<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 July 1, 2000 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 27,596,930 shares
------------------------------- -----------------------------
(Class) Outstanding at July 27, 2000
<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
July 1, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Operations
and Comprehensive Income for the Three Months
Ended July 1, 2000 and July 3, 1999 and for the Six
Months Ended July 1, 2000 and July 3, 1999 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended July 1, 2000 and
July 3, 1999 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 6. Exhibits and Reports on Form 8-K 16
Signature 17
</TABLE>
<PAGE>
________________________________________________________________________________
PART 1
ITEM 1
FINANCIAL STATEMENTS
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
July 1, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 35,549 $ 23,704
Accounts receivable, net of allowance for doubtful accounts
of $3,478 in 2000 and $3,488 in 1999 143,520 157,483
Inventories, net 92,398 97,243
Deferred income taxes 22,746 18,945
Other current assets 22,178 23,649
-------- --------
Total current assets 316,391 321,024
Property and Equipment, net of accumulated depreciation and amortization
of $173,696 in 2000 and $165,471 in 1999 73,264 76,973
Other Assets, net 39,679 41,524
-------- --------
Total Assets $429,334 $439,521
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ 2,300 $ 2,300
Accounts payable 25,428 28,078
Other accrued liabilities 93,166 104,641
-------- --------
Total current liabilities 120,894 135,019
-------- --------
Long-term debt 84,400 85,200
-------- --------
Commitments and Contingencies (Notes 5, 6 and 7)
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, 27,588 shares
in 2000 and 27,386 shares in 1999 147,596 143,433
Deferred compensation --- (720)
Accumulated other comprehensive loss (2,985) (2,255)
Retained earnings 79,429 78,844
-------- --------
Total stockholders' equity 224,040 219,302
-------- --------
Total Liabilities and Stockholders' Equity $429,334 $439,521
======== ========
</TABLE>
_______________________________________________________________________________
The accompanying notes are an integral part of these condensed consolidated
statements.
1
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
Product $ 95,236 $ 97,072 $183,916 $193,699
Service 24,564 22,848 47,535 45,188
-------- -------- -------- --------
Total net sales 119,800 119,920 231,451 238,887
-------- -------- -------- --------
Cost of sales
Product 53,779 53,259 102,767 105,867
Service 12,193 11,421 23,185 22,770
-------- -------- -------- --------
Total cost of sales 65,972 64,680 125,952 128,637
-------- -------- -------- --------
Gross profit 53,828 55,240 105,499 110,250
-------- -------- -------- --------
Operating expenses
Selling, general and administrative 35,638 32,643 68,060 64,340
Product development 14,802 15,205 30,010 29,883
Amortization of goodwill and other intangibles 414 --- 828 ---
-------- -------- -------- ---------
Total operating expenses 50,854 47,848 98,898 94,223
-------- -------- -------- --------
Income from operations 2,974 7,392 6,601 16,027
Interest expense (1,638) (1,278) (3,069) (2,492)
Interest income 560 443 1,096 632
-------- -------- -------- --------
Income before income taxes 1,896 6,557 4,628 14,167
Provision for income taxes 522 1,803 1,273 3,896
-------- -------- -------- --------
Net income $ 1,374 $ 4,754 $ 3,355 $ 10,271
======== ======== ======== ========
Earnings per share
Basic $0.05 $0.18 $0.12 $0.38
======== ======== ======== ========
Diluted $0.05 $0.17 $0.12 $0.38
======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding
Basic 27,647 26,777 27,556 26,769
======== ======== ======== ========
Diluted 27,951 27,528 27,856 27,331
======== ======== ======== ========
----------------------------------------------------------------------------------------------------
Net Income $ 1,374 $ 4,754 $ 3,355 $ 10,271
Other comprehensive loss, net of tax
Foreign currency translation adjustments (307) (295) (730) (907)
-------- -------- -------- --------
Comprehensive income $ 1,067 $ 4,459 $ 2,625 $ 9,364
