<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<S> <C>
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 2, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER 0-9428
------------------------
ADAC LABORATORIES
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 94-1725806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
540 ALDER DRIVE 95035
MILPITAS, CALIFORNIA (Zip Code)
(Address of principal executive offices)
</TABLE>
(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 / / No /X/
As of January 31, 2000 Registrant had 20,633,000 outstanding shares of
Common Stock, no par value.
(This document contains a total of 24 pages)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
Three-Month Periods Ended January 2, 2000 and January 3,
1999........................................................ 3
Condensed Consolidated Balance Sheets at January 2, 2000 and
October 3, 1999............................................. 4
Condensed Consolidated Statements of Cash Flows for the
Three-Month Periods Ended January 2, 2000 and January 3,
1999........................................................ 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Part II. Other Information
Item 1. Legal Proceedings........................................... 23
Item 3. Defaults upon Senior Securities............................. 23
Item 6. Exhibits and Reports on Form 8-K............................ 23
Signatures.............................................................. 24
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ADAC LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES, NET:
Product................................................... $66,681 $70,906
Service................................................... 23,641 23,373
------- -------
90,322 94,279
------- -------
COST OF REVENUES:
Product................................................... 41,687 39,085
Service................................................... 16,502 16,579
------- -------
58,189 55,664
------- -------
GROSS PROFIT................................................ 32,133 38,615
------- -------
OPERATING EXPENSES:
Marketing and sales....................................... 14,553 15,463
Research and development.................................. 5,077 4,366
General and administrative................................ 7,858 8,339
Goodwill amortization..................................... 513 488
Restructuring charges..................................... -- 2,500
Settlement of litigation and related charges.............. 10,340 --
------- -------
38,341 31,156
------- -------
OPERATING (LOSS) INCOME..................................... (6,208) 7,459
------- -------
Interest and other expense, net............................. 893 1,240
------- -------
(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR INCOME TAXES... (7,101) 6,219
(Benefit) provision for income taxes........................ (2,627) 2,363
------- -------
NET (LOSS) INCOME........................................... $(4,474) $ 3,856
======= =======
NET (LOSS) INCOME PER SHARE
Basic..................................................... $ (.22) $ .19
Diluted................................................... $ (.22) $ .18
NUMBER OF SHARES USED IN PER SHARE CALCULATIONS
Basic..................................................... 20,579 20,300
Diluted................................................... 20,579 21,118
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 2, OCTOBER 3,
2000 1999(1)
----------- -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,430 $ 5,796
Trade receivables, net of allowance for doubtful accounts
of
$16,686 in 2000 and $14,707 in 1999..................... 86,186 80,393
Tax and other receivables................................. 2,598 2,265
Inventories, net.......................................... 30,729 35,076
Prepaid expenses and other current assets................. 4,946 5,620
Current deferred income taxes............................. 16,406 13,717
-------- --------
TOTAL CURRENT ASSETS........................................ 144,295 142,867
Service parts, net........................................ 18,420 18,297
Fixed assets, net......................................... 15,462 15,555
Capitalized software, net of accumulated amortization of
$14,189 in 2000 and $13,167 in 1999..................... 18,501 17,417
Intangibles, net.......................................... 40,304 41,024
Non-current deferred income taxes......................... 3,159 3,230
Other assets, net......................................... 1,444 1,272
-------- --------
TOTAL ASSETS.............................................. $241,585 $239,662
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks.................................... $ 43,093 $ 51,961
Accounts payable.......................................... 21,173 13,492
Deferred revenues......................................... 16,561 17,185
Accrued compensation...................................... 11,749 12,750
Customer deposits and advances............................ 7,741 6,757
Warranty and installation................................. 6,837 5,835
Other accrued liabilities................................. 27,477 20,461
-------- --------
TOTAL CURRENT LIABILITIES................................... 134,631 128,441
Non-current liabilities..................................... 3,366 3,708
-------- --------
TOTAL LIABILITIES......................................... 137,997 132,149
-------- --------
SHAREHOLDERS' 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: 20,614 shares as of January 2,
2000 and
20,542 shares as of October 3, 1999..................... 155,085 154,275
Accumulated deficit....................................... (48,360) (43,886)
Accumulated other comprehensive loss...................... (3,137) (2,876)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................ 103,588 107,513
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $241,585 $239,662
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- ------------------------
(1) Data extracted from audited consolidated financial statements dated
October 3, 1999 of ADAC Laboratories.
4
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $(4,474) $ 3,856
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities
Depreciation and amortization............................. 4,570 4,041
Deferred income taxes..................................... (2,618) --
Stock compensation expenses............................... 262 --
Restructuring charge...................................... -- 2,500
Settlement of litigation and related charges.............. 10,340 --
Change in operating assets and liabilities:
Trade receivables, net.................................... (5,716) (23,979)
Tax and other receivables................................. (333) 96
Inventories, net.......................................... 4,285 4,200
Prepaid expenses and other current assets................. 666 (1,910)
Service parts............................................. (1,008) (2,475)
Accounts payable.......................................... 7,652 (6,124)
Deferred revenues......................................... (633) 4,403
Accrued compensation...................................... (1,001) 538
Customer deposits and advances............................ 983 1,759
Warranty and installation, and other accrued
liabilities............................................. 1,001 (903)
Other accrued liabilities................................. (3,397) --
Non-current liabilities................................... 26 (11)
------- --------
Net cash provided by (used in) operating activities......... 10,605 (14,009)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,403) (4,019)
Capitalized software...................................... (2,097) (2,994)
Intangibles and other assets.............................. (639) 1,204
------- --------
Net cash used in investing activities....................... (4,139) (5,809)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under short-term debt
arrangements, net....................................... (8,868) 14,945
Payments under capital lease agreements................... (370) (46)
Proceeds from issuance of common stock, net............... 622 1,564
------- --------
Net cash (used in) provided by financing activities......... (8,616) 16,463
------- --------
Effect of exchange rate changes on cash..................... (216) 31
------- --------
Net change in cash and cash equivalents..................... (2,366) (3,324)
Cash and cash equivalents, at beginning of the period....... 5,796 4,869
------- --------
Cash and cash equivalents, at end of the period............. $ 3,430 $ 1,545
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 SEC 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-month period ended January 2, 2000 are
not necessarily indicative of the results that may be expected for any future
periods, including the full fiscal year. 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
October 3, 1999.
The balance sheet data at October 3, 1999 was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
2. NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share has been computed using the weighted
average number of common shares outstanding. Diluted net income per share
includes the dilutive effect of common stock options and warrants using the
treasury stock method. The calculation of basic and diluted earnings per share
(EPS) for the three-month periods ended January 2, 2000 and January 3, 1999 is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Basic EPS:
Net (Loss) Income..................................... (4,474) $ 3,856
Weighted Average Common Shares Outstanding............ 20,579 20,300
Basic net (loss) income per share..................... $ (.22) $ .19
Diluted EPS:
Net (Loss) Income..................................... (4,474) $ 3,856
Weighted Average Common Shares Outstanding............ 20,579 20,300
Options............................................... -- 818
------- -------
Total Shares............................................ 20,579 21,118
======= =======
Diluted net (loss) income per share..................... $ (.22) $ .18
</TABLE>
If the Company had recorded net income in the three-month period ended
January 2, 2000, the total diluted shares would have been increased by shares
for 381,000 options.
6
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INVENTORIES
<TABLE>
<CAPTION>
JANUARY 2, OCTOBER 3,
2000 1999
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Inventories consist of:
Purchased parts and sub-assemblies.................... $ 9,800 $ 7,203
Work-in-process....................................... 5,590 5,518
Finished goods........................................ 15,339 22,355
------- -------
$30,729 $35,076
======= =======
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
JANUARY 2, OCTOBER 3,
2000 1999
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Fixed assets, at cost, consist of:
Production and test equipment......................... $ 4,727 $ 3,819
Field service equipment............................... 695 709
Office and demonstration equipment.................... 24,069 23,707
Leasehold improvements................................ 1,670 1,659
-------- --------
31,161 29,894
Less accumulated depreciation and amortization.......... (15,699) (14,339)
-------- --------
$ 15,462 $ 15,555
======== ========
</TABLE>
5. RESTRUCTURING CHARGES
During fiscal 1999, the Company conducted a comprehensive review of its
operations. Based on this review it restructured its European, South American
and ADAC Medical Technologies ("AMT") businesses. As a result, the Company
recorded charges in fiscal 1999 of $4.1million. Of this amount, $2.5 million
relating to the restructuring of the European and South American businesses was
recorded during the first quarter of fiscal 1999. An amount of $0.4 million was
charged against the liability during the three months ended January 2, 2000,
representing cash payments made. As of January 2, 2000, $1.5 million remained in
the accrual, comprised of $1.0 million for severance expenses, $0.3m for legal
and consulting, and $0.2 million for facilities and other costs associated with
the restructuring. The Company currently expects that these restructuring costs
will be paid over the remaining three quarters of fiscal 2000.
