket Notification Process as substantially equivalent to a product marketed
before May 28, 1976 or whether an application for Premarket Approval must be
favorably acted upon before they may be distributed. All of the Company's
products to date have met the appropriate FDA requirement for marketing.
The Company is also subject to certain other FDA regulations and the
Company's manufacturing processes and facilities are subject to continuing
review by the FDA. The Company must also comply with current GMP regulations
promulgated by the FDA. These regulations require, among other things, that (i)
the manufacturing process be regulated and controlled by the use of written
procedures and (ii) the production of medical products, which meet the
manufacturer's specifications, be validated by extensive and detailed testing of
every aspect of the process. They also require investigation of any deficiencies
in the manufacturing process or in the products produced and detailed
6
record keeping. Manufacturing facilities are therefore subject to FDA inspection
on an unscheduled basis to monitor compliance with GMP requirements. If
violations of the applicable regulations are noted during FDA inspections of the
Company's manufacturing facilities, there may be a material adverse effect on
the continued marketing of the Company's products through the imposition of
penalties or withdrawal of approvals. The Company is required to expend time,
resources and effort in product manufacturing and quality control to ensure
compliance. The Company is in substantial compliance with current GMP
requirements, as well as other applicable FDA regulations.
The Company's marketing of its products in several foreign markets
is subject to qualification and regulation by applicable foreign governments. In
certain foreign markets, it may be necessary or advantageous to obtain ISO 9001
certification, which is analogous to compliance with the FDA's GMP requirements.
The Company has obtained ISO 9001 certification for all of its medical systems
manufacturing facilities. The Company is in the process of obtaining ISO 9001
certification for its other manufacturing facilities; however, there can be no
assurance that such facilities will receive ISO 9001 certification or that the
Company will be able to continue to meet the requirements for ISO 9001
certification. The Federal government, most states and certain foreign countries
monitor and require licensing of x-ray devices and the handling of radioactive
material. Failure to comply with such laws could subject the Company to fines
and penalties. The Company has obtained the requisite regulatory approval for
its systems where it markets its products. Federal, state and foreign
regulations regarding the manufacture and sale of medical devices are subject to
future change. The Company cannot predict what impact, if any, such changes
might have on its business.
No assurance can be given that the FDA or foreign regulatory
agencies will give the requisite approvals or clearances for any of the
Company's medical imaging systems and other products under development on a
timely basis, if at all. Moreover, after clearance is given, both in the case of
the Company's existing products and any future products, these agencies can
later withdraw the clearance or require the Company to change the system or its
manufacturing process or labeling, to supply additional proof of its safety and
effectiveness, or to withdraw, recall, repair, replace or refund the cost of the
medical system, if it is shown to be hazardous or defective.
The Company is subject to various United States government
guidelines and regulations relating to the qualification of its non-medical
products for inclusion in Government Qualified Product Lists in order to be
eligible to receive purchase orders from a government agency or for inclusion of
a product in a system which will ultimately be used by a governmental agency.
The Company has had many years of experience in designing, testing and
qualifying its products for sale to governmental agencies. Certain government
contracts are subject to cancellation rights. The Company has experienced no
material termination of a government contract and is not aware of any pending
terminations of government contracts.
The Company has not experienced in fiscal 1999, and does not
anticipate, any material expenditures in connection with its compliance with
Federal, state or local environmental laws or regulations.
Employees
As of July 31, 1999, the Company had approximately 445 employees,
including 8 executive officers, 31 persons in general administration, 24 persons
in marketing, 316 persons in manufacturing and 66 persons in research and
development. The Company believes that its employee relations are good. None of
the Company's employees are represented by a labor union.
ITEM 2. PROPERTIES
The Company's executive headquarters are located in a facility in
Valhalla, New York in which the Company leases approximately 37,000 square feet
and where it designs and manufactures some of its power conversion components.
The facility is held under a lease expiring on July 31, 2002, which can be
extended for five years. The current annual base rent for such premises is
approximately $306,000. RFI owns a 55,000 square foot facility located on four
acres in Bay Shore, New York, where it engages in electronic filter design and
manufacturing. Dynarad Corp. leases approximately 24,000 square feet of its
facility in Deer Park, New York, under a lease expiring August 31, 2002, which
can be extended for five years, where it designs and manufactures some of its
medical imaging products. The current annual base rent for such premises is
approximately $258,000. Bertan leases approximately 38,000 square feet of its
facility in Hicksville, New York under a lease expiring May 31, 2004 where it
designs and manufactures some
7
of its power conversion devices. The current annual base rent for such premises
is approximately $399,000. Gendex-Del leases approximately 68,000 square feet of
its facility in Franklin Park, Illinois under a lease which was extended through
January 2003, where it designs and manufactures some of its medical imaging
products. The current annual base rent for such premises is approximately
$289,000. Gendex-Del also leases approximately 12,000 square feet of its
facility in Lincolnwood, Illinois under a lease which can be extended through
January 31, 2003, where it designs and manufactures some of its medical imaging
products. The current annual base rent for such premises is approximately
$86,000. The Company believes that its current facilities are sufficient for its
present requirements.
ITEM 3. LEGAL PROCEEDINGS
RFI is a defendant in an action pending in the Supreme Court of the
State of New York, Kings County, which commenced July 25, 1994. The plaintiffs,
Mark Palmer Hansen and the other individuals named in the pleading, claim that
while they were employed by Unisys, they were injured as a result of exposure to
an allegedly toxic substance contained in certain filters manufactured by
Filtron Co., Inc. The principal defendants in the action are Filtron Co., Inc.,
RFI and Paramax Systems Corporation. Plaintiff's exposure to the alleged toxic
substance occurred prior to the Company's purchase of selected assets of Filtron
Co., Inc. from ARX, Inc. Furthermore, Filtron Co., Inc. and ARX, Inc. are
contractually obligated to indemnify the Company in connection with this claim.
The Company's product liability insurance carrier has appointed counsel to
defend this action. On the advice of counsel, the Company believes it has
meritorious defenses to the claim.
Management does not believe that the resolution of the above legal
proceeding will have a material effect on the Company's consolidated financial
condition, results of operations and cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of June 10, 1996 the common stock of Del Global Technologies
Corp. began trading on the Nasdaq Stock Market under the symbol DGTC. The
following table shows the high and low closing sales prices per share of common
stock for the past twelve quarters.
Year Ended Year Ended Year Ended
July 31, 1999 August 1, 1998 August 2, 1997
High Low High Low High Low
---- --- ---- --- ---- ---
First Quarter 10 6 7/8 10 7/16 9 13/16 10 7 3/4
Second Quarter 11 3/4 9 3/8 10 3/16 10 10 7 3/8
Third Quarter 10 3/8 7 5/8 12 7/8 12 1/16 9 5/8 7
Fourth Quarter 10 3/8 8 1/8 9 7/8 9 1/2 101/4 7 1/4
The stock prices for the year ended August 2, 1997 have been restated to give
retroactive effect to a 3% stock dividend declared in November 1996.
The number of holders of record of the Company's common stock $.10 par value as
of July 31, 1999 was 1,025.
Due to the restrictions of its borrowing agreement, the Company has not paid any
cash dividends, except for the payment of cash in lieu of fractional shares,
since 1983.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected statements of income data presented for the fiscal years ended July
31, 1999, August 1, 1998 and August 2, 1997 and the balance sheet data as of
July 31, 1999 and August 1, 1998, have been derived from the audited financial
statements included elsewhere in this Annual Report on Form 10-K. The selected
statements of income data for the fiscal years ended August 3, 1996 and July 29,
1995 and the balance sheet data as of August 2, 1997, August 3, 1996 and July
29, 1995 have been derived from audited financial statements not included
herein. This selected consolidated financial data should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
Fiscal Year Ended
--------------------------------------------------------------------------
July 31, August 1, August 2, August 3, July 29,
INCOME STATEMENT DATA: 1999(b) 1998(b) 1997(b) 1996(b) 1995
------------ ------------ ------------ ------------ ------------
Net sales $ 68,020,978 $ 62,304,878 $ 54,685,289 $ 43,745,454 $ 32,596,312
Cost and expenses:
Cost of sales 40,476,778 36,908,317 32,854,825 27,355,262 19,177,999
Research and development 6,484,784 5,863,343 4,548,487 3,429,331 2,861,844
Selling, general and
administrative 11,335,653 11,273,059 10,193,244 7,503,689 6,622,690
Interest expense (income) - net 150,026 (167,926) (54,470) 1,148,639 1,191,142
------------ ------------ ------------ ------------ ------------
58,447,241 53,876,793 47,542,086 39,436,921 29,853,675
------------ ------------ ------------ ------------ ------------
Income before provision
for income taxes 9,573,737 8,428,085 7,143,203 4,308,533 2,742,637
Provision for income taxes 2,902,137 2,639,497 2,231,649 1,393,111 837,428
------------ ------------ ------------ ------------ ------------
Net income $ 6,671,600 $ 5,788,588 $ 4,911,554 $ 2,915,422 $ 1,905,209
============ ============ ============ ============ ============
Basic earnings per share $ .87 $ .77 $ .66 $ .59 $ .43
============ ============ ============ ============ ============
Diluted earnings per share $ .82 $ .71 $ .61 $ .48 $ .35
============ ============ ============ ============ ============
Number of shares used in computation
of basic earnings per share (a)(c) 7,683,616 7,518,945 7,399,575 4,936,938 4,449,952
============ ============ ============ ============ ============
Number of shares used in computation
of diluted earnings per share (a)(c) 8,164,319 8,206,121 8,070,199 6,112,248 5,374,066
============ ============ ============ ============ ============
As of
--------------------------------------------------------------------------
July 31, August 1, August 2, August 3, July 29,
BALANCE SHEET DATA: 1999(b) 1998(b) 1997(b) 1996(b) 1995
-------- --------- --------- --------- --------
Working capital $ 47,750,014 $ 41,747,326 $ 37,007,412 $ 32,552,295 $ 20,648,281
============ ============ ============ ============ ============
Total assets $ 84,103,957 $ 72,356,627 $ 64,129,810 $ 57,729,752 $ 39,054,634
============ ============ ============ ============ ============
Long-term debt $ 1,832,287 $ 240,273 $ 411,127 $ 499,852 $ 11,902,951
============ ============ ============ ============ ============
Shareholders' equity $ 66,350,704 $ 59,455,804 $ 52,530,230 $ 47,069,528 $ 19,525,073
============ ============ ============ ============ ============
Common shares outstanding (a) (c) 7,788,253 7,689,247 7,411,979 7,380,106 4,452,244
============ ============ ============ ============ ============
(a) Net income per common share and common share equivalents have been
restated to give effect to stock dividends in fiscal years 1997, 1996
and 1995. See Note 1 of Notes to the Consolidated Financial Statements
for computation of earnings per share.
(b) The fiscal years ended July 31, 1999, August 1, 1998 and August 2,
1997 include the operations of Gendex-Del which was purchased on March
6, 1996.
(c) Common shares outstanding for 1999, 1998, 1997, 1996 and 1995 are
reduced by 490,393, 299,746, 104,255, 58,255, and 55,165 shares of
treasury stock, respectively.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management Discussion and Analysis of Financial Condition and Results of
Operations contains forward looking statements. Such statements involve various
risks that may cause actual results to differ materially. These risks include,
but are not limited to, the ability of the Company to grow internally or by
acquisition and to integrate acquired businesses, changing industry or
competitive conditions, and other risks referred to in the Company's
registration statements and periodic reports filed with the Securities and
Exchange Commission.
Overview
The Company's net sales have increased as a result of both
internal growth and acquisitions. The Company has completed five acquisitions in
the past six years: Dynarad (a designer and manufacturer of medical imaging
systems and critical electronic subsystems) in fiscal 1993; Bertan (a designer
and manufacturer of precision high voltage power supplies and instrumentation
for medical and industrial applications) in fiscal 1994; Gendex-Del (a designer
and manufacturer of medical imaging systems) in fiscal 1997, X-Ray Technologies,
Inc. (a designer and manufacturer of medical imaging systems) in fiscal 1998 and
Acoma Medical Imaging Inc. (a designer and manufacturer of medical imaging
systems) in fiscal 1999. The Company's net sales have increased from
approximately $32.6 million in fiscal 1995 to approximately $68.0 million in
fiscal 1999.
