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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-15160
ADVANCED TECHNOLOGY LABORATORIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1353386
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
22100 BOTHELL-EVERETT HIGHWAY
P.O. BOX 3003
BOTHELL, WASHINGTON 98041-3003
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 487-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
On February 23 1996, the aggregate market value of the voting stock held by
non affiliates of the registrant was $407,618,970 based upon the closing sale
price of $30.00 per share on the Nasdaq National Market on such date.
Number of shares of Common Stock, $0.01 par value per share, of the
registrant outstanding as of February 23, 1996: 13,815,968.
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DOCUMENTS INCORPORATED BY REFERENCE PART
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Annual Report to Shareholders for the fiscal year Part II (Items 6-8)
ended December 31, 1995 Part IV (Item 14)
Proxy Statement for the 1996 Annual General Meet- Part III (Items 10-13)
ing of Shareholders
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EXHIBIT INDEX IS ON PAGE 22
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ADVANCED TECHNOLOGY LABORATORIES, INC.
TABLE OF CONTENTS
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PAGE
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PART I
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ITEM 1. Business....................................................... 3
ITEM 2. Properties..................................................... 13
ITEM 3. Legal Proceedings.............................................. 14
ITEM 4. Submission of Matters to a Vote of Security Holders............ 14
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 14
ITEM 6. Selected Financial Data........................................ 15
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 15
ITEM 8. Financial Statements and Supplementary Data.................... 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 16
PART III
ITEM 10. Directors and Executive Officers of the Registrant............. 16
ITEM 11. Executive Compensation......................................... 16
ITEM 12. Security Ownership of Certain Beneficial Owners and Management. 16
ITEM 13. Certain Relationships and Related Transactions................. 16
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K............................................................ 16
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PART I
ITEM 1. BUSINESS
STRUCTURE OF THE COMPANY
Advanced Technology Laboratories, Inc. ("ATL" or the "Company") is engaged
in the high-technology medical systems business. ATL develops, manufactures,
markets and services diagnostic medical ultrasound systems and related
products worldwide. The Company currently operates through twelve
international affiliates and through local distributors worldwide.
COMPANY HISTORY
ATL was founded in 1969 and acquired by Squibb Corporation ("Squibb") in
1980. In 1982 Squibb acquired Advanced Diagnostic Research Corporation
("ADR"), a Tempe, Arizona company which was a leader in obstetrical and
abdominal ultrasound, and A.B. Kranzbuehler ("Kranzbuehler"), a European
ultrasound manufacturer and distributor of ADR products in Europe. In 1986
Squibb organized its medical equipment businesses, including SpaceLabs
Medical, Inc. ("SpaceLabs"), a manufacturer and supplier of patient monitoring
and clinical information systems, under a corporate holding company, Westmark
International, Inc. ("Westmark") and spun the companies off through a
distribution of Westmark common stock to Squibb shareholders on January 2,
1987. In 1992 Westmark shareholders voted to separate Westmark into two
publicly traded companies comprising two major operating subsidiaries, ATL and
SpaceLabs. Westmark shareholders received an equal number of shares of the new
separate public company, SpaceLabs, and Westmark changed its name to Advanced
Technology Laboratories, Inc., the same name as that of its remaining
operating subsidiary.
ATL has acquired four companies with specific ultrasound expertise, products
and markets. In 1988 the Company acquired two companies to form Nova
MicroSonics which manufactures and markets networking, digital acquisition and
measurement products for use in ultrasound data and image management by
hospitals, labs, clinics and physician offices. In 1990 the Company acquired
Precision Acoustic Devices, Inc. ("PAD") which develops, manufactures and
supplies high-performance ultrasound transducers to industrial and medical
imaging markets. In 1993 the Company relocated PAD's Fremont, California
operations to Bothell, Washington and sold the OEM transducer business of PAD
to Blatek, Inc., a transducer company in State College, Pennsylvania. In May
1994 the Company acquired Interspec, Inc. ("Interspec"), a developer and
manufacturer of medical diagnostic ultrasound systems and transducers
headquartered in Ambler, Pennsylvania through a stock for stock exchange that
was approved by the shareholders of both companies. This acquisition added the
Apogee(R) product lines of Interspec to those of ATL, giving the Company an
expanded presence in the mid-range price and cardiology ultrasound markets.
During 1995 the Company consolidated Interspec's Ambler, Pennsylvania
operations with ATL's worldwide headquarter operations in Bothell, Washington.
In 1995 the Company reincorporated in the State of Washington from its
original corporate domicile in Delaware.
THE ULTRASOUND BUSINESS
ATL develops, manufactures, markets and services diagnostic medical
ultrasound systems that are widely used in a number of medical applications to
assist the physician in monitoring and diagnosing a variety of conditions,
such as tumors, inflammations, obstructions, cardiovascular diseases, fetal
development, and surgical assessment. Ultrasound systems provide a safe,
noninvasive and painless means of observing soft tissues and internal body
organs and assessing blood flow through the heart and vessels. ATL is one of
the leading suppliers of diagnostic ultrasound systems in the world. Its High
Definition(TM) Imaging (HDI(R)), Apogee, and Ultramark(R) product lines serve
all major diagnostic ultrasound clinical markets--radiology, cardiology,
obstetrics/gynecology ("OB/GYN") and vascular medicine--and a variety of newly
emerging clinical markets. These product lines span a range of system prices
from mid to premium priced ultrasound products.
ATL also develops, manufactures, markets and services ultrasound information
management systems through its Nova MicroSonics division in Allendale, New
Jersey. These products provide for the acquisition, storage, display and
management of ultrasound information between ultrasound systems and peripheral
equipment, within a hospital, and between hospital networks and physicians'
offices.
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Diagnostic ultrasound products, upgrades and accessories sold for use in
hospitals, clinics and physicians' offices accounted for an estimated $2.2
billion worldwide market in 1995. The total medical imaging market, including
x-ray, MRI and CT imaging equipment is estimated by the Company to be over $8
billion worldwide in 1995.
ULTRASOUND TECHNOLOGY
ATL's Technology
The Company believes that it has become a worldwide leader in ultrasound
technology through its proprietary position in digital, broad bandwidth
beamforming and broad bandwidth scanhead technologies. Ultrasound systems
include three major components: a scanhead which transmits sound waves into
the body of a patient, receives returning echoes from the patient and converts
the echoes into electrical signals; a processing unit which processes the
electrical echo signals into images and measurements of physiological
conditions within the patient's body; and a monitor which displays the
resulting images or measurement information. ATL's scanheads are characterized
by the breadth of the bandwidth of ultrasonic signals which are transmitted
and received. ATL's premium system processing units are characterized by their
ability to fully process broadband signals characteristic of the body's
tissues digitally. ATL has been a pioneer in ultrasound digital technology and
introduced the industry's first digital beamforming processor in 1988.
ATL'S PRODUCTS
HDI 3000 ULTRASOUND SYSTEM. In October 1994 ATL introduced its fourth
generation digital ultrasound system, the HDI 3000(TM) system. The HDI 3000
system is designed to address the economic imperatives of an evolving health
care environment in the United States and international markets. It is lighter
in weight than competitive systems, providing greater mobility and enabling it
to be easily moved to the bedside of critical care patients. The HDI 3000
system also features an intuitive, ergonomically designed set of user
controls, which enable an ultrasonographer or physician to quickly gain
confidence in operating the system and performing highly diagnostic
examinations. The HDI 3000 system provides interactive menu screens with
diagnostic procedures selectable at the touch of a button. This feature,
called Tissue Specific(TM) Imaging, automatically optimizes over 1000 system
operating parameters for the selected diagnostic procedure and scanhead. The
HDI 3000 system offers full Doppler capability, including Color Power Angio
imaging features and three dimensional imaging of the human vasculature.
The HDI 3000 system operates with a full array of broad bandwidth scanheads,
including a family of Entos intraoperative scanheads designed for surgical
use, the diagnosis of breast disease and musculoskeletal injuries. In 1995 ATL
added the CT8-4 and LI9-5 intraoperative scanheads to the Entos family for
intraoperative abdominal applications.
In June, 1995 ATL added full cardiology capabilities to the HDI 3000. The
cardiology configuration, called the HDI 3000cv, is operable with ATL's newest
transesophageal echocardiography (TEE) scanhead, the MPT7-4 multiplane TEE
scanhead. Deliveries of the MPT7-4 scanhead for use with the HDI 3000cv began
in the summer of 1995.
In November, 1995 ATL began offering the first integrated three dimensional
imaging capability in an ultrasound system as an optional feature for the HDI
3000 system. This feature allows a clinician to acquire and produce a rotating
three dimensional view of the vasculature of an entire organ. Investigation of
the applications of this new technology will continue in 1996. Other new
features introduced for the HDI 3000 in 1995 include Disk Link, a technology
for storing digital ultrasound images on hard disks and optical disks which
can be transported to other devices and image management products, and
Contrast Specific Imaging, by which the operation of the ultrasound system is
optimized for producing ultrasound images enhanced by the presence of harmonic
and non harmonic contrast agents in the body.
ULTRAMARK 9 HIGH DEFINITION IMAGING (HDI) SYSTEM. The Ultramark 9 system
with High Definition Imaging ("HDI") is ATL's high performance product.
Introduced in April 1991, the system contains a digital
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beamformer which allows high resolution images and captures a broad bandwidth
of tissue signatures. The Ultramark 9 HDI system offers a series of high
performance scanheads, including a line of broad bandwidth scanheads which
provide an extensive range of clinical applications for the system and
substantially enhance the system's competitive performance. The Ultramark 9
HDI system is also available in a full cardiology model, the Ultramark 9 HDIcv
system.
In December, 1995 an advisory panel to the U.S. Food and Drug Administration
(FDA) unanimously recommended approval of ATL's breast premarket approval
application (PMA) for the HDI system. Upon FDA approval, the PMA will allow a
new clinical application of ultrasound that, in conjunction with mammography,
will provide physicians with a high level of confidence in differentiating
benign from malignant or suspicious breast lesions. Studies have shown that
approximately 80% of breast lump biopsies performed in the United States have
resulted in a finding that the lump is benign. The PMA application was based
on the results of a multi-center study involving the examination of over 1000
women with the Ultramark 9 HDI system. During 1996 ATL will apply to the FDA
to extend the applicability of the PMA to the HDI 3000 system.
APOGEE 800 PLUS SYSTEM. In 1994 the Company introduced the mid-range Apogee
800 high value imaging system for the radiology and internal medicine markets.
The Apogee 800 system offers features normally found on high performance
systems and can be configured to address the broad array of clinical needs of
the radiologist, internal medicine specialist, and OB/GYN physician. In March,
1996 ATL introduced an upgraded model of this product, the Apogee 800 Plus,
offering improved image quality, Doppler performance, processing capability,
improved analysis packages and user controls.
APOGEE CX 200 AND CX SYSTEMS. The Apogee CX 200 and CX systems are
moderately priced echocardiography systems designed for the hospital and high-
end office markets. The systems offer full imaging, color flow mapping,
spectral Doppler scanning, and digital image archival and can be equipped to
perform stress echo examinations. The Apogee CX 200 and CX systems are also
designed to support multiplane transesophageal echo examinations.
ULTRAMARK 4 SYSTEM. At the beginning of 1996 ATL ceased production of new
Ultramark 4 ultrasound systems. The Ultramark 4 system was first introduced in
1986 and was the Company's principal product for private OB/GYN offices and
hospital OB/GYN departments. The Ultramark 4 is a gray scale and Doppler
system for the value price segment of the market ($25,000 to $60,000).
IMAGE MANAGEMENT PRODUCTS. The Company's Nova MicroSonics division develops,
manufactures and markets a complete line of ultrasound image management
products for use in the digital acquisition, storage, display and management
of ultrasound information. In 1995 the Company began shipment of Access(TM)
Image Management System products for radiology, including a Dicom-based
acquisition module, workstation and a network file server. These products
provide efficient printing, automated image archival and retrieval and reduced
patient examination times through an ultrasound open network architecture. The
Access system connects to many types of ultrasound systems, printers or other
image management products, facilitating improved diagnostic consultations
within and between hospitals.
For cardiac applications, Nova MicroSonics offers products that facilitate
the review and comparison of images produced at different times during a
cardiac study, expanding the diagnostic applications of echocardiography to
the detection of coronary artery disease. The ImageVue/DCR Workstation is a
state-of-the-art digital ultrasound image management system. This workstation
performs analysis and review of ultrasound exams conducted from a variety of
ultrasound systems.
The Image LAN Network provides network connection between ultrasound
systems, workstations, printers and other medical imaging devices and operates
with both the radiology and cardiology image management products.
SCANHEADS. ATL believes that its internal resources devoted to development
and manufacture of ultrasonic scanheads make it one of the largest ultrasound
scanhead manufacturers in the world. ATL's capabilities in
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scanhead design and manufacture were enhanced in 1994 with the addition of the
Echo Ultrasound division of Interspec. The Echo Ultrasound division, located
in Reedsville, Pennsylvania, produces scanheads for ATL products, and also
offers scanheads to other ultrasound companies.
ACCESSORIES AND SUPPLIES. The Company sells a variety of ultrasound
accessories and supplies, most of which are not manufactured by the Company.
These include disposable supplies, such as ultrasound gel and thermal paper,
and accessories, such as biopsy guides, printers, cameras and videocassette
recorders ("VCRs"). The Company markets these products through direct sales
and mail and its customer support organization.
PRINCIPAL MARKETS
The worldwide ultrasound market is typically categorized by clinical
application, price range and geographic area.
CLINICAL APPLICATIONS. Ultrasound products are used in four primary medical
applications: radiology, cardiology, OB/GYN, and vascular applications. ATL
also sells its products in several emerging clinical application markets,
including sports medicine and the surgical ultrasound market.
Radiology. The radiology, or general imaging, application, at approximately
44%, is the largest market for ultrasound equipment. The major radiology
markets are in the United States, Japan and Europe. Most radiology
examinations are conducted in hospitals or large imaging centers.
In radiology, ultrasound is used to obtain diagnostic information on organs
and soft tissue, particularly in the abdominal area. It is also used to
ascertain fetal development, to guide tissue biopsies and to visualize blood
flow.
A substantial portion of the radiology market also requires systems which
include cardiac imaging capabilities. In the United States and Canada this
market segment is often referred to as the shared service market. Most
community or small hospitals without a dedicated cardiology department fall
into this category. In Europe, the internal medicine or shared services
segment requires systems which include cardiac imaging capability.
ATL's radiology product offerings include the HDI 3000 system, the Apogee
800 Plus system, the Ultramark 9 HDI system and the Access image management
products. Ultramark 9 HDI systems are sold as new and as refurbished (used)
systems.
Cardiology. The cardiology ultrasound, or echocardiography, application, at
approximately 30%, is the second largest market for ultrasound systems. Most
dedicated echocardiography system sales occur in the United States, Western
Europe, and the more developed Asian and Latin American markets. While most
cardiology system sales are to hospitals, the cardiology office practice
represents a significant and growing share of the market for echocardiography
equipment.
Cardiologists use ultrasound as a noninvasive means of capturing real-time
images of the heart and its valves. These images, together with various
Doppler techniques, help the physician assess heart function as well as
congenital and valvular disease. With new advances in scanheads plus
acquisition and image display technology, echocardiography is a useful tool
for the detection and assessment of coronary artery disease. Ultrasound has
also been shown to be valuable in assessing the effectiveness of drug therapy
and intervention for the heart attack patient.
ATL's cardiology product offerings include the HDI 3000cv system, the
Ultramark 9 HDIcv system, the Apogee CX products, and the ImageVue and DCR
image management products.
OB/GYN. The third largest market for ultrasound systems is the OB/GYN
application, at approximately 14%. The majority of OB/GYN ultrasound system
sales are to office-based practitioners in the United States,
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Western Europe, and the more developed Asian markets. Perinatology is a
clinical specialty in OB/GYN dedicated to high risk obstetrics. Most
perinatology ultrasound sales are to hospitals and institutions in the United
States. Ultrasound is the preferred imaging technology for the assessment of
fetal development since it is noninvasive and involves no ionizing radiation.
Ultrasound is also used for general gynecological and infertility
examinations. The introduction of the intravaginal scanhead in the 1980s
expanded the usefulness of ultrasound for first-trimester obstetrical studies
and the diagnosis of ectopic pregnancies.
ATL's OB/GYN product offerings include the Ultramark 9 HDI system and the
Apogee 800 Plus system for the office market.
Vascular. The smallest of the primary clinical markets for ultrasound
systems, at approximately 4%, is the vascular ultrasound application,
primarily practiced in the United States and Western Europe. Most vascular
ultrasound examinations are performed in hospitals.
Vascular ultrasound studies utilize real-time imaging, Doppler and color
Doppler information to identify plaque deposits and their characteristics,
clots, and valve competence in blood vessels. Most vascular examinations are
performed on the body's extremities, cerebrovascular and deep abdominal
regions.
ATL's vascular product offerings include the HDI 3000 and the Ultramark 9
HDI systems. The Entos CL10-5 intraoperative scanhead was specially designed
for vascular surgery, and addresses the increasing use of ultrasound in the
surgical suite to immediately assess the results of surgical procedures.
Emerging applications. Other specialized applications for ultrasound
products, such as breast disease, musculoskeletal, and surgery, account for
approximately 8% of the worldwide ultrasound market. ATL provides the HDI 3000
system with the L10-5 and Entos CL10-5 scanheads for breast clinics, the HDI
3000 system or the Ultramark 9 HDI system with the Entos CL10-5 scanhead for
orthopedic and sports medicine clinics, and the HDI 3000 system with the CT8-4
and LI9-5 intraoperative scanheads or the Ultramark 9 HDI system with the
Entos CL10-5 scanhead for surgical suites.
PRICE RANGES. The world ultrasound market can be divided into five segments
based on broad price ranges. Each market segment is characterized by the level
of system performance and the number of scanheads and system features.
Premium Performance. The premium market segment is characterized by
ultrasound systems that typically sell for over $150,000 per unit. These
systems provide the physician with superior definition of subtle tissue
characteristics and incorporate high resolution gray scale imaging, advanced
color velocity, power, and spectral Doppler capability, image acquisition
storage, display and review capability, advanced automation capabilities, and
other features providing additional clinical utility. Typically, systems sold
in the premium market are equipped with a wide variety of specialty scanheads.
Fully featured HDI 3000 and the HDI 3000cv systems are ATL's premium
performance products.
High Performance. The high performance market is characterized by systems
with high resolution gray scale imaging and advanced color velocity, power and
spectral Doppler capabilities. Systems in this market segment sell between
$135,000 to $150,000 per unit and generally include advanced measurement and
analysis software, image review capabilities, and a variety of scanhead
offerings. ATL sells minimally configured HDI 3000 systems in this market
price.
Upper Mid-Range. The upper mid-range market is characterized by systems with
good gray scale imaging and the full range of Doppler features, as well as all
of the standards measurement and analysis capabilities, image review
functions, and available scanheads. Systems in this market segment sell
between $100,000 to $135,000 per unit. New and refurbished Ultramark 9 HDI
systems are sold in this market segment.
Mid-Range. The mid-range market segment is characterized by ultrasound
systems that sell between $50,000 and $100,000 per unit. These units are basic
gray scale imaging, color and spectral Doppler systems
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used for routine examinations and reporting and utilize a minimum number of
scanheads. Many of these systems are sold to small hospitals and clinics and
are used in radiology, cardiology and OB/GYN applications. Refurbished premium
and high performance systems with fewer purchased optional features are also
sold in this price range. ATL's products in this market segment include the
Apogee 800 Plus system, the Apogee CX 200 and CX systems, and Ultramark 9 HDI
systems.
Low-End. The low-end market segment is characterized by basic black and
white imaging systems that sell below $50,000 per unit. These systems provide
limited diagnostic information and are used primarily for monitoring fetal
development and in other radiology and OB/GYN applications. Most of these
systems are sold to private office practitioners and small hospitals. Due to
the growing acceptance and affordability of color Doppler systems, units with
only greyscale capability represent the slowest growing portion of the market.
With the discontinuation of production of new Ultramark 4 systems, ATL does
not presently compete in this market segment.
GEOGRAPHIC AREAS. The ultrasound market is divided into four major
geographic markets.
United States. The United States, at 31% of the market, is the largest
single country market for ultrasound. This market traditionally has been
characterized by its emphasis on high performance systems driven by
competition for patient referrals. These factors encourage the rapid adoption
of new technology. In 1993 and 1994, with the emphasis in the United States
turning to more efficient health care delivery and managed care and the
consolidation of health care organizations, the U.S. market has become
increasingly value conscious.
Europe. The European market, at 35% of the market, is the largest regional
market for ultrasound systems. European health care systems are more
centralized than the United States market and are often subject to more rigid
governmental regulation. In 1995 the European markets began to emerge from one
of the more pronounced recessionary cycles for health care in many years. This
recessionary effect has been moderated somewhat by the more regulated
character of health care in Europe, providing more stability to the European
markets. Value consciousness and state regulated health care has been
characteristic of European markets for a number of years, unlike the United
States where these effects are of relatively recent origin.
Japan. This market accounts for approximately 16% of worldwide ultrasound
sales. Its complex distribution system is highly competitive and Japanese
manufacturers account for almost all sales. In 1995 ATL entered into an
agreement with Hitachi Medical Corporation (HMC) as ATL's distributor in the
Japanese market. HMC is currently pursuing regulatory approvals for
distribution of the HDI 3000 system in Japan. Sales of these products are
expected to commence in 1996 after these approvals have been received.
Asia Pacific, Latin America and Canada. The remaining geographic areas of
the world account for approximately 18% of the market. The Australian and
Canadian markets are similar in structure to those of the European countries.
Parts of Asia and Latin America represent some of the fastest growing areas
for high performance and mid-range ultrasound products. The remainder of this
group are mostly developing countries with limited resources to devote to
health care. Many ultrasound systems sold in these regions are mid-range
systems, refurbished systems or new low-priced Japanese systems. The Asia
Pacific and Latin America markets are among the fastest growing markets.
RESEARCH AND DEVELOPMENT
The high technology ultrasound business is characterized by rapidly evolving
technology, resulting in relatively short product life cycles and continuing
competitive pressure to develop and market new products and new features for
existing products. Although the Company intends to continue extensive research
and development activities, there can be no assurance that it will be able to
develop and market new products on a cost-effective and timely basis, that
such products will compete favorably with products developed by others, or
that the Company's existing technology will not be superseded by new
discoveries by competitors.
In October, 1995 ATL announced that it had entered into an R&D joint venture
with HMC. This collaboration will concentrate on the development of new
ultrasound technologies which can be utilized by both
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companies in their respective products and markets. HMC is providing financial
support for this venture as agreed upon development milestones are achieved.
In February, 1996 the University of Washington and ATL announced that they
and partners VLSI Technology, Inc. and Harris Semiconductor had been awarded
funding under the Technology Reinvestment Project by the Advanced Research
Project Agency of the U.S. Department of Defense to develop an ultrasound
diagnostic instrument small enough to hold in one's hand for use in
battlefield and trauma situations. This program is expected to start during
the first half of 1996 and continue for several years, during which time
government funding will be provided as program milestones are achieved. The
partners in the program will retain the rights to commercial applications of
the program's developments.
MANUFACTURING
The Company manufactures its ultrasound system products at its facility in
Bothell, Washington. The image management systems of Nova MicroSonics are
manufactured in Nova's New Jersey facilities. The Echo Ultrasound division of
ATL is located in Reedsville, Pennsylvania. Scanheads for ATL products are
manufactured in both Reedsville and Bothell.
The Company purchases certain unique scanheads from original equipment
manufacturers. The Company also purchases the hard-copy output devices sold
with its ultrasound systems, such as VCRs and cameras, and other materials and
component parts. The OEM scanheads and many of the materials and components
used by ATL in the manufacture of ultrasound equipment are available from more
than one source of supply. Certain components, however, are single sourced,
such as crystals and integrated circuits which are critical to the quality and
manufacture of ultrasound equipment. Vendors can also experience difficulty in
meeting quality standards the Company requires of its vendors. While any of
these single-source items could be replaced over time, abrupt disruption in
the supply of a single-source part could have a material adverse effect on
ATL's manufacture of the products relying on such items. In addition, these
items generally have long order lead times, restricting the Company's ability
to respond quickly to changing market conditions.
Manufacturing efforts can also be impeded by third party assertions of
patent infringement by the Company's products, such as the litigation claim
discussed below. There can be no assurance the Company will not be subject to
claims of patent infringement by other parties or that such claims will not
require the Company to pay substantial damages or delete certain features from
its products or both. See ITEM 3, Legal Proceedings, below.
SALES AND MARKETING
The Company's sales and marketing strategy has been to compete in all of the
major clinical, price and geographic segments of the ultrasound market with
the exception of the very low priced market segment. In the United States,
with the exception of the third-party business of Nova MicroSonics, the
Company markets its products through its direct sales organization. The United
States sales organization is organized into two geographic zones, each staffed
with regional management, sales representatives and clinical application
specialists knowledgeable in radiology, OB/GYN, and peripheral vascular
applications. A specialized sales force with its own clinical application
specialists offers the Company's cardiology products to customers in the
United States. The role of the application specialists is to demonstrate the
products and train customers in their clinical use.
The Company markets its products internationally through its direct sales
and service operations in Argentina, Australia, Austria, Belgium, Canada,
France, Germany, Italy, the Netherlands, the United Kingdom and Singapore. In
addition, the Company markets its products in India through a joint venture
with Indchem Electronics. Other principal markets are covered through a
distributor network. European, Middle Eastern and African dealers are managed
through ATL's offices in Germany. Distributors serving the Pacific Rim
countries, Latin America and South America are managed from Bothell,
Washington. Customers outside of the United States accounted for 47% of
revenues in 1995.
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The Company's marketing efforts emphasize the development of strong
relationships with key medical professionals, participation in national and
regional meetings and conventions for physicians and hospitals, direct mail
advertising, journal advertising and sponsorship of educational programs.
CUSTOMER SUPPORT AND WARRANTY
The Company warrants its new and used products for all parts and labor
generally for one year from the date of original delivery. The Company offers
a variety of post-warranty service agreements permitting customers to contract
for the level of equipment maintenance they require. Alternatively, customers
can contact ATL as needed and receive service at rates based on labor and cost
of parts. The Company's warranty costs are included in cost of product sales
in ITEM 8, Financial Statements and Supplementary Data.
The Company maintains its own customer support organization in the United
States and other countries where the Company has direct operations. Local
dealers and distributors provide service and support in other countries. The
Company provides manuals and expedites delivery of repair parts to all
geographic locations from its facility in Bothell, Washington, with the
assistance of its direct operations in Europe.
The Company's customer service organizations are an integral part of its
sales effort because a customer's decision to purchase a particular product is
based in part on the availability and reputation of the service for that
product. In addition, the customer support group sells and installs upgrades
for existing customers and provides training for biomedical technicians so
customers can service their own systems. The customer support group also
provides customer education programs on clinical applications and the use of
the Company's products.
COMPETITION
The ultrasound market is highly competitive. The Company competes worldwide
in the major clinical applications of the ultrasound market, in the mid and
upper price ranges and in each major geographic market. Four companies--ATL,
Toshiba Corporation's Medical Systems Group, Hewlett-Packard Company's Medical
Products Group and Acuson Corporation--account for approximately 60% of the
worldwide ultrasound market. The Company believes that these four companies
have approximately equal market shares. Each of the Company's primary
competitors initially participated in only one or two of the clinical
ultrasound markets (such as radiology or cardiology), but all are increasingly
seeking to sell their ultrasound products in additional markets.
In addition to the Company's traditional competitors listed above, several
large, multi-modality companies of the medical imaging industry--the Medical
Systems Group of General Electric Company and Siemens Medical Systems, Inc.--
have signaled their intention to become more competitive in the ultrasound
market. In the past two years General Electric has introduced a digital
product, and is contracting with the nation's largest hospital networks to
assist with the acquisition and servicing of all of the networks' diagnostic
equipment, including ultrasound. Siemens has located its ultrasound
headquarters in Issaquah, Washington, approximately twelve miles from ATL's
headquarters, and has recently introduced three new ultrasound products,
including one digital product. Elbit, Inc., an Israeli supplier of a broad
range of diagnostic imaging equipment, continues to promote the products of
Diasonics, Inc., which is now a division of Elbit, and has announced plans to
create a separate diagnostic imaging business. These companies and several of
the Company's other competitors have far greater financial, marketing,
servicing, technical and research and development resources than those of the
Company.
The Company believes that significant competitive factors in the diagnostic
ultrasound market include the clinical performance of systems, depth of
product line, reputation for technology leadership, upgradeability to advanced
features, availability of Company-provided purchase financing, reliability,
ease of use and price of products and service. See "Research and Development."
The Company believes that it presently competes favorably with respect to each
of these competitive factors, however, there can be no assurances that the
Company will be able to fully respond to competitive inroads by companies with
far greater resources than ATL.
Ultrasound is only one of a number of diagnostic imaging technologies
currently available, including conventional x-ray, angiography, CT, magnetic
resonance imaging and P.E.T. A development in another
10
<PAGE>
diagnostic technology, and declining prices for these other products which
bring them into the range of price competition with ultrasound, could
adversely affect ATL and the ultrasound industry.
PATENTS, TRADEMARKS AND LICENSES
The Company has obtained patents on certain of its products and has applied
for patents which are presently pending. The Company has also sought trademark
protection for the brand names of the products it currently markets. There can
be no assurance that any additional patents will be issued or that trademark
protection will be granted and maintained.
Certain critical technology incorporated in the Company's products,
including software algorithms, broad bandwidth scanhead technology and ASIC
technology, is protected by copyright laws and confidentiality and licensing
agreements. The Company's proprietary digital beamformer is protected by
confidentiality agreements, copyright and trade secret law. There can be no
assurances that these modes of intellectual property protection will continue
to maintain the proprietary aspects of ATL's technology.
Companies in high technology businesses routinely review the products of
others for possible conflict with their own patent rights. The Company has
from time to time received notices of claims from others alleging patent
infringement. While the Company believes that it does not infringe any valid
patent of any third party, there can be no assurance that the Company will not
be subject to future claims of patent infringement or that any claim will not
require the Company to pay substantial damages or delete certain features from
its products or both. While such claims could temporarily interrupt the
Company's ability to ship affected products, the Company believes that any
such interruption can be overcome by technical changes to product features.
See ITEM 3, Legal Proceedings, below.
GOVERNMENTAL REGULATION
Product Regulation. The Company's products are subject to extensive
regulation by numerous governmental authorities, principally the FDA and
corresponding state and foreign agencies, and to various domestic and foreign
electrical safety and emission standards. The FDA has broad regulatory powers
with respect to preclinical and clinical testing of new medical products and
the manufacturing, marketing and advertising of medical products. The
Company's manufacturing facilities and the manufacture of its products are
subject to FDA regulations respecting registration of manufacturing facilities
and compliance with the FDA's Good Manufacturing Practices regulations. The
Company is also subject to periodic on-site inspection for compliance with
such regulations. The Company's ability to obtain timely FDA export and new
product approvals is dependent upon the results of such inspections. In
February, 1996 the FDA concluded an inspection of the Company's Bothell,
Washington facilities. This inspection commenced as expected as a part of the
approval process for ATL's PMA, but then expanded into a full biennial
facility inspection. ATL believes that the FDA is satisfied with the results
of the inspection, which will permit the PMA approval process and ATL's
ultrasound business in general to proceed as the Company anticipates.