6. CREDIT AND BORROWING ARRANGEMENTS
As of January 2, 2000 the Company had a $75.0 million revolving credit
facility with a bank syndicate. The credit facility offers borrowings in either
U.S. dollars or in foreign currencies and expires on March 29, 2002. The Company
pays commitment fees and interest on its borrowings based on its debt level in
relation to its cash flow. Commitment fees range from 0.25% to 0.75% of unused
commitment, and interest rates are based on the banks' prime rate or Libor plus
rates ranging from 1.0% to 2.5%. At January 2, 2000, the Company had
$32.0 million available for borrowing under this facility. Due to the settlement
of litigation
7
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. CREDIT AND BORROWING ARRANGEMENTS (CONTINUED)
and related charges, the results of the Company's operations in the first
quarter of fiscal 2000 caused the Company to be out of compliance with it's
financial covenants in the facility. On January 28, 2000, the Company and the
bank syndicate signed an amendment increasing the credit facility from
$75.0 million to $85.0 million and modifying the financial covenants,
retroactively to include the first fiscal quarter of 2000, to be more reflective
of the Company's recent financial performance. The Company is in compliance with
these modified covenants in the first quarter of fiscal 2000.
7. LITIGATION
Commencing in December 1998, a total of eleven class action lawsuits were
filed in federal court by or on behalf of stockholders who purchased Company
stock between January 10, 1996 and December 28, 1998. These actions named as
defendants the Company and certain of its present and former officers and
directors. The complaints alleged various violations of the federal securities
laws in connection with the restatement of the Company's financial statements
and sought unspecified but potentially significant damages. In April 1999, these
actions were ordered consolidated and, in July 1999, the plaintiffs filed a
consolidated amended complaint. A stockholder derivative action, purportedly on
behalf of the Company and naming as defendants Company officers and directors
was also filed in state court seeking recovery for the Company based on stock
sales by these defendants during the above time period.
On January 13, 2000, ADAC reached agreements-in-principle to settle these
actions. Pursuant to the class action settlement, the plaintiff class will
receive $20 million in full settlement of their claims. Final settlements are
contingent upon the satisfaction of numerous conditions, including among others,
final court approval.. As a result of having reached these agreements in
principle, the Company recorded a non-ordinary pre-tax charge of $10.3 million
in the first quarter of fiscal 2000, representing its total costs for the
settlements after contribution by the insurance company, including $1.3 million
for the related legal fees to bring these matters to a conclusion.
The Company has been informed that the United States Securities and Exchange
Commission (SEC) has issued a Formal Order of Private Investigation in
connection with matters relating to the Company's previously announced
restatement of its financial results for 1996, 1997 and the first three quarters
of 1998. The Company is continuing to cooperate with the SEC. The Company is
unable to predict the outcome of the investigation at this time.
The Company is also a defendant in various legal proceedings incidental to
its business. Management is of the opinion that any liability resulting from
these claims would not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
8. INCOME TAXES
The Company uses the liability 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 (benefit) provision for income taxes for
the three-month periods ended January 2, 2000 and January 3, 1999 are based on
the estimated effective income tax rates for the fiscal years ending October 1,
2000 and ended October 3, 1999 of 37% and 38%, respectively.
8
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. SEGMENT REPORTING
The Company has three reportable segments, Medical Systems ("MS"), Radiation
Therapy Planning ("RTP") and Health Care Information Systems ("HCIS"). The
Company is organized on the basis of products and services. The Company's
reportable segments are strategic business units that offer different products
and include corporate allocations of general and administrative expenses. The
following table summarizes information about the Company's reportable segments
for the three-month periods ended January 2, 2000 and January 3, 1999. Asset
information by reportable segment has not been presented as the Company does not
produce and rely on such information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 2, 2000
-----------------------------------------
MS RTP HCIS TOTAL
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues, net:
Product................................ $49,549 $11,357 $5,775 $66,681
Service................................ 19,175 841 3,625 23,641
------- ------- ------ -------
68,724 12,198 9,400 90,322
======= ======= ====== =======
Income before provision for income
taxes.................................. $ 1,494 $ 1,423 $ 322 $ 3,239
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 3, 1999
-----------------------------------------
MS RTP HCIS TOTAL
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues, net:
Product................................ $51,362 $16,338 $3,206 $70,906
Service................................ 18,662 610 4,101 23,373
------- ------- ------ -------
70,024 16,948 7,307 94,279
======= ======= ====== =======
Income (loss) before provision (benefit)
for income taxes....................... $ 3,762 $ 5,169 $ (211) $ 8,719
</TABLE>
The following is a reconciliation of total segment income before provision
for income taxes to consolidated (loss) income before (benefit) provision for
income taxes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Total segment income before provision for income taxes...... $ 3,239 $8,719
Excluded charges and expenses:
Restructuring charges..................................... -- 2,500
Settlement of litigation and related charges.............. 10,340 --
------- ------
10,340 2,500
------- ------
Total consolidated (loss) income before (benefit) provision
for income taxes.......................................... $(7,101) $6,219
======= ======
</TABLE>
9
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. COMPREHENSIVE (LOSS) INCOME
Effective September 28, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
Statement establishes standards for reporting and displaying income and its
components (revenue, expenses, gains and losses) in a full set of general
purpose financial statements. This Statement requires the classification of
items of comprehensive income by their nature in a financial statement and the
accumulated balance of other comprehensive income separately in the equity
section of the balance sheet. The Company's accumulated other comprehensive
(loss) income consists solely of translation adjustments. Comprehensive (loss)
income for the three-month periods ended January 2, 2000 and January 3, 1999 is
as follows:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Net (loss) income....................................... $(4,474) $3,856
Change in accumulated translation adjustment, net of
tax................................................... (165) 31
------- ------
Comprehensive (loss) income............................. $(4,639) $3,887
======= ======
</TABLE>
11. RECENT PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standard 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"), was issued and
is effective for fiscal years commencing after June 15, 2000. The Company will
comply with the requirements of FAS 133 in fiscal year 2001. Currently the
Company does not hold any derivative instruments or engage in any hedging
activities.
10
<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-month
period ended January 2, 2000 are not necessarily indicative of the results that
may be expected for any future periods, including the full fiscal year.
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 October 3, 1999.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED JANUARY 2, 2000 COMPARED TO THREE-MONTH PERIOD ENDED
JANUARY 3, 1999
Revenues for the first quarter of fiscal 2000 were $90.3 million, a decrease
of 4%, or $4.0 million, from the first quarter of fiscal 1999 revenues of
$94.3 million. Revenues are primarily generated from the sale and servicing of
medical imaging products. Medical Systems revenues represented 76% and 74% of
the Company's total revenues for the first quarters of fiscal 2000 and 1999,
respectively. The Company's Radiation Therapy Products revenues represented
approximately 14% and 18% of the Company's total revenues for the first quarters
of fiscal 2000 and 1999, respectively. The Company's Health Care Information
Systems revenues represented approximately 10% and 8% of the Company's total
revenues for the first quarters of fiscal 2000 and 1999, respectively.
NON-ORDINARY CHARGES AND EXPENSES
LITIGATION
Commencing in December 1998, a total of eleven class action lawsuits were
filed in federal court by or on behalf of stockholders who purchased Company
stock between January 10, 1996 and December 28, 1998. These actions named as
defendants the Company and certain of its present and former officers and
directors. The complaints alleged various violations of the federal securities
laws in connection with the restatement of the Company's financial statements
and sought unspecified but potentially significant damages. In April 1999, these
actions were ordered consolidated and, in July 1999, the plaintiffs filed a
consolidated amended complaint. A stockholder derivative action, purportedly on
behalf of the Company and naming as defendants Company officers and directors
was also filed in state court seeking recovery for the Company based on stock
sales by these defendants during the above time period.
On January 13, 2000, ADAC reached agreements-in-principle to settle these
actions. Pursuant to the class action settlement, the plaintiff class will
receive $20 million in full settlement of their claims. Final settlements are
contingent upon the satisfaction of numerous conditions, including among others,
final court approval.. As a result of having reached these agreements in
principle, the Company recorded a non-ordinary pre-tax charge of $10.3 million
in the first quarter of fiscal 2000, representing its total costs for the
settlements after contribution by the insurance company, including $1.3 million
for the related legal fees to bring these matters to a conclusion.
The Company has been informed that the United States Securities and Exchange
Commission (SEC) has issued a Formal Order of Private Investigation in
connection with matters relating to the Company's previously announced
restatement of its financial results for 1996, 1997 and the first three quarters
of 1998. The Company is continuing to cooperate with the SEC. The Company is
unable to predict the outcome of the investigation at this time.
The Company is also a defendant in various legal proceedings incidental to
its business. Management is of the opinion that any liability resulting from
these claims would not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
11
<PAGE>
RESTRUCTURING
During fiscal 1999, the Company conducted a comprehensive review of its
operations. Based on this review it restructured its European, South American
and ADAC Medical Technologies ("AMT") businesses. As a result, the Company
recorded charges in fiscal 1999 of $4.1million. Of this amount, $2.5 million
relating to the restructuring of the European and South American businesses was
recorded during the first quarter of fiscal 1999. An amount of $0.4 million was
charged against the liability during the three months ended January 2, 2000,
representing cash payments made. As of January 2, 2000, $1.5 million remained in
the accrual, comprised of $1.0 million for severance expenses, $0.3m for legal
and consulting, and $0.2 million for facilities and other costs associated with
the restructuring. The Company currently expects that these restructuring costs
will be paid over the remaining three quarters of fiscal 2000.
