<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 3, 1999 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 1-10068
-------
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 26,788,993 shares
------------------------------- --------------------------
(Class) Outstanding at May 8, 1999
<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 3, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Operations
and Comprehensive Income for the Three Months
Ended April 3, 1999 and April 4, 1998 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended April 3, 1999 and
April 4, 1998 3
Notes to Condensed Consolidated
Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
April 3, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 13,402 $ 11,914
Accounts receivable, net of allowance for doubtful accounts
of $3,542 in 1999 and $3,561 in 1998 150,263 153,672
Inventories 88,568 82,794
Deferred income taxes 21,854 21,441
Other current assets 22,768 19,059
-------- --------
Total current assets 296,855 288,880
Property and Equipment, at cost, net of accumulated depreciation and
amortization of $155,332 and $150,984 in 1999 and 1998, respectively 76,824 79,009
Other assets, net 27,727 27,183
-------- --------
Total Assets $401,406 $395,072
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Short-term borrowings $ 75,000 $ 65,000
Accounts payable 28,778 26,629
Other accrued liabilities 87,459 97,855
-------- --------
Total current liabilities 191,237 189,484
-------- --------
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, 26,774 shares -- --
and 26,746 shares in 1999 and 1998, respectively 127,261 125,015
Accumulated other comprehensive loss (1,711) (1,099)
Retained earnings 84,619 81,672
-------- --------
Total stockholders' equity 210,169 205,588
-------- --------
Total Liabilities and Stockholders' Equity $401,406 $395,072
======== ========
</TABLE>
________________________________________________________________________________
The accompanying notes are an integral part of these statements.
1
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
April 3, April 4,
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales
Product $ 96,627 $ 93,579
Service 22,340 22,199
-------- --------
Total net sales 118,967 115,778
-------- --------
Cost of sales
Product 52,608 48,451
Service 11,349 12,013
-------- --------
Total cost of sales 63,957 60,464
-------- --------
Gross profit 55,010 55,314
-------- --------
Operating expenses
Selling, general and administrative 31,697 32,030
Product development 14,678 14,890
-------- --------
Total operating expenses 46,375 46,920
-------- --------
Income from operations 8,635 8,394
Interest expense (1,214) (574)
Interest income 189 390
-------- --------
Income before income taxes 7,610 8,210
Provision for income taxes 2,093 2,463
-------- --------
Net income $ 5,517 $ 5,747
======== ========
Earnings per share
Basic $ 0.21 $ 0.20
======== ========
Diluted $ 0.20 $ 0.20
======== ========
Weighted average common shares outstanding
Basic 26,760 28,274
======== ========
Diluted 27,160 29,131
======== ========
- ------------------------------------------------------------------------------------------------------------
Net income $ 5,517 $ 5,747
Other comprehensive loss, net of tax
Foreign currency translation adjustments (612) (213)
-------- --------
Comprehensive income $ 4,905 $ 5,534
======== ========
</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 3, April 4,
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,517 $ 5,747
Adjustments to reconcile net income
to cash provided by (used in) operating activities:
Depreciation and amortization 6,556 5,636
Tax benefit of employee stock transactions (6) 312
Changes in:
Accounts receivable 2,872 1,288
Inventories (5,739) (3,527)
Deferred income taxes (384) (626)
Other current assets (2,522) (257)
Leases receivable (2,780) (2,095)
Accounts payable 2,323 1,695
Other accrued liabilities (8,737) (7,233)
-------- --------
Net cash provided by (used in) operating activities (2,900) 940
-------- --------
Cash flows from investing activities
Investment in property and equipment (5,470) (7,800)
Sale of fixed assets 493 602
Decrease in other assets (37) 512
-------- --------
Net cash used in investing activities (5,014) (6,686)
-------- --------
Cash flows from financing activities
Proceeds from short-term borrowings 32,000 19,000
Repayment of short-term borrowings (22,000) (9,000)
Repurchase of common stock (3,758) (12,330)
Issuance of common stock under stock option and
stock purchase plans 3,439 5,026
-------- --------
Net cash provided by financing activities 9,681 2,696
-------- --------
Effect of exchange rate changes on cash (279) (147)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,488 (3,197)
Cash and cash equivalents, beginning of period 11,914 22,735
-------- --------
Cash and cash equivalents, end of period $ 13,402 $ 19,538
======== ========
</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 3, 1999 and
its condensed consolidated results of operations and cash flows for the three-
month periods ended April 3, 1999 and April 4, 1998. The results of operations
for the three months ended April 3, 1999 are not necessarily indicative of the
results to be expected for the entire year ending December 31, 1999. Certain
information reported in the prior year has been reclassified to conform to the
1999 presentation.
