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 April 1, 1994
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)
Delaware 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; 10,532,962 shares outstanding
as of April 29, 1994
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
Page 1
ADVANCED TECHNOLOGY LABORATORIES, INC.
TABLE OF CONTENTS
PART I Financial Information:
Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 1, 1994 (unaudited) and December 31, 1993 3
Condensed Consolidated Statements of Income
(Unaudited) - Three Months Ended April 1, 1994
and April 2, 1993 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months ended April 1, 1994
and April 2, 1993 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 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
INDEX TO EXHIBITS 15
Page 2
PART I Financial Information
Item 1. Financial Statements
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) 4/1/94 12/31/93
(unaudited)
ASSETS
CURRENT ASSETS
Cash and short-term investments $52,799 $54,635
Receivables 87,363 85,794
Inventories 72,271 74,678
Prepaid expenses 1,477 1,305
Deferred income taxes 7,400 7,403
-------- --------
221,310 223,815
MARKETABLE DEBT SECURITY 4,988 4,988
PROPERTY, PLANT AND EQUIPMENT, NET 41,352 45,318
OTHER ASSETS, NET 2,646 2,577
-------- --------
$270,296 $276,698
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 573 $ 3,679
Accounts payable and accrued expenses 43,916 49,138
Deferred revenue 30,187 29,691
Taxes on income 4,530 4,763
-------- --------
79,206 87,271
DEFERRED INCOME TAXES 3,057 3,057
SHAREHOLDERS' EQUITY 188,033 186,370
-------- --------
$270,296 $276,698
======== ========
Common shares outstanding 10,525 10,508
See accompanying notes to condensed consolidated financial statements.
Page 3
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
(In thousands except per share data) 4/1/94 4/2/93
REVENUES
Product sales $60,145 $66,610
Service 15,751 14,789
------- -------
75,896 81,399
COST OF SALES
Cost of product sales 34,211 35,659
Cost of service 9,687 9,912
------- -------
43,898 45,571
GROSS PROFIT 31,998 35,828
OPERATING EXPENSES
Selling, general and administrative 20,602 22,326
Research and development 10,286 10,354
Other expense, net 354 1,598
------- -------
31,242 34,278
INCOME FROM OPERATIONS 756 1,550
Interest, net 395 704
------- -------
INCOME BEFORE INCOME TAXES 1,151 2,254
Provision for income taxes 409 337
------- -------
NET INCOME $ 742 $ 1,917
======= =======
Net income per share $0.07 $0.17
Weighted average common shares
and equivalents outstanding 10,570 11,348
See accompanying notes to condensed consolidated financial statements.
Page 4
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
(In thousands) 4/1/94 4/2/93
OPERATING ACTIVITIES
Net income $ 742 $ 1,917
Non-cash charges to income:
Depreciation and amortization 2,921 2,900
Gain on sale of property (105) --
Changes in:
Receivables (853) 3,913
Inventories 2,855 889
Accounts payable and accrued expenses (5,526) (5,186)
Deferred revenue 464 887
Taxes on income (254) (3)
Other 56 (428)
-------- --------
Cash provided by operations 300 4,889
INVESTING ACTIVITIES
(Increase) decrease in short-term investments (3,953) 6,589
Investment in long-term marketable debt security -- (4,988)
Investment in property, plant and equipment (1,741) (2,924)
Proceeds from sale of property 3,224 --
-------- --------
Cash used by investing activities (2,470) (1,323)
FINANCING ACTIVITIES
Decrease in short-term borrowings (3,106) (923)
Repurchase of common shares (369) (2,812)
Exercise of stock options 43 14
-------- --------
Cash used by financing activities (3,432) (3,721)
Effect of exchange rate changes (187) 71
-------- --------
Decrease in cash and cash equivalents (5,789) (84)
Cash and cash equivalents, beginning of period 52,590 30,498
-------- --------
Cash and cash equivalents, end of period $46,801 $30,414
======== ========
See accompanying notes to condensed consolidated financial statements.
Page 5
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 and
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 1993
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. Reclassifications
Certain amounts reported in previous years have been
reclassified to conform to the 1994 presentation.
3. Cash, Short-Term Investments, and 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. All investments are expected to be held to maturity
and are recorded at cost.
Page 6
ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Cash, Short-Term Investments, and Marketable Debt
Security (continued)
4/1/94 12/31/93
Cash and cash equivalents $46,801 $52,590
Short-term investments 5,998 2,045
------- -------
52,799 54,635
Long-term marketable debt
security 4,988 4,988
------- -------
$57,787 $59,623
======= =======
4. Inventories
4/1/94 12/31/93
Materials and work in process $19,816 $19,813
Finished products 13,056 14,958
Demonstration 19,935 20,061
Customer service 19,464 19,846
------- -------
$72,271 $74,678
======= =======
5. Share Repurchase Program
In February 1993, the Board of Directors authorized a plan
to repurchase up to 1,000,000 shares of the Company's common
stock in the open market subject to certain criteria to be
used to service the Company's employee benefit plans. The
Company repurchased 22,000 shares totaling $369 under this
program during the first quarter of 1994. In 1993, the
Company repurchased 794,000 shares totaling $13,441 under
this program.
