SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 1995
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 0-15160
ADVANCED TECHNOLOGY LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1353386
(State of incorporation) (IRS Employee Identification No.)
22100 Bothell Everett Highway
Post Office Box 3003
Bothell, Washington 98041-3003
(Address of principal executive offices) (Zip Code)
(206) 487-7000
(Telephone number)
Common stock, $0.01 par value; 13,373,985 shares outstanding as
of July 31, 1995
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 [ ]
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ADVANCED TECHNOLOGY LABORATORIES, INC.
TABLE OF CONTENTS
PART I Financial Information: Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1995 (Unaudited) and December 31, 1994 3
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months and Six Months Ended June 30, 1995 and
July 1, 1994 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1995 and July 1, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II Other Information:
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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PART I Financial Information
Item 1. Financial Statements
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) 6/30/95 12/31/94
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 22,093 $ 22,901
Receivables 109,345 112,103
Inventories 103,704 96,065
Prepaid expenses 2,583 2,261
Deferred income taxes 8,631 8,577
-------- --------
246,356 241,907
MARKETABLE DEBT SECURITY -- 4,988
PROPERTY, PLANT AND EQUIPMENT, NET 70,422 70,338
OTHER ASSETS 15,687 14,288
--------- ---------
$ 332,465 $ 331,521
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,223 $ 1,842
Current installments of long-term debt 1,520 1,976
Accounts payable and accrued expenses 66,765 75,704
Deferred revenue 31,919 27,037
Taxes on income 3,368 2,354
--------- ---------
104,795 108,913
LONG-TERM DEBT 15,665 17,688
DEFERRED REVENUE 11,922 9,272
DEFERRED INCOME TAXES 4,472 4,472
SHAREHOLDERS' EQUITY 195,611 191,176
--------- ---------
$ 332,465 $ 331,521
========= =========
COMMON SHARES OUTSTANDING 13,374 13,330
See accompanying notes to condensed consolidated financial statements.
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ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
(In thousands, except per 6/30/95 7/1/94 6/30/95 7/1/94
share data)
REVENUES
Product sales $ 70,870 $ 65,392 $ 145,070 $ 136,078
Service 20,406 19,407 40,568 38,077
-------- -------- -------- --------
91,276 84,799 185,638 174,155
-------- -------- -------- --------
COST OF SALES
Product sales 36,030 35,161 74,456 74,027
Service 12,679 12,346 25,204 23,996
-------- -------- -------- --------
48,709 47,507 99,660 98,023
-------- -------- -------- --------
GROSS PROFIT 42,567 37,292 85,978 76,132
OPERATING EXPENSES
Selling, general and administrative 29,249 27,544 57,856 52,800
Research and development 12,247 13,823 24,859 26,448
Merger and other costs -- 5,391 -- 5,391
Restructuring charge -- -- 2,500 --
Other (income) expense, net (180) 388 (737) 818
-------- -------- -------- --------
41,316 47,146 84,478 85,457
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 1,251 (9,854) 1,500 (9,325)
Investment income 408 534 771 1,157
Interest expense (506) (394) (1,044) (825)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 1,153 (9,714) 1,227 (8,993)
Income tax expense 317 232 665 652
-------- -------- -------- -------
NET INCOME (LOSS) $836 $(9,946) $562 $(9,645)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE $0.06 $(0.76) $ 0.04 $ (0.74)
Weighted average common shares and
equivalents outstanding 13,474 13,134 13,464 13,118
See accompanying notes to condensed consolidated financial statements.
