<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 March 30, 1997
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 April 30 1997,
18,462,328.
(This document contains a total of 17 pages)
<PAGE>
ADAC LABORATORIES
QUARTERLY REPORT FORM-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 30, 1997 and
September 29, 1996 3
Condensed Consolidated Statements of Income for the Three Month
and Six Month Periods Ended March 30, 1997 and March 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended March 30, 1997 and March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit 11.1 Computation of Earnings Per Share 17
2
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PART I - FINANCIAL INFORMATION
ADAC LABORATORIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
March 30, September 29,
1997 1996
(Unaudited)
----------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,408 $ 3,081
Accounts receivable 89,370 80,654
Inventories 27,868 31,975
Deferred income taxes 7,030 8,095
Prepaid expenses and other current assets 10,488 11,027
-------- --------
CURRENT ASSETS 140,164 134,832
Service parts 16,626 15,482
Fixed assets 10,391 8,393
Capitalized software 12,401 11,656
Goodwill 10,506 10,901
Other assets 4,375 5,364
-------- --------
ASSETS $194,463 $186,628
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 26,799 $ 27,226
Accounts payable 10,285 13,923
Dividends payable - 2,137
Deferred revenues 11,099 13,302
Customer deposits and advance billings 1,891 2,302
Accrued compensation 8,563 7,825
Other accrued liabilities 15,869 13,797
-------- --------
CURRENT LIABILITIES 74,506 80,512
Deferred income taxes 2,275 2,275
Liabilities and deferred credits 3,448 4,370
-------- --------
LIABILITIES 80,229 87,157
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized: 5,000 shares;
Issued and outstanding: none - -
Common stock, no par value:
Authorized: 50,000 shares;
Issued and outstanding: 18,445 shares
March 30, 1997 and 17,781 shares
September 29, 1996 115,932 110,661
Retained earnings (accumulated deficit) 472 (10,172)
Translation adjustment (2,170) (1,018)
-------- --------
STOCKHOLDERS' EQUITY 114,234 99,471
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $194,463 $186,628
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
-------------------------- ------------------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Product $52,922 $ 42,949 $104,526 $ 82,657
Service 17,054 15,489 33,815 30,769
------- -------- -------- --------
69,976 58,438 138,341 113,426
------- -------- -------- --------
COST OF REVENUES
Product 30,222 26,393 60,262 50,953
Service 10,766 9,731 21,564 19,061
------- -------- -------- --------
40,988 36,124 81,826 70,014
------- -------- -------- --------
GROSS MARGIN 28,988 22,314 56,515 43,412
------- -------- -------- --------
OPERATING EXPENSES
Marketing and sales 10,784 8,647 21,521 16,821
Research and development 3,548 3,047 6,797 5,938
General and administrative 4,424 3,454 8,670 7,034
Goodwill 198 198 396 396
------- -------- -------- --------
18,954 15,346 37,384 30,189
------- -------- -------- --------
OPERATING INCOME 10,034 6,968 19,131 13,223
------- -------- -------- --------
Other expense (1,318) (815) (2,420) (1,621)
------- -------- -------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 8,716 6,153 16,711 11,602
Provision for income taxes (3,164) (2,215) (6,066) (4,123)
------- -------- -------- --------
NET INCOME $ 5,552 $ 3,938 $ 10,645 $ 7,479
======= ======== ======== ========
EARNINGS PER SHARE $0.29 $0.22 $0.55 $0.42
======= ======== ======== ========
Number of shares used
in per share calculations 19,396 18,271 19,214 17,991
======= ======== ======== ========
Dividends per share - $0.12 - $0.24
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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ADAC LABORATORIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
March 30, March 31,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,645 $ 7,479
Adjustments to reconcile net income to net
cash provided by (used in) operations
Depreciation and amortization 4,890 4,612
Working Capital (9,507) (13,461)
------- --------
Cash provided by (used in)
operating activities 6,028 (1,370)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,401) (1,030)
Other (1,855) (2,075)
------- --------
Cash used in investing activities (5,256) (3,105)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term borrowing (427) 3,889
Dividends paid (2,137) (4,145)
Proceeds from issuance of Common Stock, net 5,271 2,773
------- --------
Cash provided by financing activities 2,707 2,517
------- --------
Effect of exchange rates on cash (1,152) (425)
------- --------
Net increase/(decrease) in cash and cash equivalents 2,327 (2,383)
Cash and cash equivalents, at beginning of
the period 3,081 7,551
------- --------
Cash and cash equivalents, at end of the period $ 5,408 $ 5,168
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying unaudited condensed interim 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 interim 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 and six month periods ended March 30, 1997 are not
necessarily indicative of the results that may be expected for any future
periods. Reference should also be made to the Annual Consolidated Financial
Statements, Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the fiscal year ended September 29, 1996.