During the past five years the Company has grown internally
and through acquisitions into a company whose predominant business is serving
the medical imaging and diagnostic markets. The Company's net sales attributable
to medical imaging products have increased from approximately $14.4 million or
44.0% of total net sales in fiscal 1995 to approximately $43.9 million or 71% of
total net sales and approximately $49.2 million or 72% of total net sales in
fiscal years 1998 and 1999, respectively.
Management believes that recent cost containment trends in the
healthcare industry have created opportunities for its cost-effective medical
imaging systems and subsystems in domestic and international markets. Some of
these trends are increased demand for lower cost medical equipment, outsourcing
of systems and critical electronic subsystems by leading OEMs, increased demand
for certain diagnostic procedures and lower cost medical services in the global
marketplace.
General
The following discussion and analysis examines the major
factors contributing to the Company's financial condition and results of
operations for the three years ended July 31, 1999, August 1, 1998 and August 2,
1997. The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this document.
For segment reporting purposes, the Company has organized its
operations into two segments: Medical Imaging Systems and Critical Electronic
Subsystems. The Critical Electronic Subsystems segment includes sales of
critical electronic subsystems for medical applications which are classified as
medical imaging products, but which are manufactured within this segment, of
approximately $11.4 million, $14.1 million and $13.2 million, respectively, for
fiscal years ended July 31, 1999, August 1, 1998 and August 2, 1997. Aggregate
sales of medical products were approximately $49.2 million, $43.9 million and
$35.6 million, respectively, for fiscal years ended July 31, 1999, August 1,
1998 and August 2, 1997.
Results of Operations
Fiscal Years 1999, 1998 and 1997
Net sales for the Medical Imaging Systems segment were
approximately $37.8 million for fiscal 1999 compared to approximately $30.0
million for fiscal 1998, an increase of 26.2%. Net sales for the Medical Imaging
Systems segment for fiscal 1998 were approximately $30.0 million compared to
approximately $23.9 million for fiscal 1997, an increase of 25.4%. These
increases in the Medical Imaging Systems sales in both years were due to the
10
acceleration of the outsourcing trend by major medical equipment companies and
increased demand for the Company's medical imaging systems.
Net sales for the Critical Electronic Subsystems segment for
fiscal 1999 were approximately $30.2 million compared to approximately $32.4
million for fiscal 1998, a decrease of 6.5%. The decrease of sales in Critical
Electronic Subsystems was due to a decrease in sales for critical electronic
subsystems used in semi-conductor equipment manufacturing and oil exploration.
Net sales for the Critical Electronic Subsystems segment for fiscal 1998 were
approximately $32.4 million compared to approximately $30.8 million for fiscal
1997, an increase of 5.1%. The increase was due to higher sales of medical
subsystems.
Cost of sales for the Medical Imaging Systems segment
decreased to 67.1% of net sales in fiscal 1999 from 67.9% of net sales in fiscal
1998. Cost of sales for the Medical Imaging Systems segment decreased to 67.9%
of net sales in fiscal 1998 from 71.1% of net sales in fiscal 1997. The fiscal
1999 and 1998 improvements in margins from fiscal 1997 are due to the reduced
manufacturing costs from efficiencies implemented in this segment in both the
Gendex-Del and Dynarad subsidiaries and to the transfer of manufacturing of
certain of the Dynarad medical imaging systems to Gendex-Del.
Cost of sales for the Critical Electronic Subsystems segment
decreased to 50.0% of net sales in fiscal 1999 from 51.2% of net sales in fiscal
1998. Cost of sales for the Critical Electronic Subsystems segment decreased to
51.2% of net sales in fiscal 1998 from 51.5% of net sales in fiscal 1997. The
decreases in cost of sales as a percentage of net sales in fiscal years 1999 and
1998 were primarily due to improved operating efficiencies and a favorable
product mix.
Research and development costs for the Medical Imaging Systems
segment increased 24.4% to approximately $3.1 million in fiscal 1999 from
approximately $2.5 million in fiscal 1998. Research and development costs for
the Medical Imaging Systems segment increased 79.9% to approximately $2.5
million in fiscal 1998 from approximately $1.4 million in fiscal 1997. These
increases were due to new products being developed in this segment. Research and
development costs in the Critical Electronic Subsystems segment increased 0.6%
to approximately $3.4 million in fiscal 1999 from approximately $3.4 million in
fiscal 1998. Research and development costs in the Critical Electronic
Subsystems segment increased 6.9% to approximately $3.4 million in fiscal 1998
from approximately $3.2 million in fiscal 1997.
Selling, general and administrative expenses, as a percentage
of sales, in the Medical Imaging Systems segment, were approximately $5.3
million or 14.0% of net sales in fiscal 1999 as compared to approximately $5.0
million or 16.8% of net sales in fiscal 1998. Selling, general and
administrative expenses, as a percentage of sales, in the Medical Imaging
Systems segment, were approximately $5.0 million or 16.8% of net sales in fiscal
1998 as compared to approximately $4.3 million or 18.1% of net sales in fiscal
1997. These decreases in selling, general and administrative expenses as a
percentage of net sales were primarily due to increased sales of outsourced
medical imaging systems without a proportional increase in selling, general and
administrative expenses. Selling expenses of these outsourced medical imaging
systems are borne by the major medical imaging manufacturing customers and not
the Company. Selling, general and administrative expenses for the Critical
Electronic Subsystems segment were approximately $6.1 million or 20.0% of net
sales in fiscal 1999 as compared to approximately $6.3 million or 19.3% of net
sales in fiscal 1998. Selling, general and administrative expenses for the
Critical Electronic Subsystems segment were approximately $6.3 million or 19.3%
of net sales in fiscal 1998 as compared to approximately $5.9 million or 19.0%
of net sales in fiscal 1997. These increases were due to higher levels of
advertising and trade show attendance.
Interest expense for fiscal 1999 was approximately $213,000
compared to approximately $130,000 for fiscal 1998. This increase was
principally due to the utilization of the Company's acquisition line of credit
and other notes payable to Acoma Medical Imaging Inc. to acquire certain of its
assets. Interest expense for fiscal 1998 was approximately $130,000 compared to
approximately $239,000 for fiscal 1997. Interest expense for fiscal 1997
included the amortization of the Company's interest rate protection agreements
of approximately $43,000 and approximately $76,000 of bank commitment fees on
unused balances.
Interest income was approximately $63,000 for fiscal 1999
compared to approximately $298,000 for fiscal 1998 and approximately $293,000
for fiscal 1997. The decrease in interest income for fiscal 1999 reflects a
lower amount of average short-term investments in fiscal 1999.
11
Income tax expense decreased to 30.3% of pre-tax income in
fiscal 1999 from 31.3% of pre-tax income in fiscal 1998, primarily due to the
tax savings from the increase in foreign sales and research and development tax
credits. Income tax expense increased to 31.3% of pre-tax income in fiscal 1998
from 31.2% of pre-tax income in fiscal 1997, primarily due to the effect of
lower research and development tax credits available in fiscal 1997 due to the
timing of the reinstatement of this tax credit. Fiscal 1997 includes only one
month of this tax credit as compared to fiscal 1998 and fiscal 1999, which have
full years of this tax credit.
Net income for fiscal 1999 was approximately $6.7 million, an
increase of approximately 15.3% from approximately $5.8 million in fiscal 1998.
Net income for fiscal 1998 was approximately $5.8 million, an increase of
approximately 17.9% from approximately $4.9 million in fiscal 1997. Basic
earnings per share for fiscal 1999 were $.87, an increase of $.10 per share
which represents a 13.0% increase from basic earnings per share of $.77 in
fiscal 1998. Diluted earnings per share for fiscal 1999 were $.82, an increase
of $.11 per share which represents a 15.5% increase from diluted earnings per
share of $.71 in fiscal 1998. Basic earnings per share for fiscal 1998 were
$.77, an increase of $.11 per share which represents an 16.7% increase from
basic earnings per share of $.66 in fiscal 1997. Diluted earnings per share for
fiscal 1998 were $.71, an increase of $.10 per share which represents a 16.4%
increase from diluted earnings per share of $.61 in fiscal 1997. The number of
outstanding shares and common share equivalents were approximately 8.2 million
shares in fiscal 1999 and in fiscal 1998. Shares issued due to stock option and
warrant exercises were offset by shares repurchased under the Company's stock
buy-back program. The number of outstanding shares and common share equivalents
increased from approximately 8.1 million shares in fiscal 1997 to approximately
8.2 million shares in fiscal 1998 or 1.7%, primarily due to stock option and
warrant exercises. The increases in net income and earnings per share for fiscal
1999 as compared to fiscal 1998 and fiscal 1997 were due to higher sales and
improved operating efficiencies.
Analysis of Financial Condition
Liquidity and Capital Resources. The Company has funded its operations and
acquisitions through a combination of cash flow from operations, bank borrowing
and the issuance of common stock. Cash flows from operations were approximately
$1.0 million, $1.9 million and $3.2 million for the fiscal years ended July 31,
1999, August 1, 1998 and August 2, 1997, respectively. At July 31, 1999 the
Company had a current ratio of approximately 4.48 to 1.0 and the availability of
approximately $21.3 million of bank borrowings under its lines of credit.
Working Capital and Cash. At July 31, 1999 and August 1, 1998, the Company's
working capital was approximately $47.8 million and $41.7 million, respectively.
At such dates the Company had approximately $321,000 and $3.4 million,
respectively, in cash and cash equivalents. The decrease in cash resources
reflects tighter management of cash resources, the effect of shares repurchased
under the Company's stock buy-back program and capital expenditures for
manufacturing equipment to improve operating efficiencies, a new manufacturing
and accounting system and the upgrade of computer equipment. The Company has
utilized only a small portion of its $14,000,000 Revolving Line of Credit with
its bank during fiscal 1999.
Trade receivables at July 31, 1999 increased approximately
$1.3 million as compared to August 1, 1998. Trade receivables at August 1, 1998
increased approximately $3.1 million as compared to August 2, 1997. These
increases are primarily due to the increases in sales.
Cost and estimated earnings in excess of billings on
uncompleted contracts at July 31, 1999 increased approximately $3.1 million as
compared to August 1, 1998. Cost and estimated earnings in excess of billings on
uncompleted contracts at August 1, 1998 increased approximately $1.4 million as
compared to August 2, 1997. These increases are due to additional contracts
being accounted for under the percentage of completion method of accounting.
Inventory at July 31, 1999 increased by approximately $7.4
million as compared to August 1, 1998, primarily due to the expansion of the
Gendex-Del Medical Imaging operation and the acquisition of selected assets of
Acoma Medical Imaging Inc. Inventory at August 1, 1998 increased approximately
$4.5 million as compared to August 2, 1997, primarily at Gendex-Del due to
increased sales levels.
Prepaid expenses and other current assets decreased
approximately $143,000 at July 31, 1999 as compared to August 1, 1998. This
decrease was primarily attributable to the deferred tax effects of the increase
in contracts accounted for under the percentage of completion method of
accounting. Prepaid expenses and other current
12
assets decreased approximately $450,000 at August 1, 1998 as compared to August
2, 1997. This decrease was primarily attributable to the deferred tax effects of
self-funding health insurance and the increase in contracts accounted for under
the percentage of completion method of accounting.
Fixed assets increased approximately $3.7 million at July 31,
1999 from August 1, 1998 and increased approximately $3.0 million at August 1,
1998 from August 2, 1997. These increases are primarily due to capital
expenditures for manufacturing equipment to improve operating efficiencies, a
new manufacturing and accounting system and the upgrade of computer equipment.
Goodwill increased approximately $428,000 at July 31, 1999
from August 1, 1998. The increase is principally due to the acquisition of
certain assets of Acoma Medical Imaging Inc. of approximately $507,000 offset by
amortization. Goodwill increased approximately $674,000 at August 1, 1998 from
August 2, 1997. The increase was due to the acquisition of certain assets of
X-Ray Technologies, Inc. of approximately $883,000 offset by amortization of
approximately $209,000.
