<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 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 ______________
COMMISSION FILE NUMBER 0-9428
ADAC LABORATORIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-1725806
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
540 ALDER DRIVE 95035
MILPITAS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(408) 321-9100
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of April 28, 2000 Registrant had 20,649,000 outstanding shares of Common
Stock, no par value.
(This document contains a total of 25 pages)
1
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three-Month and
Six-Month Periods Ended April 2, 2000 and April 4, 1999..........................................3
Condensed Consolidated Balance Sheets at April 2, 2000 and October 3, 1999.......................4
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods
Ended April 2, 2000 and April 4, 1999............................................................5
Notes to Condensed Consolidated Financial Statements.............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............12
Part II. Other Information
Item 1. Legal Proceedings................................................................................24
Item 3. Defaults upon Senior Securities..................................................................24
Item 4. Submission of Matters to a Vote of Security Holders..............................................24
Item 6. Exhibits and Reports on Form 8-K.................................................................24
Signatures.......................................................................................25
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ADAC LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
APRIL 2, APRIL 4, APRIL 2, APRIL 4,
2000 1999 2000 1999
-------- -------- -------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES, NET:
Product....................................................... $ 67,596 $ 63,520 $ 134,277 $ 134,426
Service....................................................... 22,417 23,873 46,058 47,246
--------- -------- ---------- ---------
90,013 87,393 180,335 181,672
--------- -------- ---------- ---------
COST OF REVENUES:
Product....................................................... 41,033 55,697 82,720 94,782
Service....................................................... 16,194 18,250 32,696 34,829
--------- -------- ---------- ---------
57,227 73,947 115,416 129,611
--------- -------- ---------- ---------
GROSS PROFIT ................................................... 32,786 13,446 64,919 52,061
--------- -------- ---------- ---------
OPERATING EXPENSES:
Marketing and sales .......................................... 13,690 17,273 28,243 32,736
Research and development ..................................... 4,468 4,478 9,545 8,844
General and administrative ................................... 7,862 17,753 15,720 26,092
Goodwill amortization ........................................ 513 502 1,026 990
Restructuring charges ........................................ - 800 - 3,300
Settlement of litigation and related charges.................. - - 10,340 -
--------- -------- ---------- ---------
26,533 40,806 64,874 71,962
--------- -------- ---------- ---------
OPERATING INCOME (LOSS)......................................... 6,253 (27,360) 45 (19,901)
--------- -------- ---------- ---------
Interest and other expense, net................................. 1,259 1,741 2,152 2,981
--------- -------- ---------- ---------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES....... 4,994 (29,101) (2,107) (22,882)
Provision (benefit) for income taxes............................ 1,848 (8,310) (779) (5,947)
--------- -------- ---------- ---------
NET INCOME (LOSS)............................................... $ 3,146 $(20,791) $ (1,328) $ (16,935)
========= ======== ========== =========
NET INCOME (LOSS) PER SHARE:
Basic..................................................... $ 0.15 $ (1.02) $ (0.06) $ (0.83)
========= ======== ========== =========
Diluted................................................... $ 0.15 $ (1.02) $ (0.06) $ (0.83)
========= ======== ========== =========
NUMBER OF SHARES USED IN PER SHARE CALCULATION:
Basic..................................................... 20,637 20,456 20,611 20,414
========= ======== ========== =========
Diluted................................................... 21,175 20,456 20,611 20,414
========= ======== ========== =========
</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>
APRIL 2, OCTOBER 3,
2000 1999 (1)
-------------- ---------------
(Unaudited)
(Amounts in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 6,573 $ 5,796
Trade receivables, net of allowance for doubtful accounts of
$16,787 in 2000 and $14,707 in 1999................................. 82,180 80,393
Tax and other receivables.............................................. 2,831 2,265
Inventories, net ...................................................... 25,774 35,076
Prepaid expenses and other current assets ............................. 6,414 5,620
Current deferred income taxes.......................................... 14,523 13,717
-------- --------
TOTAL CURRENT ASSETS................................................. 138,295 142,867
Service parts, net........................................................ 18,599 18,297
Fixed assets, net......................................................... 16,391 15,555
Capitalized software, net of accumulated amortization of
$15,102 in 2000 and $13,167 in 1999.................................... 20,216 17,417
Intangibles, net.......................................................... 39,229 41,024
Deferred income taxes .................................................... 3,210 3,230
Other assets, net......................................................... 1,437 1,272
-------- --------
TOTAL ASSETS......................................................... $237,377 $239,662
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks................................................. $ 41,092 $ 51,961
Accounts payable....................................................... 21,983 13,492
Deferred revenues...................................................... 17,897 17,185
Accrued compensation................................................... 13,426 12,750
Customer deposits and advances......................................... 7,054 6,757
Warranty and installation ............................................. 6,308 5,835
Other accrued liabilities.............................................. 19,119 20,461
-------- --------
TOTAL CURRENT LIABILITIES ........................................... 126,879 128,441
Non-current liabilities................................................... 3,897 3,708
-------- --------
TOTAL LIABILITIES.................................................... 130,776 132,149
-------- --------
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: 20,635 shares
as of April 2, 2000 and 20,542 shares as of October 3, 1999 ...... 155,460 154,275
Accumulated deficit....................................................... (45,214) (43,886)
Accumulated other comprehensive loss ..................................... (3,645) (2,876)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................................ 106,601 107,513
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ $237,377 $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>
APRIL 2, APRIL 4,
