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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended DECEMBER 31, 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
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(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
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock New York Stock Exchange
$.0001 par value
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Purchase Rights
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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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
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The aggregate market value of the Registrant's voting stock held by
non-affiliates on February 28, 1997 (based upon the NYSE closing price on such
date) was approximately $809,019,721.
As of February 28, 1997, there were 29,023,129 shares of the
Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts
II and III of this Form 10-K Report: (1) Proxy Statement for registrant's
Annual Meeting of Stockholders to be held May 20, 1997 (other than the
Compensation Committee Report and Performance Graph contained therein) (Part
III), and (2) registrant's Annual Report to Stockholders for the fiscal year
ended December 31, 1996 (Part II).
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PART I
ITEM 1
BUSINESS
General Business
Acuson Corporation ("Acuson" or the "Company") is a manufacturer, worldwide
marketer and service provider of high-performance medical diagnostic ultrasound
systems and image management products. Hospitals, clinics and healthcare
delivery systems throughout the world use Acuson products for a broad range of
clinical applications including radiology, cardiology, obstetrical/gynecological
("OB/GYN") and peripheral vascular.
Set forth below is a description of the Company's business. This description
includes forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the "Investment Risks" section set forth below as
well as in the sections entitled "Competition" and "Government Regulation"
below.
Company History
The Company was incorporated in California in 1981 and changed its state of
incorporation to Delaware in 1986. Since its inception, the Company has focused
exclusively on medical diagnostic ultrasound.
The first generation system, the Acuson(R) 128, launched in 1983, was based on
an advanced computer-based ultrasound architecture. Over its seven year life,
the system grew to support many additional new ultrasound modes, transducers and
other capabilities.
Acuson's second generation system, the Acuson 128XP(R), was introduced in July
1990. A more configurable system than the original Acuson 128, the 128XP system
provides a greater number of application-specific configurations for a broader
range of clinical use. This greater flexibility has allowed the Company to
address a wider spectrum of clinical specialties and pricing segments in both
the international and domestic ultrasound markets. The Company's installed base
of 128 and 128XP systems totals more than 13,000 systems worldwide.
During 1996, Acuson introduced two new ultrasound platforms, the Sequoia(TM)
and Aspen(TM) systems. These new systems are described in "Sequoia Ultrasound
Platform" and "Aspen Ultrasound Platform" below.
The AEGIS(R) digital image and data management system, introduced by Acuson in
October 1992, provides capabilities for the capture and storage of ultrasound
examinations for on-line review, archiving and transmission within the hospital
and clinical environments and over wide-area networks.
1996 Highlights
During 1996, Acuson introduced two new ultrasound platforms, the Sequoia(TM)
ultrasound systems and the Aspen(TM) ultrasound system, to be sold along with
the 128XP system.
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Acuson introduced the Sequoia(TM) 512 ultrasound system for general imaging
applications and the Sequoia(TM) C256 echocardiography system for cardiology
applications in April 1996, and began shipping the products in July 1996. The
Sequoia platform is Acuson's highest performance ultrasound platform.
In October 1996, Acuson announced its second major ultrasound product
introduction of the year: the Aspen ultrasound system. The Aspen system resulted
from a convergence of select technologies from the Sequoia platform and other
Acuson innovations to create a high-performance platform that is sold at a lower
price than the Sequoia systems. The Aspen system began shipping in November
1996.
Also during 1996, Acuson introduced its EF(TM) Extended Frequency imaging
upgrade for Acuson's 128XP platform. The extended frequency technology, which
provides high-resolution, high-frequency imaging, resulted from the development
of the Aspen ultrasound system.
Acuson's Products and Technologies
Acuson's ultrasound platforms - the Sequoia ultrasound platform, the Aspen
ultrasound platform and the 128XP ultrasound platform - are designed to bring
cost-effective solutions to clinical applications such as radiology, cardiology,
OB/GYN and peripheral vascular. Acuson believes that this family of ultrasound
systems, along with the AEGIS digital image and data management system, provide
the following benefits when compared with other ultrasound technologies.
Imaging Performance. Acuson's systems are designed to provide superior
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image quality through greater detail resolution, contrast resolution and
image uniformity. In addition, Acuson systems provide superior clinical
sensitivity for a broad range of Doppler and color Doppler applications,
which are used to detect, measure and depict blood flows.
Versatility. Acuson's breadth of product offerings provide customers with a
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wide range of choices depending on their budgetary and clinical needs.
Reliability. The Company's thousands of ultrasound systems under warranty
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or full-service contract in North America have achieved greater than 99.9%
cumulative uptime since 1983.
Upgradability. Acuson's ultrasound systems have an upgradable core
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architecture. Every Acuson 128 system shipped since 1983 can be upgraded to
perform every diagnostic capability the Company now offers on new 128XP
systems. In many cases, the changes are accomplished simply with new
software. In other cases, customers purchase new hardware options or
transducers, which also include new software to control performance. The
new Sequoia and Aspen ultrasound platforms are designed to follow the same
philosophy of upgradability that was established with the Acuson 128
platform.
Ease of Use. Acuson's philosophy of system design and its system
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architecture allow for greater ease of use. The portability and
maneuverability of the Sequoia and Aspen platforms help increase hospital
efficiency and productivity, while the ergonomic design of the new systems
and transducers enhances both doctor and patient comfort levels.
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Sequoia Ultrasound Platform. Sequoia system technology relies on four
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proprietary cornerstones: Coherent Image Formation, Doppler technology,
transducer technology with patented connectors and the DIMAQ(TM) integrated
ultrasound workstation. The list price of the Sequoia systems ranges from
$200,000 to $350,000.
Coherent Image Formation. Sequoia systems use multiple beamformers and scan
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with digital processing channels to acquire and encode both phase and
amplitude data. This encoded data is then assembled to create images based on
the full echo information.
Doppler Technology. Acuson's advances in Doppler technology on the Sequoia
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systems include SST(TM) Color Doppler and Solo(TM) Spectral Doppler.
SST(TM) Color Doppler. With SST Color Doppler, the Sequoia C256 and
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Sequoia 512 systems use multiple beamformers to produce high spatial
resolution color Doppler images at high frame rates.
Solo(TM) Spectral Doppler. The Sequoia systems use a dedicated audio
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beamformer for spectral Doppler. This results in a high degree of
sensitivity and clarity of information throughout the entire spectral
waveform.
Transducer Technology. The Sequoia platform includes a new family of
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transducers that feature new acoustic, connector and ergonomic design. These
transducers offer a new level of high frequency capability and low noise
performance. The new patented Sequoia transducer connector features a pinless
design, while maintaining 612 simultaneous connections. In addition, these
transducers offer expanded MultiHertz(R) multiple frequency imaging
capabilities.
DIMAQ(TM) Integrated Ultrasound Workstation. The Sequoia platform integrates
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a special-purpose ultrasound workstation into the system architecture. The
DIMAQ workstation has direct access to exam data generated in the system. It
offers real-time digital image processing, such as DELTA(TM) differential
echo amplification, and runs special application programs. DELTA
differential echo amplification is a patented, real-time processing
technique for improving wall visualization and tissue conspicuity. The DIMAQ
workstation provides connectivity and DICOM capability. DICOM is the
standard format for networking medical systems in the hospital and private
office environment.
Aspen Ultrasound Platform. The Aspen ultrasound system resulted from a
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convergence of select technologies from the Sequoia ultrasound platform and
other Acuson innovations to create a high-performance platform at a lower price
than Sequoia technology. The Aspen platform is built on four major cornerstones:
technology convergence, value engineering, transducer technology and the DIMAQ
integrated ultrasound workstation. The list price of the Aspen system ranges
from $150,000 to $250,000.
Technology Convergence. As mentioned above, the Aspen platform represents a
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convergence of select technologies from the Sequoia platform and other Acuson
innovations. One example of these innovations that is currently unique to the
Aspen system is Convergent(TM) Color Doppler, which improves color Doppler
performance in such applications as renal, obstetric, gynecologic and small
parts imaging.
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Value Engineering. Value engineering provides versatility and upgradability,
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system portability and ergonomics. The Aspen system is compact, lightweight
and provides a HomeBase keyboard design that places the most frequently used
controls at the user's fingertips.
Transducer Technology. The Aspen platform supports more than 20 transducers
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addressing all major ultrasound clinical applications. The Aspen system
accommodates new transducers designed specifically for the Aspen platform as
well as select transducers from both the 128XP and the Sequoia systems.
DIMAQ(TM) Integrated Ultrasound Workstation. The DIMAQ workstation is a
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special-purpose ultrasound workstation that is completely integrated within
the Aspen architecture. The DIMAQ workstation, which includes the hardware
foundation for DICOM software and real-time JPEG compression and
decompression, has direct access to exam data generated in the system. It
offers real-time digital image processing and runs special application
programs.
128XP Ultrasound Platform. The Acuson 128XP system has more than 28
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transducers and has shared-services capabilities. The new EF Extended Frequency
option provides high-resolution, high-frequency imaging and resulted from the
development of the Aspen ultrasound systems. The list price of the 128XP system
ranges from $80,000 to $150,000.
AEGIS(R) Digital Image and Data Management System. The AEGIS system enables the
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capture and storage of ultrasound examinations for on-line review, archiving and
transmission within the hospital and over wide-area networks. The AEGIS system
allows connectivity to DICOM PACS (picture archiving and communication systems)
and printers and supports ultrasound systems from Acuson and from other
manufacturers. The list price of the AEGIS system depends on size and capability
of the network and a typical system can range in price from $125,000 to
$350,000.
Acuson attempts to protect its intellectual property through a combination of
trade secrets and, where appropriate, copyrights, trademarks and patents. The
Company also relies substantially on its unpatented proprietary know-how. See
"Investment Risks - Patents and Proprietary Technology" for a detailed
discussion as well as certain risk factors.
Marketing and Sales
The Company sells its products primarily to hospitals, clinics, private and
governmental institutions and healthcare agencies and doctors' offices. The
Company and its subsidiaries employ their own full-time sales, service and
applications staff in North America, certain European countries, Australia and
Japan. Acuson sells through independent distributors in other European
countries, Asia, South America, and the Middle East.
The Company focuses its efforts on the following major hospital based ultrasound
market segments: United States General Imaging, United States Cardiovascular and
International. The Company entered the United States General Imaging, United
States Cardiovascular and International market segments in 1983, 1988 and 1984,
respectively.
The major sub-segments of the United States General Imaging market include
radiology, peripheral vascular and OB/GYN. Radiology includes examinations of
abdominal organs, the gastrointestinal tract, the urinary tract and small parts
such as the breasts, testes and thyroid. The peripheral vascular sub-segment
focuses primarily on examinations of the vessels of the leg and neck.
Applications of OB/GYN center on
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examinations of the female reproductive system and the developing fetus.
Cardiology applications center on examinations of the heart and proximate
vessels, while cardiovascular applications extend to include the entire vascular
system. International markets generally include the same range of clinical
ultrasound applications as the domestic market.
See Note 10 of Notes to Consolidated Financial Statements contained in Item 8
for a summary of operations by geographic region.
The sales process for ultrasound systems typically requires six to eighteen
months between initial customer contact and placement of an order. On-site
demonstrations are often part of the customer's evaluation process, and
customers frequently make side-by-side comparisons of performance and other
features of competing systems. Acuson employs a staff of applications personnel
who operate the system during sales demonstrations and who also train physicians
and ultrasound technicians on the use of the system after delivery.
Service
The Company employs a staff of full-time service engineers who service Acuson
systems in North America and in the countries where Acuson has international
subsidiaries. Service to customers in other international areas is provided
through the Company's independent distributors.