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ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
(In thousands) 6/30/95 7/1/94
OPERATING ACTIVITIES
Net income (loss) $ 562 $ (9,645)
Non-cash charges (credits) to income(loss):
Depreciation and amortization 7,925 7,571
Gain on sale of property -- (105)
Changes in:
Receivables 2,978 4,076
Inventories (5,740) (591)
Accounts payable and accrued expenses (10,051) (206)
Deferred revenue 7,409 (1,205)
Taxes on income 1,049 57
Other (284) (1,726)
------- -------
Cash provided by (used in)
operating acitvities 3,848 (1,774)
INVESTING ACTIVITIES
Decrease in short-term investments -- (1,948)
Investment in property, plant and equipment (6,664) ( 5,767)
Proceeds from sale of property -- 3,224
Other -- (389)
------- -------
Cash used in investing activities (6,664) (4,880)
FINANCING ACTIVITIES
Repayment of short-term borrowings, net (619) (5,639)
Repayment of long-term debt (2,479) (2,949)
Repurchase of common shares -- (369)
Exercise of stock options 567 150
------- -------
Cash used in financing activities (2,531) (8,807)
Effect of exchange rate changes (449) (712)
------- -------
Net decrease in cash and cash eqiuivalents (5,796) (16,173)
Cash and cash equivalents, beginning of period 22,901 52,713
------- -------
Cash and cash equivalents, end of period $17,105 $36,540
======= =======
See accompanying notes to condensed consolidated financial statements.
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ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Basis of Presentation
The accompanying condensed consolidated financial statements
include the accounts of Advanced Technology Laboratories, Inc.
and its wholly owned subsidiaries, collectively referred to as
the "Company." The Company develops, manufactures, markets and
services diagnostic medical ultrasound systems worldwide. These
systems are used primarily in radiology, cardiology,
obstetrics/gynecology, and peripheral vascular applications.
The accompanying condensed consolidated financial statements and
related notes have been prepared pursuant to the Securities and
Exchange Commission rules and regulations for Form 10-Q.
Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The
accompanying condensed consolidated financial statements and
related notes should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's
1994 Form 10-K Annual Report to Shareholders.
The information furnished reflects, in the opinion of the
management, all adjustments necessary for a fair presentation of
the results for the interim periods presented. Interim results
are not necessarily indicative of results for a full year.
2. Acquisition of Interspec, Inc.
On May 17, 1994, the Company completed its merger with Interspec,
Inc. ("Interspec"). Interspec develops, manufactures, markets,
and services diagnostic medical ultrasound imaging systems and
related supplies and accessories for physicians' offices, clinics
and hospitals. To effect the merger, the Company issued
approximately 2.6 million shares of common stock for all of the
outstanding common stock of Interspec, based on an exchange ratio
of 0.413 share of ATL stock for each share of Interspec stock.
The merger was accounted for as a pooling of interests business
combination; therefore, prior financial statements and
information were restated to include Interspec as if the
companies had been combined for all periods presented.
3. Restructuring Charge
On February 15, 1995, the Company announced a new corporate
structure that will consolidate the Interspec operations located
in Ambler, Pennsylvania with the Company's headquarter
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ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Restructuring Charge (continued)
operations in Bothell, Washington. The Company reported a
restructuring charge of $2,500 in the first quarter of 1995
related to the consolidation of the Ambler operations. The
restructuring charge provides for severance, outplacement, and
employee retention incentives for employees not relocating to
Bothell. The Company estimates to have a net reduction in full-
time positions of approximately 4% of the Company's workforce as
a result of the consolidation of the Ambler operations.
In addition to the restructuring charge mentioned above, the
Company expects to incur approximately $2,500 of employee
relocation and asset moving costs during 1995. These expenses are
reported when incurred. Most of the manufacturing and
administrative functions will be transferred to Bothell during
the third quarter of 1995. Research and development functions
will continue in Ambler until late 1995 or early 1996. The
Company currently intends to hold the land and building used for
the Ambler operations.
4. Cash, Short-Term Investments, and Long-Term Marketable Debt Security
The Company considers short-term investments with maturity dates
of three months or less at the date of purchase to be cash
equivalents for purposes of the statement of cash flows. The
Company holds a marketable debt security issued by the U.S.
government which matures in February 1996. The Company intends
to hold the investment until maturity and it is reported at cost.
Beginning in February 1995, the marketable debt security was
classified as a short-term investment.
