<PAGE>
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 JUNE 29, 1996 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 0-14953
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ACUSON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2784998
- -------------------------------------- --------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1220 CHARLESTON ROAD
P. O. BOX 7393
MOUNTAIN VIEW, CA 94039-7393
(Address of principal executive offices)
Registrant's telephone number, including area code, is (415) 969-9112
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.0001 par value 27,396,550 shares
------------------------------- -------------------------------
(Class) Outstanding at August 2, 1996
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FORM 10-Q
ACUSON CORPORATION
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 29, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Operations
for the Three Months Ended June 29, 1996 and
July 1, 1995 and for the Six Months Ended
June 29, 1996 and July 1, 1995 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 29, 1996 and
July 1, 1995 3
Notes to Unaudited Condensed Consolidated
Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 8
ITEM 6. Exhibits and Reports on Form 8-K 8
Signature 9
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ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 31,
1996 1995
(Unaudited)
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 25,081 $ 46,135
Short-term investments 3,006 10,000
-------- --------
Total cash and short-term investments 28,087 56,135
Accounts receivable, net 71,779 77,992
Inventories 82,732 50,484
Deferred income taxes 29,511 24,188
Other current assets 11,104 12,467
-------- --------
Total current assets 223,213 221,266
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization
of $113,760 and $106,647 in 1996 and 1995,
respectively 53,936 50,244
OTHER ASSETS, NET 17,005 24,343
-------- --------
Total Assets $294,154 $295,853
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,055 $ 16,295
Other accrued liabilities 76,777 83,561
-------- --------
Total current liabilities 107,832 99,856
-------- --------
Commitments and contingencies (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock, par value $.0001:
authorized, 10,000 shares,
outstanding, none -- --
Common stock and additional paid-in
capital, common stock par value
$.0001: authorized, 50,000 shares;
outstanding; 27,388 shares
and 27,275 shares in 1996 and 1995,
respectively 88,332 79,702
Cumulative translation adjustment 266 206
Unrealized holding gain (loss) on
investment securities (5) 37
Retained earnings 97,729 116,052
-------- --------
Total stockholders' equity 186,322 195,997
-------- --------
Total Liabilities and Stockholders' Equity $294,154 $295,853
======== ========
</TABLE>
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See accompanying notes to unaudited condensed consolidated financial statements.
1
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ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ----------------------
JUNE 29, JULY 1, JUNE 29, JULY 1,
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Product $ 53,305 $61,859 $117,642 $130,504
Service 21,050 20,080 41,539 39,401
-------- ------- -------- --------
Total net sales 74,355 81,939 159,181 169,905
-------- ------- -------- --------
COST OF SALES
Product 29,198 28,517 60,148 60,363
Service 10,302 8,745 20,135 17,382
-------- ------- -------- --------
Total cost of sales 39,500 37,262 80,283 77,745
-------- ------- -------- --------
Gross profit 34,855 44,677 78,898 92,160
-------- ------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 35,707 27,249 62,474 54,511
Product development 16,743 16,954 33,115 35,013
-------- ------- -------- --------
Total operating expenses 52,450 44,203 95,589 89,524
-------- ------- -------- --------
Income (loss) from operations (17,595) 474 (16,691) 2,636
INTEREST INCOME, NET 1,012 954 1,911 1,945
-------- ------- -------- --------
Income (loss) before income taxes (16,583) 1,428 (14,780) 4,581
PROVISION FOR (BENEFIT FROM) INCOME TAXES (5,999) 414 (5,458) 1,328
-------- ------- -------- --------
Net income (loss) $(10,584) $ 1,014 $ (9,322) $ 3,253
======== ======= ======== ========
EARNINGS (LOSS) PER SHARE $ (0.39) $ 0.04 $(0.34) $0.11
======== ======= ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 27,137 28,429 27,167 28,670
======== ======= ======== ========
</TABLE>
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See accompanying notes to unaudited condensed consolidated financial statements.
