<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 OCTOBER 3, 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 0-10068
_______
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 27,443,345 shares
------------------------------------ -------------------------------
(Class) Outstanding at November 7, 1998
<PAGE>
________________________________________________________________________________
FORM 10-Q
ACUSON CORPORATION
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of
October 3, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
for the Three Months Ended October 3, 1998 and
September 27, 1997 and for the Nine Months Ended
October 3, 1998 and September 27, 1997 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended October 3, 1998 and
September 27, 1997 5
Notes to Condensed Consolidated
Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 6. Exhibits and Reports on Form 8-K 13
Signature 14
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 3, DECEMBER 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,137 $ 22,735
Accounts receivable, net of allowance for doubtful accounts
of $3,479 in 1998 and $3,475 in 1997 148,709 131,067
Inventories 87,142 75,517
Deferred income taxes 25,668 25,244
Other current assets 14,808 16,771
---------- ----------
Total current assets 289,464 271,334
---------- ----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and
amortization of $148,143 and $136,888 in 1998 and 1997, respectively 77,888 70,631
OTHER ASSETS, NET 24,392 20,863
---------- ----------
Total Assets $ 391,744 $ 362,828
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 65,000 $ 32,000
Accounts payable 26,269 21,975
Other accrued liabilities 91,928 98,754
---------- ----------
Total current liabilities 183,197 152,729
---------- ----------
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, 27,422 shares
and 28,244 shares in 1998 and 1997, respectively 127,673 123,968
Accumulated other comprehensive loss (658) (1,472)
Retained earnings 81,532 87,603
---------- ----------
Total stockholders' equity 208,547 210,099
---------- ----------
Total Liabilities and Stockholders' Equity $ 391,744 $ 362,828
========== ==========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- -----------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Product $ 80,186 $ 79,126 $264,726 $257,945
Service 22,671 20,964 67,202 62,418
-------- -------- -------- --------
Total net sales 102,857 100,090 331,928 320,363
-------- -------- -------- --------
COST OF SALES
Product 43,098 42,118 139,673 138,278
Service 11,578 10,433 35,220 31,946
-------- -------- -------- --------
Total cost of sales 54,676 52,551 174,893 170,224
-------- -------- -------- --------
Gross profit 48,181 47,539 157,035 150,139
-------- -------- -------- --------
OPERATING EXPENSES
Selling, general and administrative 28,393 27,749 92,920 86,512
Product development 13,609 14,544 43,432 42,156
-------- -------- -------- --------
Total operating expenses 42,002 42,293 136,352 128,668
-------- -------- -------- --------
Income from operations 6,179 5,246 20,683 21,471
INTEREST INCOME (EXPENSE), NET (537) 418 (918) 752
-------- -------- -------- --------
Income before income taxes 5,642 5,664 19,765 22,223
PROVISION FOR INCOME TAXES 1,467 1,135 5,704 6,105
-------- -------- -------- --------
Net income $ 4,175 $ 4,529 $ 14,061 $ 16,118
======== ======== ======== ========
EARNINGS PER SHARE
Basic $0.15 $0.16 $0.50 $0.56
======== ======== ======== ========
Diluted $0.15 $0.15 $0.49 $0.53
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
Basic 27,732 28,882 28,014 28,813
======== ======== ======== ========
Diluted 28,333 30,862 28,804 30,721
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,175 $ 4,529 $ 14,061 $ 16,118
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Foreign currency translation adjustments 912 (351) 814 (1,639)
-------- -------- -------- --------
Comprehensive income $ 5,087 $ 4,178 $ 14,875 $ 14,479
======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
- -------------------------------------------------------------------------------
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,061 $ 16,118
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 16,948 16,714
Tax benefit of employee stock transactions 627 6,313
Changes in:
Accounts receivable (16,971) (26,671)
Leases receivable (3,659) (482)
Inventories (11,605) 9,466
Deferred income taxes (761) (62)
Other current assets 2,860 8,623
Accounts payable 4,176 1,522
Other accrued liabilities (4,647) (2,498)
-------- --------
Net cash provided by operating activities 1,029 29,043
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (24,025) (27,315)
Sale of fixed assets 340 5,713
Other (307) 423
-------- --------
Net cash used in investing activities (23,992) (21,179)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of short-term borrowings (11,000) (11,000)
Proceeds from short-term borrowings 44,000 5,000
Repurchase of common stock (30,085) (21,121)
Issuance of common stock under stock option and
stock purchase plans 10,259 19,979
-------- --------
Net cash provided by (used in) financing activities 13,174 (7,142)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 191 (320)
-------- --------
Net increase (decrease) in cash (9,598) 402
CASH, BEGINNING OF PERIOD 22,735 14,413
-------- --------
CASH, END OF PERIOD $ 13,137 $ 14,815
======== ========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<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 October 3, 1998,
