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 28, 1997
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)
(425) 487-7000
(Telephone number)
Common stock, $0.01 par value; 14,044,828 shares
outstanding as of April 25, 1997
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 28, 1997 (Unaudited) and December 31, 1996......3
Condensed Consolidated Statements of Operations
(Unaudited) - Three Months Ended March 28, 1997
and March 29, 1996....................................4
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months ended March 28, 1997
and March 29, 1996....................................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......................................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
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Item 5. Other Information......................................13
-----------------
Item 6. Exhibits and Reports on Form 8-K.......................13
--------------------------------
2
PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements
--------------------
ADVANCED TECHNOLOGY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------
(In thousands) 3/28/97 12/31/96
- --------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 75,247 $ 63,262
Receivables, net 106,113 126,924
Inventories 86,016 89,911
Prepaid expenses 3,336 2,777
Deferred income taxes, net 18,198 18,246
-------------------
Total current assets 288,910 301,120
PROPERTY, PLANT AND EQUIPMENT, NET 71,687 72,400
OTHER ASSETS, NET 5,779 6,681
-------------------
$366,376 $380,201
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 246 $ 507
Current portion of long-term debt 558 584
Accounts payable and accrued expenses 58,833 69,855
Accrual for litigation claim 36,120 35,636
Deferred revenue 16,750 19,351
Taxes on income 7,429 8,893
-------------------
Total current liabilities 119,936 134,826
LONG-TERM DEBT 12,648 12,936
OTHER LONG-TERM LIABILITIES 22,110 21,189
SHAREHOLDERS' EQUITY 211,682 211,250
-------------------
$366,376 $380,201
===================
- ---------------------------------------------------------------
Common shares outstanding 14,135 14,023
- ---------------------------------------------------------------
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) 3/28/97 3/29/96
- -------------------------------------------------------------
REVENUES
Product sales $77,714 $73,477
Service 22,404 21,322
------------------
100,118 94,799
------------------
COST OF SALES
Cost of product sales 39,816 37,098
Cost of service 12,522 12,604
------------------
52,338 49,702
------------------
GROSS PROFIT 47,780 45,097
OPERATING EXPENSES, NET
Selling, general and administrative 30,206 29,027
Research and development 14,764 12,225
Other expense, net 356 354
------------------
45,326 41,606
------------------
INCOME FROM OPERATIONS 2,454 3,491
Interest income 854 668
Interest expense (742) (447)
------------------
INCOME BEFORE INCOME TAXES 2,566 3,712
Income tax expense 514 742
------------------
NET INCOME $ 2,052 $ 2,970
==================
Net income per share $0.14 $0.20
Weighted average common shares
and equivalents outstanding 14,902 14,615
- -----------------------------------------------------------
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) 3/28/97 3/29/96
- --------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 2,052 $ 2,970
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 4,040 3,638
Deferred income tax expense 48 -
Changes in:
Receivables, net 18,545 18,521
Inventories 2,754 3,024
Accounts payable and accrued expenses (9,940) (13,127)
Accrual for litigation claim 484 -
Deferred revenue (1,799) 1,268
Taxes on income (1,408) (822)
Other 353 192
------------------
Cash provided by operations 15,129 15,664
INVESTING ACTIVITIES
Investment in property, plant and
equipment (2,903) (2,586)
Proceeds from maturing short-term
Investments - 4,988
------------------
Cash provided (used) by
investing activities (2,903) 2,402
FINANCING ACTIVITIES
Increase (decrease) in short-term
borrowings (261) 486
Repayment of long-term debt (314) (211)
Repurchase of common shares (1,617) -
Exercise of stock options 1,867 2,377
------------------
Cash provided (used) by
financing activities (325) 2,652
Effect of exchange rate changes 84 839
------------------
Increase in cash and cash equivalents 11,985 21,557
Cash and cash equivalents, beginning
of period 63,262 30,666
------------------
Cash and cash equivalents, end
of period $ 75,247 $ 52,223
===================
- --------------------------------------------------------------
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
include the accounts of Advanced Technology Laboratories,
Inc. (ATL), which includes its subsidiaries and is referred
to as the "Company." The Company 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,
women's health care, 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 1996
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.CASH AND CASH EQUIVALENTS
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.Inventories
3/28/97 12/31/96
-------- ---------
Materials and work in process $30,300 $30,132
Finished products 15,440 20,481
Demonstrator equipment 21,092 19,643
Customer service 19,184 19,655
-------- ---------
$86,016 $89,911
======== =========
6
ADVANCED TECHNOLOGY LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
4. ACCRUAL FOR LITIGATION CLAIM
The Company accrued a provision for a patent litigation
claim of $29,557 in the second quarter of 1996 in addition
to $5,000 previously accrued in 1994. The underlying
lawsuit was filed by SRI International (SRI) on July 15,
1991 in the U.S. District Court for the Northern District of
California and concerns a patent on an electrical circuit
allegedly used in three of ATL's discontinued products.