MEDICAL SYSTEMS
Medical Systems includes revenues from the sale of the Company's nuclear
medicine products and customer service related to those products. Revenues also
include sales from the Company's ADAC Medical Technologies ("AMT") products.
Summary information related to Medical Systems revenues and gross margins for
the three-month period ended January 2, 2000, compared to the corresponding
period in fiscal 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(DOLLAR AMOUNTS
IN THOUSANDS)
<S> <C> <C>
Revenues:
Product............................................... $49,549 $51,362
Service............................................... 19,175 18,662
------- -------
Total............................................... $68,724 $70,024
======= =======
Geographical mix:
United States......................................... 82.2% 86.0%
International......................................... 17.8% 14.0%
Gross profit:
Product............................................... $15,715 $20,719
Service............................................... 4,674 4,365
------- -------
Total............................................... $20,389 $25,084
======= =======
Gross margin:
Product............................................... 31.7% 40.3%
Service............................................... 24.4% 23.4%
Total............................................... 29.7% 35.8%
</TABLE>
Medical Systems' product revenues decreased 4% for the three-month period
ended January 2, 2000, from the same period in fiscal 1999. Revenues were
disproportionately higher in the first quarter of fiscal 1999 due to the
Company's shipment during that quarter of a large volume of backordered products
that had been released in late September 1998. In addition, revenues were lower
in fiscal 2000 as pricing pressures resulted in lower average selling prices on
sales of dual head cameras. The lower revenue on dual head camera sales was
partially offset by increased sales volume of C-PET-TM-, which has a higher
average selling price. The proportion of the Company's revenues derived from
Europe increased due to increased penetration of the Forte-TM- in the first
quarter of fiscal 2000 compared to the first quarter of fiscal 1999.
Gross margins for Medical Systems products decreased 9 percentage points, or
by 24%, in the three-month period ended January 2, 2000, compared to the
corresponding period of the prior fiscal year. The
12
<PAGE>
decrease in margins resulted primarily from competitive pricing pressures and
additional sales of the higher cost Forte. In addition the Company refined it's
estimate and recorded an additional warranty provision of approximately
$1.0 million during the three-month period ended January 2, 2000. Also, costs
related to the recently acquired UGM Medical Systems product line, including
amortization of acquired technology costs were included in the current period.
Medical Systems service revenues for the three-month period ended
January 2, 2000, increased 3% over the same period in fiscal 1999. The increase
resulted from a higher customer base offset by a decrease in sales related to
upgrades for Year 2000 compliance. Gross margins improved 1% for the three-month
period ended January 2, 2000, compared to the same period of fiscal 1999.
RADIATION THERAPY PRODUCTS ("RTP")
RTP revenues are generated primarily from the sale and support of the
Company's Pinnacle(3) radiation therapy planning system. RTP revenues also
include sales from the Company's CT refurbishing business unit, ARS. Summary
information related to RTP revenues and gross margins for the three-month period
ended January 2, 2000, compared to the corresponding period in fiscal 1999 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(DOLLAR AMOUNTS
IN THOUSANDS)
<S> <C> <C>
Revenues:
Product............................................... $11,357 $16,338
Service............................................... 841 610
------- -------
Total............................................... $12,198 $16,948
======= =======
Geographical mix:
United States......................................... 73.7% 87.6%
International......................................... 26.3% 12.4%
Gross profit:
Product............................................... $ 6,991 $ 9,920
Service............................................... 447 181
------- -------
Total............................................... $ 7,438 $10,101
======= =======
Gross margin:
Product............................................... 61.6% 60.7%
Service............................................... 53.2% 29.7%
Total............................................... 61.0% 59.6%
</TABLE>
RTP product revenues decreased 30% for the three-month period ended
January 2, 2000, from the same period in fiscal 1999. The decrease for the
three-month period resulted primarily from a lower volume of shipments of the
Pinica1(3) and lower refurbishment revenues in the first three months of fiscal
2000. This was partially offset by the higher level of revenue in Europe due to
the timing of installations in the current period. Additionally the Company
believes that revenue in the first quarter of fiscal 1999 was unusually high and
that the revenue in the first quarter of fiscal 2000 is more reflective of the
recent trend. Product revenue reported for the fourth quarter of fiscal 1999 was
$11.6 million.
Gross margins for RTP for the three-months ended January 2, 2000 remained
relatively constant at 61% compared to the corresponding period in fiscal 1999.
Although there was some erosion in gross margin in the first quarter of fiscal
2000 as the Pinnacle(3) product line faced increased pricing pressure, this was
offset by a change in product mix as the lower margin ARS refurbishing products
represented a smaller share of the revenue compared to the same period in fiscal
1999.
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<PAGE>
RTP service revenues increased 38% for the three-month period ended
January 2, 2000, compared to the corresponding period in fiscal 1999 due
primarily to the commencement of separate RTP service contracts for software
support. Service gross margins increased from 30% in the first three months of
fiscal 1999 to 53% in the first three months of fiscal 2000 due to the increase
in the number of contracts, leveraging the cost structure.
HEALTH CARE INFORMATION SYSTEMS ("HCIS")
HCIS revenues are generated from the sale and support of radiology and
cardiology information systems and the support of the Company's legacy
laboratory information systems. Summary information related to HCIS revenues and
gross margins for the three-month period ended January 2, 2000, compared to the
corresponding period in fiscal 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
(DOLLAR AMOUNTS
IN THOUSANDS)
<S> <C> <C>
Revenues:
Product............................................... $5,775 $3,206
Service............................................... 3,625 4,101
------ ------
Total............................................... $9,400 $7,307
====== ======
Geographical mix:
United States......................................... 96.2% 97.3%
International......................................... 3.8% 2.7%
Gross profit:
Product............................................... $2,288 $1,182
Service............................................... 2,018 2,248
------ ------
Total............................................... $4,306 $3,430
====== ======
Gross margin:
Product............................................... 39.6% 36.9%
Service............................................... 55.7% 54.8%
Total............................................... 45.8% 46.9%
</TABLE>
HCIS product revenues increased 80% for the three-month period ended
January 2, 2000, compared to the same period in fiscal 1999. The increase
resulted primarily from additional sales of QuadRIS-TM- for the radiology
product line, and also from increased sales in cardiology and the addition of
the DINPACs-TM- product. These increases were partially offset by diminishing
revenues from the discontinued Labstat-TM- product When compared to the fourth
quarter of fiscal 1999 revenues of $7.4 million however, revenue has declined by
22% in the three month period January 2, 2000. This is primarily due to slower
bookings, which the Company believes is a result of customers delaying their
purchase decision due to year 2000 concerns. Gross margins for HCIS for the
three-month period ended January 2, 2000 increased 3 percentage points, or 8%,
from the corresponding period in fiscal 1999. This is primarily due to the
higher revenue leveraging the substantially fixed product cost structure,
partially offset by a change in mix to lower margin cardiology products in the
first quarter of fiscal 2000.
HCIS service revenues decreased for the three-month period ended January 2,
2000, compared to the corresponding period in fiscal 1999, due primarily to
lower service revenues from the discontinued Labstat-TM- product. Service gross
margins increased for the three-month period ended January 2, 2000, compared to
the corresponding period in fiscal 1999, due to improved third party maintenance
fees.
14
<PAGE>
OPERATING AND OTHER EXPENSES:
As a percentage of the Company's revenues, operating and other expenses for
the three-month periods ended January 2, 2000 and January 3, 1999 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
<S> <C> <C>
Operating expenses:
Marketing and sales.................................. 16.1% 16.4%
Research and development, net of software
capitalization..................................... 5.6% 4.6%
General and administrative........................... 8.7% 8.8%
Goodwill amortization................................ 0.6% 0.5%
Restructuring charge................................. 0.0% 2.7%
Settlement of litigation and related charges......... 11.4% 0.0%
---- ----
42.4% 33.0%
==== ====
Other expense, net..................................... 1.0% 1.3%
</TABLE>
Marketing and sales expenses for the three-month period ended January 2,
2000 decreased $0.9 million from the corresponding period in the prior fiscal
year. The decrease came primarily from international operations where
restructuring actions taken in fiscal 1999 resulted in cost savings.
Research and development expenses, net of software capitalization, for the
three-month period ended January 2, 2000 increased $0.7 million over the
corresponding period in the prior fiscal year. The expense increase is the
result of fewer software projects meeting technical feasibility during the first
quarter of fiscal 2000, therefore fewer projects met the criteria for
capitalization. Several of the projects being capitalized during the first
quarter of fiscal 1999 were completed late in fiscal 1999. Capitalized software
costs were $2.1 million and $3.0 million in the first quarters of fiscal 2000
and 1999, respectively.
General and administrative expenses for the three-month period ended
January 2, 2000 decreased $0.5 million from the corresponding period in the
prior fiscal year. The expense decreased because the first quarter of fiscal
1999 included expenses related to the restatement of the Company's financial
statements. This decrease was partially offset by investments in infrastructure
in Finance and Administration and UGM in the first quarter of fiscal 2000.