The previous year-end's balance sheet data was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles.
2. Net Income Per Share
--------------------
Net income per common and common equivalent shares have been computed using
the weighted average number of common shares outstanding after considering
the dilutive effect of common stock options and warrants using the treasury
stock method.
3. Depreciation and Amortization
-----------------------------
Depreciation and amortization was approximately $2.4 million and $2.1
million for each of the three month periods ended March 30, 1997 and March
31, 1996.
4. Inventories
-----------
Inventories consist of:
March 30, September 29,
1997 1996
--------- -------------
Purchased parts and
sub-assemblies $14,239 $16,000
Work in process 3,879 5,057
Finished goods 9,750 10,918
------- -------
$27,868 $31,975
======= =======
6
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ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
5. Income Taxes
------------
The Company uses the deferral method to account 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 and six month periods
ended March 30, 1997 and March 31, 1996 are based on the estimated
effective income tax rates for the fiscal years ending September 28, 1997
and September 29, 1996 of 36.3% and 36.0%, respectively.
6. Credit and Borrowing Arrangements
---------------------------------
The Company has a $60.0 million revolving credit facility with a bank
syndicate (see Note 10). The credit facility offers borrowings in either
U.S. dollars or in foreign currencies and expires July 31, 1999. The
Company pays interest and commitment fees on its borrowings based on the
debt level in relation to profitability. Commitment fees range from 0.25%
to 0.425% of borrowings and interest rates are based on the bank's prime
rate or Libor plus rates ranging from 0.875% to 1.375%. As of March 30,
1997, the Company had $33.2 million available for borrowing under this
facility.
7. 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.
8. Acquisitions
------------
On February 19, 1997, the Company acquired Photon Diagnostic Technologies,
Inc. (Photon), of Miami, Florida, in exchange for 57,143 shares of the
Company's common stock valued at approximately $1.5 million. Photon
remanufactures, services and supports Elscint nuclear medicine imaging
systems. The acquisition has been accounted for as a pooling of interests.
Prior period financial statements will not be restated because Photon is
not material to the financial position or results of operations of the
Company.
On November 4, 1996, the Company acquired Geometrics Corporation
(Geometrics), of Madison, Wisconsin, a developer of specialized medical
software used in the planning of radiation therapy treatments for cancer
patients. Geometrics will operate as a product development unit of the
Company's Radiation Therapy Planning division. In connection with the
acquisition, the Company issued 191,000 shares of its common stock having a
fair market value of approximately $3.9 million. The acquisition has been
accounted for as a pooling of interests. Prior period financial statements
will not be restated because Geometrics is not material to the financial
position or results of operations of the Company.
7
<PAGE>
ADAC LABORATORIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
9. Other
-----
On March 18, 1997 the Company announced that it had entered into an
agreement in principle to acquire Cortet, Inc., of Winter Park, Florida, a
developer of integrated computer systems for use in cardiac catheterization
laboratories. The transaction is valued at approximately $3.5 million.
On September 30, 1996, one of the Company's subsidiaries, ADAC Radiology
Services (ARS), acquired a one-year option to purchase Medical Transition
Strategies, Inc. (MTS) for $0.5 million in cash plus an additional $1.0
million payable over five years. MTS is in the business of forming and
managing radiology networks. The exercise price of the option is equal to
$50,000 per validated network under management plus a percentage of each
such network's net revenue in calendar year 1998. The option price and the
option exercise price are, at the option of the Company, payable in cash or
common stock. If the option is not exercised by September 30, 1997, the
unpaid portion of the $1.0 million becomes immediately due and payable and
any loans made by ARS to MTS will be canceled and forgiven. In addition,
unless MTS fails to perform certain obligations or there is a material
adverse change in MTS's business resulting from MTS's acts or omissions,
ARS must, if certain of MTS' network revenue goals are achieved, pay MTS a
break-up fee of $0.5 million.
