10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] 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, 1994 or ----------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ____________ to ____________ Commission file number 0-14953 ------- ACUSON CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2784998 ------------------------ --------------------------------- (State of Incorporation) (IRS Employer Identification No.) 1220 CHARLESTON ROAD P. O. BOX 7393 MOUNTAIN VIEW, CA 94039-7393 (Address of principal executive offices) Registrant's telephone number, including area code, is (415) 969-9112 -------------- _________________________ Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------------ --------------------------------------------- Common Stock New York Stock Exchange $.0001 par value Securities registered pursuant to Section 12(g) of the Act: Common Stock Purchase Rights _________________________ 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 ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's 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. [ ] The aggregate market value of the Registrant's voting stock held by non- affiliates on March 3, 1995 (based upon the NYSE closing price on such date) was approximately $277,062,000. As of March 3, 1995, there were 29,024,583 shares of the Registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following documents are incorporated by reference in Parts II and III of this Form 10-K Report: (1) Proxy Statement for registrant's Annual Meeting of Stockholders to be held May 31, 1995 (other than the Compensation Committee Report and Performance Graph contained therein) (Part III), and (2) registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1994 (Part II). 1 ________________________________________________________________________________ PART I ITEM 1 BUSINESS GENERAL Acuson Corporation ("Acuson" or the "Company") designs, manufactures and markets premium quality medical diagnostic ultrasound imaging systems and image management products. The Company believes its systems provide superior diagnostic performance, versatility, upgradability and reliability and can enable the physician to make earlier, more accurate and/or more confident diagnoses. The Company focuses its efforts on the following major hospital grade ultrasound market segments: UNITED STATES GENERAL IMAGING. Acuson entered this largest U.S. segment in 1983. Major sub-segments of this market include: RADIOLOGY. Major applications include examinations of abdominal organs, the gastrointestinal tract, the urinary tract and small parts such as the breasts, testes and thyroid. Pediatric examinations are of growing interest in this segment. PERIPHERAL VASCULAR. Acuson introduced system capabilities in 1985 for this segment which focuses primarily on examinations of the vessels of the leg and neck. OBSTETRICS/GYNECOLOGY. Acuson has provided premium quality hospital grade products for Ob/Gyn applications beginning with the Company's first system shipments in 1983. Applications center on examinations of the female reproductive system and the developing fetus. UNITED STATES CARDIOVASCULAR. Acuson entered this second largest segment in 1988. Cardiology applications center on examinations of the heart and proximate vessels, while cardiovascular applications extend to include the entire vascular system. INTERNATIONAL. Acuson began its international efforts in 1984 with the establishment of its first international sales subsidiary. The Company distributes its products in most of the developed world through ten direct international sales subsidiaries and a number of foreign distributors. International markets include the same range of clinical ultrasound applications as the domestic market. Acuson introduced its first product in 1983. The Company's sales were $350 million in 1994. Acuson's products are based on specialized hardware, software and transducer technologies which the Company considers to be proprietary. Acuson's hybrid analog/digital computer systems are specially designed and produced by the Company electronically to form high resolution, real-time ultrasound images under software control. These systems utilize a variety of application-specific transducers, almost all of which are designed and fabricated by the Company, to send and receive ultrasound beams with superior precision. Acuson introduced its first generation system, the Acuson/R/ 128, in 1983, and sold more than 4,000 of these systems during the next seven years. Over the life of the Acuson 128, the system grew to support many additional new ultrasound modes, transducers and other capabilities. Acuson's second generation system, the Acuson 128XP/TM/, was introduced in July 1990. A more configurable system than the original Acuson 128, the 128XP provides a greater number of application-specific configurations for a broader range of clinical uses. This greater flexibility has allowed the Company to address a wider spectrum of clinical specialties and pricing segments in both the international and domestic ultrasound markets. 2 ________________________________________________________________________________ During 1994, Acuson introduced the EV7 endovaginal transducer, which offers improved imaging performance over Acuson's earlier endovaginal transducers. The Company also announced the V5M transesophageal transducer. This new probe will provide multi-plane transesophageal imaging and expects to begin shipment in the latter half of 1995. During 1994, Acuson completed the 50th network installation of AEGIS/TM/, the Sonography Management System/TM/. The AEGIS system digitizes, stores and organizes images. The Company believes that Acuson's AEGIS networks represent the largest installed base of ultrasound image management systems. Acuson believes its systems provide the following major benefits when compared with other ultrasound technologies. IMAGING PERFORMANCE. Acuson's systems are designed to provide superior image quality through greater detail resolution, contrast resolution and image uniformity. In addition, Acuson systems provide superior clinical sensitivity for a broad range of Doppler and color Doppler applications, which are used to detect, measure and depict blood flows. VERSATILITY. All Acuson systems can operate in all major high resolution imaging formats and in all major ultrasound modes. As a result, Acuson systems can offer superior performance for a broad range of examinations that are typically of interest to ultrasound physicians. RELIABILITY. The Company's thousands of domestic systems under warranty or full-service contract have achieved greater than 99.9% cumulative uptime since 1983. UPGRADABILITY. Every Acuson system shipped since 1983 can be upgraded to perform every diagnostic capability the Company now offers on new systems. In many cases, the changes are accomplished simply with new software. In other cases, customers purchase new hardware options or transducers, which also include new software to control performance. EASE OF USE. Acuson's philosophy of system design and its system architecture allow for greater ease of use. For example, Acuson's systems avoid menus where possible in favor of direct access to functions via dedicated keys. Further, Acuson's high level computer control allows the user, by entering a few simple keystrokes, to orchestrate the many detailed imaging parameter changes required to optimize high performance ultrasound examinations in real time. DIAGNOSTIC ULTRASOUND Ultrasound was introduced for medical imaging purposes in the mid-1960's and has been characterized by rapid technical development and increasing breadth of application by physicians. Medical diagnostic ultrasound systems use low power, high-frequency sound waves to produce real-time moving images of soft tissues, internal body organs and blood flows. Ultrasound systems generate ultrasonic waves via the electrical stimulation of specialized crystals known as transducers. Traveling at a constant speed, these sound waves propagate through the body where they are reflected by tissues and surfaces, such as the boundaries between organs and blood. The reflected sound echoes are received by the transducer and processed in the system. The resulting images are displayed on a high-resolution monitor. Ultrasound is a noninvasive technique which, unlike X-ray, does not use ionizing radiation, and is generally considered safe by physicians. Because of its ease of use, relative safety and low cost, ultrasound is often the first imaging study a physician will order. Although ultrasound signals cannot effectively penetrate air or bone, it is often the imaging technique of choice for many soft tissues and has common cardiac, abdominal (e.g., liver, kidney, spleen and gallbladder), gynecological, obstetrical, urological (e.g., prostate), and peripheral vascular applications. Major uses include the detection of abdominal cancer, and the diagnosis of heart disease and fetal abnormalities. 3 ________________________________________________________________________________ Acuson regards the United States hospital grade ultrasound market as comprising two principal segments, General Imaging and Cardiovascular, which are differentiated by the type of physician most commonly using the ultrasound equipment. Acuson systems can be tailored with software and transducers to offer premium performance in each segment. Outside the United States, high performance ultrasound is often performed by an Internal Medicine department, and systems are often sold with a combination of clinical capabilities. The hospital and clinic market uses sophisticated ultrasound systems with broad clinical capabilities and is Acuson's major focus. This segment comprises approximately three fourths of the annual worldwide dollar sales of ultrasound systems. The remainder of the ultrasound market uses systems with limited capabilities for conducting simple exams in the doctor's office. Acuson sells some systems with basic configurations into this segment. ULTRASOUND TECHNOLOGIES The Company believes there are currently a number of system technologies and display formats, including those used by the Company, that are factors in the market, such as: SYSTEM TECHNOLOGY. In the late 1970's, moving ultrasound images were first created by the use of "mechanical sector" technology. This type of technology uses motors to mechanically rotate or vibrate the transducer elements, sweeping the ultrasound lines as a result of the rotation or vibration. A more recent development of this technology, designed to improve image quality, is the "annular array," a mechanical sector transducer with a number of concentric transducer elements. All-electronic transducers and systems, which were first widely accepted in the early 1980's, sweep ultrasound lines without utilizing moving mechanical parts, in ways similar to the method by which advanced phased array military radar sweeps radar signals without moving parts. The ultrasound lines in all-electronic transducers are "steered" from the transducer face with electronics by using many stationary transducer elements and precisely changing the timing of sending and receiving sound from these elements. All-electronic ultrasound designs are optimal for spectral and color Doppler, and can offer newer imaging formats such as Vector/R/ Array, linear array and curved array. All-electronic transducers are by far the most frequently used for high performance ultrasound applications involving Doppler and color Doppler imaging. While some systems still utilize motor driven transducers, or a combination of motor driven and all-electronic transducers, all of Acuson's transducers are all-electronic. IMAGE FORMATS. High performance ultrasound transducers provide a number of different formats. Generally, different formats are required or preferred for particular types of clinical applications. SMALL FOOTPRINT TRANSDUCERS. Because ultrasound signals cannot effectively penetrate air or bone, the "acoustic windows" into the body are often limited by the need to image around the ribs or other bones, the lungs or bowel gas, bandages, or other impediments. When access is limited, the physician generally will select a transducer with a small imaging surface, or "footprint." Small footprint transducers commonly are produced in three formats: SECTOR ARRAY. This format produces a pie-shaped image which is narrow at the skin line and wider as it goes deeper into the body. Implemented properly, sector transducers are capable of high resolution imaging. However, because their field of view is so narrow near the skin line, sector format transducers have a limited ability to image structures in the near field (i.e., close to the skin's surface). This format can be provided by either mechanical or all-electronic transducers. 