Accounts payable - trade increased by approximately $892,000
at July 31, 1999 as compared to August 1, 1998 and increased by approximately
$1.5 million at August 1, 1998 as compared to August 2, 1997. These increases
are attributable to higher levels of inventory required for higher levels of
sales for fiscal 1999 and 1998 shipments, respectively.
Deferred compensation liability increased by approximately
$288,000 at July 31, 1999 as compared to August 1, 1998. $125,000 of this
increase relates to the fiscal 1999 funding of deferred compensation for the
Company's President's deferred compensation. In connection with the acquisition
of X-Tek, the Company has a deferred compensation agreement with the former
President of X-Ray Technologies Inc, which resulted in fiscal 1999 funding of
approximately $41,000. Two additional key employees elected to defer
compensation of approximately $110,000. The balance of approximately $12,000
relates to recognized and unrealized gains on the underlying investments.
Deferred compensation liability increased by approximately $190,000 at August 1,
1998 as compared to August 2, 1997. Of this increase, $125,000 relates to the
fiscal 1998 funding of deferred compensation and approximately $65,000 relates
to recognized and unrealized gains on the underlying investments for the
President's deferred compensation. Gains and losses, either recognized or
unrealized, inure to the individual employee's benefit or detriment.
Credit Facility and Borrowing. On March 5, 1996, in connection with the
acquisition of Gendex, the Company and its lending bank entered into an Amended
and Restated Credit Agreement wherein the bank increased the Company's line of
credit to $24.0 million, consisting of a five-year $10.0 million term loan and a
four-year revolving line of credit of $14.0 million. On August 2, 1996, the
Company and its lending bank amended their Credit Agreement to allow for a
five-year $10.0 million acquisition credit line to replace the five-year term
loan. At July 31, 1999, the Company had approximately $12.8 million available
under its revolving line of credit, after deducting letters of credit
outstanding of approximately $138,000 and approximately $8.6 million available
under its acquisition credit line. On July 31, 1998, the Company and its lending
bank further amended their Credit Agreement to allow for additional stock
repurchases in an amount of $2,000,000 for fiscal 1998 and 80% of net income for
future years.
Capital Expenditures. The Company continues to invest in capital equipment,
principally for its manufacturing operations, in order to improve its
manufacturing capabilities and capacity. The Company has expended approximately
$3.7 million, $2.9 million and $2.7 million, respectively, for capital equipment
expenditures in fiscal years 1999, 1998 and 1997, respectively.
Shareholders' Equity. Shareholders' equity increased to approximately $66.4
million at July 31, 1999 from approximately $59.5 million at August 1, 1998,
primarily due to the results of operations. Additionally, during fiscal 1999
approximately 283,000 stock options and warrants were exercised, with proceeds
of approximately $743,000 and approximately 156,000 shares of common stock were
repurchased at a cost of approximately $1.3 million.
Year 2000. The Company has initiated a company-wide program and developed a
formal plan to identify, evaluate and implement changes to products, computer
systems, applications and infrastructure necessary to achieve a year 2000 date
conversion with no effect on customers or disruption to business operations.
These actions are necessary to ensure that all systems and business applications
will recognize and process the year 2000 and beyond.
13
The Company uses purchased software programs for a variety of functions,
including drafting and design, general accounting and manufacturing
applications. Currently, all of the Company's products and software for design
and drafting applications are fully compliant. The Company's systems for general
accounting and manufacturing have been evaluated and steps to achieve compliance
have been implemented and are expected to be fully compliant. At this time, the
Company believes that it does not have any internal mission critical year 2000
issues that it cannot remedy.
As part of the year 2000 readiness process, significant customers, service
providers, vendors and suppliers who are believed to be critical to business
operations after January 1, 2000 have been identified and steps have been taken
to ascertain their stage of readiness. All mission critical third parties have
indicated that they are or will be year 2000 compliant. The Company has surveyed
them primarily through written correspondence. Despite its efforts to ascertain
the readiness of its customers, suppliers and service providers, the Company
cannot be certain as to the actual year 2000 readiness of these third parties or
the impact their non-compliance may have on the Company's future financial
position, the results of its operations or its cash flows.
With respect to the Company's internal year 2000 compliance, the Company has
incurred internal staff costs, as well as consulting and other expenses and
believes that the total costs to be incurred for all year 2000 compliance
related projects did not have a material effect on the Company's future
financial position, results of its operations or its cash flows.
Effects of New Accounting Pronouncements
Disclosures about Derivative Instruments and Hedging Activities. In June 1998,
the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 133 is effective for all
fiscal years beginning after December 15, 1999. Management does not anticipate
that this statement will have any effect on the Company's consolidated financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Financial Statements and Supplementary Data
attached hereto and made a part hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
---- --- --------
Leonard A. Trugman (1)..............61 Chairman of the Board, Chief
Executive Officer and President
David Engel.........................50 President Del Medical Systems Group
Louis J. Farin, Sr..................56 Vice President and General Manager
of Del Power Conversion Division
Paul J. Liesman.....................38 Vice President and President of
Bertan High Voltage Corp.
Seymour Rubin.......................69 Vice President and President of RFI
Corporation, Director
Michael H. Taber....................54 Chief Financial Officer, Vice President
of Finance and Secretary
Natan V. Bertman (1)(2)............70 Director
David Michael (1)(2)(3).............62 Director
James Tiernan (3)...................75 Director
Roger Winston.......................60 Director
- ------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Stock Option Committee
The officers of the Company, with the exception of Mr. Trugman, are
elected or appointed by the Board of Directors to hold office until the meeting
of the Board of Directors following the next annual meeting of shareholders.
Subject to the right of the Company to remove officers pursuant to its By-Laws,
officers serve until their successors are chosen and have qualified. Mr. Trugman
holds his position pursuant to an employment agreement which expires on July 31,
2005.
Leonard A. Trugman has been Chairman of the Board, Chief Executive
Officer and President from September 1985 to the present. Mr. Trugman was Vice
President of Operations at General Microwave Corporation, an AMEX traded
microwave components company from 1981 to 1985. Mr. Trugman holds a Master of
Science degree in Mechanical Engineering and a Masters degree in Business
Administration.
David Engel became President of Del Medical Systems Group on
September 1, 1998. Mr. Engel was Executive Vice President and Chief Financial
Officer from January 1996 through August 1998. Mr. Engel was Executive Vice
President of Bertan High Voltage Corp. from November 1994 to January 1996. Mr.
Engel was Vice President - Finance and Administration at Bertan High Voltage
Corp. from March 1981 to November 1994.
Louis J. Farin, Sr. has been Vice President and General Manager of
Del Power Conversion Division from August 1994 to the present. Mr. Farin had
been Senior Vice President-Operations of the Company since December 1986.
15
Paul J. Liesman has been Vice President since May 1996 and was named
President of Bertan High Voltage Corp. in January 1999. From May 1996 to January
1999 he was Vice President and General Manager of Bertan High Voltage Corp. From
March 1996 to May 1996, Mr. Liesman was Vice President - Operations of Bertan
High Voltage Corp. From January 1995 to March 1996, he was Operations Manager at
Del Power Conversion. Mr. Liesman was Chief Mechanical Engineer at Del Power
Conversion from March 1990 to January 1995. Mr. Liesman holds a Masters degree
in Business Administration and a Bachelor of Science degree in Mechanical
Engineering.
Seymour Rubin has been Vice President of the Company since December
1989 and was elected a director of the Company in February 1990. Mr. Rubin was a
co-founder of RFI Corporation. Mr. Rubin was the Executive Vice President of RFI
Corporation from 1968 to February 1990 and has been the President of RFI
Corporation since February 1990. Mr. Rubin holds a Masters of Science degree in
Engineering.
Michael H. Taber became Chief Financial Officer, Vice President of
Finance and Secretary on September 1, 1998. Mr. Taber was Vice President -
Finance, Secretary and Chief Accounting Officer of the Company from January 1996
through August 1998. Mr. Taber was appointed Secretary in October 1994. Mr.
Taber was Chief Financial Officer of the Company from January 1993 to December
31, 1995. Mr. Taber was the Assistant General Manager of RFI Corporation from
October 1991 to April 1992. Mr. Taber was President of Filtron Co., Inc. from
August 1990 to October 1992. Mr. Taber holds a Masters degree in Accounting, a
Bachelor of Science degree in Mechanical Engineering and is a Certified Public
Accountant.
Natan V. Bertman has served as a director of the Company since 1985.
He is a former partner in the law firm of Bertman & Levine.
David Michael has served as a director of the Company since 1985. He
is President of David Michael & Co., PC and is a Certified Public Accountant.
James Tiernan has served as a director of the Company since 1985. He
is a former Senior Vice President of Chase Manhattan Bank, New York, NY.
Roger Winston has served as a director since February 1999. He is a
founder and managing director of Swarthmore Associates, LLC from June 1996 to
present. Mr. Winston was managing director of Hill Thompson Capital Markets from
1992 to May 1996.
Dr. Raymond Kaufman, the former Chairman and Co-founder of the
Company, resigned from the Company's Board in April 1997. At such time Dr.
Kaufman was named Director Emeritus of the Company. He holds a Doctorate in
Physics.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's
directors, executive officers and persons holding more than 10% of the Company's
outstanding common stock to file with the Securities and Exchange Commission and
the Nasdaq Stock Market initial reports of ownership, or changes in ownership
and annual reports of ownership of common stock and other equity securities of
the Company. Specific due dates for these reports have been established and the
Company is required to report any failure to file by these due dates in the
fiscal year ended July 31, 1999. Based solely upon review of the copies of such
reports furnished to the Company or written representations that no reports were
required, the Company believes that during fiscal 1999 all of its directors,
executive officers and persons holding more than 10% of the Company's
outstanding common stock are in full compliance with the requirements of Section
16(a).
16
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the three fiscal years ended July 31,
1999, certain compensation information with respect to the Company's
Chief Executive Officer and each of the four other most highly
compensated executive officers, based upon salary and bonus earned by
such executive officers in the fiscal year ended July 31, 1999.
SUMMARY COMPENSATION TABLE
Long-term Compensation
Annual Compensation Awards
------------------------------------------------ ------------------------
Securities
Restricted Underlying All Other
Name and Principal Other Annual Stock Options/ Compensation
Position Year Salary($) Bonus($) Compensation($) Awards($) SARS (#) ($) (1)
-------------- ---- --------- -------- --------------- ---------- -------- ------------
Leonard A. Trugman 1999 335,024 605,437(2) 1,682,137(3) -- 50,000 17,949
Chairman, CEO 1998 319,070 552,739(2) 1,361,858(3) -- 75,000 15,440
and President 1997 303,876 488,541(2) -- -- -- 20,513
Seymour Rubin 1999 235,000 70,550 -- -- 5,000 3,438
Vice President 1998 230,000 78,500 -- -- 5,000 8,514
and President of 1997 225,000 50,000 -- -- 5,150 14,124
RFI Corporation
David Engel 1999 150,000 90,000 -- -- 20,000 1,975
President of Del 1998 135,000 107,148 68,856(3) -- 15,000 2,062
Medical Systems 1997 125,000 44,535 -- -- 7,725 2,062
Michael H. Taber 1999 125,000 30,000 21,978(3) -- 15,000 13,521
CFO, V.P. Finance, 1998 110,000 20,000 32,691(3) -- 5,000 12,407
and Secretary 1997 104,000 15,500 62,821(3) -- 5,150 9,655
Paul J. Liesman 1999 105,000 40,000 10,413(3) -- 5,000 1,111
Vice President and 1998 95,000 20,000 -- -- 5,000 1,111
President of Bertan 1997 90,000 6,250 -- -- 5,000 944
High Voltage Corp.
(1) Includes insurance premiums where families of the officers are beneficiaries
and automobile expense allowances. (2) Includes deferred compensation in the
amount of $125,000 for each of 1999, 1998 and 1997 fiscal years, respectively.
(3) Earnings related to exercise of nonqualified stock options.
17
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information regarding options
for the purchase of the Company's common stock that were awarded to the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers, based upon salary and bonus earned by such
executive officers in the fiscal year ended July 31, 1999.