Goodwill amortization remained constant at $0.5 million for the three-month
period ended January 2, 2000 compared to the corresponding period of fiscal
1999. There was increased amortization of goodwill in the first quarter of
fiscal 2000 related to the acquisition of UGM at the end of fiscal 1999 offset
by earlier acquisitions reaching the end of their amortization life.
The Company recorded a settlement charge in the first quarter of fiscal 2000
of $10.3 million representing its total costs, including legal fees, to settle
the consolidated class action lawsuit and related derivative litigation pending
against the Company. The settlements are contingent upon the satisfaction of
numerous conditions, including among others, final court approval.
The Company recorded a restructuring charge in the first quarter of fiscal
1999 of $2.5 million related to its international operations in order to improve
the operations' profitability.
Interest and other expense, net, which primarily consists of interest
expense and foreign currency translation gains and losses, decreased
$0.3 million for the three-month period ended January 2, 2000 compared to the
corresponding period in the prior fiscal year due to lower interest expense and
a foreign currency gain in the first quarter of fiscal 2000 compared to a
foreign currency loss in the first quarter of fiscal 1999.
15
<PAGE>
INCOME TAXES:
The Company's effective tax rate as a percentage of pretax income was 37%
for the first three months of fiscal 2000, compared to 38% for the first three
months of fiscal 1999. The Company currently expects the fiscal 2000 effective
tax rate to be between 35% and 40%.
LIQUIDITY AND CAPITAL RESOURCES:
The Company believes its available cash and cash equivalents, cash to be
generated primarily from operations, and its available credit lines, will
provide adequate funds to finance the Company's operations in fiscal 2000. If
necessary, the Company will seek to increase its credit lines to support the
Company's future growth. There can be no assurance that credit lines sufficient
to satisfy the Company's cash requirements will be available on terms acceptable
to the Company, if at all.
Cash provided by operating activities was $10.6 million in the first quarter
of fiscal 2000. The primary source of cash was provided by operating profits of
$8.1 million, after giving effect to non-cash charges of $12.5 million (net).
Net changes in operating assets and liabilities of $2.5 million increased the
amount of cash provided from operations. The primary changes in operating assets
and liabilities were an increase in accounts receivable of $5.7 million, a
decrease in inventory of $4.3 million, an increase in accounts payable of
$7.7 million and a decrease in other accrued liabilities of $3.4 million.
Cash used in operating activities was $14.0 million in the first quarter of
fiscal 1999. The primary source of cash was the net income from operations of
$3.9 million, which included $6.5 million (net) of non-cash charges. Net changes
in operating assets and liabilities of $24.4 million decreased the amount of
cash provided from operations. The decrease was primarily related to the
$24.0 million increase in accounts receivable due to a decrease in accounts
receivable sold to third party finance companies and, to a lesser degree,
increased sales and slower collections in the period.
Cash of $4.1 million was used for investing activities in the first quarter
of fiscal 2000. This activity consisted primarily of $1.4 million, $2.1 million
and $0.6 million for capital equipment expenditures, capitalized software
expenditures and an increase in other assets and intangibles, respectively. Cash
of $5.8 million was used for investing activities in the first quarter of fiscal
1999, principally for capital equipment expenditures and capitalized software
expenditures partially offset by a decrease in other assets and intangibles.
Financing activities used $8.6 million of cash in the first quarter of
fiscal 2000. This was attributable to $8.9 million of decreased borrowings,
$0.3 million payment of capital lease obligations and $0.6 million of proceeds
from common stock issued to employees under the Company's employee stock
purchase and option plans. Financing activities provided $16.5 million of cash
in the first quarter of fiscal 1999. This was attributable to $14.9 million of
increased borrowings and $1.6 million of proceeds from common stock issued to
employees under the Company's employee stock purchase and option plans.
As of January 2, 2000 the Company had a $75.0 million revolving credit
facility with a bank syndicate. The credit facility offers borrowings in either
U.S. dollars or in foreign currencies and expires on March 29, 2002. The Company
pays commitment fees and interest on its borrowings based on its debt level in
relation to its cash flow. Commitment fees range from 0.25% to 0.75% of unused
commitment, and interest rates are based on the banks' prime rate or Libor plus
rates ranging from 1.0% to 2.5%. At January 2, 2000, the Company had
$32.0 million available for borrowing under this facility. Due to the settlement
of litigation and related charges, the results of the Company's operations in
the first quarter of fiscal 2000 caused the Company to be out of compliance with
it's financial covenants in the facility. The banks waived this default for the
first fiscal quarter of 2000. On January 28, 2000, the Company and the bank
syndicate signed an amendment increasing the credit facility from $75.0 million
to $85.0 million and modifying the financial covenants to be more reflective of
the Company's recent financial performance. The Company is in compliance with
these modified covenants in the first quarter of fiscal 2000.
16
<PAGE>
The Company's liquidity is affected by many factors, some based on the
normal ongoing operations of the business and others related to the
uncertainties of the industry and global economies. Although the Company's cash
requirements will fluctuate based on the timing and extent of these factors,
management believes that cash generated from operations, together with the
liquidity provided by existing cash balances and borrowing capability, will be
sufficient to satisfy commitments for capital expenditures and other cash
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 changing 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.
BUSINESS CONSIDERATIONS
From time to time, the Company may disclose, through press releases, filings
with the SEC or otherwise, certain matters that constitute forward looking
statements within the meaning of the Federal securities laws. These statements,
including the forward looking statements contained in this Form 10-Q, are
subject to a number of risks and uncertainties, which could cause actual results
to differ materially from those projected, including without limitation those
set forth below. These forward looking statements include statements concerning
the Company's future bookings, revenue, expenses and earnings, the establishment
of additional reserves and the taking of non-ordinary charges. Factors that
could cause actual results to differ materially from those contained in such
forward-looking statements include, but are not limited to, the existence of
significant competition in each of the business segments in which the Company
conducts business; the Company's dependence on successfully developing,
introducing and commercializing new products and developing enhancements to
existing products; the collectibility of the Company's receivables, changes to
the Company's operating structure and charges and dislocations that may result
therefrom; the impact of international economic conditions on the Company's
business; and a number of factors that can introduce variability in the
Company's operating results, including the timing of product orders, shipments,
and installations. Further information on these and other factors is found
below. All forward-looking statements are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update such
statements.
LITIGATION
Commencing in December 1998, a total of eleven class action lawsuits were
filed in federal court by or on behalf of stockholders who purchased Company
stock between January 10, 1996 and December 28, 1998. These actions named as
defendants the Company and certain of its present and former officers and
directors. The complaints alleged various violations of the federal securities
laws in connection with the restatement of the Company's financial statements
and sought unspecified but potentially significant damages. In April 1999, these
actions were ordered consolidated and, in July 1999, the plaintiffs filed a
consolidated amended complaint. A stockholder derivative action, purportedly on
behalf of the Company and naming as defendants Company officers and directors
was also filed in state court seeking recovery for the Company based on stock
sales by these defendants during the above time period.
On January 13, 2000, ADAC reached agreements-in-principle to settle these
actions. Pursuant to these settlements, the plaintiff class will receive
$20 million in full settlement of their claims. Final settlements are contingent
upon the satisfaction of numerous conditions, including among others, approvals
by the Federal Court in the Northern District of California. On February 9, 2000
the agreements in principle were approved by the Board of Directors subject to
the finalization of remaining contingencies by an appointed member. As a result
of having reached these agreements, the Company recorded a non-ordinary pre-tax
charge of $10.3 million in the first quarter of fiscal 2000, representing its
total costs for the settlements after contribution by the insurance company,
including $1.3 million for the related legal fees to bring these matters to a
conclusion.
17
<PAGE>
The Company has been informed that the United States Securities and Exchange
Commission (SEC) has issued a Formal Order of Private Investigation in
connection with matters relating to the Company's previously announced
restatement of its financial results for 1996, 1997 and the first three quarters
of 1998. The Company is continuing to cooperate with the SEC. The Company is
unable to predict the outcome of the investigation at this time.
The Company is also a defendant in various legal proceedings incidental to
its business. Management is of the opinion that any liability resulting from
these claims would not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
COMPETITION
The markets served by the Company 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. Some of the Company's
competitors 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 marketed by
the Company or that could render the Company's products obsolete or
noncompetitive, which could have a material adverse effect on the Company's
business.
SOUTH AMERICAN OPERATIONS
A significant number of the Company's customers in its principal South
American markets of Brazil, Argentina and Colombia are delinquent in making
periodic payments due under the terms of sales previously made to them, many of
which were supported by third-party financing arrangements that involve full or
partial recourse to the Company. Deteriorating economic conditions and currency
devaluations occurring primarily during fiscal 1999, and ineffective monitoring
of delinquencies and collection efforts by the Company, may have all contributed
to delays in the collection of accounts receivable from customers in these
markets. During fiscal 1999 the Company renewed collection efforts and completed
an evaluation of each receivable balance and recourse obligation to determine
the level of reserves required for these customers. As a result of this
evaluation, the Company revised its estimate of the recoverability of its South
American receivables and recourse obligations during fiscal 1999 and provided
additional reserves of $8.9 million. As of January 2, 2000 the Company had net
South American receivables of $1.6 million and recourse contingencies of
$1.2 million.
