<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended APRIL 4, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____________ to
___________
Commission file number 0-14953
ACUSON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2784998
--------------- ------------------
(State of Incorporation) (IRS Employer Identification No.)
1220 CHARLESTON ROAD
P. O. BOX 7393
MOUNTAIN VIEW, CA 94039-7393
(Address of principal executive offices)
Registrant's telephone number, including area code, is (650) 969-9112
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.0001 par value 28,097,583 shares
-------------------------------- -----------------------------
(Class) Outstanding at May 9, 1998
<PAGE>
________________________________________________________________________________
FORM 10-Q
ACUSON CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of
April 4, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Operations
for the Three Months Ended April 4, 1998 and
March 29, 1997 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended April 4, 1998 and
March 29, 1997 3
Notes to Condensed Consolidated
Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 6. Exhibits and Reports on Form 8-K 10
Signature 11
</TABLE>
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
APRIL 4, DECEMBER 31,
1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,538 $ 22,735
Accounts receivable, net of allowance for doubtful accounts
of $3,471 in 1998 and $3,475 in 1997 129,822 131,067
Inventories 79,082 75,517
Deferred income taxes 25,987 25,244
Other current assets 15,899 16,771
-------- --------
Total current assets 270,328 271,334
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
and amortization of $140,562 and $136,888 in 1998 and 1997,
respectively 71,981 70,631
OTHER ASSETS, NET 22,992 20,863
-------- --------
Total Assets $365,301 $362,828
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 42,000 $ 32,000
Accounts payable 23,633 21,975
Other accrued liabilities 88,253 98,754
-------- --------
Total current liabilities 153,886 152,729
-------- --------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.0001:
authorized, 10,000 shares; outstanding, none -- --
Common stock and additional paid-in capital, common stock par value
$0.0001: authorized, 50,000 shares; outstanding, 28,101 shares
and 28,244 shares in 1998 and 1997, respectively 127,053 123,968
Accumulated other comprehensive loss (1,685) (1,472)
Retained earnings 86,047 87,603
-------- --------
Total stockholders' equity 211,415 210,099
-------- --------
Total Liabilities and Stockholders' Equity $365,301 $362,828
======== ========
</TABLE>
________________________________________________________________________________
The accompanying notes are an integral part of these statements.
1
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
APRIL 4, MARCH 29,
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES
Product $ 93,579 $ 87,503
Service 22,199 20,078
-------- --------
Total net sales 115,778 107,581
-------- --------
COST OF SALES
Product 48,451 46,753
Service 12,013 10,067
-------- --------
Total cost of sales 60,464 56,820
-------- --------
Gross profit 55,314 50,761
-------- --------
OPERATING EXPENSES
Selling, general and administrative 32,030 28,961
Product development 14,890 13,224
-------- --------
Total operating expenses 46,920 42,185
-------- --------
Income from operations 8,394 8,576
INTEREST INCOME (EXPENSE), NET (184) 84
-------- --------
Income before income taxes 8,210 8,660
PROVISION FOR INCOME TAXES 2,463 2,815
-------- --------
Net income $ 5,747 $ 5,845
======== ========
EARNINGS PER SHARE
Basic $ 0.20 $ 0.20
======== ========
Diluted $ 0.20 $ 0.19
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 28,274 28,636
======== ========
Diluted 29,131 30,668
======== ========
- ------------------------------------------------------------------------------------------------------------
NET INCOME 5,747 5,845
OTHER COMPREHENSIVE LOSS, NET OF TAX
Foreign currency translation adjustments (213) (1,071)
-------- --------
Comprehensive income $ 5,534 $ 4,774
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
- --------------------------------------------------------------------------------
2
<PAGE>
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
APRIL 4, MARCH 29,
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,747 $ 5,845
Adjustments to reconcile net income
to cash provided by (used in) operating activities:
Depreciation and amortization 5,636 6,026
Tax benefit of employee stock transactions 312 2,976
Changes in:
Accounts receivable 1,288 (18,091)
Inventories (3,527) 5,190
Deferred income taxes (626) 968
Other current assets (257) 861
Leases receivable (2,095) (237)
Accounts payable 1,695 455
Other accrued liabilities (7,233) (2,193)
-------- --------
Net cash provided by operating activities 940 1,800
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (7,800) (3,886)
Sale of fixed assets 602 1,868
Decrease in other assets 512 198
-------- --------
Net cash used in investing activities (6,686) (1,820)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 19,000 5,000
Repayment of short-term borrowings (9,000) --
Repurchase of common stock (12,330) (7,807)
Issuance of common stock under stock option and
stock purchase plans 5,026 10,665
-------- --------
Net cash provided by financing activities 2,696 7,858
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (147) (264)
-------- --------
Net increase (decrease) in cash and cash equivalents (3,197) 7,574
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 22,735 14,413
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,538 $ 21,987
======== ========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - INTERIM STATEMENTS
In the opinion of management, the unaudited interim condensed consolidated
financial statements include all adjustments, which include only normal
recurring adjustments, necessary to summarize fairly Acuson Corporation's (the
"Company's") condensed consolidated financial position as of April 4, 1998 and
its condensed consolidated results of operations and cash flows for the three-
month periods ended April 4, 1998 and March 29, 1997. The results of operations
for the three months ended April 4, 1998 are not necessarily indicative of the
results to be expected for the entire year ending December 31, 1998. Certain
information reported in the prior year has been reclassified to conform to the
1998 presentation.