Individual Grants(1) Potential Realizable
- ---------------------------------------------------------------------------------------------- Value at Assumed
Number of Percent of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise For Option Term
---------- ---------- -------- -----------------------------
Options Employees Price Expiration
Name Granted (#) In Fiscal Year ($)(Sh) Date 5% ($) (1) 10% ($) (1)
- ------------------- ----------- -------------- ------- ------ ---------- -----------
Leonard A. Trugman 50,000 24% $7.00 10/09/13 $377,625 $1,112,037
Seymour Rubin 5,000 2% $7.00 10/09/13 $ 37,762 $ 111,204
David Engel 20,000 9% $7.00 10/09/13 $151,050 $ 444,815
Michael H. Taber 15,000 7% $7.00 10/09/13 $113,287 $ 333,611
Paul J. Liesman 5,000 2% $7.00 10/09/13 $ 37,762 $ 111,204
- ----------------------
(1) Fair market value of stock on grant date compounded annually at rate shown
in column heading, for the option term, less exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding options
for the purchase of the Company's common stock that were exercised and or held
by the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers, based upon salary and bonus earned by such
executive officers in the fiscal year ended July 31, 1999.
Value of Unexercised
Shares Number of Unexercised In-the-Money Options at
Acquired on Value Options at Fiscal Year-End Fiscal Year-End n($)(2)
Name Exercise(#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ ----------- -------------- ------------------------- -------------------------
Leonard A. Trugman 160,214 $1,682,137 425,314/50,000 $2,101,190/$56,250
Seymour Rubin -- -- 140,865/7,652 $ 544,506/$10,783
David Engel -- -- 5,508/ 22,652 $ 14,465/$27,658
Michael H. Taber 4,000 $ 21,978 0/16,990 $ 0/$20,746
Paul J. Liesman 2,110 $ 10,413 6,421/6,327 $ 15,279/$8,206
- ----------------------
(1) Difference between the fair market value of the common stock purchased and
the exercise price on the date of exercise.
(2) Difference between the fair market value of the underlying common stock and
the exercise price for in-the-money options on July 31, 1999 ($8.125).
Directors of the Company did not receive compensation for their
services as such except a fee of $1,000 for each meeting of the Board of
Directors which they attend. Messrs. Trugman and Rubin have waived their right
to receive such compensation.
Employment Agreements
Mr. Leonard A. Trugman has an amended and restated employment agreement
with the Company, effective as of August 1, 1992, which was subsequently amended
on July 20, 1994, September 1, 1994, April 29, 1998 and March 31, 1999 and ends
July 31, 2005, pursuant to which he has agreed to serve as Chairman, President
and Chief Executive Officer of the Company. Mr. Trugman's annual base salary was
$335,024 for the fiscal year ended July 31, 1999. His annual base salary for the
fiscal year August 1, 1999 through July 29, 2000 is determined by multiplying
$335,024 by the greater of five percent or the increase in the Consumer Price
Index as of July 31, 1999 over the
18
amount of such index as of August 1, 1998. Mr. Trugman also receives a bonus
each year equal to five (5%) percent of the Company's pre-tax net income for
such year. Mr. Trugman's contract also provides for a deferred compensation
account whereby the Company shall deposit (a) $100,000 annually and (b) after
receipt of the Company's audited financial statements with respect to each
fiscal year, an amount equal to the lesser of (x) $25,000 or (y) five (5%)
percent of the Company's pre-tax net income for such fiscal year less $100,000.
Also included in Mr. Trugman's agreement are certain benefits in the event of a
change of control. Either upon completion of the term of the agreement or upon
request at any time, Mr. Trugman may opt for a five year extension in the form
of a consulting contract at a rate specified within the agreement. The
employment agreement contains standard confidentiality and non-compete
provisions.
Mr. Leonard Michaels, who joined the Company as of September 1, 1992,
with the acquisition of Dynarad Corp., has an employment agreement with the
Company wherein he is employed as a technical consultant to the Company from
April 1, 1997 until July 29, 2002. Upon execution of such employment agreement,
Mr. Michaels received a signing bonus of $250,000 in the fiscal year ended July
31, 1993. During fiscal 1997, due to a reduction in job responsibilities, the
Company wrote off the unamortized balance of such signing bonus, and the charge
to fiscal 1997 earnings was $158,854. Under provisions of the consulting phase
of the employment agreement, Mr. Michaels' consulting fees for the fiscal years
ended July 31, 1999 and August 1, 1998 were $103,698 and $107,131, respectively.
In consideration of Mr. Michaels' covenant not-to-compete for ten years as set
forth in his employment agreement, he received upon execution thereof a payment
of $257,400 during the fiscal year ended July 31, 1993, and during the ten year
term thereof, shall receive annual non-compete payments of $52,000.
Mr. Howard Bertan, former President of Bertan High Voltage Corp., has a
non-compete agreement for a period of ten years, wherein he will receive
$500,000 payable in equal quarterly payments, which commenced June 1, 1997 for a
period of ten years. Such payments are subject to adjustment to reflect the
greater of (i) 5% or (ii) increases in the Consumer Price Index for the United
States.
Mr. Lester Bertan, former Chairman and part owner of Bertan Associates,
Inc., has a non-compete agreement for a period of ten years, wherein he will
receive $500,000 payable in equal quarterly payments, which commenced June 1,
1994 for a period of ten years. Such payments are subject to adjustment to
reflect the greater of (i) 5% or (ii) increases in the Consumer Price Index for
the United States.
Stock Option Plans
Nonqualified Stock Option Plan
The Company's Nonqualified Stock Option Plan provides for a total of
3,124,293 shares of common stock authorized to be granted under such plan. For
the year ended July 31, 1999, options to purchase an aggregate of 1,479,717
shares were outstanding at an average exercise price of $5.03 per share, having
a range of expiration dates from September 2000 to April 2014. During fiscal
1999, the Company granted options to purchase 211,000 shares of common stock at
an average exercise price of $7.19 per share. During fiscal 1999, 259,544
options were exercised and 33,985 options were canceled or expired. At July 31,
1999, 286,943 shares were available for future grant under such plan. The
Company's Nonqualified Stock Option Plan provides for the grant of options to
its key employees, directors and consultants in order to give such employees a
greater personal interest in the success of the Company and an added incentive
to continue and advance in their employment. The Company's Nonqualified Stock
Option Plan provides for a fifteen year expiration period for each option
granted thereunder and allows for the exercise of options by delivery by the
optionee of previously owned common stock of the Company having a fair market
value equal to the option price, or by a combination of cash and common stock.
As of October 30, 1999, the Company had granted options to
purchase 1,001,974 shares to Leonard A. Trugman, 158,667 shares to Seymour
Rubin, 64,758 shares to David Engel, 51,218 shares to Michael H. Taber, and
25,007 shares to Paul J. Liesman at an average exercise price of $3.61 per
share. Mr. Trugman exercised 160,214 options, Mr. Taber exercised 4,000 options
and Mr. Liesman exercised 2,110 options during the fiscal year ended July 31,
1999.
19
Stock Purchase Plan
Employee Stock Purchase Plan
The Company has an employee stock purchase plan which is funded by
payroll deductions. Shares acquired pursuant to such plan by employees of the
Company are purchased in the open market by the custodian of the plan. All
shares so purchased are held in street name until either June 30 or December 31,
whereupon the shares to which the employee is entitled are issued. With respect
to the officers, the following shares have been issued under the plan:
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
Officer 1999 1998 1997
------- ----- ----- -----
Leonard A. Trugman - -- 1,013
Seymour Rubin - -- 1,299
David Engel - -- 162
Michael H. Taber - 14 168
Paul J. Liesman - -- 94
Employee Benefit Plans
Defined Benefit Plan
The Company has a defined benefit pension plan which provides
retirement benefits for some employees ("Participants"). Pursuant to the plan,
Participants will receive a benefit, computed by an actuary at retirement based
upon their number of years of credited service and average total annual
compensation during five consecutive years of their service, reduced by a
portion of the benefits received under social security. Effective February 1,
1986, the plan was frozen so that future salary increases are not considered in
determining a Participant's pension benefit, contributions by Participants are
no longer permitted and participation in the plan is limited to those
Participants as of August 1, 1984. The Company continues to fund the plan with
contributions determined on an actuarial basis.
The following table illustrates, for representative average
annual covered compensation and years of credited service classifications, the
estimated annual retirement benefits payable to employees under this plan upon
retirement at age 65 based on the plan's normal form of benefit and social
security benefits frozen as of August 1, 1984. Benefits under the plan are
limited to the extent required by the Employee Retirement Income Security Act of
1974.
PENSION PLAN TABLE
Average Annual Years of Credited Service
Covered Compensation 15 or more
$ 40,000 $13,000
$ 50,000 $17,000
$ 75,000 $27,000
$100,000 $37,000
The executive officers named in the Summary Compensation Table do not
participate in the plan, except for Louis Farin, Sr. During the fiscal year
ended July 29, 1995, the Pension Plan was submitted to the Internal Revenue
Service and a favorable determination letter was received.
20
401(k) Plan
The Company has a 401(k) plan under which employees may elect to defer
a portion of their annual compensation. Merrill Lynch, Pierce, Fenner & Smith
Inc. ("Merrill Lynch") is the plan administrator. All employees with over 90
days of service and over the age of 21 may elect to defer from 2% to 15% of
their annual salary. The modified plan is administered by Merrill Lynch.
Employees may elect where their deferred salary will be invested. Highly
compensated employees' salary deferrals are limited by the contribution levels
of all other eligible participants. Distributions are made at retirement or upon
termination of employment. During the fiscal year ended August 2, 1997, the plan
was submitted to the Internal Revenue Service and a favorable determination
letter was received.
On February 1, 1986 the Company initiated a profit sharing plan as part
of the 401(k) plan which allows substantially all of the Company's employees to
participate in the profits of the Company, regardless of whether or not the
employee elected to contribute to the 401(k) plan in any year. Since the profit
sharing plan is part of the 401(k) plan, eligibility, participation and other
requirements are governed by the provisions of the 401(k) plan. Contributions to
the plan are determined based upon a calculation directly related to the
Company's sales volume and pre-tax profits. The Company's Compensation Committee
approved $50,000, $65,000 and $52,500 profit sharing contributions for the
periods ended July 31, 1999, August 1, 1998 and August 2, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information concerning the shares of
common stock beneficially owned as of October 29, 1999 by the Directors and by
all Directors, Officers and significant employees of the Company as a group
without naming them and each person who is known by the Company to be the
beneficial owner of more than five (5%) percent of the common stock as of such
date.
Shares of Common
Stock Beneficially
Name and Address of Owned as of Percent
Beneficial Owner October 29, 1999 (1) of Class
- --------------------------- -------------------- --------
OFFICERS AND DIRECTORS
LEONARD A. TRUGMAN 733,554 (2) 8.9%
c/o Del Global Technologies Corp.
One Commerce Park
Valhalla, NY 10595
NATAN V. BERTMAN 102,292 (3) 1.3%
c/o Bertman & Levine
945 Manhattan Avenue
Brooklyn, NY 11222
DAVID MICHAEL 158,130 (4) 2.0%
c/o David Michael & Co., P.C.
Seven Penn Plaza
New York, NY 10001
SEYMOUR RUBIN 173,122 (5) 2.2%
c/o RFI Corporation
100 Pine Aire Drive
Bay Shore, NY 11706
JAMES TIERNAN 8,658 (6) *
c/o Del Global Technologies Corp.
One Commerce Park
Valhalla, NY 10595
21
ROGER WINSTON 19,809 *
c/o Swarthmore Associates, LLC
103 East 75th Street
New York, NY 10021
DAVID ENGEL 25,746 (7) *
c/o Del Global Technologies Corp.
One Commerce Park
Valhalla, NY 10595
LOUIS J. FARIN, SR. 63,503 (8) *
c/o Del Global Technologies Corp.
One Commerce Park
Valhalla, NY 10595
PAUL J. LIESMAN 16,354 (9) *
c/o Bertan High Voltage Corp.
121 New South Road
Hicksville, NY 11801
MICHAEL H. TABER 11,233(10) *
c/o Del Global Technologies Corp.