GOVERNMENT REGULATION
The design, clinical activities, manufacturing, labeling, distribution,
sale, marketing, advertising and promotion of the Company's products are subject
to extensive and rigorous governmental regulation in the United States and
foreign countries. In the United States and certain foreign countries, the
process of obtaining and maintaining required regulatory clearances or approvals
is lengthy, expensive and uncertain. There can be no assurance that any
necessary clearance or approval will be granted to the Company or that FDA or
other regulatory agency review will not involve delays adversely affecting the
Company. In addition, a failure to comply with applicable regulatory
requirements could result in enforcement actions including Warning Letters, as
well as civil penalties, injunctions, suspensions or losses of regulatory
clearances, product recalls, seizure or administrative detention of products,
operating restrictions through consent decrees or otherwise, and criminal
prosecution, which could have a material adverse effect upon the Company.
In mid-1998, the State of California, under a contract with the FDA,
completed a routine inspection of ADAC's facility in Milpitas, California. The
state investigator issued a FDA Form 483 containing observations of
non-compliance of the recently implemented QSR. The state investigator also
placed a temporary shipment hold on Pinnacle(3) pending the Company
satisfactorily responding to the State's
18
<PAGE>
concerns regarding the Company's quality systems. The Company promptly responded
to the FDA and the State and initiated a number of corrective actions. The State
lifted the Pinnacle(3) shipment hold on August 28, 1998 and, in September 1998,
ADAC received a letter from the FDA indicating that the Company had adequately
responded to the FDA's concerns. Although the Company was deemed to have
adequately responded to the State and FDA following the foregoing inspections,
the Company is responsible for the full implementation of all corrective
actions. In addition, as all companies are, the Company remains subject to
periodic inspections in the future and there can be no assurance as to the
timing or outcome of any subsequent inspection. The scope of any re-inspection
could be more comprehensive than the inspection of the Company's Milpitas
facility, and there can be no assurance that the FDA, upon re-inspection, will
deem the Company's corrective actions to be adequate or that additional
corrective action, in areas not addressed in the Form 483, will not be required.
Any failure by the Company to fully implement the required corrective actions or
to comply with any other applicable regulatory requirements could have a
material adverse effect on the Company's ability to continue to manufacture and
distribute its products, and in more serious cases, could result in seizure,
recall, injunction and/or civil fines. Any of the foregoing, would have a
material adverse effect on the Company.
The Company is also subject to FTC restrictions on advertising and numerous
federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection and disposal of
hazardous substances. Changes in existing requirements, adoption of new
requirements or failure to comply with applicable requirements could have a
material adverse effect on the Company.
DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS
ADAC's success is dependent upon the successful development, introduction
and commercialization of new products and the development of enhancements to
existing products. Because the markets in which the Company competes are highly
competitive, the Company must continue to develop and successfully commercialize
innovative new products and product enhancements such as Forte, Skylite and
ENVOI in order to pursue its growth strategy. The development of new products
and product enhancements entails considerable time and expense, including
research and development costs, and the time, expense and uncertainty involved
in obtaining any necessary regulatory clearances. Failure of the Company to
develop, market and sell new products and enhancements effectively in future
periods could have a material adverse effect on the Company's results of
operations and financial condition.
FUTURE OPERATING RESULTS
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 uncertain. The timing of revenues can be affected by delays in product
introductions, shipments and installation scheduling, 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, which is
typical for the industry. Accordingly, results for a given quarter can be
adversely affected if there is a substantial order shortfall late in that
quarter. In addition, the Company's bookings and backlog cannot necessarily be
relied upon as an accurate predictor of future revenues as the timing of such
revenues is dependent upon completion of customer site preparation and
construction, installation scheduling, receipt of applicable regulatory
approvals, customer financing and other factors. Accordingly, there can be no
assurance that orders will mature into revenue. The Company has accounts
receivable due from customers in Latin America. Recent changes in economic
conditions in that region, including the devaluation of Brazilian currency, may
adversely affect the Company's ability to collect these accounts receivable. If
the Company were unable to collect a substantial majority of these accounts
receivable, the Company's results of operations for a quarterly period could be
adversely affected.
19
<PAGE>
MATERIAL WEAKNESSES IN INTERNAL CONTROLS
After completion of their audit of the results of the Company's 1998 fiscal
year, the Company's independent accountants reported to the Company's audit
committee that they had found material weaknesses in the Company's internal
accounting controls. Following receipt of this report, the Company retained a
nationally recognized accounting firm other than its independent auditors to
review its controls. The Company has further engaged this firm to recommend to
the Company suggested improvements in these controls and to assist the Company
in implementing them.
The Company believes that it has already taken steps to remedy certain
weaknesses in its control functions, and that improvements already in place,
coupled with the continuous improvements the Company is making, should
substantially improve the timeliness and accuracy of the Company's internal
financial reporting and monitoring functions.
RISKS RELATED TO ACQUISITIONS
In the past two years, the Company has acquired a number of businesses, and
anticipates that it may continue to acquire businesses whose products and
services complement the Company's businesses. Acquisitions involve numerous
risks, including, among other things, difficulties in successfully integrating
the businesses (including products and services, as well as sales and marketing
efforts), failure to retain existing customers or attract new customers to the
acquired business operations, failure to retain key technical and management
personnel, coordinating geographically separated organizations, and diversion of
ADAC management attention. These risks, as well as liabilities of any acquired
business (whether known or unknown at the time of acquisition), could have a
material adverse effect on the results of operations and financial condition of
the Company, including adverse short-term effects on its reported operating
results. The Company seeks to mitigate these risks by taking reserves when
appropriate in connection with these acquisitions. In addition, the Company has
in the past and may in the future issue stock as consideration for acquisitions.
Future sales of shares of the Company's stock issued in such acquisitions could
adversely affect or cause fluctuations in the market price of the Company's
Common Stock.
YEAR 2000 COMPLIANCE
The following statements constitute "Year 2000 Readiness Disclosure" within
the meaning of the Year 2000 Information and Readiness Disclosure Act. Many
currently installed computer systems and software products were coded to accept
only 2 digit entries in the date code field. Beginning in the Year 2000, these
date code fields needed to accept 4 digit entries to distinguish 21st century
dates from 20th century dates. Systems that did not properly recognize such
information could have generated erroneous data or caused a system to fail. As a
result, computer systems and/or software used by many companies needed to be
upgraded to comply with such Year 2000 requirements. The Company utilized both
internal and external resources to identify, correct or reprogram, and test its
internal systems, for Year 2000 compliance. The Company believes such compliance
did not have a material adverse effect on the Company's results of operations or
financial condition.
The Company completed an assessment and analysis of its internal information
technology systems, software and manufacturing equipment. The Company
implemented the system changes needed to correct its internal Year 2000 issues.
While the Company currently believes that the Year 2000 did not pose significant
internal operational problems, issues could still arise due to fiscal 2000 leap
year or other dates not already identified. Failure by the Company to fully
identify all Year 2000 dependencies in the Company's systems, could have a
material adverse effect on the Company's results of operations.
The Company established a program to assess its products to ensure that they
are Year 2000 compliant. To monitor this program and to inform customers about
the Year 2000 issues with respect to its
20
<PAGE>
products, the Company created a website at
www.adaclabs.com/about/year20001.html. This website identified the status of
Year 2000 compatibility of its products, including products that are Year 2000
compliant, products that needed software updates, products that required
hardware upgrades, and products that could not be made Year 2000 compliant. This
list was periodically updated as analysis of additional products is completed
and is still available.
The Company sold, or provided under warranty or service contracts, software
license upgrades to update the majority of its installed base to make the
products Year 2000 compliant, and completed development of such upgrades in
1999. For older equipment which the Company no longer manufactures, the Company
sold hardware upgrades to its customers which addressed the Year 2000 compliance
where possible. Where possible the Company contacted by mail customers which
required computer hardware upgrades, and also posted information relating to
Year 2000 compliance for its products on the Company's website as described
above.
The Company gathered information from its suppliers and vendors to determine
the extent to which the Company's capabilities were vulnerable to failure by
those third parties to remedy their own Year 2000 issues. The Company received
responses to some of those inquiries and analyzed the information that was made
available. The Company proceeded with further analysis or testing of its
vendors' systems as needed. Although the Company has not experienced any
significant delays due to Year 2000 issues, there is no guarantee that the
systems and products of other companies on which the Company relies were timely
converted or that they will not have a material adverse effect on the Company in
the months to come.
The Company has incurred Year 2000 costs of approximately $1.2 million.
These cost estimates do not include any potential costs related to any customer
or other claim. In addition, these cost estimates are based on current
assessments of the activities described above, and are subject to changes as the
Company continues to monitor these activities. The Company believes any
modifications deemed necessary were made on a timely basis and does not believe
that the costs of such modifications had a material adverse effect on the
Company's operating results.