======== ======== ======== ========
</TABLE>
________________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
July 1, July 3,
2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,355 $ 10,271
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 12,284 11,602
Amortization of goodwill and purchased intangibles 828 --
Amortization of deferred non-cash compensation 64 159
Provision for losses on accounts receivable 80 95
Tax benefit of employee stock transactions 305 55
Changes in operating assets and liabilities:
Accounts receivable 13,432 11,251
Leases receivable (2,288) (3,403)
Inventories, net 3,915 (13,670)
Deferred income taxes 1,933 (622)
Other assets (2,734) (2,032)
Accounts payable (2,508) 3,437
Other accrued liabilities (10,169) (5,338)
-------- --------
Net cash provided by operating activities 18,497 11,805
-------- --------
Cash flows from investing activities
Purchases of property and equipment (8,275) (10,919)
Sale of fixed assets -- 233
Other 748 (65)
-------- --------
Net cash used in investing activities (7,527) (10,751)
-------- --------
Cash flows from financing activities
Repayments of short-term borrowings -- (106,400)
Proceeds from short-term borrowings -- 41,400
Repayments of long-term debt (800) --
Issuance of long-term debt -- 75,000
Repurchase of common stock (4,266) (4,846)
Issuance of common stock under stock option and
stock purchase plans 6,327 4,320
-------- --------
Net cash provided by financing activities 1,261 9,474
-------- --------
Effect of exchange rate changes on cash (386) (444)
-------- -------
Net increase in cash 11,845 10,084
Cash and cash equivalents, beginning of period 23,704 11,914
------- -------
Cash and cash equivalents, end of period $ 35,549 $ 21,998
======= =======
</TABLE>
________________________________________________________________________________
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE>
________________________________________________________________________________
ACUSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 - Interim Statements
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements include all normal recurring adjustments
necessary to summarize fairly the condensed consolidated financial position of
Acuson Corporation (the "Company") as of July 1, 2000 and the Company's
condensed consolidated results of operations and cash flows for the six month
periods ended July 1, 2000 and July 3, 1999. The results of operations for the
six months ended July 1, 2000 are not necessarily indicative of the results to
be expected for the entire year ending December 31, 2000. Certain information
reported in the prior year has been reclassified to conform to the 2000
presentation.
The Company's principal accounting policies are set forth in the financial
statements for the year ended December 31, 1999, and notes thereto, contained in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS ") 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended in June 1999,
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, 2000. The Company
believes the adoption of this statement will not have a significant effect on
the results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "SAB 101," "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The accounting and
disclosures prescribed by SAB 101 are scheduled to become effective on December
31, 2000. The Company will adopt SAB 101 when it becomes effective. The Company
is evaluating the effects of adopting SAB 101 and it may have a material effect
on the Company's financial statements.
In March 2000, The FASB issued FASB Interpretation No.44 (FIN 44), "Accounting
for Certain Transactions involving Stock Compensation--an interpretation of APB
opinion No. 25" (FIN 44). FIN 44 is effective July 1, 2000. The interpretation
clarifies the application of APB opinion No. 25 for certain issues,
specifically, (a) the definition of an employee, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange or stock
compensation awards in a business combination. The Company does not anticipate
that the adoption of FIN 44 will have a material impact on the Company's
financial position or on the results of operations.
