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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 28, 1997 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
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 (650) 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 28,811,760 shares
------------------------------- -----------------------------
(Class) Outstanding at August 2, 1997
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FORM 10-Q
ACUSON CORPORATION
INDEX
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PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 28, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations for the Three
Months Ended June 28, 1997 and June 29, 1996 and for the Six
Months Ended June 28, 1997
and June 29, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 28, 1997 and
June 29, 1996 3
Notes to 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 9
ITEM 4. Submission of Matters to a Vote of Security Holders 9
ITEM 6. Exhibits and Reports on Form 8-K 9
Signature 10
</TABLE>
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<TABLE>
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ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
JUNE 28, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 25,558 $ 14,413
Accounts receivable, net 120,618 93,647
Inventories 75,599 83,196
Deferred income taxes 21,891 22,316
Other current assets 14,245 22,388
--------- ---------
Total current assets 257,911 235,960
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
and amortization of $125,752 and $118,518 in 1997 and 1996, respectively 60,166 65,884
OTHER ASSETS, NET 19,000 18,857
--------- ---------
Total Assets $ 337,077 $ 320,701
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 12,000 $ 13,000
Accounts payable 25,338 20,235
Other accrued liabilities 91,256 92,410
--------- ---------
Total current liabilities 128,594 125,645
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.0001:
authorized, 10,000 shares; outstanding, none -- --
Common stock and additional paid-in capital, common stock par value
$0.0001: authorized, 50,000 shares; outstanding, 28,753 shares
and 28,246 shares in 1997 and 1996, respectively 118,675 102,756
Cumulative translation adjustment (761) 527
Retained earnings 90,569 91,773
--------- ---------
Total stockholders' equity 208,483 195,056
--------- ---------
Total Liabilities and Stockholders' Equity $ 337,077 $ 320,701
========= =========
===================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
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<TABLE>
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ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Product $ 91,316 $ 53,305 $ 178,819 $ 117,642
Service 21,376 21,050 41,454 41,539
--------- --------- --------- ---------
Total net sales 112,692 74,355 220,273 159,181
--------- --------- --------- ---------
COST OF SALES
Product 49,407 29,198 96,160 60,148
Service 11,446 10,302 21,513 20,135
--------- --------- --------- ---------
Total cost of sales 60,853 39,500 117,673 80,283
--------- --------- --------- ---------
Gross profit 51,839 34,855 102,600 78,898
--------- --------- --------- ---------
OPERATING EXPENSES
Selling, general and administrative 29,802 35,707 58,763 62,474
Product development 14,388 16,743 27,612 33,115
--------- --------- --------- ---------
Total operating expenses 44,190 52,450 86,375 95,589
--------- --------- --------- ---------
Income (loss) from operations 7,649 (17,595) 16,225 (16,691)
INTEREST INCOME, NET 250 1,012 334 1,911
--------- --------- --------- ---------
Income (loss) before income taxes 7,899 (16,583) 16,559 (14,780)
PROVISION FOR (BENEFIT FROM) INCOME TAXES 2,155 (5,999) 4,970 (5,458)
--------- --------- --------- ---------
Net income (loss) $ 5,744 $ (10,584) $ 11,589 $ (9,322)
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE $ 0.19 $ (0.39) $ 0.38 $ (0.34)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 30,686 27,137 30,687 27,167
========= ========= ========= =========
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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<TABLE>
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ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED
-----------------------
JUNE 28, JUNE 29,
1997 1996
- ----------------------------------------------------------------------------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 11,589 $ (9,322)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization 11,123 9,603
Tax benefit of employee stock transactions 4,473 2,037
Changes in:
Accounts receivable (27,891) 6,335
Leases receivable (984) 8,294
Inventories 7,514 (32,319)
Deferred income taxes 205 (6,061)
Other current assets 8,401 328
Accounts payable 5,250 14,781
Other accrued liabilities 1,442 (5,768)
-------- --------
Net cash provided by (used in) operating activities 21,122 (12,092)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in short-term investments -- 6,929
Investment in property and equipment (11,600) (13,389)
Sale of fixed assets 5,396 --
Other 265 793
-------- --------
Net cash used in investing activities (5,939) (5,667)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (6,000) --
Borrowings under short-term borrowing agreement 5,000 --
Repurchase of common stock (16,612) (12,012)
Issuance of common stock under stock option and
stock purchase plans 13,901 8,863
-------- --------
Net cash used in financing activities (3,711) (3,149)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (327) (146)
-------- --------
Net increase (decrease) in cash 11,145 (21,054)
CASH, BEGINNING OF PERIOD 14,413 46,135
-------- --------
CASH, END OF PERIOD $ 25,558 $ 25,081
======== ========
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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ACUSON CORPORATION
NOTES TO 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 28, 1997,
and its condensed consolidated results of operations and cash flows for the
six-month periods ended June 28, 1997 and June 29, 1996. The results of
operations for the three and six-month periods ended June 28, 1997, are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 1997. Certain information reported in the prior year has been
reclassified to conform to the 1997 presentation.