4 ________________________________________________________________________________ TIGHTLY CURVED ARRAY. A form of the all-electronic curved array (see below), this format allows for a wider near field of view than sector, while generally offering inferior lateral resolution at depth compared to an equivalent sector transducer. VECTOR ARRAY. Introduced by Acuson with the 128XP system in 1990, this proprietary format offers uncompromised resolution with a wider field of view than sector at all depths. Because it combines high resolution and a larger field of view in all-electronic transducers capable of color Doppler, Acuson believes that Vector Array is the ideal format for small footprint ultrasound applications. MEDIUM AND LARGE FOOTPRINT TRANSDUCERS. Medium and large footprint transducers are often used when wider imaging access is available, and are commonly produced in the following two formats: LINEAR ARRAY. Linear arrays are all-electronic transducers capable of imaging a rectangular field of view. Implemented properly, they are capable of high resolution imaging, although many systems (typically sold for use in the doctor's office) incorporate linear imaging with much poorer resolution. CURVED ARRAY. Curved array transducers are essentially linear transducers that have been bent to offer a convex geometry. As a result, they can offer a larger far field of view for the same size footprint than an equivalent linear transducer, though often with some compromises in image quality or the degree of image artifact present. ENDOCAVITY TRANSDUCERS. Endocavity transducers are widely used to obtain superior imaging and Doppler examinations through closer access to internal body organs. Endovaginal probes are widely used for Ob/Gyn examinations, while endorectal probes are frequently used to examine the prostrate and the rectal wall. Transesophageal probes are used in cardiology to examine the heart, and also are used to monitor the heart during surgical procedures. FREQUENCIES. Ultrasound systems typically offer a number of single- frequency transducers at different frequency levels. Higher frequency transducers can offer greater resolution than lower frequency transducers, but cannot image as deeply into the body. In general, therefore, in selecting transducers there is a tradeoff between depth of penetration and image resolution. In actual clinical practice, the clinician, when beginning an examination, will often select the highest frequency transducer that will have the penetration required to perform the entire examination. The penetration required is somewhat unpredictable, and clinicians find it time consuming and inconvenient to switch transducers. As a result, portions of examinations may be performed at lower frequencies than might be actually desirable. MODES. The three major modes that are most often used in diagnostic ultrasound include: B-MODE. This mode, often called "grayscale" by radiologists and "2-D" by cardiologists, forms black and white images of the anatomy being examined. SPECTRAL DOPPLER. Spectral Doppler is not an imaging technique per se; rather, it is a way of graphically measuring and graphically displaying the velocity of blood flow at a single point through vessels or between chambers of the heart. The measured information is presented graphically on a real-time basis, and helps a physician determine, for example, the velocity of blood flow through a vessel that is partially blocked or through a heart defect. B-mode ultrasound is most often used to aim spectral Doppler ultrasound, so that the physician can see from what part of a vessel or the heart the spectral Doppler measurements derive. COLOR DOPPLER. Color Doppler superimposes a color-encoded representation of blood flow on the anatomical black and white ultrasound image formed by B-mode. Blood flow toward the transducer is 5 ________________________________________________________________________________ presented as one color (e.g., red) and flow away from the transducer is presented as another color (e.g., blue). As a result, color Doppler allows a physician to visualize blood flow throughout the field of interest, instead of just at a single point as is the case for spectral Doppler. Until the 1980's, ultrasound systems were primarily used to image anatomy in B-mode. Beginning in the 1980's, the use of spectral Doppler became almost universal among hospital grade systems. During the second half of the 1980's, color Doppler gained almost universal acceptance in new placements of hospital grade cardiology systems. By the early 1990's, new placements of hospital grade radiology systems generally included color Doppler as well. ACUSON'S TECHNOLOGY Acuson's technology is based on a hybrid analog/digital computer architecture specially designed and manufactured by the Company to accommodate the requirements of real-time ultrasound image formation. This basic computer architecture was utilized in the Acuson 128 system and also forms the basis for the Company's second generation system, the 128XP. All of Acuson's systems utilize 128 independent transmit/receive channels of ultrasound information, although some specialty transducers may utilize fewer channels. Acuson believes that, if utilized properly, 128 channels can offer a number of benefits over fewer numbers of channels. Depending on the transducer design and other parameters, these benefits can include greater lateral resolution and contrast resolution, as well as decreased image artifact. Acuson's 128XP systems can operate in all major high resolution imaging formats, which include sector, Vector Array, linear array and High Performance Curved Array. The Company's systems also can provide all of the major operating modes, which include B-mode, spectral Doppler and color Doppler. The Company sells approximately 25 different transducers offering a variety of frequencies, formats and operating modes. A key element of the Company's computer architecture is Acuson's Dynamic Computed Lens System/TM/, which performs proprietary image formation operations on the signals from the system's 128 separate transmit/receive channels. The Acuson Dynamic Computed Lens System electronically focuses at each point of the field of view in every frame, electronically optimizes the lens aperture at each focal point, and substantially filters out certain stray reflected sound captured by more conventional systems, often allowing better contrast resolution. All of these functions are performed automatically without any operator intervention in creating up to 50 or more images per second. Color Doppler is incorporated in the vast majority of Acuson systems sold to all market segments. While Acuson did not invent color Doppler, it has made a number of important innovations in this area. In 1988, Acuson was the first company to ship color Doppler systems in a configuration appropriate for a broad range of radiology examinations, and the Company believes that Acuson systems have had a major impact in expanding the acceptance of color Doppler for mainstream radiology applications. The Acuson 128XP system, includes a number of important technologies and system capabilities, such as the following: VECTOR ARRAY offers uncompromised resolution with a wider field of view at all depths than sector. It is an advance in computer imaging technology, not a change in the transducer itself; as a result, the Vector Array capable 128XP systems introduced in 1990 (or Acuson 128 systems upgraded with the appropriate Performance Option Package) can perform Vector Array imaging with the same sector transducers originally shipped with the Acuson 128 in 1983. HIGH PERFORMANCE CURVED ARRAY technology brings Acuson quality and 128 channel capability to this format. It offers high resolution imaging while substantially reducing the far-field drop off and imaging artifacts often associated with conventional curved arrays. 6 ________________________________________________________________________________ MULTIHERTZ/R/ frequency selectable imaging gives, on a single transducer, the ability to switch between two or three frequencies for both grayscale and color Doppler imaging, simply by pushing a button. Because it makes accessing a higher frequency so convenient, Acuson believes that its MultiHertz technology makes high frequency imaging more practical across a broad range of examinations. Acuson accomplishes MultiHertz imaging through a combination of proprietary hardware, software and transducer technologies. B-COLOR IMAGING is a mode that maps B-mode information in color. Because humans can perceive more different colors than they can perceive different shades of gray, B-color imaging increases the amount of diagnostic information a clinician can perceive from the wide dynamic range of an Acuson B-mode image. IN 1993, ACUSON INTRODUCED ACOUSTIC RESPONSE TECHNOLOGY (ART) as an available upgrade to the 128XP Platform. ART incorporated new image processing techniques that increase the amount of imaging and Doppler information that the system provides. During its first year of availability, ART became standard on all new Acuson systems, and in addition was installed at more than 2,500 Acuson customer sites as a field upgrade. Acuson attempts to protect technologies that it views as proprietary through a combination of trade secrets and, where appropriate, copyrights and patents. The Company owns and has rights to several U.S. and international patents, covering certain aspects of its systems, and it has several patent applications pending. No assurances can be given as to the breadth or degree of protection patents will afford the Company. The Company also relies substantially on its unpatented proprietary know-how. No assurances can be given that others will not be able to develop substantially equivalent proprietary information or otherwise obtain access to the Company's know-how. The Company is currently involved in a litigation proceeding relating to patent infringement claims against the Company made by one of the Company's competitors. See Item 3 - Legal Proceedings. ACUSON'S PRODUCTS Acuson offers a variety of product configurations, all of which are based on the Acuson 128XP Computed Sonography system. Several basic mainframe platforms may be tailored for cardiovascular, radiology, peripheral vascular and Ob/Gyn ultrasound applications by combining various transducers, options such as spectral Doppler and color Doppler, and software packages. The Acuson 128 system was introduced for radiology applications in 1983. The introduction of the Acuson 128XP in 1990 further expanded Acuson's radiology capabilities. In general, the 128XP is more configurable than was the Acuson 128 and thus can address a wider market price range than the previous system. The XP/4, a color Doppler-capable system and the Company's most basic radiology configuration, currently sells for a list price of approximately $100,000. A typical XP/10 color Doppler radiology system configuration, including optional software and transducers, may have a list price of $170,000 to $200,000. Acuson introduced the Acuson 128 system for cardiovascular applications in 1988 and followed with the 128XP in 1990. A basic cardiovascular system configuration sells for a list price of approximately $120,000 and consists of the Acuson 128XP with special cardiology applications software, plus one cardiac transducer and spectral Doppler. A typical XP/10 color Doppler cardiology configuration, when it includes an option supporting vascular examinations, may have a list price of $150,000 to $170,000. The diagnostic capabilities provided on the 128XP are available in addition to all of the extensive clinical capabilities that were available on the previous Acuson 128 system. These new capabilities also can be added to existing Acuson 128 systems through Performance Option Packages. The AEGIS system, introduced by Acuson in October 1992, provides significant new capabilities for managing and storing ultrasound images and for preserving the quality of the images' diagnostic information. By computerizing ultrasound image and data handling, the AEGIS system can also increase the productivity of existing 7 ________________________________________________________________________________ ultrasound instruments, reducing overall hospital costs in addition to improving patient care. By the end of 1994, more than 50 AEGIS networks had been installed at customer sites in North America. MARKETING AND SALES The Company sells its products primarily to hospitals, private and governmental institutions and health care agencies, medical equipment distributors and doctors' offices. The Company and its subsidiaries employ their own full-time sales, service and applications staff in North America, selected European countries, Australia and Japan. Acuson sells through independent distributors in other European countries, Asia, South America and the Middle East. See Note 10 of Notes to Consolidated Financial Statements contained in the Company's 1994 Annual Report and incorporated by reference for a summary of operations by geographic region. The sales process for ultrasound systems typically requires six to twelve months between initial customer contact and placement of an order. On-site demonstrations are often part of the customer's evaluation process, and customers frequently make side-by-side comparisons of performance and other features of competing systems. Acuson employs a staff of applications personnel who operate the system during sales demonstrations and who also train physicians and ultrasound technicians on the use of the system after delivery. During 1993, slow economic conditions together with concerns about the unknown impacts of potential health care reform in the United States caused many U.S. customers to delay purchasing decisions. In 1994, though the prospect of legislated reform receded at year end, medical cost containment, health care provider consolidation and intense competitive pressures continued adversely to impact customer buying activity. SERVICE The Company employs a staff of full-time service engineers who service Acuson systems in North America and in the countries where Acuson has international subsidiaries. Service to customers in other international areas is provided through the Company's independent distributors. Acuson warrants its products for 12 months, extendible by service contract. All domestic systems under Acuson warranty or full-service contracts are guaranteed to have 99.0% uptime, and such systems have averaged more than 99.9% cumulative uptime since 1983. Systems under warranty or service contract receive periodic maintenance by Acuson service engineers, who also install new system capabilities or software upgrades and respond to customer service requests. Certain of these services may be purchased from the Company's service organization by customers who do not have a service contract with Acuson. Service was 21.3% of total net sales, see Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. COMPETITION Acuson competes primarily on the basis of its major clinical benefits of imaging performance, ease of use, versatility, upgradability and reliability. The Company believes that these product capabilities can enable physicians to make earlier, more accurate and/or more confident diagnoses and also can provide superior long-term economic value. As do virtually all companies in the industry, Acuson offers on-site system demonstrations to customers during the sales process, and customers frequently do their own evaluations of equipment performance and other factors. The markets for these products have become increasingly competitive, and price is more often a factor in the purchase decision. 