Note 2 - Comprehensive Income (Loss)
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 of the accumulated other comprehensive income (loss)
balance for the six months ended July 1, 2000 (in thousands):
<TABLE>
<CAPTION>
Accumulated other comprehensive income (loss)
---------------------------------------------------
<S> <C>
Beginning balance, January 1, 2000 $ (2,255)
Current-period change
Foreign currency items (730)
---------------
Ending balance, July 1, 2000 $ (2,985)
===============
</TABLE>
The following is a summary of the related tax effect allocated to each component
of other comprehensive income (loss) (in thousands):
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
-----------------------------------------------------------
<S> <C> <C> <C>
Three months ended July 3, 1999
Foreign currency translation adjustments $ (407) $ 112 $ (295)
======== ====== ========
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Six months ended July 3, 1999
Foreign currency translation adjustments $(1,251) $ 344 $ (907)
======= ===== ======
Three months ended July 1, 2000
Foreign currency translation adjustments $ (424) $ 117 $ (307)
======= ===== ======
Six months ended July 1, 2000
Foreign currency translation adjustments $(1,007) $ 277 $ (730)
======= ===== ======
</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 stock options with an exercise price of less than the
market price 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 that have an exercise price per
share below the average market price per share for the Company's outstanding
common shares. The following table provides a reconciliation of the numerators
and denominators used in calculating basic and diluted earnings per share for
the three and six month periods ended July 1, 2000 and July 3, 1999:
<TABLE>
<CAPTION>
Dilutive
Effect of Options
Basic Outstanding Diluted
---------------------------------------------------------
<S> <C> <C> <C>
Three months ended July 3, 1999
Net income (numerator) $ 4,754 $ 4,754
Weighted average number of
shares outstanding (denominator) 26,777 751 27,528
Earnings per share $ 0.18 $ 0.17
======= =======
Six months ended July 3, 1999
Net income (numerator) $10,271 $10,271
Weighted average number of
shares outstanding (denominator) 26,769 562 27,331
Earnings per share $ 0.38 $ 0.38
======= =======
Three months ended July 1, 2000
Net income (numerator) $ 1,374 $ 1,374
Weighted average number of
shares outstanding (denominator) 27,647 304 27,951
Earnings per share $ 0.05 $ 0.05
======= =======
Six months ended July 1, 2000
Net income (numerator) $ 3,355 $ 3,355
Weighted average number of
shares outstanding (denominator) 27,556 300 27,856
Earnings per share $ 0.12 $ 0.12
======= =======
</TABLE>
For the quarter ended July 1, 2000 approximately 3,610,000 weighted average
options to purchase shares of common stock had exercise prices greater than the
average market price of the common shares. For the six months ended July 1, 2000
approximately 3,720,000 weighted average options to purchase shares of common
stock had exercise prices greater than the average market price of the common
shares. Such antidilutive shares were not included in the
5
<PAGE>
computation of diluted earnings per share. For the quarter ended July 3, 1999
approximately 1,720,000 antidilutive weighted average options were outstanding
compared to approximately 1,930,000 antidilutive weighted average options for
the six months ended July 3, 1999.
Note 4 - Inventories
The components of inventories were as follows (in thousands):
July 1, Dec. 31,
2000 1999
------------------------------
Raw materials $26,304 $27,322
Work-in-process 19,688 23,446
Finished goods 46,406 46,475
------- -------
Total inventories, net $92,398 $97,243
======= =======
Note 5 - Short-Term Borrowings
The Company has a revolving, unsecured credit agreement for $40.0 million, which
the Company extended in February, 2000 and now expires in March, 2001. 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 overnight borrowings. At July 1,
2000 there were no outstanding borrowings under this facility.
The Company also has an uncommitted, unsecured line of credit for up to 90-day
advances not to exceed an aggregate total of $10.0 million. At July 1, 2000
there were no borrowings against this uncommitted line of credit.
Note 6 - Long-Term Debt
Long-term debt consists of the following (in thousands):
July 1 December 31,
2000 1999
-----------------------------------
Senior notes due 2006 (Series A) $71,000 $71,000
Senior notes due 2004 (Series B) 3,200 4,000
Senior notes due 2006 (Series C) 5,000 5,000
Senior notes due 2004 (Series D) 7,500 7,500
------- -------
Total 86,700 87,500
Current maturities (2,300) (2,300)
------- -------
Long-term debt $84,400 $85,200
======= =======
On April 9, 1999, the Company issued $75.0 million of unsecured senior notes.
