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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended January 31, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to____________
Commission File Number 0-3319
DEL GLOBAL TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)
New York 13-1784308
- -------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Park, Valhalla, NY 10595
(Address of principal executive offices) (Zip Code)
914-686-3600
------------
(Registrant's telephone number including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes / / No /X/
The number of shares of Registrant's common stock outstanding as of March 12,
2004 was 10,335,048.
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
Table of Contents
Part I. Financial Information: Page No.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations for the Three and Six Months 3
Ended January 31, 2004 and February 1, 2003
Consolidated Balance Sheets - January 31, 2004 and August 2, 2003 4-5
Consolidated Statements of Cash Flows for the Six Months Ended
January 31, 2004 and February 1, 2003 6
Notes to Consolidated Financial Statements 7-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-26
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26
Item 4. Controls and Procedures 27
Part II. Other Information:
Item 1. Legal Proceedings 29-31
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 34
Certifications 35-40
2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands except share data)
(Unaudited)
Three Months Ended Six Months Ended
January 31, February 1, January 31, February 1,
2004 2003 2004 2003
---------- ---------- ---------- ---------
NET SALES $29,903 $26,135 $51,545 $51,868
COST OF SALES 23,594 20,587 40,757 41,104
--------- --------- --------- --------
GROSS MARGIN 6,309 5,548 10,788 10,764
--------- --------- --------- --------
Selling, general and
administrative 5,601 5,571 9,889 10,980
Research and development 425 734 731 1,046
Litigation settlement costs 3,199 - 3,199 -
Impairment of goodwill and
other intangible assets 1,453 - 1,453 -
Facilities reorganization
costs - 219 - 453
---------- --------- ---------- --------
Total operating expenses 10,678 6,524 15,272 12,479
---------- --------- ---------- --------
OPERATING LOSS (4,369) (976) (4,484) (1,715)
Interest expense 331 357 647 713
Other expense/(income) 19 31 (52) (472)
---------- --------- ---------- --------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST (4,719) (1,364) (5,079) (1,956)
INCOME TAX PROVISION 7,356 4,761 7,539 4,788
---------- --------- ---------- --------
NET LOSS BEFORE MINORITY
INTEREST (12,075) (6,125) (12,618) (6,744)
MINORITY INTEREST 279 130 346 117
---------- --------- ----------- ---------
NET LOSS $(12,354) $(6,255) (12,964) $(6,861)
=========== ========= =========== =========
LOSS PER COMMON SHARE:
BASIC AND DILUTED $(1.20) $ (0.60) $(1.25) $(0.66)
======= ======= ====== ======
Weighted average number of
common shares outstanding,
basic and diluted 10,332,548 10,347,515 10,332,548 10,347,515
========== ========== ========== ==========
See notes to consolidated financial statements
3
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
January 31, August 2,
2004 2003
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 3,985 $ 1,381
Trade receivables (net of allowance
for doubtful accounts of $1,523 and
$1,232 at January 31, 2004 and
August 2, 2003, respectively) 25,986 17,063
Inventory - Net 18,032 18,448
Deferred income tax asset - current 732 2,591
Prepaid expenses and other current
assets 984 730
------------ -------------
Total current assets 49,719 40,213
REFUNDABLE INCOME TAXES 66 55
FIXED ASSETS - Net 8,854 9,293
DEFERRED INCOME TAX ASSET-NON CURRENT 853 6,148
GOODWILL 1,911 3,239
INTANGIBLES - Net 136 333
OTHER ASSETS 1,576 1,211
------------- --------------
TOTAL ASSETS $63,115 $60,492
============= ==============
See notes to consolidated financial statements
4
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, August 2,
2004 2003
------------- -------------
CURRENT LIABILITIES
Short-term credit facilities $ 5,610 $ 6,446
Current portion of long-term debt 727 655
Accounts payable - trade 18,662 8,990
Accrued liabilities 9,471 7,730
Litigation settlement reserves 5,600 2,553
Income taxes payable 587 241
------------ --------------
Total current liabilities 40,657 26,615
NON-CURRENT LIABILITIES
Long-term debt 5,446 5,312
Subordinated note 1,875 1,788
Other long-term liabilities 2,770 2,545
------------ --------------
Total liabilities 50,748 36,260
------------ --------------
MINORITY INTEREST IN SUBSIDIARY 1,743 1,253
------------ --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.10 par value;
Authorized 20,000,000 shares;
Issued and outstanding - 10,976,081 at
January 31, 2004 and August 2, 2003 1,097 1,097
Additional paid-in capital 63,701 63,682
Accumulated other comprehensive gain 1,153 563
Accumulated deficit (49,781) (36,817)
Less common stock in treasury - 643,533
shares at January 31, 2004 and August 3,
2002 (5,546) (5,546)
------------- --------------
Total shareholders' equity 10,624 22,979
------------ --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 63,115 $ 60,492
============ ==============
See notes to consolidated financial statements
5
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
Jan. 31,2004 Feb. 1, 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,964) $(6,861)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,038 1,243
Deferred income tax provision 7,171 4,730
Impairment of intangible assets 1,453 -
Imputed interest - Subordinated note 88 96
Minority interest 346 117
Stock based compensation expense 19 104
Loss on sale of fixed assets 43 16
Unrealized loss on marketable securities - 3
Changes in operating assets and liabilities:
(Increase)Decrease in trade receivables (8,022) 1,076
Decrease in inventory 1,090 1,578
Decrease in income taxes receivable - 3,992
(Increase) decrease in prepaid expenses and
other current assets (217) 947
(Increase)Decrease in other assets (299) 118
Increase in accounts payable - trade 9,068 1,016
Increase in litigation settlement reserve 3,199 -
Increase(decrease) in accrued liabilities 1,372 (2,228)
Increase(decrease) in income taxes payable 341 (182)
Other 72 (18)
----------- -----------
Net cash provided by operating activities 3,798 5,747
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed asset purchases (133) (1,227)
---------- ----------
Net cash used in investing activities (133) (1,227)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of bank borrowings (1,208) (3,293)
----------- ----------
Net cash used in financing activities (1,208) (3,293)
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES 147 59
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,604 1,286
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 1,381 895
----------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD $ 3,985 $ 2,181
=========== ==========
See notes to consolidated financial statements
6
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the results for the interim
period have been included. Results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full year.
These consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's annual
report on Form 10-K filed with the Securities and Exchange Commission for the
year ended August 2, 2003. Certain prior year's amounts have been reclassified
to conform to the current period presentation.
The Company's fiscal year is based on a 52/53 week cycle ending on the Saturday
nearest to July 31. Results of the Company's Milan, Italy based Villa Sistemi
Medicali S.p.A ("Villa") subsidiary are reported on a one-month lag.
The Company recognizes revenue upon shipment, provided there is persuasive
evidence of an arrangement, there are no uncertainties concerning acceptance,
the sales price is fixed, collection of the receivable is probable and only
perfunctory obligations related to the arrangement need to be completed. The
Company's products are covered primarily by one year warranty plans and in some
cases optional extended warranties for up to five years are offered. The Company
establishes allowances for warranties as more fully described in the Product
Warranty footnote herein. The Company recognizes service revenue when repairs or
out of warranty repairs are completed. The Company has an FDA obligation to
continue to provide repair service for certain medical systems for up to seven
years past the warranty period, which are billed to the customers at market
rates.
FINANCIAL CONDITION AND LIQUIDITY
As discussed in the Contingencies footnote herein, in February 2004 Del Global
reached an agreement in principle with the US Government regarding a settlement
of the civil and criminal aspects of the Department of Defense's (DoD's)
investigation into certain business practices at its RFI subsidiary. The
settlement would include the Company pleading guilty to one criminal count and
agreeing to pay fines and restitution to the US Government of $4,600 if paid by
June 30, 2004 and $5,000 if paid by September 30, 2004. There can be no
assurance that the Company will enter into a binding agreement with the US
Government regarding the settlement, or that the terms will not be changed.
Del Global expects to work with the DoD to avoid any future limitations on the
ability of the Company to do business with U.S. Government entities. Such
limitations could include the U.S. Government seeking a "debarment" or exclusion
of the Company from doing business with U.S. Government entities for a period of
time. Because management believes that it has been responsive in addressing the
problems that affected RFI in the past, the Company believes this settlement
7
will not limit or interrupt its ability to service the governmental and defense
sectors of its business.
As of January 31, 2004, the Company does not have sufficient cash balances or
borrowing availability under its lending facilities to fund the $5,000 required
by the settlement with the US Government on September 30, 2004 or to fund the
lesser amounts stipulated upon earlier payment.