and its condensed consolidated results of operations and cash flows for the
nine-month periods ended October 3, 1998 and September 27, 1997. The results of
operations for the three and nine-month periods ended October 3, 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
Accumulated
Other
Comprehensive
Loss
(in thousands)
---------------------
Nine months ended October 3, 1998
Beginning balance $(1,472)
Current-period change
Foreign currency items 814
-------
Ending balance $ (658)
=======
The following is a summary of the related tax effect allocated to each
component of other comprehensive income (loss)
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
(in thousands) (in thousands) (in thousands)
-----------------------------------------------------------
<S> <C> <C> <C>
Three months ended September 27, 1997
Foreign currency translation adjustments $ (439) $ 88 $ (351)
================= ================= =================
Nine months ended September 27, 1997
Foreign currency translation adjustments $(2,261) $622 $(1,639)
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Three months ended October 3, 1998
Foreign currency translation adjustments $1,232 $(320) $912
================= ================= =================
Nine months ended October 3, 1998
Foreign currency translation adjustments $1,145 $(331) $814
================= ================= =================
</TABLE>
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 three and nine-month periods ended September 27, 1997 and October
3, 1998:
<TABLE>
<CAPTION>
Dilutive
Effect of Options
Basic Outstanding Diluted
(in thousands, except per share amounts)
---------------------------------------------------------
<S> <C> <C> <C>
Three months ended September 27, 1997
Net income (numerator) $ 4,529 $ 4,529
Weighted average number of
shares outstanding (denominator) 28,882 1,980 30,862
Earnings per share $ 0.16 $ 0.15
======= =======
Nine months ended September 27, 1997
Net income (numerator) $16,118 $16,118
Weighted average number of
shares outstanding (denominator) 28,813 1,908 30,721
Earnings per share $ 0.56 $ 0.53
======= =======
Three months ended October 3, 1998
Net income (numerator) $ 4,175 $ 4,175
Weighted average number of
shares outstanding (denominator) 27,732 601 28,333
Earnings per share $ 0.15 $ 0.15
======= =======
Nine months ended October 3, 1998
Net income (numerator) $14,061 $14,061
Weighted average number of
shares outstanding (denominator) 28,014 790 28,804
Earnings per share $ 0.50 $ 0.49
======= =======
</TABLE>
For the three and nine-month periods ended October 3, 1998 approximately
2,119,000 and 1,032,000 weighted average options to purchase shares of common
stock, respectively, were antidilutive and were therefore not included in the
computation of diluted earnings per share because the exercise prices were
greater than the average market price of the common shares. Approximately
83,000 and 68,000 antidilutive weighted average options were outstanding during
the three and nine-month periods ended September 27, 1997, respectively.
<PAGE>
NOTE 4 - INVENTORIES
The components of inventories were as follows (in thousands):
OCTOBER 3, DECEMBER 31,
1998 1997
---------- ------------
Raw materials $25,994 $29,057
Work-in-process 19,803 16,379
Finished goods 41,345 30,081
------- -------
Total inventories $87,142 $75,517
======= =======
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 October 3, 1998, the weighted average
borrowings were $50.9 million and the weighted average interest rate was 6.4
percent. For the nine months ended October 3, 1998, the weighted average
borrowings were $41.5 million and the weighted average interest rate was 6.5
percent. On October 3, 1998, borrowings under this facility, which are subject
to certain debt covenants, totaled $65.0 million and the effective rate was 6.4
percent. On October 5, 1998, this agreement was amended, increasing the line of
credit to $100.0 million.
Subsequent to October 3, 1998, the Company entered into an uncommitted line
of credit agreement for up to 90 day advances not to exceed an aggregate total
of $10.0 million. The Company has borrowed $4.5 million against this
uncommitted line of credit.
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. This suit is still in the fact finding stage.
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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for all fiscal years beginning after June 15, 1999. The Company
anticipates the adoption of SFAS 133 will not have a material effect on the
Company's financial statements.
<PAGE>
_______________________________________________________________________________
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended October 3, 1998, were $102.9 million compared
with $100.1 million for the quarter ended September 27, 1997. For the nine
months ended October 3, 1998, net sales were $331.9 million compared with $320.4
million for the first nine months of 1997. Worldwide service revenue increased
8.1 percent to $22.7 million for the third quarter of 1998, compared with $21.0
million for the third quarter of 1997. Worldwide service revenue for the nine
months ended October 3, 1998, increased 7.7 percent to $67.2 million. Domestic
net sales for the quarter ended October 3, 1998 increased 10.3 percent to $72.9
million while international net sales decreased 11.8 percent to $29.9 million.
