-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J4h8udwjdAwagPZxahaurwZ73nwqBJ4EsxAosblqgvqdbcFkkZ7BLCcQUFY1xblE 5mTAdZqA3z0iGlNYvkktIg== 0000912057-00-007328.txt : 20000217 0000912057-00-007328.hdr.sgml : 20000217 ACCESSION NUMBER: 0000912057-00-007328 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAC LABORATORIES CENTRAL INDEX KEY: 0000313798 STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844] IRS NUMBER: 941725806 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09428 FILM NUMBER: 547614 BUSINESS ADDRESS: STREET 1: 540 ALDER DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4083219100 MAIL ADDRESS: STREET 1: 540 ALDER DR CITY: MILPITAS STATE: CA ZIP: 95035 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 2, 2000 OR / / 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 0-9428 ------------------------ ADAC LABORATORIES (Exact name of registrant as specified in its charter) CALIFORNIA 94-1725806 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 540 ALDER DRIVE 95035 MILPITAS, CALIFORNIA (Zip Code) (Address of principal executive offices)
(408) 321-9100 (Registrant's telephone number including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) ------------------------ 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 / / No /X/ As of January 31, 2000 Registrant had 20,633,000 outstanding shares of Common Stock, no par value. (This document contains a total of 24 pages) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ADAC LABORATORIES AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q INDEX
PAGE -------- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations for the Three-Month Periods Ended January 2, 2000 and January 3, 1999........................................................ 3 Condensed Consolidated Balance Sheets at January 2, 2000 and October 3, 1999............................................. 4 Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended January 2, 2000 and January 3, 1999........................................................ 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 Part II. Other Information Item 1. Legal Proceedings........................................... 23 Item 3. Defaults upon Senior Securities............................. 23 Item 6. Exhibits and Reports on Form 8-K............................ 23 Signatures.............................................................. 24
PART I--FINANCIAL INFORMATION ADAC LABORATORIES AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED ------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUES, NET: Product................................................... $66,681 $70,906 Service................................................... 23,641 23,373 ------- ------- 90,322 94,279 ------- ------- COST OF REVENUES: Product................................................... 41,687 39,085 Service................................................... 16,502 16,579 ------- ------- 58,189 55,664 ------- ------- GROSS PROFIT................................................ 32,133 38,615 ------- ------- OPERATING EXPENSES: Marketing and sales....................................... 14,553 15,463 Research and development.................................. 5,077 4,366 General and administrative................................ 7,858 8,339 Goodwill amortization..................................... 513 488 Restructuring charges..................................... -- 2,500 Settlement of litigation and related charges.............. 10,340 -- ------- ------- 38,341 31,156 ------- ------- OPERATING (LOSS) INCOME..................................... (6,208) 7,459 ------- ------- Interest and other expense, net............................. 893 1,240 ------- ------- (LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR INCOME TAXES... (7,101) 6,219 (Benefit) provision for income taxes........................ (2,627) 2,363 ------- ------- NET (LOSS) INCOME........................................... $(4,474) $ 3,856 ======= ======= NET (LOSS) INCOME PER SHARE Basic..................................................... $ (.22) $ .19 Diluted................................................... $ (.22) $ .18 NUMBER OF SHARES USED IN PER SHARE CALCULATIONS Basic..................................................... 20,579 20,300 Diluted................................................... 20,579 21,118
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 ADAC LABORATORIES AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 2, OCTOBER 3, 2000 1999(1) ----------- ----------- (UNAUDITED) (AMOUNTS IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 3,430 $ 5,796 Trade receivables, net of allowance for doubtful accounts of $16,686 in 2000 and $14,707 in 1999..................... 86,186 80,393 Tax and other receivables................................. 2,598 2,265 Inventories, net.......................................... 30,729 35,076 Prepaid expenses and other current assets................. 4,946 5,620 Current deferred income taxes............................. 16,406 13,717 -------- -------- TOTAL CURRENT ASSETS........................................ 144,295 142,867 Service parts, net........................................ 18,420 18,297 Fixed assets, net......................................... 15,462 15,555 Capitalized software, net of accumulated amortization of $14,189 in 2000 and $13,167 in 1999..................... 18,501 17,417 Intangibles, net.......................................... 40,304 41,024 Non-current deferred income taxes......................... 3,159 3,230 Other assets, net......................................... 1,444 1,272 -------- -------- TOTAL ASSETS.............................................. $241,585 $239,662 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to banks.................................... $ 43,093 $ 51,961 Accounts payable.......................................... 21,173 13,492 Deferred revenues......................................... 16,561 17,185 Accrued compensation...................................... 11,749 12,750 Customer deposits and advances............................ 7,741 6,757 Warranty and installation................................. 6,837 5,835 Other accrued liabilities................................. 27,477 20,461 -------- -------- TOTAL CURRENT LIABILITIES................................... 134,631 128,441 Non-current liabilities..................................... 3,366 3,708 -------- -------- TOTAL LIABILITIES......................................... 137,997 132,149 -------- -------- SHAREHOLDERS' EQUITY: Preferred stock, no par value: Authorized: 5,000 shares; Issued and outstanding: none.............................. -- -- Common stock, no par value: Authorized: 50,000 shares; Issued and outstanding: 20,614 shares as of January 2, 2000 and 20,542 shares as of October 3, 1999..................... 155,085 154,275 Accumulated deficit....................................... (48,360) (43,886) Accumulated other comprehensive loss...................... (3,137) (2,876) -------- -------- TOTAL SHAREHOLDERS' EQUITY................................ 103,588 107,513 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $241,585 $239,662 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. - ------------------------ (1) Data extracted from audited consolidated financial statements dated October 3, 1999 of ADAC Laboratories. 4 ADAC LABORATORIES AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED ------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income........................................... $(4,474) $ 3,856 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities Depreciation and amortization............................. 4,570 4,041 Deferred income taxes..................................... (2,618) -- Stock compensation expenses............................... 262 -- Restructuring charge...................................... -- 2,500 Settlement of litigation and related charges.............. 10,340 -- Change in operating assets and liabilities: Trade receivables, net.................................... (5,716) (23,979) Tax and other receivables................................. (333) 96 Inventories, net.......................................... 4,285 4,200 Prepaid expenses and other current assets................. 666 (1,910) Service parts............................................. (1,008) (2,475) Accounts payable.......................................... 7,652 (6,124) Deferred revenues......................................... (633) 4,403 Accrued compensation...................................... (1,001) 538 Customer deposits and advances............................ 983 1,759 Warranty and installation, and other accrued liabilities............................................. 1,001 (903) Other accrued liabilities................................. (3,397) -- Non-current liabilities................................... 26 (11) ------- -------- Net cash provided by (used in) operating activities......... 10,605 (14,009) ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (1,403) (4,019) Capitalized software...................................... (2,097) (2,994) Intangibles and other assets.............................. (639) 1,204 ------- -------- Net cash used in investing activities....................... (4,139) (5,809) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) under short-term debt arrangements, net....................................... (8,868) 14,945 Payments under capital lease agreements................... (370) (46) Proceeds from issuance of common stock, net............... 622 1,564 ------- -------- Net cash (used in) provided by financing activities......... (8,616) 16,463 ------- -------- Effect of exchange rate changes on cash..................... (216) 31 ------- -------- Net change in cash and cash equivalents..................... (2,366) (3,324) Cash and cash equivalents, at beginning of the period....... 5,796 4,869 ------- -------- Cash and cash equivalents, at end of the period............. $ 3,430 $ 1,545 ======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 ADAC LABORATORIES AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, the condensed interim consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the information required to be included. Operating results for the three-month period ended January 2, 2000 are not necessarily indicative of the results that may be expected for any future periods, including the full fiscal year. Reference should also be made to the Annual Consolidated Financial Statements, Notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1999. The balance sheet data at October 3, 1999 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. 2. NET (LOSS) INCOME PER SHARE Basic net (loss) income per share has been computed using the weighted average number of common shares outstanding. Diluted net income per share includes the dilutive effect of common stock options and warrants using the treasury stock method. The calculation of basic and diluted earnings per share (EPS) for the three-month periods ended January 2, 2000 and January 3, 1999 is as follows:
THREE MONTHS ENDED ------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Basic EPS: Net (Loss) Income..................................... (4,474) $ 3,856 Weighted Average Common Shares Outstanding............ 20,579 20,300 Basic net (loss) income per share..................... $ (.22) $ .19 Diluted EPS: Net (Loss) Income..................................... (4,474) $ 3,856 Weighted Average Common Shares Outstanding............ 20,579 20,300 Options............................................... -- 818 ------- ------- Total Shares............................................ 20,579 21,118 ======= ======= Diluted net (loss) income per share..................... $ (.22) $ .18
If the Company had recorded net income in the three-month period ended January 2, 2000, the total diluted shares would have been increased by shares for 381,000 options. 6 ADAC LABORATORIES AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. INVENTORIES
JANUARY 2, OCTOBER 3, 2000 1999 ----------- ----------- (AMOUNTS IN THOUSANDS) Inventories consist of: Purchased parts and sub-assemblies.................... $ 9,800 $ 7,203 Work-in-process....................................... 5,590 5,518 Finished goods........................................ 15,339 22,355 ------- ------- $30,729 $35,076 ======= =======
4. FIXED ASSETS
JANUARY 2, OCTOBER 3, 2000 1999 ----------- ----------- (AMOUNTS IN THOUSANDS) Fixed assets, at cost, consist of: Production and test equipment......................... $ 4,727 $ 3,819 Field service equipment............................... 695 709 Office and demonstration equipment.................... 24,069 23,707 Leasehold improvements................................ 1,670 1,659 -------- -------- 31,161 29,894 Less accumulated depreciation and amortization.......... (15,699) (14,339) -------- -------- $ 15,462 $ 15,555 ======== ========
5. RESTRUCTURING CHARGES During fiscal 1999, the Company conducted a comprehensive review of its operations. Based on this review it restructured its European, South American and ADAC Medical Technologies ("AMT") businesses. As a result, the Company recorded charges in fiscal 1999 of $4.1million. Of this amount, $2.5 million relating to the restructuring of the European and South American businesses was recorded during the first quarter of fiscal 1999. An amount of $0.4 million was charged against the liability during the three months ended January 2, 2000, representing cash payments made. As of January 2, 2000, $1.5 million remained in the accrual, comprised of $1.0 million for severance expenses, $0.3m for legal and consulting, and $0.2 million for facilities and other costs associated with the restructuring. The Company currently expects that these restructuring costs will be paid over the remaining three quarters of fiscal 2000. 6. CREDIT AND BORROWING ARRANGEMENTS As of January 2, 2000 the Company had a $75.0 million revolving credit facility with a bank syndicate. The credit facility offers borrowings in either U.S. dollars or in foreign currencies and expires on March 29, 2002. The Company pays commitment fees and interest on its borrowings based on its debt level in relation to its cash flow. Commitment fees range from 0.25% to 0.75% of unused commitment, and interest rates are based on the banks' prime rate or Libor plus rates ranging from 1.0% to 2.5%. At January 2, 2000, the Company had $32.0 million available for borrowing under this facility. Due to the settlement of litigation 7 ADAC LABORATORIES AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. CREDIT AND BORROWING ARRANGEMENTS (CONTINUED) and related charges, the results of the Company's operations in the first quarter of fiscal 2000 caused the Company to be out of compliance with it's financial covenants in the facility. On January 28, 2000, the Company and the bank syndicate signed an amendment increasing the credit facility from $75.0 million to $85.0 million and modifying the financial covenants, retroactively to include the first fiscal quarter of 2000, to be more reflective of the Company's recent financial performance. The Company is in compliance with these modified covenants in the first quarter of fiscal 2000. 7. LITIGATION Commencing in December 1998, a total of eleven class action lawsuits were filed in federal court by or on behalf of stockholders who purchased Company stock between January 10, 1996 and December 28, 1998. These actions named as defendants the Company and certain of its present and former officers and directors. The complaints alleged various violations of the federal securities laws in connection with the restatement of the Company's financial statements and sought unspecified but potentially significant damages. In April 1999, these actions were ordered consolidated and, in July 1999, the plaintiffs filed a consolidated amended complaint. A stockholder derivative action, purportedly on behalf of the Company and naming as defendants Company officers and directors was also filed in state court seeking recovery for the Company based on stock sales by these defendants during the above time period. On January 13, 2000, ADAC reached agreements-in-principle to settle these actions. Pursuant to the class action settlement, the plaintiff class will receive $20 million in full settlement of their claims. Final settlements are contingent upon the satisfaction of numerous conditions, including among others, final court approval.. As a result of having reached these agreements in principle, the Company recorded a non-ordinary pre-tax charge of $10.3 million in the first quarter of fiscal 2000, representing its total costs for the settlements after contribution by the insurance company, including $1.3 million for the related legal fees to bring these matters to a conclusion. The Company has been informed that the United States Securities and Exchange Commission (SEC) has issued a Formal Order of Private Investigation in connection with matters relating to the Company's previously announced restatement of its financial results for 1996, 1997 and the first three quarters of 1998. The Company is continuing to cooperate with the SEC. The Company is unable to predict the outcome of the investigation at this time. The Company is also a defendant in various legal proceedings incidental to its business. Management is of the opinion that any liability resulting from these claims would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 8. INCOME TAXES The Company uses the liability method to account for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The (benefit) provision for income taxes for the three-month periods ended January 2, 2000 and January 3, 1999 are based on the estimated effective income tax rates for the fiscal years ending October 1, 2000 and ended October 3, 1999 of 37% and 38%, respectively. 8 ADAC LABORATORIES AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 9. SEGMENT REPORTING The Company has three reportable segments, Medical Systems ("MS"), Radiation Therapy Planning ("RTP") and Health Care Information Systems ("HCIS"). The Company is organized on the basis of products and services. The Company's reportable segments are strategic business units that offer different products and include corporate allocations of general and administrative expenses. The following table summarizes information about the Company's reportable segments for the three-month periods ended January 2, 2000 and January 3, 1999. Asset information by reportable segment has not been presented as the Company does not produce and rely on such information.
THREE MONTHS ENDED JANUARY 2, 2000 ----------------------------------------- MS RTP HCIS TOTAL -------- -------- -------- -------- (AMOUNTS IN THOUSANDS) Revenues, net: Product................................ $49,549 $11,357 $5,775 $66,681 Service................................ 19,175 841 3,625 23,641 ------- ------- ------ ------- 68,724 12,198 9,400 90,322 ======= ======= ====== ======= Income before provision for income taxes.................................. $ 1,494 $ 1,423 $ 322 $ 3,239
THREE MONTHS ENDED JANUARY 3, 1999 ----------------------------------------- MS RTP HCIS TOTAL -------- -------- -------- -------- (AMOUNTS IN THOUSANDS) Revenues, net: Product................................ $51,362 $16,338 $3,206 $70,906 Service................................ 18,662 610 4,101 23,373 ------- ------- ------ ------- 70,024 16,948 7,307 94,279 ======= ======= ====== ======= Income (loss) before provision (benefit) for income taxes....................... $ 3,762 $ 5,169 $ (211) $ 8,719
The following is a reconciliation of total segment income before provision for income taxes to consolidated (loss) income before (benefit) provision for income taxes:
THREE MONTHS ENDED ------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (AMOUNTS IN THOUSANDS) Total segment income before provision for income taxes...... $ 3,239 $8,719 Excluded charges and expenses: Restructuring charges..................................... -- 2,500 Settlement of litigation and related charges.............. 10,340 -- ------- ------ 10,340 2,500 ------- ------ Total consolidated (loss) income before (benefit) provision for income taxes.......................................... $(7,101) $6,219 ======= ======
9 ADAC LABORATORIES AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 10. COMPREHENSIVE (LOSS) INCOME Effective September 28, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This Statement establishes standards for reporting and displaying income and its components (revenue, expenses, gains and losses) in a full set of general purpose financial statements. This Statement requires the classification of items of comprehensive income by their nature in a financial statement and the accumulated balance of other comprehensive income separately in the equity section of the balance sheet. The Company's accumulated other comprehensive (loss) income consists solely of translation adjustments. Comprehensive (loss) income for the three-month periods ended January 2, 2000 and January 3, 1999 is as follows:
JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (AMOUNTS IN THOUSANDS) Net (loss) income....................................... $(4,474) $3,856 Change in accumulated translation adjustment, net of tax................................................... (165) 31 ------- ------ Comprehensive (loss) income............................. $(4,639) $3,887 ======= ======