One Commerce Park
Valhalla, NY 10595
All Officers and Directors ---------
(10) as a Group 1,312,401(11) 15.1%
=========
OTHERS
MORGAN STANLEY ASSET MANAGEMENT, INC. 645,900 8.3%
=========
One Tower Bridge
Conshoken, PA 19428-2899
FIDELITY MANAGEMENT AND RESEARCH CO. 632,300 8.1%
=========
82 Devonshire Street
Boston, MA 02109-3614
DIMENSIONAL FUND ADVISORS 612,479 7.9%
=========
1299 Ocean Avenue - 11th Floor
Santa Monica, CA 90401
CAPITAL TECHNOLOGY INC. 407,300 5.2%
=========
PO Box 42428
Charlotte, NC 28247
* Represents less than 1% of the outstanding shares of common stock of the
Company including shares issuable under options which are presently
exercisable or will become exercisable within 60 days of October 29,
1999.
(1) Unless otherwise indicated, each person has sole voting and
investment power with respect to the shares shown as beneficially
owned by such person.
(2) Includes 403,007 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
(3) Includes 75,070 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
22
(4) Includes 122,855 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
(5) Includes 151,129 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
(6) Includes 2,625 shares, options for which are presently exercisable or
will become exercisable within 60 days of October 29, 1999.
(7) Includes 24,523 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
(8) Includes 54,376 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
(9) Includes 15,360 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
(10) Includes 10,211 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
(11) Includes 859,156 shares, options for which are presently exercisable
or will become exercisable within 60 days of October 29, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the Company's Stock Buy-Back Program, which was approved by the
Board of Directors, the Company repurchased 38,500 shares of common stock owned
by Mr. Leonard A. Trugman at an average fair market value of $9.37 per share.
The amounts paid to Mr. Trugman were associated with the exercise of 85,214
shares of Del Global Technologies Corp. common stock under the Company's
Employee Stock Option Plan. Such funds were used to pay the payroll withholding
taxes due relating to the gains realized upon the exercise of these
non-qualified stock options. During the fiscal year, Mr. Trugman's direct
holdings of Del Global Technologies Corp. common stock increased by 68,223
shares.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Page Number
-------------------- -----------
CONSOLIDATED FINANCIAL STATEMENTS OF
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES:
Independent Auditors' Report F1
Consolidated Balance Sheets as of July 31, 1999
and August 1, 1998 F2
Consolidated Statements of Income for the Fiscal
Years Ended July 31, 1999, August 1, 1998 and
August 2, 1997 F3
Consolidated Statements of Shareholders' Equity
for the Fiscal Years Ended July 31, 1999,
August 1, 1998 and August 2, 1997 F4
Consolidated Statements of Cash Flows for the
Fiscal Years Ended July 31, 1999, August 1, 1998
and August 2, 1997 F5 - F6
Notes to Consolidated Financial Statements for the
Fiscal Years Ended July 31, 1999, August 1, 1998
and August 2, 1997 F7 - F16
2. Supplemental Financial Information
Unaudited Selected Quarterly Financial Data F17
3. Exhibits
Exhibit
Number Description of Document Footnotes
------- ----------------------- ---------
3.1 Certificate of Incorporation dated
October 25, 1954 (1)
3.2 Certificate of Amendment of
Certificate of Incorporation
dated January 28, 1957 (1)
3.3 Certificate of Amendment of
Certificate of Incorporation
dated July 12, 1960 (1)
3.4 Certificate of Amendment of
Certificate of Incorporation
dated March 15, 1989 (2)
3.5 Certificate of Amendment of
Certificate of Incorporation
dated January 19, 1989 (3)
3.6 Certificate of Amendment of
the Certificate of Incorporation
of Del Electronics Corp.
dated February 14, 1996 (4)
24
3.7 By-Laws of Del Global Technologies Corp. (1)
4.1 Warrant Agreement between Del Electronics
Corp. and Chase Manhattan Investment
Holdings, Inc., dated January 27, 1995 (5)
4.2 Amendment to Warrant Agreement between
Del Electronics Corp. and Chase Manhattan
Investment Holdings, Inc., dated January 27, 1995 (6)
*4.3 Second Amendment to Warrant Agreement between
Del Global Technologies Corp. and Chase Manhattan
Investment Holdings, L.P. dated December 4, 1998
4.4 Warrant Agreement and Warrant Certificate
of The Chase Manhattan Bank, N.A. (7)
4.5 Warrant Certificate of Porter, LeVay and Rose, Inc.(8)
4.6 Warrant Certificate of Michael Porter (9)
4.7 Warrant Certificate of Jonathan Gordon (10)
4.8 Copy of Del Global Technologies Corp.
Amended and Restated Stock Option Plan
(the "Plan") (11)
4.9 Stock Purchase Plan (12)
4.10 Option Agreement, substantially in
the form used in connection with
options granted under the Plan (13)
10.1 Amended and Restated Executive
Employment Agreement of
Leonard A. Trugman (14)
10.2 Amendment No. 1 to Amended and
Restated Employment Agreement of
Leonard A. Trugman (15)
10.3 Amendment No. 2 to Amended and
Restated Employment Agreement of
Leonard A. Trugman (16)
10.4 Amendment No. 3 to Amended and
Restated Employment Agreement of
Leonard A. Trugman (17)
*10.5 Amendment No. 4 to Amended and
Restated Employment Agreement of
Leonard A. Trugman
10.6 Amended and Restated Credit Agreement
dated as of March 6, 1996 among
Del Global Technologies Corp., RFI Corporation,
Dynarad Corp., Bertan High Voltage Corp.,
Del Medical Systems Corp. and The
Chase Manhattan Bank, N.A. (18)
25
10.7 First Amendment to Amended and Restated
Credit Agreement dated as of August 2, 1996 (19)
10.8 Second Amendment to Amended and Restated
Credit Agreement dated as of August 1, 1997 (20)
10.9 Third Amendment to Amended and Restated
Credit Agreement dated as of July 31, 1998 (21)
10.10 Lease Agreement dated April 7, 1992
between Messenger Realty and the Company (22)
10.11 Lease Agreement dated September 1, 1992
between Arleigh Construction and
Del Acquisition Corp. (23)
10.12 Lease and Guaranty of Lease dated
May 25, 1994 between Leshow Enterprises
and Bertan High Voltage Corp. (24)
10.13 Lease dated January 4, 1993 between
Curto Reynolds Oelerich Inc. and
Gendex-Del Medical Imaging Corp. (25)
10.14 Consulting Agreement by and between
Del Acquisition Corp. and
Harvey Schechter (26)
10.15 Consulting Agreement by and between
Del Acquisition Corp. and
Mark Weiss (27)
*11 Computation of Earnings per Common
Share and Common Share Equivalents
for year ended July 31, 1999
*21 Subsidiaries of Del Global Technologies Corp.
*23.1 Consent of Deloitte & Touche LLP
*27 Financial Data Schedule
* Filed herewith
(1) Filed as Exhibit to Del Electronics Corp. Registration
Statement on Form S-1 (No. 2-16839) and incorporated herein
by reference.
(2) Filed as Exhibit 3.5 to Del Electronics Corp. Annual Report
on Form 10-K for the year ended August 2, 1986 and
incorporated herein by reference.
(3) Filed as Exhibit 4.5 to Del Electronics Corp. Form S-3 (No.
33-30446) filed August 10, 1989 and incorporated herein by
reference.
(4) Filed as Exhibit 3.6 to Del Global Technologies Corp. Annual
Report on Form 10-K for the year ended August 2, 1997 and
incorporated herein by reference.
(5) Filed as Exhibit 4.5 to Del Electronics Corp. Registration
Statement on Form S-3 (No. 33-61025) and incorporated herein
by reference.
(6) Filed as Exhibit 4.6 to Del Electronics Corp. Registration
Statement on Form S-3 (No. 33-61025) and incorporated herein
by reference.
(7) Filed as Exhibits 4.1 and 4.2 to Del Global Technologies
Corp. Registration Statement on Form S-3 (No. 333-09131) and
incorporated herein by reference.
26
(8) Filed as Exhibit 4.4 to the Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 1, 1998
and incorporated herein by reference.
(9) Filed as Exhibit 4.5 to the Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 1, 1998
and incorporated herein by reference.
(10) Filed as Exhibit 4.6 to the Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 1, 1998
and incorporated herein by reference.
(11) Filed as Exhibit A to Del Electronics Corp. Proxy Statement
dated January 26, 1994 and incorporated herein by reference.
(12) Filed as Exhibit 4.9 to Del Electronics Corp. Annual Report
on Form 10-K for the year ended July 29, 1989 and
incorporated herein by reference.
(13) Filed as Exhibit 4.8 to Del Electronics Corp. Annual Report
on Form 10-K for the year ended July 30, 1994 and
incorporated herein by reference.
(14) Filed as Exhibit 10.1 to Del Electronics Corp. Annual Report
on Form 10-K for the year ended July 31, 1993 and
incorporated herein by reference.
(15) Filed as Exhibit 10.2 to Del Electronics Corp. Annual Report
on Form 10-K for the year ended July 30, 1994 and
incorporated herein by reference.
(16) Filed as Exhibit 10.3 to Del Electronics Corp. Annual Report
on Form 10-K for the year ended July 30, 1994 and
incorporated herein by reference.
(17) Filed as Exhibit 10.4 to the Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 1, 1998
and incorporated herein by reference.
(18) Filed as Exhibit 2.6 to the Del Global Technologies Corp.
Current Report on Form 8-K dated March 21, 1996 and
incorporated herein by reference.
(19) Filed as Exhibit 10.8 to the Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 2, 1997
and incorporated herein by reference.
(20) Filed as Exhibit 10.8 to the Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 2, 1997
and incorporated herein by reference.
(21) Filed as Exhibit 10.8 to the Del Global Technologies Corp.
Annual Report on Form 10-K for the year ended August 1, 1998
and incorporated herein by reference.
(22) Filed as Exhibit 6(a) to Del Electronics Corp. Quarterly
Report on Form 10-Q for the quarter ended May 2, 1992 and
incorporated herein by reference.
(23) Filed as Exhibit 28.6 to Del Electronics Corp. Current
Report on Form 8-K dated November 9, 1992 and incorporated
herein by reference.
(24) Filed as Exhibit 2.5 to Del Electronics Corp. Current Report
on Form 8-K dated June 10, 1994 and incorporated herein by
reference.
(25) Filed as Exhibit 10.21 to the Del Global Technologies Corp.
Registration Statement on Form S-2 (No. 333-2991) dated
April 30, 1997 and incorporated herein by reference.
(26) Filed as Exhibit 28.4 to Del Electronics Corp. Current
Report on Form 8-K dated November 9, 1992 and incorporated
herein by reference.
(27) Filed as Exhibit 28.5 to Del Electronics Corp. Current
Report on Form 8-K dated November 9, 1992 and incorporated
herein by reference.
(b) Reports on Form 8-K - No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Del Global Technologies Corp.
Valhalla, New York
We have audited the accompanying consolidated balance sheets of Del Global
Technologies Corp. and subsidiaries as of July 31, 1999 and August 1, 1998 and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three fiscal years in the period ended July 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Del Global Technologies Corp.
and subsidiaries at July 31, 1999 and August 1, 1998 and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended July 31, 1999, in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
October 20, 1999
F1
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, August 1,
1999 1998
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 320,742 $ 3,401,697
Investments available-for-sale
(Note 2) 1,292,852 913,125
Trade receivables (net of allowance
for doubtful accounts of $204,242 at
July 31, 1999 and $206,524
at August 1, 1998) 15,624,433 14,341,744
Cost and estimated earnings in
excess of billings on uncompleted
contracts (Note 3) 6,402,532 3,306,673
Inventory (Note 4) 36,599,587 29,195,262
Prepaid expenses and other current
assets 1,216,145 1,358,847
------------ ------------
Total current assets 61,456,291 52,517,348
------------ ------------
FIXED ASSETS - At cost (Note 5) 22,948,062 19,229,901
Less accumulated depreciation and
amortization 8,280,002 6,490,392
------------ ------------
14,668,060 12,739,509
INTANGIBLES (net of accumulated
amortization of $587,925 at
July 31, 1999 and $413,557
at August 1, 1998) 879,898 941,443
GOODWILL (net of accumulated
amortization of $990,868 at July 31,
1999 and $770,655 at August 1,
1998) (Note 11) 5,236,965 4,809,255
DEFERRED CHARGES 264,464 387,044
OTHER ASSETS 1,598,279 962,028
----------- -----------
TOTAL $84,103,957 $72,356,627
=========== ===========
See notes to consolidated financial statements.