Acuson warrants its products for 12 months and thereafter provides service
through service contracts and other purchase arrangements. All domestic
ultrasound systems under Acuson warranty or full-service contracts are
guaranteed to have 99.0% uptime, and such systems have averaged more than 99.9%
cumulative uptime since 1983.
Systems under warranty or service contract receive periodic maintenance by
Acuson service engineers, who also install new system capabilities or software
upgrades and respond to customer service requests. These services may be
purchased from the Company's service organization by customers who do not have a
service contract with Acuson.
Service revenue was 24.6%, 24.6% and 21.3% of total net sales in 1996, 1995 and
1994, respectively. See Part II, Item 7 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations." See also "Investment Risks -
Service" below for certain risk factors related to the Company's service
business.
Competition
Acuson competes primarily on the basis of its major clinical benefits of imaging
performance, versatility, reliability, upgradability, ease of use and price.
The Company believes that these product capabilities can enable physicians to
make earlier, more accurate and/or more confident diagnoses and also can provide
superior long-term economic value. As do virtually all companies in the
industry, Acuson offers on-site system demonstrations to customers during the
sales process, and customers frequently do their own evaluations of equipment
performance and other factors. The markets for these products have become
increasingly competitive and price is often a factor in the purchase decision.
The Company's ultrasound equipment competes with systems offered by a number of
companies and their affiliates abroad, including Advanced Technology
Laboratories, Inc., Aloka Co., Ltd., Diasonics, Inc. (a
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subsidiary of Elbit, Ltd.), General Electric Company, Hewlett-Packard Company,
Hitachi Corporation, Siemens Medical Systems, Inc. and Toshiba Medical Systems,
Inc. Most of these competitors have significantly greater financial and other
resources and generally compete in more medical imaging and other market
segments and countries than Acuson. While the Company believes that its systems
provide superior and advanced capabilities and features, the products offered to
date by these competitors in some cases include features and capabilities not
currently offered by Acuson and in some cases are substantially less expensive
than Acuson's products. See "Investment Risks - Competition" below.
Ultrasound units are generally among the least expensive of imaging modalities
such as conventional x-ray, computed tomography and magnetic resonance imaging
when compared to diagnostic ultrasound imaging. In addition, in certain
applications, ultrasound offers capabilities that make it the modality of choice
regardless of cost. However, no assurance can be given that such price and/or
performance advantages can be maintained in comparison to other current or
future imaging modalities. In addition, ultrasound systems compete with other
imaging modalities for limited hospital funding. See "Investment Risks -
Ultrasound Market Changes" below.
Product Development
One of Acuson's fundamental beliefs is that technology innovation can provide
the best solutions for cost-constrained environments. The Company spent
$70,800,000, $66,400,000 and $60,900,000 on product development in 1994, 1995
and 1996, respectively. See "Company History" and "Acuson Products and
Technologies" above.
Since Acuson's founding, virtually all product development has taken place at
the Company's headquarters in Mountain View, California. The Company maintains
a strong commitment to product development programs to develop proprietary
technologies. Product development is subject to certain risk factors. See
"Investment Risks - New Products" below.
Government Regulation
As a manufacturer of medical devices, Acuson is subject to various regulations
of the United States Food and Drug Administration (the "FDA") and of the
California Department of Health Services, including marketing clearance or
approval of the Company's products by the FDA. The process of obtaining such
clearances or approvals to market products can be time consuming, lengthy,
uncertain and expensive and can delay the marketing and sale of the Company's
products. The review of a premarket approval ("PMA") application generally
takes one to two years from the date the PMA is accepted for filing, but may
take significantly longer. It generally takes from four to twelve months from
submission to obtain 510(k) premarket clearance, but may take longer. The FDA
has recently been more rigorous in its 510(k) clearance process. See
"Investment Risks - Regulation by Government Agencies" below.
Manufacturers of medical devices marketed in the United States are required to
adhere to applicable regulations setting forth detailed Good Manufacturing
Practices ("GMP") requirements, which include testing, control and documentation
requirements. Manufacturers also must comply with Medical Device Reporting
("MDR") requirements that a firm report to FDA certain adverse events associated
with the Company's devices. The Company is subject to routine inspection by FDA
and certain state agencies for compliance with GMP requirements, MDR
requirements, and other applicable regulations. The FDA is using its statutory
authority more vigorously during inspections of companies and in other
enforcement matters. The FDA has recently finalized changes to the GMP
regulations and has promulgated new MDR regulations, both of which will likely
increase the cost of compliance with GMP requirements. The
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Company also is subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control and disposal of hazardous or potentially
hazardous substances. Changes in existing requirements or adoption of new
requirements could have a material adverse effect on the Company's business,
financial condition, and results of operations. Although Acuson believes that it
is in compliance with all applicable regulations of the FDA and the State of
California, current regulations depend heavily on administrative interpretation,
and there can be no assurance that the Company will not incur significant costs
to comply with laws and regulations in the future or that laws and regulations
will not have a material adverse effect upon the Company's business, financial
condition or results of operations. In addition, the potential effects on the
Company of heightened enforcement of federal and state regulations cannot be
predicted.
The Federal government regulates reimbursement for diagnostic examinations
furnished to Medicare beneficiaries, including related physician services and
capital equipment acquisition costs. For example, Medicare reimbursement for
operating costs for ultrasound examinations performed on hospital inpatients
generally is set under the Medicare prospective payment system ("PPS")
diagnosis-related group ("DRG") regulations. Under PPS, Medicare pays hospitals
a fixed amount for services provided to an inpatient based on his or her DRG,
rather than reimbursing for the actual costs incurred by the hospital. Patients
are assigned to a DRG based on their principal and secondary diagnoses,
procedures performed during the hospital stay, age, gender and discharge status.
For capital costs for inpatient services, prior to October 1, 1991, Medicare
reimbursed hospitals an amount based on 85 percent of the actual reasonable
costs they had incurred. On October 1, 1991, Medicare began to phase in over a
ten year period a prospective payment system for capital costs which
incorporates an add-on to the DRG-based payment to cover capital costs and which
replaces the reasonable cost-based methodology. Provisions included in the
President's Budget Request for the fiscal year 1998 would result in further
reductions in capital payments to hospitals.
For certain hospital outpatient services, including ultrasound examinations,
reimbursement currently is based on the lesser of the hospital's costs or
charges, or a blended amount, 42 percent of which is based on the hospital's
reasonable costs and 58 percent of which is based on the fee schedule amount
that Medicare reimburses for such services when furnished in a physician's
office. For the fiscal years 1991 through 1998 (beginning October 1, 1990),
reimbursement for the cost portion of the blend is reduced by 5.8 percent. The
President's Budget also would require capital outpatient reimbursement to shift
from a cost basis to a prospective payment system by 1999. It is unclear what
impact such a change, if enacted by Congress, would have on payment for
ultrasound services. Capital acquisition costs for services furnished to
hospital outpatients are currently reimbursed on the basis of 90 percent of the
reasonable costs actually incurred by the hospital. The President's Budget
would call for a greater reduction in payment for these costs.
Until January 1, 1992, Medicare generally reimbursed physicians on the basis of
their reasonable charges or, for certain physicians, including radiologists, on
the basis of a "charge-based" fee schedule. On January 1, 1992, Medicare began
to phase in over a five-year period a new system that reimburses all physicians
based on the lower of their actual charges or a fee schedule amount based on a
"resource-based relative value scale."
Reimbursement for services rendered to Medicaid beneficiaries is determined
pursuant to each state's Medicaid plan which is established by state law and
regulations, subject to requirements of Federal law and regulations. The
Clinton Administration and Congress currently are considering certain revisions
to the Medicaid program that would allow states more control over coverage and
payment issues. The Administration also already has granted many states waivers
to allow for greater control of the program at the state level. At this time
whether the legislative changes will be enacted into law and, if so, what the
impact would be on Medicaid payment for diagnostic services is uncertain.
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As part of the Omnibus Budget Reconciliation Act of 1993, Congress enacted
provisions, effective January 1, 1995, which prohibit physicians from referring
Medicare or Medicaid patients to any entity in which the physician or a family
member has an ownership or compensation relationship if the referral is for any
of a list of "designated health services", which includes ultrasound services.
Regulations implementing these statutory provisions have not been published.
These prohibitions, and similar prohibitions in some state laws, may result in
lower utilization of certain procedures, including ultrasound.
The Clinton Administration and the Congress from time to time consider various
Medicare and other healthcare reform proposals that could significantly affect
both private and public reimbursement for healthcare services. Some of these
proposals, if enacted into law, could reduce reimbursement for or the incentive
to use diagnostic devices and procedures and thus could adversely affect the
demand for diagnostic devices, including the Company's products.
In addition to the federal laws described above, there are state laws and
regulations regarding the manufacture and sale of healthcare products and
diagnostic devices, and reimbursement for such products and their use. These
laws and regulations also are subject to future changes whose impact cannot be
projected.
Manufacturing
The Company primarily manufactures its products at its Mountain View, California
facility. Fabrication of most transducers is performed in-house in order to
safeguard the Company's proprietary technology. In October 1994, Acuson
acquired Sound Technology Incorporated ("STI"), a transducer manufacturer
located in State College, Pennsylvania. STI provides complementary technical
capabilities to the Company's established Transducer Division. For other sub-
assemblies, the Company generally subcontracts the assembly or fabrication to
outside vendors and in addition produces some components at its own facility in
Canoga Park, California. Sub-assemblies are produced according to the Company's
designs or specifications. The Company performs assembly, testing and quality
assurance at various stages of completion.
Component parts and microprocessors for the Company's products and some
specialty transducers are purchased from outside vendors. A number of such
items currently have limited or single sources of supply. See "Investment Risks
- - Manufacturing" below.
The Company builds units to a marketing forecast that is updated periodically
and utilizes a commercially available computer system for manufacturing,
accounting, and sales order processing. Because it builds to forecast, the
Company does not consider its backlog a significant indicator of business
levels.
Employees
As of December 31, 1996, the Company had 1,777 full-time employees. The Company
considers its relations with its employees to be good.
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Investment Risks
In evaluating and understanding Acuson's business and financial prospects and
the potential success of any Acuson product, and in evaluating any forward-
looking statement contained in this document or otherwise, prospective investors
and shareholders should carefully consider the factors set forth below.
NEW PRODUCTS. During 1996, Acuson introduced two major new products, the
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Sequoia and Aspen ultrasound systems. Although sales of the Sequoia system,
which began in the third quarter of 1996, have exceeded expectations, and sales
of the Aspen system only began in the fourth quarter of 1996, there is no
guarantee that such sales will continue to increase or even continue at their
current rate. As more Aspen and Sequoia systems enter the clinical environment,
continued market acceptance will depend in part on the actual and perceived
performance of these products in that clinical environment. In addition, the
Company believes that the continued success of the new products will depend as
well on the timely and successful completion of future product enhancements and
capabilities. While the Company has a number of these new product enhancements
and capabilities as well as additional new products under development at any
time, there is no guarantee as to when, if ever, the development of such
products and product enhancements and capabilities will be completed. Further,
because both the Aspen and Sequoia systems have been shipping for less than a
year, the Company does not have a history of warranty repairs on which to base
its estimate of warranty reserves. While the Company has made what it believes
to be adequate warranty reserves to cover warranty parts and labor on these new
Sequoia and Aspen systems, there can be no assurance that the actual warranty
loss incurred will not exceed provisions made at the time of shipment. Finally,
the realizable value of the Company's inventory and/or fixed assets for the new
products is dependent on continued market acceptance for those products.