2
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ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JUNE 29, JULY 1,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (9,322) $ 3,253
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization 9,603 9,284
Tax benefit of employee stock transactions 2,037 223
Changes in:
Accounts receivable 6,335 3,850
Leases receivable 8,294 (4,076)
Inventories (32,319) (1,473)
Deferred income taxes (6,061) (2,605)
Other current assets 328 2,934
Accounts payable 14,781 1,278
Other accrued liabilities (5,768) 3,818
-------- ---------
Net cash provided by (used in)
operating activities (12,092) 16,486
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in short-term investments 6,929 7,618
Investment in property and equipment (13,389) (11,482)
Decrease in other 793 359
-------- ---------
Net cash used in investing activities (5,667) (3,505)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock (12,012) (15,747)
Issuance of common stock under stock
option and stock purchase plans 8,863 3,734
-------- ---------
Net cash used in financing activities (3,149) (12,013)
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (146) 385
-------- ---------
Net increase (decrease) in cash and
cash equivalents (21,054) 1,353
-------- ---------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 46,135 28,671
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,081 $ 30,024
======== =========
</TABLE>
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See accompanying notes to unaudited condensed consolidated financial statements.
3
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ACUSON CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - INTERIM STATEMENTS
In the opinion of management, the unaudited interim condensed
consolidated financial statements include all adjustments, which include only
normal recurring adjustments, necessary to summarize fairly Acuson Corporation's
(the "Company's") condensed consolidated financial position as of June 29, 1996
and its condensed consolidated results of operations and cash flows for the six-
month periods ended June 29, 1996 and July 1, 1995. The results of operations
for the three and six months ended June 29, 1996 are not necessarily indicative
of the results to be expected for the entire year ending December 31, 1996.
Certain information reported in the prior year has been reclassified to conform
to the 1996 presentation.
The Company's principle accounting policies are set forth in the
financial statements for the year ended December 31, 1995 and notes thereto,
contained in the Company's Annual Report filed with the Securities and Exchange
Commission.
NOTE 2 - INVESTMENTS
Under Statement of Financial Accounting Standards No. 115, the
Company's investments, which consisted entirely of debt securities (the
"securities"), were classified as available-for-sale. These securities mature
at various dates through the year 1996.
As of June 29, 1996, the securities' gross unrealized holding loss was
approximately $7,000. The unrealized holding loss of approximately $5,000, net
of the tax effect, was reported as a separate component of stockholders' equity.
The Company has determined that the unrealized holding loss is not a permanent
impairment of the fair value of its investments. During the six months ended
June 29, 1996, the Company sold certain of its available-for-sale securities
for proceeds of approximately $7.1 million. The Company sold these securities
for approximately original cost.
NOTE 3 - INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 29, DEC. 31,
1996 1995
------------------------
<S> <C> <C>
Raw materials $42,234 $26,906
Work-in-process 20,104 5,981
Finished goods 20,394 17,597
------- -------
Total inventories $82,732 $50,484
======= =======
</TABLE>
NOTE 4 - LEGAL CONTINGENCIES
On July 1, 1993 and July 30, 1993, individuals purporting to represent
a class of persons who purchased Acuson common stock during the period between
October 24, 1990, and July 22, 1992, filed two separate, but related, actions
against the Company and twelve of its officers and one former officer in the
Federal District Court for the
4
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Northern District of California alleging that the defendants' statements about
the Company were incomplete or inaccurate, in violation of Federal securities
laws. Plaintiffs sought damages in an unspecified amount, as well as equitable
relief or injunctive relief and attorneys' fees, experts' fees and costs. In
September 1995, the parties agreed in principal to settle the pending
litigation, subject to the Court's approval. The proposed settlement would not
have a material adverse effect on the Company's financial condition.
On October 27, 1994, the Company was sued in Ghent, Belgium, by
Cormedica NV, in connection with the Company's termination of its distributor
relationship with Cormedica. In the suit, Cormedica seeks indemnities and
damages in the amount of approximately $2.5 million. The Company intends to
defend this suit vigorously. Management believes that the ultimate outcome of
this matter will not have a material adverse effect on the Company's financial
condition.