8 ________________________________________________________________________________ The Company's ultrasound equipment competes with systems offered by a number of companies and their affiliates abroad, including Acoustic Imaging, Inc. (a subsidiary of Dornier); Advanced Technology Laboratories, Inc.; Aloka Co., Ltd.; Diasonics, Inc. (a subsidiary of Elbit, Ltd.); General Electric Company; Hewlett-Packard Company; Philips Ultrasound, Inc.; Siemens Medical Labs, Inc. and its subsidiary Quantum Medical Systems, Inc.; and Toshiba Medical Systems, Inc. Most of these competitors have significantly greater financial and other resources and generally compete in more medical imaging and other market segments and countries than Acuson. The products offered to date by these competitors in some cases include features not currently offered by Acuson and in many cases are substantially less expensive than Acuson's products. There can be no assurance that any established or new ultrasound company will not introduce a system that is equal or superior to Acuson's in quality or performance. In most cases where there is a choice between using diagnostic ultrasound and other imaging modalities, such as conventional X-ray, computed tomography or magnetic resonance imaging, the ultrasound examination is performed first. Ultrasound units are generally among the least expensive of such modalities. In addition, in certain applications, ultrasound offers capabilities that make it the modality of choice regardless of cost. However, no assurance can be given that such price or performance advantages can be maintained in comparison to other current or future imaging modalities. In addition, ultrasound systems compete with other imaging modalities for hospital funding. PRODUCT DEVELOPMENT Acuson believes that new product development is of great importance to its success and believes that its engineering effort is among the largest in the ultrasound industry. Since Acuson's founding, virtually all product development has taken place at the Company's headquarters in Mountain View, California. Despite the extent of its product development effort, and although many new products are typically under development at any time, the Company has no anticipated time when it expects to deliver new products, and there can be no assurances that the Company will be able to complete any new products. The Company spent $47.7 million, $58.3 million and $70.8 million on product development in 1992, 1993 and 1994, respectively. GOVERNMENT REGULATION As a manufacturer of medical devices, Acuson is subject to various regulations of the United States Food and Drug Administration (the "FDA") and of the California Department of Health Services, including marketing clearance of the Company's products by the FDA. Although Acuson believes that it is in compliance with all applicable regulations of the FDA and of the State of California, current regulations depend heavily on administrative interpretation, and there can be no assurance that future interpretations with possible retroactive effect will not adversely affect the Company. The process of obtaining clearance to market products can be time consuming and can delay the marketing and sale of the Company's products. In December 1990, Congress passed the Safe Medical Devices Act of 1990. This law significantly expands the FDA's product clearance and enforcement authority. It is likely to require the submission to the FDA of longer and more complex product applications and the submission of more extensive post-marketing reports. Because the FDA's implementation of this authority is in process, the full potential effect of this law on Acuson cannot be assessed. Also, the FDA is using its statutory authority more vigorously during inspections of companies and in other enforcement matters. While Acuson believes it is in compliance with all applicable FDA regulations, the potential effects on the Company of heightened enforcement cannot be predicted. The Federal government regulates reimbursement for diagnostic examinations furnished to Medicare beneficiaries, including related physician services and capital equipment acquisition costs. For example, Medicare reimbursement for operating costs for ultrasound examinations performed on hospital inpatients generally is set 9 ________________________________________________________________________________ under the Medicare prospective payment system ("PPS") diagnosis-related group ("DRG") regulations. Under PPS, Medicare pays hospitals a fixed amount for services provided to an inpatient based on his or her DRG, rather than reimbursing for the actual costs incurred by the hospital. Patients are assigned to a DRG based on their principal and secondary diagnoses, procedures performed during the hospital stay, age, gender and discharge status. For capital costs for inpatient services, prior to October 1, 1991, Medicare reimbursed hospitals an amount based on 85 percent of the actual reasonable costs they had incurred. On October 1, 1991, Medicare began to phase in over a ten year period a prospective payment system for capital costs which incorporates an add-on to the DRG-based payment to cover capital costs and which replaces the reasonable cost-based methodology. For certain hospital outpatient services, including ultrasound examinations, reimbursement currently is based on the lesser of the hospital's costs or charges, or a blended amount, 58 percent of which is based on the hospital's reasonable costs and 42 percent of which is based on the amount that Medicare reimburses for such services when furnished in a physician's office. For the fiscal years 1991 through 1998 (beginning October 1, 1990), reimbursement for the cost portion of the blend is reduced by 5.8 percent. Capital acquisition costs for services furnished to hospital outpatients are currently reimbursed on the basis of 90 percent of the reasonable costs actually incurred by the hospital. Until January 1, 1992, Medicare generally reimbursed physicians on the basis of their reasonable charges or, for certain physicians, including radiologists, on the basis of a "charge-based" fee schedule. On January 1, 1992, Medicare began to phase in over a five year period a new system that reimburses all physicians based on the lower of their actual charges or a fee schedule amount based on a "resource-based relative value scale." Under this new system, it is anticipated that some physician specialties, including radiologists and cardiologists, generally will be reimbursed under Medicare less than what they would have been reimbursed if the old payment system had remained in effect. Reimbursement for services rendered to Medicaid beneficiaries is determined pursuant to each state's Medicaid plan which is established by state law and regulations, subject to requirements of Federal law and regulations. As part of the Omnibus Budget Reconciliation Act of 1993, Congress enacted provisions, effective January 1, 1995, which prohibit physicians from referring Medicare or Medicaid patients to any entity in which the physician or a family member has an ownership or compensation relationship if the referral is for any of a list of "designated health services," which includes ultrasound services. Regulations implementing these statutory provisions have not been published. These prohibitions, and similar prohibitions in some state laws, may result in lower utilization of certain procedures, including ultrasound. The Clinton Administration and the Congress from time to time consider various Medicare and other health care reform proposals that could significantly affect both private and public reimbursement for health care services. Some of these proposals, if enacted into law, could reduce reimbursement for or the incentive to use diagnostic devices and procedures and thus could adversely affect the demand for diagnostic devices, including the Company's products. In addition to the federal laws described above, there are state laws and regulations regarding the manufacture and sale of health care products and diagnostic devices, and reimbursement for such products and their use. These laws and regulations also are subject to future changes whose impact cannot be projected. MANUFACTURING The Company manufactures its products at its Mountain View, California facility. Fabrication of most transducers is performed in-house in order to safeguard the Company's proprietary technology. In October 1994, Acuson acquired Sound Technology Incorporated ("STI"), a transducer manufacturer located in State College, Pennsylvania. STI provides complementary technical capabilities to the Company's established Transducer Division. For other sub-assemblies, the Company generally subcontracts the assembly or fabrication to outside vendors and in addition produces some components at its own facility in Canoga Park, California. Sub-assemblies are produced according to the Company's designs or specifications. The Company performs assembly, testing and quality assurance at various stages of completion. 10 ________________________________________________________________________________ Component parts and microprocessors for the Company's products and some specialty transducers are purchased from outside vendors. A number of such items currently have limited or single sources of supply, and disruption or termination of those sources could have a temporary adverse effect on shipments and the financial results of the Company. The Company believes that it could ultimately develop alternate sources for all such items. The Company builds units to a marketing forecast that is updated periodically and utilizes a commercially available computer system for manufacturing, accounting, and sales order processing. Because it builds to forecast, the Company does not consider its backlog a significant indicator of business levels. EMPLOYEES As of December 31, 1994, the Company had 1,652 full-time employees. The Company considers its relations with its employees to be good. ________________________________________________________________________________ Acuson, MultiHertz, Vector, XP and the XP logo are registered trademarks of Acuson Corporation. AEGIS, The Sonography Management System, 128XP, and Dynamic Computed Lens System are trademarks of Acuson Corporation. 11 ________________________________________________________________________________ ITEM 2 PROPERTIES The Company leases its facilities under operating leases. The principal offices and manufacturing space are located in Mountain View, California. In addition, the Company leases manufacturing facilities in Canoga Park, California and State College, Pennsylvania, and sales and service facilities in various locations in the United States and abroad. The Company believes its facilities are adequate for its present needs, in good condition and suitable for their intended uses. ________________________________________________________________________________ 12 ________________________________________________________________________________ ITEM 3 LEGAL PROCEEDINGS On July 1, 1993 and July 30, 1993, individuals purporting to represent a class of persons who purchased Acuson common stock during the period between October 24, 1990 and July 22, 1992 filed two separate, but related, actions against the Company and twelve of its officers and one former officer in the Federal District Court for the Northern District of California alleging that the defendants' statements about the Company were incomplete or inaccurate, in violation of Federal securities laws. Plaintiffs seek damages in an unspecified amount, as well as equitable relief or injunctive relief and attorneys' fees, experts' fees and costs. The Company intends to defend the suits vigorously. Management believes that the ultimate outcome of these matters will not have a material adverse effect on the Company's financial condition. On September 14, 1994, the Company filed an action in the United States District Court for the Northern District of California against Advanced Technology Laboratories, Inc. ("ATL") of Bothell, Washington. In the action, the Company accuses ATL of infringing U.S. Letters Patent No. 4,058,003 for "Ultrasonic Electronic Lens with Reduced Delay Range," a patent licensed exclusively to the Company. In addition, the Company seeks a declaration that it infringes no valid claim of four ATL patents: U.S. Letters Patent No. 4,543,960 for "Transesophageal Echocardiography Scanhead," No. 5,050,610 for "Transesophageal Ultrasonic Scanhead," No. 5,207,225 for "Transesophageal Ultrasonic Scanhead," or No. 5,226,422 for "Transesophageal Echocardiography Scanner with Rotating Image Plane." No dollar amount is specified as damages in the Company's action, but the complaint seeks an accounting for damages, treble damages and an assessment of interests and costs against ATL. In addition, the Company is informed that, in August 1994, ATL filed an action against the Company in the United States District Court for the Western District of Washington, in which ATL sought a declaration that it infringes no valid claim of U.S. Letters Patent No. 4,058,003. On October 31, 1994, ATL amended that action and added claims accusing the Company of infringing U.S. Patent Nos. 4,543,960; 5,050,610; 5,207,225; and 5,226,422. No dollar amount is specified as damages in ATL's action, but the complaint seeks an injunction against alleged infringement, an accounting for damages, treble damages, and an assessment of interest and costs against the Company. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition. On October 27, 1994, the Company was sued in Ghent, Belgium by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2,500,000. The Company intends to defend the suit vigorously. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition. ________________________________________________________________________________ 13 ________________________________________________________________________________ ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Company and their ages as of March 7, 1995 are as follows:
NAME AGE POSITION ---- --- -------- Samuel H. Maslak 46 President, Chief Executive Officer and Director Robert J. Gallagher 51 Chief Operating Officer and Director Daniel R. Dugan 40 Senior Vice President, Worldwide Sales, Service and Marketing Judith A. Heyboer 45 Senior Vice President Bradford C. Anker 49 Vice President, Manufacturing Charles H. Dearborn 42 Vice President, Secretary and General Counsel Stephen T. Johnson 51 Vice President, Chief Financial Officer and Treasurer L. Thomas Morse 51 Vice President, Corporate Controller William C. Varley 45 Vice President, Cardiology Business Operations