HEALTH CARE REFORM; REIMBURSEMENT AND PRICING PRESSURE
There is significant concern today about the availability and rising cost of
healthcare in the United States. Cost containment initiatives, market pressures
and proposed changes in applicable laws and regulations may have a dramatic
effect on pricing or potential demand for medical devices, the relative costs
associated with doing business and the amount of reimbursement by both
government and third party payors, which could have a material adverse effect on
the Company's results of operations.
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part on its continued ability to obtain
patents, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. There can be no assurance that pending
patent applications will mature into issued patents or that third parties will
not make claims of infringement against the Company's products or technologies
or will not be issued patents that may require payment of license fees by the
Company or prevent the sale of certain products by the Company.
RELIANCE ON SUPPLIERS
Certain components used by the Company to manufacture its products such as
the sodium iodide crystals used in the Company's nuclear medicine systems are
presently available from only one supplier. The Company also relies on several
significant vendors for hardware and software components for its healthcare
information systems products. The loss of any of these suppliers, including any
single-source supplier, would require obtaining one or more replacement
suppliers as well as potentially requiring a significant level of hardware and
software development to incorporate the new parts into the Company's
21
<PAGE>
products. Although the Company has obtained insurance to protect against loss
due to business interruption from these and other sources, there can be no
assurance that such coverage would be adequate.
PRODUCT LIABILITY
Although the Company maintains product liability insurance coverage in an
amount that it deems sufficient for its business, there can be no assurance that
such coverage will ultimately prove to be adequate or that such coverage will
continue to remain available on acceptable terms, if at all.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is and is expected to
continue to be subject to significant fluctuations in response to variations in
anticipated or actual operating results, market speculation, announcements of
new products or technology 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.
MARKET RISK
The Company's market risk disclosures set forth in the 1999 Annual Report to
Shareholders have not changed significantly.
22
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 7 "Litigation" of Notes to Condensed Consolidated Financial
Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Note 6 "Credit and Borrowing Arrangements" of Notes to Condensed
Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<C> <S>
10.28 Second Amendment to Amended and Restated Credit Agreement
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
On January 13, 2000, the Company filed a Form 8-K with respect to the
issuance by the Company of a press release announcing that the Company had
reached agreements in principle to settle certain class action and related
derivative litigation involving the Company. See Note 7 "Litigation" of Notes to
Condensed Consolidated Financial Statements.
23
<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.
<TABLE>
<S> <C> <C>
Date: February 16, 2000 ADAC LABORATORIES
(REGISTRANT)
By: /s/ NEIL J. LAIRD
-----------------------------------------
Neil J. Laird
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
</TABLE>
24
<PAGE>
EXECUTION VERSION
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"AMENDMENT"), dated as of January 28, 2000, is entered into by and among:
(1) ADAC LABORATORIES, a California corporation
("BORROWER");
(2) Each of the financial institutions listed in SCHEDULE I
TO THE CREDIT AGREEMENT referred to in RECITAL A below (such
financial institutions to be referred to herein collectively as the
"EXISTING LENDERS");
(3) ABN AMRO BANK N.V., a Netherlands public company acting
through its San Francisco Representative Office, as agent for the
Lenders (as defined below) (in such capacity, "AGENT"); and
(4) COMERICA BANK - CALIFORNIA, a California banking
corporation, that will become a party to the Credit Agreement
pursuant to this Amendment (the "NEW LENDER", and together with the
Existing Lenders, the "Lenders").
RECITALS
A. Borrower, the Existing Lenders and Agent are parties to an
Amended and Restated Credit Agreement dated as of March 29, 1999, as amended
by that certain First Amendment to Credit Agreement dated as of August 17,
1999 (as amended, the "CREDIT AGREEMENT"). Pursuant to the Credit Agreement,
the Existing Lenders have agreed to provide to Borrower certain credit
facilities with a Total Commitment of $75,000,000.
B. Borrower has requested the Existing Lenders and Agent to amend
the Credit Agreement in certain respects and increase the Total Commitment to
$85,000,000.
C. In order to facilitate the increase of the Total Commitment to
$85,000,000, Borrower has requested that the New Lender become a party to the
Credit Agreement.
D. The New Lender is willing to become a party to the Credit
Agreement, and the New Lender, the Existing Lenders and Agent are willing to
so amend the Credit Agreement upon the terms and subject to the conditions
set forth below.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Existing Lenders, the New Lender and Agent hereby
agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above
and elsewhere in this Amendment shall be used herein as so defined. Unless
otherwise defined herein, all other capitalized terms used herein shall have
the respective meanings given to those terms in the Credit Agreement, as
amended by this Amendment. The rules of construction set forth in SECTION I
OF THE CREDIT AGREEMENT shall, to the extent not inconsistent with the terms
of this Amendment, apply to this Amendment and are hereby incorporated by
reference.
2. ALLOCATION OF OUTSTANDING LOANS AMONG THE EXISTING LENDERS AND
THE NEW LENDER. Subject to the satisfaction of the conditions set forth in
PARAGRAPH 5 below, Borrower, the Existing Lenders, the New Lender and Agent
hereby agree that on and after the Second Amendment Effective Date (as
defined below), each Existing Lender and the New Lender shall be a Lender
under the Credit Agreement and the other Credit Documents with Proportionate
Shares as set forth on SCHEDULE I OF THE CREDIT AGREEMENT (as amended
pursuant to this Amendment), with the rights, duties and obligations of such
a Lender under the Credit Agreement and the other Credit Documents. To
effectuate the foregoing, on the Second Amendment Effective Date Agent shall
calculate the Proportionate Share of each Existing Lender and the New Lender
in each Borrowing then outstanding. Based upon such calculation, the New
Lender shall purchase from the Existing Lenders such shares in the
outstanding Loans as Agent determines is necessary to cause each Existing
Lender and the New Lender to hold Loans in each outstanding Borrowing in a
principal amount equal to such Existing Lender's and such New Lender's
Proportionate Share of such Borrowings.
3. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of
the conditions set forth in PARAGRAPH 5 below, the Credit Agreement is hereby
amended as follows:
(a) PARAGRAPH 1.01 is hereby amended by adding thereto, in
appropriate alphabetical order, definitions of the terms "Litigation
Settlement Payment" and "Litigation Settlement Payment Non-Recurring
Charge" to read in their entirety as follows:
"LITIGATION SETTLEMENT PAYMENT" shall mean an
amount (including related legal fees), not to exceed
Fifteen Million Dollars ($15,000,000),to be paid by
Borrower as a result of its settlement of various lawsuits
with certain of its shareholders, including without
limitation "In re ADAC Laboratories Securities Litigation,
Master File No. C-98-4934-MHP" and Civil Action CV779262,
pending in the County of Santa Clara, California.
"LITIGATION SETTLEMENT PAYMENT NON-RECURRING
CHARGE" shall mean (without duplication of amounts
previously charged in connection with the 1999 Litigation
Reserve) the non-recurring charge, not to exceed
$15,000,000 (pre-tax)
2
<PAGE>
in the aggregate, to be taken by Borrower during its fiscal
year 2000 as a result of its payment of the Litigation
Settlement Payment.
(b) PARAGRAPH 1.01 is hereby further amended by changing
the definition of the term "EBITDA" set forth therein to read in
its entirety as follows:
"EBITDA" shall mean, with respect to Borrower and
its Subsidiaries for any period, the sum of the following,
determined on a consolidated basis in accordance with GAAP:
(a) The net income of Borrower and its
Subsidiaries for such period before provision for
income taxes;
PLUS
(b) The sum (to the extent deducted in
calculating such net Income for such period under
CLAUSE (a) above) of (i) all Interest Expenses of
Borrower and its Subsidiaries accrued during such
period and (ii) all depreciation and amortization
expenses of Borrower and its Subsidiaries accrued
during such period;
PLUS
(c) To the extent deducted in calculating
such net income for such period under CLAUSE (a)
above, (i) all Acquisition In-Process R&D Charges
taken by Borrower and its Subsidiaries during such
period, (ii) all 1999 Non-Recurring and
Non-Ordinary Charges taken by Borrower and its
Subsidiaries during such period, (iii) all
Capitalized Spare Parts 1999 Non-Ordinary Charges
taken by Borrower and its Subsidiaries during such
period; (iv) all Latin American Notes 1999
Non-Ordinary Charges taken by Borrower and its
Subsidiaries during such period and (v) all
Litigation Settlement Payment Non-Recurring
Charges taken by Borrower and its Subsidiaries
during such period.
(c) PARAGRAPH 1.01 is hereby further amended by changing
the definition of the term "Total Commitment" set forth therein to
read in its entirety as follows:
"TOTAL COMMITMENT" shall mean, at any time, Eighty
Five Million Dollars ($85,000,000) or, if such amount is
reduced pursuant to SUBPARAGRAPH 2.02(a), the amount to
which so reduced and in effect at such time.
