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 September 29, 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; 13,416,647 shares outstanding as
of October 27, 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 [ ]
Page 1
ADVANCED TECHNOLOGY LABORATORIES, INC.
TABLE OF CONTENTS
PART I Financial Information: Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 29, 1995 (Unaudited) and December 31, 1994............3
Condensed Consolidated Statements of Operations
(Unaudited) - Three Months and Nine Months Ended
September 29, 1995 and September 30, 1994.......................4
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended September 29, 1995
and September 30, 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..............................................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
Page 2
PART I Financial Information
Item 1. Financial Statements
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) 9/29/95 12/31/94
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 16,125 $ 22,901
Receivables 107,488 105,500
Inventories 103,609 96,065
Prepaid expenses 3,312 2,261
Deferred income taxes 8,705 8,577
-------- --------
239,239 235,304
MARKETABLE DEBT SECURITY -- 4,988
PROPERTY, PLANT AND EQUIPMENT, NET 71,791 70,338
OTHER ASSETS 9,512 10,520
-------- --------
$320,542 $321,150
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 5,916 $ 1,842
Current installments of long-term debt 1,519 1,976
Accounts payable and accrued expenses 65,436 75,704
Deferred revenue 20,327 20,405
Taxes on income 3,438 2,354
-------- --------
96,636 102,281
LONG-TERM DEBT 15,810 17,688
DEFERRED REVENUE 8,742 5,533
DEFERRED INCOME TAXES 4,472 4,472
SHAREHOLDERS' EQUITY 194,882 191,176
-------- --------
$320,542 $321,150
======== ========
COMMON SHARES OUTSTANDING 13,395 13,330
See accompanying notes to condensed consolidated financial statements.
Page 3
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, Three months ended Nine months ended
except per share data) 9/29/95 9/30/94 9/29/95 9/30/94
REVENUES
Product sales $ 73,642 $ 67,472 $218,712 $203,550
Service 21,087 19,873 61,655 57,950
-------- -------- -------- --------
94,729 87,345 280,367 261,500
COST OF SALES
Product sales 38,703 36,106 113,159 110,133
Service 12,363 11,746 37,567 35,742
-------- -------- -------- --------
51,066 47,852 150,726 145,875
-------- -------- -------- --------
GROSS PROFIT 43,663 39,493 129,641 115,625
OPERATING EXPENSES
Selling, general and administrative 29,203 28,529 87,059 81,329
Research and development 12,580 15,105 37,439 41,553
Restructuring and relocation
expenses 1,838 -- 4,673 --
Merger and other costs -- -- -- 5,391
Other (income) expense, net 386 488 (686) 1,306
-------- -------- -------- --------
44,007 44,122 128,485 129,579
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (344) (4,629) 1,156 (13,954)
Investment income 455 538 1,226 1,695
Interest expense (537) (280) (1,581) (1,105)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (426) (4,371) 801 (13,364)
Income tax expense 316 387 981 1,039
-------- -------- -------- --------
NET LOSS $(742) $(4,758) $(180) $(14,403)
======== ======== ======== ========
Net loss per share $(0.06) $(0.36) $(0.01) $(1.10)
Weighted average common shares
outstanding 13,376 13,215 13,359 13,151
See accompanying notes to condensed consolidated financial statements.
Page 4
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
(In thousands) 9/29/95 9/30/94
OPERATING ACTIVITIES
Net loss $ (180) $ (14,403)
Non-cash charges (credits) to loss:
Depreciation and amortization 11,810 11,729
Gain on sale of property -- (105)
Changes in:
Receivables 1,037 8,583
Inventories (4,059) (6,677)
Accounts payable and accrued expenses (12,626) (3,216)
Deferred revenue 3,014 17
Taxes on income 1,104 (305)
Other (435) (1,027)
-------- --------
Cash used in operating activities (335) (5,404)
INVESTING ACTIVITIES
Decrease in short-term investments -- 20
Investment in property, plant and equipment (10,431) (9,001)
Proceeds from sale of property -- 3,224
Other (350) (389)
-------- --------
Cash used in investing activities (10,781) (6,146)
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowing 2,349 (5,013)
Repayment of long-term debt (2,616) (3,003)
Repurchase of common shares -- (369)
Exercise of stock options 697 361
-------- --------
Cash provided by (used in)
financing activities 430 (8,024)
Effect of exchange rate changes (1,078) (837)
-------- --------
Net decrease in cash and cash equivalents (11,764) (20,411)
Cash and cash equivalents, beginning of period 22,901 52,713
-------- --------
Cash and cash equivalents, end of period $11,137 $32,302
======== ========
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, 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 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.