COMPETITION. Diagnostic ultrasound is a well-established field in which
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there are a number of competitors. The Company competes with several companies
and their affiliates such as Advanced Technology Laboratories, Inc. ("ATL"),
Aloka Co., Ltd., Diasonics, Inc. (a subsidiary of Elbit, Ltd.), General Electric
Company, Hewlett-Packard Company, Hitachi Corporation, Siemens Medical Systems,
Inc., and Toshiba Medical Systems, Inc., most of which have significantly
greater financial and other resources. In addition, most of these companies
compete in more medical imaging and other market segments and countries than the
Company. While the Company believes that its Sequoia and Aspen systems provide
superior and advanced capabilities and features, the products offered to date by
these competitors in some cases include features and capabilities not currently
offered by the Company and in some cases are substantially less expensive than
the Company's products.
Market success in diagnostic ultrasound is heavily dependent on the purchaser's
evaluation of the system's diagnostic value, ease of use and safety. Any
established or new ultrasound company may introduce a system or upgrades to an
existing system that is equal to or superior to the Company's products in
quality or performance and no assurance can be given that the Company's products
will remain competitive with existing or future products. If a competitor
introduces a new product, customers may delay submitting new orders to the
Company and may cancel orders in the backlog. Further, recently ATL received
premarket approval from the United States Food and Drug Administration for a
particular claim relating to its system for a specific use in breast imaging.
While the FDA's approval is not an indication that ATL's product is superior for
any application, the granting of the PMA means that only ATL may promote its
product for that specific use. The PMA may adversely impact Acuson's sales of
systems for breast imaging in the future.
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ULTRASOUND MARKET CHANGES. Ultrasound is generally among the least
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expensive of imaging modalities such as conventional X-ray, computed tomography
and magnetic resonance imaging compared with diagnostic ultrasound imaging. In
addition, in certain applications, ultrasound offers capabilities that make it
the modality of choice regardless of cost. However, these price and/or
performance advantages may not continue in comparison to other current or future
imaging modalities. In addition, ultrasound systems compete with other imaging
modalities for limited hospital funding.
The trends of health care provider consolidation, medical cost containment, and
intense competitive pressures are continuing in the market. These factors have
put increased pressures on ultrasound system pricing and have required the
Company to introduce lower priced configurations of its 128XP ultrasound
systems. These factors, as well as start-up and other manufacturing costs of
the Company's new product lines, have contributed to the decline in the
Company's gross margins over the last several years. For example, the Company's
gross margins have declined from 61.3% in 1990 to 47.9% in 1996. Further, the
U.S. government is considering Medicare reforms. The Company believes that
future revenues and profitability will continue to be impacted by these
uncertainties, especially in the domestic markets. Although some portions of
the international ultrasound markets are experiencing some economic growth, it
is uncertain whether this is temporary or permanent.
PATENTS AND PROPRIETARY TECHNOLOGY. Acuson attempts to protect its
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intellectual property through a combination of trade secrets and, where
appropriate, copyrights, trademarks and patents. The Company owns or has rights
to greater than forty U.S. and international patents, covering certain aspects
of its systems, and it has several patent applications pending. No assurances
can be given as to the breadth or degree of protection patents, copyrights,
trademarks or trade secrets will afford the Company.
The Company's competitors also rely on patents to protect their technology, and
numerous physicians, universities and other individuals or entities in the
ultrasound field are patenting many ultrasound inventions. The Company has from
time to time received notices from such competitors and other entities or
individuals that the Company may need a license to one or more of their patents
in order to continue to sell its products. Such a competitor, individual, or
entity may have, or may be granted, a patent to which the Company must obtain a
license if it wishes to market and sell any one or more of its products. To
date, patent disputes involving the Company have ultimately been resolved
through licensing arrangements, sometimes involving the payment of royalties by
the Company. There can be no assurance that the Company will be able to obtain
a license to any patent (if so required) or that such a license will be
available on reasonable financial or other terms.
The Company also relies heavily on its unpatented proprietary know-how. No
assurance can be given that others will not be able to develop substantially
equivalent proprietary information to the Company's, or otherwise obtain access
to the Company's know-how.
REGULATION BY GOVERNMENT AGENCIES. As a manufacturer of medical devices,
---------------------------------
Acuson is subject to various regulations of the United States Food and Drug
Administration (the "FDA") and of the California Department of Health Services,
including marketing clearance or approval of the Company's products by the FDA.
The process of obtaining such clearances or approvals can be time consuming,
lengthy, and expensive and there can be no assurance that the necessary
clearance or approval will be granted the Company or that FDA review will not
involve delays adversely affecting the Company. In fact, the Company believes
that the time it takes to obtain clearance for new products has increased and
the FDA has been more rigorous in its 510(k) clearance process.
Manufacturers of medical devices marketed in the United States are required to
adhere to numerous regulations setting forth detailed Good Manufacturing
Practices requirements, which include testing, control and documentation
requirements. Manufacturers also must comply with Medical Device Reporting
11
<PAGE>
requirements that a firm report to FDA certain adverse events associated with a
Company's devices. The Company is subject to routine inspection by FDA and
certain state agencies for compliance with GMP requirements, MDR requirements,
and other applicable regulations. The FDA is using its statutory authority more
vigorously during inspections of companies and in other enforcement matters.
The FDA has recently finalized changes to the GMP regulations and has
promulgated new MDR regulations, both of which will likely increase the cost of
compliance with GMP requirements. The Company also is subject to numerous
federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. Changes
in existing requirements or adoption of new requirements could have a material
adverse effect on the Company's business, financial condition, and results of
operations. Although Acuson believes that it is in compliance with all
applicable regulations of the FDA and the State of California, current
regulations depend heavily on administrative interpretation, and there can be no
assurance that the Company will not incur significant costs to comply with laws
and regulations in the future or that laws and regulations will not have a
material adverse effect upon the Company's business, financial condition or
results of operations. In addition, the potential effects on the Company of
heightened enforcement of federal and state regulations cannot be predicted.
Federal and state regulations also govern or influence the reimbursement to
health care providers of fees and capital equipment costs in connection with
medical examinations of certain patients. Changes in current policies could
impact reimbursement for the purchase and/or operation of the Company's
equipment by such providers and thereby adversely affect future sales of the
Company's products. In particular, the Clinton Administration and the Congress
are debating and considering various Medicare and other health care reform
proposals that could significantly affect both private and public reimbursement
for health care services. Some of these proposals, if enacted into law, could
reduce reimbursement for or the incentive to use diagnostic devices and
procedures and thus could adversely affect the demand for diagnostic devices,
including the Company's products.
In addition to the Federal laws described above, there are state laws and
regulations regarding the manufacture and sale of health care products and
diagnostic devices, and reimbursement for such products and their use. These
laws and regulations also are subject to future changes whose impact cannot be
projected.
EMPLOYEES. Acuson believes that its continued success and future growth
---------
will depend on, among other factors, its ability to continue to attract and
retain skilled employees. The loss of a significant number of employees could
adversely affect its business, most significantly by delaying the development of
new products and product enhancements. The job market in the Silicon Valley area
is very competitive, especially for skilled electrical and software engineers.
There can be no assurance that the Company will be able to retain or hire key
employees.
MANUFACTURING. Component parts and microprocessors for the Company's
-------------
products and some specialty transducers are purchased from outside vendors. A
number of such items currently have limited or single sources of supply, and
disruption or termination of those sources could have a temporary adverse effect
on shipments and the financial results of the Company. The Company believes that
it could ultimately develop alternate sources for all such items, but that sales
could be lost or deferred as a result of doing so.
SERVICE. Approximately 24.6% of the Company's 1996 revenues were derived
-------
from the Company's service activities, including the sales of service contracts
and time and material services. Increasing cost containment pressures in the
market have adversely impacted the number of customers purchasing service
contracts and the prices of those contracts, but this impact has been somewhat
offset by the Company's increased installed base and an increase in time and
material services. The Company believes that the trend away from service
contracts will continue and there can be no assurance that the Company will be
able to
12
<PAGE>
continue to maintain its current levels of service contract revenue. Further,
the introduction of the Sequoia and Aspen products by the Company could reduce
the sale of service contracts and options to the 128XP system installed base. In
addition, the Company has made significant expenditures in establishing remote
diagnostic and other service programs unique to the new Sequoia and Aspen
systems. There can be no assurance that this investment will be profitable, as
the success of the Aspen and Sequoia service program will depend in part on the
number of Aspen and Sequoia systems sold. Currently, all Aspen and Sequoia
systems sold are still under one year warranty. Finally, the Company has seen an
increasing trend for hospitals to purchase asset management contracts, in which
all of the hospital's medical equipment and in some cases, other assets, are
managed and serviced by third parties. As Acuson does not sell asset management
services and only services Acuson ultrasound systems, this increased trend
toward asset management contracts could have an adverse impact on the Company's
sales of service contracts and its time and materials service business.
INTERNATIONAL OPERATIONS AND INTERNATIONAL RECEIVABLES. As the Company's
------------------------------------------------------
international business has grown, the Company has an increasing percentage of
its receivables in other countries. In Italy and Brazil the amount of
receivables exceeds $8,000,000 and in China, the amount of receivables exceeds
$5,000,000. Political instability or other issues may impact the ability of the
Company to collect receivables in foreign countries. The Company enters into
foreign currency exchange contracts as described in Note 2 to its Consolidated
Financial Statements for the year ended December 31, 1996 and does not believe
it has significant risk from changes in exchange rates.
EARTHQUAKE. The Company's research and development and manufacturing
----------
activities, its corporate headquarters, and other critical business operations
are located near major earthquake faults. In the event of a major earthquake,
the ultimate impact on the Company, significant suppliers, and the general
infrastructure is unknown, but operating results could be materially affected.
The Company is not insured for losses and interruptions caused by earthquakes.
Acuson, AEGIS, MultiHertz, XP and 128XP are registered trademarks and Aspen,
Convergent, CCD, DELTA, DIMAQ, EF, Sequoia, Solo and SST are trademarks of
Acuson Corporation.
13
<PAGE>
ITEM 2
PROPERTIES
The Company leases its facilities under operating leases. The principal offices
and manufacturing space are located in Mountain View, California. In addition,
the Company leases manufacturing facilities in Canoga Park, California and State
College, Pennsylvania, and sales and service facilities in various locations in
the United States and abroad. The Company believes its facilities are adequate
for its present needs, in good condition and suitable for their intended uses.
ITEM 3
LEGAL PROCEEDINGS
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.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
14
<PAGE>
ITEM 4A
Directors and Executive Officers of the Registrant. The directors and executive
- --------------------------------------------------
officers of the Company and their ages as of March 31, 1997 are as follows:
Name Age Position
- ---- --- --------
Samuel H. Maslak 48 Chairman of the Board and Chief Executive
Officer
Robert J. Gallagher 53 President, Chief Operating Officer and Director
Albert L. Greene 47 Director
Karl H. Johannsmeier 68 Director
Alan C. Mendelson 49 Director
Daniel R. Dugan 42 Senior Vice President, Worldwide Sales,
Service and Marketing
Bradford C. Anker 51 Vice President, Manufacturing
Charles H. Dearborn 44 Vice President, Secretary and General
Counsel
Stephen T. Johnson 53 Vice President, Chief Financial Officer
L. Thomas Morse 53 Vice President, Corporate Controller
William C. Varley 47 Vice President, Cardiology Business Operations
Samuel H. Maslak co-founded the Company in September 1981, and has been a Chief
Executive Officer and a director since that date. He was President of the
Company from September 1981 until May 1995. He was appointed Chairman of the
Board in May 1995.
Robert J. Gallagher joined Acuson in January 1983 as Vice President, Finance and
Chief Financial Officer. Mr. Gallagher became Executive Vice President in March
1991, Chief Operating Officer in January 1994 and was elected a director and
President of the Company in May 1995.