The Company's principle accounting policies are set forth in the financial
statements for the year ended December 31, 1998, and notes thereto, contained in
the Company's Annual Report filed with the Securities and Exchange Commission.
Note 2. Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," 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 is a summary, in thousands, of the accumulated other comprehensive
loss balance:
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Loss
----------------------
<S> <C>
Three months ended April 3, 1999
Beginning balance $(1,099)
Current-period change (612)
-------
Ending balance $(1,711)
=======
</TABLE>
The following is a summary, in thousands, 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
---------------------------------------------------------
<S> <C> <C> <C>
Three months ended April 4, 1998
Foreign currency translation adjustments $(304) $ 91 $(213)
===== ==== =====
Three months ended April 3, 1999
Foreign currency translation adjustments $(844) $232 $(612)
===== ==== =====
</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
4
<PAGE>
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 April
4, 1998 and April 3, 1999:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Dilutive
Effect of Options
Basic Outstanding Diluted
-------------------------------------------------------
<S> <C> <C> <C>
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
=================== ===================
Quarter Ended April 3, 1999
Net income (numerator) $ 5,517 $ 5,517
Weighted average number of
Shares outstanding (denominator) 26,760 400 27,160
Earnings per share $ 0.21 $ 0.20
=================== ===================
</TABLE>
At April 3, 1999 approximately 2,400,000 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
700,000 antidilutive weighted average options were outstanding at April 4, 1998.
Note 4 - Inventories
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
April 3, December 31,
1999 1998
----------------------------------------
<S> <C> <C>
Raw materials $27,783 $25,052
Work-in-process 20,643 21,656
Finished goods 40,142 36,086
------- -------
Total inventories $88,568 $82,794
======= =======
</TABLE>
Note 5 - Short-Term Borrowings
On April 3, 1999, the Company had a revolving, unsecured credit agreement in
effect for $100.0 million. Under the terms of the agreement, no compensating
balances were required and the interest rate was determined at the time of
borrowing based on the London interbank offered rate plus a margin, or prime
rate. At April 3, 1999, borrowings under this facility, which were subject to
certain debt covenants, totaled $75.0 million and the effective rate was 5.9
percent.
On April 9, 1999, the Company issued an initial series of unsecured senior notes
for $75.0 million. Of this total, senior notes in the amount of $71.0 million
were issued with an effective coupon of 6.59 percent and a final maturity of
seven years with an average life of five years. The remaining senior notes,
totaling $4.0 million, were issued with an effective coupon of 6.39 percent and
a final maturity of five years with an average life of three years. Subsequent
series of senior notes totaling $5.0 million may be issued at the discretion of
the Company.
The proceeds from the issuance of the senior notes were used to refinance
existing debt, and on April 9, 1999, the Company repaid in full the $75.0
million outstanding under the $100.0 million credit agreement noted above. Also
on April 9, 1999, the $100.0 million credit agreement was terminated and
replaced with a new revolving unsecured credit agreement for $40.0 million. The
terms and conditions of the new agreement are similar to the terms and
conditions of the $100.0 million agreement that was in effect on April 3, 1999.
5
<PAGE>
The Company also has an uncommitted line of credit for up to 90-day advances not
to exceed an aggregate total of $10.0 million. At April 3, 1999, there were no
borrowings against this uncommitted line of credit.