2000 1999
---------- -------------
(Amounts in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................... $ (1,328) $(16,935)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization ................................................ 9,398 7,742
Deferred income taxes......................................................... (786) (5,985)
Stock compensation expense.................................................... 524 194
Restructuring charges......................................................... - 3,300
Changes in operating assets and liabilities:
Trade receivables, net........................................................ (2,017) (29,552)
Tax and other receivables..................................................... (778) 433
Inventories, net.............................................................. 9,434 24,261
Prepaid expenses and other current assets..................................... (902) (1,865)
Service parts................................................................. (2,116) (2,959)
Accounts payable.............................................................. 8,463 (2,676)
Deferred revenues............................................................. 1,453 7,014
Accrued compensation.......................................................... 676 2,933
Customer deposits and advances................................................ 297 5,915
Warranty and installation, and other accrued liabilities...................... 473 (515)
Settlement of litigation and related charges.................................. 1,621 --
Other accrued liabilities..................................................... (3,796) (119)
Non-current liabilities....................................................... 920 (231)
-------- --------
Net cash provided by (used in) operating activities................................ 21,536 (9,045)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (3,895) (8,009)
Capitalized software............................................................. (4,734) (5,006)
Other assets and intangibles..................................................... (932) 862
-------- --------
Net cash used in investing activities.............................................. (9,561) (12,153)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under short-term debt arrangements, net.................. (10,870) 15,699
Payments under capital lease agreements ......................................... (734) (96)
Proceeds from issuance of common stock, net...................................... 809 3,410
-------- --------
Net cash (used in) provided by financing activities ............................... (10,795) 19,013
-------- --------
Effect of exchange rate changes on cash............................................ (403) (1,235)
-------- --------
Net change in cash and cash equivalents............................................ 777 (3,420)
Cash and cash equivalents, at beginning of the period.............................. 5,796 4,869
-------- --------
Cash and cash equivalents, at end of the period.................................... $ 6,573 $ 1,449
======== ========
</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 and six-month periods ended April 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 INCOME (LOSS) PER SHARE
Basic net income (loss) 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 and six-month periods ended April 2, 2000 and April 4, 1999
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
APRIL 2, APRIL 4, APRIL 2, APRIL 4,
2000 1999 2000 1999
-------- -------- -------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Basic EPS:
Net income (loss)..................................... $ 3,146 $(20,791) $ (1,328) $(16,935)
Weighted average common shares outstanding ........... 20,637 20,456 20,611 20,414
Basic net income (loss) per share .................... $ 0.15 $ (1.02) $ (0.06) $ (0.83)
Diluted EPS:
Net income (loss) .................................... $ 3,146 $(20,791) $ (1,328) $(16,935)
Weighted average common shares outstanding............ 20,637 20,456 20,611 20,414
Options .............................................. 538 - - -
-------- ---------- --------- ---------
Total shares.......................................... 21,175 20,456 20,611 20,414
======== ========== ========= =========
Diluted net income (loss) per share .................. $ 0.15 $ (1.02) $ (0.06) $ (0.83)
</TABLE>
If the Company had recorded net income in the three-month period ended
April 4, 1999, and the six-month periods ended April 2, 2000 and April 4, 1999,
the total diluted shares would have increased by shares for 290,000, 465,000 and
575,000 options respectively.
6
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INVENTORIES
<TABLE>
<CAPTION>
APRIL 2, OCTOBER 3,
2000 1999
-------------- ------------
(Amounts in thousands)
<S> <C> <C>
Inventories consist of:
Purchased parts and sub-assemblies............................. $ 11,043 $ 7,203
Work-in-process................................................ 4,514 5,518
Finished goods ................................................ 10,217 22,355
--------- --------
$ 25,774 $35,076
========= ========
4. FIXED ASSETS
APRIL 2, OCTOBER 3,
2000 1999
------------- ------------
(Amounts in thousands)
Fixed assets, at cost, consist of:
Production and test equipment.................................. $ 5,237 $ 3,819
Field service equipment........................................ 679 709
Office and demonstration equipment............................. 25,771 23,707
Leasehold improvements......................................... 1,818 1,659
--------- ---------
33,505 29,894
Less accumulated depreciation and amortization................. (17,114) (14,339)
--------- ---------
$ 16,391 $ 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 $0.8 million and
$3.3 million were recorded during the three and six-month periods ended April 4,
1999, respectively, relating to the restructuring of the European and South
American businesses. Amounts of $0.3 million and $0.7 million were charged
against the liability during the three and six-month periods ended April 2,
2000, representing cash payments made. As of April 2, 2000, $1.3 million
remained in the accrual, comprised of $0.8 million for severance expenses, $0.3
million 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 two quarters of fiscal
2000.
6. CREDIT AND BORROWING ARRANGEMENTS
As of April 2, 2000 the Company had an $85.0 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 April 2, 2000, the Company had $43.9
million available for borrowing under this facility. Due to the settlement of
certain securities 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. 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 was in
compliance with these modified covenants in the first and second quarters of
fiscal 2000.
7
<PAGE>
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.
In January 2000, the Company reached an agreement with the plaintiffs to
settle the class action law-suit. The parties to the class action have submitted
a Stipulation of Settlement to the court for preliminary approval. Pursuant to
the class action settlement, the plaintiff class will receive $20 million in
full settlement of their claims. In January, 2000, the Company also reached an
agreement-in-principle to settle the derivative action. Settlement of both of
these actions is contingent upon the satisfaction of numerous conditions,
including among others, final court approval. 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.