Albert L. Greene became a director of the Company in March 1995. Mr. Greene
served as the President and Chief Executive Officer of Alta Bates Medical Center
in Berkeley, California from May 1990 until February 1996 and has been President
of Alta Bates Health System since February 1996. He is a member of the American
College of Healthcare Executives, the American Hospital Association, the Alta
Bates Medical Center Board of Trustees, the Alta Bates Health System Board of
Directors, and other hospital associations.
Karl H. Johannsmeier served as a director of the Company from September 1981 to
May 1994 and has also served as a director from March 1995 to the present. He
founded Optimetrix Corporation, a semiconductor processing equipment company,
where he served as President and Chief Executive Officer from 1976 to 1981 and
as Chairman of the Board of Directors from 1976 to 1984. Optimetrix Corporation
was acquired by Eaton Corporation in 1982. Mr. Johannsmeier has been a private
investor over the last twenty years.
Alan C. Mendelson became a director of the Company in March 1995. Mr. Mendelson
has been a partner in the law firm of Cooley Godward LLP since January 1980 and
has been the Managing Partner of its Palo Alto office since November 1996. Mr.
Mendelson also served as Managing Partner between May 1990 and March 1995. Mr.
Mendelson was Acting General Counsel of Cadence Design Systems, Inc., an
electronic design automation software company, from November 1995 until June
1996. Mr. Mendelson is also a director of Isis Pharmaceuticals, Inc., a
biopharmaceutical company, CoCensys, Inc., a biopharmaceutical company, and
Elexsys International, Inc., a manufacturer of interconnect products used in
advanced electronic equipment.
15
<PAGE>
Daniel R. Dugan joined the Company in 1984 as Western Regional Sales Manager,
became National Sales Manager in October 1988 and Director, North American Sales
in August 1989. From November 1989 through April 1991, he was Vice President of
Ultrasound Business Operations at Toshiba America Medical Systems, Inc. In
April 1991, Mr. Dugan rejoined Acuson as Vice President, Field Operations. He
became Senior Vice President, Worldwide Sales, Service and Marketing in February
1994.
Bradford C. Anker joined the Company in December 1983 and has served as Vice
President, Manufacturing since that date.
Charles H. Dearborn joined the Company in October 1988 and has served as General
Counsel since that date. He was elected Secretary of the Company in February
1991 and Vice President in February 1995.
Stephen T. Johnson joined the Company in February 1986 as Treasurer and became
Vice President, Treasurer in March 1989. In January 1994, he became Chief
Financial Officer.
L. Thomas Morse joined the Company in July 1983 and has served as Corporate
Controller since that date. He was elected an officer of the Company in March
1989 and Vice President, Corporate Controller in February 1991.
William C. Varley joined Acuson in August 1988 as Cardiology Marketing Manager,
became Director of Marketing in January 1989, Vice President, Marketing in March
1991 and Vice President, Cardiology Business Operations in June 1994.
16
<PAGE>
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Market for Registrant's
Common Equity and Related Stockholder Matters" in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1996 (the "1996 Annual
Report").
ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA
The information required by Item 6 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Selected Consolidated
Financial Data" in the Company's 1996 Annual Report.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by Item 7 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 1996
Annual Report.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is incorporated by reference to
the consolidated financial statements and notes thereto, and to the section
captioned "Quarterly Data" in the Company's 1996 Annual Report.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
17
<PAGE>
With the exception of the information specifically incorporated by reference
from the 1996 Annual Report in Part II of this Form 10-K, the Company's 1996
Annual Report is not to be deemed filed as part of this Form 10-K.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. The information required by Item 10 of Form 10-K with respect to
- ---------
directors is incorporated by reference to the information contained in the
sections captioned "Nomination and Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 20, 1997 (the
"Proxy Statement").
Executive Officers. See page 15 of this Form 10-K.
- -------------------
ITEM 11
EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by reference to
the information contained in the sections captioned "Compensation of Directors
and Executive Officers," "Options Granted to Executive Officers," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," and
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Share Ownership of
Directors, Executive Officers and Certain Beneficial Owners" in the Proxy
Statement.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Certain Relationships and
Other Transactions" in the Proxy Statement.
18
<PAGE>
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements. The following consolidated financial statements
of Acuson Corporation and Report of Independent Public Accountants are
incorporated into this Form 10-K Report by reference to the section
entitled "Financial Contents" of the Company's 1996 Annual Report:
Consolidated Statements of Operations -- For the Three Years Ended
December 31, 1996
Consolidated Balance Sheets -- As of December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity -- For the Three Years
Ended December 31, 1996
Consolidated Statements of Cash Flows -- For the Three Years Ended
December 31, 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Supplementary Information
Quarterly Data (Unaudited)
(2) Financial Statement Schedules. The following financial statement
schedule of Acuson Corporation for the three years ended December 31,
1996 is filed as part of this Form 10-K:
Page
Report of Independent Public Accountants on
Valuation and Qualifying Accounts Schedule S-1
Valuation and Qualifying Accounts For The
Three Years Ended December 31, 1996 (Schedule II) S-2
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes incorporated herein by reference to the Company's 1996 Annual
Report.
19
<PAGE>
(3)Exhibits. The following Exhibits are filed as part of, or incorporated by
reference into, this Form 10-K:
3.1 Restated Certificate of Incorporation, as amended *
(Exhibit 3.8)
3.2 Bylaws as amended (Exhibit 3.1) @@@
4.1 Rights Agreement, dated as of May 5, 1988, between ***
Acuson Corporation and The First National Bank of
Boston, as Rights Agent (Exhibit 1)
10.1 The Company's 401(k) Plan, as amended (Exhibit 10.1) ****(1)
10.2 The Company's 1986 Employee Stock Purchase Plan
(the "1986 Purchase Plan"), as amended (Exhibit 10.2) /(1)
10.3 Form of Employee Stock Purchase Agreement to be used *(1)
under the 1986 Purchase Plan (Exhibit 10.5)
10.4 The Company's 1982 Incentive Stock Option Plan, as /(1)
amended (Exhibit 10.4)
10.5 Form of Incentive Stock Option and related exercise **(1)
documents (Exhibit 10.5)
10.6 The Company's 1986 Supplemental Stock Option Plan, as /(1)
amended (Exhibit 10.6)
10.7 Form of Supplemental Stock Option (Exhibit 10.7) /(1)
10.8 Series A Preferred Stock Purchase Agreement, dated
January 6, 1982, between the Company and the
Purchasers listed on Schedule A thereto (Exhibit 10.8) *
10.9 Series B Preferred Stock Purchase Agreement, dated *
March 29, 1983, between the Company and the Purchasers
listed on Schedule A thereto (Exhibit 10.9)
10.10 Series C Convertible Preferred Stock Purchase Agreement, *
dated March 30, 1984, between the Company and the
Purchasers listed on Exhibit A thereto (Exhibit 10.10)
10.11 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments III and the Company (Exhibit 19.1)
10.12 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments III and the Company (Exhibit 19.2)
10.13 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments III and the Company (Exhibit 19.3)
10.14 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments VI and the Company (Exhibit 19.4)
10.15 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments V and the Company (Exhibit 19.5)
10.16 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments VI and the Company (Exhibit 19.6)
10.17 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments VI and the Company (Exhibit 19.7)
10.18 Lease of office space, dated May 15, 1990, between ++
Shoreline Investments VII and the Company (Exhibit 19.8)
20
<PAGE>
10.19 The Company's 1991 Stock Incentive Plan (Exhibit 19.1) +++(1)
10.20 Form of the Company's Supplemental and Non-Employee /(1)
Director Supplemental Options under the 1991 Stock
Incentive Plan and related exercise documents as amended
(Exhibit 10.23)
10.21 Non-Negotiable Secured Promissory Note, dated August 8, ++++(1)
1991, of Daniel R. Dugan (Exhibit 19.1)
10.22 Second Deed of Trust, dated August 8, 1991, between ++++
Daniel R. Dugan and First American Title Insurance
Company, as Trustee (Exhibit 19.2)
10.23 Lease of office space, dated July 31, 1991, between ++++
Shoreline Investments V and the Company (Exhibit 19.3)
10.24 First Amendment to the Company's 401(k) Plan
(Exhibit 10.31) #(1)
10.25 Lease of office space, dated January 31, 1992, ##
between Shoreline Investments V and the Company
(Exhibit 19.1)
10.26 Officers' Bonus Plan (Exhibit 10.30) ####(1)
10.27 Form of Amendment Number 1 to Supplemental Stock Option ////(1)
Terms Under the Company's 1986 Supplemental Stock Plan
and 1991 Stock Incentive Plan (Exhibit 10.1)
10.30 Form of Supplemental Stock Option Terms Under the ////(1)
Company's 1991 Stock Incentive Plan (Exhibit 10.2)
10.31 Credit Agreement between Acuson Corporation and the @@
First National Bank of Boston, as Agent, dated July 2,
1992 as amended, dated April 14, 1995 (Exhibit 10.1)
10.32 The Company's 1995 Employee Stock Purchase Plan @@@(1)
(Exhibit 10.1)
10.33 The Company's 1995 Stock Incentive Plan, as &(1)
amended (Exhibit 10.1)
11.1 Statement regarding computation of per share earnings /
for the fiscal year ended December 31, 1993
(Exhibit 11.2)
11.2 Statement regarding computation of per share earnings //
for the fiscal period ended April 2, 1994 (Exhibit 11.1)
11.3 Statement regarding computation of per share earnings ///
for the fiscal period ended July 2, 1994 (Exhibit 11.1)
11.4 Statement regarding computation of per share earnings ////
for the fiscal period ended October 1, 1994
(Exhibit 11.1)
11.5 Statement regarding computation of per share earnings @
for the fiscal year ended December 31, 1994
(Exhibit 11.6)
11.6 Statement regarding computation of per share earnings @@
for the fiscal period ended April 1, 1995 (Exhibit 11.1)
13.1 The portion of the Annual Report to security holders
for the fiscal year ended December 31, 1996, which is
incorporated by reference.
21.1 Subsidiaries of Registrant
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule for the year ended December 31, 1996
21
<PAGE>
(b) The Registrant filed a report on Form 8-K on October 28, 1996,
containing information in response to Item 5, "Other Events."
* Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-1 (File No. 33-7838), as amended.
** Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31, 1987.
*** Incorporated by reference to the indicated exhibit in the Company's
Form 8-K dated May 5, 1988.
**** Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31, 1990.
+ Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31, 1989.
++ Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended June 30,
1990.
+++ Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended June 29,
1991.
++++ Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended September
28, 1991.
# Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31, 1991.
## Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended March 28,
1992.
### Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended September
26, 1992.
#### Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31,
1992.
/ Incorporated by reference to the indicated exhibit in the Company's Form
10-K Annual Report for the fiscal year ended December 31, 1993.
// Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended April 2,
1994.
/// Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended July 2, 1994.
//// Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended October 1,
1994.
@ Incorporated by reference to the indicated exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31,
1994.
22
<PAGE>
@@ Incorporated by reference to the indicated exhibit in the Company's Form
10-Q Quarterly Report for the quarterly period ended April 1, 1995.
@@@ Incorporated by reference to the indicated exhibit in the Company's Form
10-Q Quarterly Report for the quarterly period ended July 1, 1995.
& Incorporated by reference to the indicated exhibit in the Company's
Form 10-Q Quarterly Report for the quarterly period ended September
28, 1996.