________________________________________________________________________________ SAMUEL H. MASLAK co-founded the Company in September 1981 and has been President, Chief Executive Officer and a director since that date. ROBERT J. GALLAGHER joined Acuson in January 1983 as Vice President, Finance and Chief Financial Officer. Mr. Gallagher became Executive Vice President in March 1991 and Chief Operating Officer in February 1994. DANIEL R. DUGAN joined the Company in 1984 as Western Regional Sales Manager, became National Sales Manager in October 1988 and Director, North American Sales in August 1989. From November 1989 through April 1991, he was Vice President of Ultrasound Business Operations at Toshiba America Medical Systems, Inc. In April 1991, Mr. Dugan rejoined Acuson as Vice President, Field Operations. He became Senior Vice President, Worldwide Sales, Service and Marketing in February 1994. JUDITH A. HEYBOER joined the Company in October 1983 as Director of Employee Relations and became Vice President, Employee Relations in July 1984. She became Senior Vice President in February 1994. BRADFORD C. ANKER joined the Company in December 1983 and has served as Vice President, Manufacturing since that date. CHARLES H. DEARBORN joined the Company in October 1988 and has served as General Counsel since that date. He was elected Secretary of the Company in February 1991 and Vice President in February 1995. STEPHEN T. JOHNSON joined the Company in February 1986 as Treasurer and became Vice President, Treasurer in March 1989. In February 1994, he became Chief Financial Officer. L. THOMAS MORSE joined the Company in July 1983 and has served as Corporate Controller since that date. He was elected an officer of the Company in March 1989 and Vice President, Corporate Controller in February 1991. WILLIAM C. VARLEY joined Acuson in August 1988 as Cardiology Marketing Manager, became Director of Marketing in January 1989, Vice President, Marketing in March 1991, and Vice President, Cardiology Business Operations in June 1994. ________________________________________________________________________________ 14 ________________________________________________________________________________ PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by Item 5 of Form 10-K is incorporated by reference to the information contained in the section captioned "Market for Registrant's Common Equity and Related Stockholder Matters" in the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994 (the "1994 Annual Report"). ________________________________________________________________________________ ________________________________________________________________________________ ITEM 6 SELECTED FINANCIAL DATA The information required by Item 6 of Form 10-K is incorporated by reference to the information contained in the section captioned "Selected Consolidated Financial Data" in the Company's 1994 Annual Report. ________________________________________________________________________________ ________________________________________________________________________________ ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 of Form 10-K is incorporated by reference to the information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1994 Annual Report. ________________________________________________________________________________ ________________________________________________________________________________ ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 of Form 10-K is incorporated by reference to the consolidated financial statements and notes thereto, and to the section captioned "Quarterly Data" in the Company's 1994 Annual Report. ________________________________________________________________________________ ________________________________________________________________________________ ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ________________________________________________________________________________ 15 ________________________________________________________________________________ With the exception of the information specifically incorporated by reference from the 1994 Annual Report in Part II of this Form 10-K, the Company's 1994 Annual Report is not to be deemed filed as part of this Form 10-K. ================================================================================ PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS. The information required by Item 10 of Form 10-K with respect to directors is incorporated by reference to the information contained in the sections captioned "Nomination and Election of Directors" and in the last paragraph of "Share Ownership of Directors, Executive Officers and Certain Beneficial Owners" in the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 31, 1995 (the "Proxy Statement"). EXECUTIVE OFFICERS. See page 14 of this Form 10-K. ================================================================================ ________________________________________________________________________________ ITEM 11 EXECUTIVE COMPENSATION The information required by Item 11 of Form 10-K is incorporated by reference to the information contained in the sections captioned "Compensation of Directors and Executive Officers," "Options Granted to Executive Officers," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement. ================================================================================ ________________________________________________________________________________ ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 of Form 10-K is incorporated by reference to the information contained in the section captioned "Share Ownership of Directors, Executive Officers and Certain Beneficial Owners" in the Proxy Statement. ________________________________________________________________________________ 16 ________________________________________________________________________________ ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 of Form 10-K is incorporated by reference to the information contained in the section captioned "Certain Relationships and Other Transactions" in the Proxy Statement. ________________________________________________________________________________ 17 ________________________________________________________________________________ PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: (1) Financial Statements. The following consolidated financial statements of Acuson Corporation and Report of Independent Public Accountants are incorporated into this Form 10-K Report by reference to the section entitled "Financial Contents" of the Company's 1994 Annual Report: Consolidated Statements of Operations -- For the Three Years Ended December 31, 1994 Consolidated Balance Sheets -- As of December 31, 1994 and 1993 Consolidated Statements of Cash Flows -- For the Three Years Ended December 31, 1994 Consolidated Statements of Stockholders' Equity -- For the Three Years Ended December 31, 1994 Notes to Consolidated Financial Statements Report of Independent Public Accountants Supplementary Information Quarterly Data (Unaudited) (2) Financial Statement Schedule. The following financial statement schedule of Acuson Corporation for the three years ended December 31, 1994 is filed as part of this Form 10-K:
Schedule Page -------- ---- Report of Independent Public Accountants on Schedule S-1 II -Valuation and Qualifying Accounts S-2
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes incorporated herein by reference to the Company's 1994 Annual Report. 18 ________________________________________________________________________________ (3) Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this Form 10-K: 3.1 Restated Certificate of Incorporation, as amended * (Exhibit 3.8) 3.2 Bylaws as currently in effect (Exhibit 3.2) # 4.1 Rights Agreement, dated as of May 5, 1988, between *** Acuson Corporation and The First National Bank of Boston, as Rights Agent (Exhibit 1) 10.1 The Company's 401(k) Plan, as amended (Exhibit 10.1) ****/(1)/ 10.2 The Company's 1986 Employee Stock Purchase Plan (the //(1)/ "1986 Purchase Plan"), as amended (Exhibit 10.2) 10.3 Form of Employee Stock Purchase Agreement to be used */(1)/ under the 1986 Purchase Plan (Exhibit 10.5) 10.4 The Company's 1982 Incentive Stock Option Plan, as //(1)/ amended (Exhibit 10.4) 10.5 Form of Incentive Stock Option and related exercise **/(1)/ documents 10.6 The Company's 1986 Supplemental Stock Option Plan, as //(1)/ amended (Exhibit 10.6) 10.7 Form of Supplemental Stock Option (Exhibit 10.7) //(1)/ 10.8 Series A Preferred Stock Purchase Agreement, dated * January 6, 1982, between the Company and the Purchasers listed on Schedule A thereto (Exhibit 10.8) 10.9 Series B Preferred Stock Purchase Agreement, dated * March 29, 1983, between the Company and the Purchasers listed on Schedule A thereto (Exhibit 10.9) 10.10 Series C Convertible Preferred Stock Purchase * Agreement, dated March 30, 1984, between the Company and the Purchasers listed on Exhibit A thereto (Exhibit 10.10) 10.11 Lease of office space, dated May 15, 1990, ++ between Shoreline Investments III and the Company (Exhibit 19.1) 10.12 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments III and the Company (Exhibit 19.2) 10.13 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments III and the Company (Exhibit 19.3) 10.14 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments VI and the Company (Exhibit 19.4) 10.15 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments V and the Company (Exhibit 19.5) 10.16 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments VI and the Company (Exhibit 19.6) 10.17 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments VI and the Company (Exhibit 19.7) 10.18 Lease of office space, dated May 15, 1990 between ++ Shoreline Investments VII and the Company (Exhibit 19.8)
19 ________________________________________________________________________________ 10.19 Non-Negotiable Secured Promissory Note, dated May 1, +/(1)/ 1989, of John G. Freund (Exhibit 10.19) 10.20 Non-Negotiable Secured Promissory Note, dated May 1, +/(1)/ 1989, of John G. Freund (Exhibit 10.20) 10.21 Third Deed of Trust, dated May 1, 1989, between + John G. Freund, the Company and First American Title Insurance Company, as Trustee (Exhibit 10.21) 10.22 The Company's 1991 Stock Incentive Plan +++/(1)/ 10.23 Form of the Company's Supplemental and Non-Employee //(1)/ Director Supplemental Options under the 1991 Stock Incentive Plan and related exercise documents as amended (Exhibit 10.23) 10.24 Non-Negotiable Secured Promissory Note, dated August 8, ++++/(1)/ 1991, of Daniel R. Dugan (Exhibit 19.1) 10.25 Second Deed of Trust, dated August 8, 1991, between ++++ Daniel R. Dugan and First American Title Insurance Company, as Trustee (Exhibit 19.2) 10.26 Lease of office space, dated July 31, 1991, between ++++ Shoreline Investments V and the Company (Exhibit 19.3) 10.27 First Amendment to the Company's 401(k) Plan (Exhibit #/(1)/ 10.31) 10.28 Lease of office space, dated January 31, 1992, between ## Shoreline Investments V and the Company (Exhibit 19.1) 10.29 Credit Agreement between Acuson Corporation and the ### First National Bank of Boston, as Agent, dated July 2, 1992 (Exhibit 19.1) 10.30 Officers' Bonus Plan (Exhibit 10.30) ####/(1)/ 10.31 Form of Amendment Number 1 to Supplemental Stock Option /////(1)/ Terms Under the Company's 1986 Supplemental Stock Plan and 1991 Stock Incentive Plan (Exhibit 10.1) 10.32 Form of Supplemental Stock Option Terms Under the /////(1)/ Company's 1991 Stock Incentive Plan (Exhibit 10.2) 10.33 Consulting Agreement, dated June 20, 1994, between /////(1)/ William H. Abbott and the Company (Exhibit 10.3) 10.34 Employment and Non-Competition Agreement, dated /(1)/ October 7, 1994, between John G. Freund and the Company 11.1 Statement regarding computation of per share earnings #### for the fiscal year ended December 31, 1992 (Exhibit 11.1) 11.2 Statement regarding computation of per share earnings / for the fiscal year ended December 31, 1993 (Exhibit 11.1) 11.3 Statement regarding computation of per share earnings // for the fiscal period ended April 2, 1994 (Exhibit 11.1) 11.4 Statement regarding computation of per share earnings /// for the fiscal period ended July 2, 1994 (Exhibit 11.1) 11.5 Statement regarding computation of per share earnings //// for the fiscal period ended October 1, 1994 (Exhibit 11.1) 11.6 Statement regarding computation of per share earnings for the fiscal year ended December 31, 1994
20 ________________________________________________________________________________ 13.1 Registrant's 1994 Annual Report 22.1 Subsidiaries of Registrant 24.1 Consent of Independent Public Accountants 27.1 Financial Data Schedule for the period ended October 1, //// 1994 (Exhibit 27.1) 27.2 Financial Data Schedule for the year ended December 31, 1994
(b) The Registrant filed no reports on Form 8-K during the last quarter of the fiscal year ended December 31, 1994. ________________________________________________________________________________ 21 ________________________________________________________________________________ * Incorporated by reference to the indicated exhibit in the Company's Registration Statement on Form S-1 (File No. 33-7838), as amended. ** Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1987. *** Incorporated by reference to the indicated exhibit in the Company's Form 8-K dated May 5, 1988. **** Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1990. + Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1989. ++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1990. +++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended June 29, 1991. ++++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1991. # Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1991. ## Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended March 28, 1992. ### Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended September 26, 1992. #### Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1992. / Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1993. // Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended April 2, 1994. /// Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended July 2, 1994. //// Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended October 1, 1994. /(1)/ Management contract or compensatory plan required to be filed as an exhibit.
________________________________________________________________________________ 22 ________________________________________________________________________________ SIGNATURES 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. ACUSON CORPORATION March 30, 1995 By /s/ Samuel H. Maslak ----------------------------------------- Samuel H. Maslak President and Chief Executive Officer March 30, 1995 By /s/ Robert J. Gallagher ----------------------------------------- Robert J. Gallagher Chief Operating Officer March 30, 1995 By /s/ Stephen T. Johnson ----------------------------------------- Stephen T. Johnson Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 23 ________________________________________________________________________________ SIGNATURES 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.