The FDA requires that all medical devices introduced to the market be
preceded either by a premarket notification clearance order under Section
510(k) of the Federal Food, Drug and Cosmetic Act, as amended (the "FDC Act"),
or an approved PMA application. A 510(k) premarket notification clearance
order indicates FDA agreement with an applicant's determination that the
product for which clearance has been sought is substantially equivalent to
medical devices that were on the market prior to 1976 or have subsequently
received clearance. An approved PMA application indicates that the FDA has
determined that the device has been proven, through the submission of clinical
trial data and manufacturing quality assurance information, to be safe and
effective for its labeled indications. The process of obtaining 510(k)
clearance typically takes approximately six to nine months, while the
premarket approval application process typically lasts more than a year. All
of ATL's current products have required only 510(k) clearance. On December 11,
1995 an FDA Advisory Committee Panel voted unanimously to recommend approval,
with certain modifications, of the PMA application of ATL which would allow a
new clinical application of ultrasound that, in conjunction with mammography,
would provide physicians
11
<PAGE>
with a high level of confidence in differentiating benign from malignant or
suspicious breast lesions and thereby reduce the need for breast biopsy in
certain circumstances. The FDA usually follows the recommendations of the
Advisory Committee Panel but is not obligated to do so. On January 26, 1996,
the FDA determined the PMA to be approvable pending the satisfaction by ATL of
certain conditions and requirements. The Company is in the process of
responding to the FDA. A final determination on approval of the PMA is
expected in 1996. The clearance provided by the PMA would permit ATL to market
its Ultramark 9 HDI product for a new clinical application for ultrasound in
women's health.
The Company believes that its products comply generally with applicable
electrical safety standards, such as those of Underwriters Laboratories and
non-U.S. safety standards authorities. Several countries have, in recent
years, changed the electronic emission requirement which must be met by
ultrasound equipment. There can be no assurances that the Company will be able
to continue to respond to these continually changing regulatory requirements
in a timely manner.
The Company's regulatory compliance programs have been expanded to encompass
verification of the Company's compliance with international standards for
medical device design, manufacture, installation, and servicing known as ISO
9001 standards. All of the Company's manufacturing facilities have qualified
for ISO 9001 registration. In addition, several of the Company's international
sales and service subsidiaries received certification under the ISO 9002
standards for sales and service entities. ISO 9001 standards will become
mandatory in Europe in 1999. The FDA is in the process of adopting the ISO
9001 standards as regulatory standards for the United States, and it is
anticipated these standards will be phased in for U.S. manufacturers of
medical devices over a period of time.
ATL's HDI 3000 system has received the European Community (CE) mark in
Europe. The CE mark means that the HDI 3000 satisfies the regulatory
requirements of all of the countries of the European community, enabling the
product to be freely marketed throughout Europe. The CE mark will be required
to market products in Europe beginning in 1998.
Federal, state and foreign regulations are constantly undergoing change. The
national focus on possible health care legislation has caused U.S. ultrasound
customers to become more cautious in making expenditures and investing in
capital equipment. In addition, the U.S. health care system has undergone
significant consolidations and restructuring in recent years. The Company
cannot predict what effect, if any, such change may have on its business, or
when the deleterious effect of these conditions on its business will change.
Reimbursement. The Company's products are used by health care providers for
diagnostic testing services and other services for which the providers may
seek reimbursement from third-party payors, principally, in the United States,
Medicare, Medicaid and private health insurance plans. Such reimbursement is
subject to the regulations and policies of governmental agencies and other
third-party payors. For example, the Medicare program, which reimburses
hospitals and physicians for services provided to a significant percentage of
hospital patients, places certain limitations on the methods and levels of
reimbursement of hospitals for procedure costs and for capital expenditures
made to purchase equipment, such as that sold by the Company. The Medicare
program also limits the level of reimbursement to physicians for diagnostic
tests. The state-administered Medicaid programs and private payors also place
limitations on the reimbursement of both facilities and physicians for
services provided in connection with diagnostic and clinical procedures.
Reduced governmental expenditures in the United States and many other
countries continue to put pressure on diagnostic procedure reimbursement. The
Company cannot predict what changes may be forthcoming in these policies and
procedures, nor the effect of such changes on its business.
Third-party payors worldwide, including governmental agencies, are under
increasing pressure to contain medical costs. Limits on reimbursement or other
cost containment measures imposed by third-party payors may adversely affect
the financial condition and ability of hospitals and other users to purchase
products, such as those of the Company, by reducing funds available for
capital expenditures or otherwise. The Company is unable to forecast what
additional legislation or regulation, if any, relating to the health care
industry or third-party
12
<PAGE>
reimbursement may be enacted in the future or what effect such legislation or
regulation would have on the Company. Many of ATL's ultrasound systems are
used in an outpatient setting, replace higher-cost imaging modalities or
enable a hospital or clinic to receive higher payments for services
commensurate with the higher level of diagnostic information provided.
Environmental. The Company is subject to Federal, state and local provisions
regulating the discharge of materials into the environment or otherwise for
the protection of the environment. Although the Company's current operations
have not been significantly affected by compliance with environmental laws or
regulations, Federal, state and local governments are becoming increasingly
sensitive to environmental issues, and the Company cannot predict what impact
future environmental regulations may have on its operations.
Employees. As of December 31, 1995, the Company had 2,514 employees
worldwide. None of the Company's United States employees is covered by
collective bargaining agreements, and the Company considers its employee
relations to be satisfactory.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Information set forth in "Geographic Segment Information" of the Notes to
the Consolidated Financial Statements contained in Note 19 on page 26 of the
1995 Annual Report to Shareholders is incorporated by reference herein.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information concerning officers of the Company who are
not Directors.
Donald D. Blem. Mr. Blem has served as Senior Vice President, Operations
since October 1993. He served as Vice President, Operations from February 1988
to October 1993.
Castor F. Diaz. Mr. Diaz has served as Senior Vice President, Worldwide
Sales and Marketing, since February 1995 and as Vice President, ATL Europe
since October 1988. He also held various international sales and marketing
positions with ATL from May 1987 to October 1988.
Harvey N. Gillis. Mr. Gillis has served as Senior Vice President, Finance
and Administration, and Chief Financial Officer since September 1992. He
served as Senior Vice President, Finance and Administration and Chief
Financial Officer for NeoPath, Inc. from 1991 to 1992. He served as Chief
Operating Manager of Samuel Stroum Enterprises from 1985 to 1991.
Jacques Souquet Ph.D. Dr. Souquet has served as Senior Vice President,
Product Generation since October 1993. He served as Vice President, Product
Generation from October 1992 to October 1993, as Vice President, Strategic
Marketing and Product Planning from July 1990 to October 1992 and as Director
of Strategic Marketing and Product Planning from March 1989 to June 1990.
ITEM 2. PROPERTIES
The Company owns two buildings at 22100 Bothell Everett Highway, Bothell,
Washington 98041, consisting of 365,000 square feet. These adjoining buildings
include the Company's corporate headquarters and its major manufacturing
facility, as well as the Company's research and development, sales, service,
marketing and administrative functions. A number of these functions were moved
to a building on the adjoining property which the Company purchased in
December 1994 for $11.5 million, consisting of 80,000 square feet and
approximately 18 acres of land. In 1995, the Company also completed
consolidation of leased space in a nearby business park into these two
facilities.
13
<PAGE>
The Company's Nova MicroSonics division occupies approximately 33,000 square
feet in leased buildings in Allendale, New Jersey and Indianapolis, Indiana,
and the Echo Ultrasound division occupies 63,000 square feet in a building
owned by the Company in Reedsville, Pennsylvania. ATL continues to own a
building of 70,000 square feet in Ambler, Pennsylvania, which is occupied by
the Company's cardiology sales organization. The Company plans to lease
approximately 45,000 square feet of unused space in the Ambler building.
The Company's direct business operations in the United States and other
countries lease office and warehouse space in their respective countries.
There are no significant unutilized facilities for ongoing operations, other
than discussed above, and the Company believes its existing facilities are
sufficient to meet its near-term operating requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various product liability claims and other
proceedings which arise in the ordinary course of its businesses and believes
that such proceedings, individually or in the aggregate, will not have a
material adverse effect on the business or financial condition of the Company.
Insured claims arising from ATL's businesses are covered by the Company's
insurance policies. The Company intends to maintain insurance coverage against
business risks at levels that take into account the nature and magnitude of
the respective businesses to be conducted by ATL. There can be no assurance
that the Company's current insurance coverage will prove adequate or that the
amount or type of coverage available to the Company will remain available on a
cost-effective basis.
In November 1992, a U.S. District Court in California granted a motion by
SRI International, Inc. ("SRI") requesting partial summary judgment on a
patent infringement claim relating to an electrical circuit alleged to be used
in several of the Company's discontinued products. The patent expired in 1994.
The decision in favor of SRI was upheld by an appellate court, and in October,
1995 a bench trial was held to determine SRI's damage award. At the trial, SRI
contended for royalties for past sales and an enhancement of royalties for
willful infringement and attorney fees. Interest will be imposed on the amount
of damages, and the court may enhance damages by up to three times if willful
infringement is found. There can be no assurance the Company will not be
subject to claims of patent infringement by other parties or that such claims
will not require the Company to pay substantial damages or delete certain
features from its products or both. Information related to SRI is set forth in
Notes to the Consolidated Financial Statements, Note 18 on page 26 of the 1995
Annual Report to Shareholders incorporated by reference herein.
The Company is involved in various other legal actions and claims arising in
the ordinary course of business. The Company believes the resolution of these
matters individually and in the aggregate will not have a material adverse
effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market and Market Price for Common Stock. The Company's Common Stock, $0.01
par value, trades on the Nasdaq Stock Market under the symbol ATLI and is an
authorized security for quotation in Nasdaq National Market System ("Nasdaq
National Market").
14
<PAGE>
The market prices of the Company's Common Stock during the two-year period
ended December 31, 1995 are set forth below. The prices reflect the high and
low trading prices during each quarter as reported by the Nasdaq National
Market to ATL.
<TABLE>
<CAPTION>
ATL COMMON STOCK HIGH LOW
---------------- ------ ------
<S> <C> <C>
Quarter ended December 31, 1995............................. 28 1/2 17 3/4
Quarter ended September 29, 1995............................ 19 1/4 15 1/4
Quarter ended June 30, 1995................................. 17 1/2 14 1/2
Quarter ended March 31, 1995................................ 18 1/2 13
Quarter ended December 31, 1994............................. 19 1/2 14 3/4
Quarter ended September 30, 1994............................ 17 1/4 13
Quarter ended July 1, 1994.................................. 15 3/4 12 1/2
Quarter ended March 31, 1994................................ 17 1/4 15
</TABLE>
Shareholders. The approximate number of shareholders of record of the
Company's Common Stock as recorded on the books of ATL's Registrar and
Transfer Agent as of March 1, 1996 was 8,573.
Dividends. The Company has not paid cash dividends on its capital stock and
does not currently have any plans to pay such dividends in the foreseeable
future. The Company's dividend policy is dependent upon its earnings, the
overall financial condition of ATL, and other factors to be considered by the
Board of Directors from time to time.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to page 10 of the 1995 Annual Report to Shareholders,
which is incorporated herein by reference and made a part hereof in response
to the information required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to pages 11 through 15 of the 1995 Annual Report to
Shareholders, which is incorporated herein by reference and made a part hereof
in response to the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements are incorporated herein by
reference and made a part hereof from the 1995 Annual Report to Shareholders
in response to the information required by this item:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report...................................... 15
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and 1994....... 16
Consolidated Statements of Operations for each of the years in
the three-year period ended December 31, 1995.................. 17
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1995.................. 18
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 31, 1995......... 19
Notes to Consolidated Financial Statements...................... 20-27
</TABLE>
See Part IV, Item 14, for the Financial Statement Schedules filed with Form
10-K Report.
15
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Part III (Items 10) is partially set forth in
ATL's definitive proxy statement which will be filed pursuant to Regulation
14A within 120 days of December 31, 1995. Such information is incorporated
herein by reference and made a part hereof.
The information set forth in ITEM 1 "Executive Officers of the Registrant",
found on page 13 of this Form 10-K is incorporated herein by reference in
response to the information required by this item.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Part III (Item 11) is set forth in ATL's
definitive proxy statement which will be filed pursuant to Regulation 14A
within 120 days of December 31, 1995. Such information is incorporated herein
by reference and made a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Part III (Item 12) is set forth in ATL's
definitive proxy statement which will be filed pursuant to Regulation 14A
within 120 days of December 31, 1995. Such information is incorporated herein
by reference and made a part hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Part III (Items 13) is set forth in ATL's
definitive proxy statement which will be filed pursuant to Regulation 14A
within 120 days of December 31, 1995. Such information is incorporated herein
by reference and made a part hereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. FINANCIAL STATEMENTS.
As noted in Part II, Item 8, the following financial statements have been
incorporated by reference from the Company's 1995 Annual Report to
Shareholders:
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 1995.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1995.
16
<PAGE>
Consolidated Statements of Shareholders' Equity for each of the years
in the three-year period ended December 31, 1995.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES.
An index to the financial statement schedules required to be filed by Part
II, Item 8 of this Form 10-K is set forth immediately before the attached
financial statement schedule on page 18 of this filing.
3. MANAGEMENT CONTRACTS AND COMPENSATORY ARRANGEMENTS.
Exhibits constituting management contracts and compensatory arrangements are
indicated by footnote (M).
(B) REPORTS ON FORM 8-K:
One report was filed on Form 8-K on January 11, 1996 related to the May 11,
1995 reincorporation merger which changed the Company's domicile from Delaware
to Washington, and a December 11, 1995 Press Release related to an FDA
Advisory Committee Panel's recommendation for approval of a PMA application
submitted by ATL for a new clinical application of ultrasound.
(C) EXHIBITS:
The required exhibits are included at the back of this Form 10-K and are
described in the Exhibit Index immediately preceding the first exhibit.
17
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................ (19)
II Valuation and Qualifying Accounts for the Years ended December
31, 1995, 1994 and 1993............................................ (26)
</TABLE>
All other schedules are omitted because they are not applicable, the
required information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the consolidated financial statements and notes thereto.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advanced Technology Laboratories, Inc:
Under date of February 13, 1996 we reported on the consolidated balance
sheets of Advanced Technology Laboratories, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, as contained in the 1995 annual
report to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for
the year 1995. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule of valuation and qualifying accounts. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Seattle, Washington
February 13, 1996
19
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Advanced Technology Laboratories, Inc.:
We consent to incorporation by reference in the registration statements,
333-00163 on Form S-3 and 33-61807, 33-38218, 33-38217, 33-28830, 33-28092,
33-22434, 33-10618, 33-47967, 33-54757, 33-59914 and 33-66298 on Form S-8, of
Advanced Technology Laboratories, Inc., of our reports dated February 13,
1996, relating to the consolidated balance sheets of Advanced Technology
Laboratories, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995,
and related financial statement schedule, which reports appear in the December
31, 1995 annual report on Form 10-K, or are incorporated by reference therein
from the 1995 annual report to shareholders, of Advanced Technology
Laboratories, Inc.
KPMG Peat Marwick LLP
Seattle, Washington
March 28, 1996
20
<PAGE>
SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DENNIS C. FILL, HARVEY N. GILLIS, and W.
BRINTON YORKS, Jr. and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution, and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his/her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Advanced Technology Laboratories,
Inc. (Registrant)
/s/ Dennis C. Fill
By __________________________________
Dennis C. Fill
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Dennis C. Fill Chairman of the Board, Chief March 28, 1996
____________________________________ Executive Officer,
Dennis C. Fill President and Director
/s/ Harvey N. Gillis Senior Vice President and March 28, 1996
____________________________________ Chief Financial Officer
Harvey N. Gillis
/s/ Kirby L. Cramer Director March 28, 1996
____________________________________
Kirby L. Cramer
/s/ Harvey Feigenbaum Director March 28, 1996
____________________________________
Harvey Feigenbaum, M.D.
/s/ Eugene A. Larson Director March 28, 1996
____________________________________
Eugene A. Larson
/s/ Phillip M. Nudelman Director March 28, 1996
____________________________________
Phillip M. Nudelman
/s/ John R. Miller Director March 28, 1996
____________________________________
John R. Miller
/s/ Harry Woolf Director March 28, 1996
____________________________________
Harry Woolf, Ph.D.
/s/ Richard S. Totorica Corporate Controller March 28, 1996
____________________________________ (Principal Accounting
Richard S. Totorica Officer)
</TABLE>
21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
(A) 3.1 Articles of Incorporation of Advanced Technology Laboratories,
Inc.
(A) 3.2 Certificate of Designation of Series A. Participating Cumulative
Preferred Stock Setting Forth the Powers, Preferences, Rights,
Qualifications, Limitations and Restrictions of Such Series of
Preferred Stock of Advanced Technology Laboratories, Inc.
(A) 3.3 Bylaws of Advanced Technology Laboratories, Inc.
(B) 4.1 Amended and Restated Rights Agreement between advanced Technology
Laboratories, Inc. and First Chicago Trust Company of New York
dated as of June 26, 1992.
(C) 4.2 Revolving Credit Loan Agreement by and among Advanced Technology
Laboratories, Inc. (Washington), Advanced Technology Laboratories,
Inc. (Delaware) and Seattle-First National Bank dated as of June
26, 1992 and supplemental letter dated February 4, 1993.
(C) 4.3 Uncommitted Line of Credit for $10 million by and among Advanced
Technology Laboratories, Inc. (Washington), Advanced Technology
Laboratories, Inc. (Delaware) and Seattle-First National Bank
dated as of June 18, 1992.
(C) 10.1 Distribution Agreement between Westmark International Incorporated
and SpaceLabs Medical, Inc. dated as of May 18, 1992.
(C) 10.2 Intercompany Agreement between Westmark International Incorporated
and SpaceLabs Medical, Inc. dated as of May 18, 1992.
(C) 10.3 Tax Allocation Agreement between Westmark International
Incorporated and SpaceLabs Medical, Inc. dated as of May 18, 1992.
(D) 10.4 Lease between Le Bien and Nova MicroSonics dated November 9, 1988
(Indianapolis facility).
(E) 10.5 Lease between Advent Realty Partnership II and Nova MicroSonics
dated December 14, 1993 (Allendale, New Jersey facility).
(F) 10.6 Lease between WRC Properties, Inc. and Advanced Technology
Laboratories, Inc. dated January 10, 1992.
(G) 10.7 Note dated November 30, 1989 in the principal amount of $2,000,000
issued by Montgomery County Industrial Development Corporation to
The Pennsylvania Industrial Development Authority (incorporated by
reference from Interspec, Inc. 1993 Annual Report, filed as
Exhibit 10.27 on Form 10-K, filed on February 25, 1994).
(G) 10.8 Loan Agreement dated November 30, 1989 between Montgomery County
Industrial Development Corporation and The Pennsylvania Industrial
Development Authority (incorporated by reference from Interspec,
Inc. 1993 Annual Report, filed as Exhibit 10.26 on Form 10-K,
filed on February 25, 1994).
(G) 10.9 Mortgage dated November 30, 1989 between Montgomery County
Industrial Development Corporation and The Pennsylvania Industrial
Development Authority (incorporated by reference from Interspec,
Inc. 1993 Annual Report, filed as Exhibit 10.28 on Form 10-K,
filed on February 25, 1994).
(G) 10.10 Memorandum of Installment Sale Agreement and Amendment dated
November 30, 1989 between Montgomery County Industrial Development
Corporation and The Pennsylvania Industrial Development Authority
(incorporated by reference from Interspec, Inc. 1993 Annual
Report, filed as Exhibit 10.13 on Form 10-K, filed on February 25,
1994).
(G) 10.11 Amendment to Installment Sale Agreement dated November 30, 1989
between Montgomery County Industrial Development Corporation and
The Pennsylvania Industrial Development Authority (incorporated by
reference from Interspec, Inc. 1993 Annual Report, filed as
Exhibit 10.12 on Form 10-K, filed on February 25, 1994).
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------- -----------
<C> <S>
(G) 10.12 Assignment of Installment Sale Agreement and Amendment dated
November 30, 1989 by Montgomery County Industrial Development
Corporation to The Pennsylvania Industrial Development
Authority (incorporated by reference from Interspec, Inc. 1993
Annual Report, filed as Exhibit 10.14 on Form 10-K, filed on
February 25, 1994).
(G) 10.13 Consent, Subordination and Assumption Agreement dated November
30, 1989 between Montgomery County Industrial Development
Corporation and The Pennsylvania Industrial Development
Authority (incorporated by reference from Interspec, Inc. 1993
Annual Report, filed as Exhibit 10.25 on Form 10-K, filed on
February 25, 1994).
(G) 10.14 Promissory Note dated May 29, 1990 in the principal amount of
$1,500,000 from Mifflin County Industrial Development to The
Pennsylvania Industrial Development Authority (incorporated by
reference from Interspec, Inc. 1993 Annual Report, filed as
Exhibit 10.19 on Form 10-K, filed on February 25, 1994).
(G) 10.15 Loan Agreement dated May 29, 1990 between Mifflin County
Industrial Development and The Pennsylvania Industrial
Development Authority (incorporated by reference from
Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.33 on
Form 10-K, filed on February 25, 1994).
(G) 10.16 Mortgage dated May 29, 1990 between Mifflin County Industrial
Development and The Pennsylvania Industrial Development
Authority (incorporated by reference from Interspec, Inc. 1993
Annual Report, filed as Exhibit 10.20 on Form 10-K, filed on
February 25, 1994).
(G) 10.17 Installment Sale Agreement dated October 14, 1988 between
Mifflin County Industrial Development and Interspec, Inc.;
Amendment of to Installment Sale Agreement dated December 9,
1988; and Second Amendment to Installment Sale Agreement dated
May 29, 1990 (incorporated by reference from Interspec, Inc.
1993 Annual Report, filed as Exhibit 10.22 on Form 10-K, filed
on February 25, 1994).
(G) 10.18 Assignment of Installment Sale Agreement dated May 29, 1990 by
Mifflin County Industrial Development to The Pennsylvania
Industrial Development Authority (incorporated by reference
from Interspec, Inc. 1993 Annual Report, filed as Exhibit
10.23 on Form 10-K, filed on February 25, 1994).
(G) 10.19 Consent, Subordination and Assumption Agreement dated May 29,
1990 by Mifflin County Industrial Development to The
Pennsylvania Industrial Development Authority (incorporated by
reference from Interspec, Inc. 1993 Annual Report, filed as
Exhibit 10.32 on Form 10-K, filed on February 25, 1994).
(E) 10.20 Purchase and Sale Agreement by and between ELDEC Corporation,
N.C. ELDEC Inc. and ATL for the sale of ELDEC Building and
surrounding property.
(E) 10.21 Certificate and Indemnity Agreement by ATL for the benefit of
Seattle First National Bank for $11,500,000 loan for ELDEC
Building and surrounding property.
(E) 10.22 Deed of Trust, Security Agreement as of December 28, 1994, by
ATL to Ranier Trust Company for the Benefit of Seattle-First
National Bank, for ELDEC Building and surrounding property.
(E) 10.23 Promissory Note for $11,500,000 dated December 28, 1994 from
ATL to Seattle-First National Bank, for ELDEC Building and
surrounding property.
(H)(M)(O) 10.24 1986 Amended and Restated Option, Restricted Stock, Stock
Appreciation Right and Performance Unit Plan.
(E)(M)(O) 10.25 Amended and Restated July 1, 1994 Advanced Technology
Laboratories, Inc. Incentive Savings and Stock Ownership Plan.
(M) 10.26 First Amendment to the ATL Incentive Savings and Stock
Ownership Plan dated March 15, 1996.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------- -----------
<C> <S>
(E)(M) 10.27 Advanced Technology Laboratories, Inc. Supplemental Benefit
Plan, Amended and Restated January 1, 1994.
(M) 10.28 First Amendment to ATL Supplemental Benefit Plan dated March
15, 1996.
(E)10.29 Trust Agreement for Incentive Savings and Stock Ownership Plan
by and between Advanced Technology Laboratories, Inc. and
First Interstate Bank of Washington, N.A. effective June 26,
1992.
(M) 10.30 Amended and Restated Retirement Plan, effective May 17, 1994.
(M) 10.31 First Amendment to ATL Retirement Plan dated December 29,
1995.
(E) 10.32 Amended and Restated Retirement Plan Trust Agreement by and
between Advanced Technology Laboratories, Inc. and First
Interstate Bank of Washington, N.A. effective December 29,
1993.
(I)(M)(O) 10.33 Management Incentive Compensation Plan.
(J)(M) 10.34 Amendment to Management Incentive Compensation Plan, effective
May 5, 1993.
(C) 10.35 Employee Benefit Allocation Agreement between Westmark
International Incorporated and SpaceLabs Medical, Inc. dated
as of May 18, 1992.
(K)(M)(O) 10.36 Amended 1992 Option, Stock Appreciation Right, Restricted
Stock, Stock Grant and Performance Unit Plan. Adopted by
Shareholders on May 5, 1993.
(C) 10.37 Forms of Option Grant, Restricted Stock Award Agreement and
Restricted Stock Award Letter under the 1992 Option, Stock
Appreciation Right, Restricted Stock, Stock Grant and
Performance Unit Plan.
(J)(M) 10.38 Long Term Incentive Plan, effective January 1, 1993.
(G) 10.39 Interspec Supplemental Executive Retirement Plan (incorporated
by reference from Interspec, Inc. 1993 Annual Report, filed as
Exhibit 10.8 on Form 10-K, filed on February 25, 1994).
(H)(M) 10.40 Change of Control Employment Agreement with Dennis C. Fill
dated January 1, 1991.
(C)(M) 10.41 First Amendment to Employment Agreement with Dennis C. Fill
dated May 18, 1992.
(M) 10.42 Second Amendment to Employment Agreement with Dennis C. Fill
dated July 4, 1994.
(C)(M) 10.43 Change of Control Employment Agreement with David M. Perozek
dated May 18, 1992.
(C)(M) 10.44 Change of Control Employment Agreement with Harvey N. Gillis
dated September 23, 1992.
(L)(O) 10.45 Amended and Restated Nonofficer Employee Option, Restricted
Stock and Stock Grant Plan.
(K)(O) 10.46 1992 Nonofficer Employee Stock Option Plan.
(N) 10.47 Amended and Restated Agreement and Plan of Merger as of
February 10, 1994 between ATL and Interspec, Inc. and Press
Releases dated February 10, and February 24, 1994.
13 1995 Annual Report to Shareholders (Such report, except to the
extent incorporated herein by reference, is being provided for
the information of the Securities and Exchange Commission,
only, and is not deemed to be filed as a part of this Annual
Report on Form 10-K).
21 Subsidiaries of ATL as of December 31, 1995.
23 Consent of KPMG Peat Marwick LLP. Reference is made to the
Consent on page 20 of this filing in response to this item.
(P) 28 Proxy Statement to Stockholders for ATL's 1996 Annual General
Meeting of Shareholders.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
(A) Previously filed with, and incorporated herein by reference to,
ATL's Current Report on Form 8-K, File No. 0-15160, filed on
January 11, 1996.
(B) Previously filed with, and incorporated herein by reference to,
Westmark International Incorporated's Amendment to Application
Form 8, filed on June 25, 1992.
(C) Previously filed with, and incorporated herein by reference to,
ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March
25, 1993.
(D) Previously filed with, and incorporated herein by reference to,
Westmark's Annual Report on Form 10-K, File No. 0-15160, filed on
March 21, 1989.
(E) Previously filed with, and incorporated herein by reference to
ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March
30, 1995.
(F) Previously filed with, and incorporated herein by reference to,
Westmark's Annual Report on Form 10-K, File No. 0-15160, filed on
March 26, 1992.
(G) Previously filed and incorporated herein by reference from
Interspec, Inc.'s Annual Report on Form 10-K/A, File No. 0-15883,
filed on February 25, 1994.
(H) Previously filed with, and incorporated herein by reference to,
Westmark's Annual Report on Form 10-K, File No. 0-15160, filed on
March 22, 1991.
(I) Previously filed with, and incorporated herein by reference to,
Westmark's Registration Statement on Form 10, File No. 0-15160.
(J) Previously filed with, and incorporated herein by reference to,
ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March
4, 1994.
(K) Previously filed with, and incorporated herein by reference to,
ATL's Registration Statement on Form S-8, Registration Nos. 33-
66298, 33-54757 and 33-61807, filed July 22, 1993, July 24, 1994
and August 14, 1995, respectively.
(L) Previously filed with, and incorporated herein by reference to,
Westmark International Incorporated's Registration Statement on
Form S-8, Registration No. 33-38218, filed on December 14, 1990.
(M) Management Contracts and Compensatory Arrangements.
(N) Previously filed with, and incorporated herein by reference to,
ATL's Current Report on Form 8-K, File No. 0-15160, filed on
February 17, 1994 and March 4, 1994.
(O) Previously filed and incorporated herein by reference to ATL's
Post Effective Amendment
No. 1 on Form S-8, filed on August 14, 1995.
(P) To be filed within 120 days of the 1994 fiscal year end pursuant
to General Instruction G to Form 10-K.
</TABLE>
25
<PAGE>
SCHEDULE II
ADVANCED TECHNOLOGY LABORATORIES, INC.
VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED BALANCE
BALANCE AT TO COSTS CHARGED AT END
BEGINNING AND TO OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- -------- -------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables and sales
returns................. $10,428 $1,521 $-- $1,809(1) $10,140
======= ====== ==== ====== =======
Year ended December 31, 1994:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables and sales
returns................. $ 7,460 $5,015 $-- $2,047(1) $10,428
======= ====== ==== ====== =======
Year ended December 31, 1993:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables and sales
returns................. $ 6,301 $1,801 $-- $ 642(1) $ 7,460
======= ====== ==== ====== =======
</TABLE>
- --------
NOTE:
(1) Accounts charged off, net of recoveries.
26
<PAGE>
FIRST AMENDMENT TO THE
ADVANCED TECHNOLOGY LABORATORIES, INC.
INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN
The Advanced Technology Laboratories, Inc. Incentive Savings
and Stock Ownership Plan (the "Plan"), as amended and restated
effective July 1, 1994, is amended as follows pursuant to
Section 12.1 of the Plan, effective January 1, 1995, unless
otherwise provided:
1. The first sentence of Section 1.9 Company shall be
-------
replaced in its entirety with the following:
Effective May 11, 1995, "Company" means advanced
Technology Laboratories, Inc., a Washington corporation.
2. Section 2.1 Participation shall be replaced in its
entirety by the following:
2.1 Participation
-------------
(a) Each Eligible Employee who is not already a
participant shall become a Participant in this Plan
on the later of:
(i) the first day of the first month coinciding
with or following completion of two-consecutive-
month Period of Service; and
(ii) the date his or her employer becomes a
Participating Company,
provided he or she is an Eligible Employee on such
date.
(b) Each Participant in the Interspec, Inc. 401(k)
Retirement/Savings Plan as of December 31, 1994
shall become a Participant in the Plan on January 1,
1995.
3. Section 7.6(c) Hardship Expenses shall be revised by
-----------------
replacing subparagraph (iii) of that section in its
entirety with the following:
(iii) tuition, related educational fees, and room and
board expenses for the next twelve months of post-
secondary education for the Participant, his or her
spouse, children, or dependents.
IN WITNESS WHEREOF, Advanced Technology Laboratories,
Inc. has caused this First Amendment to be duly executed on
this 15th day of March, 1996.
FOR ADVANCED TECHNOLOGY
LABORATORIES, INC.
By: Harvey N. Gillis
-------------------------
Witness: /s/ Annette King Title: Sr. Vice President & CFO
---------------------- ------------------------
<PAGE>
FIRST AMENDMENT TO THE
ADVANCED TECHNOLOGY LABORATORIES, INC.