The senior notes are made up of two series: Series A for a total of $71.0
million and Series B for a total of $4.0 million. The interest rates of these
notes range from 6.4 percent to 6.6 percent. The Series A notes are due and
payable in 2006, and the Series B notes are due and payable in 2004. During the
second quarter of 2000, $0.8 million in principal amount of Series B notes were
repaid. On December 13, 1999, two subsequent series of unsecured senior notes
were issued: Series C for a total of $5.0 million and Series D for a total of
$7.5 million. The interest rates of these notes range from 7.6 percent to 7.8
percent. The Series C notes are due and payable in 2006, and the Series D notes
are due and payable in 2004.
6
<PAGE>
Future current maturity dates of the Company's long-term debt at July 1, 2000
are as follows (in thousands):
Year Amount
----- ------
2000 $ 2,300
2001 16,500
2002 17,500
2003 17,500
2004 16,700
Thereafter 16,200
-------
Total $86,700
=======
Note 7 - 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.
On July 31, 2000, the Company was sued in two separate cases in the United
States District Court for the Western District of Pennsylvania on behalf of two
minors and their parents alleging that these minors were injured by the
Company's pediatric transesophageal transducer. The complaints in both actions
seek damages for economic loss, past and future medical expenses, health care
expenses, general damages, punitive damages and costs. The Company intends to
defend both cases vigorously. Management believes that the ultimate outcome of
this matter will not have a material adverse effect on the Company's results of
operations.
In addition, the Company may become involved in other litigation relating to
claims arising from the Company's ordinary course of business. The Company
believes that there are no such claims or actions pending or threatened against
the Company, the ultimate disposition of which would have a material adverse
effect on the Company.
Note 8 - Industry Segment and Geographic 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 primarily
manufactured at its world headquarters in Mountain View, California. Other
components are manufactured in Canoga Park, California, Ann Arbor, Michigan, and
Pennsylvania. The Company's products are sold through a direct sales force in
North America, certain European countries, Australia and Japan, and through
independent distributors in other European countries, 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 described in the financial statements for the
year ended December 31, 1999, and notes thereto, contained in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Except for inventory, the Company does not allocate assets by segment for
management reporting purposes.
7
<PAGE>
<TABLE>
<CAPTION>
Revenue from external customers
-----------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product $ 95,236 $ 97,072 $ 183,916 $ 193,699
Service 24,564 22,848 47,535 45,188
--------- --------- --------- ---------
Total revenue $ 119,800 $ 119,920 $ 231,451 $ 238,887
========= ========= ========= =========
<CAPTION>
Income before income taxes
-----------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product $ 11,538 $ 18,505 $ 24,835 $ 36,088
Service 12,363 10,880 23,749 21,245
-------- -------- -------- --------
Controllable contribution 23,901 29,385 48,584 57,333
Unallocated expense (20,927) (21,993) (41,983) (41,306)
Interest expense (1,638) (1,278) (3,069) (2,492)
Interest income 560 443 1,096 632
-------- -------- -------- --------
Income before income taxes $ 1,896 $ 6,557 $ 4,628 $ 14,167
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Segment Assets - Inventory
-----------------------------------------
July 1, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Product $ 71,393 $ 80,143
Service 21,005 17,100
-------- --------
Total inventory, net 92,398 97,243
======== ========
</TABLE>
Geographic area information is as follows (in thousands):
<TABLE>
<CAPTION>
Revenue from external customers
--------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
(In thousands) July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ 85,213 $ 85,689 $ 158,395 $ 166,498
Europe 21,989 23,087 49,259 47,327
Other foreign 12,598 11,144 23,797 25,062
--------- --------- --------- ---------
Total revenue $ 119,800 $ 119,920 $ 231,451 $ 238,887
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Total assets
(In thousands) July 1, 2000 December 31, 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States $ 415,924 $ 420,266
Europe 72,111 71,246
Other foreign 20,453 19,856
Eliminations (79,154) (71,847)
--------- ---------
Total assets $ 429,334 $ 439,521
========= =========
</TABLE>
Geographic revenue from external customers represents shipments to foreign
customers from both domestic and foreign operations. As of and for the three
and six-month periods ended July 1, 2000, and July 3, 1999, as well as for the
year ended December 31, 1999, operations in any single non-U.S. country did not
account for more than 10
8
<PAGE>
percent of consolidated net sales or total assets. Also, during 2000 and 1999,
no single customer or group under common control represented 10 percent or more
of the Company's net sales.