(d) SUBPARAGRAPH 5.02(a) is hereby amended by changing
CLAUSE (iv) thereof to read in its entirety as follows:
(iv) Indebtedness of Borrower and its Subsidiaries
under Rate Contracts, provided that (A) all such
arrangements are entered into in connection with bona fide
hedging operations and not for speculation and (B) the
aggregate
3
<PAGE>
net amount owed by Borrower and its Subsidiaries under, on
account of or otherwise in connection with such Rate
Contracts does not exceed $10,000,000 (marked to market) at
any time;
(e) SUBPARAGRAPH 5.03(b) is hereby amended by changing the
INTRODUCTORY CLAUSE thereof to read in its entirety as follows:
(b) TANGIBLE NET WORTH. Borrower shall not permit
the sum of (1) Tangible Net Worth of Borrower and its
Subsidiaries on the last day of any fiscal quarter (any
such date to be referred to herein as a "determination
date") which occurs on or after July 4, 1999 (such date to
be referred to herein as the "base date") PLUS (2) the
after tax amount (if any) of the Capitalized Spare Parts
1999 Non-Ordinary Charges, the Latin American Notes 1999
Non-Ordinary Charges and the Litigation Settlement Payment
Non-Recurring Charges of Borrower and its Subsidiaries (as
applicable) for each quarter after the base date through
and including the quarter ending immediately prior to the
determination date, to be less than the sum on such
determination date of the following:
(f) SUBPARAGRAPH 5.03(c) is hereby amended to read in its
entirety as follows:
(c) DEBT/EBITDA RATIO. Borrower shall not
permit the Debt/EBITDA Ratio of Borrower and its
Subsidiaries to be greater than the ratios set
forth below as of the end of the four fiscal
quarter periods set forth below:
Four fiscal quarter period ending on each
of the last day of the third fiscal
quarter in 1999, and the fourth fiscal
quarter in 1999 3.00 to 1.00
Four fiscal quarter period ending on the
last day of the first fiscal quarter in
2000 3.25 to 1.00
Four fiscal quarter period ending on the
last day of the second fiscal quarter in
2000 3.00 to 1.00
Four fiscal quarter period ending on the
last day of the third fiscal quarter in
2000 and the date day of each fiscal
quarter thereafter 2.50 to 1.00;
PROVIDED, HOWEVER, that for every four fiscal
quarter period ending on the last day of a fiscal
quarter occurring after the date Agent and the
Lenders release their security interest in the
Collateral securing the Secured
4
<PAGE>
Obligations pursuant to SUBPARAGRAPH 2.12(e),
Borrower shall not permit the Debt/EBITDA Ratio of
Borrower and its Subsidiaries to be greater than
2.00 to 1.00.
(g) SUBPARAGRAPH 5.03(d) is hereby amended to read in its
entirety as follows:
(d) PROFITABILITY. Borrower shall not
permit the consolidated net income of Borrower and
its Subsidiaries (i) for the third fiscal quarter
in 1999 to be a loss in excess of $9,000,000, (ii)
for the fourth fiscal quarter in 1999 to be less
than $1.00 and (iii) for any other fiscal quarter
to be less than $1.00. In calculating the
consolidated net income of Borrower and its
Subsidiaries for the third fiscal quarter in 1999,
an amount equal to the after-tax sum of any Latin
American Notes 1999 Non-Ordinary Charges taken by
Borrower during such fiscal quarter shall be
ignored. In addition, in calculating the
consolidated net income of Borrower and its
Subsidiaries for the fourth fiscal quarter in
1999, an amount equal to the sum of the 1999
Litigation Reserve, the after-tax sum of any
Capitalized Spare Parts 1999 Non-Ordinary Charges
and the Latin American Notes 1999 Non-Ordinary
Charges taken by Borrower during such fiscal
quarter shall be ignored. Moreover, in calculating
the consolidated net income of Borrower and its
Subsidiaries for the fiscal quarter in 2000 in
which Borrower records the Litigation Settlement
Payment Non-Recurring Charge, an amount equal to
the after-tax sum of any Litigation Settlement
Payment Non-Recurring Charge taken by Borrower
during such fiscal quarter shall be ignored.
Finally, in calculating the consolidated net
income of Borrower and its Subsidiaries for any
quarter for the purposes of this subparagraph, an
amount equal to the after-tax sum of any
Acquisition In-Process R&D Charges taken by
Borrower during such fiscal quarter shall be
ignored.
(h) SCHEDULE I which sets forth the Proportionate Share of
each Lender is hereby amended to read in its entirety as set forth
on ATTACHMENT A hereto.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Agent, the Existing Lenders and the New Lender that the following
are true and correct on the date of this Amendment and that, after giving
effect to the amendments set forth in PARAGRAPH 3 above, the following will
be true and correct on the Second Amendment Effective Date:
(a) The representations and warranties of Borrower and its
Subsidiaries set forth in PARAGRAPH 4.01 OF THE CREDIT AGREEMENT and
in the other Credit Documents are true and correct in all material
respects;
(b) No Default or Event of Default has occurred and is
continuing; and
(c) Each of the Credit Documents is in full force and
effect.
5
<PAGE>
(Without limiting the scope of the term "Credit Documents," Borrower
expressly acknowledges in making the representations and warranties set forth
in this PARAGRAPH 4 that, on and after the date hereof, such term includes
this Amendment.)
5. SECOND AMENDMENT EFFECTIVE DATE. The addition of the New Lender
as a party to the Credit Agreement effected by PARAGRAPH 2 above and the
amendments effected by PARAGRAPH 3 above shall become effective on January
28, 2000 (the "SECOND AMENDMENT EFFECTIVE DATE"), subject to receipt by the
Existing Lenders, the New Lender and Agent, as applicable, on or prior to the
Second Amendment Effective Date of the following, each in form and substance
satisfactory to the Existing Lenders, the New Lender and Agent and their
respective counsel, as applicable:
(a) This Amendment duly executed by Borrower, each Lender
and Agent;
(b) An Amended and Restated Note, dated the Closing Date
and otherwise appropriately completed, made payable to the New
Lender, in the amount of the New Lender's Proportionate Share as of
the Second Amendment Effective Date;
(c) A letter in the form of ATTACHMENT B hereto
appropriately completed and duly executed by each Guarantor;
(d) A Certificate of the Secretary of Borrower, dated the
Second Amendment Effective Date, certifying that (i) the Articles of
Incorporation and Bylaws of Borrower, in the form delivered to Agent
on the Closing Date, are in full force and effect and have not been
amended, supplemented, revoked or repealed since such date and (ii)
that attached thereto are true and correct copies of resolutions
duly adopted by the Board of Directors of Borrower and continuing in
effect, which authorize the execution, delivery and performance by
Borrower of this Amendment and the consummation of the transactions
contemplated hereby, including without limitation, the increase in
the Total Commitment;
(e) A Certificate of the Secretary of each Domestic
Subsidiary, dated the Second Amendment Effective Date, certifying
that (i) the Articles of Incorporation and Bylaws of such Domestic
Subsidiary, in the form delivered to Agent on the Closing Date or
the First Amendment Effective Date (as applicable), are in full
force and effect and have not been amended, supplemented, revoked or
repealed since such date and (ii) that attached thereto are true and
correct copies of resolutions duly adopted by the Board of Directors
of such Domestic Subsidiary and continuing in effect, which
authorize the execution, delivery and performance by such Domestic
Subsidiary of the Credit Documents executed or to be executed by
such Subsidiary in connection with this Amendment and the
consummation of the transactions contemplated hereby and thereby;
(f) A favorable written opinion of legal counsel for
Borrower and the Domestic Subsidiaries, dated the Second Amendment
Effective Date, addressed to Agent for the benefit of Agent, the
Existing Lenders and the New Lender, covering such legal
6
<PAGE>
matters as Agent may reasonably request and otherwise in form and
substance satisfactory to Agent; and
(g) Such other evidence as Agent, any Existing Lender or
the New Lender may reasonably request to establish the accuracy and
completeness of the representations and warranties and the
compliance with the terms and conditions contained in this Amendment
and the other Credit Documents.
6. EFFECT OF THIS AMENDMENT. On and after the Second Amendment
Effective Date, each reference in the Credit Agreement and the other Credit
Documents to the Credit Agreement shall mean the Credit Agreement as amended
hereby. Except as specifically amended above, (a) the Credit Agreement and
the other Credit Documents shall remain in full force and effect and are
hereby ratified and confirmed and (b) the execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power, or remedy of the Lenders or
Agent, nor constitute a waiver of any provision of the Credit Agreement or
any other Credit Document.
7. MISCELLANEOUS.
(a) COUNTERPARTS. This Amendment may be executed in any
number of identical counterparts, any set of which signed by all the
parties hereto shall be deemed to constitute a complete, executed
original for all purposes.
(b) HEADINGS. Headings in this Amendment are for
convenience of reference only and are not part of the substance
hereof.
(c) GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of California
without reference to conflicts of law rules.
7
<PAGE>
IN WITNESS WHEREOF, Borrower, Agent, the Existing Lenders and the
New Lender have caused this Amendment to be executed as of the day and year
first above written.
BORROWER: ADAC LABORATORIES
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
AGENT: ABN AMRO BANK N.V.
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
EXISTING LENDERS: ABN AMRO BANK N.V.
