-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SXgo3X7U3fsJgvxwOJfZXffzZk4VQvhCBivz3ShwQjcixijeq5KH9r5RXdZ2/KE7 5RZKGnk/kjBGzcHrsZZJAQ== 0000864906-99-000001.txt : 19990217 0000864906-99-000001.hdr.sgml : 19990217 ACCESSION NUMBER: 0000864906-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUNAR CORP CENTRAL INDEX KEY: 0000864906 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 391200501 STATE OF INCORPORATION: WI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18643 FILM NUMBER: 99541497 BUSINESS ADDRESS: STREET 1: 313 W BELTLINE HIGHWAY CITY: MADISON STATE: WI ZIP: 53713 BUSINESS PHONE: 6082742663 MAIL ADDRESS: STREET 1: 313 WEST BELTLINE HIGHWAY CITY: MADISON STATE: WI ZIP: 53713 10-Q 1 QUARTERLY REPORT FOR QUARTER ENDING 12/31/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-18643 LUNAR CORPORATION (Exact name of registrant as specified in its charter) Wisconsin 3845 39-1200501 (State of (Primary Standard Industry (IRS Employer Incorporation) Classification Code Number) Identification No.) 313 West Beltline Highway Madison, Wisconsin 53713 608-274-2663 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of January 31, 1999, 8,605,760 shares of the registrant's Common Stock, $0.01 par value, were outstanding. LUNAR CORPORATION AND SUBSIDIARIES FORM 10-Q For the quarterly period ended December 31, 1998 TABLE OF CONTENTS ----------------- PART I - FINANCIAL INFORMATION Page - ------------------------------------------------------------------------------- Item 1. Financial statements Consolidated Balance Sheets December 31, 1998, and June 30, 1998. . . . . . . . . . . . . . . . 3 Consolidated Statements of Income Three and Six Months Ended December 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows Six Months Ended December 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements. . . . . . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . .12 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .13 Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .13 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . .14 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . .14 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .14 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .14 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .14 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 PART 1. FINANCIAL INFORMATION ITEM 1. Financial Statements LUNAR CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets - ------------------------------------------------------------------------------- Assets - ------------------------------------------------------------------------------- December 31, June 30, 1998 1998 (Unaudited) (Audited) - ------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents $ 6,945,363 $4,608,427 Marketable securities 4,166,757 8,117,655 Receivables: Trade, less allowance for doubtful Accounts of $3,414,000 at December 31, 1998 and $3,272,000 at June 30, 1998 30,735,082 24,285,511 Short-term financed accounts receivable 3,624,069 2,092,164 Other 556,511 929,179 - ------------------------------------------------------------------------------- 34,915,662 27,306,854 Inventories 15,815,489 13,287,887 Deferred Income Taxes 2,121,000 1,618,000 Other Current Assets 505,886 350,360 - ------------------------------------------------------------------------------- Total Current Assets 64,470,157 55,289,183 Property, Plant and Equipment--At Cost: Buildings and improvements 2,287,356 2,287,356 Furniture and fixtures 928,790 876,813 Machinery and other equipment 8,130,047 6,630,755 - ------------------------------------------------------------------------------- 11,346,193 9,794,924 Less Accumulated Depreciation and Amortization 5,784,709 5,086,141 - ------------------------------------------------------------------------------- 5,561,484 4,708,783 Land 2,088,118 2,088,118 Construction in progress 981,587 132,702 - ------------------------------------------------------------------------------- 8,631,189 6,929,603 - ------------------------------------------------------------------------------- Long-term Financed Accounts Receivable 5,632,484 4,095,565 Long-term Marketable Securities 14,535,781 22,783,003 Patents and Other Intangibles, Net of Accumulated Amortization of $655,783 at December 31, 1998 and $1,512,781 at June 30, 1998 503,417 809,468 Other 172,341 208,136 - ------------------------------------------------------------------------------- $93,945,369 $90,114,958 =============================================================================== See accompanying notes to consolidated financial statements LUNAR CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets - ------------------------------------------------------------------------------- Liabilities and Shareholders' Equity - ------------------------------------------------------------------------------- December 31, June 30, 1998 1998 (Unaudited) (Audited) - ------------------------------------------------------------------------------- Current Liabilities: Accounts payable $ 6,759,126 $ 4,881,399 Customer advances and deferred income 1,312,216 1,027,872 Income taxes payable 3,090,094 3,494,822 Accrued liabilities: Commissions payable 2,824,273 2,186,040 Compensation payable 436,164 413,084 Property, payroll, and