9
<PAGE>
________________________________________________________________________________
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the quarter ended July 1, 2000 were $119.8 million compared with
$119.9 million for the quarter ended July 3, 1999. For the first six months of
2000, net sales were $231.5 million, compared with $238.9 million for the same
period in 1999. Worldwide product revenue for the quarter ended July 1, 2000
decreased 1.9 percent from $97.1 million in 1999 to $95.2 million, and for the
six months ended July 1, 2000, decreased 5.1 percent from $193.7 million in 1999
to $183.9 million. Worldwide service revenue for the second quarter of 2000
increased 7.5 percent to $24.6 million from $22.8 million in 1999, and for the
six months ended July 1, 2000, increased 5.2 percent to $47.5 million from $45.2
million in 1999. The increase in service revenue reflects a shift from the
service contracts covering the 128XP(R) ultrasound systems to service contracts
covering the growing installed base of our Sequoia(R) and Aspen(TM) ultrasound
systems.
Domestic revenue for the second quarter of 2000 decreased 0.6 percent to $85.2
million from $85.7 million in 1999, and for the six months ended July 1, 2000,
decreased 4.9 percent from $166.5 million in 1999 to $158.4 million. Revenue
slightly decreased during the second quarter of 2000 due to competitive pricing
pressures on our main platform systems, offset by increases in service revenue
and greater sales of the KinetDx(TM) PACS Solution, our new digital image
management product, and sales of our new Cypress(TM) Echocardiography System.
For the six months ended July 1, 2000, the decrease in revenue was the result of
increased price competition, partially offset by increases in service revenues.
For the second quarter of 2000, international revenues increased slightly from
$34.2 million in 1999 to $34.6 million. Revenues in Asia and Latin America were
up strongly, but increases in Europe were offset by the strengthening of the
U.S. dollar. For the six months ended July 1, 2000, revenues also increased
slightly from $72.4 million in 1999 to $73.1 million primarily due to the
aforementioned gains in Asia and Latin America.
Gross profit for the second quarter of 2000 was $53.8 million or 44.9 percent of
net sales compared with $55.2 million or 46.1 percent for the second quarter of
1999. For the six months ended July 1, 2000, gross profit was $105.5 million or
45.6 percent of net sales compared with $110.3 million or 46.2 percent of net
sales for the same period in 1999. The decreases in gross profit were primarily
due to competitive pricing pressures and the strengthening of the U.S. dollar in
our international markets.
Selling, general and administrative expenses for the second quarter of 2000 were
$35.6 million or 29.7 percent of net sales, compared with $32.6 million or 27.2
percent of net sales for the second quarter of 1999. For the six months ended
July 1, 2000, selling, general and administrative expenses were $68.1 million or
29.4 percent of net sales compared with $64.3 million or 26.9 percent of net
sales for the same period in 1999. For the second quarter of 2000, selling,
general and administrative expenses increased by 9.2 percent over the same
period of the prior year, reflecting our commitment to investment in our sales
and marketing organization. Future selling, general and administrative expenses
are expected to increase as we continue to invest in the field sales
organization and related sales support.
Product development spending for the second quarter of 2000 was $14.8 million or
12.4 percent of net sales, compared with $15.2 million or 12.7 percent of net
sales for the second quarter of 1999. For the six months ended July 1, 2000,
product development costs were $30.0 million or 13.0 percent of net sales,
compared with $29.9 million or 12.5 percent of net sales for the same period in
1999.