Signature Title Date _____________________________________________________________________________________________ /s/ Samuel H. Maslak President, Chief Executive March 30, 1995 ------------------------------------ (Samuel H. Maslak) Officer and Director /s/ Robert J. Gallagher Chief Operating Officer and March 30, 1995 ------------------------------------ (Robert J. Gallagher) Director /s/Stephen T. Johnson Chief Financial Officer and March 30, 1995 ------------------------------------ (Stephen T. Johnson) Treasurer (Principal Financial and Accounting Officer) /s/ Royce Diener Director March 30, 1995 ------------------------------------ (Royce Diener) /s/ Albert L. Greene Director March 30, 1995 ------------------------------------ (Albert L. Greene) /s/ Karl H. Johannsmeier Director March 30, 1995 ------------------------------------ (Karl H. Johannsmeier) /s/ Alan C. Mendelson Director March 30, 1995 ------------------------------------ (Alan C. Mendelson)
________________________________________________________________________________ 24 ________________________________________________________________________________ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE We have audited in accordance with generally accepted auditing standards, the financial statements included in Acuson Corporation's Annual Report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 3, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as whole. The schedule listed at Item 14(a)(2) is the responsibility of the Company's management and is presented for purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Arthur Andersen LLP San Jose, California February 3, 1995 S-1 ________________________________________________________________________________ ACUSON CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1994 (In thousands)
Balance at Charged to Beginning Costs and Balance at End of Period Expenses Write-Offs of Period _______________________________________________________________________________________________________________ Allowance for doubtful accounts: Year ended: December 31, 1992 $2,563 $ 30 $ (1) $2,592 December 31, 1993 $2,592 $701 $(449) $2,844 December 31, 1994 $2,844 $597 $ (9) $3,432 Accrued warranty: Year ended: December 31, 1992 $4,055 $7,330 $(7,354) $4,031 December 31, 1993 $4,031 $6,235 $(6,979) $3,287 December 31, 1994 $3,287 $7,949 $(6,761) $4,475
________________________________________________________________________________ S-2 EXHIBIT INDEX
EXHIBITS: --------- 3.1 Restated Certificate of Incorporation, as amended * (Exhibit 3.8) 3.2 Bylaws as currently in effect (Exhibit 3.2) # 4.1 Rights Agreement, dated as of May 5, 1988, between *** Acuson Corporation and The First National Bank of Boston, as Rights Agent (Exhibit 1) 10.1 The Company's 401(k) Plan, as amended (Exhibit 10.1) ****/(1)/ 10.2 The Company's 1986 Employee Stock Purchase Plan (the //(1)/ "1986 Purchase Plan"), as amended (Exhibit 10.2) 10.3 Form of Employee Stock Purchase Agreement to be used */(1)/ under the 1986 Purchase Plan (Exhibit 10.5) 10.4 The Company's 1982 Incentive Stock Option Plan, as //(1)/ amended (Exhibit 10.4) 10.5 Form of Incentive Stock Option and related exercise **/(1)/ documents 10.6 The Company's 1986 Supplemental Stock Option Plan, as //(1)/ amended (Exhibit 10.6) 10.7 Form of Supplemental Stock Option (Exhibit 10.7) //(1)/ 10.8 Series A Preferred Stock Purchase Agreement, dated * January 6, 1982, between the Company and the Purchasers listed on Schedule A thereto (Exhibit 10.8) 10.9 Series B Preferred Stock Purchase Agreement, dated * March 29, 1983, between the Company and the Purchasers listed on Schedule A thereto (Exhibit 10.9) 10.10 Series C Convertible Preferred Stock Purchase * Agreement, dated March 30, 1984, between the Company and the Purchasers listed on Exhibit A thereto (Exhibit 10.10) 10.11 Lease of office space, dated May 15, 1990, ++ between Shoreline Investments III and the Company (Exhibit 19.1) 10.12 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments III and the Company (Exhibit 19.2) 10.13 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments III and the Company (Exhibit 19.3) 10.14 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments VI and the Company (Exhibit 19.4) 10.15 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments V and the Company (Exhibit 19.5) 10.16 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments VI and the Company (Exhibit 19.6) 10.17 Lease of office space, dated May 15, 1990, between ++ Shoreline Investments VI and the Company (Exhibit 19.7) 10.18 Lease of office space, dated May 15, 1990 between ++ Shoreline Investments VII and the Company (Exhibit 19.8)
________________________________________________________________________________ 10.19 Non-Negotiable Secured Promissory Note, dated May 1, +/(1)/ 1989, of John G. Freund (Exhibit 10.19) 10.20 Non-Negotiable Secured Promissory Note, dated May 1, +/(1)/ 1989, of John G. Freund (Exhibit 10.20) 10.21 Third Deed of Trust, dated May 1, 1989, between + John G. Freund, the Company and First American Title Insurance Company, as Trustee (Exhibit 10.21) 10.22 The Company's 1991 Stock Incentive Plan +++/(1)/ 10.23 Form of the Company's Supplemental and Non-Employee //(1)/ Director Supplemental Options under the 1991 Stock Incentive Plan and related exercise documents as amended (Exhibit 10.23) 10.24 Non-Negotiable Secured Promissory Note, dated August 8, ++++/(1)/ 1991, of Daniel R. Dugan (Exhibit 19.1) 10.25 Second Deed of Trust, dated August 8, 1991, between ++++ Daniel R. Dugan and First American Title Insurance Company, as Trustee (Exhibit 19.2) 10.26 Lease of office space, dated July 31, 1991, between ++++ Shoreline Investments V and the Company (Exhibit 19.3) 10.27 First Amendment to the Company's 401(k) Plan (Exhibit #/(1)/ 10.31) 10.28 Lease of office space, dated January 31, 1992, between ## Shoreline Investments V and the Company (Exhibit 19.1) 10.29 Credit Agreement between Acuson Corporation and the ### First National Bank of Boston, as Agent, dated July 2, 1992 (Exhibit 19.1) 10.30 Officers' Bonus Plan (Exhibit 10.30) ####/(1)/ 10.31 Form of Amendment Number 1 to Supplemental Stock Option /////(1)/ Terms Under the Company's 1986 Supplemental Stock Plan and 1991 Stock Incentive Plan (Exhibit 10.1) 10.32 Form of Supplemental Stock Option Terms Under the /////(1)/ Company's 1991 Stock Incentive Plan (Exhibit 10.2) 10.33 Consulting Agreement, dated June 20, 1994, between /////(1)/ William H. Abbott and the Company (Exhibit 10.3) 10.34 Employment and Non-Competition Agreement, dated /(1)/ October 7, 1994, between John G. Freund and the Company 11.1 Statement regarding computation of per share earnings #### for the fiscal year ended December 31, 1992 (Exhibit 11.1) 11.2 Statement regarding computation of per share earnings / for the fiscal year ended December 31, 1993 (Exhibit 11.1) 11.3 Statement regarding computation of per share earnings // for the fiscal period ended April 2, 1994 (Exhibit 11.1) 11.4 Statement regarding computation of per share earnings /// for the fiscal period ended July 2, 1994 (Exhibit 11.1) 11.5 Statement regarding computation of per share earnings //// for the fiscal period ended October 1, 1994 (Exhibit 11.1) 11.6 Statement regarding computation of per share earnings for the fiscal year ended December 31, 1994
________________________________________________________________________________ 13.1 Registrant's 1994 Annual Report 22.1 Subsidiaries of Registrant 24.1 Consent of Independent Public Accountants 27.1 Financial Data Schedule for the period ended October 1, //// 1994 (Exhibit 27.1) 27.2 Financial Data Schedule for the year ended December 31, 1994
(b) The Registrant filed no reports on Form 8-K during the last quarter of the fiscal year ended December 31, 1994. ________________________________________________________________________________ ________________________________________________________________________________ * Incorporated by reference to the indicated exhibit in the Company's Registration Statement on Form S-1 (File No. 33-7838), as amended. ** Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1987. *** Incorporated by reference to the indicated exhibit in the Company's Form 8-K dated May 5, 1988. **** Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1990. + Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1989. ++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1990. +++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended June 29, 1991. ++++ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1991. # Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1991. ## Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended March 28, 1992. ### Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended September 26, 1992. #### Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1992. / Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1993. // Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended April 2, 1994. /// Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended July 2, 1994. //// Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended October 1, 1994. /(1)/ Management contract or compensatory plan required to be filed as an exhibit.
________________________________________________________________________________ EX-10.32 2 EMPLOYMENT AGREEMENT ================================================================================ ACUSON CORPORATION EXHIBIT 10.32 EMPLOYMENT AND NON-COMPETITION AGREEMENT ---------------------------------------- THIS AGREEMENT ("Agreement") is entered by and between Acuson Corporation, a Delaware corporation, having a principal place of business at 1220 Charleston Road, Mountain View, California 94043 ("Acuson"), and John G. Freund ("Freund"), a resident of Atherton, California, as of October 7, 1994. 1. EMPLOYMENT Freund shall continue to be employed as Executive Vice President of Acuson until the earliest of (a) December 31, 1994, (b) the date upon which Freund shall give written notice to Acuson that he resigns as an employee or (c) Freund's death (the "resignation date"). As of the resignation date, Freund's employment with Acuson shall terminate and, except as specifically provided in this Agreement, all compensation, benefits, and other prerequisites of employment shall cease. 2. CONSULTING SERVICES From the resignation date until June 30, 1995, Freund agrees to perform consulting services ("Services") for Acuson as Acuson may reasonably request from time to time and as reasonably agreed to by Freund. Acuson agrees that it will not request Freund to provide any Services if the provision of such Services would conflict with other employment or consulting activities Freund may have at the time. Nothing in this Agreement shall restrict Freund from obtaining part time or full time employment with, or providing consulting services to, any third party, subject to Freund's obligation to Acuson with respect to proprietary and confidential information, including pursuant to this Agreement and pursuant to Freund's Employee Proprietary Information and Inventions Agreement that he signed when he joined Acuson and to Paragraph 4 below. In conjunction with the Services, Acuson shall provide Freund the use a secretary and an office at Acuson (equivalent to the Acuson office he occupies as of the date of this Agreement) and the company car phone until June 30, 1995. 3. COMPENSATION AND OTHER BENEFITS In consideration of Freund's execution and performance of this Agreement, as well as his past services to Acuson: (a) Acuson shall continue to pay Freund his salary at his current rate and continue to provide Freund with dental, medical, life and disability insurance as in effect on the date hereof until the resignation date; (b) Acuson shall pay Freund all accrued vacation, but shall not pay Freund for his untaken sabbatical; (c) on January 1, 1995, Acuson shall forgive the remaining amount outstanding under that certain $500,000 Non- Negotiable Secured Promissory Note dated May 1, 1989 between Acuson and Freund (the "Loan"); (d) Acuson shall pay (on an after tax basis) any amounts Freund must pay to continue his existing Acuson-provided health insurance covering him and his family pursuant to COBRA until June 30, 1995; (e) specifically in exchange for the Services, on January 6, 1995, Acuson shall pay Freund the sum of $50,000; and (f) specifically in exchange for the non-competition agreement set forth in Paragraph 4, on January 6, 1995, Acuson shall pay Freund the sum of $113,150. 4. NON-COMPETITION Freund agrees that until June 30, 1995, he will not obtain part time or full time employment with, or provide consulting services to, any third party that is engaged in the manufacture and/or sale of medical diagnostic ultrasound imaging equipment. 5. CONFIDENTIAL INFORMATION 5.1 (a) INFORMATION. Freund shall hold in trust and confidence all information, documents and other materials, regardless of form, relating to Acuson, its business, suppliers and customers supplied to Freund or learned by Freund in the course of performing the Services for Acuson ("Information"). Information includes, but is not limited to, technical and business information relating to Acuson's inventions or products, research and development, production, manufacturing and engineering processes, costs, profit or margin information, employee skills and salaries, finances, customers, marketing, production, and future business and product plans of Acuson, its suppliers and its customers, but shall not include information contained in written materials broadly distributed by Acuson to the general public, such as brochures, advertising and publicly available financial statements. (b) LIMITATIONS ON USE. Freund will use Information solely to perform work for Acuson pursuant to this Agreement. Freund will not disclose Information to any third party without Acuson's prior written consent. 5.2 ACUSON PROPERTY. All work performed by Freund for Acuson under this Agreement and all documents and other material, whether delivered to Freund by Acuson or made or received by Freund in the performance of Services (the "Acuson Property") are the sole and exclusive property of Acuson. Freund agrees to deliver to Acuson, or at Acuson's request destroy, promptly the original and any copies (including any copies stored in any computer memory or other storage medium) of the Acuson Property at any time upon Acuson's request. 6. OUTSTANDING OPTIONS 6.1 Vesting. All of Freund's outstanding options granted under the Company's 1986 Supplemental Stock Option Plan and 1991 Stock Incentive Plan (collectively "Outstanding Options") shall continue to vest until December 31, 1994, at which time all further vesting shall cease. 6.2 Option Exercisability. Acuson and Freund acknowledge that Freund's Outstanding Options shall remain exercisable until March 31, 1995. 