SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 29, 1996
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 Employer
Identification No.)
22100 Bothell-Everett
Highway
Post Office Box 3003 98041-3003
Bothell, Washington (Zip Code)
(Address of principal
executive offices)
(206) 487-7000
(Telephone number)
Common stock, $0.01 par value; 14,017,877 shares outstanding
as of April 26, 1996
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
1
ADVANCED TECHNOLOGY LABORATORIES, INC.
TABLE OF CONTENTS
PART I Financial Information Page No.
- ------ --------------------- --------
Item 1. Financial Statements
--------------------
Condensed Consolidated Balance Sheets -
March 29, 1996 (Unaudited) and December 31, 1995 3
Condensed Consolidated Statements of Operations
(Unaudited) - Three Months Ended March 29, 1996
and March 31, 1995 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months ended March 29, 1996 and
March 31, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operation 8
----------------------------------
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 12
-----------------
Item 6. Exhibits and Reports on Form 8-K 12
--------------------------------
2
PART I Financial Information
- ------ ---------------------
ITEM 1. Financial Statements
--------------------
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------
(In thousands) 3/29/96 12/31/95
- -----------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 52,223 $ 35,654
Receivables, net 109,985 129,226
Inventories 91,390 94,877
Prepaid expenses 2,705 3,007
Deferred income taxes, net 9,070 9,048
----------------------
Total current assets 265,373 271,812
PROPERTY, PLANT AND EQUIPMENT, NET 70,514 71,130
OTHER ASSETS, NET 10,348 10,506
----------------------
$346,235 $353,448
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 3,397 $ 2,911
Current portion of long-term debt 560 555
Accounts payable and accrued expenses 66,462 79,903
Deferred revenue 21,514 21,038
Taxes on income 5,016 5,824
----------------------
Total current liabilities 96,949 110,231
LONG-TERM DEBT 13,408 14,837
OTHER LONG-TERM LIABILITIES 19,068 17,457
SHAREHOLDERS' EQUITY 216,810 210,923
----------------------
$346,235 $353,448
======================
- -----------------------------------------------------------------
Common shares outstanding 13,884 13,610
- ----------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
3
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
- ----------------------------------------------------------------
(In thousands, except per share data) 3/29/96 3/31/95
- -----------------------------------------------------------------
REVENUES
Product sales $73,477 $74,200
Service 21,322 20,162
-------------------
94,799 94,362
-------------------
COST OF SALES
Cost of product sales 37,098 38,426
Cost of service 12,604 12,525
-------------------
49,702 50,951
-------------------
GROSS PROFIT 45,097 43,411
OPERATING EXPENSES, NET
Selling, general and administrative 29,482 28,607
Research and development 11,770 12,612
Restructuring expenses -- 2,500
Other expense (income), net 354 (557)
-------------------
41,606 43,162
-------------------
INCOME FROM OPERATIONS 3,491 249
Interest income 668 363
Interest expense (447) (538)
-------------------
INCOME BEFORE INCOME TAXES 3,712 74
Income tax expense 742 348
-------------------
NET INCOME (LOSS) $2,970 $(274)
===================
Net income (loss) per share $0.20 $(0.02)
Weighted average common shares
and equivalents outstanding 14,615 13,340
- -----------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
4
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
- -------------------------------------------------------------------------
(In thousands) 3/29/96 3/31/95
- -------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 2,970 $ (274)
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities:
Depreciation and amortization 3,638 4,126
Changes in:
Receivables, net 18,521 673
Inventories 3,024 (761)
Accounts payable and accrued expenses (13,127) (9,067)
Deferred revenue 1,268 3,766
Taxes on income (822) 491
Other 192 (716)
------------------
Cash provided (used) by operations 15,664 (1,762)
INVESTING ACTIVITIES
Investment in property, plant and equipment (2,586) (3,063)
Proceeds from maturing short-term investments 4,988 --
------------------
Cash provided (used) by investing activities 2,402 (3,063)
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 486 (399)
Repayment of long-term debt (211) (78)
Exercise of stock options 2,377 360
-----------------
Cash provided (used) by financing activities 2,652 (117)
Effect of exchange rate changes 839 (47)
-----------------
Increase (decrease) in cash and cash equivalents 21,557 (4,989)
Cash and cash equivalents, beginning of period 30,666 22,901
-----------------
Cash and cash equivalents, end of period $52,223 $17,912
==================
- --------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
5
ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements contain
the accounts of Advanced Technology Laboratories, Inc. (ATL), which
includes its subsidiaries and is referred to as the "Company." ATL
develops, manufactures, markets and services diagnostic medical ultrasound
systems worldwide. The Company sells its products to hospitals, clinics
and physicians for use in radiology, cardiology, obstetrics and gynecology,
vascular, musculoskeletal and intraoperative 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 included
in the Company's 1995 Form 10-K.