For the quarter ended April 3, 1999, the Company's weighted average borrowings
were $72.7 million and the weighted average interest rate was 6.1 percent.
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 - Industry Segment and Geographic Information
During 1998 the Company adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information."
The Company is organized based upon the nature of the products and services it
offers. Under this organizational structure, the Company operates in two
fundamental business segments: product and service. The product segment includes
the development, manufacture and sale of the Company's systems that generate,
display, archive and retrieve medical diagnostic ultrasound images. The service
segment provides service and support for the Company's products in accordance
with the various service contracts and other purchase arrangements the Company
makes available to its customers. The Company's products are manufactured at its
world headquarters in Mountain View, California, and are sold through a direct
sales force in North America, Europe, Australia and Japan, and through
independent distributors in Europe, Asia, South America and the Middle East.
The information in the following tables is derived directly from the Company's
internal financial reporting used for corporate management purposes. The Company
evaluates its segments' performance based on several factors, of which the
primary financial measure is controllable contribution. Controllable
contribution is gross margin less selling expenses. Unallocated costs include
corporate and other costs not allocated to business segments for management
reporting purposes. The accounting policies followed by the Company's business
segments are the same as those set forth in the financial statements for the
year ended December 31, 1998, and notes thereto, contained in the Company's
Annual Report filed with the Securities and Exchange Commission. Except for
inventory, the Company does not allocate assets by segment for management
reporting purposes.
<TABLE>
<CAPTION>
Revenue from external customers
Quarter Ended Quarter Ended
(In thousands) April 3, 1999 April 4, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Product $ 96,627 $ 93,579
Service 22,340 22,199
-------- --------
Total revenue $118,967 $115,778
======== ========
</TABLE>
<TABLE>
<CAPTION>
Income before income taxes
Quarter Ended Quarter Ended
(In thousands) April 3, 1999 April 4, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Product $ 17,583 $ 19,101
Service 10,365 10,095
-------- --------
Controllable contribution 27,948 29,196
Unallocated expense (19,313) (20,802)
Interest expense (1,214) (574)
Interest income 189 390
-------- --------
Income before income taxes $ 7,610 $ 8,210
======== ========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Segment Assets - Inventory
Quarter Ended Year Ended
(In thousands) April 3, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Product $73,723 $69,381
Service 14,845 13,413
------- -------
Total inventory 88,568 82,794
======= =======
</TABLE>
Geographic area information is as follows:
<TABLE>
<CAPTION>
Revenue from external customers
Quarter Ended Quarter Ended
(In thousands) April 3, 1999 April 4, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
United States $ 80,809 $ 79,185
Europe 24,240 26,791
Other foreign 13,918 9,802
-------- --------
Total revenue $118,967 $115,778
======== ========
</TABLE>
<TABLE>
<CAPTION>
Assets
Quarter Ended Year Ended
(In thousands) April 3, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
United States $380,840 $370,115
Europe 70,411 72,454
Other foreign 18,683 18,677
Eliminations (68,528) (66,174)
-------- --------
Total assets $401,406 $395,072
======== ========
</TABLE>
Geographic revenue from external customers represents shipments to foreign
customers from both domestic and foreign operations. As of and for the quarters
ended April 3, 1999, and April 4, 1998, as well as for the year ended December
31, 1998, operations in any single non-U.S. country did not account for more
than 10 percent of consolidated net sales or total assets. Also, during 1999 and
1998, no single customer or group under common control represented 10 percent or
more of the Company's sales.
Note 8 - Disclosure Of The Impact That Recently Issued Financial Standards Will
Have On The Financial Statements When Adopted In A Future Period
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 will require companies to
recognize all derivatives, including those used for hedging foreign currency
exposures, on the balance sheet at fair value and is effective for all fiscal
years beginning after June 15, 1999. Management has not yet determined what
effect SFAS 133 will have on the Company's financial statements or results of
operations.
________________________________________________________________________________
7
<PAGE>
_______________________________________________________________________________
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased 2.8 percent to $119.0 million for the quarter ended April 3,
1999, compared with $115.8 million for the quarter ended April 4, 1998.