During the six months ended April 2, 2000, the Company made cash payments of
$8.7 million against this accrual, consisting of $8.0 million in settlement
costs and $0.7 million in related legal fees. As of April 2, 2000, approximately
$1.6 million remained in the accrual.
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 asset and 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 provision (benefit) for
income taxes for each of the three and six-month periods ended April 2, 2000 and
April 4, 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 26%,
respectively. The effective tax rate for fiscal year 1999 was adjusted in the
second quarter of fiscal 1999 from 38% to 26%, resulting in an effective tax
rate of 29% for that quarter.
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 and six-month periods ended April 2, 2000 and April 4, 1999. Asset
information by reportable segment has not been presented as the Company does not
produce and rely on such information.
<TABLE>
<CAPTION>
(Amounts in thousands) THREE MONTHS ENDED APRIL 2, 2000 SIX MONTHS ENDED APRIL 2, 2000
MS RTP HCIS TOTAL MS RTP HCIS TOTAL
---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues, net:
Product $55,154 $8,495 $3,947 $67,596 $104,703 $19,852 $ 9,722 $134,277
Service 18,395 925 3,097 22,417 37,570 1,766 6,722 46,058
---------------------------------------------- ----------------------------------------------
$73,549 $9,420 $7,044 $90,013 $142,273 $21,618 $16,444 $180,335
============================================== ==============================================
Income (loss) before provision
(benefit) for income taxes $6,042 $240 $(1,288) $4,994 $7,537 $1,662 $(966) $8,233
(Amounts in thousands) THREE MONTHS ENDED APRIL 4, 1999 SIX MONTHS ENDED APRIL 4, 1999
MS RTP HCIS TOTAL MS RTP HCIS TOTAL
---------------------------------------------- ----------------------------------------------
Revenues, net:
Product $50,529 $8,308 $4,683 $63,520 $101,892 $24,645 $ 7,889 $134,426
Service 19,647 508 3,718 23,873 38,308 1,118 7,820 47,246
---------------------------------------------- ----------------------------------------------
$70,176 $8,816 $8,401 $87,393 $140,200 $25,763 $15,709 $181,672
============================================== ==============================================
(Loss) income before (benefit)
provision for income taxes $(10,483) $(536) $(102) $(11,121) $(6,722) $4,633 $(313) $(2,402)
</TABLE>
The following is a reconciliation of total segment income (loss) before
provision (benefit) for income taxes to consolidated income (loss) before
provision (benefit) for income taxes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(Amounts in thousands) APRIL 2, APRIL 4, APRIL 2, APRIL 4,
2000 1999 2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Total segment income (loss) before provision (benefit) for income taxes $4,994 $(11,121) $ 8,233 $ (2,402)
Excluded charges and expenses:
Inventory allowances 11,220 11,220
Receivables - doubtful accounts 5,960 5,960
Restructuring charges - 800 - 3,300
Settlement of litigation and related charges - - 10,340 -
----------------------- -----------------------
- 17,980 10,340 20,480
----------------------- -----------------------
Total consolidated income (loss) before provision (benefit) for income taxes $4,994 $(29,101) $(2,107) $(22,882)
======================= =======================
</TABLE>
9
<PAGE>
ADAC LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. COMPREHENSIVE INCOME (LOSS)
The Company's accumulated other comprehensive loss consists solely of
translation adjustments. Comprehensive income (loss) for the three and six-month
periods ended April 2, 2000 and April 4, 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ----------------------------
April 2, April 4, April 2, April 4,
2000 1999 2000 1999
------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Net income (loss)........................................... $3,146 $(20,791) $(1,328) $ (16,935)
Change in accumulated translation adjustment, net of tax.... (319) (937) (484) (914)
---------- ----------- ------------- ------------
Comprehensive income (loss)................................. $2,827 $(21,728) $(1,812) $(17,849)
========== =========== ============= ============
</TABLE>
11. FISCAL 1999 NON-ORDINARY CHARGES AND EXPENSES
During 1998, the Company began an examination of the performance,
profitability and prospects of its various business units as part of an overall
evaluation of its business and financial controls. In connection with this
examination, the Company identified issues relating to its application of
accounting principles and conducted a review of its asset carrying values,
accruals and expenses in historical financial periods, leading to a restatement
of reported financial results for fiscal 1996, fiscal 1997 and the first three
quarters of fiscal 1998. Following the restatement, the Company continued to
focus on its accounting systems and internal controls and the assessment of its
business units. As part of this focus and assessment and against the background
of increasing competition in certain of the Company's markets, new product
introductions by the Company and its competitors, and its customers deferring
purchasing decisions due to their perceived Year 2000 compliance risks, the
Company revised its estimates of 1) the recoverability of the Company's
inventory to reflect its lower build plans which resulted in increased levels of
potentially excess and obsolete inventory, 2) the collectibility of receivables,
and 3) the value of certain other assets carried on the Company's books. The
Company's financial statements for the second quarter of fiscal 1999 include the
following adjustments and charges based on changes in estimates and revaluations
resulting from this process. The more significant charges are listed below.
<TABLE>
<S> <C>
Inventory
Medical Systems product inventory
Inventory obsolescence....................................................... $ 5,653
Engineering obsolescence..................................................... 1,468
Offsite inventory obsolescence............................................... 746
European inventory write-off................................................. 1,073
AMT inventory reduced to market value........................................ 415
-------
Total Medical Systems product inventory...................................... 9,355
-------
ARS inventory reduced to market value........................................... 877
Medical Systems excess consumable spares write-off.............................. 788
HCIS inventory obsolescence..................................................... 200
-------
Total inventory charges 11,220
-------
Receivables
Increase in receivable reserves................................................. 5,960
-------
$ 17,180
=======
</TABLE>
These adjustments and charges are reflected in the Condensed Consolidated
Statement of Operations for the three and six-month periods ended April 4, 1999
as additional cost of revenues and as operating expenses.