July 31, August 1,
1999 1998
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 6) $ 516,654 $ 120,410
Accounts payable - trade 6,295,586 5,403,403
Accrued liabilities 4,468,521 3,938,623
Deferred compensation liability (Note 10) 1,201,065 913,046
Income taxes (Note 9) 1,224,451 394,540
----------- -----------
Total current liabilities 13,706,277 10,770,022
LONG-TERM LIABILITIES:
LONG-TERM DEBT (Less current
portion included above) (Note 6) 1,832,287 240,273
OTHER (Note 10) 594,272 484,366
DEFERRED INCOME TAXES (Note 9) 1,620,417 1,406,162
----------- -----------
Total liabilities 17,753,253 12,900,823
----------- -----------
COMMITMENTS AND
CONTINGENCIES (Notes 8 and 10)
SHAREHOLDERS' EQUITY (Notes 7 and 8):
Common stock - $.10 par value;
Authorized - 20,000,000 shares;
Issued and outstanding - 8,278,646
shares at July 31, 1999 and
7,988,993 at August 1, 1998 827,866 798,898
Additional paid-in capital 50,798,502 49,124,456
Retained earnings 19,032,506 12,360,906
----------- -----------
70,658,874 62,284,260
Less common stock in treasury -
490,393 shares at July 31, 1999 and
299,746 shares at August 1, 1998 4,308,170 2,828,456
----------- -----------
Total shareholders' equity 66,350,704 59,455,804
----------- -----------
TOTAL $84,103,957 $72,356,627
=========== ===========
F2
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
--------------------------------------------
July 31, August 1, August 2,
1999 1998 1997
------------ ------------ ------------
NET SALES (Notes 1 and 3) $ 68,020,978 $ 62,304,878 $ 54,685,289
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 40,476,778 36,908,317 32,854,825
Research and development 6,484,784 5,863,343 4,548,487
Selling, general and administrative 11,335,653 11,273,059 10,193,244
Interest expense 213,128 129,654 239,024
Interest income (63,102) (297,580) (293,494)
------------ ------------ ------------
58,447,241 53,876,793 47,542,086
------------ ------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 9,573,737 8,428,085 7,143,203
PROVISION FOR INCOME TAXES (Note 9) 2,902,137 2,639,497 2,231,649
------------ ------------ ------------
NET INCOME $ 6,671,600 $ 5,788,588 $ 4,911,554
============ ============ ============
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS (Note 1):
BASIC $ .87 $ .77 $ .66
============ ============ ============
DILUTED $ .82 $ .71 $ .61
============ ============ ============
WEIGHTED NUMBER OF COMMON
SHARES OUTSTANDING 7,683,616 7,518,945 7,399,575
============ ============ ============
WEIGHTED NUMBER OF COMMON
SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING 8,164,319 8,206,121 8,070,199
============ ============ ============
See notes to consolidated financial statements.
F3
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Stock Issued Treasury Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ----------- ----------- -----------
BALANCE - August 3, 1996 7,223,406 $ 722,340 58,255 $ (336,685) $43,272,713 $ 3,411,160 $47,069,528
Stock dividend - 3%
November 1997 (Note 8) 215,301 21,528 1,724,075 (1,750,396) (4,793)
Exercise of stock options
and warrants (Note 8) 73,370 7,338 415,122 422,460
Shares repurchased (Note 8) 46,000 (366,542) (366,542)
Tax benefit related to
exercise of stock options
& warrants (Note 8) 458,023 458,023
Contribution to Profit
Sharing Plan (Note 7) 4,157 416 39,584 40,000
Net Income 4,911,554 4,911,554
---------- ---------- -------- --------- ----------- ----------- -----------
BALANCE - August 2, 1997 7,516,234 751,622 104,255 (703,227) 45,909,517 6,572,318 52,530,230
Exercise of stock options
and warrants (Note 8) 467,573 46,757 36,091 (268,047) 1,950,146 1,728,856
Shares repurchased (Note 8) 159,400 (1,857,182) (1,857,182)
Tax benefit related to
exercise of stock options
& warrants (Note 8) 1,074,582 1,074,582
Compensation cost of
warrants issued (Note 8) 142,949 142,949
Contribution to Profit
Sharing Plan (Note 7) 5,186 519 51,981 52,500
Other (4,719) (4,719)
Net Income 5,788,588 5,788,588
---------- ---------- -------- --------- ----------- ----------- -----------
BALANCE - August 1, 1998 7,988,993 798,898 299,746 (2,828,456) 49,124,456 12,360,906 59,455,804
Exercise of stock options
and warrants (Note 8) 282,810 28,284 34,356 (190,358) 904,857 742,783
Shares repurchased (Note 8) 156,291 (1,289,356) (1,289,356)
Tax benefit related to
exercise of stock options
& warrants (Note 8) 681,839 681,839
Compensation cost of
non-employee stock options
and warrants issued (Note 8) 28,157 28,157
Contribution to Profit
Sharing Plan (Note 7) 6,843 684 64,316 65,000
Other (5,123) (5,123)
Net Income 6,671,600 6,671,600
---------- ---------- -------- --------- ----------- ----------- -----------
BALANCE - July 31, 1999 8,278,646 $ 827,866 490,393 $(4,308,170) $50,798,502 $19,032,506 $66,350,704
========== ========= ======== =========== =========== =========== ===========
See notes to consolidated financial statements.
F4
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-----------------------------------------
July 31, August 1, August 2,
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,671,600 $ 5,788,588 $ 4,911,554
Adjustments to reconcile net income to
net cash provided by operating
activities net of effects from
purchases of X-Tek and Acoma:
Depreciation 1,789,610 1,402,833 1,038,960
Amortization 771,754 695,655 772,148
Imputed interest 75,102 48,568 68,309
Deferred income tax provision 587,687 569,970 147,981
Tax benefit from exercise of stock
options and warrants 681,839 1,074,582 458,023
Amortization of stock-based compensation 28,157 99,444 43,505
Changes in assets and liabilities:
Increase in trade receivables (1,282,689) (3,130,387) (1,990,029)
Increase in cost and estimated
earnings in excess of billings
on uncompleted contracts (3,095,859) (1,438,671) (1,868,002)
Increase in inventory (6,477,243) (4,380,754) (861,466)
Increase in prepaid and
other current assets (88,972) (126,749) (256,109)
Increase in intangibles (112,824) -- --
(Increase) decrease in other assets (596,141) 3,277 (10,535)
Increase in accounts payable - trade 892,183 1,466,874 242,949
Increase in accrued liabilities 113,561 110,701 130,959
Increase in deferred compensation
liability 247,219 190,480 177,090
Increase (decrease) in income taxes
payable 829,911 (474,410) 225,404
----------- ----------- -----------
Net cash provided by operating activities 1,034,895 1,900,001 3,230,741
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid on acquisitions (692,307) (1,103,377) (15,000)
Payments to former shareholders of
subsidiary acquired (84,838) (117,219) (132,640)
Expenditures for fixed assets (3,700,311) (2,896,532) (2,659,481)
Investment in marketable securities (338,927) (190,559) (177,090)
----------- ----------- -----------
Net cash used in investing activities (4,816,383) (4,307,687) (2,984,211)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) bank
borrowing 1,229,036 (178,443) (80,804)
Payment for repurchase of shares (1,289,356) (1,857,182) (366,542)
Proceeds from exercise of stock options
& warrants 742,783 1,728,856 422,460
Other 18,070 45,544 31,164
----------- ----------- -----------
Net cash provided by (used in) financing
activities 700,533 (261,225) 6,278
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS $(3,080,955) $(2,668,911) $ 252,808
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,401,697 6,070,608 5,817,800
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 320,742 $ 3,401,697 $ 6,070,608
=========== =========== ===========
See notes to consolidated financial statements.
F5
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-----------------------------------------
July 31, August 1, August 2,
1999 1998 1997
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 111,765 $ 127,980 $ 86,679
=========== =========== ===========
Income taxes paid $ 796,764 $ 1,464,597 $ 1,400,240
=========== =========== ===========
See notes to consolidated financial statements.
F6
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JULY 31, 1999, AUGUST 1, 1998, AND AUGUST 2, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business Activities - Del Global Technologies Corp.
("Del") together with its wholly-owned subsidiaries (collectively
the "Company"), is engaged in two major lines of business: Medical
Imaging Systems and Critical Electronic Subsystems. The Medical
Imaging Systems Segment designs, manufactures and markets
state-of-the-art, cost-effective medical imaging and diagnostic
systems consisting of stationary and portable imaging systems,
radiographic/fluoroscopic systems, mammography systems and a
neo-natal imaging system. The Critical Electronic Subsystems
Segment designs, manufactures and markets proprietary precision
power conversion and noise suppression subsystems for medical as
well as critical industrial applications.
b. Principles of Consolidation - The consolidated financial statements
include the accounts of Del and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been
eliminated.
c. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
d. Accounting Period - The Company's fiscal year-end is based on a
52/53-week cycle ending on the Saturday nearest to July 31.
e. Revenue Recognition - The Company recognizes revenues upon shipment
of its products except for certain products which have long-term
production cycles and high dollar value. Revenues for these
products are recognized using the percentage of completion method
of accounting in proportion to costs incurred.
f. Inventory Valuation - Inventory is stated at the lower of cost
(first-in, first-out) or market.
g. Depreciation and Amortization - Depreciation and amortization are
computed by the straight-line method at rates adequate to allocate
the cost of applicable assets over their expected useful lives,
which range from 3 to 40 years.
h. Research and Development Costs - Research and development costs are
charged to expense in the year incurred.
i. Net Income per Common Share and Common Share Equivalents - The
Company presents net income per share information in accordance
with Statement of Financial Accounting Standard "SFAS" No. 128,
"Earnings Per Share." Basic and diluted earnings per share have
been restated for the fiscal year ended August 2, 1997 to reflect
the adoption of SFAS No. 128.
j. Income Taxes - The Company accounts for income taxes under the
provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS No.
109 established financial accounting and reporting standards for
the effect of income taxes that result from activities during the
current and preceding years. SFAS No. 109 requires an asset and
liability approach for financial reporting for income taxes.
k. Cash and Cash Equivalents - The Company considers short-term
instruments with original maturities of three months or less
measured from their acquisition date and highly liquid instruments
readily convertible to known amounts of cash to be cash
equivalents.
l. Investments - Investments are classified as available-for-sale are
measured at fair value. Some of the investments, which are
classified as available-for-sale, are used to fund deferred
compensation plans established for certain of the Company's key
employees. Gains and losses on these investments, either recognized
or
F7
unrealized, inure to the benefit or detriment of the individual
employee's deferred compensation. Realized and unrealized gains and
losses on investments held for the Company's account were not
material and are recorded in the financial statements.
m. Intangibles - Intangible assets are patents, trademarks,
manufacturing rights and customer lists acquired with the purchase
of certain assets of a subsidiary. Intangibles are being amortized
on a straight-line basis over their estimated useful lives, which
range from 5 to 10 years.
n. Goodwill - The cost in excess of fair market value of the net
assets of companies acquired is being amortized on a straight-line
basis over either fifteen or twenty-five years. The carrying value
of intangible assets is reviewed annually by the Company and
impairments will be recognized when the undiscounted expected
future cash flows are less than their carrying value. Based upon
its review, the Company does not believe that an impairment of its
goodwill has occurred.
o. Stock-Based Compensation - SFAS No. 123 "Accounting for Stock-Based
Compensation," defines a fair value method of accounting for the
issuance of stock options and other equity instruments. Under the
fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the
service period which is usually the vesting period. Pursuant to
SFAS No. 123, companies are encouraged, but not required, to adopt
the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," but are
required to disclose in a note to the financial statements pro
forma net income, and per share amounts as if the company had
applied the new method of accounting. SFAS No. 123 also requires
increased disclosures for stock-based arrangements, regardless of
the method chosen, to measure and recognize compensation for
employee stock-based arrangements. The Company has elected to
continue to account for such transactions under APB No. 25 and is
disclosing the required pro forma effect on net income and earnings
per share (Note 8).
p. Effects of Recently Issued Accounting Standards - Disclosures about
Derivative Instruments and Hedging Activities. In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging
activities. SFAS No. 133 is effective for all fiscal years
beginning after December 15, 1999. Management does not anticipate
that this statement will have any effect on the Company's
consolidated financial statements.
q. Certain reclassifications have been made in the prior year's
financial statements to correspond to the current year's
presentation.