SUPPLEMENTAL BENEFIT PLAN
The Advanced Technology Laboratories, Inc. Supplemental
Benefit Plan (the "Plan"), as amended and restated effective
January 1, 1994, is amended as follows pursuant to Section 7.5
of the Plan, effective January 1, 1996, unless otherwise
provided.
1. Section 2.2 Company is deleted in its entirety and
-------
replaced with the following:
Effective May 11, 1995, "Company" means Advanced
Technology Laboratories, Inc., a Washington corporation.
2. Section 2.12 Years of Service is deleted in its entirety.
----------------
3. Section 4.3 Other Participants is amended by deleting the
------------------
first sentence of the Section and replacing it with the
following:
The Compensation Committee may determine and designate
other select management or highly compensated employees
or former employees of the Company and its Subsidiaries
to receive additional supplemental pension benefits under
this Plan, as described in Section 5.2, whose names shall
be added to an Appendix A to this Plan.
3. Section 5.1 Supplemental Pension Benefits is amended by
-----------------------------
adding the following paragraph immediately after the last
paragraph of Section 5.1:
Effective January 1, 1992, supplemental pension benefits
for a Participant who received a Management Incentive
Compensation Plan (MICP) award for performance during the
1992 calendar year shall be determined as though the 1992
MICP award is included in Earnings for the 1993 calendar
year.
4. Appendix A shall be deleted in its entirety and replaced
with the attached Appendix A.
FOR ADVANCED TECHNOLOGY
LABORATORIES, INC.
By: /s/ Harvey N. Gillis
-------------------------
Witness: /s/ Annette King Title: Sr. Vice President & CFO
-------------------- -------------------------
<PAGE>
APPENDIX A
TO THE ADVANCED TECHNOLOGY LABORATORIES, INC.
SUPPLEMENTAL BENEFIT PLAN
Pursuant to Section 4.3 of the Plan, the following select management or
highly compensated Participants shall be entitled to receive additional
supplemental pension benefits under the Plan, as described below:
Benefit
Name Benefit Distribution Date
---- ------- -----------------
1. Robert T. deGavre Determined under an employment September 1992
agreement effective as of
January 1, 1987.
2. Edward Ray Determined under a consulting
agreement effective as of May 10,
1995.
3. Arthur Schenck Determined under an employment
agreement dated June 23, 1995.
4. Eugene Larson Determined pursuant to resolutions
of the Board of Directors of the
Company at a meeting held on
February 18, 1994.
Acknowledged and Accepted:
By: /s/ Harvey N. Gillis
----------------------
Title: Senior V.P. & CFO
------------------
Date: March 15, 1996.
<PAGE>
ADVANCED TECHNOLOGY LABORATORIES, INC.
RETIREMENT PLAN
AMENDED AND RESTATED
EFFECTIVE
MAY 17, 1994
<PAGE>
TABLE OF CONTENTS
Page
PREAMBLE 1
SECTION 1 - DEFINITIONS 3
1.1 Accrued Benefit 3
1.2 Actuarially Equivalent/Actuarially 3
1.3 Affiliated Companies 4
1.4 Annuity Starting Date 4
1.5 Beneficiary 4
1.6 Code 4
1.7 Committee 5
1.8 Compensation 5
1.9 Credited Service 6
1.10 Disabled 6
1.11 Earnings 6
1.12 Effective Date 8
1.13 Eligible Employee 9
1.14 Employee 9
1.15 Employer 9
1.16 Employment Commencement Date 9
1.17 ERISA 10
1.18 Final Average Monthly Earnings 10
1.19 Foreign Employee 10
1.20 Hour of Service 10
1.21 Participant 11
1.22 Period of Service 11
1.23 Period of Severance 11
1.24 Plan 12
1.25 Plan Administrator 12
1.26 Plan Year 12
1.27 Service 12
1.28 Severance From Service Date 12
1.29 Social Security Retirement Age 12
1.30 Temporarily Terminated 12
1.31 Terminated 13
1.32 Trust or Trust Fund 13
1.33 Trustee 13
1.34 Additional Definitions in Plan 13
SECTION 2 - PARTICIPATION 15
2.1 Eligibility for Participation 15
2.2 Reemployment After a Termination 15
2.3 Employees in a Bargaining Unit 15
<PAGE>
SECTION 3 - RETIREMENT DATES 16
3.1 Normal Retirement Date 16
3.2 Early Retirement Date 16
3.3 Deferred Retirement Date 16
3.4 Retirement Date 16
3.5 Vested Termination Date 16
SECTION 4 - RETIREMENT BENEFITS 17
4.1 Accrued Benefit 17
4.2 Normal Retirement Benefit 18
4.3 Early Retirement Benefit 19
4.4 Deferred Retirement Benefit 19
4.5 Vested Termination Benefit 19
4.6 Reemployment After Retirement 19
4.7 Benefits For Terminated Participants 19
4.8 Benefits Payable From SpaceLabs Medical, Inc.
Retirement Plan 20
SECTION 5 - FORMS OF PAYMENT 21
5.1 Forms of Payment 21
5.2 Automatic Form of Benefit 22
5.3 Limitation on Forms of Payment 22
5.4 Explanation of Benefit Election and Waiting Period 23
5.5 Directed Rollovers 23
SECTION 6 - DEATH AND DISABILITY BENEFITS 25
6.1 Spouse's Death Benefit 25
6.2 Disability Benefits 26
SECTION 7 - VESTING 27
7.1 Vesting 27
7.2 Termination Prior to Vesting 27
7.3 Forfeitures 28
SECTION 8 - LIMITATIONS ON BENEFITS 29
8.1 Limitation on Benefits 29
8.2 Maximum Annual Benefit Payable Under the Plan 30
8.3 Additional Limitation Relating to Defined Contribution
Plans 33
<PAGE>
SECTION 9 - TOP HEAVY PROVISIONS 35
9.1 Scope 35
9.2 Top Heavy Status 35
9.3 Minimum Benefit 37
9.4 Benefit Limitation 38
9.5 Vesting 39
SECTION 10 - ADMINISTRATION OF THE PLAN 40
10.1 Plan Administrator 40
10.2 Organization and Procedures 40
10.3 Duties and Authority of the Committee 40
10.4 Expenses 42
10.5 Bonding and Insurance 42
10.6 Commencement of Benefits 42
10.7 Appeal Procedure 43
10.8 Plan Administration - Miscellaneous 44
10.9 Domestic Relations Orders 46
10.10 Plan Qualification 47
10.11 Deductible Contribution 47
10.12 Payment of Benefits Through Purchase of Annuity
Contract 47
SECTION 11 - AMENDMENT AND TERMINATION 49
11.1 Amendment General 49
11.2 Amendment - Consolidation or Merger 49
11.3 Termination of the Plan 49
11.4 Allocation of the Trust Fund on Termination of Plan 49
SECTION 12 - FUNDING 51
12.1 Contributions to the Trust 51
12.2 Trust Fund for Exclusive Benefit of Participants 51
12.3 Disposition of Credits and Forfeitures 51
12.4 Trustee 51
12.5 Investment Manager 51
SECTION 13 - FIDUCIARIES 53
13.1 Limitation of Liability of the Employer and Others 53
13.2 Indemnification of Fiduciaries 53
13.3 Scope of Indemnification 53
<PAGE>
SIGNATURE PAGE 54
APPENDIX 1 55
<PAGE>
PREAMBLE
THIS RETIREMENT PLAN (hereinafter referred to as the "Plan,"
formerly known as the Westmark International Incorporated
Retirement Plan and now known as the Advanced Technology
Laboratories, Inc. Retirement Plan) is amended and restated
effective May 17, 1994, by Advanced Technology Laboratories,
Inc., a Delaware corporation (hereinafter "Employer").
WHEREAS, the purpose of the Plan is to provide retirement
benefits to Employees who become covered under the Plan; and
WHEREAS, the Plan was originally known as the Advanced
Technology Laboratories Floor Retirement Plan, and was adopted
effective January 1, 1981 by Advanced Technology Laboratories,
Inc.; and
WHEREAS, the Plan was amended and restated effective January
1, 1987, the name was changed to the Westmark International
Incorporated Floor Retirement Plan, and Westmark International
Incorporated became the plan sponsor, in connection with the
distribution of shares of Westmark International Incorporated to
the shareholders of Squibb Corporation; and
WHEREAS, the Plan was amended and restated effective January
1, 1990 and the name was changed to the Westmark International
Incorporated Retirement Plan; and
WHEREAS, effective June 26, 1992, the corporate name of
Westmark International Incorporated was changed to Advanced
Technology Laboratories, Inc., and assets and liabilities of the
Plan attributable to SpaceLabs, Inc. as a participating employer
in this Plan were spun off to form the SpaceLabs Medical, Inc.
Retirement Plan; and
WHEREAS, effective June 26, 1992 the Plan was amended and
restated to change the name to the Advanced Technology
Laboratories, Inc. Retirement Plan and to effect certain other
changes; and
WHEREAS, the Plan was amended and restated effective January
1, 1994;
WHEREAS, the Employer acquired Interspec, Inc., including
Echo Ultrasound, a division of Interspec, Inc., as of May 17,
1994 (the "Acquisition"); and
WHEREAS, the Employer desires to amend and restate the Plan
to reflect the Acquisition and to effect certain changes; and
WHEREAS, the Plan shall be maintained for the exclusive
benefit of covered Employees, and is intended to comply with the
Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, and other
applicable law;
NOW, THEREFORE, except as otherwise specified herein, the
Employer does hereby amend and restate the Plan as set forth in
the following pages effective May 17, 1994, except that any
change required by federal law, including without limitation
amendments to the Internal Revenue
1
<PAGE>
Code, the Employee Retirement Income Security Act, the Age
Discrimination in Employment Act and regulations or rulings
issued pursuant thereto shall be effective on the latest date
on which such change may become effective and comply with
such laws.
2
<PAGE>
SECTION 1
DEFINITIONS
The following terms when used herein shall have the following
meaning, unless a different meaning is plainly required by the
context. Capitalized terms are used throughout the Plan text for
terms defined by this and other sections.
1.1 Accrued Benefit
---------------
"Accrued Benefit" means, on any date, the benefit determined
under the formula specified in Section 4.1 as of such date.
1.2 Actuarially Equivalent/Actuarially
----------------------------------
(a) General
-------
"Actuarially Equivalent" and similar terms (for
purposes other than determining contributions to the
Trust Fund) means that the present value of two (2)
payments or series of payments shall be of equal value
when computed at an eight percent (8%) rate of interest
and on the basis of the 1984 Unisex Pension Mortality
Table; provided, however, that the interest rates and
mortality table below shall apply for the purposes
stated.
(b) Before January 1, 1996
----------------------
With respect to Participants who terminate employment
before January 1, 1996, the interest rate for immediate
or deferred annuities that would be used by the Pension
Benefit Guaranty Corporation to determine the present
value of the Participant's benefit upon termination of
an insufficient trusteed single employer plan, as of
the first day of the Plan Year that contains the
Annuity Starting Date shall be used for calculating the
Actuarial Equivalent value of any lump sum
distribution.
(c) On or After January 1, 1996
---------------------------
Notwithstanding the foregoing, with respect to
Participants who terminate employment on or after
January 1, 1996, the Actuarial Equivalent value of any
lump sum distribution shall be determined using the
following interest rate and mortality table:
Interest: the annual interest rate on 30-year Treasury
securities as determined under Code Section
417 (which, as of January 1, 1996, is the
average annual yield on 30-year Treasury
Constant Maturities) for the November
before the Plan Year which contains the Annuity
Starting Date; and
3
<PAGE>
Mortality: the prevailing Commissioner's standard
table (described in Code Section
807(d)(5)(A)), without regard to any other
subparagraphs of Code Section 807(d)(5)) used
to determine reserves for group annuity
contracts issued on the date as of which the
present value is being determined (which as
of the date of this amendment is the 1983
Group Annuity Mortality Table, 50% male and
50% female).
1.3 Affiliated Companies
--------------------
"Affiliated Companies" means:
(a) the Employer,
(b) any other corporation which is a member of a controlled
group of corporations which includes the Employer (as defined in
Section 414(b) of the Code),
(c) any other trade or business under common control with the
Employer (as defined in Section 414(c) of the Code), or
(d) any other member of an affiliated service group which
includes the Employer (as defined in Section 414(m) of
the Code).
For purposes of the limitation on benefits in Sections
8.2 and 8.3, the determination of whether an entity is
an Affiliated Company will be made by modifying
Sections 414(b) and (c) of the Code as specified in
Section 415(h) of the Code.
1.4 Annuity Starting Date
---------------------
"Annuity Starting Date" means the first day of the first
period for which a Plan benefit is payable as an annuity, or
any other form.
1.5 Beneficiary
-----------
"Beneficiary" means the person or persons designated to be
the Beneficiary by the Participant in writing to the
Benefits Committee. In the event a married Participant
designates someone other than his or her spouse as
Beneficiary, such initial designation or subsequent change
shall be invalid unless the spouse signs a written consent
that acknowledges the effect of the designation and names
the designated Beneficiary, and the spouse's signature is
notarized or witnessed by a Plan representative.
1.6 Code
----
"Code" means the Internal Revenue Code of 1986, as amended
and including all regulations promulgated pursuant thereto.
4
<PAGE>
1.7 Committee
---------
"Committee" means the Advanced Technology Laboratories, Inc.
Benefits Committee as from time to time constituted and
appointed by the Compensation Committee of the Board of
Directors of the Employer to administer the Plan.
1.8 Compensation
------------
"Compensation" means all of the following listed in (a)
through (f) below excluding the items listed in (g) through
(j) below.
(a) wages, salaries, fees for professional services and other
amounts received (without regard to whether or not an amount is
paid in cash) for personal services actually rendered in the
course of employment with the Employer to the extent that the
amounts are includible in gross income (including, but not
limited to, commissions paid salesmen, compensation for services
on the basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits, and reimbursements, or
other expense allowances under a nonaccountable plan (as
described in Treas. Reg. Section 1.62-2(c));
(b) in case of an Employee who is an employee within the meaning
of Code Section 401(c)(1) and the regulations thereunder, the
Employee's earned income (as described in Code Section 401(c)(2)
and the regulations thereunder);
(c) amounts described in Code Sections 104(a)(3), 105(a), and
105(h), but only to the extent that these amounts are includible
in the gross income of the Employee;
(d) amounts paid or reimbursed by the Employer for moving
expenses incurred by an Employee, but only to the extent that at
the time of the payment it is reasonable to believe that these
amounts are not deductible by the Employee under Code Section
217;
(e) the value of a non-qualified stock option granted to an
Employee by the Employer, but only to the extent that the value
of the option is includible in the gross income of the Employee
for the taxable year in which granted; and
(f) the amount includible in the gross income of an Employee
upon making the election described in Code Section 83(b).
Paragraphs (a) and (b) of this Section 1.8 include
foreign earned income (as defined in Code Section
911(b)), whether or not excludible from gross income
under Code Section 911. Compensation described in
paragraph (a) of this Section is to be determined
without regard to the exclusions from gross income in
Code Sections 931 and 933. Similar principle are to be
applied with respect to income subject to Code
5
<PAGE>
Sections 931 and 933 in determining Compensation described
in paragraph (b) of this Section:
(g) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the
taxable year in which contributed, or Employer contributions
under a simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(h) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(i) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(j) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in Code Section 403(b) (whether or not the
contributions are actually excludible from the gross income of
the Employee).
For purposes of applying the limitations of Section 8.2,
Compensation for a limitation year is the compensation
actually paid or made available during such limitation year.
1.9 Credited Service
----------------
"Credited Service" means all completed years and fractions
of years of Service for the Employer during a Period of
Service, excluding Periods of Service forfeited due to a
Period of Severance.
Notwithstanding the foregoing, Service while a Foreign
Employee which is completed before January 1, 1987 shall be
disregarded for purposes of determining a Participant's
Credited Service.
1.10 Disabled
--------
"Disabled" means a Participant is entitled to benefits under
an Employer-sponsored long term disability plan, or a long
term disability plan to which the Employer contributes on
behalf of the Participant.
1.11 Earnings
--------
"Earnings" for each Plan Year means:
(a) for all Participants who are not Foreign Employees, for
Credited Service prior to January 1, 1989: the straight-time
pay earned by an Employee from the
6
<PAGE>
Employer prior to reduction for any contributions determined
on a salary reduction basis under a flexible benefit plan
established pursuant to Section 125 of the Code or under the
Westmark International Incorporated Incentive Savings and Stock
Ownership Plan, including shift differentials, special
geographical location allowances, holiday pay, sick leave
pay (exempt and non-exempt), short-term disability (exempt and
non-exempt), retroactive pay as it applies to any of the above,
and pay for vacation hours taken. Earnings will not include non-
refundable draw, bonuses, commissions, employee referral bonuses,
stock option payments, special bonuses, lump-sum payments or cash
payoffs for unused vacation, severance pay, hiring bonus, long-
term disability payments (exempt and non-exempt), finder's fees,
any relocation payments in the form of reimbursement or
relocation bonus and overtime.
(b) for all Participants who are not Foreign Employees, for
Credited Service after December 31, 1988: the straight-time pay
earned by an Employee from:
(i) the Employer; and
(ii) from Interspec, Inc. from January 1, 1994 to May 17, 1994
when Interspec, Inc. became an Employer,
prior to reduction for any contributions
determined on a salary reduction basis under a
flexible benefit plan established pursuant to
Section 125 of the Code or under the Westmark
International Incorporated Incentive Savings and
Stock Ownership Plan or Advanced Technology
Laboratories, Inc. Incentive Savings and Stock
Ownership Plan, including:
(1) special geographical location allowances, holiday pay,
sick leave pay (exempt and non-exempt), short-term
disability (exempt and non-exempt), retroactive pay as
it applies to any of the above, and pay for vacation
hours taken;
(2) overtime pay, shift differentials, and bonuses (including
MICP and bullet bonuses) not in excess of fifty percent
(50)% of annualized straight-time pay prior to reduction
as described above;
(3) for Credited Service after December 31, 1988 and before
January 1, 1993: salesperson commissions and service
commissions/incentives to the extent such amounts when
added to the amount determined under (ii) above do not
exceed one hundred twenty-five percent (125%) of
annualized straight-time pay prior to reduction as
described above; and
(4) for Credited Service after December 31, 1992, salesperson
commissions and service commissions/incentives.
7
<PAGE>
Earnings will not include non-refundable draw,
employee referral bonuses, Performance Unit Plan
awards, car allowances, stock option payments,
restricted stock awards, lump-sum payments or cash
payoffs for unused vacation, severance pay,
retention bonus, hiring bonus, long-term
disability payments (exempt and non-exempt), and
any relocation payments in the form of
reimbursement or relocation bonus.
(c) For all Foreign Employees, the annual notional salary and
the actual bonus, if any, stated in U.S. dollars established in a
uniform and nondiscriminatory manner for each Foreign Employee,
on or after January 1, 1987. Notional salary shall not include
any special relocation or foreign assignment allowances.
Notional salary shall include an equitable adjustment
to reflect any retirement benefit which is expected to
be earned under a foreign retirement plan to the extent
attributable to contributions by an Employer or any
foreign subsidiary of an Employer.
Notional salary for each Foreign Employee shall be
approved by the President of the applicable business
unit.
Notwithstanding the foregoing, annual Earnings in
excess of the limit indicated below shall be
disregarded; provided, however, that the $150,000 limit
for 1994 shall be automatically adjusted for future
years in accordance with Code Section 401(a)(17)(B) to
the maximum permissible dollar limitation permitted by
the Commissioner of the Internal Revenue Service.
Plan Year Dollar Limitation
------------- -----------------
1989 - 1993 $235,840
1994 and later $150,000 (indexed)
In determining Earnings of a Participant for purposes
of this limitation, the family aggregation rules of
Section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include
only the spouse of the Participant and any lineal
descendants of the Participant who have not attained
age nineteen (19) before the close of the year. If as
a result of the application of such rules the
limitation is exceeded, then the limitation shall be
prorated among the affected individuals in proportion
to each such individual's Earnings as determined under
this Section 1.11 prior to the applications of this
limitation.
1.12 Effective Date
--------------
"Effective Date" means January 1, 1981, or with respect to
any Employer specified in appendices to this Plan, the date
such Employer adopted the Plan.
8
<PAGE>
1.13 Eligible Employee
-----------------
"Eligible Employee" means any Employee who is on the active,
regular payroll of the Employer, provided, however, the term
"Eligible Employee" does not include any temporary,
cooperative or leased employee. A temporary employee within
the meaning of the previous sentence is an Employee who is
hired to complete a specific project or to accommodate
business cycle fluctuations without exceeding the maximum
number of Employees permitted under the Employer's corporate
budget.
1.14 Employee
--------
"Employee" means any person (including any officer or
director) who is employed by, and as such is enrolled on the
active payroll of the Employer and is performing services in
the United States, and any person who is a Foreign Employee.
"Employee" shall include any leased employee within the
meaning of Code Section 414(n)(2); provided, however, if
leased employees constitute twenty percent (20%) or less of
the Employer's non-highly compensated work force, the term
"Employee" shall not include a leased employee who is
covered by a plan maintained by the leasing organization
which meets the requirements of Code Section 414(n)(5).
1.15 Employer
--------
"Employer" means Advanced Technology Laboratories, Inc., a
Delaware corporation. For purposes other than Sections 10,
11 and 12, the term "Employer" shall also include other
Affiliated Companies that adopt the Plan with the approval
of the Board of Directors of Advanced Technology
Laboratories, Inc. (Delaware), as provided from time to time
in Appendix I to this Plan.
1.16 Employment Commencement Date
----------------------------
"Employment Commencement Date" means the later of:
(a) the Effective Date;
(b) the date on which an Employee first completes an Hour of
Service for the Employer or an Affiliated Company during the
current period of employment; and
(c) the date the individual's employer became an Employer or an
Affiliated Company. "Hour of Service" for purposes of this
definition means each hour for which an Employee is paid or
entitled to payment for the performance of duties for the
Employer or any Affiliated Companies.
9
<PAGE>
1.17 ERISA
-----
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, including all regulations thereunder.
1.18 Final Average Monthly Earnings
------------------------------
"Final Average Monthly Earnings" means one twelfth of the
highest average annual Earnings received by the Participant
during any sixty (60) consecutive month period. In the
event the Participant has less than 60 consecutive months of
employment, the computation period shall be based upon (1)
the most recent sixty (60) months of employment (whether or
not consecutive), or (2) the total Period of Service with
the Employer, whichever is less. Earnings for partial years
are pro-rated.
1.19 Foreign Employee
----------------
"Foreign Employee" means any person (including an officer or
director) who is employed by, and as such is on the active
payroll of the Employer or a foreign subsidiary or branch of
an Employer, who relocates to a country outside the United
States and outside such individual's country of citizenship
to complete a temporary assignment for an Employer or a
foreign subsidiary or branch of an Employer which is
expected to be completed within five (5) years from the
initial date of the assignment.
1.20 Hour of Service
---------------
"Hour of Service" means each hour for which an Employee is
paid or entitled to payment by the Company or any Affiliated
Companies on account of:
(a) Performance of duties;
(b) A period of time during which no duties are performed
(irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty, or
leave of absence. No more than 501 Hours of Service shall be
credited under this paragraph for any single continuous period
(whether or not such period occurs in a single computation
period). Hours under this paragraph shall be calculated and
credited pursuant to 29 CFR 2530.200b-2(b) and (c), which are
incorporated herein by this reference; and
(c) An award of back pay, irrespective of mitigation of damages,
agreed to by the Participating Company or any Affiliated Company.
However, hours credited under (a) or (b) above shall not also be
credited under this subsection (c).
10
<PAGE>
1.21 Participant
-----------
"Participant" means any Eligible Employee who qualifies for
participation pursuant to Section 2.1 or 2.2. A nonvested
Participant shall cease to be a Participant on the date he
or she incurs a one-year (1) Period of Severance. A vested
Participant shall cease to be a Participant when his or her
benefit payments from the Plan are completed.
1.22 Period of Service
-----------------
"Period of Service" means the period of time commencing with
the Employment Commencement Date and ending on the Severance
From Service Date, provided that Periods of Service with
Advanced Technology Laboratories, Inc. beginning before the
Effective Date shall be included. Non-successive periods
are aggregated to determine the Employee's total Period of
Service.
For vesting and participation purposes, an Employee's Period
of Service shall also include the following:
(a) Periods not in Service due to Temporary Terminations;
(b) Periods of Service with an Affiliated Company; and
(c) Periods of Service prior to May 17, 1994 with Interspec,
Inc. and Periods of Service with Echo Ultrasound, currently a
division of Interspec, Inc. and formerly a division of General
Electric Company, determined as if such companies were Employers
prior to that date.
Notwithstanding the above, for an individual with respect to
whom assets and liabilities are transferred to the SpaceLabs
Medical, Inc. Retirement Plan between June 26 and December
31, 1992, the individual's Period of Service for all
purposes under the Plan shall begin on the individual's
first Employment Commencement Date following the date of
such transfer.
1.23 Period of Severance
-------------------
"Period of Severance" means the period of time commencing on
the Severance From Service Date and ending on the date the
Employee again performs an Hour of Service for the Employer;
provided however, such period shall commence one (1) year
later if a male or female Employee is absent due to
pregnancy, birth or adoption of a child, or caring for a
child immediately following birth or adoption.
Notwithstanding any Plan provision to the contrary, a Period
of Severance for an employee of Interspec, Inc. on May 16,
1994 shall be determined for vesting and participation
purposes only as if Interspec, Inc. and Echo Ultrasound,
which is currently a division of Interspec, Inc. and
formerly was a division of General Electric Company, were
Employers prior to May 17, 1994.
11
<PAGE>
1.24 Plan
----
"Plan" means the Advanced Technology Laboratories, Inc.
Retirement Plan either in its previous or present form or as
amended from time to time.
1.25 Plan Administrator
------------------
"Plan Administrator" means the person or entity designated
in Section 10 to administer the Plan.
1.26 Plan Year
---------
"Plan Year" means the twelve (12) month period commencing
each January 1 and ending each December 31.
1.27 Service
-------
"Service" means periods for which an Employee is paid or
entitled to payment for the performance of duties for the
Employer or an Affiliated Company.
For purposes of Section 2 (Participation) and Section 7
(Vesting) only, Service for an Employee who transfers
employment from an employing company under the Squibb
Corporation Pension Plan to the Employer on or before August
31, 1987, without intervening employment with another
employer, shall also include any prior period of employment
with an employing company under the Squibb Corporation
Pension Plan to the extent such employment was credited as
"service" for vesting purposes under the Squibb Corporation
Pension Plan.
1.28 Severance From Service Date
---------------------------
"Severance From Service Date" means the earlier of the date
on which an Employee quits, retires, is discharged or dies,
or the first anniversary of absence from work for any other
reason. An individual employed by an Affiliated Company
other than the Employer shall incur a Severance from Service
Date if the individual's employer ceases to be an Affiliated
Company of the Employer.
1.29 Social Security Retirement Age
------------------------------
"Social Security Retirement Age" means the following ages
depending on the Participant's year of birth: age (65)
sixty-five for Participants born prior to 1938, age sixty-
six (66) for Participants born after 1937 but prior to 1955,
and age sixty-seven (67) for Participants born after 1954.
1.30 Temporarily Terminated
----------------------
Termination is deemed "Temporary" if the Employee is rehired
and in Service within one (1) year of the initial date of
absence from work.
12
<PAGE>
1.31 Terminated
----------
"Terminated" means no longer in Service or employed as an
Employee with the Employer for reasons of quit, retirement,
discharge or death. An Employee shall also be deemed
Terminated on the first anniversary of the initial date of
absence for any other reason, provided such absence lasts at
least twelve (12) months.
1.32 Trust or Trust Fund
-------------------
"Trust" or "Trust Fund" means the trust fund into which
shall be paid all contributions and from which all benefits
shall be paid under this Plan.
1.33 Trustee
-------
"Trustee" means the trustee or trustees who receive, hold,
invest and disburse the assets of the Trust in accordance
with the terms and provisions set forth in a trust
agreement.
1.34 Additional Definitions in Plan
------------------------------
The following terms are defined in the following sections of
the Plan:
Section
Aggregate Account 9.2
Aggregation Group 9.2
Benefit 8.1(c)
Deferred Retirement Benefit 4.5
Deferred Retirement Date 3.3
Determination Date 9.2
Early Retirement Benefit 4.4
Early Retirement Date 3.2
Highly Compensated Employee 8.1(c)(3)
Investment Manager 12.5
Joint and Survivor Annuity 5.1(b)
Key Employee 9.2
Lump Sum 5.1(d)
Normal Retirement Benefit 4.3
Normal Retirement Date 3.1
Present Value of Accrued Benefits 9.2
Qualified Domestic Relations Order 10.9
Restricted Group 8.1(c)
Retirement Date 3.4
Statutory 50% Joint and Survivor Annuity Option 5.2(a)
Super Top Heavy 9.2
Top Heavy 9.2
Valuation Date (for Top Heavy) 9.2
13
<PAGE>
Vested Termination Date 3.5
Vested Termination Benefit 4.6
Whole Life Annuity 5.1(a)
14
<PAGE>
SECTION 2
PARTICIPATION
2.1 Eligibility for Participation
-----------------------------
(a) Full-Time Employees
-------------------
Each Eligible Employee (other than a Part-time Employee
as described below) who is not already a Participant
shall become a Participant under this Plan on the later
of the first day of the first month coinciding with or
next following completion of a one-year (1) Period of
Service and the date his or her employer becomes an
Employer for Plan purposes.
(b) Part-Time Employees
-------------------
An Eligible Employee who is a Part-Time Employee shall
become a Participant on the later of the first day of
the first month coinciding with or next following a
twelve-month (12) period during which he or she is
credited with at least 1,000 Hours of Service and the
date his or her employer becomes an Employer for plan
purposes. Such twelve-month (12) period shall commence
on the Employee's Employment Commencement Date and each
January 1 thereafter.
"Part-Time Employee" means an Employee who is employed
for less than a full-time basis based on uniform rules
established by the Committee and consistently applied
to all persons similarly situated.
2.2 Reemployment After a Termination
--------------------------------
Upon the reemployment of a Terminated former Participant as
an Eligible Employee, he or she shall immediately become a
Participant.
An Employee who Terminates prior to becoming a Participant
and is later reemployed shall become a Participant upon
satisfying the requirements of Section 2.1. If the
Employee's Period of Severance equals or exceeds five (5)
years, the Period of Service preceding the Period of
Severance shall be disregarded. If the Employee's Period of
Severance is less than five (5) years, the Period of Service
before the Period of Severance shall be aggregated with the
subsequent Period of Service.
2.3 Employees in a Bargaining Unit
------------------------------
An Employee belonging to a collective bargaining unit, which
has entered an agreement with the Employer which does not
provide for retirement benefits under this Plan, shall not
qualify for participation and the period of employment shall
not be included in determining his or her Credited Service.
If such an Employee is a Participant when such an agreement
is entered, the Employee shall cease to accrue Credited
Service on the effective date of the bargaining agreement.
If such an agreement provides for Plan participation, a
covered Employee may continue or resume participation and
accrual of Credited Service.
15
<PAGE>
SECTION 3
RETIREMENT DATES
3.1 Normal Retirement Date
----------------------
The Normal Retirement Date for a Participant shall be the
first day of the month coinciding with or next following the
attainment of age sixty-five (65).