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 as presented in the condensed
consolidated statements of income. Dilutive common share
equivalents are calculated under the treasury stock method
and consist of unexercised employee stock options.
Page 7
ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
7. Merger Agreement
In February 1994, the Company entered into a merger
agreement with Interspec, Inc. ("Interspec"), a manufacturer
of diagnostic medical ultrasound systems and transducers,
headquartered in Ambler, Pennsylvania. Pursuant to the
merger agreement, which is subject to approval by
shareholders of both companies at their respective
shareholder meetings on May 16, 1994, Interspec would become
a wholly owned subsidiary of the Company through an exchange
of 0.413 shares of the Company's common stock for each share
of Interspec stock. The transaction is expected to be
accounted for as a pooling-of-interests.
The Company has filed a joint proxy/prospectus statement
with the Securities and Exchange Commission which became
effective on April 18, 1994 and which more fully describes
the proposed merger.
Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
(In millions) 4/1/94 4/2/93 % Change
Revenues $75.9 $81.4 (6.8%)
Gross Profit $32.0 $35.8 (10.7%)
Operating Expenses $31.2 $34.3 (8.9%)
Net Income $ .7 $ 1.9 (61.3%)
Net Income per Share $0.07 $0.17 (58.8%)
The Company reported net income of $.7 million or $0.07 per
share in the first quarter of 1994, compared with net income
of $1.9 million or $0.17 per share in the first quarter of
1993. The decrease in net income reflects lower revenues and
gross profit, partially offset by a reduction in operating
expenses compared with the same period of 1993.
The Company's revenues decreased 6.8% to $75.9 million in the
first quarter of 1994 compared with $81.4 million in the first
quarter of 1993. A $6.5 million decrease in product sales was
partially offset by an increase in service revenues of $1.0
million over the first quarter of 1993. The Company believes
the lower revenues primarily reflect the continued constrained
and competitive market conditions caused by both structural
consolidations within the health care system and the uncertain
impact of pending health care reform legislation.
International revenues were adversely impacted by the
continued weakness of the European economies and the
strengthening of the U.S. dollar compared with the same period
in the prior year. The Company is unable to anticipate when
the constrained market conditions will improve.
Gross profit was $32.0 million in the first quarter of 1994,
compared with $35.8 million in the first quarter of 1993. As
a percent of revenues, gross margin decreased to 42.2%,
compared with 44.0% in the prior year. The decline in gross
profit reflects adverse impacts of lower volumes, competitive
price pressures, manufacturing variances, and changing product
configurations in the high performance product market segment.
These factors were partially offset by continued changes in
the Company's product mix with sales of the Ultramark(R) 9 High
Definition(TM) Imaging (HDI (TM)) systems increasing as a percent of
total product sales. Service gross profit and margins
increased over the first quarter of 1993, reflecting the
growing installed base of the Company's products and improved
efficiencies in the service operations.
Page 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Operating expenses in the first quarter of 1994 decreased 8.9%
to $31.2 million from $34.3 million in the first quarter in
1993. Lower selling, general and administrative expenses
reflect cost cutting measures implemented by the Company in
the third quarter of 1993, including an 11% reduction in
workforce in August 1993. This decrease was partially offset
by increased selling, general, and administrative expenses
related to the expansion of the Company's sales activities in
Asia, the Pacific region and Latin America. The Company
opened a new sales and customer service subsidiary in
Argentina in the first quarter of 1994. Research and
development expenses of $10.3 million were comparable to the
1993 first quarter levels. As a percent of revenues, research
and development expenses were 13.6%, up from 12.7%
in the prior year. Planned increases in new and sustaining
product development programs are expected to result in an
increase in research and development expenses through the
remainder of 1994. Other expense, net, decreased from the
same period of the prior year mainly due to lower foreign
exchange losses and the inclusion in first quarter of 1993 of
expenses related to the relocation of a transducer
manufacturing facility of the Company from California to
Bothell, Washington.
Planned increases in research and development spending together
with anticipated lower business levels could result in the Company
reporting an operating loss in the second quarter of 1994.