2. INVESTMENTS AND DEFERRED COMPENSATION
At July 31, 1999, investments consisted of corporate debt and equity
securities classified as available-for-sale and are recorded at fair
market value.
The cost and fair value of investments classified as available-for-sale at
July 31, 1999, based on maturity dates, are as follows:
Maturity Fair
Dates Cost Value Difference
--------- ----------- ----------- ----------
Corporate debt securities 2000-2004 $ 647,660 $ 659,237 $ 11,577
Equity securities 605,909 633,615 27,706
----------- ----------- --------
Total $ 1,253,569 $ 1,292,852 $ 39,283
=========== =========== ========
At July 31, 1999 and August 1, 1998, the Company's investments consisted
of $1,201,065, and $913,046, respectively, for the deferred compensation
of its President and certain key executives. At July 31, 1999 $213,411 was
classified as cash and $987,654 was recorded as investments. At August 1,
1998, $24,841 was classified as cash and $888,205 was recorded as
investments. The liability of $1,201,065 and $913,046, respectively, was
recorded as a deferred compensation liability. Gains and losses, either
recognized or unrealized, inure to the benefit or detriment of the
President's or key executive's individual deferred compensation.
F8
3. PERCENTAGE OF COMPLETION ACCOUNTING
Year Year
Ended Ended
July 31, August 1,
1999 1998
----------- -----------
Costs incurred on uncompleted contracts $15,012,158 $ 6,804,554
Estimated earnings 9,329,220 4,178,103
----------- -----------
24,341,378 10,982,657
Less: Billings to date 17,938,846 7,675,984
----------- -----------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 6,402,532 $ 3,306,673
=========== ===========
The backlog of unshipped contracts being accounted for under the
percentage of completion method of accounting was approximately $7,434,000
at July 31, 1999 and approximately $5,186,000 at August 1, 1998.
4. INVENTORY
Inventory consists of the following:
July 31, 1999 August 1, 1998
------------- --------------
Finished goods $ 5,414,095 $ 4,848,572
Work-in-process 14,814,766 11,333,936
Raw materials and purchased parts 16,370,726 13,012,754
----------- -----------
$36,599,587 $29,195,262
=========== ===========
5. FIXED ASSETS
Fixed assets consist of the following:
July 31, 1999 August 1, 1998
------------- --------------
Land $ 694,046 $ 694,046
Buildings 2,161,025 2,146,025
Machinery and equipment 15,967,619 13,261,534
Furniture and fixtures 1,914,396 1,484,310
Leasehold improvements 2,180,873 1,613,883
Transportation equipment 30,103 30,103
----------- -----------
22,948,062 19,229,901
Less accumulated depreciation and
amortization 8,279,812 6,490,392
----------- -----------
Net Fixed Assets $14,668,250 $12,739,509
=========== ===========
6. DEBT
Long-term debt is summarized as follows:
July 31, 1999 August 1, 1998
---------------------- ----------------------
Due Within Due After Due Within Due After
One Year One Year One Year One Year
Acquisition credit line $ 511,150 $ 747,287 $ 105,263 $ 184,215
Revolving line of credit -- 1,085,000 -- 50,000
Other Loans 5,504 -- 15,147 6,058
---------- ---------- ---------- ----------
$ 516,654 $1,832,287 $ 120,410 $ 240,273
========== ========== ========== ==========\
F9
The Company's credit facility with its lending bank is composed of an
acquisition credit line of $10,000,000 and a revolving line of credit of
$14,000,000, with a letter of credit sublimit of $4,000,000. At July 31,
1999, there were outstanding balances of $1,258,437 on the acquisition
credit line, $1,085,000 on the revolving line of credit, and $138,295 of
letters outstanding. As of July 31, 1999, there was $8,550,000 available
under the acquisition credit line and $12,777,000 available for borrowing
under the revolving credit line. The acquisition credit line is to be
repaid in 7 equal quarterly installments of $179,777. Borrowings under
this facility are on an unsecured basis; however, the Company has agreed
that its assets cannot be used to secure other borrowings.
Interest under all facilities are at prime, or at the Company's option, at
a rate either tied to LIBOR or at a fixed rate based upon the prime rate.
The Company fixed its interest rate on the acquisition credit line at
6.69% from January 26, 1998 until the loan matures on April 30, 2001. The
interest rate on the revolving line of credit is at prime, which was 8.0%
at July 31, 1999. Both credit facilities are subject to commitment fees of
1/4 percent on the daily unused portion of the facility, payable
quarterly. The Credit Agreement also requires the Company to maintain
minimum annual net worth and working capital ratios, limits additional
indebtedness and the payment of cash dividends and contains other
restrictive covenants. Under the most restrictive terms, as of July 31,
1999, $25,000 is available for such cash dividends. The Company was in
compliance with its debt covenants at July 31, 1999. Management believes
that its debt obligations are stated at fair value, because the interest
rates on its credit lines are indexed with either the Prime Rate or LIBOR.
The weighted average interest rate on the Company's borrowing under its
credit facility was 6.77% and 7.17% for the years ended July 31, 1999 and
August 1, 1998, respectively.
Long-term debt matures as follows:
Fiscal Year Ending
------------------
2000 (included in current portion) $ 516,654
2001 1,565,621
2002 266,666
----------
$2,348,941
==========
7. EMPLOYEE BENEFITS
The Company has employee benefit plans for eligible employees. Included in
the plans is a profit sharing plan which provides for contributions as
determined by the Board of Directors. The contributions can be paid to the
plan in cash or common stock of the Company. Contribution expense for the
fiscal years ended in 1999, 1998 and 1997 was $50,000, $65,000 and
$52,500, respectively. The plan also incorporates a 401(k) Retirement Plan
that is available to substantially all employees, allowing them to defer a
portion of their salary. The Company also has a defined benefit plan
frozen effective February 1, 1986.
8. SHAREHOLDERS' EQUITY
a. Stock Dividends - On November 19, 1996, the Company declared a 3
percent stock dividend to holders of record on December 4, 1996
and was paid on December 23, 1996.
c. Stock Buy-Back Program - In April 1997, the Board of Directors
adopted a program to repurchase $1.5 million of the Company's
common stock. In April 1998 and again in April 1999, the Board of
Directors approved an additional repurchase of $1.5 million and
$1.5 million, respectively. During the fiscal years ended July
31, 1999 and August 1, 1998, the Company repurchased 156,291 and
159,400 shares for $1,289,356 and $1,857,182 respectively.
d. Nonqualified Stock Option Plan - The Company has a nonqualified
stock option plan under which a total of 3,124,293 options to
purchase common stock may be granted. As of July 31, 1999, the
Company has granted options to purchase 1,001,974 shares to the
current president, 250,723 shares to former officers, 372,439 to
current officers and 1,468,620 to various employees and
consultants. Current officers and one director exercised 170,324
options, a former officer exercised 62,401 options and various
employees and consultants exercised 26,819 options during the
fiscal year ended July 31, 1999. Current officers exercised
185,465 options, a former officer exercised 11,876 options and
various employees and consultants exercised 218,325 options
during the fiscal year ended August 1, 1998. Substantially all of
the options granted under this plan
F10
provide for graded vesting and vest at a rate of 25% per year,
beginning one year from the date of grant, expiring fifteen years
from the date they are granted. The option price per share is
determined by the Board of Directors, but cannot be less than 85
percent of fair market value of a share at the date of grant. All
options to date have been granted at the fair market value of the
Company's stock at the date of grant. No options can be granted
under this plan subsequent to December 31, 2009.
The following stock option information is as of:
July 31, August 1, August 2,
Options 1999 1998 1997
--------- --------- ---------
Granted and outstanding
at beginning of year 1,562,246 1,781,245 1,712,568
Granted 211,000 214,500 131,842
Expired (33,985) (17,833) (29,521)
Exercised (259,544) (415,666) (33,644)
----------- ----------- -----------
Outstanding at end of year 1,479,717 1,562,246 1,781,245
=========== =========== ===========
Exercisable at end of year 1,116,209 1,203,676 1,506,962
=========== =========== ===========
Exercise prices $.93-$11.00 $.93-$11.00 $.93-$8.48
=========== =========== ===========
As of July 31, 1999 the distribution of stock option prices is as
follows:
Number of Shares
Exercise Price Range Option Shares Exercisable
-------------------- ------------- -----------
$ .93-$ 2.49 432,557 432,557
$4.28-$ 6.18 573,875 549,338
$7.00-$ 8.25 261,785 42,689
$8.56-$10.00 211,500 91,925
--------- ---------
1,479,717 1,116,209
========= =========
The Company had warrants outstanding aggregating 62,813 shares at
July 31, 1999, all of which were granted at fair market value
(the closing stock value at the date of grant). The Company has
adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
for stock options and warrants granted to non-employees.
Compensation expense has been recorded for the fair value of
options and warrants granted to such non-employees in the amounts
of $28,157, $99,445 and $43,505 for fiscal years ended 1999, 1998
and 1997, respectively.
The Company has chosen to continue to account for stock-based
compensation for employees using the intrinsic value method
prescribed in APB No. 25, "Accounting for Stock Issued to
Employees," and its related interpretations. Accordingly, no
compensation expense was recorded for the Company's stock option
and stock purchase plans. However, under SFAS No. 123 the Company
has determined the pro forma net income and net income per share
amounts for fiscal 1999, fiscal 1998 and fiscal 1997, as if the
compensation expense had been recorded for options granted during
those years under the fair value method. Under SFAS No. 123, for
options granted, the fair value at the date of grant was
estimated using the Black-Scholes option pricing model. The
following weighted average assumptions were used in calculating
the fair value of the options granted in the fiscal years ended
July 31, 1999, August 1, 1998 and August 2, 1997: risk free
interest rates of 4.79% to 7.65%, expected life of the options
are between eight and thirteen years, average volatility of
between 40.31% and 51.55%, and a maximum contractual life of
fifteen years.
Had the Company adopted SFAS No. 123 for employee stock options,
the pro forma effect on net income and net income per share would
be:
F11
For Year For Year For Year
Ended Ended Ended
July 31, August 1, August 2,
1999 1998 1997
---------- ---------- ----------
Net income
As reported $6,671,600 $5,788,588 $4,911,554
========== ========== ==========
Pro forma $6,312,167 $5,640,810 $4,794,071
========== ========== ==========
Net income per common share:
As reported $ .82 $ .71 $ .61
========== ========== ==========
Pro forma $ .77 $ .69 $ .59
========== ========== ==========
Weighted average number of
shares outstanding 8,164,319 8,206,121 8,070,199
========== ========== ==========
9. INCOME TAXES
Provision for income taxes consists of the following:
Fiscal Year Ended
----------------------------------
July 31, August 1, August 2,
1999 1998 1997
---------- ---------- ----------
Current:
Federal $2,082,310 $1,802,856 $1,889,378
State 232,140 261,913 194,290
---------- ---------- ----------
2,314,450 2,064,769 2,083,668
Deferred:
Federal and state 587,687 569,970 147,981
---------- ---------- ----------
$2,902,137 $2,634,739 $2,231,649
========== ========== ==========
Deferred tax liabilities (assets) are comprised of the following:
July 31, August 1,
1999 1998
----------- -----------
Depreciation $ 1,575,268 $ 1,374,853
Pension 97,818 98,025
Federal effect of New York State
tax credits 175,395 162,742
Difference in basis of fixed assets 84,144 84,322
Revenue recognition 859,108 444,640
----------- -----------
Gross deferred tax liabilities 2,791,733 2,164,582
----------- -----------
Warranty reserve (45,552) (45,649)
Amortization (118,810) (118,761)
Inventory (49,211) (49,315)
Bad debt reserve (77,798) (77,962)
Deferred compensation (642,731) (644,392)
NYS tax credits (517,672) (476,231)
----------- -----------
Gross deferred tax assets (1,451,774) (1,412,310)
----------- -----------
Net deferred tax liabilities $ 1,339,959 $ 752,272
=========== ===========
Deferred tax liabilities and assets are recorded in the consolidated
balance sheets as follows:
F12
July 31, August 1,
1999 1998
----------- -----------
Liabilities:
Other current liabilities $ 378,327 $ 615
Deferred income taxes 1,536,095 1,321,840
Assets:
Prepaid expenses and other
current assets -- (36,550)
Other assets (574,463) (533,633)
----------- -----------
$ 1,339,959 $ 752,272
=========== ===========
The New York State tax credits expire at various dates through 2003.