The patent expired in 1994 and the circuit in dispute has
never been used in any of ATL's current product lines. The
court granted a motion by SRI requesting partial summary
judgment on liability in November 1992 and the U.S. Court of
Appeals for the Federal Circuit affirmed the summary
judgment in December 1994. In May 1996, the District Court
awarded damages to SRI of $27,948 plus interest and legal
fees. The Company has appealed the amount of damages
awarded and has posted a supersedeas bond secured by a
letter of credit collateralized by cash and cash
equivalents. The Company will continue accruing interest
during the appeal process.
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. RECLASSIFICATIONS
Certain amounts reported in previous years have been
reclassified to conform to the 1997 presentation.
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) 3/28/97 3/29/96 % Change
- -------------------------------------------------------------------
Revenues $100.1 $94.8 5.6%
Gross profit $47.8 $45.1 5.9%
Operating expenses $45.3 $41.6 8.9%
Net income $2.1 $3.0
Net income per share $0.14 $0.20
- -------------------------------------------------------------------
The Company reported net income of $2.1 million or $0.14 per
share in the first quarter of 1997, compared with net income
of $3.0 million or $0.20 per share in the first quarter of
1996.
REVENUES AND GROSS PROFIT
- -------------------------
The Company's worldwide revenues grew 5.6% to $100.1 million
in the first quarter of 1997 compared with $94.8 million in
the first quarter of 1996. Total product sales increased $4.2
million over the first quarter of 1996 to $77.7 million. The
increase in product sales reflects the continued success of
the HDI 3000 product family in both the U.S. and international
markets. Service revenues increased by $1.1 million compared
to the first quarter of 1996, primarily due to the continued
growth in the worldwide installed base of ATL's products.
Gross profit increased $2.7 million to $47.8 million in the
first quarter of 1997, compared with $45.1 million in the
first quarter of 1996. Higher gross profits are primarily due
to increased sales volume. Worldwide gross margin increased
slightly to 47.7% compared with 47.6% in the same period of
the prior year.
In October 1996, the Company announced a technology transfer
agreement with Shantou Institute of Ultrasonic Instruments
(SIUI), a major manufacturer of ultrasound systems in the
People's Republic of China (PRC). In accordance with the
agreement, the Company will transfer the Apogee 800PLUS
ultrasound system manufacturing technology and exclusive
distribution rights of the ultrasound system in the PRC to
SIUI. The technology transfer began in fourth quarter 1996
and will continue throughout 1997. The Company will continue
to manufacture and distribute the Apogee 800PLUS system for
worldwide distribution outside of China.
8
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations (Continued)
-----------------------------------
OPERATING EXPENSES, NET
- -----------------------
Total operating expenses increased 8.9% in the first quarter
of 1997 to $45.3 million, compared with $41.6 million in the
first quarter of 1996. Operating expenses as a percentage of
revenues increased to 45.3% from 43.9%. Selling, general, and
administrative expenses increased 4.1%, or $1.2 million,
during the first quarter of 1997 to $30.2 million. This
increase relates primarily to product launch costs associated
with the new HDI 1000 as well as normal salary increases.
Research and development expenses increased 20.8% to $14.8
million in the first quarter of 1997 from $12.2 million in the
first quarter of 1996. The increase in R&D expenses is
primarily due to new product development programs including
costs related to the recently introduced HDI 1000 system.
ACCRUAL FOR LITIGATION CLAIM
- ----------------------------
ATL accrued a non-recurring provision for a patent
litigation claim of $29.6 million in the second quarter of
1996 in addition to $5.0 million which had been accrued in
1994. The underlying lawsuit was filed by SRI International
(SRI) on July 15, 1991 in the U.S. District Court for the
Northern District of California and concerns a patent on an
electrical circuit allegedly used in three of ATL's
discontinued products. The patent expired in 1994 and the
circuit in dispute has never been used in any of ATL's
current product lines. The court granted a motion by SRI
requesting partial summary judgment in November 1992 and the
U.S. Court of Appeals for the Federal Circuit affirmed the
summary judgment in December 1994. In May 1996, the
District Court awarded damages to SRI of $27.9 million plus
interest and legal fees. The Company has appealed the
amount of damages awarded and posted a supersedeas bond in
June, 1996 secured by a letter of credit collateralized by
cash and cash equivalents.