The Company's principle accounting policies are set forth in the financial
statements for the year ended December 31, 1997 and notes thereto, contained in
the Company's Annual Report filed with the Securities and Exchange Commission.
NOTE 2. COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 requires that items defined as other comprehensive income, such as
changes in foreign currency translation adjustments, be separately reported in
the financial statements and that the accumulated balance of other comprehensive
income be reported separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The following tables
present the components, and related tax effect, of accumulated other
comprehensive income:
The following is a summary of the accumulated other comprehensive loss
balance
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Foreign Other
Currency Comprehensive
Items Loss
-----------------------------------------
<S> <C> <C>
Quarter Ended April 4, 1998
Beginning balance $(1,472) $(1,472)
Current-period change (213) (213)
------- -------
Ending balance $(1,685) $(1,685)
======= =======
</TABLE>
The following is a summary of the related tax effect allocated to each
component of other comprehensive loss (In thousands)
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
-----------------------------------------------------------
<S> <C> <C> <C>
Quarter ended March 29, 1997
Foreign currency translation adjustments $(1,587) $516 $(1,071)
------- ---- -------
Other comprehensive loss $(1,587) $516 $(1,071)
======= ==== =======
Quarter ended April 4, 1998
Foreign currency translation adjustments $ (304) $ 91 $ (213)
Other comprehensive loss $ (304) $ 91 $ (213)
======= ==== =======
</TABLE>
4
<PAGE>
NOTE 3. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share reflects the potential dilution that could occur if the
Company's outstanding, "in the money," stock options were exercised. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares are calculated using the treasury stock method and
represent incremental shares issuable upon the exercise of the Company's
outstanding options. The following table provides reconciliations of the
numerators and denominators used in calculating basic and diluted earnings per
share for the quarters ended March 29, 1997 and April 4, 1998:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Dilutive
Effect of Options
Basic Outstanding Diluted
---------------------------------------------------------
<S> <C> <C> <C>
Quarter Ended March 29, 1997
Net income (numerator) $ 5,845 $ 5,845
Weighted average number of
shares outstanding (denominator) 28,636 2,032 30,668
Earnings per share $ 0.20 $ 0.19
================ ===============
Quarter Ended April 4, 1998
Net income (numerator) $ 5,747 $ 5,747
Weighted average number of
shares outstanding (denominator) 28,274 857 29,131
Earnings per share $ 0.20 $ 0.20
================ ===============
</TABLE>
At April 4, 1998 approximately 700,000 weighted average options to
purchase shares of common stock were antidilutive and were therefore not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares.
Approximately 30,000 antidilutive weighted average options were outstanding
at March 29, 1997.
NOTE 4 - INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
APRIL 4, DECEMBER 31,
1998 1997
----------------------------------------
<S> <C> <C>
Raw materials $27,074 $29,057
Work-in-process 16,919 16,379
Finished goods 35,089 30,081
------- -------
Total inventories $79,082 $75,517
======= =======
</TABLE>
NOTE 5 - SHORT-TERM BORROWINGS
The Company has a revolving, unsecured credit agreement for $75.0 million
which is in effect through March 2000. Under the terms of the agreement, no
compensating balances are required and the interest rate is determined at the
time of borrowing based on the London interbank offered rate plus a margin, or
prime rate. For the quarter ended April 4, 1998, the weighted average
borrowings were $33.8 million and the weighted average
5
<PAGE>
interest rate was 6.8%. On April 4, 1998, borrowings under this facility, which
are subject to certain debt covenants, totaled $42.0 million and the effective
rate was 6.5%.