10. Subsequent Events
-----------------
On May 7, 1997 the Company amended the existing revolving credit agreement
increasing the facility to $100 million effective May 15, 1997. The terms
of the agreement remain unchanged, with the facility offering borrowings in
either U.S. dollars or in foreign currencies and expiring July 31, 1999.
The Company pays interest and commitment fees on its borrowings based on
the debt level in relation to profitability. Commitment fees range from
0.25% to 0.475% of borrowings and interest rates are based on the bank's
prime rate or Libor plus rates ranging from 0.875% to 1.500%.
11. Recent Pronouncements
---------------------
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires the
Company to review for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets whenever events or
changes in circumstances indicate that the carrying amount of an asset
might not be recoverable. In certain situations, an impairment loss would
be recognized. SFAS 121 will become effective for the Company's fiscal year
ending September 28, 1997.
During October 1995, the Financial Accounting Standard Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation,"
which established a fair value based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies
who elect to adopt the new method of accounting. The Company intends to
continue to account for stock options under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS No. 123 will be effective for fiscal
years beginning after December 15, 1995, and will require the Company to
provide additional disclosures in the financial statements for the fiscal
year ending September 28, 1997.
During July 1996, the Financial Accounting Standard Board issued Statement
No. 125 (SFAS 125), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities." This statement is effective for
transfers and
8
<PAGE>
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be applied prospectively.
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share," which specifies the
computation, presentation and disclosure requirements for earnings per
share. SFAS 128 will become effective for the Company's quarter ending
December 28, 1997.
At present, the Company's adoption of these pronouncements is not expected
to have a material effect on the Company's financial position or results of
operations.
9
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and related Notes thereto
contained elsewhere within this document. Operating results for the three and
six month periods ended March 30, 1997 are not necessarily indicative of the
results that may be expected for any future periods. Reference should also be
made to the Annual Consolidated Financial Statements, Notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the fiscal
year ended September 29, 1996.
RESULTS OF OPERATIONS
THE THREE AND SIX MONTH PERIODS ENDED MARCH 30, 1997 COMPARED TO THE THREE AND
SIX MONTH PERIODS ENDED MARCH 31, 1996
REVENUES AND GROSS MARGIN:
The Company's two primary business units are Medical Systems and Healthcare
Information Systems (HCIS).
MEDICAL SYSTEMS. The Medical Systems business unit includes Nuclear Medicine,
Radiation Therapy Planning (RTP) and, to a lesser extent, Digital Systems
Angiography (DSA) products, as well as customer service related to those
products.
Summary information related to Medical Systems' product and service revenues and
gross margins is as follows ($000):
<TABLE>
<CAPTION>
Change from Fiscal
Three Months Ended Six Months Ended 1996 to 1997
----------------------- ------------------------ ----------------------
March 30, March 31, March 30, March 31, Three Six
1997 1996 1997 1996 Months Months
--------- --------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Product:
Revenues:
Volume $48,759 $39,082 $93,771 $75,894 24.8% 23.6%
Product mix:
Nuclear Medicine 91.5% 95.6% 92.8% 95.8%
RTP 8.5% 4.0% 7.2% 3.6%
DSA 0.0% 0.4% 0.0% 0.6%
Geographical mix:
North America 76.6% 73.5% 76.0% 74.2%
Europe 8.9% 14.6% 12.4% 15.4%
Other 14.5% 12.4% 11.6% 10.4%
Gross margin 43.1% 37.5% 42.7% 37.5%
Service:
Revenues $13,080 $11,351 $25,843 $22,316 15.2% 15.8%
Gross margin 33.3% 32.8% 32.3% 33.0%
</TABLE>
For both the quarter and year-to-date, Medical Systems' product revenues
increased primarily due to continued customer acceptance of the Company's
nuclear medicine product family, including new product introductions and
enhancement options. RTP's product revenues also increased due to the FDA's
clearance of Pinnacle3/TM/. Geographically, the increase in Medical Systems'
revenues was driven by the North and South American markets. Product gross
margins for Medical Systems primarily increased due to reductions in product
cost and sales of the Company's new product, Molecular Coincidence Detection
(MCD).
