<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 1995
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 0-9428
ADAC LABORATORIES
---- ------------
(Exact name of registrant as specified in its charter)
California 94-1725806
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
540 Alder Drive
Milpitas, California 95035
-------------------- -----
(Address of principal executive offices) (Zip Code)
(408) 321-9100
--------------
(Registrant's telephone number including area code)
Not Applicable
--- ----------
(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
--- ---
Number of shares of Common Stock, no par value, outstanding at February 1, 1995,
16,155,760.
(This document contains a total of 14 pages)
(Exhibit Index located on page 11)
<PAGE>
ADAC LABORATORIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
January 1, October 2,
1995 1994
(Unaudited)
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,307 $ 7,203
Accounts receivable, net of allowance
for returns and doubtful accounts 48,063 45,173
Notes receivable 4,172
Inventories 23,914 22,600
Deferred income tax, net of long-term portion 12,790 14,877
Prepaid expenses and other current assets 3,278 2,243
------ ------
Total current assets 96,524 92,096
Service parts, net 13,592 13,300
Fixed assets, net 5,826 5,515
Other assets 11,721 10,692
------ ------
Total Assets $127,663 $121,603
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 4,700 $
Accounts payable 18,335 18,260
Dividends payable 1,942 1,904
Deferred revenues 7,152 6,447
Other accrued liabilities 15,860 16,947
------ ------
Total current liabilities 47,989 43,558
Non-current liabilities and deferred credits 4,190 3,379
------ ------
Total Liabilities 52,179 46,937
====== ======
SHAREHOLDERS' EQUITY:
Common stock, no par value:
Authorized: 25,000,000 shares
Issued and outstanding: 16,122,162
at January 1, 1995 and 16,046,579
at October 2, 1994 97,463 97,086
Accumulated deficit (21,686) (22,174)
Translation adjustment (293) (246)
-------- -------
Total Shareholders' Equity 75,484 74,666
------- -------
Total Liabilities and Shareholders' Equity $ 127,663 $121,603
========= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE>
ADAC LABORATORIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three
Months Ended
------------
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Net product sales $ 34,638 $ 37,089
Field service 9,594 9,457
--------- ---------
44,232 46,546
COST OF REVENUES:
Product sales 20,660 19,914
Field service 6,902 6,762
--------- ---------
27,562 26,676
--------- ---------
GROSS PROFIT 16,670 19,870
Operating Expenses:
Marketing and sales 8,099 8,651
Research and development 2,915 2,916
General and administrative 1,821 1,828
--------- ---------
12,835 13,395
--------- ---------
Operating income 3,835 6,475
--------- ---------
Other income (expense):
Litigation defense costs (500)
Interest and other income (expense), net ( 97) ( 73)
---------- ----------
( 97) (573)
---------- ----------
INCOME BEFORE INCOME TAXES 3,738 5,902
Provision for income taxes 1,308 590
--------- ---------
NET INCOME $ 2,430 $ 5,312
========= =========
Net income per share $ 0.15 $ 0.32
========= =========
Number of shares used
in per share calculation 16,695 16,792
========= =========
Dividends per share $ 0.12 $ 0.12
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended
------------------
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ (39) $ 4,267
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to CHCC (4,172)
Proceeds from sale and leaseback
of fixed assets 527
Capital expenditures (748) (1,417)
Other (1,552) (775)
---------- ----------
Net cash used in investing
activities (5,945) (2,192)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term borrowing 4,700 (1,700)
Dividends paid (1,942) (1,826)
Proceeds from issuance of
Common Stock, net 377 693
--------- ---------
Net cash provided by (used in)
financing activities 3,135 (2,833)
--------- ----------
Effect of exchange rates on cash (47) (597)
---------- ----------
Net decrease in cash & cash equivalents (2,896) (1,355)
Cash & cash equivalents, at beginning of
the period 7,203 6,663
--------- ---------
Cash & cash equivalents, at end of the
period $ 4,307 $ 5,308
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
----------
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
the consolidated financial statements include all normal recurring
adjustments necessary for a fair presentation of the information required
to be included. Operating results for the three-month period ended January
1, 1995 are not necessarily indicative of the results that may be expected
for the year. For further information, refer to the consolidated financial
statements and notes thereto for the year ended October 2, 1994 in the 1994
Annual Report to Shareholders.
The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
2. Inventories
-----------
Inventories consist of (in thousands of dollars):
<TABLE>
<CAPTION>
January 1, October 2,
1995 1994
---- ----
<S> <C> <C>
Purchased parts and
sub-assemblies $ 13,895 $ 13,872
Work in process 3,779 3,171
Finished goods 6,240 5,557
--------- ---------
$ 23,914 $ 22,600
========= =========
</TABLE>
3. Income Taxes
------------
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes" effective October 4, 1993. This
statement supersedes SFAS No. 96, "Accounting for Income Taxes", which was
previously adopted by the Company. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.