As of January 31, 2004, the Company was out of compliance with the Adjusted
Earnings, Adjusted US Earnings, Senior Debt Ratio, and Fixed Charge Coverage
Ratio covenants of its lending facility with General Electric Capital Corp
"(GECC"). In March 2004, the Company received a waiver of these covenant
defaults from GECC and signed a Fourth Amendment to the credit facility with
GECC. This Fourth Amendment (i) includes revisions to the financial covenants,
(ii) provides for a $100 waiver fee payable immediately and a $500 fee payable
to GECC earned immediately but payable upon the sale of a subsidiary or division
of the Company that would provide sufficient proceeds to repay all amounts
outstanding under the GECC Facility, (iii) includes the elimination of the early
termination fee under the GECC facility, (iv) contains the consent of GECC for
the Company to obtain funding from a junior lender to fund the proposed
settlement regarding the DOD matter, (v) replaces the existing prime rate and
LIBOR pricing with pricing based on 30 day Commercial Paper plus 3.5% and (vi)
requires the Company to have entered into a written settlement agreement
regarding the DOD matter on terms acceptable to GECC and to have paid the U.S.
Government an amount not to exceed $5,000 with respect to such settlement by
September 30, 2004. While the Company expects to be able to meet these revised
covenants, there can be no assurance that the Company will be able to continue
to meet them. If the Company were to breach the covenants, GECC could accelerate
the amounts due under and foreclose on assets securing the GECC Facility and the
Company would be forced to seek alternative sources of funding for its debt
repayment obligations. Previously, the Company has breached certain financial
covenants in the GECC Facility, including in the fourth quarter of fiscal 2003,
for which it has obtained waivers of non-compliance.
The Company's Board of Directors has retained Imperial Capital, LLC, an
investment bank, to assist the Company in exploring all strategic alternatives
to raise the additional funding necessary to fund the proposed settlement and to
maximize returns to shareholders.
In particular, such alternatives include potential financings and asset sales.
The Company would be required to obtain an amendment to, or other accommodations
in, its existing credit facility from its current U.S. lender prior to the
consummation of any additional financing or asset sales.
The Company's present lenders have indicated a willingness to work with the
Company on these strategic alternatives. Presently management has received
initial term sheets from lenders that would provide for the repayment of the
existing lender and additional borrowings necessary to fund the DOD settlement.
There can be no assurance that the additional capital required to fund the DOD
settlement will be available to the Company either through a replacement lender
or through asset sales on terms acceptable to the Company or at all. If the
Company is unable to fund the settlement with the US Government, it is possible
the US Government could seek injunctive relief or other civil or criminal
actions.
STOCK BASED COMPENSATION
SFAS No. 148, Accounting for Stock-based Compensation-Transition and Disclosure,
an amendment of FASB Statement No. 123, amends SFAS No. 123 to provide
8
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. It also amends the
disclosure provisions of SFAS No. 123 to require prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has elected to continue to account for stock-based awards
to employees using the intrinsic value method of accounting in accordance with
Accounting Principles Board Opinion No 25, "Accounting for Stock Issued to
Employees." The Company's practice in granting these awards to employees is to
set the exercise price of the stock options equal to the market price of our
underlying stock on the date of grant. Therefore under the intrinsic value
method, no compensation expense is recognized in the Company's Consolidated
Statements of Operations.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under those plans consistent
with the methods recommended by SFAS 123, the Company's net loss and net loss
per share for the three and six months ended January 31, 2004 and February 1,
2003 would have been stated at the pro forma amounts indicated below:
Three Months Ended Six Months Ended
------------------ -----------------
Jan. 31, Feb. 1, Jan. 31, Feb. 1,
2004 2003 2004 2003
------- ------- ------- -------
Net loss - as reported $(12,354) $(6,255) $(12,964) $(6,861)
Add: Total stock-based
awards determined under
fair value method (114) (161) (228) (322)
------- ------- ------- -------
Proforma Net loss $(12,468) $(6,416) $(13,192) $(7,183)
======= ======= ======= =======
Loss per share -
Basic and diluted
As reported $ (1.20) $(0.60) $ (1.25) $(0.66)
Proforma $ (1.21) $(0.62) $ (1.28) $(0.69)
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities." In
December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46-R") to address
certain FIN 46 implementation issues. This interpretation requires that the
assets, liabilities, and results of activities of a Variable Interest Entity
("VIE") be consolidated into the financial statements of the enterprise that has
a controlling interest in the VIE. FIN 46R also requires additional disclosures
by primary beneficiaries and other significant variable interest holders. For
entities acquired or created before February 1, 2003, this interpretation is
effective no later than the end of the first interim or annual reporting period
ending after March 15, 2004, except for those VIE's that are considered to be
special purpose entities, for which the effective date is no later than the end
of the first interim or annual reporting period ending after December 15, 2003.
For all entities that were acquired subsequent to January 31, 2003, this
9
interpretation is effective as of the first interim or annual period ending
after December 31, 2003. The adoption of this interpretation did not have a
material impact on the Company's consolidated financial statements.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of acquisitions over the fair value
of the identifiable assets acquired and liabilities assumed. Other intangible
assets are the Company's distribution network and non-compete agreements
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. The components of our amortizable intangible
assets are as follows:
January 31, 2004 August 2, 2003
---------------- --------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amounts Amortization Amounts Amortization
Non-Compete
Agreements $ - $ - $ 902 $ 738
Distribution
Network 653 517 653 484
------- ------- ------- -------
Total $ 653 $ 517 $ 1,555 $ 1,222
======= ======= ======= =======
Amortization expense for intangible assets during the three and six months of
fiscal year 2004 was $36 and $72, respectively, and for fiscal year 2003 was $36
and $72, respectively. Estimated amortization expense for the remainder of 2004
and the succeeding fiscal years is as follows:
2004 (remainder) 33
2005 66
2006 37
There are no components of intangible assets that have an indefinite life.
Due to continuing operating losses at the Company's Del High Voltage division,
the Company concluded that sufficient indicators of impairment were present to
warrant a review of the goodwill and intangible assets of this reporting unit.
In accordance with the provisions of SFAS 142, based on a recent valuation of
this reporting unit, the Company compared the implied fair value of the goodwill
to the actual carrying value as of January 31, 2004, and concluded an impairment
loss of $1,328 had occurred. Accordingly, a charge of $1,328 was recorded during
the second quarter of fiscal year 2004 on the accompanying Consolidated
Statement of Operations.
The Company also conducted an impairment test of the carrying value of
non-compete agreements related to the Del High Voltage division. In accordance
with the provision of SFAS 144, the Company compared the expected future cash
flows related to the non-compete agreements to the carrying value and concluded
and impairment loss of $125 had occurred. Accordingly, the Company recorded a
charge of $125 during the second quarter of fiscal year 2004 on the accompanying
Consolidated Statement of Operations.
10
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market.
Inventories and their effect on cost of sales are determined by physical count
for annual reporting purposes and are evaluated using perpetual inventory
records for interim reporting periods. For certain subsidiaries during interim
periods we estimate the amount of labor and overhead costs related to finished
goods inventories. The estimation methodologies used for interim reporting
purposes are described in Management's Discussion and Analysis of Financial
Condition and Results of Operations under the subtitle "Critical Accounting
Policies".
January 31, 2004 August 2, 2003
----------------- ------------------
Raw materials and purchased parts $ 15,696 $ 15,161
Work-in-process 2,927 3,757
Finished goods 3,479 3,377
---------- ----------
22,102 22,295
Less allowance for obsolete and excess
inventory (4,070) (3,847)
----------- ----------
Total inventory, net $ 18,032 $ 18,448
=========== ==========
PRODUCT WARRANTIES
The Company's products are covered primarily by one-year warranty plans and in
some cases optional extended contracts may be offered covering products for
periods up to five years, depending upon the product and contractual terms of
sale. The Company establishes allowances for warranties on an aggregate basis
for specifically identified, as well as anticipated, warranty claims based on
contractual terms, product conditions and actual warranty experience by product
line.
During the first six months of fiscal 2004, the Company incurred payments of
$476 related to warranty claims submitted and accrued $999 related to product
warranties issued during the first six months of fiscal 2004. The liability
related to warranties is included in accrued expenses on the accompanying
Consolidated Balance Sheets and is $1,193 and $670 at January 31, 2004 and
August 2, 2003, respectively.
DEFERRED INCOME TAX ASSET
Deferred income tax assets and liabilities represent the effects of the
differences between the income tax basis and financial reporting basis of the
assets and liabilities at the tax rates expected at the time the deferred tax
liability or asset is expected to be settled or realized. Based on information
and forecasts available as of August 2003, the Company recorded a net deferred
income tax asset of $8,739, with $2,591 classified as a current asset and the
balance of $6,148 as a long term asset.
Based on an evaluation conducted in February 2004, management concluded that due
to recent results being lower than originally anticipated, it was prudent to
establish an additional valuation allowance of $1,859 against current deferred
tax assets and $5,312 against long term deferred tax assets. The valuation
allowance was computed by estimating the amount of future taxable income
11
expected over the net operating loss carryforward period, and that estimate was
based principally on the Company's recent performance. The valuation allowance
recorded is the estimate of the amount of deferred tax assets that are more
likely than not to go unrealized by the Company.