The Company's principle accounting policies are set forth in the
financial statements for the year ended December 31, 1996, and notes thereto,
contained in the Company's Annual Report filed with the Securities and Exchange
Commission.
NOTE 2 - EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the period. For the
quarter ended June 28, 1997, the treasury stock method was used in computing the
earnings per share. For the quarter ended June 29, 1996, the modified treasury
stock method was used.
NOTE 3 - INVENTORIES
The components of inventories were as follows (in thousands):
JUNE 28, DEC. 31,
1997 1996
------- -------
Raw materials $30,068 $38,224
Work-in-process 16,611 18,740
Finished goods 28,920 26,232
------- -------
Total inventories $75,599 $83,196
======= =======
NOTE 4 - SHORT-TERM BORROWINGS
The Company has a revolving, unsecured credit agreement for $75.0 million
which is in effect through March 2000. Under the terms of the agreement, no
compensating balances are required and the interest rate is determined at the
time of borrowing based on the London interbank offered rate plus a margin, or
prime rate. During the second quarter, the weighted average borrowings were
$17.3 million and the weighted average interest rate was 6.7%. For the six
months ended June 28, 1997, the weighted average borrowings were $17.1 million
and the weighted average interest rate was 6.4%. At June 28, 1997, borrowings
under this facility totaled $12.0 million and the effective rate was 6.7%.
Borrowing under this facility is subject to certain debt covenants and the
Company is in compliance with these covenants.
4
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NOTE 5 - LEGAL CONTINGENCIES
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.
NOTE 6 - DISCLOSURE OF THE IMPACT THAT RECENTLY ISSUED FINANCIAL STANDARDS
WILL HAVE ON THE FINANCIAL STATEMENTS WHEN ADOPTED IN A FUTURE PERIOD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, ("SFAS No. 128"), "Earnings
Per Share." SFAS No. 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share, which excludes dilution. SFAS
No. 128 also requires dual presentation of basic and diluted earnings per share
on the face of the income statement. Diluted earnings per share is computed
similarly to fully diluted earnings per share pursuant to existing
pronouncements. SFAS No. 128 is effective for financial statements with periods
ending after December 15, 1997. This statement requires restatement of all
prior-period earnings per share data presented. The Company anticipates that
this adoption will not have a material effect on its financial statements.
Calculated under SFAS No. 128, for the three and six-month periods ended June
28, 1997, basic earnings per share were $0.20 and $0.40, respectively, and
diluted earnings per share were $0.19 and $0.38, respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, ("SFAS No. 129"),
"Disclosure of Information about Capital Structure," which will be adopted in
the fourth quarter of 1997. SFAS No. 129 requires companies to disclose certain
information about their capital structure. The Company anticipates that this
adoption will not have a material effect on its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, ("SFAS No. 130"), "Reporting
Comprehensive Income," which is effective for fiscal periods beginning after
December 15, 1997. The company anticipates that this adoption will not have a
material effect on its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. The Company anticipates that
this adoption will not have a material effect on its financial statements.
- --------------------------------------------------------------------------------
5
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported record revenues for the second quarter ended June
28, 1997, representing a 51.6% increase over 1996 second quarter revenues. Net
revenues for the quarter ended June 28, 1997, were $112.7 million compared with
$74.4 million for the quarter ended June 29, 1996. For the six months ended June
28, 1997, net revenues were $220.3 million, representing an increase of 38.4%
over 1996 six-month revenues of $159.2 million. The increases in revenues were
primarily due to shipments of the Sequoia(TM) ultrasound systems and the
Aspen(TM) ultrasound system, which began in July and November 1996,
respectively. Worldwide service revenue remained constant at $21.4 million
compared with $21.1 million for the quarters ended June 28, 1997 and June 29,
1996, respectively. Worldwide service revenue was $41.5 million for both the
six-month periods ended June 28, 1997 and June 29, 1996. International revenue
increased 39.2% and 21.0% over prior year periods to $37.7 million and $74.8
million for the three and six-month periods ended June 28, 1997, respectively.