The provisions for income taxes for the three months ended January 1, 1995
and January 2, 1994, are based on the estimated effective income tax rates
for the fiscal years ending October 1, 1995 and October 2, 1994, of 35% and
10%, respectively.
5
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
-----------
The tax effects of significant items comprising the Company's deferred taxes
(the long-term portions are included in other assets on the consolidated balance
sheet) as of January 1, 1995, are as follows (in thousands):
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Difference between book and tax basis of property $(2,555)
-------
Gross deferred tax assets:
Reserves not currently deductible $ 6,062
Operating loss carryforwards 10,984
Tax credit carryforwards 5,088
-------
22,134
Valuation allowance (4,034)
-------
Net deferred tax asset 18,100
-------
Net deferred taxes $15,545
=======
</TABLE>
4. Credit and Borrowing Arrangements
---------------------------------
Interest payments for the three month periods ended January 1, 1995 and
January 2, 1994 were approximately $100,300 and $77,800, respectively.
5. Income Per Share
----------------
Net income per common and common equivalent share has been computed using
the weighted average number of common shares outstanding after considering
the dilutive effect of common stock options and warrants.
6. Litigation
----------
The Company is a defendant in various legal proceedings incidental to its
business. While it is not possible to determine the ultimate outcome of
these actions at this time, management is of the opinion that any unaccrued
liability resulting from these claims would not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
7. Significant Transaction
-----------------------
On November 30, 1994, the Company entered into an agreement with Community
Health Computing Corporation and its parent, Community Health Computing
Corporation, Inc., (CHCC) of Houston, Texas. Under the agreement, the
Company loaned CHCC $3.2 million at an interest rate of 12% per annum.
Principal and interest are secured by all the assets of CHCC. Separately,
the Company obtained a three-year option from several major CHCC
shareholders to acquire up to 4.8 million shares, representing
approximately 56% of CHCC's outstanding common stock, at $0.30 cents per
share, subject to certain conditions.
On December 7, 1994, CHCC filed for Chapter 11 bankruptcy protection. The
Company entered into another agreement with CHCC, which was subject to
Chapter 11 bankruptcy protection, to loan it up to $7.9 million. The
agreement was to provide working capital to CHCC during the period CHCC
expects to be under Chapter 11 bankruptcy protection, and was at an
interest rate of 12% per annum. Subsequently, the court approved a reduced
loan amount of $6.8 million. As of January 1, 1995, approximately $4.2
million was outstanding under these two agreements. On January 12, 1995,
CHCC filed a plan of reorganization with the United States Bankruptcy Court
which included a definitive agreement signed by ADAC and CHCC which
provides, subject to plan confirmation and other conditions, for ADAC's
acquisition of all the shares to be issued by CHCC upon its reorganization
following completion of the Chapter 11 bankruptcy proceedings and
cancellation of existing CHCC shares.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL PERIOD ENDED JANUARY 1, 1995
-----------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's working capital for the three months ended January 1, 1995
remained unchanged from October 2, 1994 at $48.5 million. During the period,
cash and cash equivalents decreased by $2.9 million and borrowings increased
$4.7 million. The primary factor in this usage of cash and borrowings is the
Company's investment in CHCC during the quarter of $4.2 million which is more
fully discussed in Note 7 of Notes to Condensed Consolidated Financial
Statements. In addition, the Company paid out the settlement amount to Elscint
Limited of $2.0 million in the quarter. Management believes that its working
capital, combined with the funds available under its lines of credit (which
total $40.0 million), is adequate to meet current operating and capital
expenditure requirements, together with dividend payments.
RESULTS OF OPERATIONS
- - ---------------------
The Company's orders for the first quarter of fiscal 1995 totaled $43.7 million
compared to $47.7 million in the previous fiscal period. Product orders
represented $32.3 million for the fiscal period ending January 1, 1995, a
decrease of $5.3 million over the same period in fiscal 1994. Declines in
bookings in Europe accounted for a significant part of the decline. Product
backlog at January 1, 1995 was $36.7 million, compared to $39.2 million at the
end of the first quarter of 1994. Orders in backlog may be canceled or
rescheduled by customers in many cases without substantial penalty and, for this
reason, orders and backlog may not be indicative of the Company's sales for any
succeeding period. Bookings are believed to have been soft as a result of
general weakness in the nuclear medicine market.