A corresponding amount of $7,171 was charged to the income tax provision for the
three and six month periods ended January 31, 2004 to reflect this valuation
allowance. The total income tax provision, including the valuation allowance and
tax provision amounts recorded at Villa, was $7,356 and $7,539 for the three and
six month periods ended January 31, 2004, respectively. The Company estimates
that it is more likely than not the remaining deferred asset will be utilized
against future operating profits; however, no assurances can be given that
results of operations will generate profits in the future.
COMPREHENSIVE LOSS
Comprehensive loss for the Company includes foreign currency translation
adjustments and net loss reported in the Company's Consolidated Statements of
Operations.
Comprehensive loss for 2004 and 2003 was as follows:
Three Months Ended Six Months Ended
January 31, February 1, January 31, February 1,
2004 2003 2004 2003
---------- ----------- ---------- -----------
Net loss $ (12,354) $(6,255) (12,964) $(6,861)
Foreign currency
translation adjustments 513 285 590 291
-------- --------- -------- ---------
Comprehensive loss $(11,841) $(5,970) (12,374) (6,570)
========= ========= ========= =========
LOSS PER SHARE
Three Months Ended Six Months Ended
January 31, February 1, January 31, February 1,
2004 2003 2004 2003
---------- ----------- ---------- -----------
Numerator:
Net loss $(12,354) $(6,255) (12,964) $(6,861)
========== ========= ========== =========
Denominator:
Denominator for basic loss per share -
Weighted average shares
outstanding 10,332,548 10,347,515 10,332,548 10,347,515
Effect of dilutive
securities - - - -
----------- ---------- ----------- ----------
Denominator for diluted
loss per share 10,332,548 10,347,515 10,332,548 10,347,515
=========== ========== ========== ==========
Loss per basic and
diluted common share $ (1.20) $ (0.60) (1.25) $(0.66)
=========== ========== =========== ==========
Common shares outstanding for the current period and prior period ended were
reduced by 643,533 shares of treasury stock. The computation of diluted shares
outstanding does not include 2,112,790 and 2,165,055 employee stock options and
12
1,065,000 and 1,065,000 warrants to purchase Company common stock, as of January
31, 2004 and February 1, 2003, respectively, because the effect of their assumed
conversion would be anti-dilutive.
13
SEGMENT INFORMATION
The Company has three reportable segments: Medical Systems Group, Power
Conversion Group and Other. The "Other" segment includes unallocated corporate
costs. Interim segment information is as follows:
Medical Power
For three months ended Systems Conversion
January 31, 2004 Group Group Other Total
- ----------------------- --------- -------- ------ -------
Net Sales to Unaffiliated Customers $23,834 $ 6,069 - $29,903
Cost of sales 18,128 5,466 - 23,594
------- -------- ------ ------
Gross margin 5,706 603 - $ 6,309
Operating expenses 3,726 1,530 $ 770 6,026
Litigation settlement costs - 3,199 - 3,199
Impairment of Goodwill - 1,453 - 1,453
------ ------- ------ ------
Total operating expenses 3,726 6,182 770 10,678
------ ------- ------ ------
Operating income / (loss) $ 1,980 $(5,579) $ (770) $(4,369)
====== ======= ====== ======
Medical Power
For three months ended Systems Conversion
February 1, 2003 Group Group Other Total
- ----------------------- ------- --------- ------ --------
Net Sales to Unaffiliated Customers $15,274 $10,861 - $26,135
Cost of sales 11,528 9,059 - 20,587
------- --------- ------- --------
Gross margin 3,746 1,802 - 5,548
Operating expenses 3,017 2,247 $ 1,041 6,305
Facilities reorganization costs - 285 (66) 219
-------- -------- ------- ------
Total operating expenses 3,017 2,532 975 6,524
-------- ------- ------- -------
Operating income / (loss) $ 729 $ (730) $ (975) $ (976)
======== ======== ====== =======
Medical Power
For six months ended Systems Conversion
January 31, 2004 Group Group Other Total
- ----------------------- --------- -------- -------- -------
Net Sales to Unaffiliated Customers $37,535 $ 14,010 - $51,545
Cost of sales 28,544 12,213 - 40,757
------- -------- ------- ------
Gross margin 8,991 1,797 - 10,788
Operating expenses 6,106 3,200 $1,314 10,620
Litigation settlement costs - 3,199 - 3,199
Impairment of Goodwill - 1,453 - 1,453
------ ------- ------ ------
Total operating expenses 6,106 7,852 1,314 15,272
------ ------- ------ ------
Operating income / (loss) $2,885 $(6,055) $(1,314) $(4,484)
====== ======= ====== ======
14
Medical Power
For six months ended Systems Conversion
February 1, 2003 Group Group Other Total
- ----------------------- ------- ---------- ------ --------
Net Sales to Unaffiliated Customers $27,342 $24,526 - $51,868
Cost of sales 21,065 20,039 - 41,104
------- --------- ------ --------
Gross margin 6,277 4,487 - 10,764
Operating expenses 5,669 4,222 $ 2,135 12,026
Facilities reorganization costs - 389 64 453
-------- -------- ------- ------
Total operating expenses 5,669 4,611 2,199 12,479
-------- ------- ------- ------
Operating income / (loss) $ 608 $ (124) $(2,199) $(1,715)
======== ======== ====== =======
CONTINGENCIES
Securities and Exchange Commission ("SEC") Investigation - On December 11, 2000,
the Division of Enforcement of the SEC issued the SEC Order, designating SEC
officers to take testimony and requiring the production of certain documents, in
connection with matters giving rise to the need to restate the Company's
previously issued financial statements. In conjunction with this investigation,
the Company provided numerous documents and cooperated fully with the SEC staff.
In December 2003, the Company signed a consent agreement with the Staff of the
SEC for a settlement of the SEC's claims against the Company that included a
previously announced penalty of $400 and an injunction against future violations
of the antifraud, periodic reporting, books and records and internal accounting
control provisions of the federal securities law. The settlement is subject to,
among other things final approval by the Commission and court approval. We can
give no assurance that this settlement will receive final Commission approval or
court approval.
Previously, the Company had reached an agreement in principle with the SEC on
these settlement terms, which management believed provided a reasonable basis
for estimating the financial impact of this SEC investigation. As a result, the
Company recorded a charge of $685 in the fourth quarter of fiscal year 2002
related to the agreement in principle with the SEC staff, which included
associated legal costs.
Department of Defense ("DOD") Investigation - On March 8, 2002, RFI Corporation,
a subsidiary of the Company and part of the Power Conversion Group segment, was
served with a subpoena by the US Attorney Eastern District of New York in
connection with an investigation by the US Department of Defense ("DOD"). RFI
supplies electro magnetic interference filters for communications and defense
applications. Since March 2002, the DOD has been investigating certain past
practices at RFI which date back more than six years and pertain to RFI's
Military Specification testing, record keeping and general operating procedures.
Management retained special counsel to represent the Company on this matter. The
Company has cooperated fully with this investigation, including voluntarily
providing employees to be interviewed by the Defense Criminal Investigative
Services division of the DOD.
15
In June 2003, the Company was advised that the US Government was willing to
enter into negotiations regarding a comprehensive settlement of this
investigation. Prior to the preliminary discussions with the US Government in
June 2003, the Company had no basis to estimate the financial impact of this
investigation. Based on preliminary settlement discussions with the US
Government, discussions with the Company's legal advisors, consideration of
settlements reached by other parties in investigations of this nature, and
consideration of the Company's capital resources, management then developed an
estimate of the low end of the potential range of the financial impact.
Accordingly, during the third quarter of fiscal 2003, the Company recorded a
charge of $2,347 which represents its estimate of the low end of a range of
potential fines and legal and professional fees.
In February 2004, Del Global reached an agreement in principle with the US
Government regarding settlement of the civil and criminal aspects of the DOD's
investigation. The settlement would include the Company pleading guilty to one
criminal count and agreeing to pay fines and restitution to the US Government of
$4,600 if paid by June 30, 2004 and $5,000 if paid by September 30, 2004. There
can be no assurance that the Company will enter into a binding agreement with
the US Government regarding the proposed settlement, or that the terms will not
be changed. The Company will need to raise additional capital to fund this
settlement. There can be no assurance that additional capital will be available
to the Company on terms acceptable to the Company or at all.
In connection with this settlement, Del Global recognized an additional charge
of approximately $3,199 in the second quarter of fiscal 2004. This charge
represents the difference between the $2,347 charge taken during the third
quarter of fiscal 2003, and the up to $5,000 in fines and restitution, plus
estimated legal and professional fees, related to this settlement. The liability
associated with these charges is included in Litigation settlement reserves on
the accompanying balance sheet.