Domestic net sales for the first nine months of 1998 increased 10.6 percent to
$234.0 million while international net sales decreased 10.0 percent to $97.9
million. International revenues were negatively impacted by the continued
economic weakness in Asia and recent weakening in Latin American markets. The
Company has also recently seen increased economic instability in Russia. The
Company expects selected international markets to remain challenging through the
fourth quarter of 1998 and into 1999.
Gross profit for the third quarter of 1998 decreased to 46.8 percent of net
sales compared with 47.5 percent for the third quarter of 1997. The decrease
was primarily due to lower average realized prices per unit and lower than
expected shipments partially offset by the Company's cost reduction efforts and
improved service margins. For the nine months ended October 3, 1998, gross
profit increased to 47.3 percent of net sales compared with 46.9 percent for the
same period in 1997. The increase was primarily due to reduced warranty costs
on new product installations partially offset by lower average realized prices
per unit.
Selling, general and administrative expenses for the quarter ended October 3,
1998, were $28.4 million or 27.6 percent of net sales, compared with $27.7
million or 27.7 percent of net sales for the quarter ended September 27, 1997.
For the nine months ended October 3, 1998, selling, general and administrative
expenses were $92.9 million or 28.0 percent of net sales, compared with $86.5
million or 27.0 percent of net sales for the same period in 1997. The increases
were primarily due to higher selling expenses resulting from planned additions
to the Company's sales infrastructure partially offset by the Company's cost
reduction efforts for the third quarter of 1998.
Product development spending for the third quarter of 1998 was $13.6 million
or 13.2 percent of net sales, compared with $14.5 million or 14.5 percent of net
sales for the third quarter of 1997. The decrease was primarily due to reduced
prototype expenditures and the Company's cost reduction efforts. For the nine
months ended October 3, 1998, product development costs were $43.4 million or
13.1 percent of net sales, compared with $42.2 million or 13.2 percent of net
sales for the same period in 1997. The increase was primarily due to increased
contracted services early in the year in support of new product development
partially offset by a reduction in prototype expenses.
Net interest expense for the three months ended October 3, 1998 was $0.5
million compared with net interest income of $0.4 million for the three months
ended September 27, 1997. For the nine months ended October 3, 1998, net
interest expense was $0.9 million compared with net interest income of $0.8
million for the same period in 1997. The increases in net interest expenses
were primarily due to increases in the Company's short-term borrowings.
The effective tax rate for the third quarter of 1998 was 26.0 percent
resulting in a provision of $1.5 million, compared with an effective rate of
20.0 percent and a provision of $1.1 million for the third quarter of 1997. The
rate increase was primarily due to a change in the Company's domestic and
international sales mix. For the nine months ended October 3, 1998, the
effective tax rate was 28.9 percent resulting in a provision of $5.7 million.
For the nine months ended September 27, 1997, the effective rate and provision
were 27.5 percent and $6.1 million, respectively.
<PAGE>
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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for all fiscal years beginning after June 15, 1999. The Company
anticipates the adoption of SFAS 133 will not have a material effect on the
Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended October 3, 1998, the Company's cash and cash
equivalents balance decreased $9.6 million to $13.1 million and short-term
borrowings increased $33.0 million to $65.0 million. During the first nine
months of 1998 the Company generated $1.0 million in cash from operations. The
primary source of cash from operations was net income of $14.1 million. The
primary uses of cash were accounts receivable and inventory which used $17.0
million and $11.6 million in cash, respectively. The increase in accounts
receivable was substantially due to a higher percentage of units shipped during
the last month of the quarter which were delayed primarily as a result of the
August 1998 implementation of the Company's new enterprise-wide, integrated
business information system. The increase in inventory was primarily the result
of both a manufacturing build up in anticipation of fourth quarter 1998
shipments and fewer than expected third quarter 1998 shipments.
The Company's investing and financing activities for the nine months ended
October 3, 1998, used $10.8 million in cash. The Company purchased $24.0
million of equipment during the year, primarily consisting of computer
equipment. Included in the financing activities for the first nine months of
1998, were $10.3 million raised through employee participation in the Company's
stock option and stock purchase plans and $30.1 million, including $2.7 million
accrued in 1997, used for share repurchases. Also included in the financing
activities for the first nine months of 1998 were net short-term borrowings of
$33.0 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
third quarter of 1998, the Company repurchased 812,700 shares at a total cost of
$12.9 million. As of October 3, 1998, the Company had repurchased 2,827,400
shares toward the 4,000,000 share repurchase authorization at a cumulative cost
of $52.5 million.
Working capital at October 3, 1998 decreased $12.3 million from the year
ended December 31, 1997. At October 3, 1998, the Company's working capital
totaled $106.3 million.