11. RECENT PRONOUNCEMENTS In June 1998, Statement of Financial Accounting Standard 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), was issued and is effective for fiscal years commencing after June 15, 2000. The Company will comply with the requirements of FAS 133 in fiscal year 2001. Currently the Company does not hold any derivative instruments or engage in any hedging activities. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere within this document. Operating results for the three-month period ended January 2, 2000 are not necessarily indicative of the results that may be expected for any future periods, including the full fiscal year. Reference should also be made to the Annual Consolidated Financial Statements, Notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1999. RESULTS OF OPERATIONS THREE-MONTH PERIOD ENDED JANUARY 2, 2000 COMPARED TO THREE-MONTH PERIOD ENDED JANUARY 3, 1999 Revenues for the first quarter of fiscal 2000 were $90.3 million, a decrease of 4%, or $4.0 million, from the first quarter of fiscal 1999 revenues of $94.3 million. Revenues are primarily generated from the sale and servicing of medical imaging products. Medical Systems revenues represented 76% and 74% of the Company's total revenues for the first quarters of fiscal 2000 and 1999, respectively. The Company's Radiation Therapy Products revenues represented approximately 14% and 18% of the Company's total revenues for the first quarters of fiscal 2000 and 1999, respectively. The Company's Health Care Information Systems revenues represented approximately 10% and 8% of the Company's total revenues for the first quarters of fiscal 2000 and 1999, respectively. NON-ORDINARY CHARGES AND EXPENSES LITIGATION Commencing in December 1998, a total of eleven class action lawsuits were filed in federal court by or on behalf of stockholders who purchased Company stock between January 10, 1996 and December 28, 1998. These actions named as defendants the Company and certain of its present and former officers and directors. The complaints alleged various violations of the federal securities laws in connection with the restatement of the Company's financial statements and sought unspecified but potentially significant damages. In April 1999, these actions were ordered consolidated and, in July 1999, the plaintiffs filed a consolidated amended complaint. A stockholder derivative action, purportedly on behalf of the Company and naming as defendants Company officers and directors was also filed in state court seeking recovery for the Company based on stock sales by these defendants during the above time period. On January 13, 2000, ADAC reached agreements-in-principle to settle these actions. Pursuant to the class action settlement, the plaintiff class will receive $20 million in full settlement of their claims. Final settlements are contingent upon the satisfaction of numerous conditions, including among others, final court approval.. As a result of having reached these agreements in principle, the Company recorded a non-ordinary pre-tax charge of $10.3 million in the first quarter of fiscal 2000, representing its total costs for the settlements after contribution by the insurance company, including $1.3 million for the related legal fees to bring these matters to a conclusion. The Company has been informed that the United States Securities and Exchange Commission (SEC) has issued a Formal Order of Private Investigation in connection with matters relating to the Company's previously announced restatement of its financial results for 1996, 1997 and the first three quarters of 1998. The Company is continuing to cooperate with the SEC. The Company is unable to predict the outcome of the investigation at this time. The Company is also a defendant in various legal proceedings incidental to its business. Management is of the opinion that any liability resulting from these claims would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 11 RESTRUCTURING During fiscal 1999, the Company conducted a comprehensive review of its operations. Based on this review it restructured its European, South American and ADAC Medical Technologies ("AMT") businesses. As a result, the Company recorded charges in fiscal 1999 of $4.1million. Of this amount, $2.5 million relating to the restructuring of the European and South American businesses was recorded during the first quarter of fiscal 1999. An amount of $0.4 million was charged against the liability during the three months ended January 2, 2000, representing cash payments made. As of January 2, 2000, $1.5 million remained in the accrual, comprised of $1.0 million for severance expenses, $0.3m for legal and consulting, and $0.2 million for facilities and other costs associated with the restructuring. The Company currently expects that these restructuring costs will be paid over the remaining three quarters of fiscal 2000. MEDICAL SYSTEMS Medical Systems includes revenues from the sale of the Company's nuclear medicine products and customer service related to those products. Revenues also include sales from the Company's ADAC Medical Technologies ("AMT") products. Summary information related to Medical Systems revenues and gross margins for the three-month period ended January 2, 2000, compared to the corresponding period in fiscal 1999 is as follows:
THREE MONTHS ENDED ------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) Revenues: Product............................................... $49,549 $51,362 Service............................................... 19,175 18,662 ------- ------- Total............................................... $68,724 $70,024 ======= ======= Geographical mix: United States......................................... 82.2% 86.0% International......................................... 17.8% 14.0% Gross profit: Product............................................... $15,715 $20,719 Service............................................... 4,674 4,365 ------- ------- Total............................................... $20,389 $25,084 ======= ======= Gross margin: Product............................................... 31.7% 40.3% Service............................................... 24.4% 23.4% Total............................................... 29.7% 35.8%
Medical Systems' product revenues decreased 4% for the three-month period ended January 2, 2000, from the same period in fiscal 1999. Revenues were disproportionately higher in the first quarter of fiscal 1999 due to the Company's shipment during that quarter of a large volume of backordered products that had been released in late September 1998. In addition, revenues were lower in fiscal 2000 as pricing pressures resulted in lower average selling prices on sales of dual head cameras. The lower revenue on dual head camera sales was partially offset by increased sales volume of C-PET-TM-, which has a higher average selling price. The proportion of the Company's revenues derived from Europe increased due to increased penetration of the Forte-TM- in the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999. Gross margins for Medical Systems products decreased 9 percentage points, or by 24%, in the three-month period ended January 2, 2000, compared to the corresponding period of the prior fiscal year. The 12 decrease in margins resulted primarily from competitive pricing pressures and additional sales of the higher cost Forte. In addition the Company refined it's estimate and recorded an additional warranty provision of approximately $1.0 million during the three-month period ended January 2, 2000. Also, costs related to the recently acquired UGM Medical Systems product line, including amortization of acquired technology costs were included in the current period. Medical Systems service revenues for the three-month period ended January 2, 2000, increased 3% over the same period in fiscal 1999. The increase resulted from a higher customer base offset by a decrease in sales related to upgrades for Year 2000 compliance. Gross margins improved 1% for the three-month period ended January 2, 2000, compared to the same period of fiscal 1999. RADIATION THERAPY PRODUCTS ("RTP") RTP revenues are generated primarily from the sale and support of the Company's Pinnacle(3) radiation therapy planning system. RTP revenues also include sales from the Company's CT refurbishing business unit, ARS. Summary information related to RTP revenues and gross margins for the three-month period ended January 2, 2000, compared to the corresponding period in fiscal 1999 is as follows:
THREE MONTHS ENDED ------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) Revenues: Product............................................... $11,357 $16,338 Service............................................... 841 610 ------- ------- Total............................................... $12,198 $16,948 ======= ======= Geographical mix: United States......................................... 73.7% 87.6% International......................................... 26.3% 12.4% Gross profit: Product............................................... $ 6,991 $ 9,920 Service............................................... 447 181 ------- ------- Total............................................... $ 7,438 $10,101 ======= ======= Gross margin: Product............................................... 61.6% 60.7% Service............................................... 53.2% 29.7% Total............................................... 61.0% 59.6%
RTP product revenues decreased 30% for the three-month period ended January 2, 2000, from the same period in fiscal 1999. The decrease for the three-month period resulted primarily from a lower volume of shipments of the Pinica1(3) and lower refurbishment revenues in the first three months of fiscal 2000. This was partially offset by the higher level of revenue in Europe due to the timing of installations in the current period. Additionally the Company believes that revenue in the first quarter of fiscal 1999 was unusually high and that the revenue in the first quarter of fiscal 2000 is more reflective of the recent trend. Product revenue reported for the fourth quarter of fiscal 1999 was $11.6 million. Gross margins for RTP for the three-months ended January 2, 2000 remained relatively constant at 61% compared to the corresponding period in fiscal 1999. Although there was some erosion in gross margin in the first quarter of fiscal 2000 as the Pinnacle(3) product line faced increased pricing pressure, this was offset by a change in product mix as the lower margin ARS refurbishing products represented a smaller share of the revenue compared to the same period in fiscal 1999. 13 RTP service revenues increased 38% for the three-month period ended January 2, 2000, compared to the corresponding period in fiscal 1999 due primarily to the commencement of separate RTP service contracts for software support. Service gross margins increased from 30% in the first three months of fiscal 1999 to 53% in the first three months of fiscal 2000 due to the increase in the number of contracts, leveraging the cost structure. HEALTH CARE INFORMATION SYSTEMS ("HCIS") HCIS revenues are generated from the sale and support of radiology and cardiology information systems and the support of the Company's legacy laboratory information systems. Summary information related to HCIS revenues and gross margins for the three-month period ended January 2, 2000, compared to the corresponding period in fiscal 1999 is as follows:
THREE MONTHS ENDED ------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) Revenues: Product............................................... $5,775 $3,206 Service............................................... 3,625 4,101 ------ ------ Total............................................... $9,400 $7,307 ====== ====== Geographical mix: United States......................................... 96.2% 97.3% International......................................... 3.8% 2.7% Gross profit: Product............................................... $2,288 $1,182 Service............................................... 2,018 2,248 ------ ------ Total............................................... $4,306 $3,430 ====== ====== Gross margin: Product............................................... 39.6% 36.9% Service............................................... 55.7% 54.8% Total............................................... 45.8% 46.9%