Del Global expects to work with the DOD to avoid any future limitations on the
ability of the Company to do business with U.S. Government entities. Such
limitations could include the U.S. Government seeking a "debarment" or exclusion
of the Company from doing business with U.S. Government entities for a period of
time. Because management believes that it has been responsive in addressing the
problems that affected RFI in the past, the Company believes this settlement
will not limit or interrupt its ability to service the governmental and defense
sectors of its business. There can be no assurance that a debarment will be
avoided and that the Company will be able to generate sufficient funds to pay
either the $5 million in fines or restitution or accelerate payment to pay a
reduced amount.
The Company's Board of Directors has retained Imperial Capital, LLC, an
investment bank, to assist the Company in exploring all strategic alternatives
to raise the additional funding necessary to fund the proposed settlement with
the US Government regarding the DoD investigation, and to maximize returns to
shareholders. In particular, such alternatives include potential financings and
asset sales. The Company would be required to obtain an amendment to, or other
accommodations in, its existing credit facility from its current U.S. lender
prior to the consummation of any additional financing or asset sales.
Shareholder Suit - On February 6, 2004, a motion was filed for summary judgment
to enforce a January 2002 class action settlement agreement entered into by the
Company. The motion seeks damages in the amount of $1,250 together with
16
interest, costs and disbursements, and a declaration that $2,000 in promissory
notes issued as part of the class action settlement are immediately due and
payable, as the value of damages due to the Company's failure to complete a
registration statement related to the common shares underlying certain warrants
granted in the class action settlement. The Company filed opposition to this
matter on March 5, 2004. In addition, the Company intends to file a registration
statement related to the warrant shares in March 2004. The Company believes that
the motion for summary judgment is without merit and intends to vigorously
defend this matter. There can be no assurances, however, that the Company will
be successful in defending this motion or that the SEC will declare the
registration statement for the warrant shares effective.
ERISA Matters - During the year ended July 28, 2001, management of the Company
concluded that violations of the Employee Retirement Income Security Act,
("ERISA") existed relating to a defined benefit plan for which accrual of
benefits had been frozen as of February 1, 1986. The violations related to
excess concentrations of the Common stock of the Company in the plan assets. In
July 2001, management of the Company decided to terminate this plan, subject to
having available funds to finance the plan in accordance with rules and
regulations relating to terminating pension plans. This plan has not been
terminated yet, but the Company expects to start the process of terminating this
plan in fiscal 2004. At time of settlement, the Company expects to recognize a
related charge of approximately $500, including a cash disbursement of
approximately $200.
Employment Matters - The Company has an employment agreement with Samuel Park,
the previous CEO, for the period May 1, 2001 to April 30, 2004. The terms of
this agreement provided a base salary, bonuses and deferred compensation. The
bonus provided by this agreement was based on a percentage of the base salary,
if certain performance goals established by the board were achieved. In
addition, the employment agreement provided for certain payments in the event of
death, disability or change in the control of the Company.
On October 10, 2003, the Company announced the appointment of Walter F.
Schneider as President and CEO to replace Mr. Park, effective as of such date.
As a result, the Company recorded a charge of $200 during the first quarter of
fiscal 2004 to accrue the balance remaining under Mr. Park's employment
agreement.
In addition, the Company's Board of Directors elected at the Company's Annual
Meeting of Shareholders held on May 29, 2003 had previously reviewed the "change
in control" provisions regarding payments totaling up to approximately $1,800
under the employment agreement between the Company and Mr. Park. As a result of
this review and based upon, among other things, the advice of special counsel,
the Company's Board of Directors determined that no obligation to pay these
amounts has been triggered. Prior to his departure from the Company on October
10, 2003, Mr. Park orally informed the Company that, after reviewing the matter
with his counsel, he believed that the obligation to pay these amounts had been
triggered. On October 27, 2003, the Company received a letter from Mr. Park's
counsel demanding payment of certain sums and other consideration pursuant to
the Company's employment agreement with Mr. Park, including these change in
control payments. On November 17, 2003, the Company filed a complaint against
Mr. Park seeking a declaratory judgment that no change in control payment was or
is due to Mr. Park, and that an amendment to the employment contract with Mr.
Park regarding advancement and reimbursement of legal fees is invalid and
17
unenforceable. Mr. Park answered the complaint and asserted counterclaims
seeking payment from the Company based on his position that a "change in
control" occurred in June 2003. Mr. Park is also seeking other consideration he
believes he is owed under his employment agreement. The Company filed a reply to
Mr. Park's counterclaims denying that he is entitled to any of these payments.
If paid in a lump sum, these payments may have a material adverse effect on the
Company's liquidity. It is not possible to predict the outcome of these claims.
However, the Company's Board of Directors does not believe that such a claim is
reasonably likely to result in a material decrease in the Company's liquidity in
the foreseeable future.
Indemnification Legal Expenses - Pursuant to indemnification and undertaking
agreements with certain former officers, directors and employees, the Company
has advanced legal expenses in connection with the Company's previously reported
accounting irregularities and the related shareholder litigation and
governmental enforcement actions. During fiscal 2003, the Company spent
approximately $310 in the advancement of legal expenses pursuant to these
agreements. Management is unable to estimate at this time the amount of legal
fees that the Company may have to pay in the future related to these matters.
Further, there can be no assurance that those to whom we have been advancing
expenses will have the financial means to repay the Company pursuant to
undertaking agreements that they executed, if it is later determined that such
individuals were not entitled to be indemnified.
Other Legal Matters - On October 6, 2003, Carmelo Guiseppe Ammendola, a minority
shareholder of Villa, served a summons on Villa in the Civil Court of Milan,
Italy, challenging the terms of certain related party transactions between Villa
and the Company relating to intercompany pricing and a management fee. After
negotiations related to this matter, the Company and Mr. Ammendola signed a
Letter of Agreement indicating their intent to find an amicable solution to this
matter with the goal of canceling the Italian Civil Court proceedings. Although
there can be no assurances, management believes that the resolution of this
action will not have a material adverse effect on the financial position or
results of operations of either Villa or the Company.
In addition, the Company is a defendant in several other legal actions arising
from the normal course of business in various US and foreign jurisdictions.
Management believes the Company has meritorious defenses to such actions and
that the outcomes will not be material to the Company's consolidated financial
statements.
18
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on current
expectations and the current economic environment. We caution that these
statements are not guarantees of future performance. They involve a number of
risks and uncertainties that are difficult to predict including, but not limited
to, our ability to implement our business plan, retention of management,
changing industry and competitive conditions, obtaining anticipated operating
efficiencies, securing necessary capital facilities, favorable determinations in
various legal and regulatory matters, including a settlement of the Department
of Defense investigation on terms that we can afford and that does not include a
debarment from doing business with the US Government, and favorable general
economic conditions. Actual results could differ materially from those expressed
or implied in the forward-looking statements. Important assumptions and other
important factors that could cause actual results to differ materially from
those in the forward-looking statements are specified in the Company's filings
with the Securities and Exchange Commission including our Form 10-K for the
fiscal year ended August 2, 2003.
OVERVIEW
The Company is a leader in developing, manufacturing and marketing medical
imaging equipment and power conversion subsystems and components worldwide. Our
products include stationary and portable medical diagnostic imaging equipment,
high voltage power systems and electronic systems and components such as
electronic filters, transformers and capacitors. We manage our business in two
operating segments; our Medical Systems Group and our Power Conversion Group. In
addition, we have a third reporting segment, Other, comprised of certain
unallocated corporate general and administrative expenses.
CRITICAL ACCOUNTING POLICIES
Complete descriptions of significant accounting policies are outlined in Note 1
of our Form 10-K for the fiscal year ended August 2, 2003. Within these
policies, we have identified the accounting for deferred tax assets and the
allowance for obsolete and excess inventory as being critical accounting
policies due to the significant amount of estimates involved. In addition, for
interim periods, we have identified the valuation of finished goods inventory as
being critical due to the amount of estimates involved.
DEFERRED INCOME TAXES
We account for deferred income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," whereby we
recognize an asset related to our net operating loss carry forwards and other
temporary differences between financial reporting basis and income tax basis. As
of August 2, 2003, this deferred income tax asset represented approximately 14%
of our total assets. The valuation of our deferred tax assets and the
recognition of tax benefits in each period assumes future taxable income and
profitability. We periodically evaluate the likelihood of the recoverability of
19
our deferred tax asset recognized, based upon our actual operating results and
expectations of future operating profits.
During February 2004, as part of its customary six month planning and review
cycle, management updated each business units' forecasts for the second half of
fiscal 2004. After reviewing the second half expectations, coupled with lower
than expected first half operating results and the uncertain economic outlook,
management concluded that it was prudent to increase the valuation allowance to
$15.1 million against both long and short-term deferred tax assets. The
valuation allowance was computed by estimating the amount of future taxable
income expected over the net operating loss carryforward period, and that
estimate was based principally on the Company's recent performance. The
valuation allowance recorded is the estimate of the amount of deferred tax
assets that are more likely than not to go unrealized by the Company.