10
<PAGE>
The Company has concentrated resources on continuing to improve its
accounting systems and internal controls, and retained a nationally recognized
accounting firm as consultant and internal auditor. That firm has developed a
number of recommendations and has been retained to assist the Company in
implementing certain process improvements. The Company has made improvements in
its accounting processes and controls, and is working to further strengthen
these with the input and assistance of this accounting firm. Although the
Company believes that it has substantially improved the timeliness and accuracy
of the Company's internal financial reporting and monitoring functions, the
Company will continue to seek improvements in these areas.
12. RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods financial
information to conform to the fiscal 2000 presentation. Such reclassifications
had no impact on the Company's financial position or results of operations.
13. RECENT PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standard No 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.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). The Company is evaluating the
effect of adopting SAB 101 and will comply with its requirements in the first
quarter of fiscal year 2001.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB 25", which is effective
July 1, 2000. The Company does not expect FIN 44 to have any material impact on
its financial statements.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Condensed Consolidated Financial Statements and related Notes
thereto contained elsewhere within this document. Operating results for the
three and six-month periods ended April 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 AND SIX-MONTH PERIODS ENDED APRIL 2, 2000 COMPARED TO THREE-MONTH
AND SIX-MONTH PERIODS ENDED APRIL 4, 1999
Revenues for the second quarter of fiscal 2000 were $90.0 million, an
increase of $2.6 million, or 3%, from the second quarter of fiscal 1999 revenues
of $87.4 million. Revenues are primarily generated from the sale and servicing
of medical imaging products. Medical Systems revenues represented 82% and 80% of
the Company's total revenues for the second quarters of fiscal 2000 and 1999,
respectively. The Company's Radiation Therapy Products revenues represented
approximately 10% of the Company's total revenues for each of the second
quarters of fiscal 2000 and 1999, respectively. The Company's HealthCare
Information Systems revenues represented approximately 8% and 10% of the
Company's total revenues for the second 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.
In January 2000, the Company reached an agreement with the plaintiffs to
settle the class action law-suit. The parties to the class action have submitted
a Stipulation of Settlement to the court for preliminary approval. Pursuant to
the class action settlement, the plaintiff class will receive $20 million in
full settlement of their claims. In January, 2000, the Company also reached an
agreement-in-principle to settle the derivative action. Settlement of both of
these actions is contingent upon the satisfaction of numerous conditions,
including among others, final court approval. 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.
During the six months ended April 2, 2000, the Company made cash payments of
$8.7 million against this accrual, consisting of $8.0 million in settlement
costs and $0.7 million in related legal fees. As of April 2, 2000, approximately
$1.6 million remained in the accrual.
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.
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 $4.1 million. Of this amount $0.8 million
and $3.3 million were
12
<PAGE>
recorded during the three and six-month periods ended April 4, 1999,
respectively, relating to the restructuring of the European and South American
businesses. Amounts of $0.3 million and $0.7 million were charged against the
liability during the three and six-month periods ending April 2, 2000,
representing cash payments made. As of April 2, 2000, $1.3 million remained in
the accrual, comprised of $0.8 million for severance expenses, $0.3 million 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 two quarters of fiscal 2000.
FISCAL 1999 NON-ORDINARY CHARGES AND EXPENSES
During 1998, the Company began an examination of the performance,
profitability and prospects of its various business units as part of an overall
evaluation of its business and financial controls. In connection with this
examination, the Company identified issues relating to its application of
accounting principles and conducted a review of its asset carrying values,
accruals and expenses in historical financial periods, leading to a restatement
of reported financial results for fiscal 1996, fiscal 1997 and the first three
quarters of fiscal 1998. Following the restatement, the Company continued to
focus on its accounting systems and internal controls and the assessment of its
business units. As part of this focus and assessment and against the background
of increasing competition in certain of the Company's markets, new product
introductions by the Company and its competitors, and its customers deferring
purchasing decisions due to their perceived Year 2000 compliance risks, the
Company revised its estimates of 1) the recoverability of the Company's
inventory to reflect its lower build plans which resulted in increased levels of
potentially excess and obsolete inventory, 2) the collectibility of receivables,
and 3) the value of certain other assets carried on the Company's books. The
Company's financial statements for the second quarter of fiscal 1999 include the
following adjustments and charges based on changes in estimates and revaluations
resulting from this process. The more significant charges are listed below.
<TABLE>
<S> <C>
Inventory
Medical Systems product inventory
Inventory obsolescence....................................................... $ 5,653
Engineering obsolescence..................................................... 1,468
Offsite inventory obsolescence............................................... 746
European inventory write-off................................................. 1,073
AMT inventory reduced to market value........................................ 415
-------
Total Medical Systems product inventory...................................... 9,355
-------
ARS inventory reduced to market value........................................... 877
Medical Systems excess consumable spares write-off.............................. 788
HCIS inventory obsolescence..................................................... 200
-------
Total inventory charges 11,220
-------
Receivables
Increase in receivable reserves................................................. 5,960
-------
$17,180
=======
</TABLE>
These adjustments and charges are reflected in the Condensed Consolidated
Statement of Operations for the three and six-month periods ended April 4, 1999
as additional cost of revenues and as operating expenses.