HCIS product revenues increased 80% for the three-month period ended January 2, 2000, compared to the same period in fiscal 1999. The increase resulted primarily from additional sales of QuadRIS-TM- for the radiology product line, and also from increased sales in cardiology and the addition of the DINPACs-TM- product. These increases were partially offset by diminishing revenues from the discontinued Labstat-TM- product When compared to the fourth quarter of fiscal 1999 revenues of $7.4 million however, revenue has declined by 22% in the three month period January 2, 2000. This is primarily due to slower bookings, which the Company believes is a result of customers delaying their purchase decision due to year 2000 concerns. Gross margins for HCIS for the three-month period ended January 2, 2000 increased 3 percentage points, or 8%, from the corresponding period in fiscal 1999. This is primarily due to the higher revenue leveraging the substantially fixed product cost structure, partially offset by a change in mix to lower margin cardiology products in the first quarter of fiscal 2000. HCIS service revenues decreased for the three-month period ended January 2, 2000, compared to the corresponding period in fiscal 1999, due primarily to lower service revenues from the discontinued Labstat-TM- product. Service gross margins increased for the three-month period ended January 2, 2000, compared to the corresponding period in fiscal 1999, due to improved third party maintenance fees. 14 OPERATING AND OTHER EXPENSES: As a percentage of the Company's revenues, operating and other expenses for the three-month periods ended January 2, 2000 and January 3, 1999 are as follows:
THREE MONTHS ENDED ---------------------------- JANUARY 2, JANUARY 3, 2000 1999 ----------- ----------- Operating expenses: Marketing and sales.................................. 16.1% 16.4% Research and development, net of software capitalization..................................... 5.6% 4.6% General and administrative........................... 8.7% 8.8% Goodwill amortization................................ 0.6% 0.5% Restructuring charge................................. 0.0% 2.7% Settlement of litigation and related charges......... 11.4% 0.0% ---- ---- 42.4% 33.0% ==== ==== Other expense, net..................................... 1.0% 1.3%
Marketing and sales expenses for the three-month period ended January 2, 2000 decreased $0.9 million from the corresponding period in the prior fiscal year. The decrease came primarily from international operations where restructuring actions taken in fiscal 1999 resulted in cost savings. Research and development expenses, net of software capitalization, for the three-month period ended January 2, 2000 increased $0.7 million over the corresponding period in the prior fiscal year. The expense increase is the result of fewer software projects meeting technical feasibility during the first quarter of fiscal 2000, therefore fewer projects met the criteria for capitalization. Several of the projects being capitalized during the first quarter of fiscal 1999 were completed late in fiscal 1999. Capitalized software costs were $2.1 million and $3.0 million in the first quarters of fiscal 2000 and 1999, respectively. General and administrative expenses for the three-month period ended January 2, 2000 decreased $0.5 million from the corresponding period in the prior fiscal year. The expense decreased because the first quarter of fiscal 1999 included expenses related to the restatement of the Company's financial statements. This decrease was partially offset by investments in infrastructure in Finance and Administration and UGM in the first quarter of fiscal 2000. Goodwill amortization remained constant at $0.5 million for the three-month period ended January 2, 2000 compared to the corresponding period of fiscal 1999. There was increased amortization of goodwill in the first quarter of fiscal 2000 related to the acquisition of UGM at the end of fiscal 1999 offset by earlier acquisitions reaching the end of their amortization life. The Company recorded a settlement charge in the first quarter of fiscal 2000 of $10.3 million representing its total costs, including legal fees, to settle the consolidated class action lawsuit and related derivative litigation pending against the Company. The settlements are contingent upon the satisfaction of numerous conditions, including among others, final court approval. The Company recorded a restructuring charge in the first quarter of fiscal 1999 of $2.5 million related to its international operations in order to improve the operations' profitability. Interest and other expense, net, which primarily consists of interest expense and foreign currency translation gains and losses, decreased $0.3 million for the three-month period ended January 2, 2000 compared to the corresponding period in the prior fiscal year due to lower interest expense and a foreign currency gain in the first quarter of fiscal 2000 compared to a foreign currency loss in the first quarter of fiscal 1999. 15 INCOME TAXES: The Company's effective tax rate as a percentage of pretax income was 37% for the first three months of fiscal 2000, compared to 38% for the first three months of fiscal 1999. The Company currently expects the fiscal 2000 effective tax rate to be between 35% and 40%. LIQUIDITY AND CAPITAL RESOURCES: The Company believes its available cash and cash equivalents, cash to be generated primarily from operations, and its available credit lines, will provide adequate funds to finance the Company's operations in fiscal 2000. If necessary, the Company will seek to increase its credit lines to support the Company's future growth. There can be no assurance that credit lines sufficient to satisfy the Company's cash requirements will be available on terms acceptable to the Company, if at all. Cash provided by operating activities was $10.6 million in the first quarter of fiscal 2000. The primary source of cash was provided by operating profits of $8.1 million, after giving effect to non-cash charges of $12.5 million (net). Net changes in operating assets and liabilities of $2.5 million increased the amount of cash provided from operations. The primary changes in operating assets and liabilities were an increase in accounts receivable of $5.7 million, a decrease in inventory of $4.3 million, an increase in accounts payable of $7.7 million and a decrease in other accrued liabilities of $3.4 million. Cash used in operating activities was $14.0 million in the first quarter of fiscal 1999. The primary source of cash was the net income from operations of $3.9 million, which included $6.5 million (net) of non-cash charges. Net changes in operating assets and liabilities of $24.4 million decreased the amount of cash provided from operations. The decrease was primarily related to the $24.0 million increase in accounts receivable due to a decrease in accounts receivable sold to third party finance companies and, to a lesser degree, increased sales and slower collections in the period. Cash of $4.1 million was used for investing activities in the first quarter of fiscal 2000. This activity consisted primarily of $1.4 million, $2.1 million and $0.6 million for capital equipment expenditures, capitalized software expenditures and an increase in other assets and intangibles, respectively. Cash of $5.8 million was used for investing activities in the first quarter of fiscal 1999, principally for capital equipment expenditures and capitalized software expenditures partially offset by a decrease in other assets and intangibles. Financing activities used $8.6 million of cash in the first quarter of fiscal 2000. This was attributable to $8.9 million of decreased borrowings, $0.3 million payment of capital lease obligations and $0.6 million of proceeds from common stock issued to employees under the Company's employee stock purchase and option plans. Financing activities provided $16.5 million of cash in the first quarter of fiscal 1999. This was attributable to $14.9 million of increased borrowings and $1.6 million of proceeds from common stock issued to employees under the Company's employee stock purchase and option plans. As of January 2, 2000 the Company had a $75.0 million revolving credit facility with a bank syndicate. The credit facility offers borrowings in either U.S. dollars or in foreign currencies and expires on March 29, 2002. The Company pays commitment fees and interest on its borrowings based on its debt level in relation to its cash flow. Commitment fees range from 0.25% to 0.75% of unused commitment, and interest rates are based on the banks' prime rate or Libor plus rates ranging from 1.0% to 2.5%. At January 2, 2000, the Company had $32.0 million available for borrowing under this facility. Due to the settlement of litigation and related charges, the results of the Company's operations in the first quarter of fiscal 2000 caused the Company to be out of compliance with it's financial covenants in the facility. The banks waived this default for the first fiscal quarter of 2000. On January 28, 2000, the Company and the bank syndicate signed an amendment increasing the credit facility from $75.0 million to $85.0 million and modifying the financial covenants to be more reflective of the Company's recent financial performance. The Company is in compliance with these modified covenants in the first quarter of fiscal 2000. 16 The Company's liquidity is affected by many factors, some based on the normal ongoing operations of the business and others related to the uncertainties of the industry and global economies. Although the Company's cash requirements will fluctuate based on the timing and extent of these factors, management believes that cash generated from operations, together with the liquidity provided by existing cash balances and borrowing capability, will be sufficient to satisfy commitments for capital expenditures and other cash requirements for the next fiscal year. However, the Company may need to increase its sources of capital through additional borrowings or the sale of securities in response to changing business conditions or to pursue new business opportunities. There can be no assurance that such additional sources of capital will be available on terms favorable to the Company, if at all. BUSINESS CONSIDERATIONS From time to time, the Company may disclose, through press releases, filings with the SEC or otherwise, certain matters that constitute forward looking statements within the meaning of the Federal securities laws. These statements, including the forward looking statements contained in this Form 10-Q, are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those projected, including without limitation those set forth below. These forward looking statements include statements concerning the Company's future bookings, revenue, expenses and earnings, the establishment of additional reserves and the taking of non-ordinary charges. Factors that could cause actual results to differ materially from those contained in such forward-looking statements include, but are not limited to, the existence of significant competition in each of the business segments in which the Company conducts business; the Company's dependence on successfully developing, introducing