(1) Management contract or compensatory plan required to be filed as an
exhibit.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 28, 1997 By /s/ Samuel H. Maslak
------------------------------------
Samuel H. Maslak
Chairman and Chief Executive Officer
March 28, 1997 By /s/ Robert J. Gallagher
------------------------------------
Robert J. Gallagher
President and Chief Operating Officer
March 28, 1997 By /s/ Stephen T. Johnson
------------------------------------
Stephen T. Johnson
Vice President, Chief
Financial Officer (Principal Financial
and Accounting Officer)
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------------------------------------------------------------------------------
/s/ Samuel H. Maslak Chairman and Chief Executive March 28, 1997
- ------------------------ Officer
(Samuel H. Maslak)
/s/ Robert J. Gallagher President, Chief Operating Officer March 28, 1997
- ------------------------ and Director
(Robert J. Gallagher)
/s/Stephen T. Johnson Vice President, Chief Financial March 28, 1997
- ------------------------ Officer(Principal Financial
(Stephen T. Johnson) Officer and Accounting Officer)
/s/ Albert L. Greene Director March 28, 1997
- ------------------------
(Albert L. Greene)
/s/ Karl H. Johannsmeier Director March 28, 1997
- ------------------------
(Karl H. Johannsmeier)
/s/ Alan C. Mendelson Director March 28, 1997
- ------------------------
(Alan C. Mendelson)
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Acuson Corporation's Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 31, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed at
Part IV, Item 14(a)(2) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
San Jose, California
January 31, 1997
S-1
<PAGE>
ACUSON CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(In thousands)
Balance at Charged to Balance at
Beginning Costs and End
of Period Expenses Write-Offs of Period
---------- ---------- ---------- ----------
Allowance for doubtful
accounts:
Year ended:
December 31, 1994 $2,844 $ 597 $ (9) $3,432
December 31, 1995 $3,432 $ (175) $ (259) $2,998
December 31, 1996 $2,998 $ 442 $ (472) $2,968
Accrued warranty:
Year ended:
December 31, 1994 $3,287 $ 7,949 $(6,761) $4,475
December 31, 1995 $4,475 $ 8,146 $(8,181) $4,440
December 31, 1996 $4,440 $ 9,526 $(7,942) $6,024
S-2
<PAGE>
ACUSON CORPORATION EXHIBIT 13.1
================================================================================
ACUSON CORPORATION
------------------
PORTION OF THE ANNUAL REPORT TO SECURITY HOLDERS
-------------------------------------------------
INCORPORTED BY REFERENCE INTO FORM 10-K
---------------------------------------
FINANCIAL CONTENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 2
SELECTED CONSOLIDATED FINANCIAL DATA 6
QUARTERLY DATA 6
CONSOLIDATED STATEMENTS OF OPERATIONS 7
CONSOLIDATED BALANCE SHEETS 8
CONSOLIDATED STATEMENTS OF CASH FLOWS 9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 20
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in the
consolidated statements of operations as percentages of total net sales and the
percentage change of each such item from the comparable prior period.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage Change
1996 1995
vs. vs.
Year Ended December 31, 1996 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales
Product 75.4% 75.4% 78.7% 5.3% (10.1)%
Service 24.6 24.6 21.3 5.1 8.5
----- ----- -----
Total net sales 100.0 100.0 100.0 5.2 (6.2)
----- ----- -----
Cost of sales
Product 40.1 35.6 33.2 18.6 0.7
Service 12.0 10.9 10.2 15.4 0.1
----- ----- -----
Total cost of sales 52.1 46.5 43.4 17.8 0.6
----- ----- -----
Gross profit 47.9 53.5 56.6 (5.7) (11.3)
----- ----- -----
Operating expenses
Selling, general and administrative 36.4 31.7 30.1 20.7 (1.1)
Product development 17.6 20.2 20.2 (8.2) (6.2)
----- ----- -----
Total operating expenses 54.0 51.9 50.3 9.5 (3.1)
----- ----- -----
Income (loss) from operations (6.1) 1.6 6.3 n/m (76.6)
Interest income, net 0.9 1.2 1.0 (21.1) 11.1
----- ----- -----
Income (loss) before income taxes (5.2) 2.8 7.3 n/m (64.5)
Provision for (benefit from) income (2.1) 0.6 2.1 n/m (72.2)
taxes ----- ----- -----
Net income (loss) (3.1)% 2.2% 5.2% n/m (61.4)%
===== ===== =====
</TABLE>
1996 COMPARED TO 1995
NET SALES for the fiscal year 1996, increased by 5.2% to $346.2 million from
$328.9 million in 1995. During 1996, Acuson introduced two new ultrasound
platforms, the Sequoia(TM) ultrasound systems, launched in April, and the
Aspen(TM) ultrasound system, launched in October. The Sequoia and Aspen systems
began shipment in July and November, respectively. With the help of new systems
shipments, worldwide product revenues in 1996 increased by $13.1 million to
$261.0 million in 1996, a 5.3% increase. The Company experienced an overall
decrease in unit volume which was offset by an increase in average unit selling
price as a result of the new product introductions. International revenues
increased 10.3% in 1996 to $134.2 million, totalling 38.8% of the Company's
sales as compared to 37.0% in 1995. Total domestic revenues increased 2.2% to
$212.0 million.
The trends of domestic health care provider consolidation and medical cost
containment, and intense competition, which have impacted the ultrasound market
since 1993, are expected to continue into 1997.
2
<PAGE>
Cost of Sales increased as a percentage of net sales to 52.1% for 1996 compared
- -------------
to 46.5% for 1995. The percentage increase in 1996 was primarily a reflection
of higher product costs for the manufacturing startup and initial production of
the new systems.
Selling, general and administrative costs were $126.1 million for 1996 compared
- -----------------------------------
to $104.4 million for 1995. As a percentage of net sales, these expenses
increased to 36.4% in 1996 from 31.7% in 1995. The increase was primarily
because of the expenses related to the extensive worldwide introduction of the
Sequoia and Aspen ultrasound systems. Although these introduction costs
will not to recur in 1997, they are expected to be replaced by continued
investments in the Company's worldwide distribution networks.
Product development spending for 1996 declined to $60.9 million from $66.4
- -------------------
million for 1995. As a percentage of net sales, product development was 17.6%
in 1996, a decrease of 2.6 percentage points. The $5.4 million decline in 1996
spending represented a planned reduction following the new product
introductions. Although product development expenses have decreased from 1995,
the Company maintains a strong commitment to product development programs to
develop proprietary technologies.
Benefit from income taxes was $7.4 million in 1996 versus a provision of $2.0
- -------------------------
million in 1995. The Company's 1996 overall tax rate was a benefit rate of
41.1% compared to a provision rate of 22.4% in 1995. The benefit was due to
federal loss carrybacks, state loss carryforwards and continuing tax credits.
Net loss was $10.6 million in 1996 versus net income of $7.1 million in 1995.
- --------
The results of 1996 were impacted by substantial expenditures for market
introduction and manufacturing startup for the new systems.
Long-lived Assets Effective January 1, 1996, the Company adopted Statement of
- -----------------
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The adoption of SFAS 121 did not have a material impact on the results of
operations or financial position of the Company.
Stock Compensation Effective January 1, 1996, the Company adopted the
- ------------------
disclosure provisions of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." In accordance with the provisions of
SFAS 123, the Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. Note 7 to the Consolidated Financial
Statements contains a summary of the pro forma effects on reported net income
and earnings per share for 1996 and 1995 based on the fair value of the options
granted at grant date as prescribed by SFAS 123.
1995 COMPARED TO 1994
NET SALES in 1995 decreased by 6.2% to $328.9 million from $350.5 million in
1994. Worldwide product revenues in 1995 decreased by $27.9 million from $275.8
million in 1994, a 10.1% decrease. In 1995 the Company experienced decreases in
both unit volume and lower average unit selling prices. An increase in unit
volume realized in the international market was more than offset by a decrease
in the domestic market. The Company's average unit selling price was lower in
1995 as a result of increased sales in the international market, where the
Company sold lower priced product configurations and made greater use of
international distributors, continued domestic health care provider
consolidations and medical cost containment and intense competitive pressures.
International revenues increased 9.4% in 1995 to $121.6 million, totalling 37.0%
of the Company's sales as compared to 31.7% in 1994. Total domestic revenues
decreased 13.4% to $207.3 million.
Cost of Sales increased as a percentage of net sales to 46.5% for 1995 compared
- -------------
to 43.4% for 1994. The percentage increase in 1995 was primarily a reflection
of reduced product prices, increased sales of lower priced product
configurations and slightly higher product costs, partially offset by lower
service costs as a percentage of sales.
Selling, general and administrative costs were $104.4 million for 1995 compared
- -----------------------------------
to $105.5 million for 1994. As a percentage of net sales, these expenses
increased to 31.7% in 1995 from 30.1% in 1994. Costs did not decline at the
same rate as sales primarily because planned growth in international
distribution expense was only partially offset by decreased legal and domestic
selling expenses.
3
<PAGE>
Product development spending for 1995 declined to $66.4 million from $70.8
- -------------------
million for 1994. As a percentage of net sales, product development was 20.2%
in both 1995 and 1994. The $4.4 million decline in 1995 spending represented a
planned reduction in the level of product development.
Provision for income taxes was $2.0 million in 1995 versus $7.3 million in 1994.
- --------------------------
The Company's overall tax rate decreased to 22.4% in 1995 from 28.5% in 1994.
The decline in the rate was due to continuing tax credits coupled with lower
pre-tax profits.
Net income was $7.1 million in 1995 compared to $18.3 million in 1994. The
- ----------
decrease was principally the result of a lower volume of sales partially offset
by reduced operating expenses.
INFLATION
To date, the Company has not experienced any significant effects from inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments balance decreased $41.7 million in
1996 versus a decrease of $11.0 million in 1995. The Company used $29.6 million
in cash to fund operations, as compared to 1995 when operations generated $26.4
million in cash. Included in the cash generated from operations was the sale of
portions of the Company's lease portfolio generating $23.4 million and $3.0
million in cash in 1996 and 1995, respectively. An increase in inventory used
$32.8 million in 1996. This increase, mainly in raw materials and work-in-
process, was driven by the manufacturing buildup for the newly introduced
ultrasound platforms.
The Company's investment activities in property and equipment used $34.5 million
in 1996 versus $18.1 million in 1995. The spending increase was due primarily to
increased investment of $13.8 million for new product demonstration systems
and $7.8 million for manufacturing equipment used to build the new Sequoia and
Aspen systems. The Company used $14.6 million in 1996 to repurchase common
stock, down from $27.3 million in the prior year. Employee participation in the
Company's stock option and stock purchase plans raised $22.1 million in cash in
1996 compared to $7.0 million in 1995.
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. During 1996, the
Company repurchased 986,100 shares at a total cost of $16.8 million. As of
December 31, 1996, the Company had repurchased 3,700,900 shares towards the
4,000,000 share repurchase authorization at a cumulative cost of $50.2 million.
On October 15, 1996, the Board of Directors authorized the repurchase of an
additional 4,000,000 shares over an unspecified period of time. There have been
no purchases toward this authorization. As with all purchases thus far, the
Company intends to fund future purchases by utilizing the Company's cash
balances.
At December 31, 1996, the Company's working capital totalled $110.3 million,
including $14.4 million in cash. The Company also has a revolving, unsecured
credit facility of $50.0 million which is in effect through March 1997, at which
point any outstanding balance would be converted into a note payable. This note
payable would have a term of one year with quarterly principal payments. No
compensating balances are required. At December 31, 1996, borrowings under the
revolving, unsecured credit facility totalled $13.0 million. The Company plans
to obtain a new unsecured credit facility in 1997.
Based on its current operating plan, the Company believes that the
liquidity provided by its existing cash and short-term investments balance, the
borrowing arrangements described above and cash generated from operations will
be sufficient to meet the Company's operating and capital requirements for
fiscal 1997.