Interest expense for the quarter ended July 1, 2000 was $1.6 million and $3.1
million for the six months ended July 1, 2000 compared with $1.3 million and
$2.5 million for the three and six-month periods ended July 3, 1999.
10
<PAGE>
The provision for income taxes was $0.5 million for the quarter ended July 1,
2000 compared with $1.8 million for the quarter ended July 1, 1999. For the six
months ended July 1, 2000, the provision for income taxes was $1.3 million,
compared with a provision of $3.9 million for the same period in 1999. The
effective tax rate for both the three and six-month periods ended July 1, 2000
and July 3, 1999 was 27.5 percent.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended in June 1999,
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, 2000. We believe the
adoption of this statement will not have a significant effect on the results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "SAB 101," "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The accounting and
disclosures prescribed by SAB 101 are scheduled to become effective on December
31, 2000. We will adopt SAB 101 when it becomes effective. We are evaluating the
effects of adopting SAB 101 and it may have a material effect on our financial
statements.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions involving Stock Compensation-an interpretation of APB
opinion No. 25" (Fin 44). Fin 44 is effective July 1, 2000. The interpretation
clarifies the application of APB opinion No. 25 for certain issues,
specifically, (a) the definition of an employee, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange or stock
compensation awards in a business combination. We do not anticipate that the
adoption of FIN 44 will have a material impact on our financial position or on
the results of operations.
Liquidity and Capital Resources
During the six months ended July 1, 2000, our cash and cash equivalents balance
increased $11.8 million.
Our operating activities generated $18.5 million in cash in the first six months
of 2000 compared to $11.8 million in the prior year. The primary sources of
cash were from net income of $3.4 million and a decrease in accounts receivable
of $13.4 million. The decrease in accounts receivable was mainly the result of
improved collection efforts. The primary use of cash was for payment of
income taxes.
Our investing and financing activities for the six months ended July 1, 2000,
used $6.3 million in cash. We invested $8.3 million in equipment during the
first six months of 2000, primarily consisting of computer equipment, software,
and machinery and test equipment. Included in the financing activities for the
first half of 2000 were repayments of $0.8 million of long-term debt and $6.3
million raised through employee participation in our stock option and stock
purchase plans.
During the first quarter of 1999, the Board of Directors authorized the
repurchase of 4,000,000 shares of common stock over an unspecified period of
time. In the first six months ended July 1, 2000, we repurchased 333,700 shares
at a cost of $4.3 million. As of July 1, 2000, 2,776,400 shares remain
authorized to be purchased under the 1999 repurchase program.
Working capital at July 1, 2000 increased $9.5 million over the year ended
December 31, 1999. At July 1, 2000, our working capital totaled $195.5 million.
We have a revolving, unsecured credit agreement for $40.0 million, which we
extended in February 2000 and now expires in March 2001. 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 overnight borrowings. At July 1, 2000 there
were no outstanding borrowings under this facility.
We also have an uncommitted line of credit for up to 90-day advances not to
exceed an aggregate total of $10.0 million. At July 1, 2000, there were no
borrowings against this uncommitted line of credit.
We also have unsecured senior notes in the amount of $86.7 million at July 1,
2000. See Note 6 of Notes to Condensed Consolidated Financial Statements.
Based on our current operating plan, we believe that the liquidity provided by
our existing cash balance, cash generated from operations and borrowing
arrangements will be sufficient to meet our projected operating and capital
requirements for at least the next 12 months.