and commercializing new products and developing enhancements to existing products; the collectibility of the Company's receivables, changes to the Company's operating structure and charges and dislocations that may result therefrom; the impact of international economic conditions on the Company's business; and a number of factors that can introduce variability in the Company's operating results, including the timing of product orders, shipments, and installations. Further information on these and other factors is found below. All forward-looking statements are based on information available to the Company on the date hereof, and the Company assumes no obligation to update such statements. LITIGATION Commencing in December 1998, a total of eleven class action lawsuits were filed in federal court by or on behalf of stockholders who purchased Company stock between January 10, 1996 and December 28, 1998. These actions named as defendants the Company and certain of its present and former officers and directors. The complaints alleged various violations of the federal securities laws in connection with the restatement of the Company's financial statements and sought unspecified but potentially significant damages. In April 1999, these actions were ordered consolidated and, in July 1999, the plaintiffs filed a consolidated amended complaint. A stockholder derivative action, purportedly on behalf of the Company and naming as defendants Company officers and directors was also filed in state court seeking recovery for the Company based on stock sales by these defendants during the above time period. On January 13, 2000, ADAC reached agreements-in-principle to settle these actions. Pursuant to these settlements, the plaintiff class will receive $20 million in full settlement of their claims. Final settlements are contingent upon the satisfaction of numerous conditions, including among others, approvals by the Federal Court in the Northern District of California. On February 9, 2000 the agreements in principle were approved by the Board of Directors subject to the finalization of remaining contingencies by an appointed member. As a result of having reached these agreements, the Company recorded a non-ordinary pre-tax charge of $10.3 million in the first quarter of fiscal 2000, representing its total costs for the settlements after contribution by the insurance company, including $1.3 million for the related legal fees to bring these matters to a conclusion. 17 The Company has been informed that the United States Securities and Exchange Commission (SEC) has issued a Formal Order of Private Investigation in connection with matters relating to the Company's previously announced restatement of its financial results for 1996, 1997 and the first three quarters of 1998. The Company is continuing to cooperate with the SEC. The Company is unable to predict the outcome of the investigation at this time. The Company is also a defendant in various legal proceedings incidental to its business. Management is of the opinion that any liability resulting from these claims would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. COMPETITION The markets served by the Company are characterized by rapidly evolving technology, intense competition and pricing pressure. There are a number of companies that currently offer, or are in the process of developing, products that compete with products offered by the Company. Some of the Company's competitors have substantially greater capital, engineering, manufacturing and other resources than the Company. These competitors could develop technologies and products that are more effective than those currently used or marketed by the Company or that could render the Company's products obsolete or noncompetitive, which could have a material adverse effect on the Company's business. SOUTH AMERICAN OPERATIONS A significant number of the Company's customers in its principal South American markets of Brazil, Argentina and Colombia are delinquent in making periodic payments due under the terms of sales previously made to them, many of which were supported by third-party financing arrangements that involve full or partial recourse to the Company. Deteriorating economic conditions and currency devaluations occurring primarily during fiscal 1999, and ineffective monitoring of delinquencies and collection efforts by the Company, may have all contributed to delays in the collection of accounts receivable from customers in these markets. During fiscal 1999 the Company renewed collection efforts and completed an evaluation of each receivable balance and recourse obligation to determine the level of reserves required for these customers. As a result of this evaluation, the Company revised its estimate of the recoverability of its South American receivables and recourse obligations during fiscal 1999 and provided additional reserves of $8.9 million. As of January 2, 2000 the Company had net South American receivables of $1.6 million and recourse contingencies of $1.2 million. GOVERNMENT REGULATION The design, clinical activities, manufacturing, labeling, distribution, sale, marketing, advertising and promotion of the Company's products are subject to extensive and rigorous governmental regulation in the United States and foreign countries. In the United States and certain foreign countries, the process of obtaining and maintaining required regulatory clearances or approvals is lengthy, expensive and uncertain. There can be no assurance that any necessary clearance or approval will be granted to the Company or that FDA or other regulatory agency review will not involve delays adversely affecting the Company. In addition, a failure to comply with applicable regulatory requirements could result in enforcement actions including Warning Letters, as well as civil penalties, injunctions, suspensions or losses of regulatory clearances, product recalls, seizure or administrative detention of products, operating restrictions through consent decrees or otherwise, and criminal prosecution, which could have a material adverse effect upon the Company. In mid-1998, the State of California, under a contract with the FDA, completed a routine inspection of ADAC's facility in Milpitas, California. The state investigator issued a FDA Form 483 containing observations of non-compliance of the recently implemented QSR. The state investigator also placed a temporary shipment hold on Pinnacle(3) pending the Company satisfactorily responding to the State's 18 concerns regarding the Company's quality systems. The Company promptly responded to the FDA and the State and initiated a number of corrective actions. The State lifted the Pinnacle(3) shipment hold on August 28, 1998 and, in September 1998, ADAC received a letter from the FDA indicating that the Company had adequately responded to the FDA's concerns. Although the Company was deemed to have adequately responded to the State and FDA following the foregoing inspections, the Company is responsible for the full implementation of all corrective actions. In addition, as all companies are, the Company remains subject to periodic inspections in the future and there can be no assurance as to the timing or outcome of any subsequent inspection. The scope of any re-inspection could be more comprehensive than the inspection of the Company's Milpitas facility, and there can be no assurance that the FDA, upon re-inspection, will deem the Company's corrective actions to be adequate or that additional corrective action, in areas not addressed in the Form 483, will not be required. Any failure by the Company to fully implement the required corrective actions or to comply with any other applicable regulatory requirements could have a material adverse effect on the Company's ability to continue to manufacture and distribute its products, and in more serious cases, could result in seizure, recall, injunction and/or civil fines. Any of the foregoing, would have a material adverse effect on the Company. The Company is also subject to FTC restrictions on advertising and numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection and disposal of hazardous substances. Changes in existing requirements, adoption of new requirements or failure to comply with applicable requirements could have a material adverse effect on the Company. DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS ADAC's success is dependent upon the successful development, introduction and commercialization of new products and the development of enhancements to existing products. Because the markets in which the Company competes are highly competitive, the Company must continue to develop and successfully commercialize innovative new products and product enhancements such as Forte, Skylite and ENVOI in order to pursue its growth strategy. The development of new products and product enhancements entails considerable time and expense, including research and development costs, and the time, expense and uncertainty involved in obtaining any necessary regulatory clearances. Failure of the Company to develop, market and sell new products and enhancements effectively in future periods could have a material adverse effect on the Company's results of operations and financial condition. FUTURE OPERATING RESULTS The Company's future operating results may vary substantially from period to period. The timing and amount of revenues are subject to a number of factors that make estimation of revenues and operating results prior to the end of the quarter uncertain. The timing of revenues can be affected by delays in product introductions, shipments and installation scheduling, as well as general economic and industry conditions. Furthermore, of the orders received by the Company in any fiscal quarter, a disproportionately large percentage has typically been received and shipped toward the end of that quarter, which is typical for the industry. Accordingly, results for a given quarter can be adversely affected if there is a substantial order shortfall late in that quarter. In addition, the Company's bookings and backlog cannot necessarily be relied upon as an accurate predictor of future revenues as the timing of such revenues is dependent upon completion of customer site preparation and construction, installation scheduling, receipt of applicable regulatory approvals, customer financing and other factors. Accordingly, there can be no assurance that orders will mature into revenue. The Company has accounts receivable due from customers in Latin America. Recent changes in economic conditions in that region, including the devaluation of Brazilian currency, may adversely affect the Company's ability to collect these accounts receivable. If the Company were unable to collect a substantial majority of these accounts receivable, the Company's results of operations for a quarterly period could be adversely affected. 