INVESTMENT RISKS
The Shareholders' Letter, subsequent product discussion and the Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") sections in this report contain forward-looking statements
4
<PAGE>
regarding the Company and its products. These forward-looking statement are
based on current expectations and the Company assumes no obligation to update
this information. The Company's actual results could differ materially from
these discussed in this document. In evaluating the forward-looking statements
contained in this document, including those in the final paragraph of The
Shareholders' Letter and in the MD&A, prospective investors and shareholders
should carefully consider the factors set forth below.
The introduction of the Sequoia and Aspen ultrasound platforms raises several
risk factors. Specifically, the success of the Sequoia and Aspen 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; developments in other imaging modalities; changes in
government regulation of the marketing of ultrasound equipment; and timely
completion of future product 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.
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 with the Securities
and Exchange Commission on March 31, 1997.
5
<PAGE>
- ------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net sales $346,155 $328,922 $350,484 $295,289 $342,832
Net income (loss) (10,613) 7,055 18,267 3,711 36,806
Earnings Per Share:
Net income (loss) $ (0.39) $ 0.25 $ 0.62 $ 0.13 $ 1.08
Weighted average common and common
equivalent shares outstanding 27,502 28,237 29,382 28,934 34,283
Consolidated Balance Sheet Data:
Working capital $110,315 $121,410 $138,336 $113,502 $131,728
Total assets 320,701 295,853 304,638 271,081 278,557
Stockholders' equity 195,056 195,997 207,785 183,261 201,146
</TABLE>
QUARTERLY DATA (Unaudited)
<TABLE>
<CAPTION>
1996 Quarter Ended
(In thousands, except per share amounts) DEC. 31 SEPT. 28 JUNE 29 MARCH 30
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $93,669 $93,305 $ 74,355 $84,826
Gross profit 43,427 43,520 34,855 44,043
Income (loss) before income taxes (4,811) 1,570 (16,583) 1,803
Net income (loss) (2,939) 1,648 (10,584) 1,262
Earnings (loss) per share (0.10) 0.06 (0.39) 0.05
</TABLE>
<TABLE>
<CAPTION>
1995 Quarter Ended
(In thousands, except per share amounts) DEC. 31 SEPT. 30 JULY 1 APRIL 1
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $83,642 $75,375 $ 81,939 $87,966
Gross profit 43,727 40,031 44,677 47,483
Income before income taxes 1,837 2,668 1,428 3,153
Net income 1,908 1,894 1,014 2,239
Earnings per share 0.07 0.07 0.04 0.08
</TABLE>
6
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Product $260,975 $247,863 $275,754
Service 85,180 81,059 74,730
-------- -------- --------
Total net sales 346,155 328,922 350,484
-------- -------- --------
COST OF SALES
Product 138,800 117,043 116,233
Service 41,510 35,961 35,931
-------- -------- --------
Total cost of sales 180,310 153,004 152,164
-------- -------- --------
Gross profit 165,845 175,918 198,320
-------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 126,067 104,426 105,536
Product development 60,926 66,367 70,786
-------- -------- --------
Total operating expenses 186,993 170,793 176,322
-------- -------- --------
Income (loss) from operations (21,148) 5,125 21,998
Interest income, net 3,127 3,961 3,566
-------- -------- --------
Income (loss) before income
taxes (18,021) 9,086 25,564
Provision for (benefit from) income
taxes (7,408) 2,031 7,297
-------- -------- --------
NET INCOME (LOSS) $(10,613) $ 7,055 $ 18,267
======== ======== ========
EARNINGS (LOSS) PER SHARE $(0.39) $0.25 $0.62
======== ======== ========
Weighted average common and common
equivalent shares outstanding 27,502 28,237 29,382
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(In thousands, except per share amounts) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 14,413 $ 46,135
Short-term investments --- 10,000
-------- ---------
Total cash and short-term investments 14,413 56,135
Accounts receivable, net of allowance for
doubtful accounts of $2,968 in 1996 and
$2,998 in 1995 93,647 77,992
Inventories 83,196 50,484
Deferred income taxes 22,316 24,188
Other current assets 22,388 12,467
-------- ---------
Total current assets 235,960 221,266
-------- ---------
PROPERTY AND EQUIPMENT, AT COST
Furniture and fixtures 15,216 14,855
Test equipment 34,718 29,010
Machinery and equipment 111,403 89,871
Leasehold improvements 23,065 23,155
-------- ---------
184,402 156,891
Accumulated depreciation and amortization (118,518) (106,647)
-------- ---------
Total property and equipment, net 65,884 50,244
-------- ---------
OTHER ASSETS
Net investment in leases, net of current portion 9,413 14,926
-------- ---------
Other long-term assets, net 9,444 9,417
-------- ---------
Total assets $320,701 $ 295,853
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 13,000 $ --
Accounts payable 20,235 16,295
Accrued compensation 28,168 23,800
Deferred revenue 23,967 24,529
Accrued warranty 6,024 4,440
Accrued income taxes 9,992 9,162
Customer deposits 6,921 6,598
Other accrued liabilities 17,338 15,032
-------- ---------
Total current liabilities 125,645 99,856
-------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
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, 28,246 shares
in 1996 and 27,275 shares in 1995 102,756 79,702
Cumulative translation adjustment 527 206
Unrealized holding gain on investment securities -- 37
Retained earnings 91,773 116,052
-------- ---------
Total stockholders' equity 195,056 195,997
-------- ---------
Total liabilities and stockholders' equity $ 320,701 $ 295,853
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(10,613) $ 7,055 $ 18,267
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 18,773 17,315 19,665
Provision for losses on accounts receivables 442 (175) 597
Tax benefit of employee stock transactions 4,035 327 1,529
Changes in:
Accounts receivable (15,722) 1,510 (15,991)
Leases receivable 6,461 (5,503) 12,607
Inventories (32,805) (331) (7,598)
Deferred income taxes (152) 2,137 (5,370)
Other current assets (10,783) 2,507 (442)
Accounts payable 3,945 (106) 3,580
Accrued compensation 4,371 943 4,277
Deferred revenue (615) 3,605 1,664
Accrued warranty 1,584 (35) 1,188
Accrued income taxes 858 (1,245) 2,354
Customer deposits 384 (292) (896)
Other accrued liabilities 245 (1,354) (2,442)
-------- -------- --------
Net cash provided by (used in) operating activities (29,592) (26,358) (32,989)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in short-term investments 9,983 28,634 9,139
Investment in property and equipment (34,465) (18,154) (23,708)
Decrease (increase) in other assets 1,893 500 (3,778)
-------- -------- --------
Net cash provided by (used in) investing activities (22,589) 10,980 (18,347)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 18,000 -- --
Repayment of short-term borrowings (5,000) -- --
Repurchase of common stock (14,591) (27,259) (7,172)
Issuance of common stock under stock option and
stock purchase plans 22,142 6,977 9,477
-------- -------- --------
Net cash provided by (used in) financing activities 20,551 (20,282) 2,305
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (92) 408 540
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (31,722) 17,464 17,487
-------- -------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 46,135 28,671 11,184
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,413 $ 46,135 $ 28,671
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Cumulative Holding Total
For the Three Years Ended December 31, 1996 Common Stock Translation Gain Retained Stockholders
(In thousands, except per share amounts) Shares Amount Adjustment (Loss) Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 28,279 $ 69,115 $(2,259) $ -- $116,405 $183,261
Effect of adoption of accounting principle -- -- -- (19) -- (19)
Exercise of stock options at $0.13 to $17.17 per share 592 5,454 -- -- -- 5,454
Repurchase of common stock at $13.13 to $16.13 per share (368) (938) -- -- (4,460) (5,398)
Issuance of stock under employee stock purchase plan at
$9.89 to $10.20 per share 401 4,023 -- -- -- 4,023
Tax benefit of employee stock transactions -- 1,529 -- -- -- 1,529
Translation adjustments -- -- 1,019 -- -- 1,019
Unrealized holding loss on investment securities -- -- -- (351) -- (351)
Net income -- -- -- -- 18,267 18,267
------ -------- ------ ---- ------- --------
BALANCE, DECEMBER 31, 1994 28,904 79,183 (1,240) (370) 130,212 207,785
Exercise of stock options at $0.40 to $13.92 per share 263 2,186 -- -- -- 2,186
Repurchase of common stock at $10.75 to $13.88 per share (2,347) (6,785) -- -- (21,215) (28,000)
Issuance of stock under employee stock purchase plan
at $10.52 per share 455 4,791 -- -- -- 4,791
Tax benefit of employee stock transactions -- 327 -- -- -- 327
Translation adjustments -- -- 1,446 -- -- 1,446
Unrealized holding gain on investment securities -- -- -- 407 -- 407
Net income -- -- -- -- 7,055 7,055
------ -------- ------ ---- ------- --------
BALANCE, DECEMBER 31, 1995 27,275 79,702 206 37 116,052 195,997
Exercise of stock options at $0.60 to $19.83 per share 1,494 16,910 -- -- -- 16,910
Repurchase of common stock at $14.00 to $16.03 per share (986) (3,122) -- -- (13,666) (16,788)
Issuance of stock under employee stock purchase plan
at $11.05 and $11.58 per share 463 5,231 -- -- -- 5,231
Tax benefit of employee stock transactions -- 4,035 -- -- -- 4,035
Translation adjustments -- -- 321 -- -- 321
Unrealized holding loss on investment securities -- -- -- (37) -- (37)
Net loss -- -- -- -- (10,613) (10,613)
------ -------- ------ ---- ------- --------
BALANCE, DECEMBER 31, 1996 28,246 $102,756 $ 527 $ -- $91,773 $195,056
====== ======== ====== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Founded in 1981, Acuson Corporation (the "Company") is a United States-based
multinational corporation. The Company is a leading manufacturer, worldwide
marketer and service provider of medical diagnostic ultrasound systems and image
management products. The markets for Acuson products are North America, Europe,
Australia, Asia, South America and the Middle East. The Company's products are
sold primarily to hospitals, private and governmental institutions, health care
agencies, medical equipment distributors and doctors' offices.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The consolidated financial statements include the
- ---------------------
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements The preparation of
- -----------------------------------------------------------
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Translation of Foreign Currencies The functional currency of Acuson's foreign
- ---------------------------------
subsidiaries is the local currency. Acuson translates all assets and
liabilities to U.S. dollars at current exchange rates as of the applicable
balance sheet date. Sales and expenses are translated at the average exchange
rates prevailing during the period. Gains and losses resulting from the
translation of the foreign subsidiaries' financial statements are reported as a
separate component of stockholders' equity.
Concentration of Credit Risk The Company provides credit in the form of trade
- ----------------------------
accounts receivable to hospitals, private and governmental institutions, health
care agencies, medical equipment distributors and doctors' offices. Acuson
products are manufactured at the world headquarters in Mountain View,
California, and are sold through a direct sales force in North America, Europe,
Australia and Japan, and through distributors in Europe, Asia, South America and
the Middle East. The Company does not generally require collateral to support
customer receivables. The Company performs ongoing credit evaluations of its
customers and maintains allowances which management believes are adequate for
potential credit losses.
Financial Instruments and Credit Risk The Company operates internationally,
- -------------------------------------
giving rise to significant exposure to market risks from changes in foreign
exchange rates. The Company enters into foreign currency exchange contracts,
which are derivative financial instruments, to reduce exposure to currency
exchange risk. The effect of this practice is to minimize the impact of foreign
exchange rate movements on the Company's operating results. Hedging activities
do not subject the Company to exchange rate risk as gains and losses on these
contracts offset gains and losses on the assets, liabilities and transactions
being hedged. The Company does not engage in foreign currency speculation nor
does it hold or issue financial instruments for trading purposes. Forward
contract terms are typically not more than three months. The counterparties to
foreign currency exchange contracts are major domestic and international
financial institutions.