Investment Risks and Other Factors That May Affect Future Results
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The Management's Discussion and Analysis of Financial Condition and Results of
Operations section in this report contains forward-looking statements regarding
us and our products. These forward-looking statements are based on current
expectations and we assume no obligation to update this information. Our actual
results could differ materially from those discussed in this document. In
evaluating the forward-looking statements contained in this document,
prospective investors and stockholders should carefully consider the following
risks and uncertainties: the timely and successful completion of product
capabilities and updates; actual and perceived levels of product performance in
a clinical environment compared to other imaging modalities and competitive
products; 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.
Our business is also 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.
Finally, there are the normal risks and uncertainties associated with our
respective business operations. For a description of the investment
considerations and risks surrounding our overall business and financial
prospects, refer to our Annual Report on Form 10-K for the year ended December
31, 1999 as well as the factors set forth below.
Quarterly Results May Fluctuate:
Our results have varied on a quarterly basis during our operating history. Our
operating results may fluctuate significantly as a result of a variety of
factors, many of which are beyond our control. Factors that may affect our
quarterly operating results include the following: the introduction of new
services and products by us or our competitors; consummating an acquisition;
costs of integrating acquired operations; the amount and timing of operating
costs and capital expenditures relating to expansion of our business, operations
and infrastructure; and general economic conditions and economic conditions
specific to the ultrasound technology and imaging industries. Our operating
history and the dynamic nature of the markets in which we compete make it
difficult for us to forecast our revenues or earnings accurately. A significant
portion of our quarterly orders and shipments occurs towards the end of each
quarter, compounding the difficulty of accurately forecasting our revenues and
earnings. We believe that period-to-period comparisons of our operating results
may not be meaningful and should not be relied upon as an indication of future
performance. Our operating results in one or more future quarters may fall below
the expectations of securities analysts and investors. In that event, the
trading price of our common stock would almost certainly decline. Our orders and
revenues periodically include large multisystem transactions. Such orders have a
material impact on our results. These orders are received at irregular intervals
and are difficult to predict. Failure to obtain such orders may have a material
adverse effect on our results of operations in any given quarter.
International Operations and International Receivables:
Our 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 our worldwide operations. Political
instability or other issues may impact our ability to collect receivables in
foreign countries. The following table summarizes our foreign accounts and
leases receivable in excess of $3.0 million at July 1, 2000 (in thousands):
July 1, 2000
------------
Italy $15,326
Brazil 10,455
Japan 5,445
France 4,984
Australia 4,347
England 3,074
Company's Computing Environment:
During 1997, we initiated a two-phase project to replace our outdated computing
environment with an enterprise-wide, integrated business information system to
control many of our operating systems including order administration, service
and financial and manufacturing processes. The first phase of this project has
been
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completed. The second phase is in progress. We have retained an
experienced consulting organization to assist in the conversion, however, our
future shipments and results could be adversely impacted if, during and
following the conversion, there are significant problems with the system.
Derivative Financial Instruments:
We operate internationally and are subject to market risk due to fluctuations in
foreign currency exchange rates. We manage this risk through established
policies and procedures that include the use of derivative financial
instruments. We routinely enter into forward foreign currency exchange
contracts to hedge amounts 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 our operating results and on the cash flows we
received from our foreign subsidiaries.
Currently, we neither engage in foreign currency speculation nor hold or issue
financial instruments for trading purposes. Because we only enter into forward
currency exchange contracts as hedges, any change in currency rates should not
normally result in a material gain or loss, as any in or loss on the underlying
transaction being hedged would be offset by the gain or loss on the forward
currency contract. For this reason, we believe that neither our 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. The counterparties to foreign
currency exchange contracts are major domestic and international financial
institutions and the contract terms are typically not more than three months.
At July 1, 2000, we had outstanding forward foreign currency exchange contracts
of approximately $56.0 million. The contracts have maturity dates of August 3
and September 28, 2000. Included in the total above are contracts to sell
approximately $33.9 million in Euros, $6.1 million in Japanese yen, $5.1 million
in Australian dollars, $2.2 million in Swedish krona, $6.6 million in British
pounds, $0.9 million in Danish krone, and $1.1 million in Norwegian krone. The
carrying value of these contracts approximates their fair market value as of the
end of the second quarter.