19 MATERIAL WEAKNESSES IN INTERNAL CONTROLS After completion of their audit of the results of the Company's 1998 fiscal year, the Company's independent accountants reported to the Company's audit committee that they had found material weaknesses in the Company's internal accounting controls. Following receipt of this report, the Company retained a nationally recognized accounting firm other than its independent auditors to review its controls. The Company has further engaged this firm to recommend to the Company suggested improvements in these controls and to assist the Company in implementing them. The Company believes that it has already taken steps to remedy certain weaknesses in its control functions, and that improvements already in place, coupled with the continuous improvements the Company is making, should substantially improve the timeliness and accuracy of the Company's internal financial reporting and monitoring functions. RISKS RELATED TO ACQUISITIONS In the past two years, the Company has acquired a number of businesses, and anticipates that it may continue to acquire businesses whose products and services complement the Company's businesses. Acquisitions involve numerous risks, including, among other things, difficulties in successfully integrating the businesses (including products and services, as well as sales and marketing efforts), failure to retain existing customers or attract new customers to the acquired business operations, failure to retain key technical and management personnel, coordinating geographically separated organizations, and diversion of ADAC management attention. These risks, as well as liabilities of any acquired business (whether known or unknown at the time of acquisition), could have a material adverse effect on the results of operations and financial condition of the Company, including adverse short-term effects on its reported operating results. The Company seeks to mitigate these risks by taking reserves when appropriate in connection with these acquisitions. In addition, the Company has in the past and may in the future issue stock as consideration for acquisitions. Future sales of shares of the Company's stock issued in such acquisitions could adversely affect or cause fluctuations in the market price of the Company's Common Stock. YEAR 2000 COMPLIANCE The following statements constitute "Year 2000 Readiness Disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act. Many currently installed computer systems and software products were coded to accept only 2 digit entries in the date code field. Beginning in the Year 2000, these date code fields needed to accept 4 digit entries to distinguish 21st century dates from 20th century dates. Systems that did not properly recognize such information could have generated erroneous data or caused a system to fail. As a result, computer systems and/or software used by many companies needed to be upgraded to comply with such Year 2000 requirements. The Company utilized both internal and external resources to identify, correct or reprogram, and test its internal systems, for Year 2000 compliance. The Company believes such compliance did not have a material adverse effect on the Company's results of operations or financial condition. The Company completed an assessment and analysis of its internal information technology systems, software and manufacturing equipment. The Company implemented the system changes needed to correct its internal Year 2000 issues. While the Company currently believes that the Year 2000 did not pose significant internal operational problems, issues could still arise due to fiscal 2000 leap year or other dates not already identified. Failure by the Company to fully identify all Year 2000 dependencies in the Company's systems, could have a material adverse effect on the Company's results of operations. The Company established a program to assess its products to ensure that they are Year 2000 compliant. To monitor this program and to inform customers about the Year 2000 issues with respect to its 20 products, the Company created a website at www.adaclabs.com/about/year20001.html. This website identified the status of Year 2000 compatibility of its products, including products that are Year 2000 compliant, products that needed software updates, products that required hardware upgrades, and products that could not be made Year 2000 compliant. This list was periodically updated as analysis of additional products is completed and is still available. The Company sold, or provided under warranty or service contracts, software license upgrades to update the majority of its installed base to make the products Year 2000 compliant, and completed development of such upgrades in 1999. For older equipment which the Company no longer manufactures, the Company sold hardware upgrades to its customers which addressed the Year 2000 compliance where possible. Where possible the Company contacted by mail customers which required computer hardware upgrades, and also posted information relating to Year 2000 compliance for its products on the Company's website as described above. The Company gathered information from its suppliers and vendors to determine the extent to which the Company's capabilities were vulnerable to failure by those third parties to remedy their own Year 2000 issues. The Company received responses to some of those inquiries and analyzed the information that was made available. The Company proceeded with further analysis or testing of its vendors' systems as needed. Although the Company has not experienced any significant delays due to Year 2000 issues, there is no guarantee that the systems and products of other companies on which the Company relies were timely converted or that they will not have a material adverse effect on the Company in the months to come. The Company has incurred Year 2000 costs of approximately $1.2 million. These cost estimates do not include any potential costs related to any customer or other claim. In addition, these cost estimates are based on current assessments of the activities described above, and are subject to changes as the Company continues to monitor these activities. The Company believes any modifications deemed necessary were made on a timely basis and does not believe that the costs of such modifications had a material adverse effect on the Company's operating results. HEALTH CARE REFORM; REIMBURSEMENT AND PRICING PRESSURE There is significant concern today about the availability and rising cost of healthcare in the United States. Cost containment initiatives, market pressures and proposed changes in applicable laws and regulations may have a dramatic effect on pricing or potential demand for medical devices, the relative costs associated with doing business and the amount of reimbursement by both government and third party payors, which could have a material adverse effect on the Company's results of operations. INTELLECTUAL PROPERTY RIGHTS The Company's success depends in part on its continued ability to obtain patents, to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. There can be no assurance that pending patent applications will mature into issued patents or that third parties will not make claims of infringement against the Company's products or technologies or will not be issued patents that may require payment of license fees by the Company or prevent the sale of certain products by the Company. RELIANCE ON SUPPLIERS Certain components used by the Company to manufacture its products such as the sodium iodide crystals used in the Company's nuclear medicine systems are presently available from only one supplier. The Company also relies on several significant vendors for hardware and software components for its healthcare information systems products. The loss of any of these suppliers, including any single-source supplier, would require obtaining one or more replacement suppliers as well as potentially requiring a significant level of hardware and software development to incorporate the new parts into the Company's 21 products. Although the Company has obtained insurance to protect against loss due to business interruption from these and other sources, there can be no assurance that such coverage would be adequate. PRODUCT LIABILITY Although the Company maintains product liability insurance coverage in an amount that it deems sufficient for its business, there can be no assurance that such coverage will ultimately prove to be adequate or that such coverage will continue to remain available on acceptable terms, if at all. VOLATILITY OF STOCK PRICE The market price of the Company's Common Stock is and is expected to continue to be subject to significant fluctuations in response to variations in anticipated or actual operating results, market speculation, announcements of new products or technology by the Company or its competitors, changes in earnings estimates by the Company's analysts, trends in the health care industry in general and other factors, many of which are beyond the control of the Company. In addition, broad market fluctuations as well as general economic or political conditions or initiatives, such as health care reform, may adversely impact the market price of the Common Stock regardless of the Company's operating results. MARKET RISK The Company's market risk disclosures set forth in the 1999 Annual Report to Shareholders have not changed significantly. 22 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 7 "Litigation" of Notes to Condensed Consolidated Financial Statements. ITEM 3. DEFAULTS UPON SENIOR SECURITIES See Note 6 "Credit and Borrowing Arrangements" of Notes to Condensed Consolidated Financial Statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.28 Second Amendment to Amended and Restated Credit Agreement 27 Financial Data Schedule
(b) Reports on Form 8-K: On January 13, 2000, the Company filed a Form 8-K with respect to the issuance by the Company of a press release announcing that the Company had reached agreements in principle to settle certain class action and related derivative litigation involving the Company. See Note 7 "Litigation" of Notes to Condensed Consolidated Financial Statements. 23 SIGNATURES 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. Date: February 16, 2000 ADAC LABORATORIES (REGISTRANT) By: /s/ NEIL J. LAIRD ----------------------------------------- Neil J. Laird SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