Total revenues decreased 5% for the three month period ended January 1, 1995,
with product revenue decreasing by 6.6% compared with the same period in the
prior year. The decline in revenue is primarily caused by the Company's domestic
nuclear medicine product sales decreasing 18.4% compared to the same period in
the prior year, offset in part by higher sales in Latin America and Asia.
Revenue in Europe was flat compared to the prior year. Field service revenues
for the three months ended January 1, 1995 were flat with the first quarter of
the previous fiscal year.
Gross profit on product sales decreased to 40.4% of revenue for the three months
ended January 1, 1995 from 46.3% of revenue in the first quarter of 1994. The
lower margins are a result of pricing pressures in the nuclear medicine market,
both within the U.S. and Europe, as a result of competitors reducing selling
prices and customers becoming more aggressive in cost reduction. These factors
are expected to continue at least in the near future, and the Company is
focusing on aggressive cost reduction programs to mitigate the impact of pricing
pressure, as well as introducing new products which are believed to be cost-
effective to customers.
Field service margins remained relatively consistent with the same period in the
prior fiscal year, decreasing only slightly to 28.1% from 28.5%. The Company
expects field service margins to remain consistent or improve as cost
containment programs allow increased revenue to be generated with reduced field
service headcount.
Operating expenses for the three months ended January 1, 1995 decreased 4.2%
from the same period in the prior fiscal year as a result of volume related
reductions and continued cost containment. Research and development expenses as
a percentage of revenues increased to 6.6% from 6.3%, marketing and sales
expenses as a percentage of revenue decreased to 18.3% from 18.6%, and general
and administrative expenses as a percentage of revenue remained relatively flat,
increasing slightly to 4.1% from 3.9%. The Company continues to identify areas
of cost reduction in operating expenses and expects operating expenses in
the second quarter of fiscal 1995 to decline from the levels incurred in the
first fiscal quarter.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL PERIOD ENDED JANUARY 1, 1995 CONTINUED
---------------------------------------------
Other income and expense, excluding the costs of the Elscint Limited litigation
incurred in fiscal 1994, represents primarily interest costs incurred on
borrowings under our lines of credit.
As discussed more fully in Note 3 of Notes to Condensed Consolidated Financial
Statements, effective October 4, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". On
adoption of SFAS No. 109, management established a valuation allowance for the
entire balance of its net deferred tax asset and, therefore, reported an
effective tax rate of 10% for that period, which took account of the utilization
of net operating loss carryforwards for purposes of tax calculations and
financial reporting. Following the release of the valuation allowance in the
fourth quarter of fiscal 1994, the Company now has an effective tax rate of
approximately 35%. This rate, which is below the statutory rate, is expected to
be achieved through the implementation of tax saving strategies.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 11 - Computation of Net Income Per Share
(b) Form 8-K Reports:
None filed during the fiscal quarter described in this Report on Form
10-Q.
9
<PAGE>
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.
Date: February 14, 1995
ADAC Laboratories
---- ------------
(Registrant)
BY: /s/ Dennis R. Mahoney
-------------------
Dennis R. Mahoney
Vice President, Finance, Chief
Financial Officer, and Secretary
(Principal Financial Officer)
10
<PAGE>
EXHIBIT INDEX
EXHIBITS
--------
11 COMPUTATION OF NET INCOME PER SHARE
27 FINANCIAL DATA SCHEDULE
11
<PAGE>
EXHIBIT 11
ADAC LABORATORIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
Average shares outstanding 16,081 15,600
Net effect of dilutive stock
options and warrants 614 1,192
------ ------
Average common and common
equivalent shares
outstanding 16,695 16,792
====== ======
Net income $ 2,430 $ 5,312
======= =======
Net income per share $ 0.15 $ 0.32
======= =======
</TABLE>
Primary and fully diluted income per share differs by less than three percent in
all periods.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-02-1994
<PERIOD-END> JAN-01-1995
<CASH> 4,307
<SECURITIES> 0
<RECEIVABLES> 52,235
<ALLOWANCES> 1,730
<INVENTORY> 23,914
<CURRENT-ASSETS> 96,524
<PP&E> 5,826
<DEPRECIATION> 10,722
<TOTAL-ASSETS> 127,663
<CURRENT-LIABILITIES> 47,989
<BONDS> 0
<COMMON> 97,463
0
0
<OTHER-SE> (21,979)
<TOTAL-LIABILITY-AND-EQUITY> 127,663
<SALES> 34,638
<TOTAL-REVENUES> 44,232
<CGS> 20,660
<TOTAL-COSTS> 27,562
<OTHER-EXPENSES> 12,835
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> 3,738
<INCOME-TAX> 1,308
<INCOME-CONTINUING> 2,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,430
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