Certain amounts reported in prior periods have been reclassified
to conform to the 1995 presentation.
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 has been accounted for as a pooling of interests
business combination; therefore, prior financial statements and
information have been restated to include Interspec as if the
companies had been combined for all periods presented.
3. Restructuring and Relocation Expenses
On February 15, 1995, the Company announced a new corporate
structure that would consolidate the Interspec operations located
in Ambler, Pennsylvania with the Company's headquarters
operations in Bothell, Washington. The Ambler consolidation has
been implemented as planned
Page 6
ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Restructuring and Relocation Expenses (continued)
with most functions transitioned to Bothell by the end of the
third quarter of 1995. Certain research and development activities
will continue in Ambler until early 1996 and the U.S. Cardiology
sales force will continue to be based in Ambler.
During fiscal 1995 the Company has reported $4,673 in restructuring
and relocation expenses, primarily related to the Ambler
consolidation. This year-to-date total includes charges for
severance, outplacement, and retention incentives for employees
not relocating to Bothell and expenses incurred for relocation of
employees and fixed assets involved in manufacturing and
administrative functions moved to Bothell. The remaining
relocations, reported as expense in the period incurred, should
be completed during the fourth quarter of 1995, and the Company
expects the total restructuring and relocation expenses reported
for 1995 will not exceed $6 million. 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.
9/29/95 12/31/94
-------- --------
Cash and cash equivalents $11,137 $22,901
Short-term investments 4,988 --
-------- --------
16,125 22,901
Long-term marketable debt security -- 4,988
-------- --------
$16,125 $27,889
======== ========
5. Inventories
9/29/95 12/31/94
-------- --------
Materials and work in progress $39,188 $33,477
Finished products 19,522 15,561
Demonstration 25,902 29,190
Customer service 18,997 17,837
-------- --------
$103,609 $96,065
======== ========
Page 7
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. Subsequent Event
On November 6, 1995 the Company announced it had entered into
agreements with Hitachi Medical Corporation ("HMC") under which
HMC will distribute the Company's products in Japan and the two
companies will establish a joint venture directed to the
development of advanced ultrasound technologies.
HMC's distribution of the Company's products in Japan will focus
on the Company's HDI(R) 3000 product line. HMC and the Company are
proceeding to obtain the necessary regulatory approvals for
distribution of this product line in Japan.
Additionally, under the agreements the Company will sell a
minority equity interest in a subsidiary which owns certain
advanced ultrasound technologies. The Company will receive a
$10 million cash payment for the sale of this equity interest and
expects to recognize a non-recurring gain of approximately $6 million
in the fourth quarter of 1995.
The development of new technologies by the jointly owned company
will be supported by both companies, with funding provided by HMC
based upon the achievement of certain development milestones. A
board of five directors composed of three representatives from
ATL and two from HMC will oversee the venture. The technology
resulting from this joint development will be available to both
companies for new product offerings and product features. The
Company will receive royalty payments based on HMC's revenues
from the jointly developed technology.
The companies plan to complete the transaction at a closing
within 30 days of the announcement.