Euro Conversion:
On January 1, 1999, 11 of the 15 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 the Euro or the participating country's local
currency. Thereafter, only the Euro will be legal tender in the participating
countries. Our 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. We believe our 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 our
products in Europe. We also believe any costs of addressing the Euro conversion
will not have a material impact on our financial statements.
For a description of the general investment considerations and risks surrounding
our overall business and financial prospects, refer to our Annual Report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1999.
Acuson, Sequoia, and 128XP are registered trademarks and Aspen, Cypress, and
KinetDx are trademarks of Acuson Corporation
________________________________________________________________________________
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ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the "Derivative Financial Instruments" disclosure in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
________________________________________________________________________________
14
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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.
On July 31, 2000, the Company was sued in two separate cases in the United
States District Court for the Western District of Pennsylvania on behalf of two
minors and their parents alleging that these minors were injured by the
Company's pediatric transesophageal transducer. The complaints in both actions
seek damages for economic loss, past and future medical expenses, health care
expenses, general damages, punitive damages and costs. The Company intends to
defend both cases vigorously. Management believes that the ultimate outcome of
this matter will not have a material adverse effect on the Company's results of
operations.
In addition, the Company may become involved in other litigation relating to
claims arising from the Company's ordinary course of business. The Company
believes that there are no such claims or actions pending or threatened against
the Company, the ultimate disposition of which would have a material adverse
effect on the Company.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Stockholders of the Company was held on May 1, 2000.
b) The result of Stockholders' votes at the Annual Meeting were as follows:
(i) All nominees for director of the Company were elected by the
following vote:
Name Votes For Votes Against
---- --------- -------------
Albert L. Greene 21,047,599 744,426
Karl H. Johannsmeier 21,002,086 789,939
Samuel H. Maslak 20,996,892 795,133
William J. Mercer 21,049,638 742,387
(ii) Ratification and approval of an amendment to the Company's 1995 Stock
Incentive Plan to increase the number of shares of Common Stock
subject to the Plan from 3,500,000 to 6,500,000.
Votes For Votes Against Abstain Non-votes
---------- ------------- ------- ---------
10,663,350 7,998,075 286,995 2,843,605
(iii) Ratification and approval of an amendment to the Company's 1995 Stock
Purchase Plan to increase the number of shares of Common Stock
subject to the Plan from 2,000,000 to 4,000,000.
Votes For Votes Against Abstain Non-votes
---------- ------------- ------- ---------
14,637,908 4,032,187 278,325 2,843,605
(iv) Ratification of appointment of Arthur Andersen LLP as independent
public accountants of the Company.
Votes For Votes Against Abstain Non-votes
---------- ------------- ------- ---------
21,719,718 31,069 40,713 525
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ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
The following Exhibits are filed as part of, or incorporated by
reference into, this Form 10-Q:
10.1 * The Company's 1995 Employee Stock Purchase Plan, as amended
10.2 ** The Company's 1995 Stock Incentive Plan, as amended
10.3 Credit Agreement, dated April 9, 1999 between Acuson Corporation
and ABN AMRO BANK N.V., as agent for lenders, as amended on June
30, 2000
27.1 Financial Data Schedule
* Incorporated by reference to Exhibit 4c in the Company's
Registration Statement on Form S-8 (File No. 333-37592) dated
May 19, 2000.
** Incorporated by reference to Exhibit 4c in the Company's
Registration Statement on Form S-8 (File No. 333-37590) dated
May 19, 2000.
b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter ended July
1, 2000.
________________________________________________________________________________
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________________________________________________________________________________
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACUSON CORPORATION
(Registrant)
August 14, 2000 By /s/ Barry Zwarenstein
------------------------------------------
Barry Zwarenstein
Vice President, Chief Financial Officer
(Duly authorized Officer and Principal
Financial Officer)
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