10
<PAGE>
Medical Systems' service revenues increased as a result of an increase in the
Company's installed customer base. Year-to-date service gross margins decreased
slightly, due to increased investments in the first quarter of fiscal 1997.
These investments consisted of field service engineers and other customer
support resources necessary to continue providing increased customer
satisfaction for the Company's installed customer base.
HEALTHCARE INFORMATION SYSTEMS ("HCIS"). HCIS includes products comprising the
hardware, software and related implementations of systems designed to manage
information within the laboratory and radiology departments of healthcare
organizations, as well as service related to those products.
Summary information related to HCIS' product and service revenues and gross
margins is as follows ($000):
<TABLE>
<CAPTION>
Change from Fiscal
Three Months Ended Six Months Ended 1996 to 1997
----------------------- ------------------------ ----------------------
March 30, March 31, March 30, March 31, Three Six
1997 1996 1997 1996 Months Months
--------- --------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Product:
Revenues:
Volume $4,040 $3,867 $10,508 $6,763 4.5% 55.4%
Product mix:
Laboratory 36.3% 51.4% 50.5% 42.4%
Radiology 58.6% 48.6% 47.5% 57.6%
Other 5.1% 0.0% 2.0% 0.0%
Geographical mix:
North America 100.0% 100.0% 100.0% 100.0%
Gross margin 38.4% 49.5% 37.6% 48.3%
Service:
Revenues $3,974 $4,138 $7,972 $8,453 (4.0%) (5.7%)
Gross margin 48.7% 49.3% 48.9% 51.3%
</TABLE>
The increase in HCIS' product revenues year-to-date is attributable to the
Company's QuadRIS/TM/ radiology and LabStat/TM/ laboratory information systems.
HCIS' product revenues grew in both the laboratory and radiology product
families, although the product mix shifted more towards laboratory in the first
half of fiscal 1997 compared to the first half in the prior fiscal year. In
comparing the second quarter of fiscal 1997 to the second quarter of fiscal
1996, however, this trend has been reversed as sales of the Company's QuadRIS
/TM/ product have accelerated compared to LabStat/TM/. The decrease in HCIS'
product gross margins is attributable to a greater percentage of hardware
components shipped in the laboratory product family in the first half of fiscal
1997 compared with primarily software components in the first half of fiscal
1996, due to the delays in the development of the next release of LabStat/TM/
and product costs associated with the increased laboratory product family
shipments and installations and the infrastructure required to deliver such
service.
HCIS' service revenues and margins decreased for both the quarter and year to
date as a result of lower dollar volume in service renewals from HCIS' legacy
client base while the new laboratory product client base is at early
introductory stages. Additionally, the Company incurred increased costs
associated with the infrastructure required to deliver such service.
11
<PAGE>
OPERATING AND OTHER EXPENSES:
As a percentage of total revenue the Company's operating and other expenses are
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ---------------------
<S> <C> <C> <C> <C>
Mar. 30, Mar. 31, Mar. 30, Mar. 31,
1997 1996 1997 1996
-------- -------- -------- ---------
Operating costs and expenses:
Marketing and sales 15.4% 14.8% 15.6% 14.8%
Research and development,
net of software capitalization 5.1% 5.2% 4.9% 5.2%
General and administrative 6.3% 5.9% 6.3% 6.2%
Goodwill amortization 0.3% .3% 0.3% .4%
----- ----- ----- -----
27.1% 26.2% 27.1% 26.6%
===== ===== ===== =====
Other expense, net 1.9% 1.4% 1.8% 1.4%
</TABLE>
Marketing and sales expenses as a percentage of revenue increased during the
quarter and year-to-date, due to higher travel and compensation costs associated
with increasing revenues and orders. As a result of continued investment in new
product development and product enhancement, net research and development
expenditures increased $0.5 million and $0.9 million for the quarter and year-
to-date over the same periods in the prior year, but decreased as a percentage
of revenue as a result of the consolidation of the Company's existing radiology
business with that of Community Health Computing (CHC). Capitalized software
costs for the second quarter of fiscal 1997 were $1.1 million versus $0.9
million in fiscal 1996, bringing the year-to-date amount to $2.2 million
compared with $2.0 million for the same period in fiscal 1996. General and
administrative expenditures as a percentage of revenue increased due to
expansion of the Company's networking and MIS capabilities. Goodwill
amortization related to the acquisition of CHC in late fiscal 1995.