7. TERM This Agreement will terminate on June 30, 1995. 8. INDEPENDENT RELATIONSHIP After the resignation date, Freund's relationship with Acuson will be that of an independent contractor, and nothing in this Agreement is intended to, or should be construed to, create a partnership, agency or employment relationship after the resignation date. Except as otherwise agreed between Freund and Acuson, after the resignation date, Freund will not be entitled to any of the benefits which Acuson may make available to its employees. Freund is solely responsible for all tax returns and payments required to be filed with, or made to, any federal, state or local tax authority with respect to the performance of Services and receipt of fees for the non-competition provisions under this Agreement. No part of Freund's compensation under this Agreement with respect to the Services or the non-competition agreement will be subject to withholding by Acuson for the payment of any social security, federal, state or any other employee payroll taxes. 9. MUTUAL RELEASE In consideration of the execution and delivery of this Agreement, each of Acuson and Freund hereby completely release the other from all claims of any kind, known and unknown, which Acuson or Freund, as the case may be, may now have or have ever had as of the resignation date against the other, including all claims arising from Freund's employment with Acuson, the resignation of his employment, or Freund's compensation or benefits. This release includes, but is not limited to, claims arising under federal, state, or local laws prohibiting employment discrimination (including, for example, age, sex, race, color, national origin, religion, disability or claims under the federal Age Discrimination in Employment Act) and claims arising out of any other legal restrictions on the Acuson's right to terminate its employees or laws governing the payment of wages and benefits. Each of Freund and Acuson understand that, Section 1542 of the California Civil Code provides that "[a] general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Being aware of this provision and its effects upon their respective rights, Freund and Acuson each expressly waive this provision in entering into this Agreement. 2 Without limiting the foregoing, Freund expressly understands and agrees that, by entering into this Agreement (a) he is waiving any rights or claims he may have under the Age Discrimination in Employment Act; (b) he has received consideration beyond that to which he was previously entitled; (c) he has been advised to consult with an attorney before signing this Agreement; and (d) he has been given up to twenty-one (21) days to consider whether to sign this Agreement. Freund also understands that he may revoke this Agreement within seven (7) days after signing it, and he further understands that this Agreement shall not be effective until the revocation period has expired. 10. GENERAL PROVISIONS 10.1 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of California as applied to agreements entered into and to be performed entirely within California between California residents. 10.2 WAIVER. The waiver by either party of a breach of any provision of this Agreement by the other party will not operate, or be interpreted, as a waiver of any other or subsequent breach. 10.3 SUCCESSORS AND ASSIGNS. This Agreement is not assignable by either party hereto without the consent of the other party. Subject to the preceding sentence, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 10.4 SURVIVAL. Paragraph 5 ("Confidential Information") shall survive termination of this Agreement. 10.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties relating to the termination of Freund's employment with Acuson and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral, with respect thereto, except that nothing in this Agreement shall amend, modify or supersede in any way Freund's obligations under any other agreement with Acuson with respect to Acuson confidential or proprietary information. This Agreement may be amended or supplemented, and any right hereunder may be waived, only by a writing that is signed by both parties. 10.6 ADDITIONAL ACTIONS. Each party hereto agrees to take such additional actions and to execute and deliver such additional documents as may be reasonably requested by the other party to fully effectuate this Agreement. Without limiting the generality of the foregoing, Acuson agrees, at its expense and by January 31, 1995, to execute and file with the appropriate authorities such documents as Freund may reasonably request to evidence forgiveness of the Loan and to release Freund's residence from any lien or other encumbrance in Acuson's favor relating to the Loan. ACUSON CORPORATION: FREUND: By: /s/ Robert J. Gallagher By: /s/ John G. Freund -------------------------------- ------------------------------- Robert J. Gallagher John G. Freund 3 EX-11.6 3 COMP. EARNINGS PER SHARE ________________________________________________________________________________ ACUSON CORPORATION EXHIBIT 11.6 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 In accordance with APB 15, the company used the modified treasury stock method in computing the 1994 Earnings Per Share. The following is a computation of the 1994 Earnings Per Share: Step (a): Number of shares outstanding at December 31, 1994 28,903,660 Number of shares assumed to be repurchased (limited to 20% of number of shares outstanding) 5,780,732 Multiply by average market value per common share $14.08 ------ Cost to repurchase 81,389,362 Assumed proceeds to the Company had everyone exercised outstanding stock options 81,562,323 ---------- Excess assumed proceeds available 172,960 Multiply by average interest rate for the year 5.0% ---- Assumed interest on excess funds 8,648 Less: tax provision (2,465) ------- Adjustment to net income 6,183 Add: net income 18,267,000 ---------- Adjusted net income $18,273,183 Divided by weighted shares outstanding, including common stock equivalents 29,382,192 Earnings per share $0.62 =====
EX-13.1 4 1994 ANNUAL REPORT ACUSON CORPORATION EXHIBIT 13.1 ================================================================================ C O N T E N T S ================================================================================ Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Selected Consolidated Financial Data 19 Quarterly Data 19 Consolidated Statements of Operations 20 Consolidated Balance Sheets 21 Consolidated Statements of Cash Flows 22 Consolidated Statements of Stockholders' Equity 23 Notes to Consolidated Financial Statements 24 Report of Independent Public Accountants 30 Market for Registrant's Common Equity and Related Stockholder Matters 31 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results Of Operations The following table sets forth, for the periods indicated, certain items in the consolidated statements of operations as percentages of total net sales and the percentage change of each such item from the comparable prior period.
Percentage of Net Sales Percentage Change Year Ended December 31, 1994 1993 1992 1994 vs. 1993 1993 vs. 1992 ---------------------------------------------------------------------------------------------------------------------- Net sales Product 78.7% 77.5% 83.5% 20.6% (20.1)% Service 21.3 22.5 16.5 12.3 17.6 ------ ------ ------ Total net sales 100.0 100.0 100.0 18.7 (13.9) ------ ------ ------ Cost of sales Product 33.2 30.3 30.6 30.0 (14.7) Service 10.2 11.6 10.1 5.1 (1.3) ------ ------ ------ Total cost of sales 43.4 41.9 40.7 23.1 (11.4) ------ ------ ------ Gross profit 56.6 58.1 59.3 15.5 (15.6) Operating expenses Selling, general and administrative 30.1 34.6 30.6 2.9 (2.1) Product development 20.2 19.8 13.9 21.3 22.2 Restructuring cost -- 4.1 -- (100.0) 100.0 ------ ------ ------ Total operating expenses 50.3 58.5 44.5 2.0 13.3 ------ ------ ------ Income (loss) from operations 6.3 (0.4) 14.8 n/m n/m Interest income, net 1.0 1.6 2.2 (23.6) (37.5) ------ ------ ------ Income before income taxes 7.3 1.2 17.0 645.5 (94.1) Provision for (benefit from) income taxes 2.1 (0.1) 6.3 n/m n/m ------ ------ ------ Net income 5.2% 1.3% 10.7% 392.2% (89.9)% ====== ====== ======
1994 Compared To 1993 Net sales in 1994 increased by 18.7% to $350.5 million from $295.3 million in 1993. Worldwide product revenues in 1994 increased by $47.0 million from $228.7 million in 1993, a 20.6% increase. Although product unit sales increased, the Company's average unit selling prices were lower in 1994 as a result of an increase in sales of lower-priced configurations and intense competitive pressures. Worldwide service revenues increased by 12.3% to $74.7 million from $66.6 million in 1993, primarily due to growing service contract revenue from a larger base of installed systems. Geographically, international revenues increased 41.5% in 1994 to $111.1 million, totalling 31.7% of the Company's sales as compared to 26.6% in 16 1993. Total domestic revenues increased 10.4% to $239.3 million. Uncertainty in the changing U.S. health care environment has continued to affect the ultrasound markets in 1994. Although the prospect of legislated health care reform receded at year end, the trends of health care provider consolidation, medical cost containment and intense competition existed throughout the year, and are expected to continue into 1995. Cost of sales increased as a percentage of net sales to 43.4% for 1994 compared to 41.9% for 1993. The percentage increase in 1994 was primarily a reflection of reduced product prices and increased sales of lower-priced product configurations, partially offset by lower service costs as a percentage of sales. Selling, general and administrative costs were $105.5 million for 1994 compared to $102.6 million for 1993. As a percentage of net sales, these expenses decreased to 30.1% in 1994 from 34.6% in 1993. Costs did not increase at the same rate as sales primarily because of a reduction in legal expenses, reduced advertising spending, and flat domestic sales expense, offset by increased international expenses for additional staff in selected subsidiaries. Product development spending for 1994 totalled $70.8 million compared to $58.3 million for 1993. As a percentage of net sales, product development was 20.2% in 1994 and 19.8% in 1993. The increase in product development expenditure results from continuing investment in multiple new product programs. Product development is expected to continue to grow in total dollars in 1995. Restructuring cost was a one-time pre-tax charge of $12.0 million taken during the second quarter of 1993. The cost was 4.1% of net sales. The restructuring consisted of a series of planned actions, including a reduction of about 15% of the Company's worldwide work force, the restructuring of facilities and the write-down of certain assets. Substantially all of the $1.1 million restructuring balance that remained at December 31, 1993 was used during 1994. The actual costs of the restructuring were substantially in alignment with original expectations. Provision for income taxes was $7.3 million in 1994 versus a benefit of $0.3 million in 1993; the prior year's benefit was due primarily to a research and development tax credit and to the mix of income between domestic and international operations. The Company's overall tax rate increased to 28.5% in 1994 from (8.2)% in 1993. Net income was $18.3 million in 1994 compared to $3.7 million in 1993. The increase was the result of a higher volume of sales and the absence of the restructuring cost in 1994. Investments. In May 1993, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which was effective for fiscal years beginning after December 15, 1993. This statement addresses the accounting for, and reporting of, investments in certain equity securities that have readily determinable fair values and all debt securities. The Company adopted this statement at January 1, 1994. The effect of implementing this statement was not material to the Company's financial statements. 1993 COMPARED TO 1992 Net sales in 1993 decreased by 13.9% to $295.3 million from $342.8 million in 1992. Worldwide product revenues in 1993 declined by $57.5 million from $286.2 million in 1992, a 20.1% decline. Both product unit sales and the average unit selling prices for 1993 were lower due to a weak worldwide ultrasound market that was adversely affected by slow worldwide economic conditions, and uncertainties created by pending U.S. health care reform. A 17.6% increase in service revenues partially offset the reduction in product sales. Worldwide service revenues increased by $10.0 million from $56.6 million in 1992, primarily due to growing service contract revenue from a larger base of installed systems. Geographically, international revenues decreased 10.3% in 1993 to $78.5 million, totalling 26.6% of the Company's sales as compared to 25.5% in 1992. Total domestic revenues decreased 15.1% to $216.8 million. Cost of sales increased as a percentage of net sales to 41.9% for 1993 compared to 40.7% for 1992. The percentage increase in 1993 was primarily a reflection of the higher percentage of service revenues which have a lower gross margin than product sales, plus reduced system prices and increased sales of lower-priced product configurations. These factors were partially offset by lower service costs due to increasing efficiencies. Selling, general and administrative costs were $102.6 million for 1993 compared to $104.8 million for 1992. As a percentage of net sales, however, these expenses were 34.6% in 1993 and 30.6% in 1992. The reduced expenditures reflected the effects of the second quarter 1993 restructuring and other cost containment measures. Product development spending for 1993 totalled $58.3 million compared to $47.7 million for 1992. As a percentage of net sales, product development was 19.8% in 1993 and 13.9% in 1992. The significant increase in product development expenses from 1992 to 1993 resulted primarily from increased 17 staff levels and associated increased support costs for multiple product development programs. Restructuring cost, as previously mentioned, was a one-time pre-tax charge of $12.0 million taken during the second quarter of 1993. Net interest income was $4.7 million in 1993 compared to $7.5 million in 1992. The decrease resulted from reduced interest income on the Company's short-term investment portfolio, primarily attributable to a substantial decrease in the Company's average investment balances resulting from the stock repurchase program (see "Liquidity and Capital Resources," below). Provision for income taxes was a benefit of $0.3 million in 1993 versus a provision for $21.5 million in 1992 primarily due to the effect of the research and development tax credit and to the current mix of income between domestic and international operations. The Company's overall tax rate decreased to (8.2)% in 1993 from 36.8% in 1992. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which superseded SFAS No. 96. The Company adopted the provisions of this Statement on a prospective basis in the first quarter of 1993, and the effect on the financial statements is not significant. Net income was $3.7 million in 1993 compared to $36.8 million in 1992. The decline was the result of lower sales, increased product research and development expenditures and the restructuring cost. Those declines were offset somewhat by lower income taxes. INFLATION To date, the Company has not experienced any significant effects from inflation. LIQUIDITY AND CAPITAL RESOURCES In 1992, the Board of Directors authorized the repurchase of 8,000,000 shares of the Company's common stock over an unspecified period of time. This program was completed in 1993. On October 26, 1993, the Board of Directors authorized the repurchase of an additional 4,000,000 shares of stock over an unspecified period of time. As of December 31, 1994, the Company had repurchased 367,700 shares at a cumulative cost of $5.4 million. As with all purchases thus far, the Company intends to fund future purchases by utilizing the Company's cash balances. The Company's cash and short-term investments balance increased $7.8 million in 1994, while this balance had decreased $6.2 million in 1993. Operations generated $33.0 million in cash in 1994, as compared to 1993 when operations generated $31.7 million in cash. In the first quarter of 1994, the Company sold its lease portfolio, generating $21.6 million in cash. Investment activities in property and equipment and in other assets used $27.4 million in 1994 versus $17.7 million in 1993. The cash used for the repurchase of common stock totalled $7.2 million in 1994, down from $24.2 million in the prior year. Employee participation in the Company's stock option and stock purchase plans raised $9.5 million in cash in 1994 compared to $4.4 million in 1993. Net accounts receivable increased $15.6 million in 1994, to $78.5 million at December 31, 1994. The increase largely resulted from the 18.7% increase in revenue as well as an increase in days sales outstanding to 82 days in 1994 from 78 days in 1993. The days sales outstanding increased as a result of a larger proportion of the receivable balance coming from international sales which have a slower collection period than domestic sales. The investment in leases decreased by $12.6 million as a result of the sale of the lease portfolio in March 1994, which was partially offset by continued additions of new leases throughout the remainder of the year. Inventory increased by $8.0 million to a total of $49.9 million primarily due to an increase of stock to meet anticipated requirements. Net property and equipment increased by $4.7 million, to $49.0 million, while gross property and equipment balances grew by $21.2 million. The increase was due primarily to increased investment of $6.9 million spent to acquire manufacturing equipment, $5.7 million spent for computers and software and $3.8 million spent for leasehold improvements. The Company continued to upgrade and increase the number of engineering workstations and test equipment for product development. Leasehold improvements supported various projects, primarily the conversion of the manufacturing facilities to implement demand flow technology. At December 31, 1994, the Company's working capital totalled $138.3 million, including $67.1 million in cash and short-term investments. The Company also has a revolving unsecured credit facility of $50 million which is in effect through July 1995. No compensating balances are required and the full amount is available under this credit facility. Based on its current operating plan, the Company believes that the liquidity provided by its existing cash and short-term investments balances, the borrowing arrangements described above, and cash generated from operations will be sufficient to meet the Company's operating and capital requirements for fiscal 1995. 18 SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31, (In thousands, except per share amounts) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Operations Data: Net sales $350,484 $295,289 $342,832 $336,275 $282,811 Net income 18,267 3,711 36,806 58,522 47,836 Earnings Per Share: Net income $ 0.62 $ 0.13 $ 1.08 $ 1.59 $ 1.33 Weighted average common and common equivalent shares outstanding 29,382 28,934 34,283 36,886 36,026 Consolidated Balance Sheet Data: Working capital $138,336 $113,502 $131,728 $223,557 $162,650 Total assets 304,638 271,081 278,557 336,141 249,064 Stockholders' equity 207,785 183,261 201,146 272,362 199,793
QUARTERLY DATA (UNAUDITED)
1994 Quarter Ended (In thousands, except per share amounts) Dec. 31 Oct. 1 July 2 April 2 ------------------------------------------------------------------------------------------------------------------ Net sales $ 83,259 $ 86,386 $ 88,014 $ 92,825 Gross profit 46,499 49,344 49,545 52,932 Income before income taxes 4,492 4,651 6,291 10,130 Net income 3,860 3,734 4,089 6,584 Earnings per share 0.13 0.13 0.14 0.23
1993 Quarter Ended (In thousands, except per share amounts) Dec. 31 Oct. 2 July 3 April 3 ------------------------------------------------------------------------------------------------------------------ Net sales $ 73,827 $ 67,067 $ 72,100 $ 82,295 Gross profit 42,635 39,143 42,096 47,813 Restructuring cost -- -- 12,000 -- Income (loss) before income taxes 4,242 1,813 (10,342) 7,716 Net income (loss) 3,139 2,279 (6,722) 5,015 Earnings (loss) per share 0.11 0.08 (0.23) 0.17
19 CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, (In thousands, except per share amounts) 1994 1993 1992 -------------------------------------------------------------------------------------------------- NET SALES Product $275,754 $228,721 $286,234 Service 74,730 66,568 56,598 -------- -------- -------- Total net sales 350,484 295,289 342,832 -------- -------- -------- COST OF SALES Product 116,233 89,399 104,843 Service 35,931 34,203 34,654 -------- -------- -------- Total cost of sales 152,164 123,602 139,497 -------- -------- -------- Gross profit 198,320 171,687 203,335 -------- -------- -------- OPERATING EXPENSES Selling, general and administrative 105,536 102,587 104,800 Product development 70,786 58,336 47,719 Restructuring cost -- 12,000 -- -------- -------- -------- Total operating expenses 176,322 172,923 152,519 -------- -------- -------- Income (loss) from operations 21,998 (1,236) 50,816 Interest income, net 3,566 4,665 7,462 -------- -------- -------- Income before income taxes 25,564 3,429 58,278 Provision for (benefit from) income taxes 7,297 (282) 21,472 -------- -------- -------- NET INCOME $ 18,267 $ 3,711 $ 36,806 ======== ======== ======== EARNINGS PER SHARE $ 0.62 $ 0.13 $ 1.08 ======== ======== ======== Weighted average common and common equivalent shares outstanding 29,382 28,934 34,283 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 20 CONSOLIDATED BALANCE SHEETS
December 31, (In thousands, except per share amounts) 1994 1993 ------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 28,671 $ 11,184 Short-term investments 38,421 48,103 --------- --------- Total cash and short-term investments 67,092 59,287 Accounts receivable, net of allowance for doubtful accounts of $3,432 in 1994 and $2,844 in 1993 78,534 62,976 Inventories 49,926 41,964 Deferred income taxes 26,127 20,622 Other current assets 13,510 16,473 --------- --------- Total current assets 235,189 201,322 --------- --------- PROPERTY AND EQUIPMENT, AT COST Furniture and fixtures 14,086 14,219 Test equipment 26,797 23,739 Machinery and equipment 78,017 63,492 Leasehold improvements 22,314 18,557 --------- --------- 141,214 120,007 Less: Accumulated depreciation and amortization (92,217) (75,700) --------- --------- Total property and equipment, net 48,997 44,307 --------- --------- OTHER ASSETS Net investment in leases, net of current portion 10,618 19,502 Other long-term assets, net 9,834 5,950 --------- --------- Total assets $ 304,638 $ 271,081 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 16,295 $ 12,644 Accrued compensation 22,743 18,337 Deferred revenue 20,871 18,961 Accrued warranty 4,475 3,287 Accrued income taxes 10,355 7,981 Customer deposits 6,774 7,477 Other accrued liabilities 15,340 19,133 --------- --------- Total current liabilities 96,853 87,820 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY Preferred stock, par value $.0001: authorized, 10,000 shares; outstanding, none -- -- Common stock and additional paid-in capital, common stock par value $.0001: authorized, 50,000 shares; outstanding, 28,904 shares in 1994 and 28,279 shares in 1993 79,183 69,115 Cumulative translation adjustment (1,240) (2,259) Unrealized holding loss on investment securities (370) -- Retained earnings 130,212 116,405 --------- --------- Total stockholders' equity 207,785 183,261 --------- --------- Total liabilities and stockholders' equity $ 304,638 $ 271,081 ========= =========
The accompanying notes are an integral part of these financial statements. 21 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (In thousands) 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES Net income $18,267 $ 3,711 $ 36,806 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,665 21,026 20,446 Bad debt expense 597 701 30 Write-down of assets related to the restructuring -- 2,195 -- Stock option compensation related to the restructuring -- 488 -- Tax benefit of employee stock transactions 1,529 213 345 Changes in: Accounts receivable (15,991) 9,875 6,023 Leases receivable 12,607 (6,048) (13,753) Inventories (7,598) (715) (8,091) Deferred income taxes (5,370) (5,853) (6,166) Other current assets (442) (3,261) 2,049 Accounts payable 3,580 (1,130) (648) Accrued compensation 4,277 951 2,574 Deferred revenue 1,664 3,052 3,240 Accrued warranty 1,188 (744) (24) Accrued income taxes 2,354 (762) 2,171 Customer deposits (896) 3,173 1,275 Other accrued liabilities (2,442) 4,840 8,931 ------- ------- -------- Net cash provided by operating activities 32,989 31,712 55,208 ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in short-term investments 9,139 (4,140) 98,778 Investment in property and equipment (23,708) (14,961) (35,155) Increase in other assets (3,778) (2,783) (1,585) ------- ------- -------- Net cash provided by (used in) investing activities (18,347) (21,884) 62,038 ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of common stock (7,172) (24,192) (111,350) Issuance of common stock under stock option and stock purchase plans 9,477 4,447 4,743 ------- ------- -------- Net cash provided by (used in) financing activities 2,305 (19,745) (106,607) ------- ------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 540 (382) (812) ------- ------- -------- Net increase (decrease) in cash and cash equivalents 17,487 (10,299) 9,827 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,184 21,483 11,656 ------- ------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $28,671 $11,184 $ 21,483 ======= ======= ========
The accompanying notes are an integral part of these financial statements. 22 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1994 Cumulative Unrealized Total Common Stock Translation Holding Retained Stockholders' (In thousands, except per share amounts) Shares Amount Adjustment Loss Earnings Equity ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1991 35,414 $77,245 $ 197 $ -- $194,920 $272,362 Exercise of stock options at $0.13 to $29.13 per share 91 626 -- -- -- 626 Repurchase of common stock at $14.63 to $21.88 per share (5,957) (13,517) -- -- (97,915) (111,432) Issuance of stock under employee stock purchase plan at $15.20 to $17.85 per share 270 4,117 -- -- -- 4,117 Tax benefit of employee stock transactions -- 345 -- -- -- 345 Translation adjustments -- -- (1,678) -- -- (1,678) Net income -- -- -- -- 36,806 36,806 ------- -------- -------- ------ --------- --------- BALANCE, DECEMBER 31, 1992 29,818 68,816 (1,481) -- 133,811 201,146 Exercise of stock options at $0.13 to $14.67 per share 108 394 -- -- -- 394 Repurchase of common stock at $11.13 to $14.00 per share (2,043) (4,849) -- -- (21,117) (25,966) Issuance of stock under employee stock purchase plan at $9.89 to $10.95 per share 396 4,053 -- -- -- 4,053 Tax benefit of employee stock transactions -- 213 -- -- -- 213 Translation adjustments -- -- (778) -- -- (778) Stock option compensation -- 488 -- -- -- 488 Net income -- -- -- -- 3,711 3,711 ------- -------- -------- ------ --------- --------- BALANCE, DECEMBER 31, 1993 28,279 69,115 (2,259) -- 116,405 183,261 Effect of adoption of accounting principle -- -- -- (19) -- (19) Exercise of stock options at $0.13 to $17.17 per share 592 5,454 -- -- -- 5,454 Repurchase of common stock at $13.13 to $16.13 per share (368) (938) -- -- (4,460) (5,398) Issuance of stock under employee stock purchase plan at $9.89 to $10.20 per share 401 4,023 -- -- -- 4,023 Tax benefit of employee stock transactions -- 1,529 -- -- -- 1,529 Translation adjustments -- -- 1,019 -- -- 1,019 Unrealized holding loss on investment securities -- -- -- (351) -- (351) Net income -- -- -- -- 18,267 18,267 ------- -------- -------- ------ --------- --------- BALANCE, DECEMBER 31, 1994 28,904 $79,183 $(1,240) $(370) $130,212 $207,785 ======= ======== ======== ====== ========= =========