An amount of $7.2 million was recorded as an income tax provision for the three
and six month periods ended January 31, 2004. We anticipate that it is more
likely than not the remaining deferred tax asset will be utilized against future
operating profits or as an offset to dividend income received from out Villa
subsidiary. However, we can make no assurances that our business will generate
profits in the future.
Other than the establishment of a valuation allowance, we recorded no
adjustments to our current or deferred tax accounts during the first half of
fiscal 2004 with the exception of current tax provision amounts recorded at
Villa Sistemi, our foreign subsidiary.
OBSOLETE AND EXCESS INVENTORY
Another significant estimate is our allowance for obsolete and excess inventory.
We re-evaluate our allowance for obsolete inventory once a quarter, and this
allowance comprises the most significant portion of our inventory reserves. The
re-evaluation of reserves is based on a written policy, which requires at a
minimum that reserves be established based on our analysis of historical actual
usage on a part-by-part basis. In addition, if management learns of specific
obsolescence in addition to this minimum formula, these additional reserves will
be recognized as well. Specific obsolescence might arise due to a technological
or market change, or based on cancellation of an order. As we typically do not
purchase inventory substantially in advance of production requirements, we do
not expect cancellation of an order to be a material risk. However, market or
technology changes can and do happen.
VALUATION OF FINISHED GOODS INVENTORIES
In addition, we use certain estimates in determining interim operating results.
The most significant estimates in interim reporting relate to the valuation of
finished goods inventories. For certain subsidiaries, for interim periods, we
estimate the amount of labor and overhead costs related to finished goods
inventories. As of January 31, 2004, finished goods represented approximately
15.7% of the gross carrying value of our total gross inventory. We believe the
estimation methodologies used to be appropriate and consistently applied.
20
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated net sales of $29.9 million for the second quarter of fiscal 2004
increased by $3.8 million or 14.4% from fiscal 2003 second quarter net sales of
$26.1 million, with decreases at the Power Conversion Group more than offset by
increases at our Medical Systems Group. The Medical Systems Group's second
quarter fiscal 2004 sales of $23.8 million improved by $8.6 million or 56.0%
from the prior year's second quarter with increases at international locations
partially offset by a $1.2 million decline at domestic locations, plus favorable
exchange rate effects from the translation of Villa's financial statements from
euros. These results included an $8.5 million order to the Ministry of Social
Services in Mexico. The Power Conversion Group's second quarter fiscal 2004
sales of $6.1 million decreased by $4.8 million, or 44.1% from last year's
levels, primarily due to decreases in Explosive Detection System ("EDS")
business and the shift to in-house production of components formerly purchased
from us by a large customer.
Consolidated net sales of $51.5 million for the first half of fiscal 2004 were
slightly less than the $51.9 million reported in the first half of fiscal 2003,
with decreases at the Power Conversion Group offsetting increases at our Medical
Systems Group. The Medical Systems Group's first half of fiscal 2004 sales of
$37.5 million improved by $10.2 million, or 37.3%, from the prior year's first
six months, with increases at international locations offsetting a decline at
domestic locations, plus favorable exchange rate effects from the translation of
Villa's financial statements from euros. This increase in sales included the
second quarter fiscal 2004 shipment of $8.5 million to Mexico. The Power
Conversion Group's first half fiscal 2004 sales of $14.0 million decreased by
$10.5 million or 42.9% from last year's levels, primarily due to decreases in
Explosive Detection System ("EDS") business and the shift to in-house production
of components formerly purchased from us by a large customer, both of which took
place after the end of last year's second quarter.
Consolidated backlog at January 31, 2004 was $22.0 million versus backlog at
August 2, 2003 of approximately $26.3 million. The backlog in the Power
Conversion Group decreased $4.8 million from levels at beginning of the fiscal
year partially offset by a $0.4 million increase in the backlog at our Medical
Systems Segment. Substantially all of the backlog should result in shipments
within the next 12 months.
Gross margins as a percent of sales were 21.1% for the second quarter of fiscal
2004, compared to 21.2% in the second quarter of fiscal 2003. The Power
Conversion Group's margins for the second quarter of fiscal 2004 were 9.9%,
versus 16.6% in the prior year quarter. The prior year's second quarter margins
reflected shipments of higher margin EDS product partially offset by depressed
margins at RFI due to the DOD investigation. Second quarter fiscal 2004 Power
Conversion group margins also benefited from an approximate $0.7 million
reduction in labor and overhead resulting from the consolidation of the
Hicksville facility completed during the second half of fiscal 2003. The Medical
Systems Group's fiscal 2004 second quarter gross margins of 23.9% were slightly
below the 24.5% level in the prior year second quarter due to a slightly lower
gross margin on a large sale in Mexico at Villa, offset by higher margins
domestically due to cost control measures.
21
Selling, General and Administrative expenses ("SG&A") for the second quarter of
fiscal 2004 were $5.6 million (18.7% of sales), compared to $5.6 million (21.3%
of sales) in the prior year's second quarter. The decline in SG&A as a percent
of sales is due to the higher sales volume.
SG&A expenses for the first half of fiscal 2004 were $9.9 million (19.2% of
sales), compared to $11.0 million (21.2% of sales) in the same period in the
prior year. The decline in SG&A was generated in the first quarter of fiscal
2004 as a result of reduced corporate legal and accounting costs, reductions in
headcount and the consolidation of the Hicksville facility.
We have reached an agreement in principal with the U.S. Government regarding a
settlement of the civil and criminal aspects of the previously disclosed
Department of Defense ("DoD") investigation of our RFI subsidiary (See Part II
Item 1 "Legal Proceedings"). The settlement would include the Company pleading
guilty to one criminal count and agreeing to pay fines and restitution to the US
Government of $4.6 million if paid by June 30, 2004 and $5.0 million if paid by
September 30, 2004.
In connection with this settlement, Del Global recognized an additional charge
for Litigation settlement costs of approximately $3,199 in the second quarter of
fiscal 2004. This charge represents the difference between the $2,347 charge
taken during the third quarter of fiscal 2003, and the up to $5,000 million in
fines and restitution, plus estimated legal and professional fees, related to
this settlement. The liability associated with these charges is included in
Litigation settlement reserves on the accompanying balance sheet There can be no
assurance that the Company will enter into a binding agreement with the US
Government regarding the proposed settlement, or that the terms will not be
changed. The Company will need to raise additional capital to fund this
settlement. There can be no assurance that additional capital will be available
to the Company on terms acceptable to the Company or at all.
During the second quarter of fiscal 2004, due to the continued operating losses
at the High Voltage division, we wrote off $1.5 million in goodwill and
intangible assets associated with this business. The High Voltage division is
part of the Power Conversion Group.
As a result of the foregoing, we recognized a second quarter fiscal 2004
operating loss of $4.4 million compared to an operating loss of $1.0 million in
the second quarter of fiscal 2003. The Medical Systems Group posted a second
quarter fiscal 2004 operating profit of $2.0 million, offset by a $5.6 million
operating loss at the Power Conversion Group, and unallocated corporate costs of
$0.8 million. For the first six months, we recognized an operating loss of $4.5
million, compared to an operating loss of $1.7 million in the first half of
fiscal 2003. The Medical Systems Group posted an operating profit of $2.9
million in the first half of fiscal 2004, offset by a $6.1 million operating
loss at the Power Conversion Group and unallocated corporate costs of $1.3
million.
Interest expense for the first six months and second quarter of fiscal 2004 were
lower than the prior year's comparable periods due to decreased borrowings and
lower interest rates.
During the first six months of fiscal 2003, the Company recognized other income
of $0.5 million related to the settlement of a dispute in connection with a 1999
product line acquisition. During the first six months of fiscal 2004, the
Company recognized other income of $0.1 million, which included $0.2 million of
22
income related to favorable settlements of product royalty disputes, offset by
foreign exchange losses at the Villa subsidiary.
Provision for income taxes for the three and six month period ended January 31,
2004 reflects the establishment of a $7.2 million deferred tax valuation
allowance as discussed in Critical Accounting Policies, above. Management
periodically evaluates the likelihood of the recoverability of the deferred tax
asset recognized on our balance sheet. Based on management analysis, we believe
it is more likely than not that the remaining deferred tax assets will be
realized. Other than establishing a valuation allowance, we recorded no
adjustments to our current or deferred tax accounts during the first six months
of fiscal 2004, with the exception of current tax provision amounts recorded at
Villa Sistemi, our foreign subsidiary. During the three and six month periods of
fiscal year 2003, we had recorded a deferred tax valuation allowance of $4.7
million.
Reflecting the above, we recorded net losses of $12.4 million or $1.20 per share
in the second quarter of fiscal 2004, as compared to a net loss of $6.3 million,
or $0.60 per share, in the second quarter of the prior year. Our loss was $13.0
million or $1.25 per share in the first half of this year compared to a loss of
$6.9 million or $0.66 per share for the first half of fiscal 2003.