The information furnished reflects, in the opinion of 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. RESTRUCTURING EXPENSES
During 1995, the Company implemented a new corporate structure which
consolidated the Company's operations located in Ambler, Pennsylvania with
the Company's headquarters operations in Bothell, Washington. The
consolidation has been implemented as planned and resulted in the relocation
of Ambler manufacturing, administrative and research and development (R&D)
functions to Bothell and a net reduction of approximately 100 full-time
positions. The Company incurred restructuring expenses for severance,
outplacement and employee retention incentives of $2,500 during the first
quarter of 1995. At March 29, 1996, substantially all amounts accrued for
restructuring expenses have been paid and no further expenses are expected.
6
ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. CASH AND SHORT-TERM EXPENSES
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.
3/29/95 12/31/95
---------- ----------
Cash and cash equivalents $52,223 $30,666
Short-term investment -- 4,988
---------- ----------
$52,223 $35,654
========== ==========
4. INVENTORIES
3/29/96 12/31/95
---------- ----------
Materials and work in progress $33,136 $33,198
Finished products 17,904 22,007
Demonstrator equipment 19,133 19,825
Customer service 21,217 19,847
---------- ----------
$91,390 $94,877
========== ==========
5. 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 as
presented in the condensed consolidated Statements of Operations. Dilutive
common share equivalents are calculated under the treasury stock method and
consist of unexercised employee stock options. Primary and fully diluted
earnings per share are equivalent for all periods presented.
6. LONG-TERM DEBT
On February 1, 1996, the remaining 11% subordinated convertible debentures
totaling $1,213 were converted by the Company into 71,577 shares of the
Company's common stock in accordance with the conversion ratio stated in
the debenture agreements.
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
---------------------
Three months ended
- ------------------------------------------------------------------------
(In millions, except per share data) 3/29/96 3/31/95 % Change
- ------------------------------------------------------------------------
Revenues $94.8 $94.4 0.5%
Gross profit $45.1 $43.4 4%
% of Revenues 47.6% 46.0%
Operating expenses; excluding
restructuring expenses and benefit
for state tax audit $41.6 $42.0 (1%)
Restructuring expenses -- $ 2.5
Benefit related to state tax audit -- $(1.3)
Net income (loss) $3.0 $(0.3)
Net income (loss) per share $0.20 $(0.02)
- -------------------------------------------------------------------------
The Company reported net income of $3.0 million or $0.20 per share in the
first quarter of 1996, compared with a net loss of $0.3 million or $0.02
per share in the first quarter of 1995. The 1995 net loss included a $2.5
million non-recurring restructuring charge related to the consolidation of
the Company's operations in Ambler, Pennsylvania with the Company's
headquarters in Bothell, Washington and a $1.3 million non-recurring
operating expense benefit for a Washington State Business and Occupation
tax refund. Excluding non-recurring items, net income in the first quarter
of 1995 was $926,000 or $0.07 per share.
The Company's total revenues increased 0.5% to $94.8 million in the first
quarter of 1996 compared with $94.4 million in the first quarter of 1995.
