<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 December 31, 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, 1996,
17,240,676.
(This document contains a total of 11 pages)
(Exhibit Index located on page 9)
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1995 October 1,
(Unaudited) 1995
------------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,757 $ 7,551
Accounts receivable, net of allowance
for returns and doubtful accounts 64,265 55,047
Inventories 30,448 28,217
Deferred income taxes 9,560 10,732
Prepaid expenses and other current assets 7,075 5,515
-------- --------
TOTAL CURRENT ASSETS 117,105 107,062
Service parts, net 13,737 13,571
Fixed assets, net 7,972 8,368
Capitalized software, net 10,893 10,280
Goodwill, net 11,495 11,692
Other assets, net 6,759 7,375
-------- --------
TOTAL ASSETS $167,961 $158,348
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 20,694 $ 18,298
Accounts payable 13,848 13,147
Dividends payable 2,054 2,027
Deferred revenues 14,317 13,506
Customer deposits and advance billings 5,743 4,201
Accrued compensation 8,127 6,335
Other accrued liabilities 13,837 13,812
-------- --------
TOTAL CURRENT LIABILITIES 78,620 71,326
Non-current liabilities and deferred credits 4,384 4,254
-------- --------
TOTAL LIABILITIES 83,004 75,580
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized: 5,000 shares;
Issued and outstanding: none
Common stock, no par value:
Authorized: 25,000 shares;
Issued and outstanding: 17,152 shares as of
December 31, 1995 and 16,919 shares as of
October 1, 1995 102,180 101,072
Accumulated deficit (17,499) (18,986)
Translation adjustment 276 682
-------- --------
TOTAL SHAREHOLDERS' EQUITY 84,957 82,768
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $167,961 $158,348
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE>
ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
REVENUES, NET:
Product $39,708 $33,884
Service 15,280 10,348
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54,988 44,232
------- -------
COST OF REVENUES:
Product 24,560 20,855
Service 9,330 7,519
------- -------
33,890 28,374
------- -------
GROSS PROFIT 21,098 15,858
------- -------
OPERATING EXPENSES:
Marketing and sales 8,174 7,608
Research and development 2,891 2,594
General and administrative 3,580 1,821
Goodwill amortization 198
------- -------
14,843 12,023
------- -------
OPERATING INCOME 6,255 3,835
------- -------
INTEREST AND OTHER INCOME (EXPENSE), NET (806) (97)
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,449 3,738
Provision for income taxes (1,908) (1,308)
------- -------
NET INCOME $ 3,541 $ 2,430
======= =======
Net income per share $ 0.20 $ 0.15
======= =======
Number of shares used
in per share calculations 17,710 16,695
======= =======
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
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities $(1,345) $ (39)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to CHCC (4,172)
Proceeds from sale and leaseback
of fixed assets 527
Capital expenditures (363) (748)
Other assets (1,130) (1,552)
------- -------
Net cash used in investing activities (1,493) (5,945)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term borrowings 2,396 4,700
Dividends paid (2,054) (1,942)
Proceeds from issuance of
Common Stock, net 1,108 377
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Net cash used in financing activities 1,450 3,135
------- -------
Effect of exchange rates on cash (406) (47)
------- -------
Net change in cash and cash equivalents (1,794) (2,896)
Cash and cash equivalents, at beginning of
the period 7,551 7,203
------- -------
Cash and cash equivalents, at end of the
period $ 5,757 $ 4,307
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(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
December 31, 1995 are not necessarily indicative of the results that may be
expected for any future period. For further information, refer to the
consolidated financial statements and notes thereto for the year ended
October 1, 1995 in the 1995 Form 10-K.
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>
December 31, October 1,
1995 1995
------------ ----------
<S> <C> <C>
Purchased parts and
sub-assemblies $16,562 $14,138
Work in process 1,692 1,421
Finished goods 12,194 12,658
------- -------
$30,448 $28,217
======= =======
</TABLE>
3. Income Taxes
------------
The Company uses the deferral method to account for income taxes under
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
The provisions for income taxes for each of the three months ended December
31, 1995 and January 1, 1995 are based on the estimated effective income
tax rates for the fiscal years ending September 29, 1996 and October 1,
1995 of 35% and 35%, respectively.
