<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 April 2, 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 May 1, 1995,
16,294,635.
(This document contains a total of 14 pages)
(Exhibit Index located on page 11)
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
April 2, October 2,
1995 1994
(Unaudited)
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,403 $ 7,203
Accounts receivable, net of allowance
for returns and doubtful accounts 46,724 45,173
Notes receivable 6,820
Inventories 25,928 22,600
Current portion of deferred income tax 12,568 14,877
Prepaid expenses and other current assets 4,510 2,243
-------- --------
Total current assets 102,953 92,096
Service parts, net 13,641 13,300
Fixed assets, net 5,734 5,515
Other assets 10,576 10,692
-------- --------
Total Assets $132,904 $121,603
======== ========
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 7,328 $
Accounts payable 19,882 18,260
Dividends payable 1,951 1,904
Deferred revenues 7,961 6,447
Other accrued liabilities 14,068 16,947
-------- --------
Total current liabilities 51,190 43,558
Non-current liabilities and deferred credits 3,630 3,379
-------- --------
Total Liabilities 54,820 46,937
-------- --------
Shareholders' equity
Common stock, no par value:
Authorized: 25,000,000 shares
Issued and outstanding: 16,259,179 shares
at April 2, 1995 and 16,046,579 shares
at October 2, 1994 98,027 97,086
Accumulated deficit (20,883) (22,174)
Translation adjustment 940 (246)
-------- --------
Shareholders' Equity 78,084 74,666
-------- --------
Total Liabilities and Shareholders' Equity $132,904 $121,603
======== ========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
2
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
------------------- ------------------------
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $34,400 $38,130 $69,038 $75,219
Field service 10,327 9,168 19,921 18,625
------- ------- ------- -------
44,727 47,298 88,959 93,844
------- ------- ------- -------
Cost of revenues:
Product sales 20,628 20,661 41,288 40,575
Field service 7,256 6,758 14,158 13,520
------- ------- ------- -------
27,884 27,419 55,446 54,095
------- ------- ------- -------
Gross profit 16,843 19,879 33,513 39,749
------- ------- ------- -------
Operating expenses:
Marketing and sales 7,507 8,488 15,606 17,139
Research and development 2,670 3,034 5,585 5,950
General and administrative 2,122 1,712 3,943 3,540
------- ------- ------- -------
12,299 13,234 25,134 26,629
------- ------- ------- -------
Operating income 4,544 6,645 8,379 13,120
------- ------- ------- -------
Other income (expense):
Litigation defense costs (500) (1,000)
Interest and other income
(expense), net (311) (23) (408) (96)
------- ------- ------- -------
(311) (523) (408) (1,096)
------- ------- ------- -------
Income before provision for
income taxes 4,233 6,122 7,971 12,024
Provision for income taxes 1,479 612 2,787 1,202
------- ------- ------- -------
Net income $ 2,754 $ 5,510 $ 5,184 $10,822
======= ======= ======= =======
Net income per share $ 0.17 $ 0.33 $ 0.31 $ 0.65
======= ======= ======= =======
Number of shares used in per
share calculation 16,637 16,754 16,666 16,773
======= ======= ======= =======
Dividends per share $ 0.12 $ 0.12 $ 0.24 $ 0.24
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
3
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended
-------------------
April 2, April 3,
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating
activities $ 2,046 $ 4,862
------- -------
Cash flows from investing activities:
Loans to CHCC (Note 7) (6,820)
Proceeds from sale and leaseback
of fixed assets 527
Capital expenditures (1,279) (1,779)
Other (836) (1,152)
------- -------
Net cash used in investing
activities (8,408) (2,931)
------- -------
Cash flows from financing activities:
Short term borrowing 7,328
Dividends paid (3,893) (3,712)
Proceeds from issuance of
Common Stock, net 941 816
------- -------
Net cash provided by (used in)
financing activities 4,376 (2,896)
------- -------
Effect of exchange rates on cash 1,186 (174)
------- -------
Net decrease in cash and cash equivalents (800) (1,139)
Cash and cash equivalents, at beginning of
the period 7,203 6,663
------- -------
Cash and cash equivalents, at end of the
period $ 6,403 $ 5,524
======= =======
</TABLE>
The accompanying notes are an integral part of these 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 condensed consolidated financial statements include all normal
recurring adjustments necessary for a fair presentation of the information
required to be included. Operating results for the six month period ended
April 2, 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>
April 2, October 2,
1995 1994
---- ----
<S> <C> <C>
Purchased parts and
sub-assemblies $13,840 $13,872
Work in process 4,311 3,171
Finished goods 7,777 5,557
------- -------
$25,928 $22,600
======= =======
</TABLE>
3. Income Taxes
------------
The provisions for income taxes for the six months ended April 2, 1995 and
April 3, 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.