The Company has concentrated resources on continuing to improve its
accounting systems and internal controls, and retained a nationally recognized
accounting firm as consultant and internal auditor. That firm has developed a
number of recommendations and has been retained to assist the Company in
implementing certain process improvements. The Company has made improvements in
its accounting processes and controls, and is working to further strengthen
these with the input and assistance of this accounting firm. Although the
Company believes that it has substantially improved the timeliness and accuracy
of the Company's internal financial reporting and monitoring functions, the
Company will continue to seek improvements in these areas.
13
<PAGE>
MEDICAL SYSTEMS ("MS")
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 and six-month periods ended April 2, 2000, compared to the
corresponding periods in fiscal 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
APRIL 2, APRIL 4, APRIL 2, APRIL 4,
2000 1999 2000 1999
-------- -------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Revenues:
Product................................................ $55,154 $50,529 $104,703 $101,892
Service................................................ 18,395 19,647 37,570 38,308
-------- -------- ---------- ----------
Total.................................................. $73,549 $70,176 $142,273 $140,200
======== ======== ========== ==========
Geographical mix:
United States.......................................... 77.0% 84.6% 79.5% 85.3%
International.......................................... 23.0% 15.4% 20.5% 14.7%
Gross margin:
Product................................................ $20,643 $ 2,465 $ 36,358 $ 23,184
Service................................................ 4,379 3,469 9,053 7,834
-------- -------- ---------- ----------
Total ................................................. $25,022 $ 5,934 $ 45,411 $ 31,018
======== ======== ========== ==========
Gross margin %:
Product................................................. 37.4% 4.9% 34.7% 22.8%
Service................................................. 23.8% 17.7% 24.1% 20.5%
Total.................................................. 34.0% 8.5% 31.9% 22.1%
</TABLE>
Medical Systems' product revenues increased 9% and 3% for the three and six
month periods ended April 2, 2000, respectively, from the same periods in fiscal
1999. This increase is primarily due to the significant increase in shipments of
the C-PET-TM- product during fiscal 2000, which has a higher selling price, and,
to a lesser extent, the increased volume of the Company's Forte-TM- product,
partially offset by declining sales of some of the older product lines and lower
average selling prices. The proportion of the Company's revenues derived from
Europe increased due to increased penetration of the Forte and C-PET. Revenues
for the six-month period ended April 2, 2000 did not increase over the
comparable period at the same rate as the second quarter due to
disproportionately high revenue in the first quarter of fiscal 1999. The first
quarter of fiscal 1999 included a large volume of backordered products that were
released in September 1998.
Gross margins for Medical Systems products increased 737% and 57% in the
three and six-month periods ended April 2, 2000, compared to the corresponding
periods of the prior fiscal year. This increase is primarily due to one-time
non-ordinary charges recorded in the second quarter of fiscal 1999 for inventory
obsolescence and book to physical adjustments for product inventory, refurbished
and engineering inventories. See Note 11 "Fiscal 1999 Non-Ordinary Charges and
Expenses" of the Notes to Condensed Consolidated Financial Statements. In
addition, gross margins for the second quarter of fiscal 2000 improved due to
the higher average selling price of the C-PET and improved factory performance
including control over factory spending. These improvements were partially
offset by the lower average selling prices. Gross margins for the six-month
period ended April 2, 2000 were reduced by the Company's refined estimate of the
warranty provision resulting in an additional provision of approximately $1.0
million during the first quarter of fiscal 2000.
Medical Systems service revenues for the three and six-month periods ended
April 2, 2000, decreased 6% and 2%, respectively, over the same periods in
fiscal 1999. The decrease resulted from lower sales related to upgrades for Year
2000 compliance, partially offset by higher core service revenue from a higher
customer base. Gross margins improved 26% and 16%, respectively, for the three
and six-month periods ended April 2, 2000, compared to the same periods of
fiscal 1999. The increase is primarily due to one-time charges recorded in the
second quarter of
14
<PAGE>
fiscal 1999 for the write off of excess consumable spare parts of approximately
$0.8 million. See Note 11 "Fiscal 1999 Non-Ordinary Charges and Expenses" of the
Notes to Condensed Consolidated Financial Statements.
RADIATION THERAPY PRODUCTS ("RTP")
RTP revenues are generated primarily from the sale and support of the
Company's Pinnacle(3)-TM- 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 and
six-month periods ended April 2, 2000, compared to the corresponding periods in
fiscal 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
APRIL 2, APRIL 4, APRIL 2, APRIL 4,
2000 1999 2000 1999
---- ---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Revenues:
Product................................................ $8,495 $8,308 $19,852 $24,645
Service................................................ 925 508 1,766 1,118
-------- -------- ---------- ----------
Total.................................................. $9,420 $8,816 $21,618 $25,763
======== ======== ========== ==========
Geographical mix:
United States.......................................... 75.4% 92.4% 74.5% 89.2%
International.......................................... 25.6% 7.6% 25.5% 10.8%
Gross margin:
Product................................................ $4,961 $3,601 $11,952 $13,521
Service................................................ 457 114 904 295
-------- -------- ---------- ----------
Total ................................................. $5,418 $3,715 $12,856 $13,816
======== ======== ========== ==========
Gross margin %:
Product................................................. 58.4% 43.3% 60.2% 54.9%
Service................................................. 49.4% 22.4% 51.2% 26.4%
Total.................................................. 57.5% 42.1% 59.5% 53.6%
</TABLE>
RTP product revenues increased 2% and decreased 19% for the three and
six-month periods ended April 2, 2000, respectively, from the same periods in
fiscal 1999. Product revenues for the three months ended April 2, 2000
decreased 25% from the preceding three-month period ended January 2, 2000.