6/30/95 12/31/94
--------- ---------
Cash and cash equivalents $17,105 $22,901
Short-term investment 4,988 --
--------- ---------
22,093 22,901
Long-term marketable debt security -- 4,988
--------- ---------
$22,093 $27,889
========= =========
5. Inventories
6/30/95 12/31/94
--------- ---------
Materials and work in progress $36,914 $33,477
Finished products 18,957 15,561
Demonstration 28,554 29,190
Customer service 19,279 17,837
--------- ---------
$103,704 $96,065
========= =========
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ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
6. Per Share Data
Per share data is based on the weighted average number of common
shares and dilutive common share equivalents outstanding during
each period. Dilutive common share equivalents are calculated
under the treasury stock method and consist of unexercised
employee stock options.
7. Reclassifications
In the second quarter of 1995, the Company reported the non-
current portion of Receivables and Deferred revenue related to
multiyear service contracts as Other assets and non-current
Deferred revenue, respectively. Balances previously reported
have been reclassified to conform to the 1995 presentation.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Three months ended Six months ended
------------------------- -------------------------
(In millions except 6/30/95 7/1/94 % Change 6/30/95 7/1/94 % Change
per share data) ------- ------ -------- ------- ------ --------
Revenues $91.3 $84.8 7.6% $185.6 $174.2 6.6%
Gross Profit $42.6 $37.3 14.1% $86.0 $76.1 12.9%
Operating Expenses;
excluding merger and
other costs, restructuring
charge and benefit for
state tax audit $41.3 $41.8 (1.1%) $83.3 $80.1 4.0%
Merger and other costs -- $5.4 -- $5.4
Restructuring Charge -- -- $2.5 --
Benefit related to
state tax audit -- -- ($1.3) --
Net Income (Loss) $0.8 $(9.9) $0.6 ($9.6)
Net Income (Loss) per Share $0.06 $(0.76) $0.04 ($0.74)
The Company reported net income of $0.8 million or $0.06 per
share in the second quarter of 1995 compared with a net loss of
$9.9 million or $0.76 per share in the second quarter of 1994.
The second quarter of 1994 results include non-recurring charges
of $5.4 million primarily associated with the acquisition of
Interspec in May 1994. For the first six months, the Company
reported net income of $0.6 million in 1995 compared with a net
loss of $9.6 million in 1994. The year-to-date 1995 net income
included a $2.5 million restructuring charge related to the
consolidation of the Company's operations in Ambler, Pennsylvania
to the Company's headquarters in Bothell, Washington. The year-
to-date 1995 net income also included an operating expense
benefit of $1.3 million resulting from a favorable Washington
State Business and Occupation (B&O) tax audit.
The Company's worldwide revenues increased 7.6% to $91.3 million
in the second quarter of 1995 compared with $84.8 million in the
second quarter of 1994. Product sales increased by $5.5 million
and service revenue increased $1.0 million over prior year. The
increase in product sales was primarily due to a continued
favorable shift in product mix from older to newer product lines,
including the HDI(TM) 3000, the Company's high performance, premium
priced system which was introduced in October 1994, and the mid-
ranged Apogee(R) products. The increase in service revenues in the
second quarter of 1995 was primarily due to the Company's growing
presence in international markets and a higher installed base.
Revenues in international markets increased compared with the
second quarter of 1994, reflecting synergies achieved through the
distribution of Interspec's mid-range products through the
Company's international distribution channels. The weaker U.S.
dollar in 1995 also contributed to the higher revenue levels in
the Company's
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
European direct operations where revenues are denominated in
local currency. U.S. revenues increased slightly over the second
quarter of 1994. For the first six months of 1995, total
revenues increased 6.6% to $185.6 million compared with $174.2
million in the prior year. The increase in revenues for the
first six months of 1995 over the same period in the prior year
is primarily due to the expanding product lines in both the mid-
price and high-performance markets as well as growth in
international markets.
In June 1995, the Company announced the first major expansion of
the HDI 3000 system. The HDI 3000cv offers complete cardiology
capabilities available as an option or an upgrade. Shipments of
the HDI 3000cv began in June 1995.