Other expense, net, increased due to foreign currency transaction losses which
were partially offset by decreased interest expense due to lower borrowings.
INCOME TAXES:
The effective tax rate as a percentage of pretax income was 36.3% in the first
half of fiscal 1997 compared with 36.0% in the first half of fiscal 1996.
INFLATION:
The Company does not believe that inflation has had a material effect on its
revenues or results of operations.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Summary information regarding the Company's cash flows, liquidity, and capital
resources is as follows ($000):
Six Months Ended
--------------------
March 30, March 31,
1997 1996
--------- ---------
Net cash and equivalents generated (used in):
Operating activities $ 6,028 ($1,370)
Investing activities (5,256) (3,105)
Financing activities 2,707 2,517
-------- -------
Subtotal 3,479 (1,958)
Effect of exchange rates on cash (1,152) (425)
-------- -------
Net cash and equivalents generated (used) 2,327 (2,383)
Cash and equivalents at beginning of period 3,081 7,551
-------- -------
Cash and equivalents at end of period $5,408 $5,168
======== =======
Available bank lines of credit at end of period $33,201 $17,813
Net cash provided by operations were primarily due to higher net income and
lower inventories resulting from higher sales. These changes were partially
offset by increases in accounts receivable and decreases in accounts payable.
Accounts receivable increased primarily as a result of higher sales volumes in
North and South America. The increase was also attributable to the timing of
product installations and implementations in the Medical System's business unit
and HCIS business unit, respectively. The decrease in accounts payable reflects
the timing of payments at quarter end.
Net cash used in investing activities during both periods primarily related to
capital expenditures and increases in capitalized software expenditures.
The increase in cash generated by financing activities was primarily due to
stock options activity and discontinuance of the quarterly dividend payment,
partially offset by paydowns of bank loan balances.
As a result of the above noted operating, financing and investing activities,
and the effect of exchange rates on cash, cash and cash equivalents increased by
$2.3 million compared with a decrease of $2.4 million in the same period of
fiscal 1996.
Borrowings outstanding under the Company's lines of credit at the end of the
second quarter of fiscal 1997 were $26.8 million verses $22.2 million in the
second quarter of fiscal 1996.
The Company believes that its cash and cash equivalents, cash flow from
operations, and, if necessary, remaining lines of credit will be sufficient to
fund the Company's operating cash flow requirements for the next fiscal year.
However, the Company may need to increase its sources of capital through
additional borrowings or the sale of securities in response to business
conditions or to pursue new business opportunities. There can be no assurance
that such additional sources of capital will be available on terms favorable to
the Company, if at all.
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations, including the discussion of product mix and liquidity and
capital resources, contains forward looking statements within the meaning of the
federal securities laws.
These statements are subject to a number of risks and uncertainties that could
cause actual results to differ materially from those projected, including
without limitation
13
<PAGE>
those set forth below. The Company expressly disclaims any obligation to update
any forward looking statements.
The medical systems and health care information system markets are characterized
by rapidly evolving technology, intense competition and pricing pressure. There
are a number of companies that currently offer, or are in the process of
developing, products that compete with products offered by the Company, many of
which have substantially greater capital, engineering, manufacturing and other
resources than the Company. These competitors could develop technologies and
products that are more effective than those currently used or produced by the
Company or that could render the Company's products obsolete or noncompetitive.
In addition, as the Company enters new markets, such as the laboratory
information systems market, there can be no assurance that the Company will be
able to penetrate such markets successfully.