The slight increase for the three-month period ended April 2, 2000 over the
same period in the prior fiscal year is primarily due to the volume of
shipments of refurbished product, partially offset by a change in geographic
mix of the Pinnacle(3)-TM- with the reduction of sales in the United States
slightly greater than the increase in sales in Europe. The decrease compared
to the comparable six-month period and the prior fiscal quarter resulted
primarily from a lower volume of shipments of Pinnacle(3) due to low bookings
during the period. The Company believes that the domestic market for this
product experienced a slowdown during the second quarter of fiscal 2000. This
decrease was partially offset by the higher level of revenue in Europe due to
the timing of installations. Additionally the Company believes that the
revenue recognized during the first quarter of fiscal 1999 was unusually high
and that the revenue in the first and second quarters of fiscal 2000 is more
reflective of the current market trend.
Gross margins for RTP increased 38% and decreased 12%, respectively, for
the three and six-month periods ended April 2, 2000, compared to the
corresponding periods in fiscal 1999. The increase in gross margin for the
three-month period compared to the prior fiscal year is primarily due to
one-time non-ordinary charges recorded in the second quarter of fiscal 1999
for inventory obsolescence of $0.9 million. See Note 11 "Fiscal 1999
Non-Ordinary Charges and Expenses" of the Notes to Condensed Consolidated
Financial Statements. The decrease in gross margin dollars for the six-month
period over the comparable prior year period is primarily due to the low
volume of Pinnacle(3) during the current period. The gross margin percentage,
however, increased due to the change in mix of product features sold during
the period.
15
<PAGE>
RTP service revenues increased 82% and 58% for the three and six-month
periods ended April 2, 2000, compared to the corresponding periods in fiscal
1999 due primarily to the commencement of separate RTP service contracts for
software support during fiscal 2000. Service gross margins increased 301% and
206% for the three and six-month periods ended April 2, 2000, compared to the
corresponding periods in fiscal 1999, due to the increase in the number of
contracts, leveraging the cost structure.
HEALTHCARE 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 and six-month periods ended April 2, 2000, compared
to the corresponding periods in fiscal 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
APRIL 2, APRIL 4, APRIL 2, APRIL 4,
2000 1999 2000 1999
-------- -------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Revenues:
Product................................................ $3,947 $4,683 $ 9,722 $7,889
Service................................................ 3,097 3,718 6,722 7,820
-------- -------- ---------- ----------
Total.................................................. $7,044 $8,401 $16,444 $15,709
======== ======== ========== ==========
Geographical mix:
United States.......................................... 96.6% 92.9% 98.4% 94.9%
International.......................................... 3.4% 7.1% 1.6% 5.1%
Gross margin:
Product................................................ $ 959 $1,757 $ 3,247 $ 2,939
Service................................................ 1,387 2,040 3,405 4,288
-------- -------- ---------- ----------
Total ................................................. $2,346 $3,797 $ 6,652 $ 7,227
======== ======== ========== ==========
Gross margin %:
Product................................................. 24.3% 37.5% 33.4% 37.3%
Service................................................. 44.8% 54.9% 50.7% 54.8%
Total.................................................. 33.3% 45.2% 40.5% 46.0%
</TABLE>
HCIS product revenues decreased 16% and increased 23%, respectively, for
the three and six-month periods ended April 2, 2000, compared to the same
periods in fiscal 1999. Product revenues for the three-month period ended
April 2, 2000 decreased 32% compared to the preceding three-month period
ended January 2, 2000. The decrease for the three-month period compared to
the comparable prior year period is primarily due to lower sales in both the
radiology and cardiology product lines in the current period, partially
offset by the prospective adoption of Statement of Position ("SOP") 97-2
"Software Revenue Recognition" as of the first quarter of fiscal 1999. The
effect of adopting SOP 97-2 was to reduce revenue recognized within the first
six months of fiscal 1999. The increase for the six-month period compared to
the comparable six-month period of the prior year is primarily due to the
increased sales of the QuadRIS-TM- and the DINPACs-TM- for the radiology
product line, and also from increased sales in cardiology product line. These
increases were partially offset by diminishing revenues from the discontinued
Labstat-TM- product. The decrease in product revenue for the three-month
period ended April 2, 2000 compared to the three-month period ended January
2, 2000 is primarily due to lower sales of the QuadRIS radiology product and
also lower sales in cardiology due to continued lower bookings.
Gross margins for HCIS for the three and six-month periods ended April 2,
2000 decreased 45% and increased 10%, respectively, from the corresponding
periods in fiscal 1999. This decrease for the second quarter over the comparable
period in the prior year is primarily due to lower revenue absorbing a higher
cost structure including staffing costs, information systems and software
amortization. The increase for the six-month period over the
16
<PAGE>
comparable prior year period is primarily due to the higher revenue leveraging
the fixed costs described above, partially offset by a change in mix to lower
margin cardiology products in the first quarter of fiscal 2000.
HCIS service revenues decreased 17% and 14%, respectively, for the three
and six-month periods ended April 2, 2000, compared to the corresponding periods
in fiscal 1999. This decrease is due primarily to significantly lower service
revenues from the discontinued Labstat-TM- product, partially offset by slightly
higher radiology and cardiology service revenue. Service gross margins decreased
for the three and six-month periods ended April 2, 2000 32% and 21%,
respectively, compared to the corresponding periods in fiscal 1999, primarily
due to lower revenue absorbing the fixed cost structure and the increased cost
of a third party maintenance agreement.