At December 31, 1996, the Company had forward exchange contracts maturing from
January 1997 through April 1997 to sell a net equivalent of approximately $33.5
million of foreign currencies, of which approximately $7.0 million are in
French francs, $5.5 million are in Italian lire, $4.2 million are in Australian
dollars and $4.1 million are in Japanese yen. The carrying value of these
contracts approximates their fair market value as of the year end.
Derivatives The Company's only use of derivative securities is its routine
- -----------
usage of forward contracts to hedge foreign currency exposure.
11
<PAGE>
Inventories Inventories are stated at the lower of cost (first-in, first-out)
- -----------
or market and include material, labor and manufacturing overhead. The
components of inventories were as follows as of December 31:
(In thousands) 1996 1995
- -------------------------------------------------------------------------------
Raw materials $38,224 $26,906
Work-in-process 18,740 5,981
Finished goods 26,232 17,597
------- -------
Total inventories $83,196 $50,484
------- -------
Property and Equipment Property and equipment are stated at cost and are
- ----------------------
depreciated or amortized using the straight-line method over the following
estimated useful lives:
- --------------------------------------------------------------------------------
Furniture and fixtures 5 years
Test equipment 3-5 years
Machinery and equipment 3-7 years
Leasehold improvements Term of lease
Revenue Recognition Revenues from equipment sales and sales-type leases are
- -------------------
generally recognized when the equipment has been shipped and lease contracts, if
applicable, have been executed. Estimated costs of installation, which are
minimal, are accrued at the time revenue is recognized. Service revenues are
recognized ratably over the contractual period or as the services are provided.
Earnings Per Share Earnings per share is computed based on the weighted average
- ------------------
number of common and common equivalent shares outstanding during the period.
The modified treasury stock method was used in computing the earnings per share
as the number of shares of common stock obtainable upon exercise of outstanding
options in the aggregate exceeded 20% of the number of common shares outstanding
at the end of the year. Net loss per share is computed by dividing the net loss
by the weighted average number of common shares outstanding.
Consolidated Statement of Cash Flows For purposes of the statement of cash
- ------------------------------------
flows, the Company has classified certain short-term investments as cash
equivalents if the original maturity of such investments is three months or
less. For purposes of the statements of cash flows, the Company classifies cash
flows from hedging contracts in the same category as the cash flows from the
items being hedged.
Cash paid for income taxes and interest expense was as follows for each of the
years ended December 31:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Income taxes $ 183 $1,193 $8,248
Interest expense $ 322 $ 58 $ 151
In conjunction with the repurchase of common stock in 1996 and 1995 (see Note
7), the Company incurred a liability due to the timing of the settlement dates.
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Repurchase of common stock $ 16,788 $ 28,000 $ 5,398
Cash paid for repurchase of common stock (14,591) (27,259) (7,172)
-------- -------- -------
Net cash effect $ 2,197 $ 741 $(1,774)
-------- -------- -------
Reclassifications Certain information reported in previous years has been
- -----------------
reclassified to conform to the 1996 presentation.
12
<PAGE>
Long-lived assets Effective January 1, 1996, the Company adopted Statement of
- -----------------
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The adoption of SFAS 121 did not have a material impact on the results of
operations or financial position of the Company.
Stock Compensation Effective January 1, 1996, the Company adopted the
- ------------------
disclosure provisions of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." In accordance with the provisions of
SFAS 123, the Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. Note 7 to the Consolidated Financial
Statements contains a summary of the pro forma effects on reported net income
and earnings per share for 1996 and 1995 based on the fair value of the options
granted at grant date as prescribed by SFAS 123.
NOTE 3. 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. All securities were sold during 1996 and
were sold for approximately original cost.
As of December 31, 1995, the securities' gross unrealized holding gain was
approximately $57,000. The unrealized holding gain of approximately $37,000,
net of the tax effect, was reported as a separate component of stockholders'
equity. The Company sold securities during the year for approximately original
cost.
Short-term investments as of December 31, 1995, consisted of the following:
Cost Market Value Amount at
Marketable Securities of Each at Balance Which Carried
(In thousands) Issue Sheet Date in Balance Sheet
- --------------------------------------------------------------------------------
Municipal securities $7,990 $ 8,002 $ 8,002
U.S. Government and agencies 1,953 1,998 1,998
------ ------- -------
Total short-term investments $9,943 $10,000 $10,000
------ ------- -------
NOTE 4. SHORT-TERM BORROWINGS
The Company has a revolving, unsecured credit agreement for $50 million through
March 1997, at which point any outstanding balance would be converted into a
note payable. This note payable would have a term of one year with quarterly
principal payments. No compensating balances are required. Under the terms of
the revolving, unsecured credit agreement, the interest rate is determined at
the time of borrowing and is based on the London interbank offered rate plus a
margin, or prime rate. The weighted average borrowings was $6.9 million since
the third quarter of 1996 when the facility was first used. The weighted
average interest rate on borrowings during the year was 5.9%. The effective
rate at December 31, 1996 was 6.1%. At December 31, 1996, borrowings under this
facility totalled $13.0 million. Borrowing under this facility is subject to
certain debt covenants and the Company is in compliance with these covenants.
The Company plans to obtain a new unsecured credit facility in 1997.
13
<PAGE>
NOTE 5. NET INVESTMENT IN SALES-TYPE LEASES
The Company leases equipment to customers under sales-type leases as defined in
Statement of Financial Accounting Standards No. 13. The Company's leasing
operations consist of leases of medical equipment which expire over a period of
one to six years. The following lists the components of the net investment in
sales-type leases as of December 31, 1996:
(In thousands) Amount
- --------------------------------------------------------------------------------
Minimum amounts receivable $14,180
Less: Allowance for uncollectibles (272)
-------
Net minimum lease payments receivable 13,908
Estimated residual values of leased property 71
Less: Unearned interest income (553)
-------
Net investment in leases 13,426
Less: Current portion (included in other current assets) (4,013)
-------
Long-term portion $ 9,413
-------
Minimum amounts receivable under existing leases as of December 31, 1996, were
as follows:
(In thousands) Amount
- --------------------------------------------------------------------------------
1997 $ 4,443
1998 4,364
1999 3,566
2000 1,421
2001 358
Thereafter 28
-------
Total minimum amounts receivable $14,180
-------
The Company sold portions of its lease portfolio, with recourse, for $23.4
million, $3.0 million and $21.6 million in 1996, 1995 and 1994, respectively.
As of December 31, 1996, the maximum recourse liability to the Company for these
transactions is approximately $4.4 million.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain other equipment under operating
lease agreements expiring through July 31, 2002. Future minimum lease payments
as of December 31, 1996, were as follows:
(In thousands) Amount
- --------------------------------------------------------------------------------
1997 $11,479
1998 11,040
1999 10,467
2000 7,697
2001 5,563
Thereafter 2,209
-------
Total future minimum lease payments $48,455
-------
14
<PAGE>
Rent expense was approximately $11.5 million, $10.7 million and $10.1 million in
1996, 1995 and 1994, respectively.
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 7. COMMON STOCK
Common Stock Purchase Rights During 1988, the Company declared a dividend of
- ----------------------------
one common share purchase right for each then outstanding share of common stock.
As a result of the Company's three-for-two split of its common stock in August
1990, each share of common stock now has associated with it two-thirds of one
common share purchase right. In addition, two-thirds of one right will be
issued with each future share of common stock issued by the Company before the
date the rights become exercisable, or before the rights are redeemed by the
Company, or before the rights expire on May 15, 1998. The rights will not be
exercisable or transferable apart from the common stock until ten days after
another person or group of persons acquires 20% of the common stock or commences
a tender or exchange offer for at least 20% of the common stock. Each right
entitles the holder to purchase from the Company one and one-half shares of
common stock at $80 per share, subject to adjustments for dilutive events. In
certain circumstances, the right will entitle its holder to purchase a larger
number of shares of common stock or stock in an acquiring company. The Board of
Directors may redeem the rights, at any time, at $.01 per right, payable in
cash, common shares or other consideration. In addition, the Board may also,
without consent of the holders of the rights, amend the terms of the rights to
lower the threshold for exercisability of the rights.
Stock Option Plans In May 1995, the stockholders approved the Company's 1995
- ------------------
Stock Incentive Plan (the "1995 Plan") which authorizes the issuance of up to
3,500,000 shares of common stock in the form of options, restricted stock grants
or bonuses, and stock appreciation rights. In addition, the Company has in
effect a 1991 Stock Incentive Plan (the "1991 Plan"). Under the 1995 Plan and
the 1991 Plan, incentive and supplemental stock options may be granted to
employees, directors and consultants to purchase common stock at a price which
is not less than 100% of the market value (or 10% for supplemental stock
options) of the shares at the grant date. The options can be granted for
periods of up to ten years and are subject to exercise and vesting schedules as
determined by the Board of Directors. Options covering 3,182,317 shares were
available for future grant at December 31, 1996.
On August 2, 1994, the Board of Directors approved an amendment to outstanding
non-qualified stock options that provides in general for accelerated vesting of
such options in the event that some person or entity acquires more than 20% of
the Company's then outstanding stock without the approval of the Board of
Directors.
In accordance with the disclosure requirements of SFAS 123, if the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed, income and earnings per share would have
been reduced to the pro forma amounts indicated in the table below. The pro
forma effect on net income for 1996 and 1995 is not representative of the pro
forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
In thousands, except per share amounts 1996 1995
- --------------------------------------------------------------------------------
Net income (loss) - as reported $(10,613) $7,055
Net income (loss) - pro forma (13,668) 5,580
Earnings (loss) per share - as reported (0.39) 0.25
Earnings (loss) per share - pro forma (0.50) 0.20
15
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
- --------------------------------------------------------------------------------
Expected dividend yield 0.0 %
Expected stock volatility 29.8 - 42.4 %
Risk-free interest rate 5.4 - 6.3 %
Expected life of options from vest date 1.1 years
Forfeiture rate actual
The weighted average fair value of options granted during 1996 and 1995 is
$4.40 and $4.02 per share, respectively.
The following table summarizes option activity for the past three years.
(In thousands,
except per share amounts) Shares Price per Share
- -------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1993 6,689 $0.13 - $37.38
Granted 859 $1.80 - $17.75
Exercised (592) $0.13 - $17.17
Expired or cancelled (299) $0.13 - $37.38
-----
Weighted-Average
Exercise Price
----------------
OUTSTANDING AT DECEMBER 31, 1994 6,657 $13.02
Granted 1,395 $12.02
Exercised (263) $ 8.73
Expired or cancelled (718) $15.07
-----
OUTSTANDING AT DECEMBER 31, 1995 7,071 $12.77
Granted 1,433 $15.01
Exercised (1,495) $11.38
Expired or cancelled (589) $14.45
-----
OUTSTANDING AT DECEMBER 31, 1996 6,420 $13.44
-----
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- -------------------------------
Weighted-
Average
Remaining Weighted Weighted-
Range of Number Contractual -Average Number Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$ 7.17 51,869 0.82 $ 7.17 51,869 $ 7.17
$ 8.67 - 10.75 1,612,652 6.39 $10.74 1,491,715 $10.74
$11.00 - 11.63 723,685 8.66 $11.49 214,786 $11.44
$11.63 - 12.38 456,695 7.84 $12.28 182,520 $12.23
$12.39 - 13.13 843,010 6.83 $13.09 522,369 $13.09
$13.25 - 14.38 810,151 8.80 $14.14 87,276 $13.80
$14.38 - 16.42 1,075,127 5.06 $15.71 688,681 $16.16
$16.50 - 18.59 693,754 6.88 $17.55 299,459 $17.90
$18.63 - 29.75 149,527 3.46 $19.81 145,430 $19.75
$31.38 - 37.38 3,550 4.46 $33.17 3,550 $33.17
--------------------------------------------------------- ------------------------------
$ 7.17 - 37.38 6,420,020 6.83 $13.44 3,687,655 $13.18
- ------------------------------------------------------------------------------------ ------------------------------
</TABLE>
16
<PAGE>
Employee Stock Purchase Plan Offerings under the 1986 Employee Stock Purchase
- ----------------------------
Plan (the "1986 Purchase Plan") ended in August 1995. In May 1995, the
stockholders approved the Company's 1995 Employee Stock Purchase Plan (the "1995
Purchase Plan"), which authorizes the issuance of up to 2,000,000 shares of
common stock, subject to adjustment upon changes in capitalization of the
Company. Offerings under the 1995 Purchase Plan commenced in September 1995,
and as of December 31, 1996, the Company had reserved 1,537,368 shares of common
stock for issuance under the 1995 Purchase Plan. Pursuant to the 1986 Purchase
Plan, qualified employees elected to have between 3% and 15% of their salary
withheld. The salary so withheld was then used to purchase shares of the
Company's common stock at a price not less than 85% of the market value of the
stock on the specified dates determined at the commencement of the offering
period. The withholding requirements and determination of the stock purchase
price under the 1995 Purchase Plan are the same as in the 1986 Purchase Plan.