FINANCIAL CONDITION
LIQUIDITY AND CAPIAL RESOURCES
We fund our investing and working capital needs through a combination of cash
flow from operations and short-term credit facilities.
Working Capital - At January 31, 2004 and August 2, 2003, our working capital
was approximately $9.8 million and $13.6 million, respectively. At such dates,
we had approximately $4.0 million and $1.4 million, respectively, in cash and
cash equivalents. As of January 31, 2004 we had approximately $1.5 million of
excess borrowing availability under our domestic revolving credit facility.
In addition, as of January 31, 2004, our Villa subsidiary has an aggregate of
approximately $7.6 million of excess borrowing availability under its various
short-term credit facilities. Terms of the Italian credit facilities do not
permit the use of borrowing availability to finance operating activities at our
U.S. subsidiaries.
Cash Flows from Operating Activities - For the six months ended January 31, 2004
the Company generated approximately $3.8 million of cash from operations,
compared to a generation of $5.7 million in the six months of the prior fiscal
year. Contributing to cash generation in the first half of fiscal 2004 were
increases in trade payables and accrued liabilities partially offset by
increases in accounts receivable. The first half of fiscal 2003 included the
collection of approximately $4.0 million in income tax receivable. This income
tax receivable was the result of filing amended tax returns and carryback claims
for fiscal 1997 through 2001 due to a change in the tax laws permitting loss
carry-backs of five years from two years.
Cash Flows from Investing Activities - We have expended approximately $0.1
million for facility improvements and capital equipment for the six months ended
January 31, 2004. We anticipate fiscal 2004 capital expenditures will continue
to be lower than the expenditures in fiscal 2003 due to the completion of the
facility consolidation work in Valhalla and the HVAC system in Italy during
fiscal 2003.
24
Cash Flows from Financing Activities - During the first quarter of fiscal 2004,
we repaid a total of approximately $1.2 million of indebtedness on our domestic
and Italian borrowings.
The following table summarizes our contractual obligations, including debt and
operating leases at August 2, 2003: (in thousands)
Obligations Within 2-3 4-5 After 5
Total (1) 1 Year Years Years Years
--------- ------ ----- ----- -----
Long-Term Debt Obligations $2,895 $508 $1,037 $ 771 $ 579
Capital Lease Obligations 3,072 148 358 641 1,925
Subordinated Note 2,000 - - 2,000 -
Operating Lease Obligations 1,873 959 897 17 -
------ ----- ------ ------ ------
Total Contractual Cash Obligations $9,840 $1,615 $2,292 $3,429 $2,504
====== ====== ======= ====== ======
(1) In addition, as of August 2, 2003 we had approximately $6.2 million in
revolving credit debt in the U.S. and $0.2 million in Italy. The Italian
credit facilities are generally renewed on a yearly basis and the US
Credit Facility matures in December 2004. The maturity of the US Credit
Facility is subject to acceleration upon certain events of default as
defined in the credit agreement, including uncured covenant defaults. Upon
maturity, the Company anticipates refinancing any balances remaining on
the U.S. facility.
Credit Facility and Borrowing - The Company has a $10 million senior revolving
credit agreement entered into on June 10, 2002 with Transamerica Corporation. In
January 2004, General Electric Credit Corporation ("GECC") completed the
acquisition of Transamerica Corporation and assumed the ownership and
administration of our US credit facility. This facility, as amended, expires on
December 31, 2004. Interest under this US credit facility is based on thirty day
commercial paper rates plus a margin of 3.5%. The interest rate on the revolving
line of credit was 4.75% at August 2, 2003 and January 31, 2004. The GECC
Facility is subject to commitment fees of 3/8% on the daily unused portion of
the facility, payable monthly. Under terms of the GECC Facility, interest is
calculated based on the higher of the actual balance, or a floor revolving
credit balance of $5 million. The GECC Facility is secured by substantially all
of the Company's accounts receivable, inventory, and fixed assets in the U.S.
The terms of the GECC Facility require the Company to comply with various
operational and financial covenants, and place limitations on the Company's
ability to make capital expenditures and to pay dividends.
As of January 31, 2004, the Company was out of compliance with the Adjusted
Earnings, Adjusted US Earnings, Senior Debt Ratio, and Fixed Charge Coverage
Ratio covenants of the GECC Facility. In March 2004, the Company received a
waiver of these covenant defaults from GECC and signed a Fourth Amendment to the
credit facility with GECC. This Fourth Amendment (i) includes revisions to the
financial covenants, (ii) provides for a $100,000 waiver fee payable immediately
and a $500,000 fee payable to GECC earned immediately but payable on the earlier
to occur of (a) the expiration date of the GECC Facility and/or (b) the date of
repayment of all amounts outstanding under and the termination of the GECC
Facility, (iii) includes the elimination of the early termination fee under the
GECC facility, (iv) contains the consent of GECC for the Company to obtain
funding from a junior lender to fund the proposed settlement regarding the DOD
matter, (v) replaces the existing prime rate and LIBOR pricing with pricing
based on 30 day Commercial Paper plus 3.5% and (vi) requires the Company to have
entered into a written settlement agreement regarding the DoD matter on terms
25
acceptable to GECC and to have paid the US Government an amount not to exceed
$5.0 million with respect to such settlement by September 30, 2004. While the
Company expects to be able to meet these revised covenants, there can be no
assurance that the Company will be able to continue to meet them. If the Company
were to breach the covenants, GECC could accelerate the amounts due under and
foreclose on assets securing the GECC Facility and the Company would be forced
to seek alternative sources of funding for its debt repayment obligations.
Previously, the Company has breached certain financial covenants in the GECC
Facility, including in the fourth quarter of fiscal 2003, for which it has
obtained waivers of non-compliance.
The Company will record additional interest expense of $600,000 in the third
quarter of fiscal 2004 to reflect the additional financing charges associated
with this Waiver and Fourth Amendment.
Our Villa subsidiary is a party to various short-term credit facilities with
interest rates ranging from 6% to 14%. These facilities generally renew on a
yearly basis and include overdraft, receivables and import export financing
facilities. In addition, Villa is a party to various medium-term commercial and
Italian Government long-term loans. Medium term facilities have interest rates
ranging from 3 to 6%, with principal payable semi-annually through maturity in
March 2007, and interest payable quarterly. The Government long-term facilities
have an interest rate of 3.4% with principal payable annually through September
2010. Villa's manufacturing facility is subject to a capital lease obligation
which matures in 2011 with an option to purchase. Villa is in compliance with
all related financial covenants under these short and long-term financings.
As of January 31, 2004, the Company has a minimum liability and corresponding
debit in other comprehensive income to account for the unfunded status of its
defined benefit plan, in accordance with SFAS No. 87. In accordance with SFAS
No. 88, at the time of final settlement of the pension plan, the Company will
recognize an expense to the statement of operations for the amount of such debit
to other comprehensive income, adjusted for the difference between the cost to
settle the pension obligation and the amount of the recorded net liability. This
plan has not been terminated yet, but the Company expects to start the process
of terminating this plan in fiscal 2004. At time of settlement, the Company
expects to recognize a related charge of approximately $0.5 million, including a
cash disbursement of approximately $0.2 million.
In March 2004, we intend to file a registration statement with the SEC covering
the issuance of one million shares of our common stock underlying warrants that
were issued to certain shareholders in connection with the previous shareholder
litigation. Prior to completing this registration statement and having it
declared effective, we must satisfactorily respond to any questions raised by
the SEC in its review of the registration statement, and there can be no
assurances that the SEC will declare the registration statement effective in
fiscal 2004. Should the SEC declare this registration statement effective,
shareholders would be able to exercise the warrants issued as part of the
shareholder litigation settlement and purchase the Company's common stock at a
price of $2 per share. These warrants are also callable by the Company at a
price of $0.25 per warrant, if the Common Stock trades at or above $4 per share
for ten (10) consecutive days. We anticipate using any proceeds received from
the exercise of the warrants to pay down our GECC Facility.
As described in "Legal Proceedings" Part II, Item 1 below, on February 6, 2004,
a motion was filed for summary judgment to enforce a January 2002 class action
settlement agreement entered into by the Company. The motion seeks damages in
the amount of $1,250,000, together with interest, costs and disbursements, and a
declaration that $2,000,0000 in promissory notes issued as part of the class
26
action settlement are immediately due and payable, as the value of damages due
to the Company's failure to complete the registration statement noted above. The
Company filed opposition to this matter on March 5, 2004. The Company believes
that the motion for summary judgment is without merit and intends to vigorously
defend this matter. There can be no assurances however that the Company will be
successful in defending this motion.