24 EX-10.28 2 EXHIBIT 10.28 EXECUTION VERSION SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "AMENDMENT"), dated as of January 28, 2000, is entered into by and among: (1) ADAC LABORATORIES, a California corporation ("BORROWER"); (2) Each of the financial institutions listed in SCHEDULE I TO THE CREDIT AGREEMENT referred to in RECITAL A below (such financial institutions to be referred to herein collectively as the "EXISTING LENDERS"); (3) ABN AMRO BANK N.V., a Netherlands public company acting through its San Francisco Representative Office, as agent for the Lenders (as defined below) (in such capacity, "AGENT"); and (4) COMERICA BANK - CALIFORNIA, a California banking corporation, that will become a party to the Credit Agreement pursuant to this Amendment (the "NEW LENDER", and together with the Existing Lenders, the "Lenders"). RECITALS A. Borrower, the Existing Lenders and Agent are parties to an Amended and Restated Credit Agreement dated as of March 29, 1999, as amended by that certain First Amendment to Credit Agreement dated as of August 17, 1999 (as amended, the "CREDIT AGREEMENT"). Pursuant to the Credit Agreement, the Existing Lenders have agreed to provide to Borrower certain credit facilities with a Total Commitment of $75,000,000. B. Borrower has requested the Existing Lenders and Agent to amend the Credit Agreement in certain respects and increase the Total Commitment to $85,000,000. C. In order to facilitate the increase of the Total Commitment to $85,000,000, Borrower has requested that the New Lender become a party to the Credit Agreement. D. The New Lender is willing to become a party to the Credit Agreement, and the New Lender, the Existing Lenders and Agent are willing to so amend the Credit Agreement upon the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrower, the Existing Lenders, the New Lender and Agent hereby agree as follows: 1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement, as amended by this Amendment. The rules of construction set forth in SECTION I OF THE CREDIT AGREEMENT shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 2. ALLOCATION OF OUTSTANDING LOANS AMONG THE EXISTING LENDERS AND THE NEW LENDER. Subject to the satisfaction of the conditions set forth in PARAGRAPH 5 below, Borrower, the Existing Lenders, the New Lender and Agent hereby agree that on and after the Second Amendment Effective Date (as defined below), each Existing Lender and the New Lender shall be a Lender under the Credit Agreement and the other Credit Documents with Proportionate Shares as set forth on SCHEDULE I OF THE CREDIT AGREEMENT (as amended pursuant to this Amendment), with the rights, duties and obligations of such a Lender under the Credit Agreement and the other Credit Documents. To effectuate the foregoing, on the Second Amendment Effective Date Agent shall calculate the Proportionate Share of each Existing Lender and the New Lender in each Borrowing then outstanding. Based upon such calculation, the New Lender shall purchase from the Existing Lenders such shares in the outstanding Loans as Agent determines is necessary to cause each Existing Lender and the New Lender to hold Loans in each outstanding Borrowing in a principal amount equal to such Existing Lender's and such New Lender's Proportionate Share of such Borrowings. 3. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the conditions set forth in PARAGRAPH 5 below, the Credit Agreement is hereby amended as follows: (a) PARAGRAPH 1.01 is hereby amended by adding thereto, in appropriate alphabetical order, definitions of the terms "Litigation Settlement Payment" and "Litigation Settlement Payment Non-Recurring Charge" to read in their entirety as follows: "LITIGATION SETTLEMENT PAYMENT" shall mean an amount (including related legal fees), not to exceed Fifteen Million Dollars ($15,000,000),to be paid by Borrower as a result of its settlement of various lawsuits with certain of its shareholders, including without limitation "In re ADAC Laboratories Securities Litigation, Master File No. C-98-4934-MHP" and Civil Action CV779262, pending in the County of Santa Clara, California. "LITIGATION SETTLEMENT PAYMENT NON-RECURRING CHARGE" shall mean (without duplication of amounts previously charged in connection with the 1999 Litigation Reserve) the non-recurring charge, not to exceed $15,000,000 (pre-tax) 2 in the aggregate, to be taken by Borrower during its fiscal year 2000 as a result of its payment of the Litigation Settlement Payment. (b) PARAGRAPH 1.01 is hereby further amended by changing the definition of the term "EBITDA" set forth therein to read in its entirety as follows: "EBITDA" shall mean, with respect to Borrower and its Subsidiaries for any period, the sum of the following, determined on a consolidated basis in accordance with GAAP: (a) The net income of Borrower and its Subsidiaries for such period before provision for income taxes; PLUS (b) The sum (to the extent deducted in calculating such net Income for such period under CLAUSE (a) above) of (i) all Interest Expenses of Borrower and its Subsidiaries accrued during such period and (ii) all depreciation and amortization expenses of Borrower and its Subsidiaries accrued during such period; PLUS (c) To the extent deducted in calculating such net income for such period under CLAUSE (a) above, (i) all Acquisition In-Process R&D Charges taken by Borrower and its Subsidiaries during such period, (ii) all 1999 Non-Recurring and Non-Ordinary Charges taken by Borrower and its Subsidiaries during such period, (iii) all Capitalized Spare Parts 1999 Non-Ordinary Charges taken by Borrower and its Subsidiaries during such period; (iv) all Latin American Notes 1999 Non-Ordinary Charges taken by Borrower and its Subsidiaries during such period and (v) all Litigation Settlement Payment Non-Recurring Charges taken by Borrower and its Subsidiaries during such period. (c) PARAGRAPH 1.01 is hereby further amended by changing the definition of the term "Total Commitment" set forth therein to read in its entirety as follows: "TOTAL COMMITMENT" shall mean, at any time, Eighty Five Million Dollars ($85,000,000) or, if such amount is reduced pursuant to SUBPARAGRAPH 2.02(a), the amount to which so reduced and in effect at such time. (d) SUBPARAGRAPH 5.02(a) is hereby amended by changing CLAUSE (iv) thereof to read in its entirety as follows: (iv) Indebtedness of Borrower and its Subsidiaries under Rate Contracts, provided that (A) all such arrangements are entered into in connection with bona fide hedging operations and not for speculation and (B) the aggregate 3 net amount owed by Borrower and its Subsidiaries under, on account of or otherwise in connection with such Rate Contracts does not exceed $10,000,000 (marked to market) at any time; (e) SUBPARAGRAPH 5.03(b) is hereby amended by changing the INTRODUCTORY CLAUSE thereof to read in its entirety as follows: (b) TANGIBLE NET WORTH. Borrower shall not permit the sum of (1) Tangible Net Worth of Borrower and its Subsidiaries on the last day of any fiscal quarter (any such date to be referred to herein as a "determination date") which occurs on or after July 4, 1999 (such date to be referred to herein as the "base date") PLUS (2) the after tax amount (if any) of the Capitalized Spare Parts 1999 Non-Ordinary Charges, the Latin American Notes 1999 Non-Ordinary Charges and the Litigation Settlement Payment Non-Recurring Charges of Borrower and its Subsidiaries (as applicable) for each quarter after the base date through and including the quarter ending immediately prior to the determination date, to be less than the sum on such determination date of the following: (f) SUBPARAGRAPH 5.03(c) is hereby amended to read in its entirety as follows: (c) DEBT/EBITDA RATIO. Borrower shall not permit the Debt/EBITDA Ratio of Borrower and its Subsidiaries to be greater than the ratios set forth below as of the end of the four fiscal quarter periods set forth below: Four fiscal quarter period ending on each of the last day of the third fiscal quarter in 1999, and the fourth fiscal quarter in 1999 3.00 to 1.00 Four fiscal quarter period ending on the last day of the first fiscal quarter in 2000 3.25 to 1.00 Four fiscal quarter period ending on the last day of the second fiscal quarter in 2000 3.00 to 1.00 Four fiscal quarter period ending on the last day of the third fiscal quarter in 2000 and the date day of each fiscal quarter thereafter 2.50 to 1.00; PROVIDED, HOWEVER, that for every four fiscal quarter period ending on the last day of a fiscal quarter occurring after the date Agent and the Lenders release their security interest in the Collateral securing the Secured 4 Obligations pursuant to SUBPARAGRAPH 2.12(e), Borrower shall not permit the Debt/EBITDA Ratio of Borrower and its Subsidiaries to be greater than 2.00 to 1.00. (g) SUBPARAGRAPH 5.03(d) is hereby amended to read in its entirety as follows: (d) PROFITABILITY. Borrower shall not permit the consolidated net income of Borrower and its Subsidiaries (i) for the third fiscal quarter in 1999 to be a loss in excess of $9,000,000, (ii) for the fourth fiscal quarter in 1999 to be less than $1.00 and (iii) for any other fiscal quarter to be less than $1.00. In calculating the consolidated net income of Borrower and its Subsidiaries for the third fiscal quarter in 1999, an amount equal to the after-tax sum of any Latin American Notes 1999 Non-Ordinary Charges taken by Borrower during such fiscal quarter shall be ignored. In addition, in calculating the consolidated net income of Borrower and its Subsidiaries for the fourth fiscal quarter in 1999, an amount equal to the sum of the 1999 Litigation Reserve, the after-tax sum of any Capitalized Spare Parts 1999 Non-Ordinary Charges and the Latin American Notes 1999 Non-Ordinary Charges taken by Borrower during such fiscal quarter shall be ignored. Moreover, in calculating the consolidated net income of Borrower and its Subsidiaries for the fiscal quarter in 2000 in which Borrower records the Litigation Settlement Payment Non-Recurring Charge, an amount equal to the after-tax sum of any Litigation Settlement Payment Non-Recurring Charge taken by Borrower during such fiscal quarter shall be ignored. Finally, in calculating the consolidated net income of Borrower and its Subsidiaries for any quarter for the purposes of this subparagraph, an amount equal to the after-tax sum of any Acquisition In-Process R&D Charges taken by Borrower during such fiscal quarter shall be ignored. (h) SCHEDULE I which sets forth the Proportionate Share of each Lender is hereby amended to read in its entirety as set forth on ATTACHMENT A hereto. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Agent, the Existing Lenders and the New Lender that the following are true and correct on the date of this Amendment and that, after giving effect to the amendments set forth in PARAGRAPH 3 above, the following will be true and correct on the Second Amendment Effective Date: (a) The representations and warranties of Borrower and its Subsidiaries set forth in PARAGRAPH 4.01 OF THE CREDIT AGREEMENT and in the other Credit Documents are true and correct in all material respects; (b) No Default or Event of Default has occurred and is continuing; and (c) Each of the Credit Documents is in full force and effect. 5 (Without limiting the scope of the term "Credit Documents," Borrower expressly acknowledges in making the representations and warranties set forth in this PARAGRAPH 4 that, on and after the date hereof, such term includes this Amendment.) 