Worldwide product revenue increased 3.3 percent to $96.6 million and worldwide
service revenue remained relatively constant at $22.3 million. Domestic revenue
increased 2.0 percent to $80.8 million for the first quarter of 1999. Domestic
revenue from sales of new ultrasound systems increased 11.0 percent over the
prior year quarter, but were offset by reduced sales of product options the
Company offers on all of its systems. The Company expects options sales to
increase during the second half of 1999 as it ramps up shipments of its new
Native Tissue Harmonic Imaging option for its installed base of 128XP ultrasound
systems. International revenue increased 4.3 percent to $38.2 million for the
first quarter of 1999. The increase was primarily due to the shipment of a large
order to China. Although international revenue for the first quarter of 1999
increased over the prior year quarter, the Company expects selected
international markets to remain depressed.
Gross profit decreased to 46.2 percent of net sales for the first quarter of
1999, compared with 47.8 percent for the first quarter of 1998. The decrease was
primarily due to product mix, which was largely the result of reduced options
sales during the quarter. The decrease was also partly due to temporary
production difficulties, partially offset by higher service margins. The Company
expects gross profit to increase during the second half of 1999 as options sales
increase. The Company also intends to continue to pursue manufacturing
efficiencies and cost reduction efforts.
Selling, general and administrative expenses and product development spending
for the first quarter of 1999 each remained relatively consistent with the prior
year quarter. Selling, general and administrative expenses were $31.7 million,
or 26.6 percent of net sales, for the quarter ended April 3, 1999, compared to
$32.0 million, or 27.7 percent of net sales, for the quarter ended April 4,
1998. Product development spending was $14.7 million, or 12.3 percent of net
sales, for the first quarter of 1999, compared to $14.9 million, or 12.9 percent
of net sales for the first quarter of 1998. As the Company continues to invest
in new product development and related sales support, future operating expenses
are expected to increase.
Interest expense for the first quarter of 1999 was $1.2 million, compared with
$0.6 million for the first quarter of 1998. The increase was the result of
greater weighted average short-term borrowings during the first quarter of 1999.
The effective tax rate for the quarter ended April 3, 1999, was 27.5 percent
resulting in a provision of $2.1 million, compared with an effective rate of
30.0 percent and a provision of $2.5 million for the quarter ended April 4,
1998.
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 will require companies to
recognize all derivatives, including those used for hedging foreign currency
exposures, on the balance sheet at fair value and is effective for all fiscal
years beginning after June 15, 1999. Management has not yet determined what
effect SFAS 133 will have on the Company's financial statements or results of
operations.
Liquidity and Capital Resources
During the first quarter of 1999, the Company's cash and cash equivalents
balance increased $1.5 million to $13.4 million. The Company's operating
activities used $2.9 million in cash. The primary uses of cash for operations
were a decrease in other accrued liabilities and an increase in inventory, which
used $8.7 million and $5.7 million, respectively. The decrease in other accrued
liabilities was primarily due to payments of previously accrued compensation.
The increase in inventory was largely the result of the Company's continued
support of its refurbished systems business and loaned systems programs. The
primary source of cash from operations was net income of $5.5 million.
The Company's investing and financing activities for the three months ended
April 3, 1999, provided $4.7 million in cash. The Company purchased $5.5 million
of equipment during the quarter, primarily consisting of computer equipment,
software, and other capitalized expenses associated with its new enterprise-
wide, integrated business
8
<PAGE>
information system. Included in the financing activities for the first quarter
of 1999, were net short-term borrowings of $10.0 million and $3.4 million raised
through employee participation in the Company's stock option and stock purchase
plans. Also included in the financing activities for the first quarter of 1999
was $3.8 million used for share repurchases.
During 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 1999, the Company repurchased 250,000 shares at a total cost of $3.8
million. As of April 3, 1999, the Company had repurchased 3,777,400 shares
toward the 1996 authorization at a cumulative cost of $66.2 million. During the
first quarter of 1999, the Board of Directors authorized the repurchase of an
additional 4,000,000 shares of common stock over an unspecified period of time.