As described in "Legal Proceedings" Part II, Item 1 below, management had
previously developed an estimate of the low end of the potential range of the
financial impact of a potential comprehensive settlement with the DOD regarding
an ongoing investigation of our RFI subsidiary. Accordingly, during the third
quarter of fiscal 2003, based on available information as of that time, we
recorded a charge of $2.3 million, which represented our estimate of the low end
of a range of potential fines and legal and professional fees. The liability
associated with this charge is included in Litigation settlement reserves on the
accompanying balance sheet.
In February 2004, Del Global reached an agreement in principle with the US
Government regarding a settlement of the civil and criminal aspects of the DOD's
investigation. The settlement would include the Company pleading guilty to one
criminal count and agreeing to pay fines and restitution to the US Government of
$4.6 million if paid by June 30, 2004 and $5.0 million if paid by September 30,
2004. There can be no assurance that the Company will enter into a binding
agreement with the US Government regarding the proposed settlement, or that the
terms will not be changed. The Company will need to raise additional capital to
fund this settlement. There can be no assurance that additional capital will be
available to the Company on terms acceptable to the Company or at all.
The Company's Board of Directors has retained Imperial Capital, LLC, an
investment bank, to assist the Company in exploring all strategic alternatives
to raise the additional funding necessary to meet its obligations under the
potential DoD settlement, and to maximize returns to shareholders. In
particular, such alternatives include potential financings and asset sales. The
Company would be required to obtain an amendment to, or other accommodations in,
its existing credit facility from its current U.S. lender prior to the
consummation of any additional financing or asset sales.
In connection with this settlement, Del Global recognized an additional charge
of approximately $3.2 million in the second quarter of Fiscal 2004. This charge
represents the difference between the $2.3 million charge taken during the third
quarter of Fiscal 2003, and the up to $5 million in fines and restitution, plus
estimated legal and professional fees, related to this settlement. The liability
associated with these charges is included in Litigation settlement reserves on
the accompanying balance sheet.
Del Global expects to work with the DoD to avoid any future limitations on the
ability of the Company to do business with US Government entities. Such
limitations could include the US Government seeking a "debarment" or exclusion
from doing business with US Government entities for a period of time. Because
management believes that it has been responsive in addressing the problems that
affected RFI in the past, the Company believes this settlement will not limit or
interrupt its ability to service the governmental and defense sectors of its
business. There can be no assurance that a debarment will be avoided and that
the Company will be able to generate sufficient funds to pay either the $5
million in fines or restitution or accelerate payment to pay a reduced amount.
The Company's Board of Directors elected at the Company's Annual Meeting of
Shareholders held on May 29, 2003 has reviewed the "change in control"
provisions regarding payments totaling up to approximately $1.8 million under
the employment agreement between the Company and its former Chief Executive
27
Officer, Samuel Park. As a result of this review and based upon, among other
things, the advice of special counsel, the Company's Board of Directors has
determined that no obligation to pay these amounts has been triggered. Prior to
his departure from the Company on October 10, 2003, Mr. Park orally informed the
Company that, after reviewing the matter with his counsel, he believed that the
obligation to pay these amounts has been triggered. On October 27, 2003, the
Company received a letter from Mr. Park's counsel demanding payment of certain
sums and other consideration pursuant to the Company's employment agreement with
Mr. Park, including these change in control payments. On November 17, 2003, the
Company filed a complaint against Mr. Park seeking a declaratory judgment that
no change in control payment was or is due to Mr. Park and that an amendment to
the employment contract with Mr. Park regarding advancement and reimbursement of
legal fees is invalid and unenforceable. Mr. Park answered the complaint and
asserted counterclaims seeking payment from the Company based on his position
that a "change in control" occurred in June 2003. Mr. Park is also seeking other
consideration he believes he is owed under his employment agreement. The Company
filed a reply to Mr. Park's counterclaims denying that he is entitled to any of
these payments. If paid in a lump sum, these payments may have a material
adverse effect on the Company's liquidity. It is not possible to predict the
outcome of these claims; however, the Company's Board of Directors does not
believe that such a claim is reasonably likely to result in a material decrease
in the Company's liquidity in the foreseeable future.
The outcome of the elections at the Company's Annual Meeting of Shareholders
held on May 29, 2003 represents a change in control under change in control
agreements between the Company and each of four other members of executive
management. However, as each of these agreements contains "double-triggers"
requiring the termination of the individual, no change in control payments are
currently due to any such individuals.
We anticipate that cash generated from strategic alternatives, including asset
sales and additional financings, operations and amounts available from credit
facilities will be sufficient to satisfy our obligations under the DoD
Settlement and currently projected operating cash needs for at least the next
twelve months, and for the foreseeable future. However, there is no assurance
that any alternatives will be available to the Company on acceptable terms at
such time or at all.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not ordinarily hold market risk sensitive instruments for trading
purposes. We do, however, recognize market risk from interest rate and foreign
currency exchange exposure. There have been no changes in financial market risk
as originally discussed in the Company's Annual Report on Form 10-K for the
fiscal year ended August 2, 2003.
28
Item 4 CONTROLS AND PROCEDURES
The Company, under the supervision and with the participation of the Company's
management, including Walter F. Schneider, Chief Executive Officer and Thomas V.
Gilboy, Chief Financial Officer, has evaluated the effectiveness of the design
and operation of the Company's "disclosure controls and procedures", as such
term is defined in Rules 13a-15e and 15d-15e promulgated under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this Form 10-Q
to provide reasonable assurance that information required to be disclosed by the
Company in reports that it files or submits under the Securities Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.
In the ordinary course of business, the Company routinely enhances its
information systems by either upgrading its current systems or implementing new
systems. There were no changes in the Company's internal controls or in other
factors that could significantly affect these controls, during the Company's
second fiscal quarter ended January 31, 2004 that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute assurance that the objectives of the control system are
met. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
29
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Securities and Exchange Commission ("SEC") Investigation - On December 11, 2000,
the Division of Enforcement of the SEC issued an Order designating SEC officers
to take testimony and requiring the production of certain documents, in
connection with matters giving rise to the need to restate the Company's
previously issued financial statements. In conjunction with this investigation,
the Company provided numerous documents and cooperated fully with the SEC staff.
In December 2003, the Company signed a consent agreement with the Staff of the
SEC for a settlement of the SEC's claims against the Company that included a
previously announced penalty of $400,000 and an injunction against future
violations of the antifraud, periodic reporting, books and records and internal
accounting control provisions of the federal securities law. The settlement is
subject to, among other things, final approval by the Commission and court
approval. We can give no assurance that this settlement will receive final
approval by the Commission or court approval.
Previously, the Company had reached an agreement in principle with the SEC on
these settlement terms, which management believed provided a reasonable basis
for estimating the financial impact of this SEC investigation. As a result, the
Company recorded a charge of $685,000 in the fourth quarter of fiscal year 2002
related to the agreement in principle with the SEC staff, which includes
associated legal costs.
Department of Defense ("DOD") Investigation - On March 8, 2002, RFI Corporation,
a subsidiary of the Company and part of the Power Conversion Group segment, was
served with a subpoena by the US Attorney Eastern District of New York in
connection with an investigation by the US Department of Defense ("DOD"). RFI
supplies electromagnetic interference filters for communications and defense
applications. Since March 2002, the DOD has been investigating certain past
practices at RFI, which date back more than six years and pertain to RFI's
Military Specification testing, record keeping and general operating procedures.
Management retained special counsel to represent the Company on this matter. The
Company has cooperated fully with this investigation, including voluntarily
providing employees to be interviewed by the Defense Criminal Investigative
Services division of the DOD.
In June 2003, the Company was advised that the US Government was willing to
enter into negotiations regarding a comprehensive settlement of this
investigation. Prior to the preliminary discussions with the US Government in
June 2003, the Company had no basis to estimate the financial impact of this
investigation. Based on preliminary settlement discussions with the US
Government, discussions with the Company's legal advisors, consideration of
settlements reached by other parties in investigations of this nature, and
consideration of the Company's capital resources, management then developed an
estimate of the low end of the potential range of the financial impact.
Accordingly, during the third quarter of fiscal 2003, the Company recorded a
charge of $2,347,000 which represented its estimate of the low end of a range of
potential fines and legal and professional fees.
30
In February 2004, Del Global reached an agreement in principle with the US
Government regarding a settlement of the civil and criminal aspects of the DOD's
investigation. The settlement would include the Company pleading guilty to one
criminal count and agreeing to pay fines and restitution to the US Government of
$4.6 million if paid by June 30, 2004 and $5.0 million if paid by September 30,
2004. There can be no assurance that the Company will enter into a binding
agreement with the US Government regarding the proposed settlement, or that the
terms will not be changed. The Company will need to raise additional capital to
fund this settlement. There can be no assurance that additional capital will be
available to the Company on terms acceptable to the Company or at all.
In connection with this settlement, Del Global recognized an additional charge
of approximately $3.2 million in the second quarter of Fiscal 2004. This charge
represents the difference between the $2.3 million charge taken during the third
quarter of Fiscal 2003, and the up to $5 million in fines and restitution, plus
estimated legal and professional fees, related to this settlement. The liability
associated with these charges is included in Litigation settlement reserves on
the accompanying balance sheet as of August 2, 2003 and January 31, 2004.