Gross profit was $42.6 million in the second quarter of 1995
compared with $37.3 million in the same quarter of the prior
year. As a percent of total revenues, gross margin increased to
46.6% compared with 44.0% in the prior year. Gross margin has
improved each quarter since the first quarter of 1994. The
increase in gross margin for the first six months of 1995 is
primarily due to the favorable change in product mix to the
Company's higher margin product lines in the HDI and Apogee
product families and cost reduction programs. For the first six
months of 1995, gross profit was $86.0 million compared to $76.1
million for the same period of 1994. Year-to-date gross margins
increased to 46.3% from 43.7% in 1994, reflecting the impact of
the same factors discussed above.
Operating expenses in the second quarter of 1995 decreased by
1.1% to $41.3 million from $41.8 million, excluding the one time
charge of $5.4 million merger and other costs, primarily
associated with the acquisition of Interspec, Inc. in the second
quarter of 1994. Selling, general and administrative expenses
of $29.2 million increased 6.2% over the second quarter of 1994
primarily due to the expansion of new product lines, the
expansion of international sales activities, and the weaker U.S.
dollar, which favorably affected the translation of revenues as
discussed previously, but had an unfavorable impact on operating
expenses. Research and development expenses decreased 11.4% to
$12.2 million in the second quarter of 1995 compared with the
same quarter of 1994. The level of research and development
activities has decreased in 1995 after the introduction of the
HDI 3000 in October 1994.
Excluding a $2.5 million restructuring charge and a $1.3 million
Washington State B&O tax refund, operating expenses for the first
six months of 1995 were $83.3 million compared with $80.1 million
(excluding merger and other costs of $5.4 million relating to the
acquisition of Interspec, Inc. in May 1994) for the same period
of 1994. The increase in operating expenses is due to expanded
international operations, market introduction programs for the
HDI 3000 and the unfavorable effect of the weakening dollar on
the translation of operating expenses incurred in foreign
currencies, partially offset by lower research and development
expenses after the October 1994 introduction of the HDI 3000.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company incurred net interest expense during the second
quarter of 1995 of $0.1 million, compared with net interest
income of $0.1 million in during the same period in 1994. The
increase is due to interest expense on the $11.5 million in long-
term debt incurred in December 1994 to finance the purchase of
land and a building adjacent to the Company's corporate
headquarters.
Income tax expense for the second quarter of 1995 includes
primarily foreign and state income tax expense. U.S. federal
income tax benefits were not recognized under the provisions of
Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes."
CAPITAL RESOURCES AND LIQUIDITY
(In millions) 6/30/95 12/31/94
-------- --------
Cash and investments:
Cash and short-term investments $22.1 $22.9
Marketable debt security -- 5.0
-------- --------
Total $22.1 $27.9
======== ========
Total Assets $332.5 $331.5
Long-term Debt $15.7 $17.7
Shareholders' Equity $195.6 $191.2
Cash and investments totaled $22.1 million at June 30, 1995
compared with $27.9 million at December 31, 1994 and $22.9
million at the end of the first quarter of 1995. The marketable
debt security which was classified as a non-current asset at
December 31, 1994 matures in February 1996 and is now classified
with Cash and short-term investments.
As shown in the Statement of Cash Flows, operating activities
generated cash flows of $3.8 million during the first six months
of 1995. Accounts payable and accrued expenses decreased by
$10.1 million due to seasonal fluctuations. Cash used in
investing activities totaled $6.7 million during the first six
months of 1995, primarily for normal additions to property, plant
and equipment. Financing activities used $2.5 million during the
first six months of 1995, including the repurchase of $1.7
million of 11% subordinated convertible debentures, the scheduled
repayment of long-term debt and reductions in short-term
borrowings by the Company's foreign subsidiaries.
In addition to its cash and investment balances, the Company has
available domestic credit facilities of $25 million, including a
committed line of credit of $15 million. Barring any unforeseen
circumstances or events, management expects cash, available
credit lines and funds from operations should be sufficient to
meet the Company's operating requirements for 1995.