The tax effects of significant items comprising the Company's deferred
taxes (the long-term portions are included in other assets on the condensed
consolidated balance sheet) as of April 2, 1995, are as follows (in
thousands):
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Difference between book and tax basis of property $(2,626)
-------
Gross deferred tax assets:
Reserves not currently deductible $ 4,457
Operating loss carryforwards 10,709
Tax credit carryforwards 5,272
-------
20,438
Valuation allowance (3,696)
-------
Total deferred tax asset $16,742
-------
Net deferred taxes $14,116
=======
</TABLE>
5
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Unaudited)
4. Credit and Borrowing Arrangements
---------------------------------
Interest payments for the six month periods ended April 2, 1995 and April
3, 1994 were approximately $380,300 and $184,700, 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 obligations 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 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 has approved
several adjustments to the loan amount, currently at a maximum amount of
$8.4 million. As of April 2, 1995, approximately $6.8 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 capital shares to be issued
by CHCC upon its reorganization following completion of the Chapter 11
bankruptcy proceedings and cancellation of all previously outstanding CHCC
shares.
On April 25, 1995, the U.S. Bankruptcy Court confirmed the plan of
reorganization filed by CHCC in its Chapter 11 case. The Court-approved
plan of reorganization incorporates the above described agreement which
provides for ADAC's acquisition of CHCC. ADAC's cost of acquisition is
presently estimated at $16.5 million plus expenses.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL PERIOD ENDED APRIL 2, 1995
---------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital for the six months ended April 2, 1995 increased
to $51.8 million from $48.5 million at October 2, 1994. Cash and cash
equivalents decreased by $0.8 million, primarily due to payment of the
settlement amount to Elscint Limited of $2.0 million in the first fiscal
quarter, under a settlement agreement described in the Company's 1994 financial
statements and notes thereto. This decrease in cash flows from operating
activities was partially offset by the effect of exchange rates on cash and
cash equivalents of approximately $1.2 million, in which the Company's foreign
subsidiaries' balances were translated into more U.S. dollars as a result of a
weakening in the U.S. dollars related to foreign currencies.
Additionally, borrowings of $7.3 million were primarily associated with the
Company's investment in CHCC during the six month period of $6.8 million, which
is more fully discussed in Note 7 of Notes to the Condensed Consolidated
Financial Statements. The Company believes that the acquisition will provide
ADAC with a strategically important product for the Laboratory Information
Systems market and will be a significant step forward for the Company in its
expansion in the healthcare information systems market.
Management believes that its working capital, combined with the funds available
under its lines of credit (of which $32.7 million out of a total of $40.0
million was available at April 2, 1995), is adequate to meet current operating
and capital expenditure requirements, together with dividend payments.
RESULTS OF OPERATIONS
- ---------------------
The Company's orders received for the second quarter of fiscal 1995 totaled
$45.2 million compared to $39.0 million in the second quarter of the previous
fiscal year. Product orders represented $35.9 million for the second quarter
ending April 2, 1995, compared with $30.2 million in the same period in fiscal
1994. The Company believes that the increased orders were due to increased
market share in the nuclear medicine market. Product backlog at April 2, 1995
was $38.4 million, compared to $31.0 million at the end of the second 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 revenues for any succeeding period.
Total revenues decreased 5.2% for the six month period ended April 2, 1995, with
product revenue decreasing by 8.2% compared with the same period in the prior
year. The decline in revenue was primarily caused by the contraction in the
domestic nuclear medicine market which occurred last year. Revenue in Europe
represented 15.8% and Asia/Latin America revenue represented 7.1% of total
revenue compared to 14.3% and 5.2%, respectively, in the same period of fiscal
1994. Field service revenues for the six months ended April 2, 1995 increased
7.0% compared with the same quarter of the previous fiscal year, due to a larger
installed base.