3.2 Early Retirement Date
---------------------
Each Participant who attains age fifty-five (55) either
before or after Termination and who completes a five (5)
year Period of Service may elect, in writing, an Early
Retirement Date. Such Early Retirement Date shall be before
the Normal Retirement Date and after Termination on the
first day of any month coinciding with or following the date
the early retirement requirements are met.
3.3 Deferred Retirement Date
------------------------
The Deferred Retirement Date for a Participant who continues
working after the Normal Retirement Date shall be the first
day of the month coinciding with or next following his or
her Termination date; provided, however, the Deferred
Retirement Date shall not be later than April 1 following
the calendar year in which the Participant attains age
seventy and a half (70 1/2).
3.4 Retirement Date
---------------
The Retirement Date for a Participant shall be one of the
dates specified in Sections 3.1, 3.2 or 3.3 above, on which
benefits are to commence. The Retirement Date for a
Participant who Terminates prior to retirement with a vested
Accrued Benefit shall be Normal Retirement Date, unless such
Participant qualifies for and elects to receive benefits at
an Early Retirement Date.
3.5 Vested Termination Date
-----------------------
A vested Participant, whose Accrued Benefit has an
Actuarially Equivalent present value not in excess of
$10,000, who Terminates employment with the Employer and any
Affiliated Companies prior to Early Retirement Date may
elect in writing to receive the Vested Termination Benefit
either as a Lump Sum or an annuity on a Vested Termination
Date, which is the first day of any month following the date
of Termination and prior to his or her earliest Retirement
Date. In the event a married Participant elects to receive
benefits on a Vested Termination Date and his or her Vested
Termination Benefit exceeds $3,500, such election shall be
void unless the election is signed by the Participant's
spouse, acknowledges the effect of the election, and the
spouse's signature is notarized or witnessed by a Plan
representative.
16
<PAGE>
SECTION 4
RETIREMENT BENEFITS
4.1 Accrued Benefit
---------------
The Accrued Benefit for any Participant shall be the excess,
if any, of the monthly benefit (as described in (a) below)
over the frozen monthly amount determined by reference to
the former Westmark Discretionary Contribution Retirement
Plan offset (as described in (b) below), and then adjusted
for any prior distribution (Section 4.6) and/or form of
payment (Section 5.1).
(a) Monthly Benefit
---------------
The monthly benefit payable to a Participant at the
Normal Retirement Date shall equal the greater of (i)
or (ii) below:
(i) One percent (1.0%) of Final Average Monthly Earnings as of
December 31, 1993, multiplied by Credited Service as of
December 31, 1993, plus One percent (1.0%) of Final Average
Monthly Earnings taking into account all periods, but
disregarding Earnings in excess of $150,000 for Plan Years
prior to January 1, 1994, multiplied by Credited Service
earned after December 31, 1993, or
(ii) One percent (1.0%) of Final Average Monthly Earnings, but
disregarding Earnings in excess of $150,000 for Plan Years
prior to January 1, 1994, multiplied by the Participant's
Credited Service.
(b) Frozen Discretionary Contribution Plan Offset
---------------------------------------------
The monthly frozen discretionary contribution plan
offset shall equal the amount determined under
subparagraph (i) less the amount determined under
subparagraph (ii) below, accumulated with eight percent
(8%) interest compounded annually to the later of
January 1, 1989 and the Normal Retirement Date and then
divided by 100:
(i) The Participant's account balance in the Westmark
International Incorporated Discretionary Contribution Plan on
December 31, 1988.
(ii) The greater of (A) or (B) below:
(A) the amount determined under subparagraph (1) less the
amount determined under subparagraph (2) below,
accumulated with eight percent (8%) interest compounded
annually from December 31, 1982 through December 31, 1988.
17
<PAGE>
(1) the Participant's account balance in the Westmark
International Incorporated Discretionary Contribution
Plan as of December 31, 1982.
(2) the maximum amount of the Participant's account
balance in the Westmark International Incorporated
Discretionary Contribution Plan (exceeding any
rollover or transfer amount), as of December 31,
1982, which, when accumulated with eight percent
(8%) interest compounded annually to the later of
January 1, 1989 and the Normal Retirement Date and
then divided by one hundred (100), does not exceed
the Participant's floor benefit under the
Predecessor Plan as of December 31, 1982.
(B) The amount determined under subparagraph (1) less the
amount determined under subparagraph (2) below:
(1) the Participant's account balance in the Westmark
International Incorporated Discretionary
Contribution Plan as of December 31, 1988.
(2) the maximum amount of the Participant's account
balance in the Westmark International Incorporated
Discretionary Contribution Plan (excluding any
rollover or transfer amount), as of December 31,
1988, which, when accumulated with eight percent
(8%) interest compounded annually to the later of
January 1, 1989 and the Normal Retirement Date and
then divided by one hundred (100), does not exceed
the Participant's monthly benefit under this Plan
as of December 31, 1988.
Notwithstanding the foregoing, a Participant's Accrued
Benefit shall not be less than his or her Accrued Benefit on
the date immediately preceding the date on which any Plan
term that affects the Accrued Benefit is amended.
The Accrued Benefit is payable in the form of a Whole Life
Annuity commencing at Normal Retirement Date.
4.2 Normal Retirement Benefit
-------------------------
A Participant's monthly Normal Retirement Benefit shall
equal his or her vested Accrued Benefit as of the date of
Termination, and then Actuarially adjusted for form of
payment.
18
<PAGE>
4.3 Early Retirement Benefit
------------------------
A Participant's monthly Early Retirement Benefit shall equal
his or her vested Accrued Benefit as of the date of
Termination, reduced by half (1/2) of one percent (1%) for
each month that the Early Retirement Date precedes the
Normal Retirement Date, and then Actuarially adjusted for
form of payment.
4.4 Deferred Retirement Benefit
---------------------------
A Participant's monthly Deferred Retirement Benefit shall
equal his or her vested Accrued Benefit as of the date of
Termination, and then Actuarially adjusted for form of
payment. Service and Earnings beyond the Normal Retirement
Date shall be taken into consideration. In no event shall
the benefit provided under this paragraph be less than the
retirement benefit to which the Participant would have been
entitled if he or she had actually retired on the Normal
Retirement Date, Actuarially increased to reflect the
deferred commencement of payments.
In the event a Participant continues working after the date
benefits are required to commence following age seventy and
a half (70 1/2) pursuant to Section 10.6, the Deferred
Retirement Benefit shall be recalculated and adjusted
annually.
4.5 Vested Termination Benefit
--------------------------
A Participant's Vested Termination Benefit shall equal his
or her Accrued Benefit as of the date of Termination,
Actuarially reduced to reflect the early commencement of
payment of benefits, and then Actuarially adjusted for form
of payment.
4.6 Reemployment After Retirement
-----------------------------
Upon reemployment, a retired Participant shall cease
receiving retirement benefits under the Plan, until the
earlier of subsequent Termination or the date benefits are
required to commence following age seventy and a half (70 1/2)
pursuant to Section 10.6. At the Participant's subsequent
retirement, benefits payable shall be based on his or her
total Credited Service and Earnings at the time of
subsequent retirement, and shall be reduced by the
Actuarially Equivalent value of benefits previously received
by the Participant. In no event shall the benefit upon
subsequent retirement, after any reduction for previously
received benefits, be less than the initial retirement
benefit.
4.7 Benefits For Terminated Participants
------------------------------------
Benefits under the Plan shall be determined and paid in
accordance with the provisions of the Plan as in effect on
the most recent date of a Termination of employment.
19
<PAGE>
4.8 Benefits Payable From SpaceLabs Medical, Inc. Retirement Plan
-------------------------------------------------------------
Notwithstanding anything herein to the contrary, if an
individual was a Participant in this Plan and assets and
liabilities attributable to the individual's Accrued Benefit
under this Plan were transferred from this Plan to the
SpaceLabs Medical, Inc. Retirement Plan between June 26 and
December 31, 1992, the Accrued Benefit of such individual
with respect to Credited Service earned prior to such
transfer shall be payable from the SpaceLabs Medical, Inc.
Retirement Plan and shall not be payable from this Plan.
20
<PAGE>
SECTION 5
FORMS OF PAYMENT
5.1 Forms of Payment
----------------
The following forms of benefit payments are available under
this Plan:
(a) Whole Life Annuity
------------------
A Whole Life Annuity shall be payable monthly from the
Retirement Date to the first of the month preceding
death. The amount of the monthly benefit shall equal
the monthly Normal, Early or Deferred Retirement
Benefit, whichever applies.
(b) Joint and Survivor Annuity
--------------------------
A reduced Joint and Survivor Annuity shall be payable
monthly to a retired Participant from the Retirement
Date or Vested Termination Date to the first of the
month preceding death. Following the Participant's
death, a retirement benefit equal to fifty percent
(50%) or one hundred percent (100%) of the reduced
amount payable to the retired Participant shall be
payable for life to the joint annuitant, if living at
the time of the Participant's death. A Participant may
elect, before benefits commence, which percentage shall
be payable to the joint annuitant.
If the joint annuitant dies after the Participant's
retirement income begins, the Participant's payments
will be in the same reduced amount as is otherwise
payable under the Joint and Survivor Annuity. If the
joint annuitant dies prior to the date as of which the
Participant's retirement income begins, any election of
a form of benefit under this Section 5.1(b) shall be
automatically canceled. If the Participant dies prior
to the date as of which his or her retirement income is
to begin, the joint annuitant shall not be entitled to
receive any payments under this Section 5.1(b).
However, a spouse joint annuitant may be entitled to a
benefit under Section 6.1.
The Joint and Survivor Annuity shall be Actuarially
Equivalent to the Participant's retirement benefit
payable in the form of a Whole Life Annuity.
(c) Lump Sum
--------
A Lump Sum distribution shall be a single sum payment.
The Lump Sum distribution shall be Actuarially
Equivalent to the Participant's retirement benefit
payable in the form of a Whole Life Annuity, and shall
represent the Participant's entire interest in the
Plan. Lump Sum distributions may not exceed $10,000.
21
<PAGE>
5.2 Automatic Form of Benefit
-------------------------
Unless a Participant elects otherwise, benefits shall be
paid as provided below:
(a) Married Participants
--------------------
Any Participant who is married on his or her Annuity
Starting Date or Vested Termination Date shall
automatically be deemed to have elected the fifty
percent (50%) Joint and Survivor Annuity option,
effective as of such date, with his or her spouse on
the Annuity Starting Date as the joint annuitant (the
"Statutory fifty percent (50%) Joint and Survivor
Annuity Option").
A married Participant may reject the Statutory fifty
percent (50%) Joint and Survivor Annuity Option, or
elect a nonspouse joint annuitant pursuant to Section
5.3, by filing a written notice with the Committee
within ninety (90) days prior to his or her Annuity
Starting Date. Such notice must specify the form of
payment elected, name the non-spouse joint annuitant if
any, acknowledge the effect of the election, and must
be signed by the Participant's spouse. The spouse's
signature must be notarized or witnessed by a Plan
representative.
A married Participant may file a rejection or joint
annuitant election notice or revoke any such notice at
any time during the ninety-day (90) election period
immediately preceding the Annuity Starting Date.
(b) Other Participants
------------------
An unmarried Participant shall receive his or her
retirement benefits in the form of a Whole Life
Annuity.
An unmarried Participant may reject the Whole Life
Annuity option and elect either a Joint and Survivor
Annuity or a Lump Sum option by filing a written notice
with the Committee within ninety (90) days prior to his
or her Annuity Starting Date. An unmarried Participant
may file or revoke such a notice at any time during the
ninety-day (90) period immediately preceding the
Annuity Starting Date.
5.3 Limitation on Forms of Payment
------------------------------
Notwithstanding any Plan provision to the contrary, all
distributions will be made in accordance with Code Section
401(a)(9) and the regulations under Code Section 401(a)(9),
including Section 1.401(a)(9)-2 of the proposed Income Tax
Regulations. A Participant may elect a joint annuitant
other than his or her spouse. A Participant must elect a
form of payment under which payments will be completed
within the Participant's and joint annuitant's life times or
within their life expectancies. If a
22
<PAGE>
Participant elects a joint annuitant other than his or her
spouse, the percentage selected by the Participant to be
payable to the joint annuitant cannot exceed the
percentage in the table set forth in Q&A A-6 of Section
1.401(a)(9)-2 of the proposed Income Tax Regulations,
determined according to the age difference between the
Participant and the joint annuitant.
5.4 Explanation of Benefit Election and Waiting Period
--------------------------------------------------
(a) Explanation
-----------
The Committee shall furnish each Participant with a
written explanation of benefit commencement dates and
the terms and conditions of the forms of payment before
the Annuity Starting Date andat least thirty (30) but
not more than ninety (90) days prior to either the
Participant's Annuity Starting Date or the date benefit
distribution commences. The explanation shall clearly
indicate that the Participant has a right to consider
his or her benefit election for at least thirty (30)
days. Any election made by a Participant or consent by
the Participant's spouse more than ninety (90) days
before the Annuity Starting Date is void.
(b) Waiting Period Waiver
---------------------
A Participant may elect to commence benefits sooner
than thirty (30) days after receiving the explanation
described above. A Participant or the Participant's
spouse may revoke a benefit election at any time during
the seven (7) day period that begins immediately after
the date the written explanation is provided or at any
time before the Annuity Starting Date, if later. Also,
a Participant may elect a retroactive benefit
commencement date as long as the date is not before the
explanation is provided, and the first payment is not
made until the ninth day (9th) after the date the
explanation was provided.
5.5 Directed Rollovers
------------------
(a) General Rule
------------
Effective for distributions made after December 31,
1992, a Participant or spouse Beneficiary who is
entitled to a Lump Sum benefit pursuant to Section
10.8(c), or who elects a Lump Sum distribution pursuant
to Section 5.1(c) may direct the Committee to pay part
or all of the benefit to a trustee or custodian of
another employer's qualified plan which accepts such
directed rollovers or an individual retirement account
(IRA), subject to the following provisions:
(i) Participant or Beneficiary may only direct such a rollover
if the expected benefit payment during the Plan Year is
$200 or more.
(ii) A Participant or Beneficiary may not request a directed
rollover of an amount distributed due to the minimum required
distribution provision under Section 10.6(b).
23
<PAGE>
(iii) The rollover of a distribution may only be directed to
one qualified plan or IRA.
(iv) A Participant or Beneficiary may direct the rollover of a
portion of the distribution and elect to receive the remaining
portion of a distribution only if the rollover amount is at
least $200.
(v) A surviving spouse Beneficiary or a former spouse who is an
alternate payee pursuant to Section 10.9 may direct a rollover
under the same terms and conditions as a Participant, except
that a surviving spouse Beneficiary may only direct a rollover
to an IRA.
(vi) A non-spouse Beneficiary may not direct a rollover pursuant
to this section.
(vii) A Participant or Beneficiary provides the information
or documentation reasonably requested by the Committee.
(b) Notice to Participants
----------------------
The Committee shall furnish each Participant and
Beneficiary eligible for a directed rollover under this
Section 5.5 with a written explanation of the directed
rollover opportunity and related withholding
consequences of not choosing a directed rollover within
a reasonable period (at least thirty (30) but not more
than ninety (90) days) prior to the Participant's or
Beneficiary's Annuity Starting Date. The explanation
shall clearly indicate that the Participant or
Beneficiary has a right to a thirty-day (30) waiting
period to consider the election. A Participant or
Beneficiary may waive the thirty-day (30) waiting
period by an affirmative election to make or not make a
directed rollover in writing on form(s) provided by the
Committee.
24
<PAGE>
SECTION 6
DEATH AND DISABILITY BENEFITS
6.1 Spouse's Death Benefit
----------------------
In the event a vested Participant dies before commencing to
receive retirement benefits or Vested Termination Benefits
under the Plan, his or her spouse shall receive a
pre-retirement death benefit provided they were married
throughout the one (1) year period ending on the date of
death. The amount of the spouse's benefit and time of
commencement is described below. The spouse of a nonvested
Participant, or a Participant who has started to receive
benefits, or a spouse who was married to the Participant
less than one (1) year, is not entitled to this death
benefit.
(a) Death Following Early Retirement Date
-------------------------------------
If the Participant dies after he or she becomes
eligible to elect an Early Retirement Date, the
spouse's benefit shall be paid monthly from the first
of the month coinciding with or following the
Participant's death through the first of the month
preceding the spouse's death. The benefit shall equal
the amount payable to the surviving spouse under a
fifty percent (50%) Joint and Survivor Annuity form of
payment if the Participant had commenced receiving
retirement benefit payments as of the date spouse
benefits commence, based upon the Participant's vested
Accrued Benefit at the date of death.
(b) Death Prior to Early Retirement Date
------------------------------------
If the Participant dies prior to becoming eligible to
elect an Early Retirement Date, the spouse's benefit
shall be paid monthly from the Participant's earliest
Retirement Date (determined as if he or she had
survived) through the first of the month preceding the
spouse's death. The benefit shall equal the amount
payable to the surviving spouse under a fifty percent
(50%) Joint and Survivor Annuity form of payment if the
Participant had Terminated on the date of death,
survived to the date spouse benefits commence and
commenced receiving retirement benefit payments on such
date.
(c) Small Benefits
--------------
Notwithstanding Section 6.1(a) and 6.1(b) above, a
spouse's death benefit shall be paid in a Lump Sum
distribution if it is a small benefit under Section
10.8(c).
Notwithstanding the foregoing, in the event a Participant
dies prior to Normal Retirement Date, a spouse entitled to
benefits under (a) or (b) above, may elect prior to the date
benefits commence thereunder, to postpone commencement of
benefits to the first day of any month on or before the
Participant's Normal Retirement Date
25
<PAGE>
determined as if he or she had survived. The benefit
payable at such delayed commencement date shall be the
Actuarial Equivalent of the spouse's death benefit payable
at the terms specified under (a) or (b) above.
6.2 Disability Benefits
-------------------
A Participant who becomes Disabled shall be deemed to be in
Service for purposes of vesting and benefit accrual until
the earlier of (i) the date of recovery from Disability,
(ii) an Early Retirement Date elected by the Participant, or
(iii) Normal Retirement Date. For purposes of determining a
Participant's Accrued Benefit, average Earnings for the
twelve (12) months preceding commencement of short-term
disability benefits are deemed to be in effect during
Disability.
26
<PAGE>
SECTION 7
VESTING
7.1 Vesting
-------
Each Participant shall have a vested, nonforfeitable right
to his or her Accrued Benefit multiplied by the appropriate
vesting percentage in accordance with the following table:
Periods of Service Percent Vested
------------------ --------------
Less than 5 years 0%
5 years or more 100%
In addition, each Participant shall have a one hundred
percent (100%) nonforfeitable right to his or her Accrued
Benefit on the first day of the month preceding his or her
Normal Retirement Date, provided he or she is an Employee on
such date. An Employee who Terminates with zero percent
(0%) vested shall be deemed "nonvested."
7.2 Termination Prior to Vesting
----------------------------
(a) Forfeiture of Service
In the event a nonvested Participant incurs a Period of
Severance, and the number of years in such Period of
Severance equals or exceeds five (5) consecutive years,
his or her Period of Service and Credited Service
preceding the Severance from Service Date shall be
disregarded, and any Accrued Benefit earned prior to
the Severance from Service Date shall be forfeited.
If a vested Participant incurs a Period of Severance,
all Periods of Service and Credited Service before and
after the Period of Severance shall be aggregated.
(b) Deemed Cash-Out of Accrued Benefit
----------------------------------
If aParticipant Terminates at a time when the present
value of the Participant's vested Accrued Benefit is
zero, the Participant shall be deemed to have received
a distribution of such vested Accrued Benefit, and
shall no longer be a Participant. If the individual
resumes employment with the Employer before incurring a
five-consecutive-year (5) Period of Severance, his or
her Period of Service and Credited Service preceding
the Period of Severance and any Accrued Benefit earned
prior to the Period of Severance shall be reinstated
upon reemployment.
27
<PAGE>
7.3 Forfeitures
-----------
Any forfeitures arising under this Plan shall be used only
to offset future Employer contributions and shall not affect
any Participant's Accrued Benefit.
28
<PAGE>
SECTION 8
LIMITATIONS ON BENEFITS
8.1 Limitation on Benefits
----------------------
(a) General Rule
In the event the Plan terminates, the benefit of any
Highly Compensated Employee (and any former Highly
Compensated Employee) shall be limited to a benefit
that is nondiscriminatory under Code Section 401(a)(4).
(b) Limit on Annual Payments
------------------------
Annual payments to an Employee in the "Restricted
Group" (as defined below) are restricted to an amount
equal to the payments that would be made on behalf of
the Employee:
(i) under a single life annuity that is Actuarially Equivalent
to the sum of the Employee's Accrued Benefit and the
Employee's other benefits under the Plan (other than a Social
Security supplement); plus
(ii) the amount of any Social Security supplements the Employee
is entitled to receive. This restriction will not apply if:
(1) after payment to an Employee in the Restricted Group of
all "Benefits" (as defined below), the value of Plan
assets equals or exceeds one hundred ten percent (110%)
of the value of current liabilities, as defined in Code
Section 412(l)(7)
(2) the value of the Benefits for an Employee in the
Restricted Group is less than one percent (1%) of the
value of current liabilities before distribution of such
Benefits; or
(3) the value of the Benefits for an Employee in the
Restricted Group does not exceed the small benefit amount
described in Section 10.8(c).
(c) Definitions
-----------
(i) The "Restricted Group" consists of the twenty-five highest-
paid current and former Highly Compensated Employees (as
defined in Code Section 414(q)), or all current and former
Highly Compensated Employees if less than twenty-five.
29
<PAGE>
(ii) "Benefit" means loans in excess of the amounts set forth in
Code Section 72(p)(2)(A), any periodic income, any withdrawal
values payable to a living employee or former Employee, and
any non-insured death benefits.
(d) Limitations Not Effective
-------------------------
The limitations contained in this Section 8.1 shall not
restrict the annual amount paid to a Participant in the
Restricted Group provided the Participant agrees to
repay an amount necessary for the distribution of
assets upon Plan termination to satisfy Code Section
401(a)(4). Such Participant must agree to repay
amounts paid to him or her to the extent they exceed
the amount he or she would have received if the
restrictions under this Section 8.1 had been applied.
The agreement to repay must be secured by deposit in
escrow of property having a market value of one hundred
twenty-five percent (125%) of the amount subject to
repayment. If the value of the property falls below
one hundred ten percent (100%) of the repayment amount,
the Participant must deposit additional property to
again satisfy the one hundred twenty-five percent
(125%) requirement. Alternatively, the agreement to
repay may be secured or collateralized by posting a
bond or letter of credit equal to at least one hundred
percent (100%) of the repayment amount. Such bond must
be furnished by an insurance company or bonding company
or other surety approved by the U.S. Department of
Treasury as an acceptable surety for federal bonds.
Any such repayment agreement shall be terminated and
any property in escrow shall be returned and any bond
or letter of credit may be canceled in the event one of
the three conditions set forth in Section 8.1(b) is
satisfied or the Plan terminates and benefits received
by the Participant are nondiscriminatory in accordance
with Section 401(a)(4).
(e) Regulatory Authority
--------------------
This Section 8.1 is intended to comply with Treasury
Regulation 1.401(a)(4)-5(b), and shall be superseded
to the extent any provision of such regulation
conflicts with the limitations stated herein.
8.2 Maximum Annual Benefit Payable Under the Plan
---------------------------------------------
For purposes of this Section 8.2, the Employer and any
Affiliated Companies shall be considered a single employer,
to the extent required by the Code.
(a) Primary Rule
------------
Notwithstanding any other Plan provision to the
contrary, the annual Employer provided benefit payable
to or on behalf of a Participant under the Plan (after
any adjustments required under the Plan to reflect
commencement of benefits
30
<PAGE>
other than at Normal Retirement Date, an optional form of
payment or death benefit coverage) after 1982 shall not
exceed the lesser of:
(1) $90,000 (adjusted in accordance with this Section 8.2) or,
if greater, the Participant's current Accrued Benefit on
December 31, 1982, or
(2) the Participant's average annual Compensation from the
Employer for the consecutive calendar years (not in excess of
three such years) during which he or she was an active
Participant in the Plan and for which such average is highest.
(b) Cost-of-Living Adjustment
-------------------------
The $90,000 limit prescribed above shall be
automatically adjusted for cost-of-living increases, to
the maximum permissible dollar limitation determined by
the Commissioner of Internal Revenue. The dollar
amount applicable in computing the benefit payable to
any Participant shall be the dollar amount in effect
for the calendar year in which the benefit commences.
For 1994, the limit is $118,800.
(c) Adjustment for Early or Late Retirement
---------------------------------------
(i) Early Retirement
----------------
For purposes of 8.2 and 8.3, if the Participant's
benefit commences before Social Security
Retirement Age, the limit prescribed in Section
8.2(a)(1) shall be reduced to reflect such early
commencement.
If benefits commence on or after the date the
Participant attains age sixty-two (62) but before
the Participant attains Social Security Retirement
Age, such limit shall be reduced:
(1) five ninths (5/9) of one percent (1%) for each of the first
thirty-six (36) months prior to Social Security Retirement
Age that benefits commence; and
(2) five twelfth (5/12) of one percent (1%) for each
additional month (up to a maximum of twenty-four (24)
months) that benefits commence prior to Social Security
Retirement Age. If benefits commence prior to the
Participant attaining age sixty-two (62), the limitation
for benefits commencing at age sixty-two (62) (determined
under the preceding sentence) is further reduced to
reflect earlier commencement using the reduction factors
used to calculate early retirement benefits pursuant to
Section 4.3, provided that the interest rate used shall
not be less than five percent (5%). Any reduction shall
not reflect the
31
<PAGE>
mortality decrement to the extent that benefits will
not be forfeited upon the death of the participant.
(ii) Late Retirement
---------------
If the Participant's benefit commences after
Social Security Retirement Age, the limit
prescribed in Section 8.2(a)(1) shall be
Actuarially increased for purposes of Section 8.2
and Section 8.3 to reflect such late commencement.
(d) Annual Benefit
--------------
Notwithstanding the foregoing, if the benefit to be
paid to a Participant under the Plan is not in the form
of an Annual Benefit as described below, the benefit
considered to be payable to a Participant under the
Plan for purposes of Sections 8.2 and 8.3 shall be
Actuarially adjusted to the extent required under
Section 415(b)(2) of the Code. For purposes of the
foregoing, Annual Benefit means the benefit payable
annually in the form of a straight life annuity without
ancillary benefits or in the Statutory fifty percent
(50%) Joint and Survivor Annuity Option.
(e) Interest Rate
-------------
Any Actuarial adjustments under this Section 8.2 shall
be based on the Actuarial factors applicable for
comparable purposes under the Plan on the applicable
date, except that;
(1) the interest rate assumption for purposes of adjusting the
term of payment pursuant to Section 8.2(d) and adjusting the
$90,000 limitation for benefits commencing before Social
Security Retirement Age shall be the greater of five percent
(5%) or the Plan rate; and
(2) the interest rate assumption for purposes of adjusting the
$90,000 limitation for benefits commencing after Social
Security Retirement Age shall be the lesser of five (5%) or
the Plan rate.
(f) Special Provisions Regarding Participants With Fewer Than
---------------------------------------------------------
Ten Years of Participation or Service
-------------------------------------
In the case of any Participant who participated in the
Plan for fewer than ten (10) years, the maximum dollar
benefit otherwise applicable under Section 8.2(a)(i)
shall be multiplied by a fraction whose numerator is
the Participant's years of participation in the Plan
(including fractions thereof, but not less than one)
and whose denominator is ten.
32
<PAGE>
In the case of any Participant who was employed by the
Employer for fewer than ten (10) years, the maximum
benefit otherwise applicable under Sections 8.2(a)(ii)
and 8.3 shall be multiplied by a fraction whose
numerator is the Participant's years of employment with
the Employer (including fractions thereof, but not less
than one) and whose denominator is ten.
(g) Transition Rule
---------------
The limitations of this Section 8.2 shall not reduce a
Participant's annual benefit to less than his or her
Accrued Benefit as of December 31, 1986, disregarding
any change in the terms of the Plan and any cost-of-
living adjustments after May 5, 1986.
(h) Aggregation With Other Defined Benefit Plans
--------------------------------------------
If a Participant also participates in any other defined
benefit pension plan qualified under Code Section
401(a) that is maintained by the Employer, the
provisions of Section 8.2 and 8.3 shall be applied on
an aggregate basis to the benefits payable under this
Plan and each such other plan. Any reduction in the
aggregate benefits payable under this Plan and any such
other plan due to the application of this Section shall
be made on a pro-rata basis.
8.3 Additional Limitation Relating to Defined Contribution Plans
------------------------------------------------------------
(a) Primary Rule
------------
For Participants who participate in this Plan and a
defined contribution plan maintained by the Employer,
the sum of (1) and (2) below for any calendar year may
not exceed 1.0.
(1) The defined benefit plan fraction for any year is equal to
the quotient of (i) divided by (ii) below expressed as a
fraction:
(i) The projected annual benefit (determined by projecting
service, but not Earnings, to normal retirement age) of
the Participant under the Plan determined as of the close
of the year.
(ii) The lesser of: (a) 1.25 multiplied by the limitation
determined under Section 8.2(a)(1) in effect for such
year, or (b) 1.4 multiplied by the limitation determined
under Section 8.2(a)(2) (generally one hundred percent
(100%) of the Participant's average annual Compensation).
(2) The defined contribution plan fraction for any year is equal
to the quotient of (i) divided by (ii) below expressed as a
fraction:
33
<PAGE>
(i) The sum of the annual additions to the Participant's
accounts for the current year, as of the close of the
year, and for all prior years.
(ii) The sum of the lesser of the following amounts for such
year and for each prior year of service with the Employer
(regardless of whether a plan was in existence during
those years): (a) 1.25 multiplied by the dollar
limitation in effect for defined contribution plans under
Section 415 of the Code for such year, or (b) 1.4
multiplied by twenty-five (25%) of a Participant's
Compensation for such year.
(b) Remedy
------
If such sum exceeds 1.0, the benefit under this defined
benefit Plan shall be reduced to the extent necessary
to satisfy the limitations of this section.
34
<PAGE>
SECTION 9
TOP HEAVY PROVISIONS
9.1 Scope
-----
Notwithstanding any Plan provision to the contrary, for any
Plan Year in which the Plan is Top Heavy within the meaning
of Section 416(g) of the Code, the provisions of this
Section 9 shall govern to the extent they conflict with or
specify additional requirements to the Plan provisions
governing Plan Years which are not Top Heavy.
9.2 Top Heavy Status
----------------
(a) Top Heavy
---------
This Plan shall be "Top Heavy" if, as of the
Determination Date, (1) the sum of the Aggregate
Accounts of Key Employees, or (2) the Present Value of
Accrued Benefits of Key Employees under this Plan and
any plan of an Aggregation Group, exceeds sixty percent
(60%) of the Aggregate Accounts or the Present Value of
Accrued Benefits of all Participants under this Plan
and any plan of an Aggregation Group.
The Present Value of Accrued Benefits and/or Aggregate
Account balance of a Participant who was previously a
Key Employee but is no longer a Key Employee (or his or
her Beneficiary), shall not be taken into account for
purposes of determining Top Heavy status. Further, a
Participant's Present Value of Accrued Benefits and/or
Aggregate Account balance shall not be taken into
account if he or she has not performed services for the
Affiliated Companies during the five (5) year period
ending on the Determination Date.