Cost of sales increased as a percentage of net sales to 54.0% and 53.4%
for the three and six-month periods ended June 28, 1997, compared with 53.1% and
50.4% for the three and six-month periods ended June 29, 1996, respectively. The
percentage increases were primarily due to product mix changes and warranty
costs on new product installations.
Selling, general and administrative expenses for the quarter ended June
28, 1997, declined to $29.8 million or 26.4% of net sales, compared with $35.7
million or 48.0% of net sales for the quarter ended June 29, 1996. For the six
months ended June 28, 1997, selling, general and administrative costs were $58.8
million or 26.7% of net sales, compared with $62.5 million or 39.2% of net sales
for the same period in 1996. In the prior year, significant advertising and
other launch related expenses were incurred in connection with the introduction
of the Sequoia ultrasound systems.
Product development spending for the second quarter of 1997, declined to
$14.4 million or 12.8% of net sales, compared with $16.7 million or 22.5% of net
sales for the second quarter of 1996. For the six months ended June 28, 1997,
product development costs were $27.6 million or 12.5% of net sales, compared
with $33.1 million or 20.8% of net sales for the same period in 1996. The
decrease was primarily due to reduced prototype expenses from the 1996 periods
when the Company was completing development of the Sequoia and Aspen products.
Although product development expenses have decreased in 1997, the Company
maintains a strong commitment to product development programs to develop
proprietary technologies.
The provision for income taxes was $2.2 million for the second quarter of
1997, compared with a benefit of $6.0 million for the second quarter of 1996.
For the six months ended June 28, 1997, the provision for income taxes was $5.0
million compared with a benefit of $5.5 million for the six months ended June
29, 1996. The effective tax rate for the second quarter of 1997 was a provision
of 27.3% compared with a benefit of 36.2% for the second quarter of 1996. The
effective tax rate for the six months ended June 28, 1997, was a provision of
30.0% compared with a benefit of 36.9% for the same period in 1996. The prior
year benefits resulted from the application of respective period losses to tax
liabilities in other prior periods.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, ("SFAS No. 128"), "Earnings Per Share;"
No. 129, ("SFAS No. 129"), "Disclosure of Information about Capital Structure;"
No. 130, ("SFAS No. 130"), "Reporting Comprehensive Income;" and No. 131, ("SFAS
No. 131"), "Disclosures About Segments of an Enterprise and Related
Information." The Company anticipates that these adoptions will not have a
material effect on its financial statements. Please see Note 6 to the condensed
consolidated financial statements for further discussion.
6
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balances increased $11.1 million during the six months
ended June 28, 1997, to $25.6 million. During the six months ended June 28,
1997, the Company generated $21.1 million in cash from operations, as compared
with 1996, when operations used $12.1 million in cash. The increase was
primarily due to improved profitability and a reduction in inventory, partially
offset by an increase in accounts receivable. For the six months ended June 28,
1997, the reduction in inventory provided $7.5 million in cash primarily as a
result of new product introduction. Accounts receivable used $27.9 million in
cash primarily due to higher revenues.
The Company's investing and financing activities for the six months ended
June 28, 1997, used $9.7 million in cash. The Company purchased $11.6 million of
equipment during the year, primarily consisting of computer and test equipment.
Included in the financing activities for the first half of 1997, is $13.9
million raised through employee participation in the Company's stock option and
stock purchase plans and $16.6 million used for share repurchases. In the same
period a year ago, employee participation in the Company's stock plans generated
$8.9 million while the repurchases of common stock used $12.0 million.
In 1993, the Board of Directors authorized the repurchase of 4,000,000
shares of the Company's common stock, over an unspecified period of time, to
reduce the dilutive effect of the Company's stock plans. On October 15, 1996,
the Board of Directors authorized the repurchase of an additional 4,000,000
shares of common stock over an unspecified period of time. During the second
quarter of 1997, the Company repurchased 397,100 shares at a total cost of $9.5
million. As of June 28, 1997, the Company had completed the 1993 repurchase
authorization and had repurchased 311,100 shares toward the 4,000,000 share
repurchase authorized in 1996. As with all purchases thus far, the Company
intends to fund future purchases by utilizing the Company's cash balances.