Page 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
(In millions except Three months ended Nine months ended
per share data) 9/29/95 9/30/94 %Change 9/29/95 9/30/94 %Change
------- ------- ------- ------- ------- -------
Revenues $94.7 $87.3 8.5% $280.4 $261.5 7.2%
Gross Profit $43.7 $39.5 10.6% $129.6 $115.6 12.1%
Operating Expenses;
excluding merger and
other costs, restruct-
uring and relocation
expenses and benefit
for state tax audit $42.2 $44.1 (4.4%) $125.1 $124.2 0.7%
Merger and other costs -- -- -- $5.4
Restructuring and
relocation expenses $1.8 -- $4.7 --
Benefit related to
state tax audit -- -- $(1.3) --
Net Loss $(0.7) $(4.8) $(0.2) $(14.4)
Net Loss per Share $(0.06) $(0.36) $(0.01) $(1.10)
The Company reported a net loss of $0.7 million or $0.06 per
share in the third quarter of 1995 compared with a net loss of
$4.8 million or $0.36 per share in the third quarter of 1994.
The third quarter of 1995 results include non-recurring
restructuring and relocation expenses of $1.8 million or $0.14
per share primarily for the consolidation of the Company's
Interspec operations in Ambler, Pennsylvania to Bothell,
Washington. For the first nine months, the Company reported a
net loss of $0.2 million in 1995 compared with a net loss of
$14.4 million in 1994. The year-to-date 1995 results include a
net charge of $0.25 per share for non-recurring restructuring and
relocation expenses of $4.7 million, partially offset by an
operating expense benefit of $1.3 million resulting from a
favorable Washington state Business and Occupation (B&O) tax
audit. The year-to-date 1994 results include non-recurring
charges of $5.4 million or $0.41 per share primarily associated
with the acquisition of Interspec in May 1994.
The Company's worldwide revenues increased 8.5% to $94.7 million
in the third quarter of 1995 compared with $87.3 million in the
third quarter of 1994. In third quarter 1995, product sales
increased by $6.2 million and service revenue increased by $1.2
million over third quarter 1994. The increase in product sales
is due to the continued favorable shift in product mix toward the
Company's newer products, including the HDI 3000, the Company's
high performance, premium priced system and the mid-range Apogee(R)
product line. U.S. revenues increased over the third quarter of
1995 reflecting market acceptance of the Company's new products.
The Company
Page 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
expects continued uncertainty in the U.S. marketplace for the
foreseeable future, given the trends of health care provider
consolidation, competitive pressures and changes being proposed
in Congress for health care funding. Revenues in international
markets also increased compared with the third quarter 1994,
reflecting sales of the HDI 3000 and synergies achieved through
the integration 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 European direct operations where revenues are
denominated in local currency. Service revenues also increased
in the third quarter of 1995 primarily due to the Company's
growing presence in international markets, a larger installed
base and higher capture rates for maintenance contracts. For the
first nine months of 1995, total revenues grew by 7.2% to $280.4
million compared with $261.5 million in 1994, reflecting the key
factors discussed above.
Gross profit was $43.7 million in the third quarter of 1995
compared with $39.5 million in the same quarter of the prior
year. As a percent of total revenues, gross margin increased to
46.1% compared with 45.2% in the same period in the prior year.
The increase in gross margin is 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 nine months of 1995, gross profit was $129.6 million
compared to $115.6 million for the same period of 1994. Year-to-
date gross margins increased to 46.2% from 44.2% for the same
period in 1994, reflecting the impact of the same factors
discussed above.
Total operating expenses in the third quarter of 1995, excluding
restructuring and relocation expenses of $1.8 million, were $42.2
million compared with $44.1 million in the third quarter of 1994.
Selling, general and administrative expenses of $29.2 million
increased 2.4% over the third quarter of 1994, but declined as a
percent of revenues to 30.8% from 32.7% for the same period in
the prior year. The increase over the third quarter of 1994 is
primarily due to the expansion of the new product lines and
increased international sales activities during a weaker U.S.
dollar period. Research and development expense decreased 16.7%
to $12.6 million in the third quarter of 1995 compared with the
same period in 1994. The level of research and development has
decreased in 1995 after the introduction of the HDI 3000 in
October 1994.
Excluding the $4.7 million of restructuring and relocation
expenses and a $1.3 million Washington State B&O tax refund,
operating expenses for the first nine months of 1995 were $125.1
million compared with $124.2 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 slight
increase in operating expenses is due to expanded international
operations and market introduction programs for the HDI 3000,
mostly offset by lower research and development expenses after
the October 1994 introduction of the HDI 3000.