Del Global expects to work with the DoD to avoid any future limitations on the
ability of the Company to do business with US Government entities. Such
limitations could include the US Government seeking a "debarment" or exclusion
from doing business with US Government entities for a period of time. Because
management believes that it has been responsive in addressing the problems that
affected RFI in the past, the Company believes this settlement will not limit or
interrupt its ability to service the governmental and defense sectors of its
business.
The Company's Board of Directors has retained Imperial Capital, LLC, an
investment bank, to assist the Company in exploring all strategic alternatives
to raise the additional funding necessary to meet its obligations under the DoD
settlement, and to maximize returns to shareholders. In particular, such
alternatives include potential financings and asset sales. The Company would be
required to obtain an amendment to, or other accommodations in, its existing
credit facility from its current U.S. lender prior to the consummation of any
additional financing or asset sales.
Shareholder Litigation - On February 6, 2004, a motion for summary judgment to
enforce a settlement agreement entered into by the Company in January, 2002,
related to a class action suit filed against the Company, was filed in the
United States District Court, Southern District of New York by Philip Maley,
Gene Waters and Patsy Waters, on behalf of themselves and all others similarly
situated. The motion seeks an order and judgment that the Company has breached
the settlement agreement and seeks damages in the amount of $1,250,000 together
with interest, costs and disbursements, and a declaration declaring that
promissory notes, in the aggregate amount of $2,000,000 that were part of the
settlement, are immediately due and payable, as the value of damages suffered by
the Class due to the Company's failure to register with the Securities and
Exchange Commission shares of the Company's common stock underlying the
1,000,000 warrants issued in settlement of the action. The Company filed
opposition to this matter on March 5, 2004, which set forth numerous procedural,
legal, and factual opposition to the motion. Plaintiffs reply papers are due to
be filed by March 19, 2004. The Company expects to file a Form S-3 Registration
31
Statement with the Securities and Exchange Commission in March 2004 to register
the shares of the Company's common stock underlying the warrants at issue.
The Company believes that the motion for summary judgment is without merit and
intends to vigorously defend this matter. There can be no assurances however
that the Company will be successful in defending this motion.
ERISA Matters - During the year ended July 28, 2001, management of the Company
concluded that violations of the Employee Retirement Income Security Act,
("ERISA") existed relating to a defined benefit plan for which accrual of
benefits had been frozen as of February 1, 1986. The violations related to
excess concentrations of the Common stock of the Company in the plan assets. In
July 2001, management of the Company decided to terminate this plan, subject to
having available funds to finance the plan in accordance with rules and
regulations relating to terminating pension plans. This plan has not been
terminated yet, but the Company expects to start the process of terminating this
plan in fiscal 2004. At time of settlement, the Company expects to recognize a
related charge of approximately $0.5 million, including a cash disbursement of
approximately $0.2 million.
Employment Matters - The Company had an employment agreement with Samuel Park,
the previous CEO, for the period May 1, 2001 to April 30, 2004. The terms of
this agreement provided a base salary, bonuses and deferred compensation. The
bonus provided by this agreement was based on a percentage of the base salary,
if certain performance goals established by the board were achieved. In
addition, the employment agreement provided for certain payments in the event of
death, disability or change in the control of the Company.
On October 10, 2003, the Company announced the appointment of Walter F.
Schneider as President and CEO to replace Mr. Park, effective as of such date.
As a result, the Company recorded a charge of $200,000 during the first quarter
of fiscal 2004 to accrue the balance remaining under Mr. Park's employment
agreement.
In addition, the Company's Board of Directors elected at the Company's Annual
Meeting of Shareholders held on May 29, 2003 had previously reviewed the "change
in control" provisions regarding payments totaling up to approximately $1.8
million under the employment agreement between the Company and Mr. Park. As a
result of this review and based upon, among other things, the advice of special
counsel, the Company's Board of Directors determined that no obligation to pay
these amounts has been triggered. Prior to his departure from the Company on
October 10, 2003, Mr. Park orally informed the Company that, after reviewing the
matter with his counsel, he believed that the obligation to pay these amounts
has been triggered. On October 27, 2003, the Company received a letter from Mr.
Park's counsel demanding payment of certain sums and other consideration
pursuant to the Company's employment agreement with Mr. Park, including these
change in control payments. On November 17, 2003, the Company filed a complaint
against Mr. Park seeking a declaratory judgment that no change in control
payment was or is due to Mr. Park and that an amendment to the employment
contract with Mr. Park regarding advancement and reimbursement of legal fees was
invalid and unenforceable. Mr. Park answered the complaint and asserted
counterclaims seeking payment from the Company based on his position that a
32
"change in control" occurred in June 2003. Mr. Park is also seeking other
consideration he believes he is owed under his employment agreement. The Company
filed a reply to Mr. Park's counterclaims denying that he is entitled to any of
these payments. If paid in a lump sum, these payments may have a material
adverse effect on the Company's liquidity. It is not possible to predict the
outcome of these claims.
Indemnification Legal Expenses - Pursuant to indemnification and undertaking
agreements with certain former officers, directors and employees, the Company
has advanced legal expenses in connection with the Company's previously reported
accounting irregularities and the related shareholder litigation and
governmental enforcement actions. During fiscal 2003, the Company spent
approximately $310,000 in the advancement of legal expenses pursuant to these
agreements. Management is unable to estimate at this time the amount of legal
fees that the Company may have to pay in the future related to these matters.
Further, there can be no assurance that those to whom we have been advancing
expenses will have the financial means to repay the Company pursuant to
undertaking agreements that they executed, if it is later determined that such
individuals were not entitled to be indemnified.
Other Legal Matters - On October 6, 2003, Carmelo Guiseppe Ammendola, a minority
shareholder of Villa, served a summons on Villa in the Civil Court of Milan,
Italy, challenging the terms of certain related party transactions between Villa
and the Company relating to intercompany pricing and a management fee. After
negotiations related to this matter, the Company and Mr. Ammendola signed a
Letter of Agreement indicating their intent to find an amicable solution to this
matter with the goal of canceling the Italian Civil Court proceedings. Although
these can be no assurances, management believes that the resolution of this
action will not have a material adverse effect on the financial position or
results of operations of either Villa or the Company.
In addition, the Company is a defendant in several other legal actions arising
from the normal course of business in various US and foreign jurisdictions.
Management believes the Company has meritorious defenses to such actions and
that the outcomes will not be material to the Company's consolidated financial
statements.
33
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a: Exhibits
10.30* Waiver, Consent and Fourth Amendment to Loan and Security Agreement
dated as of March 12, 2004 among Del Global Technologies Corp.,
Bertan High Voltage Corp., RFI Corporation, and Del Medical Imaging
Corp. (Borrowers) and General Electric Credit Corp ("GECC") as
successor in interest to Transamerica Business Capital Corporation.
31.1* Certification of Chief Executive Officer, Walter F. Schneider,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer, Thomas V. Gilboy,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of the Chief Executive Officer, Walter F. Schneider,
pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2* Certification of the Chief Financial Officer, Thomas V. Gilboy,
pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
*filed herewith
b: Reports on Form 8-K
On November 4, 2003, the Company filed a Current Report on Form 8-K
under Item 5. "Other Events," Item 7. "Financial Statements, Pro
Forma Financial Information and Exhibits," and Item 12. "Results of
Operations and Financial Condition" to report that the Company's
Medical Systems Group had received an $8.5 million order from the
government of Mexico and a $1.0 million order from the government
of Vietnam, and that the Company announced operating results for
the fiscal year ended August 2, 2003 and the last fiscal quarter of
that fiscal year.
On December 1, 2003, the Company filed a Current Report on Form 8-k
under Item 5. "Other Events," Item 7. "Financial Statements, Pro
Forma Financial Information and Exhibits," to announce the
appointment of three new directors and the date of its 2004 Annual
Meeting of Stockholders.
On December 15, 2003, the Company filed a Current Report on Form
8-K under Item 5. "Other Events," Item 7. "Financial Statements,
Pro Forma Financial Information and Exhibits," and Item 12.
"Results of Operations and Financial Condition" to report that the
Company announced that it had signed a consent agreement with the
34
SEC staff, that the Company is continuing its discussions with the
U.S. Government in connection with the investigation at its RFI
subsidiary and that on November 17, 2003, it filed a complaint
against its prior CEO, Samuel Park, and that the Company announced
operating results for the fiscal year 2004 first quarter.
35
DEL GLOBAL TECHNOLOGIES CORP. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and 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.
/s/ Walter F. Schneider
-----------------------
Walter F. Schneider
Chief Executive Officer
and President
/s/ Thomas V. Gilboy
-----------------------
Thomas V. Gilboy
Chief Financial Officer,
Vice President
Dated: March 15, 2004
36