(b) Super Top Heavy
---------------
This Plan shall be "Super Top Heavy" if, as of the
Determination Date, (1) the sum of the Aggregate
Accounts of Key Employees, or (2) the Present Value of
Accrued Benefits of Key Employees under this Plan and
any plan of an Aggregation Group, exceeds ninety
percent (90%) of the Aggregate Accounts or the Present
Value of Accrued Benefits of all Participants under
this Plan and any plan of an Aggregation Group.
(c) Determination Date
------------------
Whether the Plan is Top Heavy for any Plan Year shall
be determined as of the Determination Date.
"Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first
Plan Year, the last day of such Plan Year.
35
<PAGE>
(d) Valuation Date
--------------
"Valuation Date" means, for purposes of determining Top
Heaviness, the Determination Date.
(e) Aggregate Account
-----------------
"Aggregate Account" means, with respect to a
Participant, his or her adjusted account balance in a
defined contribution plan, as determined under the top
heavy provisions of such plan.
(f) Present Value of Accrued Benefits
---------------------------------
"Present Value of Accrued Benefits" means the sum of:
(i) the Actuarial Equivalent present value of the accrued normal
retirement benefit under the Plan as of the Valuation Date,
and
(ii) distributions prior to the Valuation Date, made during the
Plan Year that contains the Determination Date and the four
preceding Plan Years. Unrelated rollovers or transfers from
this plan shall be considered distributions. A related
rollover or transfer from this Plan shall not be considered a
distribution.
An unrelated rollover or transfer is one which is both
initiated by the Employee and made between plans of
different employers. A related rollover or transfer is
one which is either not initiated by the Employee or
made between plans of the same employer.
(g) Key Employee
------------
"Key Employee" means an Employee or former Employee
(and his or her Beneficiaries) who, at any time during
the Plan Year containing the Determination Date or any
of the four preceding Plan Years, is included in one of
the following categories as within the meaning of
Section 416(i) of the Code and regulations thereunder.
(i) an officer of the Employer whose annual aggregate
Compensation from the Affiliated Companies exceeds fifty
percent (50%) of the dollar limitation under Section
415(b)(1)(A) of the Code ($59,400 for the Plan Year ending
in 1994), provided that no more than 50 Employees shall be
considered officers, or if less, the greater of ten percent
(10%) of the Employees or 3,
(ii) one of the ten Employees owning the largest interest in the
Employer who owns more than a half percent (0.5%) interest of
the Employer, and whose annual aggregate Compensation from the
Affiliated
36
<PAGE>
Companies exceeds the dollar limitation under Section
415(c)(1)(A) of the Code ($30,000 for the Plan Year ending
in 1994),
(iii) an Employee who owns more than five percent (5%) of the
Employer, or
(iv) an Employee who owns more than one percent (1%) of the
Employer with annual aggregate Compensation from the
Affiliated Companies that exceeds $150,000.
(h) Aggregation Group
-----------------
"Aggregation Group" means the group of plans that must
be considered as a single plan for purposes of
determining whether the plans within the group are Top
Heavy (Required Aggregation Group), or the group of
plans that may be aggregated for purposes of Top Heavy
testing (Permissive Aggregation Group). The
Determination Date for each plan must fall within the
same calendar year in order to aggregate the plans.
(i) The Required Aggregation Group includes each plan of the
Affiliated Companies in which a Key Employee is a participant
in the Plan Year containing the Determination Date or any of
the four preceding Plan Years, and each other plan of the
Affiliated Companies which, during this period, enables any
plan in which a Key Employee participates to meet the minimum
participation standards or nondiscriminatory contribution
requirements of Code Sections 401(a)(4) and 410.
(ii) A Permissive Aggregation Group may include any plan
sponsored by an Affiliated Company, provided the group as a
whole continues to satisfy the minimum participation standards
and nondiscriminatory contribution requirements of Code
Sections 401(a)(4) and 410.
Each plan belonging to a Required Aggregation Group
shall be deemed Top Heavy or non-Top Heavy in
accordance with the group's status. In a Permissive
Aggregation Group that is determined Top Heavy only
those plans that are required to be aggregated shall be
Top Heavy. In a Permissive Aggregation Group that is
not Top Heavy, no plan in the group shall be Top Heavy.
9.3 Minimum Benefit
---------------
(a) General Rule
------------
For any Top Heavy Plan Year, a non-Key Employee who
completes a one-year (1) Period of Service shall have
an Accrued Benefit at least equal to the minimum
benefit described herein. The minimum Accrued Benefit
at any point in time equals the lesser of:
37
<PAGE>
(i) two percent (2%) multiplied by Top Heavy years of Service,
or
(ii) twenty percent (20%),
multiplied by such Participant's "average
Compensation." "Average Compensation" means a
Participant's average Compensation for the five (5)
consecutive years when such Participant had the highest
aggregate Compensation from the Employer. However,
Compensation received for non-Top Heavy Plan Years
shall be disregarded. The benefit described herein is
expressed as an annual benefit in the form of a single
life annuity (with no ancillary benefits), commencing
at normal retirement age.
A non-Key Employee shall not be denied this minimum
benefit because he or she was not employed on a
specified date, failed to make any mandatory Employee
contribution, or failed to earn a specified amount of
Compensation.
(b) Special Two Plan Rule
---------------------
Where this Plan and a defined contribution plan belong
to an Aggregation Group that is determined Top Heavy,
the Employer shall not be required to provide the
minimum benefit under (a) above on behalf of any
non-Key Participant who also participates in the
defined contribution plan if the Employer contributions
and forfeitures under the defined contribution plan
equal five percent (5%) of each non-Key Participant's
Compensation.
9.4 Benefit Limitation
------------------
For any Top Heavy Plan Year in which the Employer does not
make the extra minimum allocation provided below, 1.0 shall
replace the 1.25 factor found in the denominators of the
defined benefit and defined contribution plan fractions for
purposes of calculating the combined limitation on benefits
under a defined benefit and defined contribution plan
pursuant to Section 415(e) of the Code (see Section 8.3).
If this Plan is Top Heavy, but is not Super Top Heavy, the
above referenced fractions shall remain unchanged provided
the Employer provides an extra minimum Accrued Benefit for
each non-Key Employee. The extra benefit (in addition to
the minimum benefit set forth in Section 9.3) shall equal
the lesser of:
(a) one percent (1%) multiplied by Top Heavy years of Service,
or
(b) ten percent (10%),
multiplied by such Participant's "average Compensation", as
defined in Section 9.3.
38
<PAGE>
9.5 Vesting
-------
(a) Top Heavy Schedule
------------------
For any Top Heavy Plan Year, each Participant who
completes an Hour of Service in such Year shall become
vested and have a nonforfeitable right to retirement
benefits he or she has earned under the Plan in
accordance with the following table:
Periods of Service Vesting Percentage
------------------ ------------------
Less than 2 Years 0%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years 100%
Provided, however, that a Participant's vesting
percentage shall not be less than the percentage
determined under the table in Section 7.1.
(b) Return to Non-Top Heavy Status
------------------------------
If the Plan becomes Top Heavy and ceases to be Top
Heavy in any subsequent Plan Year, the vesting schedule
shall automatically revert to the vesting schedule in
effect before the Plan became Top Heavy. Such
reversion shall be treated as a Plan amendment pursuant
to the terms of the Plan, and shall not cause a
reduction of any Participant's nonforfeitable interest
in the Plan on the date of such amendment.
A Participant with three or more one-year (1) Periods
of Service with the Employer as of the end of the
election period, may elect to remain covered by the Top
Heavy vesting schedule. The Participant's election
period shall commence on the adoption date of the
amendment and shall end sixty (60) days after the
latest of:
(i) the adoption date of the amendment,
(ii) the effective date of the amendment, or
(iii) the date the Participant receives written notice of the
amendment from the Committee.
39
<PAGE>
SECTION 10
ADMINISTRATION OF THE PLAN
10.1 Plan Administrator
------------------
The Plan Administrator and named fiduciary shall be the
Employer. The Compensation Committee of the Board of
Directors of the Employer shall appoint a Committee composed
of one or more persons which shall carry out the general
administration of the Plan. Every member of the Committee
shall be deemed a fiduciary. No Committee member who is an
Employee shall receive compensation with respect to his or
her service on the Committee. Any member of the Committee
may resign by delivering written resignation to the
Compensation Committee of the Board of Directors of the
Employer and to the Committee. The Compensation Committee
of the Board of Directors of the Employer may remove or
replace any member of the Committee at any time.
10.2 Organization and Procedures
---------------------------
The Compensation Committee of the Board of Directors of the
Employer shall designate a chairman from the members of the
Committee. The Committee shall appoint a secretary, who may
or may not be a member of the Committee. The secretary
shall have the primary responsibility for keeping a record
of all meetings and acts of the Committee and shall have
custody of all documents, the preservation of which shall be
necessary or convenient to the efficient functioning of the
Committee. The chairman of the Committee shall be the agent
of the Plan for service of legal process. All reports
required by law may be signed by the chairman on behalf of
all members of the Committee.
The Committee shall act by a majority of its members in
office and such action may be taken by a vote at a meeting
or in writing without a meeting. The Administration
Committee may adopt such by-laws and regulations as it deems
desirable for the conduct of its affairs.
10.3 Duties and Authority of the Committee
-------------------------------------
(a) Administrative Duties
--------------------
The Committee shall administer the Plan in a
nondiscriminatory manner for the exclusive benefit of
Participants and their Beneficiaries. The Committee
shall perform all such duties as are necessary to
supervise the administration of the Plan and to control
its operation in accordance with the terms thereof,
including, but not limited to, the following:
(i) Make and enforce such rules and regulations as it shall deem
necessary or proper for the efficient administration of the
Plan;
40
<PAGE>
(ii) Interpret the provisions of the Plan and determine any
question arising under the Plan, or in connection with the
administration or operation thereof;
(iii) Determine all considerations affecting the eligibility
of any Employee to be or become a Participant;
(iv) Determine eligibility for and amount of benefits for any
Participant, Beneficiary, or alternate payee pursuant to a
domestic relations order (including determining the qualified
status of a domestic relations order);
(v) Authorize and direct the Trustee with respect to all
disbursements of benefits under the Plan;
(vi) Employ and engage such persons, counsel and agents and
obtain such administrative, clerical, medical, legal, audit
and actuarial services as it may deem necessary in carrying
out the provision of the Plan;
(vii) Delegate and allocate specific responsibilities and
duties imposed by the Plan to one or more Employees, officers
or such other persons as the Committee deems appropriate.
(b) Investment Authority
--------------------
The Trustee and/or designated Investment Manager shall
have responsibility or authority with respect to the
management, acquisition, disposition or investment of
Plan assets.
(c) General Authority
-----------------
The Committee shall have all powers necessary or
appropriate to carry out its duties, including the
discretionary authority to interpret the provisions of
the Plan and the facts and circumstances of claims for
benefits. Any interpretation or construction of or
action by the Committee with respect to the Plan and
its administration shall be conclusive and binding upon
any and all parties and persons affected hereby,
subject to the exclusive appeal procedure set forth in
Section 10.7.
(d) Amendment Authority
-------------------
The Committee shall have responsibility and authority
to approve documents for the Plan and to approve
amendments that may be required to the Plan from time
to time to keep the Plan in compliance with relevant
law or to facilitate the administration of the Plan.
The Chairman of the Committee is authorized to execute
any such documents or amendments on behalf of the
Company.
41
<PAGE>
10.4 Expenses
--------
All reasonable expenses which are necessary to operate and
administer the Plan may be deducted from the Trust Fund or,
at the election of the Employer, paid directly by the
Employer.
10.5 Bonding and Insurance
---------------------
To the extent required by law, every Committee member, every
fiduciary of the Plan and every person handling Plan funds
shall be bonded. The Committee shall take such steps as are
necessary to assure compliance with applicable bonding
requirements. The Committee may apply for and obtain
fiduciary liability insurance insuring the Plan against
damages by reason of breach of fiduciary responsibility at
the Plan's expense and insuring each fiduciary against
liability to the extent permissible by law at the Employer's
expense.
10.6 Commencement of Benefits
------------------------
(a) Conditions of Payment
---------------------
Benefit payments under the Plan shall not be payable
prior to the fulfillment of the following conditions:
(i) the Committee has been furnished with such applications,
proofs of birth or death, address, form of benefit election,
spouse consent if required, and other information the
Committee deems necessary;
(ii) the Participant has Terminated employment with the Employer,
reached age seventy and a half (70 1/2) or died; and
(iii) the Participant or Beneficiary is eligible to receive
benefits under the Plan as determined by the Committee.
(b) Commencement of Payment
-----------------------
Unless a Participant elects otherwise, the payment of
benefits shall commence no later than sixty (60) days
after the end of the Plan Year in which the latest of
the following occurs:
(i) the Participant reaches Normal Retirement Date;
(ii) the tenth anniversary of the year in which the Participant
commences participation in the Plan; or
(iii) the Participant Terminates employment with the
Employer; provided that notwithstanding any other Plan
provision, payments shall not commence later than the April 1
following the calendar year in which
42
<PAGE>
the Participant reaches age seventy and a half (70 1/2).
The amount of any payments required following age seventy
and a half (70 1/2) or Termination shall at least satisfy
the minimum required distribution amount under Code
Section 401(a)(9)(A)(ii) and related regulations.
In no event shall payments commence in a form other
than the automatic form described in Section 5.2 prior
to the Participant's Normal Retirement Age if the
Actuarially Equivalent present value of the
Participant's Accrued Benefit at the time benefits
commence exceeds $3,500 without the written consent of
the Participant and the spouse, if any. Spouse consent
must acknowledge the effect of such election and must
be notarized or witnessed by a Plan representative.
If the information required in subsection 10.6(a) above
is not available prior to such date, the amount of
payment will not be ascertainable. In such event, the
commencement of payment shall be delayed until no more
than sixty (60) days after the date the amount of such
payment is ascertainable.
10.7 Appeal Procedure
----------------
(a) Submission of Claim
-------------------
A claim for benefit payment shall be considered filed
when an application form is submitted to the Committee.
(b) Notice of Denial
----------------
Any time a claim for benefits is wholly or partially
denied, the Participant or Beneficiary (hereinafter
"Claimant") shall be given written notice of such
action within ninety (90) days after the claim is
filed, unless special circumstances require an
extension of time for processing. (If there is an
extension, the Claimant shall be notified of the
extension and the reason for the extension within the
initial ninety (90) day period. The extension shall
not exceed one hundred eighty (180) days after the
claim is filed.) Such notice will indicate the reason
for denial, the pertinent provisions of the Plan on
which the denial is based, an explanation of the claims
appeal procedure set forth herein, and a description of
any additional material or information necessary to
perfect the claim and an explanation of why such
material or information is necessary.
(c) Right to Request Review
-----------------------
Any person who has had a claim for benefits denied by
the Committee, who disputes the amount of benefit
payment determined by the Committee, or who is
otherwise adversely affected by action of the
Committee, shall have the right to request review by
the Committee. Such request must be in writing, and
must be made within sixty (60) days after such person
is advised of the
43
<PAGE>
Committee's action. If written request for review is
not made within such sixty-day (60) period, the
Claimant shall forfeit his or her right to review.
The Claimant or a duly authorized representative of the
Claimant may review all pertinent documents and submit
issues and comments in writing.
(d) Review of Claim
---------------
The Committee shall then review the claim. It may hold
a hearing if it deems it necessary and shall issue a
written decision reaffirming, modifying or setting
aside its former action within sixty (60) days after
receipt of the written request for review, or one
hundred twenty (120) days if special circumstances,
such as a hearing, require an extension. The Claimant
shall be notified in writing of any such extension
within sixty (60) days following the request for
review. A copy of the decision shall be furnished to
the Claimant. The decision shall set forth its reasons
and pertinent Plan provisions on which it is based.
The decision shall be final and binding upon the
Claimant and the Committee and all other persons
involved.
10.8 Plan Administration - Miscellaneous
-----------------------------------
(a) Limitations on Assignments
--------------------------
Benefits under the Plan may not be assigned, sold,
transferred, or encumbered, and any attempt to do so
shall be void. The interest of a Participant in
benefits under the Plan shall not be subject to debts
or liabilities of any kind and shall not be subject to
attachment, garnishment or other legal process, except
as provided in Section 10.8 relating to Domestic
Relations Orders, or otherwise permitted by law.
(b) Masculine and Feminine, Singular and Plural
-------------------------------------------
Whenever used herein, pronouns shall include the
opposite gender, and the singular shall include the
plural and the plural shall include the singular
whenever the context shall plainly so require.
(c) Small Benefits
--------------
Notwithstanding any other provisions of this Plan, in
cases where the Actuarially Equivalent present value of
a vested or payable benefit is less than or equal to
the maximum permissible amount under the Code which may
be distributed without the consent of a Participant or
his or her spouse (in 1994, this amount was $3,500),
the Committee shall direct such present value be paid
in a Lump Sum distribution as soon as practical
following termination and prior to the Annuity Starting
Date.
44
<PAGE>
(d) No Additional Rights
--------------------
No person shall have any rights in or to the Trust
Fund, or any part thereof, or under the Plan, except
as, and only to the extent, expressly provided for in
the Plan. Neither the establishment of the Plan, the
accrual of benefits under the Plan nor any action of
the Employer or the Committee shall be held or
construed to confer upon any person any right to be
continued as an Employee, or, upon dismissal, any right
or interest in the Trust Fund other than as herein
provided. The Employer expressly reserves the right to
discharge any Employee at any time.
(e) Governing Law
-------------
This Plan shall be construed in accordance with
applicable federal law and the laws of the State of
Washington, wherein venue shall lie for any dispute
arising hereunder.
(f) Disclosure to Participants
--------------------------
Each Participant shall be advised of the general
provisions of the Plan and, upon written request
addressed to the Committee, shall be furnished any
information requested regarding the Participant's
status, rights and privileges under the Plan as may be
required by law.
(g) Income Tax Withholding Requirements
-----------------------------------
Any retirement benefit payment made under the Plan
shall be subject to any applicable income tax
withholding requirements. For this purpose, the
Committee shall provide the Trustee with any
information the Trustee needs to satisfy such
withholding obligations and with any other information
that may be required by regulations promulgated under
the Code.
(h) Severability
------------
If any provision of this Plan shall be held illegal or
invalid for any reason, such determination shall not
affect the remaining provisions of this Plan which
shall be construed as if said illegal or invalid
provision had never been included.
(i) Facility of Payment
-------------------
In the event any benefit under this Plan shall be
payable to a person who is under legal disability or is
in any way incapacitated so as to be unable to manage
his or her financial affairs, the Committee may direct
payment of such benefit to a duly appointed guardian,
committee or other legal representative of such person,
or in the absence of a guardian or legal
representative, to a custodian for such person under a
Uniform Gifts to Minors Act or to any
45
<PAGE>
relative of such person by blood or marriage, for such
person's benefit. Any payment made in good faith
pursuant to this provision shall fully discharge the
Employer and the Plan of any liability to the extent
of such payment.
(j) Correction of Errors
--------------------
Any Employer contribution to the Trust Fund made under
a mistake of fact (or investment proceeds of such
contribution if a lesser amount) shall be returned to
the Employer within one (1) year after payment of the
contribution. In the event an incorrect amount is paid
to a Participant or Beneficiary, any remaining payments
may be adjusted to correct the error. The Committee
may take such other action it deems necessary and
equitable to correct any such error.
10.9 Domestic Relations Orders
-------------------------
Notwithstanding any Plan provisions to the contrary,
benefits under the Plan may be paid to someone other than
the Participant, Beneficiary or joint annuitant, pursuant to
a Qualified Domestic Relations Order, in accordance with
Section 414(p) of the Code. A Qualified Domestic Relations
Order is a judgement, decree, or order ("Order") (including
approval of a property settlement agreement) that:
(a) relates to the provision of child support, alimony payments
or marital property rights to a spouse, former spouse, child or
other dependent of a Participant;
(b) is made pursuant to a state domestic relations law
(including a community property law);
(c) creates or recognizes the existence of an alternate payee's
right to, or assigns to an alternate payee the right to, receive
all or a portion of the benefits payable to a Participant under
the Plan;
(d) specifies the name and last known address of the Participant
and each alternate payee;
(e) specifies the amount or method of determining the amount of
benefit payable to an alternate payee;
(f) specifies the number of payments or period during which
payments are to be made;
(g) names each plan to which the order applies;
(h) does not require any form, type or amount of benefit not
otherwise provided under the Plan; and
46
<PAGE>
(i) does not conflict with a prior Domestic Relations Order that
meets the requirements of this section.
Payments to an alternate payee pursuant to a Qualified
Domestic Relations Order may commence after the Participant
becomes vested and on or after the earlier of (a) the date
the Participant attains age fifty-five (55), or (b) the date
the Participant is eligible to elect to receive a Vested
Termination Benefit. The Alternate Payee may elect any form
of payment available under the Plan at the time benefit
payments commence other than a joint and survivor annuity,
provided that a Lump Sum form of payment is available only
if the Alternate Payee's benefit does not exceed $10,000.
The Committee shall determine whether an order meets the
requirements of this section within a reasonable period
after receiving an order. The Committee shall notify the
Participant and any alternate payee that an order has been
received and with respect to benefits which are in pay
status shall establish a separate account under the Plan for
any alternate payee pending determination that an order
meets the requirements of this section. If within eighteen
(18) months after such separate account is established the
order has not been determined to be a qualified Order, the
amount in the separate account shall be distributed to the
individual who would have been entitled to such amount if
there had been no order.
10.10 Plan Qualification
------------------
Any modification or amendment of the Plan may be made
retroactive, as necessary or appropriate, to establish and
maintain a "qualified plan" pursuant to Section 401 of the
Code, and ERISA and regulations thereunder and the exempt
status of the Trust Fund under Section 501 of the Code.
10.11 Deductible Contribution
-----------------------
Notwithstanding anything herein to the contrary, any
contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution by
the Employer under the Code and, to the extent any such
deduction is disallowed, the Employer may within one (1)
year following a final determination of the disallowance,
demand repayment of such disallowed contribution and the
Trustee shall return such contribution less any losses
attributable thereto to the Employer within one (1) year
following the disallowance.
10.12 Payment of Benefits Through Purchase of Annuity Contract
--------------------------------------------------------
In lieu of paying benefits directly from the Trust Fund to a
Participant or his Beneficiary, the Trustee may purchase,
with Trust Fund assets, an individual annuity contract from
an insurance company rated A+ by A.M. Best Company, Inc.
which, as far as possible, provides benefits equal to (or
Actuarially Equivalent to) those provided in the Plan for
such Participant or Beneficiary, but provides no optional
form of retirement income or benefit which would not be
permitted under the Plan, whereupon the liability of the
Trust Fund and of the Plan will cease and terminate
47
<PAGE>
with respect to such benefits that are so purchased and for
which the premiums are duly paid. Such an individual annuity
contract may be purchased by the Trustee on a single-premium
basis or on the basis of annual premiums payable over a
period of years and may be purchased at any time on or after
the Participant's Vested Termination Date, Retirement Date
or death to provide the benefits due under the Plan to the
Participant or Beneficiary on or after the date of such
purchase.
Any annuity contract distributed by the Trustee to a
Participant or Beneficiary under the provisions of the Plan
shall bear on the face thereof the designation "NOT
TRANSFERABLE", and such contract shall contain a provision
to the effect that the contract may not be sold, assigned,
discounted or pledged as collateral for a loan or as
security for the performance of an obligation or for any
other purpose to any person other than the issuer thereof.
48
<PAGE>
SECTION 11
AMENDMENT AND TERMINATION
11.1 Amendment General
-----------------
The Employer shall have the right to amend, terminate, or
partially terminate this Plan by action of its Board of
Directors or by the Committee pursuant to Section 10.3(d) at
any time subject to any advance notice or other requirements
of ERISA.
11.2 Amendment - Consolidation or Merger
-----------------------------------
In the event the Plan's assets and liabilities are merged
into, transferred to or otherwise consolidated with any
other retirement plan, then such must be accomplished so as
to ensure that each Participant would (if the other
retirement plan then terminated) receive a benefit
immediately after the merger, transfer or consolidation,
which is equal to or greater than the benefit the Partici-
pant would have been entitled to receive immediately before
the merger, transfer or consolidation (as if the Plan had
then terminated). This provision shall not be construed as
limiting the powers of the Employer to appoint a successor
Trustee.
11.3 Termination of the Plan
-----------------------
The termination of the Plan shall not cause or permit any
part of the Trust Fund to be diverted to purposes other than
for the exclusive benefit of the Participants, or cause or
permit any portion of the Trust Fund to revert to or become
the property of the Employer at any time prior to the
satisfaction of all liabilities with respect to the
Participants.
Upon termination of this Plan, the Committee shall continue
to act for the purpose of complying with the preceding para-
graph and shall have all power necessary or convenient to
the winding up and dissolution of the Plan as herein
provided. While so acting, the Committee shall be in the
same status and position with respect to other persons as if
the Plan remained in existence.
11.4 Allocation of the Trust Fund on Termination of Plan
---------------------------------------------------
(a) Complete Termination
--------------------
In the event of a complete Plan termination, the right
of each Participant to benefits accrued to the date of
such termination that would be vested under the
provisions of the Plan in the absence of such
termination shall continue to be vested and
nonforfeitable; and the right of each Participant to
any other benefits accrued to the date of termination
shall be fully vested and nonforfeitable to the extent
then funded under the priority rules set forth in
Section 4044 of ERISA.
49
<PAGE>
In any event, a Participant or a Beneficiary shall have
recourse only against Plan assets for the payment of
benefits thereunder, subject to any applicable
guarantee provisions of Title IV of ERISA. The
Committee shall direct the Trustee to allocate Trust
assets to those affected Participants to the extent and
in the order of preference set forth in Section 4044 of
ERISA. The assets so allocated shall be distributed,
as determined by the Committee, either wholly or in
part by purchase of nontransferable annuity contracts
or lump-sum payments. If Trust Fund assets as of the
date of Plan termination exceed the amounts required
under the priority rules set forth in Section 4044 of
ERISA, such excess shall, after all liabilities of the
Plan have been satisfied, revert to the Employer to the
extent permitted by applicable law.
(b) Partial Termination
-------------------
If at any time the Plan is terminated with respect to
any group of Participants under such circumstances as
to constitute a partial Plan termination within the
meaning of Section 411(d)(3) of the Code, each affected
Participant's right to benefits that have accrued to
the date of partial termination that would be vested
under the provisions of the Plan in the absence of such
termination shall continue to be so vested; and the
right of each affected Participant to any other
benefits accrued to the date of such termination shall
be vested to the extent assets would be allocable to
such benefits under the priority rules set forth in
Section 4044 of ERISA in the event of a complete Plan
termination. In any event, affected Participants shall
have recourse only against Plan assets for payment of
benefits thereunder, subject to any applicable
guarantee provisions of Title IV of ERISA. Subject to
the foregoing, the vested benefits of such Participants
shall be payable as though such termination had not
occurred; provided, however, that the Committee, in its
discretion, subject to any necessary governmental
approval, may direct that the amounts held in the Trust
Fund that are allocable to the Participants as to whom
such termination occurred be segregated by the Trustee
as a separate plan. The assets thus allocated to such
separate plan shall be applied for the benefit of such
Participants in the manner described in the preceding
paragraph.
(c) Merged Plan Assets
------------------
For a period of five (5) years after the date the Plan
is combined in a merger with one or more other defined
benefit plans, assets shall be allocated upon Plan
termination according to a special schedule in
accordance with Treas. Reg. 1.414(l)-1(e) through (k)
to prevent any Participant from receiving smaller
benefits on a termination basis as a result of the
merger.
50
<PAGE>
SECTION 12
FUNDING
12.1 Contributions to the Trust
--------------------------
As a part of this Plan the Employer shall maintain a Trust.
From time to time, the Employer shall make such
contributions to the Trust as the Committee determines, with
the advice of its actuary, are required to maintain the Plan
on a sound actuarial basis.
12.2 Trust Fund for Exclusive Benefit of Participants
------------------------------------------------
The Trust is for the exclusive benefit of Participants.
Except as provided in Sections 10.7(j) (Correction of
Errors), 10.9 (Domestic Relations Orders) and 10.11
(Deductible Contributions), no portion of the Trust shall be
diverted to purposes other than this or revert to or become
the property of the Employer at any time prior to the
satisfaction of all liabilities with respect to the
Participants.
12.3 Disposition of Credits and Forfeitures
--------------------------------------
In no event shall any credits or forfeitures which may arise
under the Plan be used to increase benefits under the Plan.
12.4 Trustee
-------
As a part of this Plan, the Employer has entered into a
trust agreement with a Trustee. The Employer has the power
and duty to appoint the Trustee and it shall have the power
to remove the Trustee and appoint successors at any time.
As a condition to exercising its power to remove any Trustee
hereunder, the Employer must first enter into an agreement
with a successor Trustee.
12.5 Investment Manager
------------------
The Employer has the power to appoint, remove or change from
time to time an Investment Manager to direct the investment
of all or a portion of the Trust Fund held by the Trustee.
For purposes of this section "Investment Manager" shall mean
any fiduciary (other than the Trustee) who:
(a) has the power to manage, acquire, or dispose of any asset of
the Plan;
(b) is either
(i) registered as an investment adviser under the Investment
Advisers Act of 1940, or
51
<PAGE>
(ii) is a bank, or
(iii) is an insurance company qualified under the laws of
more than one state to perform the services described in
subparagraph (a); and
(c) has acknowledged in writing that he, she or it is a
fiduciary with respect to the plan.
52
<PAGE>
SECTION 13
FIDUCIARIES
13.1 Limitation of Liability of the Employer and Others
--------------------------------------------------
No Participant shall have any claim against the Employer, or
the Committee, or against their directors, officers,
members, agents or representatives, for any benefits under
the Plan, and such benefits shall be payable solely from the
Trust; nor, to the extent permitted by law, shall the
Employer, the Committee or their directors, officers,
members, agents or representatives incur any liability to
any person for any action taken or suffered or omitted to be
taken by them under the Plan in good faith.
13.2 Indemnification of Fiduciaries
------------------------------
In order to facilitate the recruitment of competent
fiduciaries, the Employer adopting this Plan agrees to
provide the indemnification as described herein. This
provision shall apply to Employees who are considered Plan
fiduciaries including without limitation, Committee members,
any agent of the Committee, or any other officers, directors
or Employees. Notwithstanding the preceding, this provision
shall not apply and indemnification will not be provided for
any Trustee or Investment Manager appointed as provided in
this Plan.
13.3 Scope of Indemnification
------------------------
The Employer agrees to indemnify an Employee fiduciary as
described above for all acts taken in good faith in carrying
out his or her responsibilities under the terms of this Plan
or other responsibilities imposed upon such fiduciary by
ERISA. This indemnification for all acts is intentionally
broad but shall not provide indemnification for embezzlement
or diversion of Plan assets for the benefit of the Employee
fiduciary. The Employer agrees to indemnify Employee
fiduciaries described herein for all expenses of defending
an action by a Participant, Beneficiary or government
entity, including all legal fees for counsel selected with
the consent of the Employer and other costs of such defense.
The Employer will also reimburse an Employee fiduciary for
any monetary recovery in any court or arbitration
proceeding. In addition, if the claim is settled out of
court with the concurrence of the Employer, the Employer
will indemnify an Employee fiduciary for any monetary
liability under said settlement. The Employer shall have
the right, but not the obligation, to conduct the defense of
such persons in any proceeding to which this Section 13.3
applies. The Employer may satisfy its obligations under
this Section 13.3 in whole or in part through the purchase
of a policy or policies of insurance providing equivalent
protection.
53
<PAGE>
The Advanced Technology Laboratories, Inc. Retirement Plan
is adopted by Advanced Technology Laboratories, Inc.