The Company has a revolving, unsecured credit agreement for $75.0 million
which is in effect through March 2000. Under the terms of the agreement, no
compensating balances are required and the interest rate is determined at the
time of borrowing based on the London interbank offered rate plus a margin, or
prime rate. For the quarter ended October 3, 1998, the weighted average
borrowings were $50.9 million and the weighted average interest rate was 6.4
percent. For the nine months ended October 3, 1998, the weighted average
borrowings were $41.5 million and the weighted average interest rate was 6.5
percent. On October 3, 1998, borrowings under this facility, which are subject
to certain debt covenants, totaled $65.0 million and the effective rate was 6.4
percent. On October 5, 1998, this agreement was amended, increasing the line of
credit to $100.0 million.
Subsequent to October 3, 1998, the Company entered into an uncommitted line
of credit agreement for up to 90 day advances not to exceed an aggregate total
of $10.0 million. The Company has borrowed $4.5 million against this
uncommitted line of credit.
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 projected
operating and capital requirements for fiscal 1998.
<PAGE>
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
the introduction of 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 and
instability in certain markets in Asia, Latin America and Europe and
fluctuations in exchange rates for 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 Italy and Brazil the amount of
receivables each exceeds $11,000,000. In France the amount of receivables
exceeds $8,000,000. In Germany and Japan the amount of receivables each exceeds
$4,000,000 and in Australia and China the amount of receivables each exceeds
$3,000,000. Political instability or other issues may impact the ability of the
Company to collect receivables in foreign countries.
During 1997, the Company initiated a two phase project to replace its
outdated computing environment with an enterprise-wide, integrated business
information system to control many of its operating systems including order
administration, service and financial and manufacturing processes. The first
phase of this project has been substantially completed and the second phase is
currently scheduled to be completed during the latter half of 1999. 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.
YEAR 2000
The Company is taking steps to ensure its products and services will continue
to operate on and after January 1, 2000. In addition to the new business
information system noted above, which is year 2000 compliant and will be
replacing a significant portion of the Company's critical systems, the Company
is currently engaged in a three-phase project to evaluate and remedy those
systems not being replaced. The first phase, completed in May 1998, included a
comprehensive inventory of the Company's systems by an experienced consulting
firm and an analysis and determination of the criticality of each system. This
phase included the evaluation of both information technology ("IT") and non-IT
systems. Non-IT systems include systems or hardware containing embedded
technology such as microcontrollers. Phase two will focus on confirming the
year 2000 compliance of those systems identified in phase one and is expected to
be completed during the fourth quarter of 1998. The third and final phase,
which is expected to be completed during the third quarter of 1999, will involve
taking any needed corrective action to bring all remaining critical systems and
components into compliance and to develop a contingency plan in the event any
non-compliant critical systems are not remedied by January 1, 2000. The Company
fully expects the project to be successfully completed well before the
millennium and has created a year 2000 steering committee, comprised of senior
executives, to monitor the progress of the project. However, if by January 1,
2000, systems material to the Company's operations have not been made year 2000
compliant, the year 2000 issue could have a material impact on the Company's
financial statements. To date, the costs incurred by the Company with respect
to this project have not been material. Future anticipated costs will be
difficult to estimate until after the completion of phase two, however with the
implementation of the Company's new business information system, the Company
does not anticipate those costs to be material.
The Company's products being shipped today are year 2000 compliant and the
Company believes its products previously shipped are either year 2000 compliant
or can be made year 2000 compliant by customer purchase of an upgrade.
<PAGE>
The Company has also been communicating with suppliers and others it does
business with to coordinate year 2000 readiness. The responses received by the
Company to date have indicated that steps are currently being undertaken to
address this concern.
Based upon the steps being taken to address this issue and the progress to
date, the Company does not expect the financial impact of the year 2000 date
conversion to be material to its financial position or results of operations.
However, if preventative and/or corrective actions by the Company or those the
Company does business with are not made in a timely manner, the year 2000 issue
could have a material adverse effect on the Company's financial statements.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to adopt the Euro as their common legal currency. Following
the introduction of the Euro, the local currencies are scheduled to remain legal
tender in the participating countries until January 1, 2002. During this
transition period goods and services may be paid for in either Euros or the
participating country's local currency. Thereafter, only the Euro will be legal
tender in the participating countries. The Euro conversion is expected to
stimulate cross-border competition by creating cross-border price transparency.
The Company believes its current accounting systems are capable of accommodating
the Euro conversion with minimal intervention and that the conversion will not
have a material impact on the competitiveness of its products in Europe. The
Company also believes any costs of addressing the Euro conversion will not have
a material impact on the Company's financial statements.
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.
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
PART II
ITEM 1
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, plus interest. The Company intends to
defend this suit vigorously. This suit is still in the fact finding stage.
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 October
3, 1998.
________________________________________________________________________________
<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)
November 16, 1998 By /s/ Robert J. Gallagher
--------------------------------
Robert J. Gallagher
Vice Chairman and Chief Operating Officer
(duly authorized Officer and Principal
Financial Officer)
<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
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-03-1998
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