Page 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company incurred net interest expense during the third
quarter of 1995 of $0.1 million, compared with net interest
income of $0.3 million in during third quarter 1994. The change
is due to lower cash balances for investment and 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 third quarter of 1995 primarily
includes 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) 9/29/95 12/31/94
Cash and investments:
Cash and short-term investments $16.1 $22.9
Marketable debt security -- 5.0
------- -------
Total $16.1 $27.9
======= =======
Total Assets $320.5 $321.2
Long-term debt $15.8 $17.7
Shareholders' Equity $194.9 $191.2
Cash and investments totaled $16.1 million at September 29, 1995
compared with $27.9 million at December 31, 1994 and $22.1
million at the end of the second 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 Condensed Consolidated Statement of Cash Flows,
operating activities used $0.3 million of cash during the first
nine months of 1995. Accounts payable and accrued expenses
decreased by $12.6 million, reflecting seasonal fluctuations and
payment of 1994 accrued expenses related to the introduction of
the HDI 3000. Inventory levels increased by $4.1 million to
support the transition of Apogee product manufacturing to
Bothell, the introduction of new products and the increased level
of revenues. Deferred revenue increased by $3.0 million as a
result of the increased capture of multi-year maintenance
contracts. Cash used in investing activities totaled $10.8
million during the first nine months of 1995, primarily for
normal additions to property, plant and equipment. Financing
activities provided $0.4 million during the first nine months of
1995, primarily the net effect of the repurchase of $1.7 million
of 11% subordinated convertible debentures, the scheduled
repayment of long-term debt and $2.5 million provided by a 6.5%
reverse repurchase agreement, maturing on November 3, 1995 and
collateralized by the marketable debt security.
Page 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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 to be sufficient to meet
the Company's operating requirements for 1995.
Subsequent Event
On November 6, 1995 the Company announced it had entered into
agreements with Hitachi Medical Corporation ("HMC") under which
HMC will distribute the Company's products in Japan and the two
companies will establish a joint venture directed to the
development of advanced ultrasound technologies.
HMC's distribution of the Company's products in Japan will focus
on the Company's HDI 3000 product line. HMC and the Company are
proceeding to obtain the necessary regulatory approvals for
distribution of this product line in Japan.
Additionally, under the agreements the Company will sell a
minority equity interest in a subsidiary which owns certain
advanced ultrasound technologies. The Company will receive a
$10 million cash payment for the sale of this equity interest and
expects to recognize a non-recurring gain of approximately $6 million
in the fourth quarter of 1995.
The development of new technologies by the jointly owned company
will be supported by both companies, with funding provided by HMC
based upon the achievement of certain development milestones. A
board of five directors composed of three representatives from
ATL and two from HMC will oversee the venture. The technology
resulting from this joint development will be available to both
companies for new product offerings and product features. The
Company will receive royalty payments based on HMC's revenues
from the jointly developed technology.
The companies plan to complete the transaction at a closing
within 30 days of the announcement.
Page 12
PART II Other Information
Item 1. Legal Proceedings
In November 1992, a U.S. District Court in California granted a
motion by SRI International, Inc. ("SRI") requesting partial
summary judgment on a patent infringement claim relating to an
electrical circuit used in the Company's Ultramark 4 system and
two discontinued products. The patent expired in 1994. In
December 1994 the U.S. Federal Circuit Court of Appeals affirmed
the summary judgment obtained by SRI. SRI is claiming royalties
for past sales of these product and an enhancement of royalties
for willful infringement. A seven day trial to determine the
royalties due SRI and enhancements, if any, was completed in the
U.S. District Court for Northern California in October 1995. The
parties are presently awaiting the opinion of the court on these
issues. In the fourth quarter of 1994 the Company accrued a $5
million reserve against potential liabilities in this matter.
There can be no assurance the Company will not be subject to
claims of patent infringement by other parties or that such
claims will not require the Company to pay substantial damages or
delete certain features from its products or both.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security 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: November 13, 1996 BY: /s/ Harvey N. Gillis
------------------------------
Harvey N. Gillis
Senior Vice President
Finance and Administration
and Chief Financial Officer
Page 13