As of April 3, 1999, there have been no repurchases against this authorization.
On April 3, 1999, the Company had a revolving, unsecured credit agreement in
effect for $100.0 million. Under the terms of the agreement, no compensating
balances were required and the interest rate was determined at the time of
borrowing based on the London interbank offered rate plus a margin, or prime
rate. At April 3, 1999, borrowings under this facility, which were subject to
certain debt covenants, totaled $75.0 million and the effective rate was 5.9
percent.
On April 9, 1999, the Company issued an initial series of unsecured senior notes
for $75.0 million. Of this total, senior notes in the amount of $71.0 million
were issued with an effective coupon of 6.59 percent and a final maturity of
seven years with an average life of five years. The remaining senior notes,
totaling $4.0 million, were issued with an effective coupon of 6.39 percent and
a final maturity of five years with an average life of three years. Subsequent
series of senior notes totaling $5.0 million may be issued at the discretion of
the Company.
The proceeds from the issuance of the senior notes were used to refinance
existing debt, and on April 9, 1999, the Company repaid in full the $75.0
million outstanding under the $100.0 million credit agreement noted above. Also
on April 9, 1999, the $100.0 million credit agreement was terminated and
replaced with a new revolving unsecured credit agreement for $40.0 million. The
terms and conditions of the new agreement are similar to the terms and
conditions of the $100.0 million agreement that was in effect on April 3, 1999.
The Company also has an uncommitted line of credit for up to 90-day advances not
to exceed an aggregate total of $10.0 million. At April 3, 1999, there were no
borrowings against this uncommitted line of credit.
For the quarter ended April 3, 1999, the Company's weighted average borrowings
were $72.7 million and the weighted average interest rate was 6.1 percent.
Based on its current operating plan, the Company believes that the liquidity
provided by its existing cash, the borrowing arrangements described above and
anticipated cash generated from operations will be sufficient to meet the
Company's projected operating and capital requirements for fiscal 1999.
Investment Risks and Other Factors That May Affect Future Results
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.
Increased option sales during the second half of 1999 depend, among other
things, upon timely completion of a number of product capabilities currently
under development and market acceptance of upgrades currently offered by the
Company, including Native Tissue Harmonic Imaging for the 128XP system, and
those under development for introduction this year. In addition, in general, the
success of the Company's products in the market and the Company's financial
results depend upon the Company continuing to develop and introduce products and
software updates in a timely manner; upon the success of product cost reduction
designs and initiatives; upon the actual and perceived levels of product
performance and quality in a clinical environment compared to other imaging
modalities and competitive products; upon continued market acceptance of the
Company's products and upgrades and their
9
<PAGE>
respective pricing; and upon competitor responses, including the introduction of
competitive products and upgrades, pricing, intellectual property allegations
and product positioning counter-strategies.
International Operations and International Receivables:
The Company's business is subject to risks from potential negative impacts of
weakness in certain markets in Asia, Latin America and Europe, and by adverse
economic impacts from currency fluctuations in its worldwide operations.
Political instability or other issues may impact the ability of the Company to
collect receivables in foreign countries. The following table, in thousands,
summarizes the Company's foreign accounts and leases receivable in excess of
$3.0 million at April 3, 1999.
<TABLE>
<CAPTION>
April 3, 1999
-------------
<S> <C>
Italy $15,788
Brazil 13,075
China 10,035
France 6,287
Japan 5,737
Germany 4,492
Australia 4,317
Sweden 4,222
United Kingdom 3,343
</TABLE>
Company's Computing Environment:
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 2000. 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, during and following the conversion, there are significant problems with the
system.