NOTE 6 - 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, plus interest. The Company intends to
defend this suit vigorously.
NOTE 7 - DISCLOSURE OF THE IMPACT THAT RECENTLY ISSUED FINANCIAL STANDARDS WILL
HAVE ON THE FINANCIAL STATEMENTS WHEN ADOPTED IN A FUTURE PERIOD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments
of an Enterprise and Related Information." This statement is effective for
fiscal years beginning after December 15, 1997 but need not be applied to
interim financial statements in the initial year of application; however,
comparative information for interim periods in the initial year of application
will be reported in the financial statements for interim periods in fiscal year
1999. The adoption of SFAS 131 will not have a material effect on the Company's
financial statements.
________________________________________________________________________________
6
<PAGE>
________________________________________________________________________________
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Net sales increased 7.6 percent to $115.8 million for the quarter ended April
4, 1998, compared with $107.6 million for the quarter ended March 29, 1997. The
increase was primarily due to increased shipments of the Sequoia(R) ultrasound
systems and the Aspen(TM) ultrasound system. Worldwide service revenue increased
10.6 percent to $22.2 million for the first quarter of 1998, compared with $20.1
million for the first quarter of 1997. Domestic net sales for the first quarter
of 1998 increased 12.4 percent over the first quarter of 1997 to $79.2 million
while international net sales decreased 1.5 percent from the first quarter of
1997 to $36.6 million. International revenues were negatively impacted by
weakness in certain markets in Asia and Europe and by the current strength of
the U.S. dollar. The Company expects these trends to continue at least through
the second quarter of 1998.
Gross profit increased slightly for the first quarter of 1998 to 47.8
percent, compared with 47.2 percent for the first quarter of 1997. The increase
was primarily due to a shift to relatively higher margin products, partially
offset by lower service margins.
Selling, general and administrative expenses for the quarter ended April 4,
1998 were $32.0 million, compared with $29.0 million for the quarter ended March
29,1997. As a percentage of net sales, these expenses increased slightly to
27.7 percent for the first quarter of 1998, compared with 26.9 percent for the
first quarter of 1997. The increase was primarily due to higher selling
expenses resulting from planned additions to the Company's sales infrastructure.
Product development spending was $14.9 million for the quarter ended April 4,
1998, compared with $13.2 million for the quarter ended March 29, 1997. As a
percentage of net sales, product development spending increased slightly to 12.9
percent, compared with 12.3 percent for the first quarter of 1997. The increase
was primarily due to an increase in contracted services in support of new
product development.
The provision for income taxes was $2.5 million for the quarter ended April
4, 1998, compared with a provision of $2.8 million for the quarter ended March
29, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS 130 did not have a material effect on the results of
operations or financial position of the Company. See Note 2 to the condensed
consolidated financial statements for further discussion.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments
of an Enterprise and Related Information." This statement is effective for
fiscal years beginning after December 15, 1997 but need not be applied to
interim financial statements in the initial year of application; however,
comparative information for interim periods in the initial year of application
will be reported in the financial statements for interim periods in fiscal year
1999. The adoption of SFAS 131 will not have a material effect on the Company's
financial statements.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance decreased $3.2 million during
the three months ended April 4, 1998, to $19.5 million. The Company's short-
term borrowings increased $10.0 million during the first quarter of 1998 to
$42.0 million. During the first quarters of 1998 and 1997, the Company
generated $0.9 million and $1.8 million in cash from operations, respectively.
The primary source of cash from operations was net income of $5.7 million and
the primary use of cash was a $7.2 million decrease in other accrued
liabilities. The decrease in other accrued liabilities was primarily due to
payments of previously accrued compensation.
The Company's investing and financing activities for the three months ended
April 4, 1998, used $4.0 million in cash. The Company purchased $7.8 million of
equipment during the quarter, primarily consisting of computer equipment.
Included in the financing activities for the first quarter of 1998, was $5.0
million raised through employee participation in the Company's stock option and
stock purchase plans. The Company used $12.3 million, including $2.7 million
accrued in 1997, for share repurchases. During the first quarter of 1997,
employee participation in the Company's stock plans generated $10.7 million
while the repurchases of common stock used $7.8 million. Also included in the
financing activities for the first quarter of 1998 were net short-term
borrowings of $10.0 million. During the first quarter of 1997, the Company
received net short-term borrowings of $5.0 million.
On October 15, 1996, the Board of Directors authorized the repurchase of
4,000,000 shares of common stock over an unspecified period of time. During the
first quarter of 1998, the Company repurchased 500,000 shares at a total cost of
$9.6 million. As of April 4, 1998, the Company had repurchased 1,762,800 shares
toward the 4,000,000 share repurchase authorization at a cumulative cost of
$34.8 million.