Gross profit on product sales decreased to 40.2% of revenue for the six months
ended April 2, 1995 from 46.1% of revenue in the first six months of 1994. The
lower margins are a result of continued 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
programs, and due to a change in product mix to Vertex, the Company's most
complex and technologically advanced product, which represented 64.1% of total
camera shipments for the six months ended April 2, 1995 verses 40.4% in the
first six months of 1994. The pricing pressures and the increase in the product
mix toward Vertex camera shipments is expected to continue at least in the near
future. The Company is continuing to focus on aggressive cost reduction
programs to attempt to mitigate pricing pressure impacts, as well as introducing
new products which are believed to be cost-effective to customers.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL PERIOD ENDED APRIL 2, 1995 CONTINUED
-------------------------------------------
Field service margins increased to 28.9% of field service revenue compared with
27.4% of field service revenue for the same period in the prior fiscal year. The
Company expects field service margins to remain consistent or slightly improve
due to improvements in operating efficiencies resulting from the Company's
continual emphasis on total quality management and increased levels of customer
satisfaction.
Operating expenses for the six months ended April 2, 1995 decreased 5.6% from
the same period in the prior fiscal year as a result of continued cost
containment and overall reductions in cost structure. Marketing and sales
expenses as a percentage of revenue decreased to 17.5% from 18.3%, research and
development expenses as a percentage of revenues remained constant at 6.3%, and
general and administrative expenses as a percentage of revenue increased to 4.4%
from 3.8% due primarily to consulting services related to the Company's
healthcare information business and higher bank administrative costs on larger
bank lines.
Other income and expense, excluding the costs of the Elscint Limited litigation
incurred in fiscal 1994, primarily represents interest costs associated with the
CHCC financing, as discussed in Note 7 of the Notes to Condensed Consolidated
Financial Statements, and a foreign currency transaction loss due to the
weakening of the Italian Lira against the Dutch Guilder.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" effective October 4, 1993. 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
---------------------------------------------------
(a) The Company's annual Meeting of Shareholders was held on
March 1, 1995.
(b) At such meeting the following Directors were duly elected: Stanley
D. Czerwinski, David L. Lowe, Thomas A. McPherson, Robert L.
Miller, F. David Rollo, and Edmund H. Shea, Jr.
(c) At such meeting the following matter was voted on: an amendment to
the 1992 Stock Option Plan to increase the number of shares
authorized thereunder by 700,000 shares was approved with
10,346,843 shares voting for; 2,976,212 voting against, and 95,109
shares abstaining.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 11.1 - 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: May 15, 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>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ------- ------- -----------
11.1 Computation of Net income per share
27 Financial Data Schedule
<PAGE>
EXHIBIT 11.1
ADAC LABORATORIES
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average shares outstanding 16,140 15,870 15,555 15,735
Net effect of dilutive stock
options and warrants 497 884 1,111 1,038
------- ------- ------- -------
Average common and common
equivalent shares
outstanding 16,637 16,754 16,666 16,773
======= ======= ======= =======
Net income $ 2,754 $ 5,510 $ 5,184 $10,822
======= ======= ======= =======
Net income per share $ 0.17 $ 0.33 $ 0.31 $ 0.65
======= ======= ======= =======
</TABLE>
Primary and fully diluted income per share differs by less than three percent in
all periods.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-02-1994
<PERIOD-END> APR-02-1995
<CASH> 6,403
<SECURITIES> 0
<RECEIVABLES> 48,277
<ALLOWANCES> 1,553
<INVENTORY> 25,928
<CURRENT-ASSETS> 102,953
<PP&E> 17,079
<DEPRECIATION> 11,345
<TOTAL-ASSETS> 132,904
<CURRENT-LIABILITIES> 51,190
<BONDS> 0
<COMMON> 98,027
0
0
<OTHER-SE> (19,943)
<TOTAL-LIABILITY-AND-EQUITY> 132,904
<SALES> 69,038
<TOTAL-REVENUES> 88,959
<CGS> 41,288
<TOTAL-COSTS> 55,446
<OTHER-EXPENSES> 25,134
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 380
<INCOME-PRETAX> 7,971
<INCOME-TAX> 2,787
<INCOME-CONTINUING> 5,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,184
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