IN WITNESS WHEREOF, the Employer has caused this Plan to be
duly executed on this 15th day of March, 1996.
FOR ADVANCED TECHNOLOGY
LABORATORIES, INC.
/s/ Annette King /s/ Harvey N. Gillis
- ---------------------- -----------------------------
Witness Authorized Officer
Senior Vice President & CFO
------------------------------
Title
54
<PAGE>
APPENDIX I
TO THE
ADVANCED TECHNOLOGY LABORATORIES, INC.
RETIREMENT PLAN
"Employer" as defined in Section 1.15 of the Advanced Technology
Laboratories, Inc. Retirement Plan shall also include the
following companies during the specified period of time.
Company Beginning Ending
------- --------- ------
1. Advanced Technology Laboratories, 1/1/81
Inc. (Washington)
2. Interspec, Inc., including Echo Ultrasound,
a division of Interspec, Inc. 5/17/94
ACKNOWLEDGED AND ACCEPTED:
By: /s/ Harvey N. Gillis
-------------------------
Title: Senior V.P. & CFO
-----------------------
Date: 3/15/96
-----------------------
55
<PAGE>
FIRST AMENDMENT
TO THE
ADVANCED TECHNOLOGY LABORATORIES, INC.
RETIREMENT PLAN
The Advanced Technology Laboratories, Inc. Retirement Plan
(the "Plan"), as amended and restated effective January 1,
1994, is amended as follows pursuant to Section 11.1 of the
Plan, effective January 1, 1996.
1. Section 1.2 Actuarially Equivalent/Actuarially is deleted
----------------------------------
in its entirety and replaced with the following:
1.2 Actuarially Equivalent/Actuarially
----------------------------------
(a) General
-------
"Actuarially Equivalent" and similar terms (for
purposes other than determining contributions
to the Trust Fund) means that the present value
of two (2) payments or series of payments shall
be of equal value when computed at an eight
percent (8%) rate of interest and on the basis
of the 1984 Unisex Pension Mortality Table;
provided, however, that the interest rates and
mortality table below shall apply for the
purposes stated.
(b) Before January 1, 1996
----------------------
With respect to Participants who terminate
employment before January 1, 1996, the interest
rate for immediate or deferred annuities that
would be used by the Pension Benefit Guaranty
Corporation to determine the present value of
the Participant's benefit upon termination of
an insufficient trusteed single employer plan,
as of the first day of the Plan Year that
contains the Annuity Starting Date shall be
used for calculating the Actuarial Equivalent
value of any lump sum distribution.
(c) On or After January 1, 1996
---------------------------
Notwithstanding the foregoing, with respect to
Participants who terminate employment on or
after January 1, 1996, the Actuarial Equivalent
value of any lump sum distribution shall be
determined using the following interest rate
and mortality table:
Interest: the annual interest rate on 30-year
Treasury securities as determined
under Code Section 417 (which, as of
the date of this amendment, is the
average annual yield on 30-year
Treasury Constant Maturities) for the
November before the Plan Year which
contains the Annuity Starting Date;
and
1
<PAGE>
Mortality: the prevailing Commissioner's
standard table (described in Code
Section 807(d)(5)(A)), without regard
to any other subparagraphs of Code
Section 807(d)(5)) used to determine
reserves for group annuity contracts
issued on the date as of which the
present value is being determined
(which as of the date of this
amendment is the 1983 Group Annuity
Mortality Table, 50% male and 50%
female).
IN WITNESS WHEREOF, Advanced Technology Laboratories,
Inc. has caused this First Amendment to be duly executed on
this 29th day of December, 1995.
FOR ADVANCED TECHNOLOGY
LABORATORIES, INC.
By: /s/ Harvey N. Gillis
------------------------------
Witness: /s/ Annette King Authorized Officer
- -------------------------
Title: Sr. V.P. & Chief Financial Officer
-------------------------
Title
2
<PAGE>
[Cover Page]
[ART]
ATL 1995 ANNUAL REPORT
<PAGE>
[ATL LOGO]
ATL is a worldwide leader in the development, manufacture, distribution and
service of diagnostic medical ultrasound systems. These systems are used in
radiology, cardiology, obstetrics and gynecology, vascular, musculoskeletal and
intraoperative applications. The Company is dedicated to the innovation and
development of ultrasound technology that improves the quality and productivity
of health care worldwide.
COVER: ATL's color ultrasound
technology illuminates the flow
of blood through the heart.
<PAGE>
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
===================================================================================
(IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $399,446 $366,152 $360,497
Gross profit 184,525 163,583 165,849
Selling, general and administrative expenses 121,193 115,595 110,752
Research and development expenses 49,017 56,426 51,265
Net income (loss)* 12,002 (20,204) (3,321)
Net income (loss), excluding non-recurring items 10,617 (8,191) 954
BALANCE SHEET
Cash and short-term investments $ 35,654 $ 22,901 $ 54,758
Marketable debt security** - 4,988 4,988
-------- -------- --------
Total cash and investments 35,654 27,889 59,746
Total assets 353,448 321,150 322,164
Long-term debt 14,837 17,688 11,600
Shareholders' equity 210,923 191,176 210,835
- -----------------------------------------------------------------------------------
Common shares outstanding 13,610 13,330 13,101
===================================================================================
</TABLE>
* 1995 net income includes an after tax net gain of $1,385 for a gain from
Hitachi's investment in an ATL R&D joint venture, a benefit for a Washington
State B&O tax refund and restructuring and relocation expenses; 1994 net loss
includes $12,013 of merger and related costs, restructuring expenses and a
provision for litigation claim; 1993 net loss includes restructuring expenses of
$4,275 for the streamlining of worldwide operations.
** The marketable debt security is classified as a short-term investment at
December 31, 1995.
[PHOTO ART]
ATL's ultrasound technology reveals a wealth of diagnostic information.
Clockwise from top: vasculature in the spleen, testicular inflammation and
detail of a fetal face.
1
ATL
<PAGE>
CHAIRMAN'S LETTER
FELLOW SHAREHOLDERS:
I am pleased to report that 1995 was a year of accomplishment for ATL.
The strategic initiatives we have strongly pursued for the past three years
provided the foundation for worldwide gains in market share, important advances
of our technology and a significant turnaround in the Company's financial
performance. Additionally, we formed a marketing and technology alliance with
Hitachi Medical Corporation, and an advisory panel of scientists to the U.S.
Food and Drug Administration (FDA) unanimously recommended approval of our
breast premarket approval application, a first in the ultrasound industry.
The market for medical diagnostic imaging equipment in general, and ultrasound
in particular, remained challenging in 1995, primarily due to cost constraints
and continuing restructuring of health care systems in many major countries.
However, the clinical and productivity benefits offered by the HDI/(R)/ 3000,
our fourth generation all-digital ultrasound system, led to strong growth and an
installed base of over 1,000 of these new systems by year end. Our total
installed base of all-digital ultrasound systems now numbers over 7,500
worldwide. During the year, we announced the first major expansion of the HDI
3000 system with the introduction of complete cardiac capabilities. The advanced
architecture of the HDI 3000 platform was further demonstrated by the first ever
integration of three-dimensional imaging into an ultrasound instrument for
visualization of the human vascular system. The success of our mid-range
Apogee/(R)/ product line in international markets also continued to make an
important contribution to our growth.
Our strategic alliance with Hitachi Medical Corporation opens the Japanese
market to ATL, the second largest market for ultrasound in the world. As
distributor for ATL products in Japan, Hitachi will primarily concentrate on the
sales and service of the HDI 3000. In addition, Hitachi invested in an ATL R&D
venture, Atlantis Diagnostics International. This collaboration is designed to
enhance the worldwide competitive positions of each company through the co-
development and innovation of ultrasound technology.
In another important milestone, a distinguished FDA advisory panel unanimously
recommended approval of our premarket approval application (PMA). ATL's PMA
would open a new clinical application for ultrasound that, in conjunction with
mammography, will aid physicians in differentiating benign from malignant or
suspicious solid breast lesions, thereby significantly reducing the need for
biopsy. In the United States, over 700,000 women must undergo breast biopsy each
year. Up to 80% of these breast lumps are found to be benign. If the FDA
approves our PMA, HDI technology may spare hundreds of thousands of women the
physical, emotional and financial costs of surgical breast biopsies. This would
be the first PMA ever issued in the medical imaging industry for a diagnostic
claim.
2
ATL
<PAGE>
FINANCIAL PERFORMANCE
Worldwide revenues increased 9% to reach a record $399.4 million in 1995.
International revenues grew 13% and U.S. revenues grew 6%. Gross margin rose to
46.2% compared with 44.7% in 1994, reflecting improved product mix and
continuing cost reduction programs. Operating expenses, excluding non-recurring
items, declined to $171.2 million or 42.9% of revenues compared with $173.2
million or 47.3% of revenues in the prior year. Our 1995 financial results
included the benefit of the Hitachi investment and a favorable Washington State
sales tax audit as well as a charge for the consolidation of our Ambler,
Pennsylvania operations. These items netted to a non-recurring gain of $1.4
million. Excluding these one-time items, net income was $10.6 million or $0.75
per share on a fully diluted basis. Including these items, ATL reported net
income of $12.0 million or $0.85 per share on a fully diluted basis.
1996 AND BEYOND
The worldwide market for health care has changed dramatically and permanently
since ATL became an independent public company in 1992. In this new environment,
technology advances alone are not enough. To succeed, medical technology must
enable increasing levels of clinical efficacy and productivity. ATL is a
recognized leader in the innovation of technology that is opening new clinical
applications of ultrasound and helping health care providers meet the demands of
this new, evolving environment.
We made substantial progress in 1995. However, much remains to be accomplished
to reach our objectives for financial performance and return to shareholders. It
is our corporate goal to translate our technology and clinical leadership into a
return on shareholders' equity of 15%. We believe we have the market position,
worldwide distribution network, financial resources and management strength to
make this a reality.
To the employees of ATL, I extend my appreciation for a year of superb effort
and performance. We thank you, our shareholders, for your continued support.
[SIGNATURE LOGO OF DENNIS C. FILL]
Dennis C. Fill
Chairman and Chief Executive Officer
March 14, 1996
3
ATL
<PAGE>
THE YEAR IN REVIEW
JANUARY 20, MADRAS ATL announces plans to expand its investment in India joint
venture to a majority equity position. Through its 15-year partnership with
Sanmar Electronic Corporation, ATL has become a leader in India's growing
market for ultrasound, providing manufacturing, direct sales and service
support. ATL India will expand this growth opportunity with added investment in
customer sales, service and education resources. The government of India
approved the transaction in May.
FEBRUARY 1 Presentation of findings at the Symposium on Diagnostic and
Therapeutic Approaches to Vascular Disease by Dennis F. Bandyk, M.D., professor
of surgery at the University of South Florida, shows intraoperative ultrasound
can significantly reduce post-operative complications arising from vascular
surgery.
ATL's miniature, lightweight Entos(TM) CL10-5 broadband scanhead and the
highly mobile HDI 3000 are leading the growing trend toward intraoperative
ultrasound. In its first year since introduction, over 75% of HDI 3000 sales in
the vascular market include this Entos probe.
MARCH 30 ATL produces the 25,000th scanhead since acquisition of Echo Ultrasound
in May 1994. Echo, acquired as part of the Interspec merger, and ATL
manufacturing in Bothell combine to form the world's largest manufacturer of
ultrasound scanheads.
APRIL 24 The HDI 3000 becomes the first ultrasound system to pass the European
Medical Device Directive, the most stringent assessment of quality assurance
worldwide. Gaining this approval allows ATL to display the European Community
(CE) Mark on the HDI 3000 system, certifying its quality design, manufacturing,
service and installation.
[PHOTO ART of Handshake]
January 20
[PHOTO ART of HDI 3000]
July 28
4
ATL
<PAGE>
[PHOTO ART of sonographer imaging cardiac
patient and cardiac image]
June 14
[PHOTO ART of satellite]
June 30
[PHOTO ART of CL10-5 scanhead] [Prior page]
February 1
JUNE 14, TORONTO ATL announces cardiology capabilities for HDI 3000. Expanding
the clinical utility and potential market for ATL's fourth generation all-
digital HDI 3000, ATL introduces a complete range of cardiac features at the
American Society of Echocardiography meeting in Toronto and at the Symposium on
Echocardiology in the Netherlands one week later. Cardiologists praised the HDI
3000cv for its imaging performance, mobility and user friendliness. Customers
called the image quality "exquisite" and reported that the system offers a new
level of performance, particularly in technically difficult to image patients.
JUNE 15 ATL offers ultrasound training via satellite videoconferencing from its
Bothell headquarters to physicians in Singapore. Over 3,000 clinicians attended
ATL-sponsored education courses held in locations throughout the world in 1995.
JUNE 22 ATL implements pan-European leasing program. The first contract is
signed by a hospital in the United Kingdom.
JUNE 30 ATL, University of Washington, U.S. Navy and Jet Propulsion Laboratory
collaborate on transmission of live ultrasound images via a NASA research
satellite and mobile uplink unit. The demonstration shows that cost-effective,
real-time evaluation of ultrasound images is possible from rural or remote
areas or at sea; wherever injury, emergency, warfare or natural disasters may
occur.
JULY 28 HDI 3000 wins design award in international competition. At the 5th
Annual Pro/USER Conference, the international engineering community recognized
the HDI 3000 for its breakthrough design. Judged best in its class over 112
other leading edge technology entrants, the HDI 3000 received the award based
on creativity, technical merit, overall design and comprehensive use of
computer-aided design software.
5
ATL
<PAGE>
[PHOTO ART of bar chart representation of
HDI 3000 Customer Satisfaction]
[BAR CHART] 82% 98%
Exceeded Met or
Expectations Exceeded
Expectations
September 21
[PHOTO ART of screen display of Access Image
Management]
October 6
[PHOTO ART of ATL and Hitachi documents]
November 6
AUGUST 1 ATL presents cardiology features for the HDI 3000 at the Asian
Federation of Societies of Ultrasound in Medicine meeting in Beijing, China.
AUGUST 21 ATL begins customer deliveries of its innovative multiplane
transesophageal scanhead (TEE) for both the HDI and HDI 3000 systems. ATL's
multiplane TEE provides a full range of cardiac views enabling more rapid
diagnosis of congenital and acquired heart disease. ATL holds a strong patent
position in this technology and has cross-licensed it to other leading
echocardiography companies.
AUGUST 21 ATL announces the 500th customer delivery of the HDI 3000 system at
the European Society of Cardiology meeting in Amsterdam, the Netherlands.
SEPTEMBER 4 The superb imaging capabilities of the HDI 3000 and the CL10-5
scanhead are prominently featured at the Musculoskeletal Ultrasound conference
in Antwerp, Brussels. Originally designed for vascular surgery, ATL's CL10-5
scanhead provides extraordinary clarity for superficial structures such as
median nerves in the wrist and tendons in the knee, ankle, shoulder and hand.
SEPTEMBER 15 "Bigfoot," a powerful microchip, is integrated into the HDI 3000
beamformer. With the equivalent of approximately half a million transistors,
ATL's proprietary, new generation ASIC (application-specific integrated
circuit) consumes only 15% of the power of its predecessor and reduces overall
beamformer components by 50%, further increasing reliability and decreasing
manufacturing cycle time.
SEPTEMBER 21 An independent national survey of more than 100 hospitals and
clinics finds exceptional customer satisfaction with ATL's HDI 3000 system,
with over 80% of customers stating the system "exceeds their expectations."
Customers report increased productivity, with some reporting gains of over 25%,
due to system design and image quality that results in fewer repeat
examinations and more definitive diagnoses.
6
ATL
<PAGE>
[PHOTO ART of Micrometer holding ASIC chip]
September 15
[PHOTO ART of ultrasound image of
supraspinatus tendon]
September 4
[PHOTO ART of hotel marquee of American
Heart Association meeting]
November 14
OCTOBER 6 ATL announces customer shipments of the Access(TM) Image Management
system for ultrasound. Consisting of a Dicom-based acquisition module,
workstation and a network fileserver, the system's open architecture allows
easy integration with other manufacturers' devices.
OCTOBER 10 www.atl.com-ATL goes live on the World Wide Web. ATL's web site
features product, customer support, employment, corporate and
clinical information.
OCTOBER 14 ATL and Schering AG co-sponsor a symposium on ultrasound contrast
agents and harmonic imaging at the Dreilander meeting in Dresden, Germany.
NOVEMBER 6, TOKYO/SEATTLE ATL AND HITACHI MEDICAL CORPORATION (HMC) ANNOUNCE R&D
JOINT VENTURE AND HDI 3000 DISTRIBUTION AGREEMENTS. The agreements open the
Japanese market to ATL, the second largest market for ultrasound in the world,
and establish an R&D collaboration. As distributor for ATL products in Japan,
Hitachi will primarily concentrate on the sales and service of the HDI 3000. In
addition, Hitachi invested in an ATL R&D venture, Atlantis Diagnostics
International.
"ATL is a recognized leader in broadband digital ultrasound technology. We
believe that ATL's premium product line will complement our own ultrasound
product offering in Japan," said Yutaka Takuma, HMC president. "Combining
Hitachi's experience in microelectronics and ultrasound with ATL's experience
in digital ultrasound technology will bring substantial benefits to both
companies."
NOVEMBER 14 Clinical researchers report on the benefits of the HDI all-digital
architecture for a new generation of cardiac harmonic contrast agents at the
American Heart Association meeting in Anaheim, California.
7
ATL
<PAGE>
[PHOTO ART of HDI 3000 and bar chart
representing HDI 3000 installed customer
base]
[BAR CHART] 500 1,000
August December
1995 1995
December 22
NOVEMBER 26 Kodak and ATL announce customer testing of jointly developed image
management products for ultrasound. The integration of the Kodak Digital
Science(TM) medical imaging system and ATL's Access system for ultrasound image
management will enable ultrasound departments to improve productivity through
more efficient image printing, automated image archiving and retrieval, reduced
patient examination time and enhanced consultation within and between
hospitals.
NOVEMBER 27, CHICAGO ATL INTRODUCES 3D ULTRASOUND AT THE ANNUAL MEETING OF
THE RADIOLOGICAL SOCIETY OF NORTH AMERICA. Building on the powerful
TrueDigital(TM) architecture of the HDI 3000 system, 3D Color Power Angio(TM)
(CPA) is the first three-dimensional imaging capability integrated into a high
performance system. Instead of a single, two-dimensional slice, the rotating 3D
view depicts the vasculature of an entire organ. Clinical investigators report
that 3D CPA shows promise in the early detection of fetal abnormalities in the
brain, abdomen and great vessels; placental flow assessment for evaluation of
fetal growth; monitoring the viability of kidney and liver transplants; and
tumor therapy follow up.
NOVEMBER 27 ATL expands its Entos family of probes with two new broadband
scanheads for abdominal surgery. The ergonomic and lightweight design of these
scanheads frees the surgeon's fingers to enable palpation while scanning. The
small footprint of these scanheads ensures access even in tight abdominal
spaces.
Intraoperative ultrasound can provide the surgeon with such critical
information as the number, size and characteristics of lesions and their exact
location. As a result, the surgical approach is often altered: a more
extensive resection is performed, a planned procedure revised or treatment
changed. Over 125,000 abdominal surgeries are performed annually in the United
States.
8
ATL
<PAGE>
[PHOTO ART clockwise from top; scanning of a
patient's breast, Gene Larson
interview on CNN Newscast and
ultrasound image of breast
tissue.]
December 11
[PHOTO ART of field test of ultrasound
imaging]
December 29
[PHOTO ART of new Entos scanheads]
November 27
DECEMBER 11, WASHINGTON, D.C. FDA ADVISORY PANEL UNANIMOUSLY RECOMMENDS APPROVAL
FOR ATL BREAST PREMARKET APPROVAL APPLICATION (PMA). Upon FDA approval, the PMA
will allow a new clinical application of ultrasound that would significantly
reduce breast biopsies. The scientific advisory panel determines that the use
of ATL's High Definition(TM) Imaging (HDI), in conjunction with mammography,
will provide physicians with a high degree of confidence in differentiating
benign from malignant or suspicious breast lesions. ATL's application was based
on the findings of an international, multi-center study involving over 1,000
women with solid breast lesions.
"This study represents an important step in women's health care and
demonstrates the potential to spare hundreds of thousands of women the
physical, emotional and financial costs of surgical breast biopsies," states
Ellen Mendelson, M.D., director of the Breast Diagnostic Imaging Center at The
Western Pennsylvania Hospital and a clinical investigator in ATL's PMA study.
DECEMBER 22 ATL delivers 1,000th HDI 3000 ultrasound system. In addition, the
University HealthSystem Consortium selects ATL as a preferred vendor. Comprised
of over 100 university hospitals and their member partners, the Consortium
notes the HDI 3000 will strengthen the ability of their members and partners to
increase productivity and improve patient care.
DECEMBER 29 U.S. Department of Defense announces selection of ATL to partner on
development of handheld ultrasound device for battlefield trauma. Together with
the University of Washington, VLSI Technology and Harris Semiconductor, ATL
will develop a lightweight, low cost, real-time digital ultrasound system with
high quality imaging performance and telemedicine capabilities for use on the
battlefield as well as in general medical practice.
9
ATL
<PAGE>
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED December 31, December 31, December 31, December 31, December 27,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $399,446 $366,152 $360,497 $380,405 $336,392
Gross profit 184,525 163,583 165,849 177,409 148,925
Selling, general and administrative expenses 121,193 115,595 110,752 111,883 103,105
Research and development expenses 49,017 56,426 51,265 46,051 42,403
Income (loss) from operations 14,895 (21,616) (3,106) 10,438 14,354
Income (loss) before income taxes 14,488 (20,858) (1,735) 12,922 16,200
Net income (loss) 12,002 (20,204) (3,321) 10,729 15,237
Net income (loss), excluding
non-recurring items 10,617 (8,191) 954 15,688 1,506
Net income (loss) per share - fully diluted $ .85 $ (1.53) $ (.24) $ .78 $ 1.19
Net income (loss) per share, excluding
non-recurring items - fully diluted $ .75 $ (.62) $ .07 $ 1.15 $ .12
PERCENT OF TOTAL REVENUES:
Gross margin 46.2% 44.7% 46.0% 46.6% 44.3%
Selling, general and administrative expenses 30.3% 31.6% 30.7% 29.4% 30.7%
Research and development expenses 12.3% 15.4% 14.2% 12.1% 12.6%
Income (loss) from operations 3.7% (5.9%) (.9%) 2.7% 4.3%
Income (loss) before income taxes 3.6% (5.7%) (.5%) 3.4% 4.8%
Net income (loss) 3.0% (5.5%) (.9%) 2.8% 4.5%
Net income (loss), excluding non-recurring items 2.7% (2.2%) .3% 4.1% .4%
BALANCE SHEET DATA (END OF PERIOD):
Cash and short-term investments $ 35,654 $ 22,901 $ 54,758 $ 81,717 $ 80,282
Receivables 129,226 105,500 94,559 102,483 104,892
Inventories 94,877 96,065 88,692 81,546 74,811
Working capital 161,581 134,117 157,878 178,497 164,414
Marketable debt security - 4,988 4,988 - -
Total assets 353,448 321,150 322,164 344,523 337,239
Short-term borrowings, including
current portion of long-term debt 3,466 3,818 5,749 4,985 8,501
Long-term debt 14,837 17,688 11,600 12,077 16,047
Shareholders' equity 210,923 191,176 210,835 227,234 209,715
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income from operations in 1995 includes a net gain of $1,385 for a gain from
Hitachi's investment in an ATL R&D joint venture, a benefit for a Washington
State B&O tax refund and restructuring and relocation expenses.
The loss from operations in 1994 includes $12,013 of merger and related costs,
restructuring expenses and a provision for litigation claim.
The loss from operations in 1993 includes restructuring expenses of $4,275 for
the streamlining of worldwide operations.
Income from operations in 1992 includes $4,959 of stock distribution expenses
and restructuring expenses related to the distribution of SpaceLabs Medical,
Inc.
Income from operations in 1991 includes a $6,338 award as a result of the
Company's lawsuit against a competitor and a $7,393 gain on the sale of a
subsidiary.
10
ATL
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
ATL (the Company) operates in the worldwide diagnostic medical ultrasound
industry. ATL sells its products to hospitals, clinics and physicians worldwide
for use in radiology, cardiology, obstetrics and gynecology, vascular,
musculoskeletal and intraoperative applications. Sales are made through the
Company's direct sales force in the U.S. and through direct sales or third party
distributors in international markets.
Like many high-technology medical systems industries, the ultrasound industry
is highly competitive and market demand is influenced by a variety of factors.
These include the introduction of new technologies which may offer improved
clinical capabilities and create demand for new products, the relative cost-
effectiveness and clinical utility of competing diagnostic technologies, the
structure of health care delivery organizations, government policies with
respect to reimbursement and containment of medical costs and the economies and
demographics of the countries where the Company markets its products. Although
ultrasound systems are typically sold based on image quality, Doppler
sensitivity, product reliability, upgradeability, clinical versatility and ease
of use, price competition is an important factor. Fundamental restructuring in
the U.S. health care market has resulted in a contraction of the traditional
ultrasound market in recent years. Although uncertainty created from debates
over federal and state health care reform subsided somewhat in 1995, the focus
on containment of medical costs continued, adding to the existing competitive
pressures in the ultrasound industry.
The Company's competitive position and financial results are influenced by
fluctuations in foreign currency exchange rates. In 1995, international revenues
accounted for 47% of total revenues, a large portion of which were denominated
in foreign currencies. Some of ATL's competitors are foreign companies whose
production costs are incurred in foreign currencies. As a result, a
strengthening of the value of the U.S. dollar against other major currencies may
adversely impact the Company's competitive position and financial results. This
impact, however, will be partially offset by the translation into U.S. dollars
of operating expenses incurred in foreign currencies by the Company's
international sales and service operations. The Company hedges foreign exchange
exposure related to its intercompany accounts payable and receivable balances
which are denominated in foreign currencies through the use of forward exchange
contracts. The Company does not otherwise hedge foreign currency exposures.
In 1995, ATL reported net income of $12.0 million or $0.85 per share on a
fully diluted basis. The reported results include three non-recurring items
totaling a net gain of $1.4 million or $0.10 per share. The improved financial
results in 1995 reflect the introduction of new products, the expansion of ATL's
product lines, the results of actions taken to improve ATL's expense structure
and the strengthening of economic conditions in Europe. In 1994, ATL reported a
net loss of $20.2 million or $1.53 per share, which included three non-recurring
charges totaling $12.0 million or $0.91 per share.
BASIS OF PRESENTATION
ATL acquired Interspec, Inc. (Interspec), a manufacturer of diagnostic
medical ultrasound systems and transducers headquartered in Ambler,
Pennsylvania, in May 1994. The merger was accounted for as a pooling of
interests business combination. Therefore, the Company's consolidated financial
statements and information reported for periods prior to the acquisition have
been restated to include Interspec as if the companies had been combined for all
periods presented.
REVENUES AND GROSS PROFIT
=====================================================================
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $399.4 $366.2 $360.5
Percent change 9% 2% (5%)
Gross profit $184.5 $163.6 $165.8
As a % of revenues 46.2% 44.7% 46.0%
=====================================================================
</TABLE>
Revenues increased 9% in 1995 to $399.4 million compared with 1994 revenues of
$366.2 million. Product sales increased by $27.8 million reflecting favorable
changes in product mix toward the HDI 3000 and Apogee product lines. Revenues
from the HDI product family accounted for over one-half of total revenues in
1995. Synergies achieved from the integration of the Interspec product lines
into ATL's distribution channels, particularly in international markets,
resulted in higher sales of the mid-range Apogee systems. The increased volume
from HDI 3000 and Apogee sales was partially offset by declining sales of the
Company's older products lines, including the Ultramark /(TM)/4 (UM4) and
Ultramark 9 High Definition Imaging systems. Production of new UM4 systems was
discontinued at the end of 1995. Service revenues increased $5.4 million from
1994 due to an increasing installed base of ATL's products and higher volume of
service maintenance contracts in 1995.
Geographically, revenues in both the U.S. and international markets increased
in 1995. Despite constrained conditions in the U.S. health care market, U.S.
revenues in 1995 increased 6% to $210.7 million, primarily due to increased
volume of HDI 3000 shipments. International revenues were $188.7 million, 13%
higher than 1994, reflecting the increased volumes of both the HDI 3000 and the
mid-range Apogee systems. Revenue growth occurred primarily in Europe where
economic conditions improved in 1995. International revenues totaled 47% and 46%
of total revenues in 1995 and 1994, respectively.
================================================================================
TOTAL REVENUES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
[BAR CHART APPEARS HERE] U.S. 228 201 199 211
International 152 159 167 188
================================================================================
</TABLE>
In December 1995, the Company announced an agreement appointing Hitachi
Medical Corporation (Hitachi) to be ATL's distributor in Japan. Hitachi's
primary focus will be on marketing ATL's premium product line, the HDI 3000.
Hitachi is expected to begin distribution of ATL products in 1996 after
obtaining the necessary Japanese regulatory approvals. ATL also entered into
11
ATL
<PAGE>
a research and development joint venture with Hitachi. The Company received
$10.0 million from Hitachi and reported a $6.2 million gain. Under the terms of
the joint venture, the Company and Hitachi will develop advanced ultrasound
technology with funding provided by Hitachi based upon the achievement of
certain development milestones. The technology resulting from this joint
development will be available to both ATL and Hitachi for new product offerings
and product features. ATL will receive royalty payments in the future based upon
Hitachi's revenues from the jointly developed technology.
In 1994, revenues increased 2% from 1993 to $366.2 million, primarily the
result of higher service revenues attributable to the growing installed based of
the Company's products and the expansion of service operations in international
markets. Revenues in the Asia Pacific and Latin American regions increased in
1994, however, the softness of the European economies and competitive pressures
on unit prices contributed to a slight decrease in European revenues. U.S.
revenues in 1994 were flat compared with 1993, reflecting constrained market
conditions created by ongoing restructuring of health care delivery systems and
debates over federal health care reform legislation and the associated
competitive pressures.
Gross profit increased 13% in 1995 to $184.5 million, compared with $163.6
million in 1994. Gross margin in 1995 was 46.2% compared with 44.7% in 1994. The
higher gross profit reflects favorable product mix changes toward the higher
priced and higher margin products, product cost reduction programs and improved
service operating efficiencies. The Company was able to maintain its premium
price levels on the HDI 3000 product line, despite continuing competitive
pressures in the market during 1995. The 1994 gross profit reflected the adverse
impact of competitive price pressures, lower priced configurations and an
overall decline in unit volume compared with 1993.
================================================================================
TOTAL GROSS MARGIN
<TABLE>
<CAPTION>
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
[BAR CHART APPEARS HERE] 46.6% 46% 44.7% 46.2%
================================================================================
</TABLE>
OPERATING EXPENSES, NET
<TABLE>
<CAPTION>
================================================================================
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
SG&A $121.2 $115.6 $110.8
As a % of revenues 30.3% 31.6% 30.7%
R&D $ 49.0 $ 56.4 $ 51.3
As a % of revenues 12.3% 15.4% 14.2%
Other (income) expense, net:
Gain from R&D joint venture $ (6.2) $ -- $ --
B&O tax benefit (1.0) -- --
Other expense, net 0.7 1.2 2.7
------ ------ ------
$ (6.5) $ 1.2 $ 2.7
As a % of revenues (1.6%) 0.3% 0.7%
================================================================================
</TABLE>
Selling, general and administrative (SG&A) expenses increased by $5.6 million
in 1995 to $121.2 million but declined as a percent of revenues to 30.3% from
31.6%. The Company continued to expand its sales and marketing programs in the
image management market and in selected international markets in 1995. The
increases in expenses from these sales and marketing activities were partially
offset by the benefits achieved as a result of the Company's recent
restructuring programs. In 1994, SG&A expenses were $115.6 million, a 4%
increase from the previous year, primarily reflecting the expenses related to
the introduction of the HDI 3000 in October 1994 and the growth of international
sales and marketing operations.