Compared with the same period in the prior year, product revenues were down
slightly to $73.5 million and service revenues increased by $1.2 million to
$21.3 million. Product sales reflect the continued success of the Company's
fourth generation, all-digital HDI(R) 3000 system, partially offset by the
transitioning of some of the Company's older products, most notably the
Ultramark(R) 4, which has been phased out of production. Service revenues
increased in the first quarter of 1996 due to growth in international markets
and an increased installed base. International revenues were strong in
first quarter of 1996 compared with the first quarter of 1995, while the
Company's U.S. revenues continue to be effected by slow market conditions.
On April 12, 1996, the Company announced that the U.S. Food and Drug
Administration (FDA) approved the Company's premarket approval (PMA)
submission for use of High Definition(TM) Imaging (HDI) in diagnosing breast
tumors. The newly approved breast ultrasound procedure, when used as an
adjunct to mammography and physical examinations, may reduce the number of
breast biopsies performed by 40%. The Company is the first medical imaging
company to receive PMA approval for a clinical application and will file a
PMA supplement to add this new application to the HDI 3000 system. The
Company has
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (Continued)
- ---------------------
begun marketing the HDI product for use under this application.
Gross profit increased $1.7 million to $45.1 million in the first quarter of
1996, compared with $43.4 million in the first quarter of 1995. Gross
margin increased to 47.6% compared with 46.0% in the prior year. The
increase in gross margin is due to the continuing shift in product mix to
the higher margin HDI 3000 and Apogee(R) product lines. The improved gross
margin also reflects the results of consolidation of the Company's
manufacturing operations and progress with cost reduction programs. The
favorable change in gross margin is partially offset by the lower unit
volumes due to the phase-out of the Company's older product lines,
including the Ultramark 4 and the Ultramark 9DP systems.
Operating expenses, excluding the non-recurring items in 1995 discussed
below, decreased 1% in the first quarter of 1996 to $41.6 million from $42.0
million and decreased as a percentage of revenues to 43.9% from 44.5%.
Including non-recurring items, operating expenses in the first quarter of
1995 were $43.2 million. Research and development expenses decreased to
$11.8 million, or 12.4% of total revenues, from $12.6 million, or 13.4% of
total revenues. The decrease in R&D expenses is partially a result of the
consolidation of Ambler operations in 1995. During first quarter of 1996,
R&D expenses incurred on an R&D joint venture project were offset by funding
received from Hitachi Medical Corporation upon the achievement of a defined
development milestone. The benefit of the consolidation of Ambler operations
was offset by normal inflation and timing of certain programs causing
selling, general and administrative expenses, excluding non-recurring items,
to increase 2% to $29.5 million.
On February 27, 1996, the Company, together with the University of
Washington, announced plans to develop a handheld ultrasound device to be
used on battlefields and in other emergency situations. The U.S. Department
of Defense selected the project for matched funding, contributing
approximately half of the estimated costs with the remaining funding coming
from the project consortium which includes the Company, the University of
Washington, Harris Semiconductor and VLSI Technology.
During 1995, the Company implemented a new corporate structure which
consolidated the Company's operations located in Ambler, Pennsylvania with
the Company's headquarters operations in Bothell, Washington. The
consolidation was implemented as planned and resulted in the relocation of
Ambler manufacturing, administrative and R&D functions to Bothell and
a net reduction of approximately 100 full-time positions. The Company
incurred non-recurring restructuring expenses for severance, outplacement
and employee retention incentives of $2.5 million during the first quarter
of 1995. The Company incurred no corresponding expense in the first quarter
of 1996.
Other expense (income), net, in the first quarter of 1995 includes a
non-recurring credit of $1.0 million for a Washington State Business and
Occupation (B&O) tax refund which resulted from a favorable tax audit.
B&O tax is imposed on gross receipts for products manufactured in the State
of Washington and is included in other operating expenses.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (Continued)
- ---------------------
The Company earned net interest income during the quarter of $0.2 million,
compared with net interest expense of $0.2 million in the first quarter of
1995. Net interest income increased primarily due to higher cash balances
available for investment.