5. SECOND AMENDMENT EFFECTIVE DATE. The addition of the New Lender as a party to the Credit Agreement effected by PARAGRAPH 2 above and the amendments effected by PARAGRAPH 3 above shall become effective on January 28, 2000 (the "SECOND AMENDMENT EFFECTIVE DATE"), subject to receipt by the Existing Lenders, the New Lender and Agent, as applicable, on or prior to the Second Amendment Effective Date of the following, each in form and substance satisfactory to the Existing Lenders, the New Lender and Agent and their respective counsel, as applicable: (a) This Amendment duly executed by Borrower, each Lender and Agent; (b) An Amended and Restated Note, dated the Closing Date and otherwise appropriately completed, made payable to the New Lender, in the amount of the New Lender's Proportionate Share as of the Second Amendment Effective Date; (c) A letter in the form of ATTACHMENT B hereto appropriately completed and duly executed by each Guarantor; (d) A Certificate of the Secretary of Borrower, dated the Second Amendment Effective Date, certifying that (i) the Articles of Incorporation and Bylaws of Borrower, in the form delivered to Agent on the Closing Date, are in full force and effect and have not been amended, supplemented, revoked or repealed since such date and (ii) that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of Borrower and continuing in effect, which authorize the execution, delivery and performance by Borrower of this Amendment and the consummation of the transactions contemplated hereby, including without limitation, the increase in the Total Commitment; (e) A Certificate of the Secretary of each Domestic Subsidiary, dated the Second Amendment Effective Date, certifying that (i) the Articles of Incorporation and Bylaws of such Domestic Subsidiary, in the form delivered to Agent on the Closing Date or the First Amendment Effective Date (as applicable), are in full force and effect and have not been amended, supplemented, revoked or repealed since such date and (ii) that attached thereto are true and correct copies of resolutions duly adopted by the Board of Directors of such Domestic Subsidiary and continuing in effect, which authorize the execution, delivery and performance by such Domestic Subsidiary of the Credit Documents executed or to be executed by such Subsidiary in connection with this Amendment and the consummation of the transactions contemplated hereby and thereby; (f) A favorable written opinion of legal counsel for Borrower and the Domestic Subsidiaries, dated the Second Amendment Effective Date, addressed to Agent for the benefit of Agent, the Existing Lenders and the New Lender, covering such legal 6 matters as Agent may reasonably request and otherwise in form and substance satisfactory to Agent; and (g) Such other evidence as Agent, any Existing Lender or the New Lender may reasonably request to establish the accuracy and completeness of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Credit Documents. 6. EFFECT OF THIS AMENDMENT. On and after the Second Amendment Effective Date, each reference in the Credit Agreement and the other Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. Except as specifically amended above, (a) the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any provision of the Credit Agreement or any other Credit Document. 7. MISCELLANEOUS. (a) COUNTERPARTS. This Amendment may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. (b) HEADINGS. Headings in this Amendment are for convenience of reference only and are not part of the substance hereof. (c) GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. 7 IN WITNESS WHEREOF, Borrower, Agent, the Existing Lenders and the New Lender have caused this Amendment to be executed as of the day and year first above written. BORROWER: ADAC LABORATORIES By: --------------------------------- Name: --------------------------- Title: --------------------------- AGENT: ABN AMRO BANK N.V. By: --------------------------------- Name: --------------------------- Title: --------------------------- By: --------------------------------- Name: --------------------------- Title: --------------------------- EXISTING LENDERS: ABN AMRO BANK N.V. By: --------------------------------- Name: --------------------------- Title: --------------------------- By: --------------------------------- Name: --------------------------- Title: --------------------------- SANWA BANK CALIFORNIA By: --------------------------------- Name: --------------------------- Title: --------------------------- 8 BANQUE NATIONALE DE PARIS By: --------------------------------- Name: --------------------------- Title: --------------------------- By: --------------------------------- Name: --------------------------- Title: --------------------------- UNION BANK OF CALIFORNIA, N.A. By: --------------------------------- Name: --------------------------- Title: --------------------------- WELLS FARGO BANK, N.A. By: --------------------------------- Name: --------------------------- Title: --------------------------- NEW LENDER: COMERICA BANK - CALIFORNIA By: --------------------------------- Name: --------------------------- Title: --------------------------- 9 ATTACHMENT A LENDERS LENDER PROPORTIONATE SHARE* ABN AMRO BANK N.V. 29.41176471% APPLICABLE LENDING OFFICE: ABN AMRO Bank N.V. San Francisco Representative Office 101 California Street, Suite 4550 San Francisco, CA 94111-5812 ADDRESS FOR NOTICES: CREDIT ADMINISTRATION: ABN AMRO Bank N.V. 208 S. LaSalle Street, Suite 1500 Chicago, IL 60604-1003 Attn: Joseph Coriaci Credit Administration Telephone: (312) 992-5118 Fax No.: (312) 992-5111 With a copy to: ABN AMRO Bank N.V. 101 California Street, Suite 4550 San Francisco, CA 94111-5812 Attn: Dianne Barkley Vice President Telephone: (415) 984-3706 Fax No: (415) 362-3524 A-1 NOTICES OF BORROWING, ETC.: ABN AMRO Bank N.V. Capital Markets Syndication Group 1235 Avenue of the Americas, 9th Floor New York, NY 10019 Attn: Linda Boardman Telephone: (212) 314-1724 Fax No: (212) 314-1709 WIRING INSTRUCTIONS: ABN AMRO Bank N.V. ABA #: 026009580 F/O ABN AMRO Bank N.V. Chicago Branch CPU Account #: 650-001-1789-41 Reference: Adac Laboratories * To be expressed as a percentage rounded to the eighth digit to the right of the decimal point. A-2 LENDER PROPORTIONATE SHARE* SANWA BANK CALIFORNIA 21.17647059% Applicable Lending Office: San Jose CBC 220 Almaden Boulevard San Jose, CA 95113-2003 Address for notices: 220 Almaden Boulevard San Jose, CA 95113-2003 Attn: James Rosewater Telephone No: (408) 297-6500 Telecopier No: (408) 292-4092 Wiring Instructions: Sanwa Bank California 220 Almaden Boulevard San Jose, CA 95113 ABA No. 122003516 Account No: 1129-92463 Reference: Commercial Loan No. 00-0491250-5 For Further Credit To: ADAC Laboratories * To be expressed as a percentage rounded to the eighth digit to the right of the decimal point. A-3 LENDER PROPORTIONATE SHARE* BANQUE NATIONALE DE PARIS 12.94117647% Applicable Lending Office: Banque National de Paris, San Francisco Branch 180 Montgomery Street, 3rd Floor San Francisco, CA 94104 Address for Notice: 180 Montgomery Street, 3rd Floor San Francisco, CA 94104 Attention: Debra Wright, Vice President Telephone: (415) 956-0707 Telecopier: (415) 296-8954 Telex: RCA 278900 (Answerback: BNPs UR) Wiring Instructions Federal Reserve Bank of San Francisco San Francisco, California ABA Number: 121027234 Account Name: Banque Nationale de Paris, San Francisco Branch Reference: ADAC Laboratories * To be expressed as a percentage rounded to the eighth digit to the right of the decimal point. A-4 LENDER PROPORTIONATE SHARE* UNION BANK OF CALIFORNIA, N.A. 12.94117647% Applicable Lending Office: Union Bank of California, N.A. 350 California Street San Francisco, CA 94104 Address for Notice: CC: NOTIFICATION Union Bank of California, N.A. Allan Miner Northern California Commercial Banking 99 Almaden Blvd. Division Suite 200 350 California Street, 10th Floor San Jose, CA 95113 San Francisco, CA 94104 Tel.: 408/279-7742 Attention: Jim Goudy Fax: 408/280-7163 Telephone: (415) 705-7165 Telecopier: (415) 705-7111 Wiring Instructions: Union Bank of California, N.A. 1980 Saturn Street Monterey Park, CA 91755 ABA Number: 122-000-496 Account Number: 070-196431 Account Name: Wire Transfer Clearing Attention: Commercial Loan Operations Reference: ADAC Laboratories (include any additional information needed to process transaction) * To be expressed as a percentage rounded to the eighth digit to the right of the decimal point. A-5 LENDER PROPORTIONATE SHARE* WELLS FARGO BANK, N.A. 11.76470588% Applicable Lending Office: Wells Fargo Bank, N.A. 121 Park Center Plaza, Third Floor San Jose, CA 95113 Address for Notice: Wells Fargo Bank, N.A. Commercial Banking Loan Center 201 Third Street, 8th Floor San Francisco, CA 94103 Attention: Carol Burke Telephone: (415) 477-5260 Telecopier: (415) 979-0675 Wiring Instructions: Wells Fargo Bank, N.A. San Francisco, CA ABA Number: 121-000-248 BNF: Member SYN/AC-2712-507201 Reference: ADAC LABORATORIES * To be expressed as a percentage rounded to the eighth digit to the right of the decimal point. A-6 LENDER PROPORTIONATE SHARE* COMERICA BANK-CALIFORNIA 11.76470588% Applicable Lending Office: Comerica Bank-California 155 Grand Avenue, Suite 402 Oakland, CA 94612 Address for Notice: Comerica Bank-California 155 Grand Avenue, Suite 402 Oakland, CA 94612 Attention: Scott Smith Telephone: (510) 645-2202 Telecopier: (510) 645-2220 Wiring Instructions: Comerica Bank-California San Jose, California ABA Number: 1211-37522 BNF: For credit of CLS Wire Suspense A/C 21585-90010 Reference: ADAC Laboratories Attention: Scott Smith (510) 645-2202 * To be expressed as a percentage rounded to the eighth digit to the right of the decimal point. A-7 ATTACHMENT B GUARANTOR CONSENT LETTER January [A], 2000 TO: ABN AMRO BANK, N.V., As Agent for the Lenders under the Credit Agreement referred to below 1. Reference is made to the following: (a) The Amended and Restated Credit Agreement dated as of March 29, 1999, as amended by that certain First Amendment to Credit Agreement dated as of August 17, 1999 (the "CREDIT AGREEMENT") among ADAC Laboratories ("BORROWER"), the financial institutions which are from time to time parties thereto (the "LENDERS"), and ABN AMRO Bank, as agent for the Lenders ("AGENT"); (b) The Amended and Restated Guaranty dated as of March 29, 1999 (the "GUARANTY") executed by each of the undersigned (each a "GUARANTOR," and collectively, the "GUARANTORS") in favor of the Lenders and Agent; and (c) The Second Amendment to Credit Agreement dated as of January 28, 2000 (the "SECOND AMENDMENT") among Borrower, the Lenders and Agent. 2. Each Guarantor hereby consents to the Second Amendment including without limitation the increase of the Total Commitment from $75,000,000 to $85,000,000. Each Guarantor expressly agrees that such amendment shall in no way affect or alter the rights, duties, or obligations of Guarantor, the Lenders or Agent under the Guaranty. 3. From and after the date hereof, the term "Credit Agreement" as used in the Guaranty shall mean the Credit Agreement, as amended by the Second Amendment. 4. The Guarantors' consent to the Second Amendment shall not be construed (i) to have been required by the terms of the Guaranty or any other document, instrument or agreement relating thereto or (ii) to require the consent of the Guarantors in connection with any future amendment of the Credit Agreement or any other Credit Document. IN WITNESS WHEREOF, each Guarantor has executed this Guarantor Consent Letter as of the day and year first written above. ADAC RESEARCH AND MFG., INC. By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ B-1 ADAC HEALTHCARE INFORMATION SYSTEMS, INC. By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ ADAC LABORATORIES PACIFIC, INC. By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ ADAC CAPITAL, LLC By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ B-2 EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DATED JANUARY 2, 2000 OF ADAC LABORATORIES FILED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS OCT-01-2000 OCT-04-1999 JAN-02-2000 3,430 0 102,872 16,686 30,729 144,295 31,161 15,699 241,585 134,631 0 0 0 155,085 (51,497) 103,588 90,322 90,322 58,189 58,189 38,341 0 893 (7,101) (2,627) (4,474) 0 0 0 (4,474) (0.22) (0.22)
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