Year 2000 Readiness:
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 ready 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. The second phase was completed in December
1998, and focused on confirming the year 2000 readiness of those systems
identified in phase one. The third and final phase, which is expected to be
completed early in the fourth quarter of 1999, will involve taking any needed
corrective action to make all remaining critical systems and components year
2000 ready and to develop a contingency plan in the event any non-compliant
critical systems are not remedied by January 1, 2000. The Company expects the
project to be successfully completed during the fourth quarter of 1999 and has
established a year 2000 project team, comprised of representatives from each of
the Company's functional areas, which reports to senior management. However, if
by January 1, 2000, systems material to the Company's operations have not been
made year 2000 ready, or if the Company fails to retain or recruit knowledgeable
experts, 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 and future anticipated costs are not
expected to be material.
The Company's products being shipped today are year 2000 ready and the Company
believes its products previously shipped are either year 2000 ready or can be
made year 2000 ready by customer purchase of an upgrade.
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.
10
<PAGE>
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. The
Company primarily sells its products to hospitals, clinics, and other customers
within the healthcare industry. Should the year 2000 issue impact the ability
and willingness of these customers to purchase capital equipment, the year 2000
issue could have a material adverse impact on the Company's consolidated
financial statements.
Derivative Financial Instruments:
The Company operates internationally and is subject to market risk due to
fluctuations in foreign currency exchange rates. The Company manages this risk
through established policies and procedures that include the use of derivative
financial instruments. The Company routinely enters into forward foreign
currency exchange contracts to hedge amounts due from selected subsidiaries
denominated in foreign currencies against fluctuations in exchange rates.
Forward currency contract terms are typically not more than three months and the
counterparties to the exchange contracts are major domestic and international
financial institutions. The purpose of the hedging activities is to minimize the
effect of foreign exchange rate movements on the Company's operating results and
on the cash flows it receives from its foreign subsidiaries.
Currently, the Company neither engages in foreign currency speculation nor holds
or issues financial instruments for trading purposes. Because the Company only
enters into forward currency exchange contracts as hedges, any change in
currency rates would not result in a material gain or loss, as any gain or loss
on the underlying transaction being hedged would be offset by the gain or loss
on the forward currency contract. For this reason, the Company believes that
neither its exposure to foreign currency exchange rate risk nor any potential
near-term losses in future earnings, fair values or cash flows from reasonably
possible near-term changes in market rates or prices would be material. Readers
are referred to the Company's 1998 Form 10-K, filed with the Securities and
Exchange Commission for further discussion of the Company's market risk due to
fluctuations in foreign currency exchange rates.
Euro Conversion:
On January 1, 1999, eleven of the fifteen member countries of the European Union
adopted the Euro as their common legal currency. Following the introduction of
the Euro, the local currencies of the participating countries are scheduled to
remain legal tender until June 30, 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 Company's foreign subsidiaries that are part of the European
Union have not yet converted to the Euro and continue to use their respective
local currencies as their functional currency. However, the conversion will be
completed prior to the June 30, 2002 deadline. 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, 1998.
128XP and Acuson are registered trademarks and Native is a trademark of Acuson
Corporation.
________________________________________________________________________________
11
<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, 1998.
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 3, 1999.
________________________________________________________________________________
12
<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 17, 1999 By /s/ Barry Zwarenstein
----------------------
Barry Zwarenstein
Vice President, Chief Financial Officer
(duly authorized Officer and Principal
Financial Officer)
13
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-03-1999
<CASH> 13,402
<SECURITIES> 0
<RECEIVABLES> 153,805
<ALLOWANCES> 3,542
<INVENTORY> 88,568
<CURRENT-ASSETS> 296,855
<PP&E> 232,156
<DEPRECIATION> 155,332
<TOTAL-ASSETS> 401,406
<CURRENT-LIABILITIES> 191,237
<BONDS> 0
0
0
<COMMON> 127,261
<OTHER-SE> 82,908
<TOTAL-LIABILITY-AND-EQUITY> 401,406
<SALES> 96,627
<TOTAL-REVENUES> 118,967
<CGS> 52,608
<TOTAL-COSTS> 63,957
<OTHER-EXPENSES> 46,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,025
<INCOME-PRETAX> 7,610
<INCOME-TAX> 2,093
<INCOME-CONTINUING> 5,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,517
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