Under the Plans, the Company sold 462,632 shares and 390,519 shares in 1996 and
1995, respectively.
If the Company had elected to recognize the compensation cost based on the fair
value of the employee's purchase rights, the cost would have been estimated
using the Black-Scholes model with the following assumptions for each of the two
six-month periods in 1996 and 1995: dividend yield of zero percent for all
periods; an expected life of one half of a year for all periods; expected
volatility within a range of 25.3 to 48.5 %; and risk-free interest rates
within a range of 5.07 to 6.07 %. The weighted-average fair value of those
purchase rights granted in each of the two six-month periods was $3.68 and
$3.67 for 1996 and $2.76 and $2.99 for 1995.
Common Stock Repurchase Program In 1993, the Board of Directors authorized the
- -------------------------------
repurchase of 4,000,000 shares over an unspecified period of time. As of
December 31, 1996, the Company had repurchased 3,700,900 shares for an aggregate
price of $50.2 million. The difference between the original issue price and the
repurchase price has been accounted for as a reduction in both common stock and
retained earnings. On October 15, 1996, the Board of Directors authorized the
repurchase of an additional 4,000,000 shares over an unspecified period of time.
There have been no repurchases toward this authorization.
NOTE 8. INCOME TAXES
Income before provision for income taxes and the components of the provision for
income taxes consisted of the following:
Year Ended December 31, 1996 1995 1994
(In thousands)
- --------------------------------------------------------------------------------
Income (loss) before provision for
income taxes:
Domestic $(14,480) $6,043 $23,709
Foreign (2,444) 2,300 2,086
Eliminations (1,097) 743 (231)
-------- ------ -------
Total income (loss) before
provision $(18,021) $9,086 $25,564
-------- ------ -------
Provision for income taxes:
Federal
Current $ (187) $ (400) $ 8,812
Deferred (5,764) 222 (3,567)
-------- ------ -------
(5,951) (178) 5,245
-------- ------ -------
State
Current 200 (166) 1,362
Deferred (2,226) 621 (748)
-------- ------ -------
(2,026) 455 614
-------- ------ -------
Foreign
Current 1,111 1,924 1,438
Deferred (542) (170) --
-------- ------ -------
569 1,754 1,438
-------- ------ -------
Total provision (benefit) $ (7,408) $2,031 $ 7,297
-------- ------ -------
17
<PAGE>
The provision for income taxes differs from the amounts obtained by applying the
Federal statutory rate to income before taxes as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
Research and development tax credits 7.5 (18.9) (13.0)
State taxes, net of Federal income tax benefit 7.3 3.1 1.6
Foreign tax credit 2.8 (3.4) 0.2
Foreign Sales Corp. benefits 0.9 (4.4) (1.8)
Other (1.0) (3.0) 2.6
Non-deductible expenses (3.8) 6.5 2.1
Foreign subsidiary income (7.6) 7.5 1.8
---- ----- -----
Provision rate 41.1% 22.4% 28.5%
---- ----- -----
The Company has recorded deferred tax assets of $27.2 million. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax assets will be realized. The amount of the deferred tax
assets considered realizable, however, could be reduced in the near term if
estimates of the future taxable income are reduced.
The components of deferred tax assets were as follows:
Year Ended December 31, 1996 1995
(In thousands)
- --------------------------------------------------------------------------------
Reserves not currently deductible $10,146 $10,320
Accruals not currently deductible 4,661 4,375
Inventory amortization 4,153 4,142
Vacation accrual 3,206 2,574
State net operating loss and research
and development credit carryforward 2,672 --
Depreciation 1,755 1,546
Federal research and development credit 1,358 4,347
Foreign tax credit and charitable contribution 679 --
Other 270 766
Capitalized asset 253 253
State income tax accruals (1,960) (1,247)
------- -------
Deferred tax assets $27,193 $27,076
------- -------
The Company has tax credits, deductions and state net operating losses which
will be carried forward. The following lists the carryforward credits,
deductions and losses and their year of expiration.
Year Ended December 31,
(In thousands) 2001 2011 UNLIMITED
- --------------------------------------------------------------------------------
Foreign tax credits $ 499 $ -- $ --
Charitable contributions 180 -- --
Federal research & development credit -- 1,358 --
California net operating loss carryforward -- 632 --
California research & development credit -- -- 2,040
18
<PAGE>
NOTE 9. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: the development, manufacture and
sale of medical diagnostic ultrasound imaging systems and image management
products. Acuson products are manufactured at the world headquarters in
Mountain View, California, and are sold through a direct sales force in North
America, Europe, Australia and Japan, and through distributors in Europe, Asia,
South America and the Middle East. Sales from domestic operations to
subsidiaries are recorded on the basis of arms-length prices established by the
Company.
A summary of the Company's operations by geographic area for the three years
ended December 31 is as follows:
<TABLE>
<CAPTION>
From From From Other Total From
Domestic European Foreign Foreign
(In thousands) Operations Operations Operations Operations Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated 1996 $256,784 $69,968 $19,403 $89,371 $ -- $346,155
customers
1995 249,231 69,144 10,547 79,691 -- 328,922
1994 279,753 57,928 12,803 70,731 -- 350,484
- -----------------------------------------------------------------------------------------------------------------------------------
Transfers between 1996 $ 62,521 $ -- $ -- $ -- $ (62,521) $ --
geographic areas 1995 43,367 -- -- -- (43,367) --
1994 38,432 -- -- -- (38,432) --
____________________________________________________________________________________________________________________________________
Total sales 1996 $319,305 $69,968 $19,403 $89,371 $ (62,521) $346,155
1995 292,598 69,144 10,547 79,691 (43,367) 328,922
1994 318,185 57,928 12,803 70,731 (38,432) 350,484
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1996 $(17,189) $(3,575) $ 714 $(2,861) $ (1,098) $(21,148)
1995 2,775 2,961 (1,354) 1,607 743 5,125
1994 20,515 1,529 185 1,714 (231) 21,998
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income 1996 $(14,413) $(3,355) $ 845 $(2,510) $ (1,098) $(18,021)
taxes 1995 6,110 3,405 (1,172) 2,233 743 9,086
1994 23,709 1,744 342 2,086 (231) 25,564
- -----------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 1996 $293,193 $59,094 $ 6,338 $65,432 $ (37,924) $320,701
1995 241,963 51,759 8,189 59,948 (6,058) 295,853
1994 257,915 40,467 8,869 49,336 (2,613) 304,638
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOREIGN SALES Shipments to foreign customers from both domestic and foreign
operations for each of the three years ended December 31 were as follows:
European Other Foreign Total Foreign Percent of
(In thousands) Sales Sales Sales Total Sales
- --------------------------------------------------------------------------------
1996 $85,638 $48,556 $134,194 38.8%
1995 86,249 35,359 121,608 37.0
1994 74,205 36,939 111,144 31.7
19
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Acuson Corporation:
We have audited the accompanying consolidated balance sheets of Acuson
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Acuson Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
San Jose, California
January 31, 1997
20
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Acuson's Common Stock, par value $.0001, trades on the New York Stock Exchange
under the symbol ACN. The following table sets forth the high and low closing
sales price on the New York Stock Exchange for 1996 and 1995.
1996 HIGH LOW
- -------------------------------------------------------------------------------
1st Quarter $15.75 $12.25
2nd Quarter 20.50 14.38
3rd Quarter 18.13 12.88
4th Quarter 24.75 16.63
1995 HIGH LOW
- -------------------------------------------------------------------------------
1st Quarter $16.63 $11.38
2nd Quarter 12.38 10.88
3rd Quarter 13.88 11.50
4th Quarter 13.38 10.75
The approximate number of shareholders of record of the Company's Common Stock
as of December 31, 1996 was 1,415. Acuson has not paid any cash dividends since
its inception and does not anticipate paying cash dividends in the foreseeable
future.
21
<PAGE>
ACUSON CORPORATION EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Acuson Corporation has the following wholly-owned subsidiaries:
1. Acuson Pty. Ltd., organized under the laws of Australia.
2. Acuson Belgium SA/NV, organized under the laws of Belgium.
3. Acuson Canada Ltd., organized under the laws of Ontario, Canada.
4. Acuson A/S, organized under the laws of Denmark.
5. Acuson OY, organized under the laws of Finland.
6. Acuson S.A.R.L., organized under the laws of France.
7. Acuson GmbH, organized under the laws of Germany.
8. Acuson Hong Kong Ltd., organized under the laws of Hong Kong.
9. Acuson S.p.A., organized under the laws of Italy.
10. Acuson Nippon K.K., organized under the laws of Japan.
11. Acuson Benelux BV, organized under the laws of the Netherlands.
12. Acuson A/S, organized under the laws of Norway.
13. Acuson Singapore Ltd., organized under the laws of Singapore.
14. Acuson Iberica SA, organized under the laws of Spain.
15. Acuson AB, organized under the laws of Sweden.
16. Acuson Ltd., organized under the laws of the United Kingdom.
17. Acuson Foreign Sales Corporation, organized under the laws of the Virgin
Islands.
18. Acuson International Sales Corporation, organized under the laws of
the State of California.
19. Acuson Worldwide Sales Corporation, organized under the laws of the
State of California.
20. Sound Technology, Inc., organized under the laws of the State of
Pennsylvania.
<PAGE>
ACUSON CORPORATION EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8, File Nos. 33-
29596, 33-43606, 33-59707, 33-61691, 33-59250 and 33-66734.
/s/ Arthur Andersen LLP
San Jose, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,413
<SECURITIES> 0
<RECEIVABLES> 96,615
<ALLOWANCES> 2,968
<INVENTORY> 83,196
<CURRENT-ASSETS> 235,960
<PP&E> 184,402
<DEPRECIATION> 118,518
<TOTAL-ASSETS> 320,701
<CURRENT-LIABILITIES> 125,645
<BONDS> 0
0
0
<COMMON> 102,756
<OTHER-SE> 92,300
<TOTAL-LIABILITY-AND-EQUITY> 320,701
<SALES> 260,975
<TOTAL-REVENUES> 346,155
<CGS> 138,800
<TOTAL-COSTS> 41,510
<OTHER-EXPENSES> 186,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,127)
<INCOME-PRETAX> (18,021)
<INCOME-TAX> (7,408)
<INCOME-CONTINUING> (10,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,613)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