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
SANWA BANK CALIFORNIA
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
8
<PAGE>
BANQUE NATIONALE DE PARIS
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
WELLS FARGO BANK, N.A.
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
NEW LENDER: COMERICA BANK - CALIFORNIA
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
9
<PAGE>
ATTACHMENT A
LENDERS
LENDER PROPORTIONATE
SHARE*
ABN AMRO BANK N.V. 29.41176471%
APPLICABLE LENDING OFFICE:
ABN AMRO Bank N.V.
San Francisco Representative Office
101 California Street, Suite 4550
San Francisco, CA 94111-5812
ADDRESS FOR NOTICES:
CREDIT ADMINISTRATION:
ABN AMRO Bank N.V.
208 S. LaSalle Street, Suite 1500
Chicago, IL 60604-1003
Attn: Joseph Coriaci
Credit Administration
Telephone: (312) 992-5118
Fax No.: (312) 992-5111
With a copy to:
ABN AMRO Bank N.V.
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Dianne Barkley
Vice President
Telephone: (415) 984-3706
Fax No: (415) 362-3524
A-1
<PAGE>
NOTICES OF BORROWING, ETC.:
ABN AMRO Bank N.V.
Capital Markets Syndication Group
1235 Avenue of the Americas, 9th Floor
New York, NY 10019
Attn: Linda Boardman
Telephone: (212) 314-1724
Fax No: (212) 314-1709
WIRING INSTRUCTIONS:
ABN AMRO Bank N.V.
ABA #: 026009580
F/O ABN AMRO Bank N.V.
Chicago Branch CPU
Account #: 650-001-1789-41
Reference: Adac Laboratories
* To be expressed as a percentage rounded to the eighth digit to the
right of the decimal point.
A-2
<PAGE>
LENDER PROPORTIONATE
SHARE*
SANWA BANK CALIFORNIA 21.17647059%
Applicable Lending Office:
San Jose CBC
220 Almaden Boulevard
San Jose, CA 95113-2003
Address for notices:
220 Almaden Boulevard
San Jose, CA 95113-2003
Attn: James Rosewater
Telephone No: (408) 297-6500
Telecopier No: (408) 292-4092
Wiring Instructions:
Sanwa Bank California
220 Almaden Boulevard
San Jose, CA 95113
ABA No. 122003516
Account No: 1129-92463
Reference: Commercial Loan No. 00-0491250-5
For Further Credit To: ADAC Laboratories
* To be expressed as a percentage rounded to the eighth digit to the
right of the decimal point.
A-3
<PAGE>
LENDER PROPORTIONATE
SHARE*
BANQUE NATIONALE DE PARIS 12.94117647%
Applicable Lending Office:
Banque National de Paris,
San Francisco Branch
180 Montgomery Street, 3rd Floor
San Francisco, CA 94104
Address for Notice:
180 Montgomery Street, 3rd Floor
San Francisco, CA 94104
Attention: Debra Wright, Vice President
Telephone: (415) 956-0707
Telecopier: (415) 296-8954
Telex: RCA 278900 (Answerback: BNPs UR)
Wiring Instructions
Federal Reserve Bank of San Francisco
San Francisco, California
ABA Number: 121027234
Account Name: Banque Nationale de Paris, San Francisco Branch
Reference: ADAC Laboratories
* To be expressed as a percentage rounded to the eighth digit to the
right of the decimal point.
A-4
<PAGE>
LENDER PROPORTIONATE
SHARE*
UNION BANK OF CALIFORNIA, N.A. 12.94117647%
Applicable Lending Office:
Union Bank of California, N.A.
350 California Street
San Francisco, CA 94104
Address for Notice: CC: NOTIFICATION
Union Bank of California, N.A. Allan Miner
Northern California Commercial Banking 99 Almaden Blvd.
Division Suite 200
350 California Street, 10th Floor San Jose, CA 95113
San Francisco, CA 94104 Tel.: 408/279-7742
Attention: Jim Goudy Fax: 408/280-7163
Telephone: (415) 705-7165
Telecopier: (415) 705-7111
Wiring Instructions:
Union Bank of California, N.A.
1980 Saturn Street
Monterey Park, CA 91755
ABA Number: 122-000-496
Account Number: 070-196431
Account Name: Wire Transfer Clearing
Attention: Commercial Loan Operations
Reference: ADAC Laboratories
(include any additional information needed to process
transaction)
* To be expressed as a percentage rounded to the eighth digit to the
right of the decimal point.
A-5
<PAGE>
LENDER PROPORTIONATE
SHARE*
WELLS FARGO BANK, N.A. 11.76470588%
Applicable Lending Office:
Wells Fargo Bank, N.A.
121 Park Center Plaza, Third Floor
San Jose, CA 95113
Address for Notice:
Wells Fargo Bank, N.A.
Commercial Banking Loan Center
201 Third Street, 8th Floor
San Francisco, CA 94103
Attention: Carol Burke
Telephone: (415) 477-5260
Telecopier: (415) 979-0675
Wiring Instructions:
Wells Fargo Bank, N.A.
San Francisco, CA
ABA Number: 121-000-248
BNF: Member SYN/AC-2712-507201
Reference: ADAC LABORATORIES
* To be expressed as a percentage rounded to the eighth digit to the
right of the decimal point.
A-6
<PAGE>
LENDER PROPORTIONATE
SHARE*
COMERICA BANK-CALIFORNIA 11.76470588%
Applicable Lending Office:
Comerica Bank-California
155 Grand Avenue, Suite 402
Oakland, CA 94612
Address for Notice:
Comerica Bank-California
155 Grand Avenue, Suite 402
Oakland, CA 94612
Attention: Scott Smith
Telephone: (510) 645-2202
Telecopier: (510) 645-2220
Wiring Instructions:
Comerica Bank-California
San Jose, California
ABA Number: 1211-37522
BNF: For credit of CLS Wire Suspense A/C 21585-90010
Reference: ADAC Laboratories
Attention: Scott Smith (510) 645-2202
* To be expressed as a percentage rounded to the eighth digit to the
right of the decimal point.
A-7
<PAGE>
ATTACHMENT B
GUARANTOR CONSENT LETTER
January [A], 2000
TO: ABN AMRO BANK, N.V.,
As Agent for the Lenders under the Credit Agreement referred to below
1. Reference is made to the following:
(a) The Amended and Restated Credit Agreement dated as of
March 29, 1999, as amended by that certain First Amendment to Credit
Agreement dated as of August 17, 1999 (the "CREDIT AGREEMENT") among
ADAC Laboratories ("BORROWER"), the financial institutions which are
from time to time parties thereto (the "LENDERS"), and ABN AMRO
Bank, as agent for the Lenders ("AGENT");
(b) The Amended and Restated Guaranty dated as of March 29,
1999 (the "GUARANTY") executed by each of the undersigned (each a
"GUARANTOR," and collectively, the "GUARANTORS") in favor of the
Lenders and Agent; and
(c) The Second Amendment to Credit Agreement dated as of
January 28, 2000 (the "SECOND AMENDMENT") among Borrower, the
Lenders and Agent.
2. Each Guarantor hereby consents to the Second Amendment including
without limitation the increase of the Total Commitment from $75,000,000 to
$85,000,000. Each Guarantor expressly agrees that such amendment shall in no
way affect or alter the rights, duties, or obligations of Guarantor, the
Lenders or Agent under the Guaranty.
3. From and after the date hereof, the term "Credit Agreement" as
used in the Guaranty shall mean the Credit Agreement, as amended by the
Second Amendment.
4. The Guarantors' consent to the Second Amendment shall not be
construed (i) to have been required by the terms of the Guaranty or any other
document, instrument or agreement relating thereto or (ii) to require the
consent of the Guarantors in connection with any future amendment of the
Credit Agreement or any other Credit Document.
IN WITNESS WHEREOF, each Guarantor has executed this Guarantor
Consent Letter as of the day and year first written above.
ADAC RESEARCH AND MFG., INC.
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
B-1
<PAGE>
ADAC HEALTHCARE INFORMATION
SYSTEMS, INC.
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
ADAC LABORATORIES PACIFIC, INC.
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
ADAC CAPITAL, LLC
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
B-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DATED JANUARY 2, 2000 OF ADAC
LABORATORIES FILED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-01-2000
<PERIOD-START> OCT-04-1999
<PERIOD-END> JAN-02-2000
<CASH> 3,430
<SECURITIES> 0
<RECEIVABLES> 102,872
<ALLOWANCES> 16,686
<INVENTORY> 30,729
<CURRENT-ASSETS> 144,295
<PP&E> 31,161
<DEPRECIATION> 15,699
<TOTAL-ASSETS> 241,585
<CURRENT-LIABILITIES> 134,631
<BONDS> 0
0
0
<COMMON> 155,085
<OTHER-SE> (51,497)
<TOTAL-LIABILITY-AND-EQUITY> 103,588
<SALES> 90,322
<TOTAL-REVENUES> 90,322
<CGS> 58,189
<TOTAL-COSTS> 58,189
<OTHER-EXPENSES> 38,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893
<INCOME-PRETAX> (7,101)
<INCOME-TAX> (2,627)
<INCOME-CONTINUING> (4,474)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,474)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