Research and development (R&D) expenses were $49.0 million in 1995, a decrease
of $7.4 million or 13% from 1994. As a percent of revenues, 1995 R&D expenses
were 12.3% compared with 15.4% in 1994. ATL's R&D expenses decreased in 1995
following new product introductions in 1994 of the HDI 3000 and three new
broadband scanheads. Although R&D expenses have decreased from a significantly
higher level in 1994, the Company has a strong commitment to product development
programs to develop proprietary technologies. In June 1995, ATL introduced the
HDI 3000cv, the first expansion of the HDI 3000 platform to include complete
cardiology capabilities. As discussed previously, ATL entered into a joint
venture with Hitachi for the research and development of advanced ultrasound
technology. Expenses of approximately $1.0 million incurred under this R&D joint
venture in the fourth quarter of 1995 were offset by funding received from
Hitachi.
On December 11, 1995, a U.S. Food and Drug Administration (FDA) Advisory
Committee Panel voted unanimously to recommend FDA approval, with certain
modifications, of the pre-market approval (PMA) application of ATL which would
allow a new clinical application of ultrasound that, in conjunction with
mammography, would provide physicians with a high level of confidence in
differentiating benign from malignant or suspicious breast lesions and thereby
reduce the need for breast biopsy. The FDA usually follows the recommendations
of its Advisory Committee Panel but is not obliged to do so. On January 26,
1996, the FDA determined the PMA to be approvable pending the satisfaction by
ATL of certain conditions and requirements. The Company is in the process of
responding to the FDA. A final determination on approval of the PMA is expected
in 1996.
================================================================================
OPERATING EXPENSES AS A % OF REVENUES*
<TABLE>
<CAPTION>
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SG&A 29.4% 30.7% 31.6% 30.4%
[BAR CHART APPEARS HERE] R&D 12.1% 14.2% 15.4% 12.3%
Other 1.1% 0.7% 0.3% 0.2%
</TABLE>
*Excluding non-recurring items
================================================================================
Other (income) expense, net, totaled ($6.5) million in 1995. This included a
$6.2 million gain on the investment by Hitachi in an ATL R&D joint venture,
previously discussed. The Company also reported a benefit as a result of a
Washington State Business & Occupation (B&O) tax audit, of which $1.0 million is
12
ATL
<PAGE>
included in Other (income) expense, net. B&O tax is imposed on gross receipts
for products manufactured in the State of Washington and is not considered an
income tax. In 1994, Other (income) expense, net included B&O tax expense of
$0.7 million and foreign exchange losses of $0.1 million.
RESTRUCTURING, RELOCATION
AND MERGER EXPENSES
As the competitive pressures in the ultrasound industry intensified during the
last three years due to restructuring of the health care systems in many major
countries, the Company has implemented a number of programs to streamline its
operations and improve productivity across all areas of the Company.
During 1995, the Company implemented a new corporate structure which
consolidated the Interspec operations located in Ambler, Pennsylvania with the
Company's headquarters in Bothell, Washington. The consolidation has been
implemented as planned and has resulted in the relocation of Ambler
manufacturing, administrative and R&D functions to Bothell and a net reduction
of approximately 100 full-time positions. Some R&D functions will continue in
Ambler until early 1996 and the U.S. Cardiology sales force will continue to be
based in Ambler. The Company incurred restructuring expenses for severance,
outplacement and employee retention incentives totaling $2.8 million and
relocation expenses of $3.1 million associated with the consolidation of the
Ambler operations. The Company intends to hold the Ambler land and building and
is marketing the facility for lease.
In the fourth quarter of 1994, the Company reduced its workforce by
approximately 80 full-time and temporary positions. In the third quarter of
1993, the Company reduced its workforce by approximately 240 positions. The
Company reported restructuring expenses of $1.6 million and $4.3 million,
respectively, in 1994 and 1993, primarily for severance and outplacement costs
associated with these restructurings.
The Company incurred non-recurring charges in 1994 of $5.4 million for merger
and other costs associated with the acquisition of Interspec. These charges
included $2.3 million for legal, accounting, investment advisory, printing and
other professional services; $1.6 million primarily for the consolidation of
Interspec's international personnel and facilities into the Company's
operations; and $1.5 million associated with the bankruptcy of Interspec's
former distributor in Italy which resulted in accounts receivable being
garnished in a bankruptcy proceeding.
PROVISION FOR LITIGATION CLAIM
The Company accrued a provision in 1994 of $5.0 million for a litigation
claim. In November 1992, a U.S. District Court in California granted a motion by
SRI International, Inc. (SRI) requesting partial summary judgment on a patent
infringement claim relating to an electrical circuit used in certain
discontinued products. The patent expired in 1994. In December 1994, the U.S.
Federal Circuit Court of Appeals affirmed the summary judgment obtained by SRI.
SRI is claiming royalties for past sales of these products and an enhancement of
royalties for willful infringement. If willful infringement is found the court
may enhance damages by up to three times. Interest will be imposed on the amount
of actual damages. A seven day trial to determine the royalties due SRI and
enhancements, if any, was completed in the U.S. District Court for Northern
California in October 1995. The parties are presently awaiting the opinion of
the court on these issues.
INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
- ---------------------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
Interest Income $ 1.7 $ 2.1 $ 3.1
Interest Expense (2.1) (1.4) (1.7)
- ----------------------------------------------
</TABLE>
Interest income decreased in 1995 and 1994, reflecting lower cash balances
available for investment during these periods. Interest expense increased in
1995 compared with 1994 due to a long-term variable interest mortgage which was
incurred in December 1994 to finance the purchase of land and a building
adjacent to ATL's corporate headquarters in Bothell, Washington.
TAXES AND NET INCOME (LOSS)
<TABLE>
<CAPTION>
- --------------------------------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
Income (Loss) Before Income Taxes $14.5 $(20.9) $(1.7)
Income tax expense (benefit):
U.S. income taxes $ 1.1 $ (1.3) $ .7
Foreign income taxes 1.4 .6 .9
----- ------ -----
$ 2.5 $ (.7) $ 1.6
As a % of income (loss)
before income taxes 17% 3% (94%)
Net Income (Loss)* $12.0 $(20.2) $(3.3)
- ---------------------------------------------------------
</TABLE>
* Includes the following non-recurring amounts discussed previously: $1.4
million after tax net gain in 1995 for a gain on an R&D joint venture, a
benefit for a B&O tax refund and restructuring and relocation expenses;
$12.0 million expense in 1994 for restructuring and merger expenses and a
provision for litigation claim; and $4.3 million restructuring expenses in
1993.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (FAS) No. 109, Accounting for Income Taxes. Under
FAS 109, the provision for income taxes and the effective tax rate are subject
to volatility. Changes in statutory rates and taxable income will affect the
amount of net deferred tax assets which can be recognized under FAS 109 and the
related provision for income taxes.
In determining the realizability of deferred tax assets, the Company assessed
its deferred tax liabilities, tax planning strategies and potential carryback
opportunities.
The provision for income taxes includes benefits from the utilization of U.S.
federal and foreign tax loss carryforwards. Tax loss carryforwards of
approximately $4.8 million remain at the end of 1995. No benefit has been
recognized for these carryforwards due to uncertainty surrounding their
realization.
CAPITAL RESOURCES AND LIQUIDITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
Cash and short-term investments $ 35.7 $ 22.9 $ 54.8
Long-term marketable debt security - 5.0 5.0
Receivables 129.2 105.5 94.6
Inventories 94.9 96.1 88.7
Short-term borrowings, including
current portion of long-term debt 3.5 3.8 5.7
Long-term debt 14.8 17.7 11.6
Shareholders' Equity 210.9 191.2 210.8
Return on shareholders' equity 6.0% (10.1%) (1.5%)
- -----------------------------------------------------------------
</TABLE>
The Company finances its operations primarily with internal resources,
including cash and short-term investments. The Company held $35.7 million in
cash and short-term investments at December 31, 1995. During the third and
fourth quarter of 1995, the Company utilized 6.5% reverse repurchase agreements
13
ATL
<PAGE>
collateralized by a marketable debt security to generate $3.0 million. The
repurchase agreements matured in the fourth quarter of 1995. At December 31,
1995, short-term borrowings represent working capital lines of credit maintained
at several of the Company's foreign subsidiaries to facilitate intercompany cash
flow.
As shown in the statement of cash flows, ATL generated cash from operations of
$13.5 million in 1995. At December 31, 1995, receivables were $129.2 million, an
increase of $23.7 million from December 31, 1994. The increase is primarily due
to higher sales levels during the fourth quarter of 1995 compared with 1994.
Cash flows from investing activities included $13.8 million used for property,
plant and equipment purchases and proceeds of $10.0 million related to the
ATL R&D joint venture with Hitachi, discussed previously.
Long-term debt at December 31, 1995 was $14.8 million. In May 1995, the
Company repurchased $1.7 million of 11% subordinated convertible debentures. In
December 1995, $2.2 million of the convertible debentures were converted by the
holders into the Company's common shares. The Company converted the outstanding
$1.2 million convertible debentures into common shares on February 1, 1996.
Interest rates on the remaining long-term debt outstanding at December 31, 1995
averaged approximately 6%.
The Company made no stock repurchases in 1995 under a share repurchase program
which authorized up to 1,000,000 shares of the Company's common stock to be
purchased in the open market. Since the inception of this plan in 1993, the
Company has repurchased a total of 816,500 shares.
================================================================================
CAPITAL
STRUCTURE
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Long-term Debt 12.1 11.6 17.7 14.8
[BAR CHART APPEARS HERE]
Shareholders' Equity 227.2 210.8 191.1 210.9
================================================================================
</TABLE>
The Company has occasionally utilized its cash resources to make acquisitions
of technology or small technology-related businesses. The Company may undertake
further acquisitions of technology in the future.
In addition to its cash balances, the Company has available unsecured credit
facilities of $25 million, including a committed line of credit $15 million.
Barring any unforeseen circumstances or events, management expects existing cash
and available credit lines and funds generated from operations should be
sufficient to meet the Company's operating requirements for 1996.
OTHER BUSINESS FACTORS
Like many companies in high technology businesses, the Company can from time
to time experience difficulty with the availabiity of components employed in its
products. Such difficulties can lead to increases in component costs, long order
lead times or delays in the Company's manfacture of products. Manufacturing
efforts can also be impeded by third party assertions of patent infringement by
the Company's products, such as the litigation claim previously discussed. There
can be no assurance the Company will not be subject to claims of patent
infringement by other parties or that such claims will not require the Company
to pay substantial damages or delete certain features from its products or both.
The Company is subject to certain rules, regulations and inspections by the
FDA and other regulatory agencies regarding the design, manufacture, marketing
and performance of its products. The Company's ability to manufacture products
and obtain timely FDA export and new product approvals is dependent upon the
results of FDA inspections and reviews. The Company can also incur substantial
expense in process changes and modifying products previously sold to customers
which stem from FDA requirements. The Company's regulatory compliance programs
have been expanded to comply with international quality standards known as ISO
9001 standards. In 1994, ATL obtained registration under the ISO 9001 quality
standards for most of its operations and in 1995 ATL's HDI 3000 qualified to
display the European Community (CE) Mark. By 1998, all medical device companies
marketing products in the European Community will be required to meet these
standards.
FORWARD LOOKING INFORMATION
In compliance with the new "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company provides the following information.
In 1996 the Company will continue to pursue its multi-year goal of achieving a
return on shareholders' equity of 15%, compared with 1995 results (excluding
non-recurring items) of approximately 5%. Should this long-term goal be
realized, the Company's earnings could approach $2.50 per share in several
years. The Company expects total revenues to increase in 1996, but the expected
increase is less than the year to year percentage growth in revenues realized in
1995. This is due to the discontinuation of older product lines, the Ultramark 4
and Ultramark 9DP. The discontinuation of these product lines is expected to
result in an improved product mix for the Company which, in conjunction with
continuing cost reduction programs, should result in a gross margin improvement
for the year. The combined effects of these results, together with limited
growth in total operating expenses, are expected to lead to higher net income
and earnings per share for the Company in 1996. Correspondingly, the Company
anticipates both cash and short-term investments and shareholders' equity to
increase in 1996.
The above statements are forward looking statements that involve a number of
risks and uncertainties. Among the ongoing factors that could cause actual
results to differ materially from the above are the following considerations.
The U.S. ultrasound market remains sluggish and may cause revenue growth to fall
short of expectations. Several of the Company's larger, multinational
competitors have introduced new ultrasound products in the past two years and
others are expected to introduce new products in 1996. These factors could
increase competition in the ultrasound market, which may adversely impact the
Company's sales volume or selling prices or both. The Company's capital
equipment expenditures in 1996 may increase as older assets used in the
Company's operations are upgraded or replaced. Unanticipated events, such as
delays in the Company's product development and cost reduction programs, the
unavailability of components critical to the Company's products due to natural
disasters, changes in vendor businesses or otherwise, a stronger U.S. dollar or
a patent litigation judgment in excess of the provision accrued by the Company
could adversely impact the Company's financial results for 1996.
14
ATL
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board (FASB) issued FAS No. 121
which establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets. This
statement, which will be effective in January 1996, addresses when impairment
losses should be recognized and how impairment losses should be measured. The
adoption of FAS 121 is not expected to have a material effect on the Company's
consolidated financial statements.
In 1995, the FASB also issued FAS 123 which addresses the accounting and
reporting standards for stock-based employee compensation plans. This new
standard, which is effective in 1996, defines a fair value-based method of
accounting for stock options, stock purchase plans and other equity instruments
issued to employees and measures compensation cost based on the value of the
award. Compensation expense is recognized over the service period. Companies may
elect to continue using the rules of APB Opinion No. 25, Accounting for Stock
Issued to Employees. Companies which elect to continue using the rules of
Opinion 25 must make pro forma disclosures of net income and earnings per share
as if the fair value-based method of accounting had been applied. The Company
has elected to continue using Opinion 25 and will make the pro forma disclosures
required under FAS 123.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
ADVANCED TECHNOLOGY LABORATORIES, INC.
We have audited the accompanying consolidated balance sheets of Advanced
Technology Laboratories, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Technology Laboratories, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
[SIGNATURE LOGO OF KPMG PEAT MARWICK LLP]
KPMG Peat Marwick LLP
Seattle, Washington
February 13, 1996
15
ATL
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================
December 31, December 31,
(IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments $ 35,654 $ 22,901
Receivables, net 129,226 105,500
Inventories 94,877 96,065
Prepaid expenses 3,007 2,261
Deferred income taxes, net 9,048 8,577
-------- --------
Total current assets 271,812 235,304
Marketable Debt Security -- 4,988
Property, Plant and Equipment, Net 71,130 70,338
Other Assets, Net 10,506 10,520
-------- --------
$353,448 $321,150
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 2,911 $ 1,842
Current portion of long-term debt 555 1,976
Accounts payable and accrued expenses 79,903 74,610
Deferred revenue 21,038 20,405
Taxes on income 5,824 2,354
-------- --------
Total current liabilities 110,231 101,187
Long-Term Debt 14,837 17,688
Other Long-Term Liabilities 17,457 11,099
Commitments and Contingencies
Shareholders' Equity 210,923 191,176
-------- --------
$353,448 $321,150
- --------------------------------------------------------------------------
Common shares outstanding 13,610 13,330
==========================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
16
ATL
<PAGE>
CONSOLIDATED STATEMENTS
OF OPERATIONS
<TABLE>
<CAPTION>
==================================================================================================
YEAR ENDED December 31, December 31, December 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Product sales $316,102 $288,294 $289,561
Service 83,344 77,858 70,936
-------- -------- --------
399,446 366,152 360,497
-------- -------- --------
Cost of Sales
Cost of product sales 163,928 153,944 149,110
Cost of service 50,993 48,625 45,538
-------- -------- --------
214,921 202,569 194,648
-------- -------- --------
Gross Profit 184,525 163,583 165,849
Operating Expenses, net
Selling, general and administrative 121,193 115,595 110,752
Research and development 49,017 56,426 51,265
Restructuring, relocation and merger expenses 5,935 7,013 4,275
Provision for litigation claim -- 5,000 --
Other (income) expense, net (6,515) 1,165 2,663
-------- -------- --------
169,630 185,199 168,955
-------- -------- --------
Income (Loss) From Operations 14,895 (21,616) (3,106)
Interest income 1,728 2,129 3,088
Interest expense (2,135) (1,371) (1,717)
-------- -------- --------
Income (Loss) Before Income Taxes 14,488 (20,858) (1,735)
Income tax expense (benefit) 2,486 (654) 1,586
-------- -------- --------
Net Income (Loss) $ 12,002 $(20,204) $ (3,321)
======== ======== ========
Net Income (Loss) Per Share:
Primary $.88 $(1.53) $(.24)
Fully Diluted $.85 $(1.53) $(.24)
Weighted average common shares and
equivalents outstanding:
Primary 13,595 13,178 13,587
Fully Diluted 14,167 13,178 13,587
=================================================================================================
See accompanying Notes to Consolidated Financial Statements.
17
ATL
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
===========================================================================================
YEAR ENDED December 31, December 31, December 31,
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 12,002 $(20,204) $ (3,321)
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities:
Depreciation and amortization 16,419 15,928 14,501
Deferred income tax expense (benefit) (1,009) 241 3,207
Gain from R&D joint venture (6,220) - -
Gain on sale of investment - - (1,125)
Changes in:
Receivables, net (20,983) (11,689) 4,571
Inventories 4,790 (4,492) (8,812)
Prepaid expenses (726) (242) (240)
Accounts payable and accrued expenses (1,031) 13,231 (1,676)
Deferred revenue 4,213 2,251 (5,400)
Taxes on income 3,489 (2,669) 2,056
Other 2,571 (4,366) 657
-------- -------- --------
Cash provided (used) by operations 13,515 (12,011) 4,418
-------- -------- --------
INVESTING ACTIVITIES
Investment in property, plant and equipment (13,771) (14,958) (15,187)
Proceeds from R&D joint venture 10,000 - -
Purchases of short-term investments - (11,973) (8,968)
Proceeds from maturing short-term investments - 14,018 53,870
Proceeds from sale of building - 3,224 -
Investment in marketable debt security - - (4,988)
Proceeds from sale of investment - - 3,235
Other (350) (389) (3,171)
-------- -------- --------
Cash provided (used) by investing activities (4,121) (10,078) 24,791
-------- -------- --------
FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings (656) (4,687) 751
Repayment of long-term debt (2,391) (3,377) (464)
Purchases of common shares - (369) (13,753)
Exercise of stock options 2,145 801 170
Cash received under tax allocation agreement - - 1,055
-------- -------- --------
Cash used by financing activities (902) (7,632) (12,241)
-------- -------- --------
Effect of exchange rate changes (727) (91) 975
-------- -------- --------
Increase (decrease) in cash and cash equivalents 7,765 (29,812) 17,943
Cash and cash equivalents, beginning of year 22,901 52,713 34,770
-------- -------- --------
Cash and cash equivalents, end of year $ 30,666 $ 22,901 $ 52,713
- -------------------------------------------------------------------------------------------
Short-term investments $ 4,988 - $ 2,045
Long-term marketable debt security - $ 4,988 $ 4,988
===========================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
18
ATL
<PAGE>
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
====================================================================================================================
Common Unearned Foreign
Stock and Restricted Currency Total
Paid-In Share Accumulated Translation Shareholders'
(IN THOUSANDS, EXCEPT PER SHARE DATA) Capital Compensation Deficit Adjustment Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $242,298 $(1,999) $(10,392) $(2,673) $227,234
Net loss -- -- (3,321) -- (3,321)
Issuance of restricted shares 584 (584) -- -- --
Amortization of restricted share
compensation -- 1,241 -- -- 1,241
Exercise of employee stock options 170 -- -- -- 170
Issuance of shares to benefit plan 289 -- -- -- 289
Repurchase of common shares (13,753) -- -- -- (13,753)
Foreign currency translation adjustment -- -- -- (2,080) (2,080)
Cash received under tax allocation
agreement 1,055 -- -- -- 1,055
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 230,643 (1,342) (13,713) (4,753) 210,835
Net loss -- -- (20,204) -- (20,204)
Issuance of restricted shares 1,439 (1,439) -- -- --
Amortization of restricted share
compensation -- 1,002 -- -- 1,002
Exercise of employee stock options 801 -- -- -- 801
Issuance of shares to benefit plan 322 -- -- -- 322
Conversion of long-term debt to
common shares 492 -- -- -- 492
Repurchase of common shares (369) -- -- -- (369)
Foreign currency translation adjustment -- -- -- 2,477 2,477
Adjustment due to change of
Interspec's fiscal year -- -- (4,180) -- (4,180)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 233,328 (1,779) (38,097) (2,276) 191,176
Net income -- -- 12,002 -- 12,002
Issuance of restricted shares 297 (297) -- -- --
Amortization of restricted share
compensation -- 1,003 -- -- 1,003
Exercise of employee stock options 2,145 -- -- -- 2,145
Conversion of long-term debt to
common shares 2,162 -- -- -- 2,162
Foreign currency translation adjustment -- -- -- 2,435 2,435
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $237,932 $(1,073) $(26,095) $ 159 $210,923
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================= ======================================================
Preferred Common Preferred Common
1995 Shares Shares 1994 Shares Shares
- ------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <S> <C> <C>
Par value per share $25.00 $.01 Par value per share $25.00 $.01
Authorized shares 6,000 50,000 Authorized shares 6,000 50,000
Issued shares -- 13,610 Issued shares -- 13,330
Outstanding shares -- 13,610 Outstanding shares -- 13,330
======================================================= ======================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
ATL
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Advanced
Technology Laboratories, Inc. (ATL) and its subsidiaries (the Company). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
As described further in Note 2, the Company acquired Interspec, Inc.
(Interspec) in May 1994. The merger was accounted for as a pooling of interests
business combination. Therefore, the Company's consolidated financial statements
and information reported for periods prior to the merger have been restated to
include Interspec as if the companies had been combined for all periods
presented.
Operations
The Company develops, manufactures, markets and services diagnostic medical
ultrasound systems worldwide. The Company sells its products to hospitals,
clinics and physicians for use in radiology, cardiology, obstetrics and
gynecology, vascular, musculoskeletal and intraoperative applications. Revenues
from the HDI product family accounted for over one-half of total revenues in
1995.
Inventories
Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or market. The Company maintains a uniform policy for its
worldwide operations to provide adequate reserves for inventory obsolescence.
Property, Plant and Equipment
The costs of significant additions and improvements to property, plant and
equipment are capitalized. Maintenance and repair costs are expensed as
incurred. Buildings, machinery, equipment, computers and purchased software are
depreciated primarily on the straight-line method over the following estimated
useful lives:
Buildings 40 years
Machinery and equipment 3-10 years
Computers and purchased software 3-5 years
Leasehold improvements are amortized over the shorter of their useful lives or
the term of the lease. For long-lived assets, including property, plant and
equipment, the Company evaluates the carrying value of the assets by comparing
the estimated future cash flows generated from the use of the asset and its
eventual disposition with the assets' reported net book value. The carrying
value of assets are evaluated for impairment when events or changes in
circumstances occur which may indicate the carrying amount of the asset may not
be recoverable. The actual cash flows the Company will generate from the use and
disposal of assets could differ materially from the amounts assumed in
performing the evaluation of carrying value and could result in an impairment
being recognized in the future.
Cost in Excess of Net Assets of Businesses Acquired
The cost in excess of net assets of businesses acquired is included in Other
Assets, Net and is amortized on the straight-line method over periods ranging
from six to nine years.
Foreign Currency
Revenues, costs and expenses of the Company's international operations
denominated in foreign currencies are translated to U.S. dollars at average
rates of exchange prevailing during the year. Assets and liabilities are
translated at the exchange rate on the balance sheet date. Translation
adjustments resulting from this process are accumulated and reported in
shareholders' equity.
Realized and unrealized gains and losses on foreign currency transactions and
forward exchange contracts are included in Other (income) expense, net.
Revenue
Revenue is generally recognized upon shipment of products and delivery of
services to customers.
Deferred revenue consists of deposits received from customers and unrecognized
service contract revenue. Service contracts are issued for annual and multi-year
periods. The revenue derived from these contracts is initially deferred and
subsequently recognized on the straight-line method over the lives of the
contracts.
Sales-type Leases
The Company leases its ultrasound imaging systems to customers under sales-type
leases with terms ranging from two to five years. The Company currently sells
its lease contract receivables to outside parties on a regular basis, generally
without recourse. Lease contract receivables which have not been sold as of the
balance sheet date are included in Receivables, net.
Product Warranty
At the time of shipment, the Company provides for the estimated cost to repair
or replace products sold under warranties. Such warranties generally cover a 12-
month period.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (FAS) No. 109, Accounting for Income Taxes. FAS
109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements and tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to be recovered or
settled.
Financial Instruments
The Company enters into foreign currency exchange contracts to hedge against
exposure to foreign currency fluctuations associated with intercompany
receivables and payables denominated in foreign currencies. Foreign exchange
contracts generally have maturities of less than one year. Gains and losses
resulting from these instruments are recognized in the same period as the
underlying hedged transactions. At December 31, 1995 and 1994, the Company had
foreign currency exchange contracts totaling $29,291 and $24,646, respectively.
The Company does not use foreign currency exchange contracts or other derivative
financial instruments for speculative or trading purposes.
20
ATL
<PAGE>
The Company has other financial instruments consisting of cash and short-term
investments, trade receivables, marketable debt security, long-term installment
receivables, accounts payable, short-term borrowings and long-term debt. The
fair value of the Company's financial instruments based on current market
indicators or quotes from brokers approximates their carrying amount.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash investments, foreign currency exchange contracts and
trade receivables. The Company's investment portfolio is diversified and
consists primarily of investment grade securities that approximate fair market
value. The Company concentrates its foreign currency exchange contracts
primarily with one major U.S. financial institution. Credit loss from
nonperformance by this counterparty is not anticipated.
Concentrations of credit risk with respect to receivables are limited due to
the Company's large customer base, generally short payment terms and the
dispersion of customers across geographic areas. The Company generally performs
credit evaluations of its customers' financial condition and requires
collateral, such as letters of credit, in certain circumstances. The Company has
sales in certain Latin American countries where extended credit terms are
offered. The long-term installment receivables created from these sales are
subject to greater risk of loss than the remainder of the Company's trade
accounts. The Company believes it has adequately provided for these risks in the
allowance for doubtful accounts.
Investment Securities
Investments in marketable securities are accounted for under the provisions of
FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.
Management determines the appropriate classification of its investments in debt
or equity securities as held-to-maturity, trading or available-for-sale
securities at the time of purchase. At December 31, 1995 and 1994, the Company
held one marketable debt security which has been classified as a held-to-
maturity security.
Per Share Data
Primary net income (loss) per common share and equivalent is calculated based
on the weighted average number of common shares and dilutive common share
equivalents outstanding. Common share equivalents include unexercised employee
stock options. For the primary per share data, the common share equivalents are
calculated under the treasury stock method using the average market price of
common shares during the period. For fully diluted per share data, the common
share equivalents are calculated under the treasury stock method using the
higher of the average market price of common shares during the period or the
market price at the end of the period.
The subordinated convertible debentures are antidilutive and are not included
in the computation of per share data for any period.
Reclassifications
In 1995, the Company changed its balance sheet classification of pension
obligations and customer service contracts, which resulted in a restatement of
previously reported assets and liabilities. There was no impact on the statement
of operations for 1995 or on retained earnings.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. ACQUISITION OF INTERSPEC, INC.
On May 17, 1994, the Company completed its acquisition of Interspec. Interspec
developed, manufactured, marketed and serviced diagnostic medical ultrasound
imaging systems and related supplies and accessories for physicians' offices,
clinics and hospitals. To effect the merger, the Company issued approximately
2,593,000 shares of common stock for all of the outstanding common stock of
Interspec, based on an exchange ratio of 0.413 share of the Company's stock for
each share of Interspec stock (Exchange Ratio). The merger was accounted for as
a pooling of interests business combination.
Combined and separate results of operations of ATL and Interspec prior to the
acquisition are presented below. Inter-company revenues and cost of sales are
eliminated in the combined results.
<TABLE>
<CAPTION>
===============================================================================
ATL Interspec Eliminations Combined
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First fiscal quarter of 1994
Revenues $ 75,896 $15,666 $(2,205) $ 89,357
Net income 742 201 (642) 301
Fiscal year - 1993
Revenues $304,511 $61,377 $(5,391) $360,497
Net income (5,106) 1,950 (165) (3,321)
===============================================================================
</TABLE>
Prior to the merger, Interspec reported its financial statements based on a
November 30 fiscal year end. To conform Interspec's financial reporting period
to the Company's December 31 year-end, the results of Interspec's operations for
the one-month period ended March 31, 1994 have been excluded from the
Consolidated Statements of Operations and Cash Flows and accounted for as an
adjustment to retained earnings. Therefore, the Consolidated Statements of
Operations and Cash Flows include 12 months of Interspec's operations for all
years presented. For the one month ended March 31, 1994, Interspec had revenues
of $3,320, costs and expenses of $7,500 and a net loss of $4,180. These results
included $2,148 of expenses related to the termination of dealer arrangements in
countries outside the United States.
In the second quarter of 1994, the Company reported non-recurring charges of
$5,391 for merger and other expenses. The non-recurring charges included $2,302
for legal, accounting, investment advisory, printing and other professional
services; $1,561 primarily for the consolidation of Interspec's international
personnel and facilities into the Company's operations; and $1,528 associated
with the bankruptcy of Interspec's former distributor in Italy which resulted in
accounts receivable being garnished in a bankruptcy proceeding. The $5,391 total
is reported in Restructuring, relocation and merger expenses.
21
ATL
<PAGE>
3. RESTRUCTURING AND RELOCATION
During 1995, the Company implemented a new corporate structure which
consolidated the Interspec operations located in Ambler, Pennsylvania with the
Company's corporate headquarters in Bothell, Washington. The consolidation has
been implemented as planned and has resulted in the relocation of Ambler
manufacturing, administrative and R&D functions to Bothell and a net reduction
of approximately 100 full-time positions. Some R&D functions will continue in
Ambler until early 1996 and the U.S. Cardiology sales force will continue to be
based in Ambler. The Company incurred restructuring expenses for severance,
outplacement and employee retention incentives of $2,800 and relocation expenses
of $3,135 associated with the consolidation of the Ambler operations. At
December 31, 1995, accrued restructuring expenses which are expected to be paid
in early 1996 totaled $1,704. The Company intends to hold the Ambler land and
building and is marketing the facility for lease.
In the fourth quarter of 1994, the Company incurred restructuring expenses of
$1,622 related to a reduction of its workforce by approximately 80 full-time and
temporary positions. In August 1993, the Company incurred a restructuring charge
of $4,275 related to the reduction of its worldwide workforce by approximately
240 people. These restructurings were taken to streamline the Company's
operations and enhance productivity. Restructuring expenses include primarily
severance, outplacement and other costs associated with the restructuring of the
Company's operations. All amounts related to the 1993 and 1994 restructurings
have been paid. No adjustments have been made to the amounts accrued subsequent
to the restructurings.