Working capital for the six months ended June 28, 1997, increased over
the corresponding prior-year period primarily from increased cash flow from
operations. At June 28, 1997, the company's working capital totaled $129.3
million.
The Company has a revolving, unsecured credit agreement for $75.0 million
which is in effect through March 2000. Under the terms of the agreement, no
compensating balances are required and the interest rate is determined at the
time of borrowing based on the London interbank offered rate plus a margin, or
prime rate. During the second quarter, the weighted average borrowings were
$17.3 million and the weighted average interest rate was 6.7%. For the six
months ended June 28, 1997, the weighted average borrowings were $17.1 million
and the weighted average interest rate was 6.4%. At June 28, 1997, borrowings
under this facility totaled $12.0 million and the effective rate was 6.7%.
Borrowing under this facility is subject to certain debt covenants and the
Company is in compliance with these covenants.
Based on its current operating plan, the Company believes that the
liquidity provided by its existing cash, cash generated from operations, and the
borrowing arrangement described above will be sufficient to meet the Company's
operating and capital requirements for fiscal 1997.
INVESTMENT RISKS
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 are
based on current expectations and the Company assumes no obligation to update
this information. The Company's actual results could differ materially from
those discussed in this document. In evaluating the forward-looking statements
contained in this document, prospective investors and shareholders should
carefully consider the factors set forth below.
The Sequoia and Aspen ultrasound platforms raise several risk factors.
Specifically, the success of these products depends on actual and perceived
levels of product performance in a clinical environment; market acceptance of
the products and their pricing; competitor responses including competing
products and pricing, intellectual property allegations and product positioning
counterstrategies, and timely completion of future product
7
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capabilities. 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.
In addition, while the Company believes that there has recently been a
positive momentum in the worldwide ultrasound market, there can be no assurance
that this momentum will continue. Also, the Company's business is subject to
further risks from developments in other imaging modalities and changes in
government regulation of the marketing of ultrasound equipment.
The foregoing Investment Risks relate to the forward-looking statements
contained in this document. For a description of the general investment
considerations and risks surrounding Acuson's overall business and financial
prospects, refer to the Company's Form 10-K filed with the Securities and
Exchange Commission on March 31, 1997.
Acuson is a registered trademark and Aspen and Sequoia are trademarks of Acuson
Corporation.
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8
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PART II
ITEM 1
LEGAL PROCEEDINGS
The current status is the same as previously reported in Company's Form
10-K for the fiscal year ended December 31, 1996.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Stockholders of the Company was held on
May 20, 1997.
b) The result of Stockholders' votes at the Annual Meeting were as follows:
(i) All nominees for director of the Company were elected by the
following vote:
Name Votes For Votes Withheld
---- --------- --------------
Robert J. Gallagher 25,643,625 379,537
Albert L. Greene 25,641,012 382,150
Karl H. Johannsmeier 25,640,157 383,005
Samuel H. Maslak 25,635,956 387,206
Alan C. Mendelson 25,642,660 380,502
(ii) Ratification of appointment of Arthur Andersen LLP as independent
public accountants of the Company.
Broker
Votes For Votes Against Abstain Non-Vote
--------- ------------- ------- --------
25,967,687 18,342 37,133 0
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 no reports on Form 8-K during the quarter ended
June 28, 1997.
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9
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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 11, 1997 By /s/ Stephen T. Johnson
-----------------------
Stephen T. Johnson
Vice President, Chief Financial Officer
(duly authorized Officer and Principal
Financial and Accounting Officer)
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-28-1997
<CASH> 25,558
<SECURITIES> 0
<RECEIVABLES> 124,080
<ALLOWANCES> 3,462
<INVENTORY> 75,599
<CURRENT-ASSETS> 257,911
<PP&E> 185,918
<DEPRECIATION> 125,752
<TOTAL-ASSETS> 337,077
<CURRENT-LIABILITIES> 128,594
<BONDS> 0
0
0
<COMMON> 118,675
<OTHER-SE> 89,808
<TOTAL-LIABILITY-AND-EQUITY> 337,077
<SALES> 178,819
<TOTAL-REVENUES> 220,273
<CGS> 96,160
<TOTAL-COSTS> 117,673
<OTHER-EXPENSES> 86,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (334)
<INCOME-PRETAX> 16,559
<INCOME-TAX> 4,970
<INCOME-CONTINUING> 11,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,589
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