ADAC's success in Medical Systems and HCIS is dependent upon the successful and
timely development, introduction and commercialization of new products and the
development of enhancements to existing products. Because the nuclear medicine
market is relatively mature, and from time to time in recent years has
experienced a decline, the Company must continue to develop innovative new
products and product enhancements such as MCD in order to pursue its growth
strategy. The success of some products depends on receipt of appropriate
regulatory approvals for and the commercial availability of specific
radiopharmaceuticals. For example, MCD requires the use of positron emitting
isotopes. At this time, the infrastructure for the commercial supply of such
isotopes is not well-developed, certain applicable regulatory approvals for such
isotopes have not yet been obtained, and reimbursement for the use of such
isotopes in connection with MCD is uncertain. There can be no assurance that
the Company will be able to commercialize its existing products or any new
products or enhancements successfully.
The Company's future operating results may vary substantially from period to
period. The timing and amount of revenues are subject to a number of factors
that make estimation of revenues and operating results prior to the end of the
quarter very uncertain. The timing of revenues can be affected by delays in
product introductions and shipments, as well as general economic and industry
conditions. Furthermore, of the orders received by the Company in any fiscal
quarter, a disproportionately large percentage has typically been received and
shipped toward the end of that quarter. Accordingly, results for a given
quarter can be adversely affected if there is a substantial order shortfall late
in that quarter. In addition, although both the Company's bookings and revenue
have increased steadily in recent periods, bookings cannot necessarily be relied
upon as an accurate predictor of future revenues.
The market price of the Company's common stock is and is expected to be subject
to significant fluctuations in response to variations in anticipated or actual
operating results, market speculation, announcements of new products or
technologies by the Company or its competitors, changes in earnings estimates by
the Company's analysts, trends in the health care industry in general and other
factors, many of which are beyond the control of the Company. In addition,
broad market fluctuations as well as general economic or political conditions or
initiatives, such as health care reform, may adversely impact the market price
of the common stock regardless of the Company's operating results.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
(d) On February 19, 1997, the Company issued 57,143 shares of common stock
to the sole shareholder of Photon as consideration in the merger of Photon
into a subsidiary of the Company. See Note 8 of Notes to Condensed
Consolidated Financial Statements. The shares were issued to the sole
shareholder of Photon in a transaction not involving a public offering,
pursuant to section 4(2) of the Securities Act of 1933, as amended.
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.
15
<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 14, 1997
ADAC Laboratories
-----------------
(Registrant)
BY: /s/ P. Andre' Simone
------------------------
P. Andre' Simone
Vice President and Chief
Financial Officer
16
<PAGE>
EXHIBIT 11.1
ADAC LABORATORIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
------------------ ----------------
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
--------- --------- --------- ---------
Average shares outstanding 18,227 17,271 18,078 17,167
Net effect of dilutive stock
options and warrants 1,169 1,000 1,136 824
------ ------ ------ ------
Average common and common
equivalent shares outstanding 19,396 18,271 19,214 17,991
====== ====== ====== ======
Net income $ 5,552 $ 3,938 $10,645 $ 7,479
====== ====== ====== ======
Net income per share $ 0.29 $ 0.22 $ 0.55 $ 0.42
====== ====== ====== ======
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 5,408
<SECURITIES> 0
<RECEIVABLES> 92,227
<ALLOWANCES> (2,857)
<INVENTORY> 27,868
<CURRENT-ASSETS> 140,165
<PP&E> 26,896
<DEPRECIATION> (16,505)
<TOTAL-ASSETS> 194,463
<CURRENT-LIABILITIES> 74,506
<BONDS> 0
0
0
<COMMON> 115,932
<OTHER-SE> (1,698)
<TOTAL-LIABILITY-AND-EQUITY> 194,463
<SALES> 52,922
<TOTAL-REVENUES> 69,976
<CGS> 30,222
<TOTAL-COSTS> 40,988
<OTHER-EXPENSES> 18,954
<LOSS-PROVISION> 133
<INTEREST-EXPENSE> 1,038
<INCOME-PRETAX> 8,716
<INCOME-TAX> 3,164
<INCOME-CONTINUING> 5,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,552
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