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5
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended June 29, 1996, were $74.4 million
compared to $81.9 million in the quarter ended July 1, 1995. For the first six
months of 1996, net sales were $159.2 million, representing a decrease of 6.3%
compared to the first six months of 1995. The Company believes that the change
in revenue reflects, in part, the delay of buying decisions resulting from the
announcement of the Sequoia(TM) 512 and Sequoia(TM) C256 ultrasound systems. The
Company believes that orders for the Company's 128XP(TM) ultrsasound systems
paused as potential customers waited for the opportunity to consider the new
Sequoia systems. Additionally, the Company's average unit selling prices were
lower in this quarter as a result of an increase in sales of lower-priced
configurations and intense competitive pricing pressures. Net sales for the
quarter ended June 29, 1996, did not reflect any sales of Sequoia systems
because the Company began shipping orders at the end of July. Worldwide service
revenue increased 4.8% to $21.1 million from $20.1 million in the quarter ended
July 1, 1995 and increased 5.4% to $41.5 million from $39.4 million for the
first six months of 1995, primarily due to a larger base of installed systems.
Geographically, international revenue was $61.8 million during the first six
months of 1996, totalling 38.8% of net sales, as compared to 35.8% in the
comparable 1995 period.
The gross profit for the second quarter of 1996 was 46.9% of net
sales, compared to 54.5% in the second quarter of 1995. For the six months
ended June 29, 1996, gross profit was 49.6% of net sales compared to 54.2% in
the first six months of 1995. The percentage change was primarily a reflection
of pricing pressures, geographic mix, lower volumes and lower service margins.
The lower service margins were primarily due to pricing pressures as a result of
medical cost containment.
Selling, general and administrative costs were $35.7 million or 48.0%
of net sales in the quarter ended June 29, 1996, as compared to $27.2 million or
33.3% of net sales in the same period as prior year. For the six months ended
June 29, 1996, selling, general and administrative expenses were $62.5 million
or 39.2% compared to $54.5 million or 32.1% in the first six months of 1995.
The spending increase was primarily attributable to the launch of the new
Sequoia ultrasound systems.
Product development costs were largely unchanged year over year. In
the second quarter of 1996, they totalled $16.7 million or 22.5% of net sales,
compared to $17.0 million or 20.7% of net sales in the second quarter of 1995.
For the six months ended June 29, 1996, product development costs were $33.1
million or 20.8% of net sales compared to $35.0 million or 20.6% of net sales in
the first six months of 1995.
The benefit from income taxes was $6.0 million in the second quarter
of 1996 versus a provision of $0.4 million in the second quarter of 1995. For
the six months ended June 29, 1996, the tax benefit was $5.5 million versus a
tax provision $1.3 million in 1995. The effective tax rate for the six months
ended June 29, 1996, was a benefit of 37% versus a provision of 29% in the same
period in the prior year. The benefits result from application of the current
period loss to tax liabilities in other periods.
The Company believes that the trends of health-care-provider
consolidation, medical cost containment and intense competitive pressures which
existed in 1995 are continuing in 1996. The Company believes that future
revenues may continue to be impacted by these uncertainties, especially in the
domestic ultrasound market.
6
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On April 29, 1996 the Company introduced its new Sequoia 512 and
Sequoia C256 ultrasound systems. The Company began shipments of the Sequoia
products on July 26, 1996. As a result of this new product introduction, the
Company already has incurred substantial additional selling and manufacturing
costs and a pause in XP revenue. The major transition to Sequoia sales and
production will continue in the third and fourth quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments balance decreased $28.0
million during the six months ended June 29, 1996 to $28.1 million. During the
six months ended June 29, 1996, the Company used $12.1 million in cash for
operations, as compared to 1995 when operations generated $16.5 million in cash.