In February 1994, the Company announced it had entered into a
merger agreement with Interspec, Inc., a manufacturer of
diagnostic medical ultrasound systems and transducers,
headquartered in Ambler, Pennsylvania. The transaction is
subject to approval by both companies' shareholders on May 16,
1994 and other customary conditions. The waiting period for the
companies' Hart-Scott-Rodino filing expired without
objection. Expenses of $2.3 million incurred by the companies
for investment advisory, legal, accounting and other costs
associated with the proposed merger will be reported in the
second quarter of 1994. In addition, assuming the merger of
the Company and Interspec is approved by shareholders of both
companies, the Company is anticipating incurring expenses of
approximately $2 million related to the integration of the two
companies' operations.
The Company is subject to certain rules and regulations of the
Food and Drug Administration ("FDA") regarding the design,
documentation, manufacture, marketing, and reporting of the
performance of its products. Following a routine inspection
by the FDA and the issuance of a warning letter to the Company
in 1992, the Company put into place expanded programs of
documentation, process control, and continuous quality
improvement to enhance regulatory compliance. During the
latter half of 1993 and early 1994, the FDA conducted a follow-
up inspection. In March 1994, the Company received the FDA's
observations from the follow-up inspection, which the Company
believes will not lead to further regulatory action by the
FDA. The Company also received observations from a routine
FDA inspection of the Mahwah, New Jersey facility, which the
Company believes will not lead to further regulatory actions
by the FDA.
Page 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
In February 1994, the Company filed a Premarket Approval
("PMA") application with the FDA for the use of the Company's
HDI ultrasound system to distinguish benign from malignant
breast disease. In April 1994, the Company was notified that
the FDA has accepted the PMA application, its protocol and
data as being complete by filing the application for review,
and has also granted the PMA application an expedited review and
appointed an internal reviewing group to begin the FDA's review
of the application.
CAPITAL RESOURCES AND LIQUIDITY
(In millions) 4/1/94 12/31/93
Cash and investments
Cash and short-term investments $52.8 $54.6
Marketable debt security 5.0 5.0
----- -----
Total $57.8 $59.6
Total Assets $270.3 $276.7
Shareholders' Equity $188.0 $186.4
Cash and investments totalled $57.8 million at April 1, 1994
compared with $59.6 million at December 31, 1993.
As shown in the Statement of Cash Flows, operating
activities generated cash flows of $.3 million during the
first quarter of 1994. Operating activities consist of net
income adjusted for depreciation and amortization and net
changes in operating assets and liabilities.
The sale of the Company's former manufacturing facility in
Germany was completed during the first quarter of 1994,
generating cash proceeds of $3.2 million and resulting in a
$0.1 million gain. The proceeds from the sale of the
property were used to pay off the outstanding balance of a
foreign line of credit used by the Company's German
subsidiary. Investing activities also included $1.7 million
invested in normal additions to property, plant and
equipment during the first quarter of 1994.
Page 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company repurchased 22,000 shares of its common stock
for $.4 million during the first quarter of 1994, under a
share repurchase plan authorized by the Board of Directors
in February 1993. Under the program, the Company is
authorized to purchase up to 1,000,000 shares and has
purchased a total of 816,000 shares as of April 1, 1994.
The Company has currently suspended share repurchases due to
the pending merger with Interspec.
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. The
Company anticipates its existing capital resources and funds
generated from operations should be sufficient to meet the
Company's operating requirements in the next year.
Page 12
PART II Other Information
Item 1. Legal Proceedings - Not applicable.
Item 2. Changes in Securities - Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- Not applicable.
Item 5. Other Items - Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits are included at the back of this Form 10-Q and
are described in the Exhibit Index immediately preceding the
first exhibit.
(b) Reports on Form 8-K
On February 17, 1994, the Company filed a report on Form 8-K
announcing that it had entered into a merger agreement with
Interspec, Inc. whereby Interspec would become a wholly
owned subsidiary of the Company through an exchange of
0.3835 shares of the Company's stock for each share of
Interspec stock, based on the purchase method of accounting.
On March 4, 1994, the Company filed a report on Form 8-K
announcing that it had amended and restated its merger
agreement with Interspec, whereby the exchange ratio
applicable to the merger was adjusted to be 0.413 shares of
the Company's stock for each share of Interspec stock, as a
result of the determination that the pooling-of-interests
method of accounting was appropriate for the merger
transaction.
Page 13
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 5, 1994 BY: /s/ Harvey N. Gillis
-----------------------------------
Harvey N. Gillis
Senior Vice President
Finance and Administration
and Chief Financial Officer
Page 14
Index to Exhibits
Exhibit
No. Exhibit Page
99.1 Amended and Restated Agreement of Merger --
dated as of February 10, 1994, previously filed with
and incorporated herein by reference to Appendix I
of the Joint Proxy Statement/Prospectus to the
Company's Registration Statement on Form S-4,
Registration No. 33-53161, filed on April 18, 1994.
Page 15