Income tax expense for the first quarter of 1996 was $0.7 million,
representing a 20% effective tax rate for U.S. federal, state and foreign
income taxes. For the first quarter of 1995, income tax expense of
$0.3 million included primarily foreign and state income taxes.
CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
-------------------------------------------------------------------
(In millions) 3/29/96 12/31/95
-------------------------------------------------------------------
Cash and short-term investments $52.2 $35.7
Total Assets $346.2 $353.4
Long-term Debt $13.4 $14.8
Shareholders' Equity $216.8 $210.9
--------------------------------------------------------------------
Cash and short-term investments totaled $52.2 million at March 29, 1996
compared with $35.7 million at December 31, 1995. The increase in cash and
short-term investments resulted from net income during the quarter, the
Company's asset management programs and a receipt of $2.3 million from
Hitachi Medical Corporation based on the achievement of a product development
milestone under an R&D joint venture project. As shown in the Statements of
Cash Flows, during the first quarter of 1996, the Company generated cash from
operating activities of $15.7 million. At March 29, 1996, accounts
receivables decreased $18.5 million and accounts payable and accrued
expenses decreased $13.1 million from those amounts as of December 31, 1995.
These decreases reflect the seasonally high activity levels in the fourth
quarter of 1995.
On February 1, 1996, the Company converted the remaining $1.2 million of its
11% subordinated convertible debentures into 71,577 shares of the Company's
common shares.
In addition to its cash balances, the Company has available domestic
unsecured credit facilities of $25 million, including a committed line of
credit of $15 million. Barring any unforeseen circumstances or events,
management expects existing cash and available credit lines and funds
from operations to be sufficient to meet the Company's operating
requirements for 1996.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (Continued)
- ---------------------
FORWARD LOOKING INFORMATION
As an update to the forward looking information provided in the Company's
1995 Annual Report to the Shareholders, the Company provides the following
information.
The Company expects revenues for the second quarter of 1996 to be in the same
range as revenues reported for the first quarter of the year. The Company
anticipates a continuation of improvement in its gross margin in the second
quarter. Operating expenses are expected to rise in the second quarter over
those of the first quarter of 1996 as scheduled growth in R&D programs takes
place and the Company embarks on planned marketing programs.
The above statements are forward looking statements that involve a number of
risks and uncertainties and should be read in conjunction with the 1995
Annual Report which is incorporated by reference on the Company's 1995 Form
10-K. There are certain important factors that could cause actual results to
differ materially from those anticipated by the Company, which include the
following factors. The U.S. ultrasound market remains sluggish and may
cause revenue growth to fall short of expectations. Several of the
Company's competitors have announced new ultrasound products in the past six
months, including two competitors who announced new ultrasound products in
April 1996. These factors could increase competition in the ultrasound
market, which may adversely impact the Company's sales order volume or timing
or selling prices or all of these factors. Unanticipated events, such as
delays in the Company's product development and cost reduction programs, the
unavailability of components critical to the Company's products due to natural
disasters, changes in vendor relationships or otherwise, a stronger U.S.
dollar, delays or disruptions resulting from delays in obtaining regulatory
approvals or from other regulatory actions, or a patent litigation judgment
in excess of the provision accrued by the Company could adversely impact the
Company's financial results for the second quarter and the year. Changes in
the Company's strategy resulting from competitive pressures, reallocation
of research and development or other priorities and resources, or
reallocation of resources for unanticipated opportunities also may affect
operating results.
11
PART II OTHER INFORMATION
- ------ -----------------
Item 1. LEGAL PROCEEDINGS - None
-----------------
Item 2. CHANGES IN SECURITIES - None
---------------------
Item 3. DEFAULTS UPON SENIOR SECURITES - None
------------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS - None
----------------------------------------------------
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
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: May 10, 1996 BY: /s/ Harvey N. Gillis
-------------------------------
Harvey N. Gillis
Senior Vice President
Finance and Administration
and Chief Financial Officer
12
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