OPERATING AND OTHER EXPENSES:
As a percentage of the Company's revenues, operating and other expenses for
the three and six-month periods ended April 2, 2000 and April 4, 1999 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
APRIL 2, APRIL 4, APRIL 2, APRIL 4,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating expenses:
Marketing and sales......................................... 15.2% 19.8% 15.7% 18.0%
Research and development, net of software capitalization.... 5.0% 5.1% 5.3% 4.9%
General and administrative.................................. 8.5% 20.3% 8.7% 14.4%
Goodwill amortization ...................................... 0.6% 0.6% 0.6% 0.5%
Restructuring charge........................................ - 0.9% - 1.8%
Settlement of litigation and related charges................ - - 5.7% -
-------- -------- -------- -------
29.3% 46.7% 36.0% 39.6%
======== ======== ======== =======
Other expense, net ......................................... 1.4% 2.0% 1.2% 1.6%
</TABLE>
Marketing and sales expenses for the three and six-month periods ended
April 2, 2000 decreased $3.6 million, or 21%, and $4.5 million, or 14%, from the
corresponding periods in the prior fiscal year. This decrease is primarily due
to savings as a result of the restructuring of the European operation during
fiscal 1999, cost control measures primarily within the RTP and HCIS
organizations and lower commission expense.
Research and development expenses, net of software capitalization, were
flat for the three-month period ended April 2, 2000 and increased $0.7
million for the six-month period ended April 2, 2000, over the corresponding
periods in the prior fiscal year. Although the net expense for the
three-month period is constant, the gross spending increased slightly in RTP
and on the C-PET product line within MS. These costs were offset by higher
software capitalization primarily within MS and RTP on the Skylight,
SmartSim-TM- and other products. The expense increase for the six-month
period is the result of flat net spending in the second quarter combined with
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.
General and administrative expenses for the three and six-month periods
ended April 2, 2000 decreased $9.9 million and $10.4 million, respectively, from
the corresponding periods in the prior fiscal year. This decrease is primarily
due to one-time charges recorded in the second quarter of fiscal 1999 for
increased bad debt reserves. See Note 11 "Fiscal 1999 Non-Ordinary Charges and
Expenses" of the Notes to Condensed Consolidated Financial Statements. Also,
additional expenses payable to outside legal counsel, accounting and other
service providers related to the restatement of the Company's financial
statements were recorded during the second quarter of fiscal 1999. The expense
decrease was also due to improved cost control and monitoring, partially offset
by investments in infrastructure in Finance and Administration and UGM in the
first half of fiscal 2000.
Goodwill amortization remained constant at $0.5 million for the three and
six-month periods ended April 2, 2000 compared to the corresponding periods of
fiscal 1999. There was increased amortization of goodwill in the first half 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.
17
<PAGE>
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 of $ 0.8 million and $3.3
million during the three and six-month periods ended April 4, 1999,
respectively, related to its international operations in order to improve the
operations' profitability. See Note 5 "Restructuring Charges" of the Notes to
Condensed Consolidated Financial Statements.
Interest and other expense, net, which primarily consists of interest
expense and foreign currency translation gains and losses, decreased $0.5
million and $0.8 million for the three and six-month periods ended April 2,
2000, respectively, compared to the corresponding periods in the prior fiscal
year. This decrease is primarily due to lower interest expense in the first half
of fiscal 2000 combined with a smaller foreign currency loss.
INCOME TAXES:
The Company's effective tax rate as a percentage of pretax income was 37%
for the three and six-month periods of fiscal 2000, compared to 38% for the
first three months and 26% for the six-month period of fiscal 1999.
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 for the next 12 months. 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 $21.5 million in the first six
months of fiscal 2000. The primary source of cash was provided by operating
income of $7.8 million, consisting of a net loss of $1.3 million adjusted by
$9.1 million of non-cash charges, and after giving effect to changes in
operating assets and liabilities of $13.7 million (net). Cash provided by
changes in operating assets and liabilities was primarily generated by a
decrease in inventory of $9.4 million and an increase in accounts payable of
$8.5 million. These sources of cash were partially offset other items which
netted to $4.2 million. The primary use of cash in operations for the first six
months of fiscal 1999 was the increase of $29.6 million in accounts receivable,
partially offset by a decrease of $24.3 million in inventories and increases of
$7.0 million and $5.9 million in deferred revenues and customer deposits and
advance billings.
Cash of $9.5 million was used for investing activities in the first six
months of fiscal 2000. This activity consisted primarily of $3.9 million, $4.7
million and $0.9 million for capital equipment expenditures, capitalized
software expenditures and an increase in other assets and intangibles,
respectively. Capital expenditures were primarily for computer equipment, data
processing equipment, the enterprise software implementation in progress for the
sales and service groups and demo equipment. Cash of $12.2 million was used for
investing activities in the first six months of fiscal 1999, consisting of $8.0
million and $5.0 million for capital expenditures and capitalized software
expenditures, offset by $0.8 million decrease in other assets and intangibles.
Financing activities used $10.8 million of cash in the first six months of
fiscal 2000. This was attributable to $10.9 million of payments against
borrowings and $0.7 million payment of capital lease obligations, offset by $0.8
million of proceeds from common stock issued to employees under the Company's
employee stock purchase and option plans. Financing activities provided $19.0
million of cash in the first six months of fiscal 1999. This was attributable to
$15.7 million of increased borrowings to meet operational needs and $3.4 million
of proceeds from common stock issued to employees under the Company's employee
stock purchase and option plans.