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PART II Other Information
Item 1. Legal Proceedings -
On August 2, 1994, the Company filed suit against Acuson
Corporation in the United States District Court for the Western
District of Washington for infringement of four of the Company's
patents relating to multiplane transesophageal (TEE) ultrasound
probes and systems. Acuson responded on September 14, 1994, by
filing suit against the Company in the United States District
Court for the Northern District of California in which Acuson
contended it did not infringe the Company's patents and further
contended that the Company was infringing a patent licensed to
Acuson which relates to the focusing of ultrasound systems.
Neither complaint specified damages. In May 1995, the parties
agreed to settle these disputes. As part of the settlement,
Acuson has agreed to pay the Company an undisclosed sum in the
form of royalty payments on multiplane TEE probes sold by Acuson
and the existing litigation has been dismissed. The Company and
Acuson also entered into a cross license of certain patents
including the patent licensed to Acuson. In 1991, the Company
had brought suit against the Hewlett-Packard Company for
infringement of one of the multiplane TEE patents in suit with
Acuson. The Hewlett-Packard suit was settled in 1992 under an
agreement by which Hewlett-Packard paid the Company an
undisclosed sum of money.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
(a) The Annual General Meeting of Shareholders was held on May 10, 1995.
(c) At the Annual General Meeting of Shareholders there were
four matters submitted to a vote of security holders. Proxies
were solicited pursuant to Section 14(a) of the Securities
Exchange Act of 1934 and the regulations of the Securities and
Exchange Commission adopted pursuant thereto. There was no
solicitation in opposition to management's nominees as listed in
the proxy statement. Each director nominated and proposal
submitted to a vote passed and the voting outcome of each
proposal is as follows:
(1) Election of Directors:
Kirby L. Cramer For: 12,026,145 Withheld: 78,502
Harvey Feigenbaum For: 12,018,516 Withheld: 86,131
Dennis C. Fill For: 12,011,974 Withheld: 92,673
Eugene A. Larson For: 12,024,846 Withheld: 79,801
John R. Miller For: 12,021,030 Withheld: 83,617
Phillip M. Nudelman For: 12,020,815 Withheld: 83,832
David M. Perozek For: 12,029,392 Withheld: 75,255
Edward Ray For: 12,017,063 Withheld: 87,584
Harry Woolf For: 12,017,323 Withheld 87,324
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PART II Other Information (continued)
(2) Adoption of the proposal to change the Company's state
of incorporation from Delaware to Washington by way of a merger
into a wholly-owned Washington subsidiary:
For: 10,166,493 Opposed: 72,289 Abstained: 55,077 Broker Non-votes: 1,810,788
(3) The adoption of an amendment to the Nonemployee Director
Stock Option Plan to increase the annual option grant of ATL
Common Stock for non-employee directors to 5,000 shares :
For: 10,097,776 Opposed: 1,807,144 Abstained: 110,969 Broker Non-votes: 88,758
(4) Ratification of Auditors - The Company proposal to
approve the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for 1995:
For: 12,022,252 Withheld: 38,327 Abstained: 44,068
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - None
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SIGNATURE
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.
ADVANCED TECHNOLOGY LABORATORIES, INC.
(Registrant)
DATE: August 10, 1995 BY: /s/ Harvey N. Gillis
--------------------------
Harvey N. Gillis
Senior Vice President
Finance and Administration
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1995 AND THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 17,105
<SECURITIES> 4,988
<RECEIVABLES> 109,345
<ALLOWANCES> 0
<INVENTORY> 103,704
<CURRENT-ASSETS> 246,356
<PP&E> 70,422
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<TOTAL-ASSETS> 332,465
<CURRENT-LIABILITIES> 104,795
<BONDS> 15,665
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 332,465
<SALES> 145,070
<TOTAL-REVENUES> 185,638
<CGS> 74,456
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<OTHER-EXPENSES> 84,478
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<INTEREST-EXPENSE> 273
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<INCOME-TAX> 665
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