other taxes 279,552 155,683 Accrued warranty and installation expenses 2,670,000 2,145,000 Other 353,606 199,324 - ------------------------------------------------------------------------------- Total Current Liabilities 17,725,031 14,503,224 Shareholders' Equity: Common stock--authorized 25,000,000 shares of $.01 par value; issued and outstanding 8,604,760 shares at December 31, 1998 and 8,701,210 at June 30, 1998 86,048 87,012 Capital in excess of par value 23,528,098 24,936,811 - ------------------------------------------------------------------------------- 23,614,146 25,023,823 Retained Earnings 52,458,487 50,568,281 Accumulated Comprehensive Income 147,705 19,630 - ------------------------------------------------------------------------------- 76,220,338 75,611,734 - ------------------------------------------------------------------------------- $93,945,369 $90,114,958 =============================================================================== See accompanying notes to consolidated financial statements LUNAR CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) - ------------------------------------------------------------------------------- Three months ended Six Months Ended December 31, December 31, December 31, December 31, 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Revenues $23,410,259 $21,435,498 $46,234,802 $40,098,006 - ------------------------------------------------------------------------------- Operating Expenses Cost of sales 13,331,918 9,687,592 25,553,844 18,277,669 Research and development 1,767,573 1,832,397 3,814,193 3,537,696 Selling and marketing 6,654,667 4,784,158 12,348,074 9,409,004 General and Administrative 1,300,237 956,849 2,394,027 1,952,526 - ------------------------------------------------------------------------------- 23,054,395 17,260,996 44,110,138 33,176,895 - ------------------------------------------------------------------------------- Income from Operations 355,864 4,174,502 2,124,664 6,921,111 - ------------------------------------------------------------------------------- Other Income (Expense): Interest income 346,217 477,404 692,883 955,903 Settlement of lawsuit - - (579,555) - Other 289,580 (603,176) 378,214 (839,291) - ------------------------------------------------------------------------------- 635,797 (125,772) 491,542 116,612 - ------------------------------------------------------------------------------- Income Before Income Taxes 991,661 4,048,730 2,616,206 7,037,723 Income Tax Expense 256,000 1,320,000 726,000 2,296,000 - ------------------------------------------------------------------------------- Net Income $735,661 $2,728,730 $1,890,206 $4,741,723 =============================================================================== Basic Earnings per Share $0.09 $0.31 $0.22 $0.54 =============================================================================== Diluted Earnings per Share $0.08 $0.30 $0.21 $0.52 =============================================================================== Weighted Average Number of Common Shares 8,604,509 8,759,643 8,631,728 8,737,739 =============================================================================== Weighted Average Number of Common and Dilutive Potential Common Shares 8,813,397 9,109,849 8,843,154 9,111,073 =============================================================================== See accompanying notes to consolidated financial statements LUNAR CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) - ------------------------------------------------------------------------------- Six months ended December 31, December 31, 1998 1997 - ------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $1,890,206 $4,741,723 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,127,845 1,089,283 Write-off of patents 159,959 - Changes in assets and liabilities: Receivables (9,109,932) 221,133 Inventories (2,527,602) (3,981,919) Other current assets (155,526) (311,899) Deferred income taxes (503,000) 941,000 Accounts payable 1,920,934 (204,854) Customer advances and deferred income 284,344 173,194 Accrued liabilities 1,464,464 462,946 Income taxes payable (404,728) 309,677 - ------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities (5,853,036) 3,440,284 - ------------------------------------------------------------------------------- Cash Flows from Investing Activities: Purchases of marketable securities - (14,512,714) Sales and maturities of marketable securities 12,069,230 2,095,000 Additions to property, plant and equipment (2,400,154) (628,502) Additions to patents and other intangibles (69,427) (74,159) - ------------------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities 9,599,649 (13,120,375) - ------------------------------------------------------------------------------- Cash Flows from Financing Activities: Proceeds from exercise of stock options 22,678 380,043 Income tax benefit from stock option exercises 4,245 659,221 Repurchase of common stock (1,436,600) (1,078,125) - ------------------------------------------------------------------------------- Net Cash Used in Financing Activities (1,409,677) (38,861) - ------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 2,336,936 (9,718,952) Cash and Cash Equivalents at Beginning of Period 4,608,427 14,417,155 - ------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 6,945,363 $4,698,203 - ------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information: Income taxes paid $ 1,380,401 $ 413,496 =============================================================================== See accompanying notes to consolidated financial statements LUNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION The consolidated financial statements of Lunar Corporation (the "Company") presented herein, without audit except for balance sheet information at June 30, 1998, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with The consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1998. The consolidated balance sheet as of December 31, 1998, the consolidated statements of income for the three and six months ended December 31, 1998 and 1997, and the consolidated statements of cash flows for the six months ended December 31, 1998 and 1997 are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) Necessary for a fair presentation of results for these interim periods. The Company has reclassified the presentation of certain prior year information to conform with the current presentation format. The results of operations for the three and six months ended December 31, 1998, are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 1999. (2) INVENTORIES Inventories are stated at the lower of cost or market; cost is determined principally by the first-in, first-out method. Inventories are broken down as follows: - ------------------------------------------------------------------------------- December 31, June 30, 1998 1998 (Unaudited) (Audited) - ------------------------------------------------------------------------------- Finished goods and work in process $ 7,820,255 $ 4,682,086 Materials and purchased parts 7,995,234 8,605,801 ----------- ----------- $15,815,489 $13,287,887 =========== =========== (3) SHAREHOLDERS' EQUITY On April 22, 1997, the Company approved a stock repurchase program pursuant to which it may repurchase up to 1,000,000 shares of its common stock from time to time based upon market conditions and other factors. The Company has repurchased 294,400 shares under this program as of January 31, 1999. (4) EARNINGS PER SHARE The difference between the weighted average number of common shares and the weighted average number of common and dilutive potential common shares is due to the effect of dilutive stock options. (5) COMPREHENSIVE INCOME Effective July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" which establishes standards to report and display comprehensive income and its components in a full set of general purpose financial statements. The Company's comprehensive income was as follows: Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net Income $ 735,661 $2,728,730 $1,890,206 $4,741,723 Other Comprehensive Income: Unrealized adjustment in marketable securities 53,157 15,561 84,867 60,566 Foreign currency translation adjustments 2,785 (17,372) 43,208 (20,984) ---------- ---------- ---------- ---------- Comprehensive income $ 791,603 $2,726,919 $2,018,281 $4,781,305 ========== ========== ========== ========== (6) SETTLEMENT OF LAWSUIT Expenses were incurred in the three months ended September 30, 1998 associated with the settlement of a lawsuit between the Company and Osteometer Meditech A/S and Rapiscan Security Systems Inc. During the quarter ended September 30, 1998, the Company was able to reasonably estimate the expenses that would be incurred as a result of the settlement of the lawsuit. This amount includes legal expenses, a settlement payment, and a patent write-off. Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Equipment sales and other revenue increased 9% to $23,410,000 in the three months ended December 31, 1998 from $21,435,000 in the three months ended December 31, 1997. For the six months ended December 31, 1998, equipment sales and other revenue increased 15% to $46,235,000 from $40,098,000 in the six months ended December 31, 1997. Sales by product line are summarized as follows: Revenues by Product (in thousands) Three Months Ended Six Months Ended -------------------------- -------------------------- December 31, December 31, December 31, December 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ X-ray densitometry $14,517 $16,253 $29,902 $29,110 Ultrasound densitometry 2,363 1,381 3,778 2,708 Orthopedic Imaging 4,406 2,180 8,486 4,874 Service Revenue 1,745 1,361 3,436 2,768 Other 379 260 633 638 ------------ ------------ ------------ ------------ $23,410 $21,435 $46,235 $40,098 ============ ============ ============ ============ The decrease in x-ray densitometry sales in the three months ended December 31, 1998 is primarily attributable to a decrease in average selling prices. This decrease is due to competitive pricing pressures and increased sales to distributors in the United States at lower average selling prices than direct sales to end users. The increase in ultrasound densitometry is primarily due to increased sales in the United States. The increase in Orthopedic Imaging sales for the current fiscal year is primarily due to increased unit sales of the Artoscan dedicated MRI system. The increase in service revenue is attributable to a growing installed base of densitometers in the United States. Cost of