4. CASH, SHORT-TERM INVESTMENTS AND MARKETABLE DEBT SECURITY
Cash equivalents, short-term investments and the marketable debt security are
stated at cost. For purposes of the statement of cash flows, cash equivalents
are defined as investments with maturities of three months or less at the date
of purchase.
The marketable debt security issued by the U.S. Government matures in February
1996 and the Company intends to hold the security until maturity.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $30,666 $22,901
Short-term investments 4,988 -
------- -------
35,654 22,901
Long-term marketable debt security - 4,988
------- -------
$35,654 $27,889
- --------------------------------------------------------------------------------
</TABLE>
5. RECEIVABLES, NET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Trade receivables $133,705 $109,360
Less allowance for doubtful
accounts and sales returns (8,607) (8,700)
-------- --------
125,098 100,660
Other receivables 4,128 4,840
-------- --------
$129,226 $105,500
- --------------------------------------------------------------------------------
</TABLE>
Lease contract receivables of $5,132 and $4,498 and the current portion of
Latin American installment receivables of $4,114 and $4,675, net of allowance,
at December 31, 1995 and 1994, respectively are included in Trade receivables.
6. INVENTORIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Materials and work in process $ 33,198 $ 33,477
Finished products 22,007 15,561
Demonstrator equipment 19,825 29,190
Customer service 19,847 17,837
-------- --------
$ 94,877 $ 96,065
- --------------------------------------------------------------------------------
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT, AT COST
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 8,430 $ 8,429
Buildings and leasehold improvements 35,241 34,866
Machinery and equipment 47,082 46,242
Computers and purchased software 44,420 38,992
-------- --------
135,173 128,529
Less accumulated depreciation
and amortization (64,043) (58,191)
-------- --------
$ 71,130 $ 70,338
- --------------------------------------------------------------------------------
</TABLE>
In 1994, the Company sold its former manufacturing facility in Germany for
$3,224 resulting in a $105 gain. In 1994, the Company also purchased a building
and land adjacent to its corporate headquarters and manufacturing plant in
Bothell, Washington, which is being used to consolidate operations at the
Company's corporate headquarters campus. The purchase price of the land and
building of approximately $11,500 was financed with long-term debt.
Land and buildings with a net book value of $35,539 serve as collateral on
long-term debt.
8. OTHER ASSETS, NET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Long-term installment receivables $ 5,457 $ 5,667
Less allowance for doubtful accounts (1,533) (1,730)
------- -------
3,924 3,937
Other, net 6,582 6,583
------- -------
$10,506 $10,520
- --------------------------------------------------------------------------------
</TABLE>
Long-term installment receivables represent scheduled monthly, quarterly or
semi-annual payments due from Latin American customers beyond one year (see Note
1, Concentration of Credit Risk). Payment terms on extended term receivables
generally range from one to four years and the Company generally charges
interest at rates of 8% to 11%.
Amortization of intangible assets included in Other Assets, Net was $1,481 in
1995, $1,839 in 1994 and $1,607 in 1993.
9. SHORT-TERM BORROWINGS
At December 31, 1995, short-term borrowings represent foreign currency
borrowings carrying interest rates ranging from 12% to 17% under lines of credit
maintained by various foreign subsidiaries for working capital purposes. These
credit lines are primarily unsecured or are guaranteed by the parent company.
The weighted average interest rate on short-term borrowings was 13% and 11% at
December 31, 1995 and 1994, respectively.
At December 31, 1995, the Company had available unsecured credit facilities
totaling $25,000, including a committed line of credit of $15,000. No borrowings
were outstanding under these facilities at December 31, 1995. The loan agreement
for the
22
ATL
<PAGE>
committed line of credit includes various covenants relating to financial
ratios and restrictions on cash dividends. The Company was in compliance with
these covenants at December 31, 1995.
Interest expense as reported in the Consolidated Statements of Operations
approximates amounts paid each year.
10. ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
<TABLE>
<CAPTION>
================================================================================
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $28,216 $28,075
------- -------
Accrued expenses
Salaries and other compensation 21,651 17,507
Warranty reserves 5,588 5,625
Provision for litigation claim 5,000 5,000
Other 19,448 18,403
------- -------
51,687 46,535
------- -------
$79,903 $74,610
================================================================================
</TABLE>
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
================================================================================
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Bank term loan at LIBOR plus 1.25%
(6.875% at December 31, 1995),
twenty-five year amortization,
secured by land and buildings,
matures February 2005 $11,359 $11,500
Fifteen year 3% PIDA
(Pennsylvania Industrial
Development Authority)
loans secured by second lien
on land and buildings 2,258 2,477
Subordinated convertible
debentures at 11% 1,213 5,687
Other 562 --
------- -------
15,392 19,664
Less current portion 555 1,976
------- -------
Long-term debt, less current portion $14,837 $17,688
================================================================================
</TABLE>
The holders of the subordinated convertible debentures may convert them at any
time into the Company's common stock at $16.95 per share. In December 1995,
holders converted $2,162 of the subordinated convertible debentures into 127,536
shares of the Company's common stock. The remaining debentures totaling $1,213
were converted by the Company on February 1, 1996 into 71,577 shares of the
Company's common stock. In December 1994, holders converted $492 of the
subordinated convertible debentures into 29,064 shares of the Company's common
stock.
The bank term loan and debenture agreements include various covenants relating
to financial ratios and restrictions on cash dividends. The Company was in
compliance with these covenants at December 31, 1995.
At December 31, 1995, the aggregate maturities of long-term debt, excluding
the subordinated convertible debentures, for the five years ending December 31,
2000 and thereafter are as follows: $555 in 1996, $752 in 1997, $459 in 1998,
$482 in 1999, $506 in 2000 and $11,425 thereafter.
12. OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
================================================================================
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred revenue on
multi-year service contracts $ 9,214 $ 5,533
Deferred income taxes 3,934 4,472
Long-term pension obligations 4,309 1,094
------- -------
$17,457 $11,099
================================================================================
</TABLE>
13. EMPLOYEE BENEFIT PLANS
Substantially all employees of the Company's U.S. operations are covered under
a noncontributory, defined benefit pension plan (Retirement Plan). The benefits
are based on each employee's years of service and highest consecutive five year
average compensation. The Company also maintains a supplemental defined benefit
pension plan providing benefits to employees which may not be paid from the
Retirement Plan due to tax limitations plus special benefits to certain
employees. The Company makes annual contributions to the Retirement Plan
sufficient to comply with the requirements of the Employee Retirement Income
Security Act of 1974. Supplemental defined benefits are unfunded. Retirement
Plan assets include primarily marketable equity and fixed income securities.
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the year $ 1,916 $ 1,508 $ 1,090
Interest cost on projected
benefit obligation 1,041 896 630
(Income) loss on plan assets (2,241) 68 (740)
Net amortization and (deferral) 1,727 (335) 490
Effect of Interspec merger -- 265 --
------- ------- -------
Net pension costs $ 2,443 $ 2,402 $ 1,470
================================================================================
</TABLE>
The funded status of the plans at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
================================================================================
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits of $14,570
at December 31, 1995 and
$6,466 at December 31, 1994 $15,929 $ 7,222
======= =======
Projected benefit obligation,
including the effect of projected
future salary increases $23,496 $11,950
Plan assets at fair value 11,620 7,931
------- -------
Excess of projected benefit
obligation over plan assets 11,876 4,019
Unrecognized prior service cost (1,300) (695)
Unrecognized net experience loss (7,609) (2,230)
Adjustment to recognize
minimum liability 1,342 --
------- -------
Accrued pension cost $ 4,309 $ 1,094
================================================================================
</TABLE>
The Company reported an additional minimum liability of $1,342 at December 31,
1995 representing the excess of the accumulated benefit obligation over the fair
value of plan assets and accrued pension cost. A corresponding amount is
recognized as an intangible asset to the extent of unrecognized prior service
costs.
23
ATL
<PAGE>
The projected benefit obligations are based on employee census information as
of the beginning of each year. Employees of Interspec with one year of service
became participants in the pension plan on May 17, 1994, the date of the merger.
The weighted average discount rate used in determining the end of year
actuarial present value of the projected benefit obligation was 7.25% for 1995,
8.5% for 1994 and 7.75% for 1993. The assumed annual rate of increase in future
compensation levels was 7.5% for the first five years of service and 5%
thereafter for 1995; 9% for the first five years of service and 5.75% thereafter
for 1994 and 1993. The expected long-term rate of return on plan assets was 9%
in each of 1995, 1994 and 1993.
A 401(k) retirement savings plan is maintained for all U.S. employees. The
Company's contributions to this plan were $1,317, $1,025, and $895 in 1995, 1994
and 1993, respectively.
The Company has a profit sharing plan which provides for employee incentive
awards when pre-tax return on sales exceeds 7%. No awards have been made under
this plan.
14. SHAREHOLDERS' EQUITY
The Company has the following stock plans: the 1992 Option, Stock Appreciation
Right, Restricted Stock, Stock Grant and Performance Unit Plan, the 1992 Non-
Officer Employee Stock Option Plan, the 1986 Management Incentive Plan
(collectively the Employee Stock Plans); and the 1993 Non-Employee Director
Stock Option Plan. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its stock compensation plans.
Under the Employee Stock Plans, 2,500,000 shares of common stock were
authorized primarily for issuance upon exercise of stock options at prices equal
to the fair market value of the Company's common shares at the date of grant,
for restricted shares at par value and for unrestricted shares at par value. At
December 31, 1995, 145,340 shares were available for grants under the Employee
Stock Plans. Stock options are generally exercisable at 25% each year over a
four year vesting period. Deferred compensation representing the fair market
value of restricted shares at the date of grant is amortized over the vesting
period (typically two to four years). Compensation representing the fair market
value of unrestricted shares at the date of grant is recognized at the date of
grant.
In 1995, 1994 and 1993, 14,680, 99,000 and 33,000 shares, respectively, of
restricted stock were issued at par value. Approximately 9,000 common shares
were issued under the Company's Management Incentive Plan in 1995.
Under the 1993 Non-Employee Director Stock Option Plan, 50,000 shares of
common stock were authorized for the issuance of stock options at prices equal
to the fair market value of the Company's common shares at the date of grant. At
December 31, 1995, 9,000 shares were available for grants under this plan.
Stock option activity is summarized in the following table:
<TABLE>
<CAPTION>
================================================================================
(SHARES IN THOUSANDS) Shares Price Per Share
<S> <C> <C>
Outstanding at December 31, 1992 1,081 $ 9 - $30
Granted 547 $16 - $18
Exercised (4) $10 - $15
Canceled (31) $ 9 - $28
-----
Outstanding at December 31, 1993 1,593 $ 9 - $30
Granted 436 $13 - $16
Exchanged from Interspec 233 $ 6 - $15
Exercised (92) $ 6 - $17
Canceled (61) $ 7 - $28
-----
Outstanding at December 31, 1994 2,109 $ 6 - $30
Granted 344 $15 - $22
Exercised (140) $ 7 - $18
Canceled (107) $ 8 - $28
-----
Outstanding at December 31, 1995 2,206 $ 6 - $28
-----
Exercisable at December 31, 1995 1,175 $ 6 - $28
================================================================================
</TABLE>
In connection with the merger, all Interspec stock options held by Interspec
employees were adjusted based on the Exchange Ratio to the Company's common
stock resulting in the issuance of 232,500 options from the Company's stock
plans.
In February 1993, the Company's Board of Directors authorized a plan to
repurchase up to 1,000,000 shares of its own common stock in the open market,
subject to certain criteria, to be used in servicing the Company's benefit
plans. The Company repurchased 22,500 shares totaling $369 in 1994 and 794,000
shares totaling $13,441 in 1993 under this program. No share repurchases were
made in 1995 under this plan.
15. INCOME TAXES
The components of income (loss) before income taxes were:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
<S> <C> <C> <C>
U.S. operations $ 9,491 $(17,091) $(4,541)
International operations 4,997 (3,767) 2,806
------- -------- -------
$14,488 $(20,858) $(1,735)
================================================================================
</TABLE>
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
<S> <C> <C> <C>
Current:
U.S. Federal $1,378 $(2,000) $(2,796)
U.S. State and Local 500 248 292
International 1,617 857 883
Deferred:
U.S. Federal (825) 533 3,207
International (184) (292) --
------ ------- -------
$2,486 $ (654) $ 1,586
================================================================================
</TABLE>
24
ATL
<PAGE>
The difference between taxes computed by applying the U.S. Federal income tax
rate of 34% to income (loss) before income taxes and the actual income tax
expense (benefit) follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income taxes
at U.S. statutory rate $ 4,926 $(7,092) $ (590)
Increase (reduction) in income
taxes resulting from:
State and local income taxes 330 164 192
Taxes related to foreign
operations 941 37 423
Tax advantaged investment
income - (44) (266)
Restructuring costs - (987) -
Tax accrual adjustment - (3,106) (2,013)
Change in valuation allowance (4,030) 10,532 3,289
Other, net 319 (158) 551
------- ------- -------
$ 2,486 $ (654) $ 1,586
- ------------------------------------------------------------------------------
</TABLE>
The Company had net payments (refunds) of income taxes of $632, $1,689 and
$(4,322) in 1995, 1994 and 1993, respectively.
The tax effects of temporary differences and carryforwards which give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Receivables $ 2,970 $ 3,230
Inventories 11,919 11,564
Net operating loss carryforwards 1,954 8,069
State taxes 3,389 3,106
Compensation 4,051 2,623
Provision for litigation claim 1,700 1,700
Research and experimentation credit
carryforwards 7,544 6,602
Deferred revenue 1,084 -
Other 1,756 3,032
-------- --------
Gross deferred tax assets $ 36,367 $ 39,926
Less valuation allowance (27,319) (31,349)
-------- --------
Net deferred tax assets $ 9,048 $ 8,577
Deferred tax liabilities, primarily
depreciation and intangible assets (3,934) (4,472)
-------- --------
Deferred income taxes, net $ 5,114 $ 4,105
- ------------------------------------------------------------------------------
</TABLE>
In determining the realizability of deferred tax assets, the Company assessed
its deferred tax liabilities, tax planning strategies and potential carryback
opportunities.
At December 31, 1995, the Company had net operating loss carryforwards for
statutory purposes of approximately $4,800, which begin to expire after 2000 or
have no expiration date. The Company also has U.S. research and experimentation
credit carryforwards of approximately $7,500 with expiration dates from 1997
through 2010. Utilization of carryforwards from acquired subsidiaries may be
limited due to change in ownership rules of the Internal Revenue Code.
Provision has not been made for U.S. or additional foreign taxes on the
undistributed earnings of the Company's foreign subsidiaries which total
approximately $4,300. These earnings, which are anticipated to be reinvested,
could become subject to additional tax if they were remitted as dividends, lent
to the Company, or if the Company should sell its stock in these subsidiaries.
16. RESEARCH AND DEVELOPMENT JOINT VENTURE
In December 1995, the Company entered into a research and development joint
venture with Hitachi Medical Corporation (Hitachi). The Company received
proceeds of $10,000 and reported a $6,220 gain. The gain is reported in Other
(income) expense, net, in 1995. Under the terms of the joint venture, the
Company and Hitachi will develop advanced ultrasound technology with funding
provided by Hitachi based upon the achievement of certain development
milestones. The technology resulting from this joint development will be
available to both ATL and Hitachi for new product offerings and product
features. ATL will receive royalty payments in the future based upon Hitachi's
revenues from jointly developed products. In 1995, ATL incurred expenses of
approximately $1,000 and received funding from Hitachi of $1,000, both of which
are reported in Research and development expenses.
17. OTHER (INCOME) EXPENSE, NET
Other (income) expense, net, includes foreign exchange gains and losses
consisting of realized gains and losses on cash transactions involving various
foreign currencies, unrealized gains and losses resulting from exchange rate
fluctuations primarily affecting intercompany accounts and gains and losses on
forward exchange contracts. Net losses from foreign currency transactions were
$22, $144 and $1,259 in 1995, 1994 and 1993, respectively.
Other (income) expense, net, also includes Washington State Business and
Occupation (B&O) taxes of $(606), $744 and $1,086 in 1995, 1994 and 1993,
respectively. This tax is a gross receipts tax imposed on products manufactured
in the State of Washington. Washington State levies no state income tax. The
Company reported a benefit related to a B&O tax audit which was concluded in
1995, of which $1,000 is classified as Other (income) expense, net.
Other (income) expense, net, includes a $6,220 gain from the R&D joint
venture, as discussed in Note 16, Research and Development Joint Venture. In
1993, the Company sold its equity investment in a third party for $3,235. A gain
on the sale of the investment of $1,125 is included in Other (income) expense,
net.
18. COMMITMENTS AND CONTINGENCIES
Leases
The Company was obligated at December 31, 1995 under long-term operating
leases for various types of property and equipment, with minimum aggregate
rentals totaling $18,608 as follows: $5,552 in 1996, $4,790 in 1997, $3,375 in
1998, $2,400 in 1999, $1,934 in 2000 and $557 in later years.
Many of the Company's leases contain renewal options and clauses for
escalations and payment of real estate taxes, maintenance, insurance and certain
other operating expenses of the properties. Certain leases are expected to be
renewed or replaced at expiration. Total rental expense under operating leases
was $6,940, $5,276 and $4,882 in 1995, 1994 and 1993, respectively.
25
ATL
<PAGE>
Legal Contingencies
The Company accrued $5,000 in 1994 for a litigation claim. In November 1992, a
U.S. District Court in California granted a motion by SRI International, Inc.
(SRI) requesting partial summary judgment on a patent infringement claim
relating to an electrical circuit used in certain discontinued products. The
patent expired in 1994. In December 1994, the U.S. Federal Circuit Court of
Appeals affirmed the summary judgment obtained by SRI. SRI is claiming royalties
for past sales of these products and an enhancement of royalties for willful
infringement. If willful infringement is found the court may enhance damages by
up to three times. Interest will be imposed on the amount of actual damages. A
seven day trial to determine the royalties due SRI and enhancements, if any, was
completed in the U.S. District Court for Northern California in October 1995.
The parties are presently awaiting the opinion of the court on these issues.
In addition to the foregoing proceedings, the Company is involved in various
other legal actions and claims arising in the ordinary course of business. The
Company believes the ultimate resolution of these matters individually and in
the aggregate will not have a material adverse effect on the Company's financial
condition.
Other
Like many companies in high technology businesses, the Company can from time
to time experience difficulty with the availability of components employed in
its products. Such difficulties can lead to long order lead times or delays in
the Company's manufacture of products.
The Company is subject to certain rules, regulations and inspections of the
U.S. Food and Drug Administration (FDA) and other regulatory agencies regarding
the design, documentation, manufacture, marketing and reporting of the
performance of its products. The Company's ability to obtain timely FDA export
and new product approvals is dependent upon the results of FDA inspections and
reviews. The Company can also incur substantial expense in responding to process
improvements and modification of products previously sold to customers which
stem from comments and new requirements of the FDA.
19. GEOGRAPHIC SEGMENT INFORMATION
The Company operates in one industry segment: developing, manufacturing,
marketing and servicing diagnostic medical ultrasound imaging systems and
related accessories. Internationally, the Company's products are marketed
through its subsidiaries and independent distributors, with principal
subsidiaries located in Europe, Canada, Argentina, Australia, Singapore and
India. In some of these countries, changes in the political and economic
conditions could adversely impact the Company's ability to market products or
recover assets.
A summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
<S> <C> <C> <C>
Revenues:
U.S. $261,762 $250,443 $256,792
Transfers between
geographic areas 84,505 76,890 70,876
-------- -------- --------
Total U.S. 346,267 327,333 327,668
International:
Europe 106,168 88,585 84,333
Other 31,516 27,124 19,372
-------- -------- --------
Total International 137,684 115,709 103,705
Eliminations (84,505) (76,890) (70,876)
-------- -------- --------
$399,446 $366,152 $360,497
-------- -------- --------
Income (loss) before
income taxes:
U.S. $ 8,684 $(19,273) $ (2,041)
International:
Europe 4,468 (2,431) 2,943
Other 529 (1,336) (137)
-------- -------- --------
Total International 4,997 (3,767) 2,806
Adjustments/eliminations 807 2,182 (2,500)
-------- -------- --------
$ 14,488 $(20,858) $ (1,735)
-------- -------- --------
Geographic Assets:
U.S. $236,848 $227,948 $211,725
International:
Europe 75,940 63,564 60,946
Other 27,590 22,082 11,433
-------- -------- --------
Total International 103,530 85,646 72,379
Adjustments/eliminations (9,641) (7,115) (12,841)
-------- -------- --------
Geographic Assets 330,737 306,479 271,263
General corporate assets
(primarily cash and
investments) 22,711 14,671 50,901
-------- -------- --------
Consolidated assets $353,448 $321,150 $322,164
================================================================================
</TABLE>
International revenues, including both international operations and U.S.
export sales, were as follows:
<TABLE>
<CAPTION>
================================================================================
1995 1994 1993
<S> <C> <C> <C>
European operations $106,168 $ 88,585 $ 84,333
Other international operations 31,516 27,124 19,372
-------- -------- --------
137,684 115,709 103,705
U.S. export sales 50,991 51,466 55,980
-------- -------- --------
Total international revenues $188,675 $167,175 $159,685
================================================================================
</TABLE>
26
ATL
<PAGE>
<TABLE>
<CAPTION>
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
====================================================================================================
QUARTERS (IN MILLIONS, EXCEPT PER SHARE DATA) First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
1995
Revenues $ 94.3 $ 91.3 $ 94.7 $ 119.1 $399.4
Gross profit 43.4 42.5 43.7 54.9 184.5
Income (loss) from operations .2 1.3 (.3) 13.7 14.9
Income (loss) before income taxes .1 1.1 (.4) 13.7 14.5
Net income (loss) (.3) .8 (.7) 12.2 12.0
Net income (loss) per share - fully diluted $ (.02) $ .06 $ (.06) $ .86 $ .85
Common stock market price - High $18 1/2 $17 1/2 $19 1/4 $28 1/2
Common stock market price - Low 13 14 1/2 15 1/4 17 3/4
- ----------------------------------------------------------------------------------------------------
1994
Revenues $ 89.4 $ 84.8 $ 87.3 $ 104.7 $366.2
Gross profit 38.8 37.3 39.5 48.0 163.6
Income (loss) from operations .6 (9.9) (4.6) (7.7) (21.6)
Income (loss) before income taxes .7 (9.7) (4.4) (7.5) (20.9)
Net income (loss) .3 (9.9) (4.8) (5.8) (20.2)
Net income (loss) per share - fully diluted $ .02 $ (.76) $ (.36) $ (.44) $(1.53)
Common stock market price - High $17 1/4 $15 3/4 $17 1/4 $19 1/2
Common stock market price - Low 15 12 1/2 13 14 3/4
====================================================================================================
</TABLE>
Primary earnings per share are substantially equal to fully diluted earnings
per share in all periods presented with the exception of the fourth quarter in
1995 and the full year ended December 31, 1995 when primary earnings per share
were $0.87 and $0.88, respectively.
Quarterly per share data shown do not add to the total in 1995 and 1994 due to
changes in the number of weighted average shares outstanding during the year.
The 1995 results include the following non-recurring items: restructuring and
relocation expenses of $2.5 million in the first quarter, $0.3 million in the
second quarter, $1.8 million in the third quarter and $1.3 million in the fourth
quarter; a benefit for a Washington State B&O tax refund of $(1.3) million in
the first quarter; and a $(6.0) million after tax gain from Hitachi's investment
in an ATL R&D joint venture in the fourth quarter. The 1994 results include non-
recurring expenses totaling $5.4 million associated with the acquisition of
Interspec during the second quarter and $6.6 million for the restructuring of
operations and a provision for litigation claim in the fourth quarter.
Excluding the impact of the non-recurring items listed above, net income
(loss) and net income (loss) per share would have been:
<TABLE>
<CAPTION>
=================================================================================================
QUARTERS (IN MILLIONS, EXCEPT PER SHARE DATA) First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
1995
Net income, excluding non-recurring items $ .9 $ 1.2 $ 1.1 $7.4 $10.6
Net income per share, excluding
non-recurring items--fully diluted $.07 $ .09 $ .08 $.52 $ .75
1994
Net income (loss), excluding non-recurring items $ .3 $(4.5) $(4.8) $ .8 $(8.2)
Net income (loss) per share, excluding
non-recurring items--fully diluted $.02 $(.35) $(.36) $.06 $(.62)
=================================================================================================
</TABLE>
27
ATL
<PAGE>
DIRECTORS AND
CORPORATE OFFICERS
BOARD OF DIRECTORS CORPORATE OFFICERS
Dennis C. Fill Dennis C. Fill
Chairman of the Board, Chairman of the Board,
Chief Executive Officer Chief Executive Officer
Kirby L. Cramer Harvey N. Gillis
Chairman of the Compensation Committee; Senior Vice President,
Chairman Emeritus, Finance and Administration and
Hazleton Laboratories Corporation Chief Financial Officer
Harvey Feigenbaum, M.D.
Chairman of the Audit Committee; Senior Vice Presidents:
Distinguished Professor of Medicine,
Indiana University Medical Center Donald D. Blem
Eugene A. Larson Cass F. Diaz
Scientific Consultant and former President
of ATL Victor H. Reddick
John R. Miller Jacques Souquet, Ph.D.
Senior Advisor, Chanen, Painter & Company,
Ltd.
Investment Bankers Vice Presidents:
Seattle, Washington
Anne Marie Bugge
Phillip M. Nudelman, Ph.D.
President and Chief Executive Officer, Sanjoy Chatterji
Group Health Cooperative of Puget Sound
Seattle, Washington Robert F. Dockendorff
Harry Woolf, Ph.D. William J. Doherty
Professor Emeritus and Former Director,
The Institute for Advanced Study Kevin M. Goodwin
Princeton, New Jersey
Brian R. Lee
Ken A. Likkel
Max E. Neves
Peter Pellerito
Arthur J. Schenck
Dieter Schwartmann
Lourens B. Steger
Thomas J. Williams
W. Brinton Yorks, Jr.
28
ATL
<PAGE>
GENERAL INFORMATION
ADVANCED TECHNOLOGY SHAREHOLDER INFORMATION
LABORATORIES, INC.
A copy of ATL's Form 10-K and quarterly
Worldwide Headquarters: news releases can be obtained by
contacting the Corporate and Investor
ATL Relations Department, ATL, P.O. Box 3003,
22100 Bothell Everett Highway Bothell, WA 98041-3003, (800) 426-2670,
P.O. Box 3003 Ext. 7427.
Bothell, Washington 98041-3003
Financial information and other news
European Headquarters: about ATL can be found on the World Wide
Web at http://www.atl.com.
ATL Munich
Ohmstrasse 3 STOCK LISTING
85716 Unterschleissheim
Germany ATL Common Stock is listed on the Nasdaq
National Market System under the symbol
Principal International Subsidiaries ALTI.
and Field Operations:
TRANSFER AGENT/REGISTRAR
Buenos Aires, Argentina
First Chicago Trust Company of New York
Sydney, Australia
Inquiries regarding change of address,
Vienna, Austria stock transfer or your shareholder
account should be sent directly to:
Brussels, Belgium
First Chicago Trust Company of New York
Toronto, Canada Shareholder Relations Dept.
P.O. Box 2500
Letchworth, England Jersey City, NJ 07303-2500
Telephone (201) 324-1644
Paris, France
Shareholder inquiries can also be made to
Solingen, Germany Transfer Agent/Registrar on the World
Wide Web at http://www.fctc.com.
Hong Kong
E-mail only: [email protected]
Madras, India (JV)
It is helpful to include your social
Milan, Italy security or tax ID number.
Woerden, Netherlands
Singapore
Stockholm, Sweden
<PAGE>
[Back Cover of Annual Report]
[ATL LOGO] WE ARE ULTRASOUND/(TM)/
<PAGE>
EX.21
ADVANCED TECHNOLOGY LABORATORIES, INC.
--------------------------------------
(Washington Corporation)
------------------------
PARENTS & SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of Percentage of
Registrant Incorporation Voting Control
- ---------- --------------- --------------
<S> <C> <C>
Advanced Technology Laboratories, Inc........................... Washington
Subsidiaries included in the consolidated financial statements
contained herein:
ATL Washington, Inc............................................. Washington 100
ATL Medizinische Gerate Service............................... Austria 100
und Handelgesellschaft m.b.H.
Advanced Technology Laboratories.............................. England 99/1/
United Kingdom - Limited
Advanced Technology Laboratories.............................. Germany 98/2/
(Deutschland) GmbH
Advanced Technology Laboratories S.A.R.L...................... France 99.9997/3/
Interspec Sarl............................................... France 100
Advanced Technology Laboratories AB........................... Sweden 100
Advanced Technology Laboratories S.p.A........................ Italy 100
Advanced Technology Laboratories Singapore.................... Singapore
Private Limited
Advanced Technology Laboratories.............................. Argentina 99/4/
Argentine S.A.
Scientific Medical Systems.................................... Delware 100
International, Inc.
Advanced Technology Laboratories, Inc......................... Delaware 100
WMRK Scientific West, Inc..................................... Washington 100
Indcham ATL Ltd............................................... India 51/5/
ATL International, Inc........................................ Washington 100
Advanced Technology Laboratories............................ Australia 99.99/6/
Australia Pty., Ltd.
Advanced Technology Laboratories............................ Belgium 99/1/
- Belgium N.V.
Advanced Technology Laboratories............................ Netherlands 100
Nederland B.V.
Advanced Technology Laboratories............................ Canada 100
Canada), Inc.
Atlas Diagnostics International, Inc.......................... Washington 100
Atlantis Diagnostics International, L.L.C..................... Washington 60/7/
Delspec, Inc.................................................. Delaware 100/8/
Interspec U.K. Ltd.......................................... United Kingdom 100
Interspec USVI, Inc......................................... St. Thomas USVI 100
Interspec srl............................................... Italy 100
Westinghouse Bahamas.......................................... Bahamas 100
</TABLE>
/1/1% held by Advanced Technology Laboratories, Inc. (Delaware)
/2/2% held by Scientific Medical Systems International, Inc.
/3/432,869 parts held by ATL (Washington) and 1 part owned by ATL
International, Inc.
/4/1% held by ATL International, Inc.
/5/49% held by Sanmar Electrotech Holdings Ltd. & five nominees
/6/.01 held by Gregory John Brand
/7/Limited Liability Company. Ownership consists of Members. ATL Washington,
Inc.owns a 60% interest and Hitachi Medical Corporation owns a 40% interest
/8/Terminated existence on 12/31/95
12/31/95
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTRIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 30,666
<SECURITIES> 4,988
<RECEIVABLES> 133,705<F1>
<ALLOWANCES> 8,607<F1>
<INVENTORY> 94,877
<CURRENT-ASSETS> 271,812
<PP&E> 135,173
<DEPRECIATION> 64,043
<TOTAL-ASSETS> 353,448
<CURRENT-LIABILITIES> 110,231
<BONDS> 14,837
<COMMON> 136
0
0
<OTHER-SE> 210,787
<TOTAL-LIABILITY-AND-EQUITY> 353,448
<SALES> 316,102
<TOTAL-REVENUES> 399,446
<CGS> 163,928
<TOTAL-COSTS> 214,921
<OTHER-EXPENSES> 169,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,135)
<INCOME-PRETAX> 14,488
<INCOME-TAX> 2,486
<INCOME-CONTINUING> 12,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,002
<EPS-PRIMARY> .88
<EPS-DILUTED> .85
<FN>
<F1> The Company also has long-term installment receivables of $5,457 and a
related allowance of $1,533 which are reported as non-current assets.
</FN>
</TABLE>