The following is a reconciliation of the statutory Federal and effective
income tax rates:
Fiscal Year Ended
-----------------------------
July 31, August 1, August 2,
1999 1998 1997
% of % of % of
Pretax Pretax Pretax
Income Income Income
------ ------ ------
Statutory Federal income tax expense rate 34.0% 34.0% 34.0%
State taxes, less Federal tax effect 1.9 1.8 1.6
Permanent differences .2 .4 .5
Tax benefits on foreign sales corp (3.6) (3.0) (2.5)
Federal tax credits and other (2.2) (1.9) (2.4)
---- ---- ----
30.3% 31.3% 31.2%
==== ==== ====
10. COMMITMENTS AND CONTINGENCIES
a. The Company leases facilities for its manufacturing operations with
expiration dates ranging from July 2002 through April 2004. In
addition, the Company has various auto leases accounted for as
operating leases. The future minimum annual lease commitments as of
July 31, 1999 are as follows:
Fiscal Year Ended Amount
----------------- ----------
2000 $1,456,297
2001 1,414,374
2002 1,080,155
2003 810,335
2004 298,451
----------
$5,059,612
==========
Rent expense was $1,356,541 in 1999, $1,384,952 in 1998 and $1,285,877
in 1997, which includes real estate taxes.
b. The Company has an employment agreement with its President through
July 31, 2005. The agreement provides for minimum base salary,
deferred compensation and bonuses as defined. Under the terms of the
agreement with the President, the Company will accrue deferred
compensation at a rate of five percent of pretax income with a minimum
of $100,000 and a maximum of $125,000. The accumulated amount at July
31, 1999 was $1,070,333. Such liability is funded by part of the
Company's investments of $1,070,333, classified as available-for-sale.
Gains and losses, either recognized or unrealized, inure to the
benefit or detriment of this employee's deferred compensation, based
upon a contractual arrangement between the President and the Company.
Bonus will accrue at five percent of pretax income. Also included in
the President's agreement are certain benefits in the event of death
or disability, as well as certain benefits in the event of a change of
control. Upon completion of the term of the agreement, the President
may opt for a five-year extension in the form of a consulting contract
at a rate specified within the agreement.
F13
In connection with the acquisition of a subsidiary, the Company has a
deferred compensation agreement with the former president. Under the
terms of the agreement, the Company will accrue deferred compensation
at a base rate of $20,000 per year, increased by 4% per year for ten
years. The accumulated amount of deferred compensation at July 31,
1999 was $40,800. Such liability is funded by part of the Company's
investments of $40,800, classified as available-for-sale. Gains and
losses, either recognized or unrealized, inure to the benefit or
detriment of this employee's deferred compensation. At July 31, 1999,
the amount recorded for the net present value of future obligations
relating to this agreement was $112,431.
c. In connection with the acquisition of a subsidiary, in April 1998 the
former president of the acquired company became a technical consultant
to the Company. The Company and the technical consultant have agreed
to a ten year non-compete agreement at a minimum annual rate of
$50,000 as adjusted for the greater of five percent per annum or
increases in the cost of living. Additionally, in June 1994 the
Company entered into a ten-year non-compete agreement with the former
Chairman of the acquired company with the same terms. At July 31, 1999
and August 1, 1998, the amounts recorded for the net present value of
future obligations relating to these agreements were $566,802 and
$607,952, respectively.
d. The Company is a defendant in several legal actions arising from the
normal course of business. On the advice of counsel, management
believes the Company has meritorious defenses to such actions and that
the outcomes will not be material to the Company's consolidated
financial condition, results of operations and cash flows.
11. ACQUISITIONS
In December 1998, the Company acquired certain selected assets of
Acoma Medical Imaging Inc. for approximately $1,400,000 in cash and notes,
including transaction costs, payable over a three-year period. The
acquired assets consisted of inventory, fixed assets and technology.
On March 6, 1998, the Company acquired selected assets of X-Ray
Technologies, Inc., consisting of inventory, fixed assets, designs and
technology for approximately $1,100,000, including transaction costs.
These acquisitions have been accounted for as purchases and
accordingly the original purchase price was allocated to the assets
acquired based on the estimated fair value at the date of acquisition.
These transactions resulted in an excess of cost over fair value of net
assets acquired of $1,589,475, which is included in goodwill. Such excess
is being amortized over a 15-year period.
12. SEGMENT REPORTING
The Company adopted SFAS No. 131. "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter of the year
ended July 31, 1999. SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim
financial statements. It also establishes standards for related
disclosures about products and services, major customers and geographic
areas. Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The
Company's chief operating decision making group is comprised of the Chief
Executive Officer and the senior executives of the Company's operating
segments.
The Company has two reportable segments which are Medical Imaging
Systems and Critical Electronic Subsystems. The Medical Imaging Systems
Segment designs, manufactures and markets state-of-the-art, cost-effective
medical imaging and diagnostic systems consisting of stationary and
portable imaging systems, radiographic/fluoroscopic systems, mammography
systems and neo-natal imaging system. The Critical Electronic Subsystems
Segment designs, manufactures and markets proprietary precision power
conversion and noise suppression subsystems for medical as well as
critical industrial applications.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (Note 1).
Revenues are attributable to geographic areas based on the ultimate
destination of the products sold. Selected financial data of these
segments is as follows:
F14
For The Year Ended July 31, 1999:
Medical Critical
Imaging Electronic
Systems Subsystems Total
----------- ----------- -----------
Net sales to external customers $37,788,321 $30,232,657 $68,020,978
Cost of sales $25,359,617 $15,117,161 $40,476,778
Research and development $ 3,066,834 $ 3,417,950 $ 6,484,784
Selling, general and administrative $ 5,281,113 $ 6,054,540 $11,335,653
Interest income $ 47 $ 63,102 $ 63,055
Interest expense $ 25,697 $ 187,431 $ 213,128
Depreciation $ 546,151 $ 1,243,459 $ 1,789,610
Amortization $ 415,052 $ 356,702 $ 771,754
Income before provision for income
taxes $ 4,055,107 $ 5,518,630 $ 9,573,737
Segment assets $38,246,001 $45,857,956 $84,103,957
Expenditures for segment assets $ 1,697,187 $ 2,003,124 $ 3,700,311
For The Year Ended August 1, 1998:
Medical Critical
Imaging Electronic
Systems Subsystems Total
----------- ----------- -----------
Net sales to external customers $29,954,339 $32,350,539 $62,304,878
Cost of sales $20,338,720 $16,569,597 $36,908,317
Research and development $ 2,466,146 $ 3,397,197 $ 5,863,343
Selling, general and administrative $ 5,019,832 $ 6,253,227 $11,273,059
Interest income $ 242 $ 297,338 $ 297,580
Interest expense $ 2,318 $ 127,336 $ 129,654
Depreciation $ 374,295 $ 1,028,538 $ 1,402,833
Amortization $ 339,454 $ 356,201 $ 695,655
Income before provision for income
taxes $ 2,127,565 $ 6,300,520 $ 8,428,085
Segment assets $28,517,074 $43,839,553 $72,356,627
Expenditures for segment assets $ 1,114,386 $ 1,782,146 $ 2,896,532
F15
For The Year Ended August 2, 1997
Medical Critical
Imaging Electronic
Systems Subsystems Total
----------- ----------- -----------
Net sales to external customers $23,894,961 $30,790,388 $54,685,349
Cost of sales $16,985,958 $15,868,927 $32,854,885
Research and development $ 1,370,675 $ 3,177,812 $ 4,548,487
Selling, general and administrative $ 4,336,787 $ 5,856,457 $10,193,244
Interest income $ 31 $ 293,463 $ 293,494
Interest expense $ 4,420 $ 234,604 $ 239,024
Depreciation $ 240,874 $ 798,086 $ 1,038,960
Amortization $ 515,997 $ 256,151 $ 772,148
Income before provision for income
taxes $ 1,197,152 $ 5,946,051 $ 7,143,203
Segment assets $20,570,012 $43,559,798 $64,129,810
Expenditures for segment assets $ 888,465 $ 1,771,016 $ 2,659,481
During the fiscal year ended 1999, Picker International Corp. and
General Electric Corp. represented 11.0% and 10.2%, respectively, of the
Company's consolidated net sales. During fiscal years 1998 and 1997, no
one customer accounted for more than ten percent of the Company's
consolidated net sales.
Export sales were 46 percent, 45 percent and 40 percent of total net
sales in 1999, 1998 and 1997, respectively.
For the years ended July 31, 1999, August 1, 1998 and August 2, 1997,
net sales by geographic areas were:
1999 1998 1997
---- ---- ----
United States $36,604,628 54% $33,045,314 54% $32,735,680 60%
Europe 7,552,367 11% 8,178,548 13% 6,709,380 12%
Other North America 6,703,938 10% 5,687,305 9% 4,817,555 9%
Far East 6,653,330 10% 7,277,981 12% 6,285,606 11%
Middle East 5,041,452 7% 4,063,918 7% 3,521,101 7%
South America 4,706,569 7% 2,955,010 5% 455,241 1%
Africa 758,694 1% 96,802 0% 160,726 0%
----------- ---- ----------- ---- ----------- ----
Total net sales $68,020,978 100% $62,304,878 100% $54,685,289 100%
=========== ==== =========== ==== =========== ====
F16
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
YEAR ENDED July 31, 1999:
QUARTER
--------------------------------------------------
First Second Third Fourth
----------- ----------- ----------- -----------
Net sales $14,809,666 $15,921,952 $18,684,525 $18,604,835
=========== =========== =========== ===========
Gross profit $ 6,130,498 $ 6,613,699 $ 7,467,655 $ 7,332,348
=========== =========== =========== ===========
Net income $ 1,429,087 $ 1,604,444 $ 1,773,999 $ 1,864,070
=========== =========== =========== ===========
Basic earnings per share $ .19 $ .21 $ .23 $ .24
=========== =========== =========== ===========
Diluted earnings per share $ .18 $ .20 $ .21 $ .23
=========== =========== =========== ===========
YEAR ENDED August 1, 1998:
QUARTER
--------------------------------------------------
First Second Third Fourth
----------- ----------- ----------- -----------
Net sales $13,480,069 $14,403,182 $16,682,726 $17,738,901
=========== =========== =========== ===========
Gross profit $ 5,432,524 $ 5,900,167 $ 6,687,147 $ 7,376,723
=========== =========== =========== ===========
Net income $ 1,256,987 $ 1,362,480 $ 1,444,741 $ 1,724,380
=========== =========== =========== ===========
Basic earnings per share $ .17 $ .18 $ .19 $ .23
=========== =========== =========== ===========
Diluted earnings per share $ .15 $ .17 $ .18 $ .21
=========== =========== =========== ===========
F17
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
DEL GLOBAL TECHNOLOGIES CORP.
By: /S/Leonard A. Trugman
----------------------
Leonard A. Trugman
Chairman of the Board,
Chief Executive Officer and
President
By: /S/Michael H. Taber
-------------------
Michael H. Taber
Chief Financial Officer, Vice
President of Finance and
Secretary
Dated: November 5, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/S/Natan V. Bertman November 5, 1999
- -------------------
Natan Bertman, Director
/S/David Michael November 5, 1999
- ----------------
David Michael, Director
/S/Seymour Rubin November 5, 1999
- ----------------
Seymour Rubin, Director
/S/James Tiernan November 5, 1999
- ----------------
James Tiernan, Director
/S/Roger Winston November 5, 1999
- ----------------
Roger Winston, Director
/S/Leonard A. Trugman November 5, 1999
- ---------------------
Leonard A. Trugman
Chairman of the Board,
Chief Executive Officer and
President