sales as a percentage of equipment sales averaged approximately 57% and 55% in the three and six month periods ended December 31, 1998, respectively, compared to 45% and 46% in the three and six month periods ended December 31, 1997, respectively. The increase in the cost of sales as a percentage of equipment sales is primarily a result of the aforementioned decrease in average selling prices. Gross profit margins were also lower due to a higher mix of orthopedic imaging equipment sales, which carry lower gross profit margins. Research and development expenditures decreased to $1,768,000 in the three months ended December 31, 1998 from $1,832,000 in the three months ended December 31, 1997, and increased to $3,814,000 in the six months ended December 31, 1998 from $3,538,000 in the six months ended December 31, 1997. The Company increased research and development expenditures for ultrasound and x- ray densitometry products during the three month period ended September 30, 1998. Selling and marketing expenses were $6,655,000 in the three months ended December 31, 1998, compared to $4,784,000 in the three months ended December 31, 1997, representing an increase to 28% from 22% as a percentage of equipment sales. For the six months ended December 31, 1998, selling and marketing expenses were $12,348,000 compared to $9,409,000 for the six months ended December 31, 1997, representing an increase to 27% from 23% as a percentage of equipment sales. These increases are primarily the result of increased sales and marketing efforts to address the expanding primary care market for densitometry. General and administration expenses increased to $1,300,000 in the three months ended December 31, 1998 from $957,000 in the three months ended December 31, 1997, and increased to $2,394,000 in the six months ended December 31, 1998 from $1,953,000 in the six months ended December 31, 1997. The increases were primarily attributable to an increase in the number of employees and an increase in property taxes related to the new building under construction. Interest income was $346,000 and $693,000 in the three and six months ended December 31, 1998, compared to $477,000 and $956,000 in the three and six months ended December 31, 1997. This decrease is primarily the result of decreases in the amount of investments. The effective tax rate averaged 26% and 28% in the three and six month periods ended December 31, 1998, compared to 33% in the three and six month periods ended December 31, 1997. The effective tax rate is lower in the three and six month periods ended December 31, 1998 versus the comparable prior year period due to an increased proportion of tax-exempt interest income and a higher benefit from the foreign sales corporation. The rate for the three and six month periods ended December 31, 1998 and December 31, 1997 is below the 34% federal statutory rate as a result of tax-exempt interest income and the benefit of the foreign sales corporation offset by the provision for state income taxes. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased $2,337,000 to $6,945,000 in the six months ended December 31, 1998. The Company has a $18,703,000 laddered portfolio of high-grade, readily marketable municipal bonds with various maturities not exceeding 48 months. The Company's trade accounts receivable increased $9,146,000 to $40,548,000 at December 31, 1998 from $31,402,000 at June 30, 1998. The increase in accounts receivable is primarily attributable to higher accounts receivable from financed customers in Latin America as a result of the Company's decision not to sell these receivables, higher accounts receivable from Artoscan MRI customers which generally have longer payment terms. The Company has approximately $7,475,000 in financed accounts receivable from Brazilian customers as of December 31, 1998. Two finance companies also have recourse against the Company for a maximum of approximately $1,395,000 for financed Brazilian accounts receivable that have been sold. All of the Brazilian accounts receivable are denominated in U.S. dollars. In January 1999 the Brazilian government allowed its currency, the real, to freely trade against the U.S. dollar. As of early February 1999, this policy change resulted in approximately a 35% devaluation of the real as compared to the U.S. dollar. The Company expects to incur some payment delays from Brazilian customers and possibly lower future sales in Brazil as a result of this devaluation. Inventories increased 19% to $15,815,000 at December 31, 1998 from $13,288,000 at June 30, 1998. The increase is primarily attributable to an increase in finished goods in Artoscan and densitometry. The Company purchased a 25-acre parcel of land in January 1998 for $1,949,000. The Company began construction of an assembly, warehouse, and office building in October 1998. Total construction costs are projected to be approximately $10,140,000, of which $981,587 had been paid as of December 31, 1998. The Company does not have any other pending material commitments for capital expenditures. Management believes the current level of cash and short-term investments is adequate to finance the Company's operations for the foreseeable future. NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" is effective for financial statements for periods beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. The Company is evaluating the new Statement's provisions. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field. To distinguish 21st century from 20th century dates, these date code fields must be able to accept four-digit entries. The Company has reviewed its existing financial and other business information systems and believes that its computer systems will be able to manage and manipulate all material data involving the transition from 1999 to 2000 without functional or data abnormality and without inaccurate results related to such data. During fiscal 1998, the Company replaced its manufacturing and financial accounting software package at a cost of approximately $230,000. This new software package is year 2000 compliant. The Company does not expect to incur significant additional costs to complete its year 2000 compliance program. It is possible that third parties, such as suppliers and distributors, may have noncompliant computer systems or programs, which may not interface properly with the Company's computer systems or may otherwise result in a disruption of the Company's operations. The Company is requesting assurances from third parties with which it has a material relationship that their computers, systems, and programs be year 2000 compliant. The Company currently anticipates that the expenses and capital expenditures associated with its year 2000 compliance program will not have a material effect on its financial position or results of operations. Because the Company's software programs are year 2000 compliant, and the Company does not believe any material problems will arise if a third party is not year 2000 compliant, the Company has not developed any contingency plan. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates relate primarily to the Company's investment portfolio. The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments with high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer. As stated in its policy, the Company is adverse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk, and reinvestment risk. The Company mitigates default risk by investing in only high credit quality securities. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. All investments mature, by policy, in 48 months or less. The Company uses forward currency contracts in its management of foreign currency exposures. The contracts are in German Deutsche Marks and generally have maturities that do not exceed three months. Realized gains and losses on such contracts are included in other income at the time the hedged transaction occurs. There were no deferred gains or losses at December 31, 1998. These contracts are entered into with major financial institutions thereby minimizing the risk of credit loss. The table below provides information about the Company's market sensitive financial instruments and constitutes a "forward-looking statement." All items described below are non-trading and are stated in U.S. dollars. During fiscal year ended June 30, ---------------------------------------- Maturity Dates 1999 2000 2001 2002 - ------------------------------------------------------------------------------- ASSETS Cash Equivalents Variable taxable rate $5,925,416 Average taxable interest rate 4.15% Variable tax-exempt rate $1,019,947 Average tax-exempt rate 3.14% Marketable securities Fixed tax-exempt rate $2,905,000 $4,241,900 $7,663,600 $3,245,000 Average tax-exempt rate 3.99% 4.24% 4.23% 4.19% Forward contract German DM denominated $1,196,172 Contracted exchange rate 1.6720:1 (DM to US$) PART II - OTHER INFORMATION LUNAR CORPORATION AND SUBSIDIARIES Item 1. Legal Proceedings PATENT LITIGATION: As reported in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, the Company was co-defendant and counterclaim co-plaintiff with the University of Alabama-Birmingham Research Foundation ("UAB") in two declaratory judgement actions filed in the United States District Court for the Central District of California. Both actions sought a determination of non-infringement and invalidity of U.S. patent number 4,626,688 (the '688 patent). The first declaratory judgement action was filed January 21, 1997 by Rapiscan Security Systems, Inc. ("Rapiscan"). Rapiscan manufactures and sells baggage scanning equipment. The second declaratory judgement action was filed on February 26, 1997 by Osteometer Meditech A/S ("Osteometer"), a competitor of the Company. Osteometer manufactures and sells bone densitometry products. The above-described litigation has now been settled. Under the terms of the Settlement Agreement with Rapiscan, Rapiscan has agreed to a paid up license under the '688 patent and the Company agreed to a payment to settle Rapiscan claims. The balance of the settlement resulted in the Company making a $400,000 payment to Rapiscan. The Settlement Agreement between UAB, the Company and Osteometer provides for Osteometer to make a lump sum payment of $250,000 to the Company and also provides for the payment of future royalties to UAB and the Company on Osteometer's sales of bone densitometry products. On May 21, 1998 the Company filed suit against IMRO Medical Research Ottawa ("IMRO") for infringement of the Company's Canadian patent number 1,323,090 (the '090 patent). IMRO manufactures and sells ultrasound bone densitometers in Canada and has manufactured ultrasound densitometers for Norland Medical Systems, Inc. for distribution and sales throughout the world. This suit is pending in the Federal Court of Canada-Trial Division. On June 30, 1998 the Company and Stanford University filed suit against Norland Corporation and its parent company Norland Medical Systems, Inc. in the United States District Court for the Western District of Wisconsin for infringement of U.S. patent number 4,686,695 (the '695 patent). The '695 patent is owned by Stanford University and is licensed to the Company for the field of medical devices. The parties have entered into a Settlement and License Agreement whereby Norland will make payment of royalties to the Company and Stanford University on Norland's axial bone densitometers. On November 24, 1998 Lunar was issued U.S. patent number 5, 841,832 (the '832 patent). On January 20, 1999 the Company brought suit against EG&G Astrophysics Research Corporation and its parent company EG&G, Inc. (collectively referred to as "EG&G") in the United States District Court for the Western District of Wisconsin for infringement of the '832 patent by EG&G's dual-energy baggage scanners. OTHER MATTERS: The Company is a defendant from time to time in actions arising out of its ordinary business operations. There are no other legal proceedings known to the Company at this time, which it believes, would likely have a material adverse impact on the results of operations or financial condition of the Company. To the Company's knowledge, there are no material legal proceedings to which any director, officer, affiliate or more than 5% shareholder of the Company (or any associate of the foregoing persons) is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The 1998 Annual Meeting of Shareholders ("Annual Meeting") of the Company was held on November 20, 1998. The total number of shares of the Company's common stock, $0.1 par value per share, outstanding as of October 9, 1998, the record date of the Annual Meeting, was 8,604,460. Management of the Company solicited proxies pursuant to Section 14 of the Securities Exchange Act of 1934 and Regulation 14A promulgated thereunder for the Annual Meeting. Two (2) directors, Samuel E. Bradt and Richard B. Mazess, were elected to serve until the 2001 Annual Meeting of Shareholders. The directors were elected by a vote of 7,993,145 votes "FOR" and 19,098 votes "WITHHELD AUTHORITY." Item 5. Other Information SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS: Certain statements in this filing, and elsewhere (such as in other filings by the Company with the Securities and Exchange Commission, press releases, presentations by the Company or its management, and oral statements) constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, regulation, technical risks associated with the development of new products, regulatory policies and approvals in the United States and other countries, reimbursement policies of public and private health care payors, introduction and acceptance of new drug therapies, currency exchange risks, competition from existing products and from new products or technologies, the uncertainty of the Company's patent positions and proprietary rights, and market and general economic factors. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits furnished: (27.1) Financial Data Schedule, December 31, 1998 (27.2) Financial Data Schedule, December 31, 1997 (b) Reports on Form 8-K A Form 8-K dated December 16, 1998 was filed on December 23, 1998 under Item 4 of Form 8-K (Changes in Registrant's Certifying Accountant) relating to the change of the Company's independent accountant to Arthur Andersen LLP from KPMG Peat Marwick LLP. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LUNAR CORPORATION (Registrant) Date: February 12, 1999 /s/ Richard B. Mazess --------------------- Richard B. Mazess President (Principal Executive Officer) Date: February 12, 1999 /s/ Robert A. Beckman --------------------- Robert A. Beckman Vice President of Finance and Treasurer (Principal Financial and Accounting Officer) LUNAR CORPORATION AND SUBSIDIARIES Exhibit Index For the Quarterly Period Ended December 31, 1998 No. Description - ---- ----------- 27.1 Financial Data Schedule, December 31, 1998 27.2 Financial Data Schedule, December 31, 1997 EX-27.1 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 This schedule contains summary financial information extracted from Form 10-Q for the six months ended December 31, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JUN-30-1999 DEC-31-1998 6,945 18,703 43,962 3,414 15,815 64,470 14,416 5,785 93,945 17,725 0 86 0 0 76,134 93,945 46,235 46,235 25,554 44,110 201 0 0 2,616 726 1,890 0 0 0 1,890 .22 .21
EX-27.2 3 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 This schedule contains summary financial information extracted from Form 10-Q for the six months ended December 31, 1997, and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JUN-30-1998 DEC-31-1997 4,698 34,745 31,468 2,670 13,335 54,296 9,101 4,568 88,787 13,801 0 88 0 0 74,898 88,787 40,098 40,098 18,278 33,177 839 0 0 7,038 2,296 4,742 0 0 0 4,742 .54 .52
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