Working capital at April 4, 1998 decreased $2.2 million from the
corresponding prior-year period. On April 4, 1998, the Company's working
capital totaled $116.4 million.
The Company has a revolving, unsecured credit agreement for $75.0 million
which is in effect through March 2000. Under the terms of the agreement, no
compensating balances are required and the interest rate is determined at the
time of borrowing based on the London interbank offered rate plus a margin, or
prime rate. For the quarter ended April 4, 1998, the weighted average
borrowings were $33.8 million and the weighted average interest rate was 6.8%.
On April 4, 1998, borrowings under this facility, which are subject to certain
debt covenants, totaled $42.0 million and the effective rate was 6.5%.
Based on its current operating plan, the Company believes that the liquidity
provided by its existing cash, cash generated from operations, and the borrowing
arrangement described above will be sufficient to meet the Company's operating
and capital requirements for the next twelve months.
INVESTMENT RISKS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations section in this report contains forward-looking statements
regarding the Company and its products. These forward-looking statements are
based on current expectations and the Company assumes no obligation to update
this information. The Company's actual results could differ materially from
those discussed in this document. In evaluating the forward-looking statements
contained in this document, prospective investors and shareholders should
carefully consider the factors set forth below.
The success of Acuson's products depends on the timely completion of
additional product capabilities and software updates; actual and perceived
levels of product performance in a clinical environment compared to other
imaging modalities and competitive ultrasound systems; continued market
acceptance of the products and their pricing; and competitor responses including
recently introduced competitive products, pricing, intellectual property
allegations and product positioning counter-strategies. The Company's business
is also subject to risks from potential negative impacts of weakness in certain
markets in Asia and Europe and by the current strength of the U.S. dollar. As
the Company's international business has grown, the Company has an increasing
percentage of its receivables in other countries. In both Italy and Brazil the
amount of receivables exceeds $11,000,000. In France the
8
<PAGE>
amount of receivables exceeds $5,000,000 and in China the amount of receivables
exceeds $4,000,000. Political instability or other issues may impact the ability
of the Company to collect receivables in foreign countries.
The Company uses a centralized computing environment to control its order
administration, financial and manufacturing processes. During 1997, the Company
decided to replace its existing computing environment with an enterprise-wide
business information system in two phases. A portion of the first phase of this
project is currently scheduled to become operational during the third quarter of
1998. The new system will control many of the significant aspects of the
Company's operations and the Company has retained an experienced consulting
organization to assist in the conversion. However, the Company's future
shipments and results could be adversely impacted if, following the conversion,
there are significant problems with the system. When this new system is fully
operational, the Company believes its computer systems will be year 2000
compliant.
For a description of the general investment considerations and risks
surrounding Acuson's overall business and financial prospects, refer to the
Company's Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1997.
Acuson and Sequoia are registered trademarks and Aspen is a trademark of Acuson
Corporation.
________________________________________________________________________________
9
<PAGE>
________________________________________________________________________________
PART II
ITEM 1
LEGAL PROCEEDINGS
The current status is the same as previously reported in the Company's
Form 10-K for the fiscal year ended December 31, 1997.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
27.1 Financial Data Schedule
b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter ended
April 4, 1998.
________________________________________________________________________________
10
<PAGE>
________________________________________________________________________________
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACUSON CORPORATION
(Registrant)
May 15, 1998 By /s/ Robert J. Gallagher
-------------------------------------
Robert J. Gallagher
Vice Chairman and Chief Operating Officer
(duly authorized Officer and Principal
Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-04-1998
<CASH> 19,538
<SECURITIES> 0
<RECEIVABLES> 133,293
<ALLOWANCES> 3,471
<INVENTORY> 79,082
<CURRENT-ASSETS> 270,328
<PP&E> 212,543
<DEPRECIATION> 140,562
<TOTAL-ASSETS> 365,301
<CURRENT-LIABILITIES> 153,886
<BONDS> 0
0
0
<COMMON> 127,053
<OTHER-SE> 84,362
<TOTAL-LIABILITY-AND-EQUITY> 365,301
<SALES> 93,579
<TOTAL-REVENUES> 115,778
<CGS> 48,451
<TOTAL-COSTS> 60,464
<OTHER-EXPENSES> 46,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 8,210
<INCOME-TAX> 2,463
<INCOME-CONTINUING> 5,747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,747
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