5
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
The tax effects of significant items comprising the Company's deferred taxes as
of December 31, 1995, are as follows (in thousands):
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Difference between book and tax basis of property $(3,405)
-------
Gross deferred tax assets:
Reserves not currently deductible $ 3,339
Operating loss carryforwards 7,216
Tax credit carryforwards 5,464
-------
16,019
Valuation allowance (3,054)
-------
Total deferred tax asset $12,965
-------
Net deferred taxes $ 9,560
=======
</TABLE>
4. Credit and Borrowing Arrangements
---------------------------------
Interest payments for the three month periods ended December 31, 1995 and
January 1, 1995 were approximately $768 and $100, 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. Acquisition
-----------
On November 9, 1995, the Company acquired JD Technical Services, Inc., of
Washington, Missouri, a provider of nuclear medicine imaging systems
remanufacturing, as well as a nationwide provider of multi-vendor service
and support. The Company issued 138 shares of common stock at the average
closing price of the Company's common stock during a specified period, for
a total price of $1.7 million, in exchange for all the outstanding stock of
JD Technical. The transaction was accounted for as a pooling of interests.
Prior period financial statements have not been restated, as the operations
of JD Technical were not material to the financial position or the results
of operations of the Company at the time of acquisition.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the first quarter of fiscal 1996
and 1995 was $1.3 million and nil, respectively. Uses of cash in operations were
primarily attributable to increases in inventory in anticipation of additional
product revenues, based on higher product orders, and an increase in accounts
receivables as revenues grew.
Cash used in investing activities decreased from $5.9 million to $1.5 million,
most of the decrease being due to the Company's funding of Community Health
Computing during the first quarter of fiscal 1995 prior to the acquisition of
such corporation. Cash generated by financing activities decreased $1.7 million
primarily as a result of a period to period decrease in incremental borrowings.
Additionally, financing cash inflows increased as a result of a $0.7 million
incremental increase in stock option exercises, employee stock purchases, and
dividend reinvestments.
As a result of the above operating, investing and financing activities, the
Company's cash and cash equivalents increased incrementally by $1.5 million on a
comparative period to period basis.
The Company believes that its cash, cash equivalents, cash flows from operating
activities and, if necessary, remaining available lines of credit will be able
to fund the Company's cash flow requirements for the current fiscal year. On a
longer-term basis, the Company may decide to increase its sources of capital in
response to business conditions or to pursue new business opportunities. There
can be no assurance that such additional resources of financing will be
available and/or on terms favorable to the Company.
RESULTS OF OPERATIONS
The first quarter of fiscal 1996 compared to
the first quarter of fiscal 1995
Revenues and Gross Margin:
The Company's two business units are Medical Systems and Healthcare Information
Systems (HCIS).
The Medical Systems business unit includes Nuclear Medicine, Digital Systems
Angiograpghy (DSA), and Radiation Therapy Planning (RTP) equipment products, as
well as customer service related to those products. Medical Systems product
orders increased from $29.5 million to $49.9 million. Unfilled orders may be
canceled or rescheduled by customers in most cases without penalty. Medical
Systems product revenues increased from $32.0 million to $36.8 million. This
product revenue increase was primarily due to a 18.7% or $5.5 million increase
in Nuclear Medicine product sales, which was offset by a $1.5 million decrease
in DSA product sales as that product continued to mature. Medical Systems
service revenues increased from $9.6 million to $11.0 million, primarily as a
result of the continued increase in the installed product base.
Medical Systems product revenue represented 92.7% and 94.4% of the Company's
total product revenue during the first quarter of fiscal 1996 and 1995,
respectively. The geographical mix of Medical Systems product revenues for the
first quarter of fiscal 1996 was 75.5% in North America, 16.3% in Europe, and
8.2% in the rest of the world, primarily Latin America and Asia, compared with
73.5% in North America, 16.3% in Europe, and 10.2% in the rest of the world in
the first quarter of fiscal 1995. The mix of product revenues as a percent of
total Medical Systems product revenues for the first quarter of fiscal 1996 and
1995 were 95.8% and 91.9%, respectively, for Nuclear Medicine, 0.9% and 5.3%,
respectively, for DSA, and 3.3% and 2.8%, respectively, for RTP.
Medical Systems product margins decreased slightly from 37.7% to 37.5%. Service
margins for Medical Systems increased from 28.1% to 33.3%, as the installed
customer base increased, product reliability increased and overall costs were
reduced.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS (CONTINUED)
- -------------------------
HCIS includes products comprising the hardware, software and related
implementation of systems designed to manage information within the radiology
and laboratory departments of healthcare organizations, as well as service
related to those products. During the first quarter of fiscal 1995, the
Company's HCIS product mix included radiology products offered by the Company
and ADAC/SD&G Healthcare Systems (SD&G), which the Company acquired in November
1993. In July 1995, the Company also acquired Community Health Computing (CHC),
which provided the Company with an additional radiology product, as well as a
laboratory product. The HCIS business unit now represents the combined
businesses of SD&G, CHC, and the Company's existing radiology business.