INTEREST INCOME AND EXPENSE
- ---------------------------
The Company had net interest income of $0.1 million during
the first quarter of 1997, as compared to $0.2 million
during the first quarter of 1996. Net interest income
includes interest income earned on both cash balances
available for investment and extended receivables, offset by
post-judgment interest expense accrued on the damages
awarded for the patent litigation claim discussed above.
TAXES AND NET INCOME
- --------------------
For first quarter 1997, the Company reported income tax
expense of $0.5 million, which represents a 20% effective
tax rate for U.S. federal, state and foreign income. For
the first quarter of 1996, income tax expense was $.7
million.
9
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations (Continued)
-----------------------------------
CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
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(In millions) 3/28/97 12/31/96
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Cash and cash equivalents $ 75.2 $ 63.3
Total Assets $366.4 $380.2
Long-term debt $ 12.6 $ 12.9
Shareholders' Equity $211.7 $211.3
-------------------------------------------------------
Cash and cash equivalents totaled $75.2 million at March 28,
1997 compared with $63.3 million at December 31, 1996. As
shown in the Condensed Consolidated Statements of Cash
Flows, during the first quarter of 1997, the Company
generated cash from operating activities of $15.1 million.
At March 28, 1997, receivables, net, decreased $18.5 million
and inventories decreased $2.8 million, from December 31,
1996. These decreases reflect the Company's committment to
developing strong asset management programs within the
organization as well as the result of seasonal reductions in
accounts receivable. Accounts payable and accrued expenses
decreased $9.9 million at March 28, 1997 compared with
December 31, 1996, which reflects the seasonally high
activity levels in the fourth quarter of 1996.
The company has an accrued liability of $36.1 million as of
March 28, 1997 for the patent litigation claim discussed
previously. The supersedeas bond posted by the Company
during the appeal process is secured by a letter of credit
collateralized by cash and cash equivalents. The Company
will utilize its cash and cash equivalents to pay the
damages from the patent litigation claim after the appeal
process is completed.
In addition to its cash 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
existing cash and available credit lines and funds from
operations to be sufficient to meet the Company's operating
requirements for 1997.
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 1996 Annual Report to the Shareholders, the
Company provides the following information.
The Company expects revenues for the second quarter of 1997
to be in the same range as revenues reported for the first
quarter of the year. Absent any unforeseen events, the
Company anticipates an improvement in its gross margin in
the second quarter of 1997 over the gross margin reported
for the first quarter of 1997. Operating expenses are
expected to rise in the second quarter of 1997 over the
first quarter primarily due to new product introductions as
well as scheduled growth in R&D programs within the Company.
Based on first quarter operating results, the Company
believes it will continue to make progress for the full year
toward its goal of a return on equity of 15%, which it hopes
to achieve by the end of 1998.
The above statements are forward looking statements that
involve a number of risks and uncertainties and should be
read in conjunction with the Company's 1996 Annual Report to
Shareholders, which is incorporated by reference to the
Company's 1996 Form 10-K, and the Company's news releases.
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 revenues to
fall short of expectations. Several of the Company's
competitors announced new ultrasound products in 1996 and
may announce additional new ultrasound products in 1997,
which may cause potential customers to alter or defer their
buying plans and intentions. 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 vendor supplied
components critical to the Company's products, a stronger
U.S. dollar, delays or disruptions in obtaining regulatory
approvals or from other regulatory actions, delays in
contractual payments due the Company, or 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 could affect operating
results.
11
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations (Continued)
-----------------------------------
IMPACT OF NEW ACCOUNTING STANDARD
- ---------------------------------
In February 1997, the Financial Accounting Standards Board
issued FAS 128, Earnings Per Share, which establishes
standards for the computation, presentation, and disclosure
of earnings per share (EPS). FAS 128 is designed to improve
the EPS information provided in financial statements by
simplifying the existing computational guidelines, revising
the disclosure requirements and increasing the comparability
of EPS data. FAS 128 is effective for financial statements
for periods ending after December 15, 1997. The adoption of
FAS 128 is not expected to have a material effect on the
Company's consolidated financial statements.
12
PART II OTHER INFROMATION
- ------- -----------------
Item 1. Legal Proceedings -The Company is awaiting the
-----------------
decision of the Federal Circuit court in its appeal of
the damages awarded to SRI on a patent litigation
claim. See Part I - Item 2 above, ACCRUAL FOR
LITIGATION CLAIM. The Company's appeal was briefed
and argued to a three judge panel of the Federal
Circuit court in January, 1997. The court's decision
may be rendered at any time.
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: 5/9/97 BY: /s/ Harvey N. Gillis
----------------------------------
Harvey N. Gillis
Senior Vice President
Finance and Administration
and Chief Financial Officer