Inventories increased $32.3 million during the six months primarily as a result
of the planned introduction of new products. The increase in inventories also
was the primary cause for an increase in accounts payable of $14.8 million
during the first half of the year.
The Company's investing and financing activities for the six months
ended June 29, 1996 used $8.8 million. The Company purchased $13.4 million of
equipment during the year, primarily consisting of computer equipment, test
equipment and leasehold improvements. Included in the financing activities for
the first half of 1996 is $8.9 million raised through employee participation in
the Company's stock option and stock purchase plans and $12.0 million used for
share repurchases. In the same period a year ago, employee participation in the
Company's stock plans generated $3.7 million while share repurchases used $15.7
million.
In 1993, the Board of Directors authorized the repurchase of 4,000,000
shares of common stock over an unspecified period of time. During the second
quarter of 1996, the Company repurchased no shares, leaving a total of 3,464,800
shares repurchased to date toward the Board authorization. As of June 29, 1996,
there were 27,388,018 shares of Acuson common stock outstanding.
At June 29, 1996, the Company's working capital totalled $115.4
million. The Company also has a revolving unsecured credit facility for $50
million which is in effect through March 1997. No compensating balances are
required and the full amount is available under this credit facility. There
were no draws on this line of credit during the quarter.
Based on its current operating plan, the Company believes that the
liquidity provided by its existing cash and short-term investments, the
borrowing arrangements described above, and cash generated from operations will
be sufficient to meet the Company's operating and capital requirements for
fiscal 1996.
INVESTMENT RISKS
Except for the historical information contained herein, the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section in this report contains forward-looking statements regarding
the Company and its products. These forward-looking statements involve risks
and uncertainties. Actual results may differ materially from these forward
looking statements due to a number of important factors, including the
following:
The introduction of the Sequoia platform raises several risk factors.
Specifically, the success of the Sequoia products depends on actual and
perceived levels of product performance in a clinical environment; market
acceptance of the products and their pricing; successful ramp-up of production;
competitor responses including competing products and pricing, intellectual
property allegations, and product positioning counterstrategies and timely
completion of future product enhancement. The introduction of the new Sequoia
products may adversely impact sales of the Company's existing product lines as
potential customers evaluate Sequoia technology. The realizable value of
inventory and/or fixed assets for all of the Company's products is dependent on
the timing and success of product introduction to the marketplace and market
acceptance.
For a description of the investment consideration and risks
surrounding Acuson's overall business and financial prospects, refer to the
Company's Form 10-K for the year ended December 31, 1995 and Form 8-K filed on
April 29, 1996 with the Securities and Exchange Commission.
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7
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PART II
ITEM 1
LEGAL PROCEEDINGS
Previously reported in Company's Form 10-K for the fiscal year ended
December 31, 1995.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
27.1 Financial Data Schedule
b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K on April 29, 1996.
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8
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACUSON CORPORATION
(Registrant)
August 12, 1996 By /s/ Stephen T. Johnson
-----------------------
Stephen T. Johnson
Vice President, Chief Financial
Officer and Treasurer
(duly authorized Officer and Principal
Financial and Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-29-1996
<CASH> 25,081
<SECURITIES> 3,006
<RECEIVABLES> 74,692
<ALLOWANCES> 2,913
<INVENTORY> 82,732
<CURRENT-ASSETS> 223,213
<PP&E> 167,696
<DEPRECIATION> 113,760
<TOTAL-ASSETS> 294,154
<CURRENT-LIABILITIES> 107,832
<BONDS> 0
0
0
<COMMON> 88,332
<OTHER-SE> 97,990
<TOTAL-LIABILITY-AND-EQUITY> 294,154
<SALES> 117,642
<TOTAL-REVENUES> 159,181
<CGS> 60,148
<TOTAL-COSTS> 80,283
<OTHER-EXPENSES> 95,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,911)
<INCOME-PRETAX> (14,780)
<INCOME-TAX> (5,458)
<INCOME-CONTINUING> (9,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,322)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