HCIS product orders were $1.9 million and $2.4 million for the first quarter of
fiscal 1995 and 1996, respectively. Unfilled orders may be canceled or
rescheduled by customers, in most cases without substantial penalty. HCIS
product revenues increased from $1.9 million to $2.9 million. Product revenue of
$1.9 million was contributed by the acquired CHC business during the first
quarter of fiscal 1996. HCIS service revenues increased from $0.8 million to
$4.3 million. The acquired CHC business contributed $3.4 million of service
revenue during the first quarter of fiscal 1996.
All HCIS sales are in North America. For the first quarter of fiscal 1996 and
1995, radiology product revenues represented 69.7% and 100%, respectively, of
HCIS product revenues, and laboratory product revenues represented 30.3% and
0.0%, respectively.
Product margins for HCIS declined from 51.9% to 46.7% due to lower margins
experienced as proprietary third-party hardware platforms were replaced with
non-proprietary open-systems hardware platforms resulting in lower margins. In
addition, laboratory product margins generally are lower during the initial
stages of new product introduction. HCIS service margins increased from 18.2%
to 53.2% primarily due to obtaining a relatively large installed base of
laboratory product customers when the Company acquired CHC.
Operating and Other Expenses:
Overall operating expenses as a percentage of revenues decreased slightly from
27.2% to 27.0%. As a percentage of revenue for the first quarter of fiscal 1995
and 1996, marketing and sales expenses decreased from 17.2% to 14.9% and
research and development expenses decreased from 5.9% to 5.3%. General and
administrative expenses increased from 4.1% to 6.5%, which was mostly
attributable to the acquired CHC business.
Other expense, net, increased from $0.1 million to $0.8 million as a result of
the Company carrying higher short-term bank borrowings during the first quarter
of fiscal 1996 primarily resulting from the acquisition of CHC.
Income Taxes:
The effective tax rate for the first quarter of both fiscal 1996 and 1995 was
35%, which is approximately equal to the Company's statutory Federal tax rate
after utilization of business tax credits.
Other:
The Company does not believe that inflation has had a material effect on its
revenues or results of operations.
In order to maintain successful operating results in the highly competitive
industry in which the Company does business, the Company must continue to
produce innovative products equal to or better than those of its competitors.
Within the industry, there is also uncertainty associated with the potential
response of customers to new private and legislative health care cost
containment initiatives, which may affect the size of the marketplace, the
receipt of orders for new products, and pricing. Although the Company has been
able to develop and market advanced, innovative and cost effective new products
in recent years, and has been able to increase its market share in the nuclear
medicine industry, there is no assurance that this will continue.
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 11.1 - Computation of Net Income Per Share
Exhibit 27 - Financial Data Schedule
(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, 1996
ADAC Laboratories
-----------------
(Registrant)
BY: /s/ P. Andre Simone
-------------------
P. Andre Simone
Vice President, Finance
10
<PAGE>
EXHIBIT 11.1
ADAC LABORATORIES
COMPUTATION OF NET INCOME PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
Average shares outstanding 17,051 16,081
Net effect of dilutive stock
options and warrants 659 614
------- -------
Average common and common
equivalent shares
outstanding 17,710 16,695
======= =======
Net income $ 3,541 $ 2,430
======= =======
Net income per share $ 0.20 $ 0.15
======= =======
</TABLE>
Primary and fully diluted income per share differs by less than three percent in
all periods.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,757
<SECURITIES> 0
<RECEIVABLES> 66,271
<ALLOWANCES> 2,006
<INVENTORY> 30,448
<CURRENT-ASSETS> 117,105
<PP&E> 21,068
<DEPRECIATION> 13,096
<TOTAL-ASSETS> 167,961
<CURRENT-LIABILITIES> 78,620
<BONDS> 0
0
0
<COMMON> 102,180
<OTHER-SE> (17,223)
<TOTAL-LIABILITY-AND-EQUITY> 84,957
<SALES> 39,708
<TOTAL-REVENUES> 54,988
<CGS> 24,560
<TOTAL-COSTS> 33,890
<OTHER-EXPENSES> 14,843
<LOSS-PROVISION> 51,000
<INTEREST-EXPENSE> 768
<INCOME-PRETAX> 5,449
<INCOME-TAX> 1,908
<INCOME-CONTINUING> 3,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,541
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