As of April 2, 2000 the Company had an $85.0 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 April 2, 2000, the Company had $43.9
million available for borrowing under this facility. Due to the settlement of
certain securities 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. On January 28, 2000,
the Company and the bank syndicate
18
<PAGE>
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 was in compliance with these modified
covenants in the first and second quarters of fiscal 2000.
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.
RECENT PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standard No 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.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). The Company is evaluating the
effect of adopting SAB 101 and will comply with its requirements in the first
quarter of fiscal year 2001.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB 25", which is effective
July 1, 2000. The Company does not expect FIN 44 to have any material impact on
its financial statements.
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, manufacturing and selling 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.
19
<PAGE>
In January 2000, the Company reached an agreement with the plaintiffs to
settle the class action law-suit. The parties to the class action have submitted
a Stipulation of Settlement to the court for preliminary approval. Pursuant to
the class action settlement, the plaintiff class will receive $20 million in
full settlement of their claims. In January, 2000, the Company also reached an
agreement-in-principle to settle the derivative action. Settlement of both of
these actions is contingent upon the satisfaction of numerous conditions,
including among others, final court approval. 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.
During the six months ended April 2, 2000, the Company made cash payments of
$8.7 million against this accrual, consisting of $8.0 million in settlement
costs and $0.7 million in related legal fees. As of April 2, 2000, approximately
$1.6 million remained in the accrual.
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.
DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS
ADAC's success is dependent upon the successful development, manufacture
and sale of new products such as the C-PET 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 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,
manufacture in volume or 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.
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 April 2, 2000 the Company had net
South American receivables of $2.3 million and recourse contingencies of $0.7
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
20
<PAGE>
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 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.
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, timely scaling of manufacturing capacity, 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.
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 has made improvements in its accounting
processes and controls, and is working to further strengthen these with the
input and assistance of this accounting firm. Although the Company believes
21
<PAGE>
that it has substantially improved the timeliness and accuracy of the Company's
internal financial reporting and monitoring functions, the Company will continue
to seek improvements in these areas.
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. The
Company utilized both internal and external resources to identify, correct or
reprogram and test for Year 2000 compliance. The Company's initiatives focused
on three main areas of potential impact: the software and equipment provided to
customers, internal systems and vendors and suppliers. As part of these
initiatives the Company developed and installed software upgrades for a majority
of its installed base to make the Company's products Year 2000 compliant, sold
hardware upgrades to customers with equipment that the Company no longer
manufactures, analyzed or tested its vendors' systems as needed based on data
gathered from such vendors and implemented system changes needed to correct its
internal Year 2000 issues. 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.
While the Company has passed a number of critical Year 2000 dates
(September 9, 1999, January 1, 2000 and February 29, 2000) without any
significant problems or delays reported through customer service or internal
systems, issues could still arise due to 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. In addition, 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 incurred Year 2000 costs of approximately $1.2 million. This
amount does not include any reserves for any potential future customer or other
claim related to Year 2000 compliance, which claim, if brought, could have a
material adverse effect on the Company.
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.
22
<PAGE>
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 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.
23
<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 4. SUBMITION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its 1999 Annual Meeting of Shareholders on March 9,
2000 (the "Annual Meeting").
(b) At the Annual Meeting the following directors were duly elected:
Stanley D. Czerwinski, R. Andrew Eckert, Dennis R. Raney, F. David
Rollo, Edmund H. Shea, Jr.
(c) At the Annual Meeting, the following votes were cast for each of the
items voted upon at the meeting:
1) Election of Directors:
<TABLE>
<CAPTION>
IN FAVOR WITHHELD
---------- --------
<S> <C> <C>
Stanley D. Czerwinski 17,831,802 737,243
R. Andrew Eckert 18,160,538 408,507
Dennis R. Raney 18,273,225 295,820
F. David Rollo 18,190,852 378,193
Edmund H. Shea, Jr. 18,292,798 276,247
</TABLE>
2) Proposal to approve the amendment to the Company's 1999
Long-Term Incentive Plan to increase the shares reserved for
issuance thereunder by an additional 990,000 shares: FOR -
12,352,681; AGAINST - 6,148,683; ABSTAIN - 67,681; and BROKER
NON-VOTES - 0.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
27 Financial Data Schedule
(b) Reports on Form 8-K:
None filed during the fiscal quarter described in this Report on
Form 10-Q.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2000 ADAC LABORATORIES
(REGISTRANT)
By: /s/ NEIL J. LAIRD
-----------------------------------------
Neil J. Laird
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADAC
LABORATORIES Q200 FORM 10Q DATED APRIL 2, 2000 FILED MAY 15, 2000 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> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 6,573
<SECURITIES> 0
<RECEIVABLES> 98,967
<ALLOWANCES> 16,787
<INVENTORY> 25,774
<CURRENT-ASSETS> 138,295
<PP&E> 33,505
<DEPRECIATION> 17,114
<TOTAL-ASSETS> 237,377
<CURRENT-LIABILITIES> 126,879
<BONDS> 0
0
0
<COMMON> 155,460
<OTHER-SE> (48,859)
<TOTAL-LIABILITY-AND-EQUITY> 237,377
<SALES> 67,596
<TOTAL-REVENUES> 90,013
<CGS> 41,033
<TOTAL-COSTS> 57,227
<OTHER-EXPENSES> 26,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,259
<INCOME-PRETAX> 4,994
<INCOME-TAX> 1,848
<INCOME-CONTINUING> 3,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,146
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