The accompanying notes are an integral part of these financial statements. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS Founded in 1981, Acuson Corporation (the "Company") is a United States-based multinational corporation. The Company is a leading manufacturer and worldwide marketer and service provider of medical diagnostic ultrasound systems and image management products. The markets for Acuson products are North America, Europe, Australia, Asia, South America and the Middle East. The Company's products are sold primarily to hospitals, private and governmental institutions and health care agencies, medical equipment distributors and doctors' offices. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Use of Estimates in the Preparation of Financial Statements. 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, the 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. Translation of Foreign Currencies. The functional currency of Acuson's foreign subsidiaries is the local currency. Acuson translates all assets and liabilities to U.S. dollars at current exchange rates as of the applicable balance sheet date. Sales and expenses are translated at the average exchange rates prevailing during the period. Gains and losses resulting from the translation of the foreign subsidiaries' financial statements are reported as a separate component of stockholders' equity. The results of foreign exchange transactions were immaterial to the Company's financial statements. Concentration of Credit Risk. Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments, exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not have significant exposure to any individual customer or counterparty. The Company provides credit in the form of trade accounts receivable to hospitals, private and governmental institutions and health care agencies, medical equipment distributors and doctors' offices. Acuson products are manufactured at the world headquarters in Mountain View, California, and are sold through a direct sales force in North America, Europe, Australia and Japan, and through distributors in Europe, Asia, South America and the Middle East. The Company does not generally require collateral to support customer receivables. The Company performs ongoing credit evaluations of its customers and maintains allowances which management believes are adequate for potential credit losses. Financial Instruments and Credit Risk. The Company operates internationally, giving rise to significant exposure to market risks from changes in foreign exchange rates. The Company enters into foreign currency exchange contracts, which are derivative financial instruments, to reduce exposure to currency exchange risk. The effect of this practice is to minimize the impact of foreign exchange rate movements on the Company's operating results. Hedging activities do not subject the Company to exchange rate risk as gains and losses on these contracts offset gains and losses on the assets, liabilities and transactions being hedged. The Company does not engage in foreign currency speculation nor does it hold or issue financial instruments for trading purposes. Forward contract terms are currently not more than three months. The counterparties to foreign currency exchange contracts are major domestic and international financial institutions. At December 31, 1994, the Company had forward exchange contracts maturing from January 1995 through February 1995 to sell a net equivalent of approximately $29 million of foreign currencies, of which approximately $11 million are in Italian lira, $5 million are in French francs, and $5 million are in British pounds. Likewise, at December 31, 1993, the Company also had forward contracts maturing from January 1994 through February 1994 to sell approximately $23 million of foreign currencies, of which approximately $7 million were in Italian lira and $4 million were in German marks. The carrying value of these contracts approximates their fair market value as of both year-ends. Derivatives. The Company's only use of derivatives securities is its routine usage of forward contracts to hedge foreign currency exposure. Gains and losses on hedges of existing assets or liabilities are included in the carrying amounts of those assets or liabilities and are ultimately recognized in 24 income as part of those carrying amounts. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions are also deferred and are recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories were as follows as of December 31:
(In thousands) 1994 1993 ---------------------------------------------------------------------------- Raw materials $29,552 $17,093 Work-in-process 3,783 5,820 Finished goods 16,591 19,051 ------- ------- Total inventories $49,926 $41,964 ======= =======
Property and Equipment. Property and equipment are stated at cost and are depreciated or amortized using the straight-line method over the following estimated useful lives: ---------------------------------------------------------------------------- Furniture and fixtures 5 years Test equipment 3-5 years Machinery and equipment 3-5 years Leasehold improvements Term of lease Revenue Recognition. Revenues from equipment sales and sales-type leases are generally recognized when the equipment has been shipped, and lease contracts, if applicable, have been executed. Estimated costs of installation, which are minimal, are accrued at the time revenue is recognized. Service revenues are recognized ratably over the contractual period or as the services are provided. Earnings Per Share. Earnings per share is computed based on the weighted average number of common and common equivalent shares outstanding during the period. The modified treasury stock method was used in computing the earnings per share. Primary earnings per share is essentially the same as fully diluted earnings per share. Consolidated Statement of Cash Flows. For purposes of the statement of cash flows, the Company has classified certain short-term investments as cash equivalents if the original maturity of such investments is three months or less. For purposes of the statements of cash flows, the Company classifies cash flows from hedging contracts in the same category as the cash flows from the items being hedged. Cash paid for income taxes and interest expense was as follows for each of the years ended December 31:
(In thousands) 1994 1993 1992 ------------------------------------------------------------------------------ Income taxes $ 8,248 $ 9,517 $ 26,278 Interest expense $ 151 $ 56 $ 118
In conjunction with repurchase of common stock in 1993 (see Note 7), the Company incurred a liability due to the timing of the settlement dates.
(In thousands) 1994 1993 1992 ------------------------------------------------------------------------------ Repurchase of common stock $ 5,398 $ 25,966 $111,432 Cash paid for repurchase of common stock (7,172) (24,192) (111,350) ------- -------- -------- Net cash effect $(1,774) $ 1,774 $ 82 ======= ======== ========
Reclassifications Certain information reported in previous years has been reclassified to conform to the 1994 presentation. NOTE 3. INVESTMENTS Under Statement of Financial Accounting Standards No. 115, the Company's investments, which consisted entirely of debt securities, (the "securities"), were classified as available-for-sale. These securities mature at various dates through the year 1996. As of December 31, 1994, the securities' gross unrealized holding loss was approximately $543,000. The unrealized holding loss of approximately $370,000, net of the tax effect, was reported as a separate component of stockholders' equity. The Company has determined that the unrealized holding loss is not a permanent impairment of the fair value of its investments. During the year, the Company sold certain of its available-for-sale securities for proceeds of approximately $29.0 million. The Company sold these securities for approximately original cost. Short-term investments as of December 31, 1994, consist of the following:
Market Value Amount at Which Marketable Securities Cost of at Balance Carried in (In thousands) Each Issue Sheet Date Balance Sheet -------------------------------------------------------------------------------- Municipal Securities $8,442 $8,396 $8,396 U.S. Government and Agencies 30,522 30,025 30,025 ------- ------- ------- Total short-term investments $38,964 $38,421 $38,421 ======= ======= =======
NOTE 4. BANK LINE OF CREDIT As of December 31, 1994, the Company had an unsecured revolving credit agreement for $50 million through July 1995. No compensating balances are required and the full amount is available under this credit facility. No draws on this line of credit were made during the year. 25 Note 5. Net Investment In Sales-type Leases The Company leases equipment to customers under sales-type leases as defined in Statement of Financial Accounting Standards No. 13. The Company's leasing operations consist of leases of medical equipment which expire over a period of 1 to 6 years. The following lists the components of the net investment in sales-type leases as of December 31, 1994:
(In thousands) Amount ---------------------------------------------------------------------------- Minimum amounts receivable $15,485 Less: Allowance for uncollectibles (411) ------- Net minimum lease payments receivable 15,074 Estimated residual values of leased property 690 Less: Unearned interest income (1,495) ------- Net investment in leases 14,269 Less: Current portion (included in other current assets) (3,651) ------- Long-term portion $10,618 =======
Minimum amounts receivable under existing leases as of December 31, 1994, were as follows:
(In thousands) Amount ---------------------------------------------------------------------------- 1995 $ 4,693 1996 3,773 1997 3,195 1998 2,266 1999 1,506 Thereafter 52 ------- Total minimum amounts receivable $15,485 =======
The Company sold a portion of its lease portfolio, with recourse, for $21.6 million in the first quarter of 1994. The maximum recourse liability to the Company is approximately $2.1 million. NOTE 6. COMMITMENTS AND CONTINGENCIES The Company leases its facilities and certain other equipment under operating lease agreements expiring through May 31, 2002. Future minimum lease payments as of December 31, 1994, were as follows:
(In thousands) Amount ---------------------------------------------------------------------------- 1995 $ 9,380 1996 8,818 1997 8,504 1998 8,072 1999 7,895 Thereafter 11,431 ------- Total future minimum lease payments $54,100 =======
Rent expense was approximately $10,098,000, $9,414,000 and $9,502,000 in 1994, 1993 and 1992, respectively. Legal Contingencies. On July 1, 1993 and July 30, 1993, individuals purporting to represent a class of persons who purchased Acuson common stock during the period between October 24, 1990, and July 22, 1992, filed two separate, but related, actions against the Company and twelve of its officers and one former officer in the Federal District Court for the Northern District of California, alleging that the defendants' statements about the Company were incomplete or inaccurate, in violation of federal securities laws. Plaintiffs seek damages in an unspecified amount, as well as equitable relief or injunctive relief and attorneys' fees, experts' fees and costs. The Company intends to defend the suit vigorously. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition. On September 14, 1994, the Company filed an action in the United States District Court for the Northern District of California against Advanced Technology Laboratories, Inc. ("ATL") of Bothell, Washington. In the action, the Company accuses ATL of infringing U.S. Letters Patent No. 4,058,003 for "Ultrasonic Electronic Lens with Reduced Delay Range," a patent licensed exclusively to the Company. In addition, the Company seeks a declaration that it infringes no valid claim of four ATL patents: U.S. Letters Patent No. 4,543,960 for "Transesophageal Echocardiography Scanhead," No. 5,050,610 for "Transesophageal Ultrasonic Scanhead," No. 5,207,225 for "Transesophageal Ultrasonic Scanhead," or No. 5,226,422 for "Transesophageal Echocardiography Scanner with Rotating Image Plane." No dollar amount is specified as damages in the Company's action, but the complaint seeks an accounting for damages, treble damages and an assessment of interests and costs against ATL. In addition, the Company is informed that, in August 1994, ATL filed an action against the Company in the United States District Court for the Western District of Washington, in which ATL sought a declaration that it infringes no valid claim of U.S. Letters Patent No. 4,058,003. On October 31, 1994, ATL amended that action and added claims accusing the Company of infringing U.S. Patent Nos. 4,543,960; 5,050,610; 5,207,225; and 5,226,422. No dollar amount is specified as damages in ATL's action, but the complaint seeks an injunction against alleged infringement, an accounting for damages, treble damages, and an assessment of interest and costs against the Company. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition. On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the 26 Company's termination of the distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million. The Company intends to defend the suit vigorously. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition. NOTE 7. COMMON STOCK Common Stock Purchase. Rights During 1988, the Company declared a dividend of one common share purchase right for each then outstanding share of common stock. As a result of the Company's 3-for-2 split of its common stock in August 1990, each share of common stock now has associated with it two-thirds of one common share purchase right. In addition, two-thirds of one right will be issued with each future share of common stock issued by the Company before the date the rights become exercisable, or before the rights are redeemed by the Company, or before the rights expire on May 15, 1998. The rights will not be exercisable, or transferable apart from the common stock, until 10 days after another person or group of persons acquires 20% of the common stock or commences a tender or exchange offer for at least 20% of the common stock. Each right entitles the holder to purchase from the Company one and one-half shares of common stock at $80 per share, subject to adjustments for dilutive events. In certain circumstances, the right will entitle its holder to purchase a larger number of shares of common stock or stock in an acquiring company. The Board of Directors may redeem the rights, at any time, at $.01 per right, payable in cash, common shares or other consideration. In addition, the Board may also, without consent of the holders of the rights, amend the terms of the rights to lower the threshold for exercisability of the rights. Stock Option Plans. The Company has in effect a 1986 Supplemental Stock Option Plan (the "1986 Plan") and a 1991 Stock Incentive Plan (the "1991 Plan"). Under the 1991 Plan, incentive and supplemental stock options may be granted to employees, directors and consultants to purchase common stock at a price which is not less than 100% of the market value (or 10% for supplemental stock options) of the shares at the grant date. The options can be granted for periods of up to ten years and are subject to exercise and vesting schedules as determined by the Board of Directors. At December 31, 1994, 1,544,236 shares were available for future grant. On June 4, 1993, the Board of Directors offered employees holding non- qualified stock options the opportunity of cancelling options in exchange for new options issued at the then current fair market value at the ratio of two new shares for three cancelled shares. Options covering approximately 4,672,000 shares at prices per share ranging from $10.75 to $38.63 were cancelled and options covering approximately 3,116,000 shares were granted at $10.75 per share. On August 2, 1994, the Board of Directors approved an amendment to outstanding non-qualified stock options that provides for accelerated vesting of such options in the event that some person or entity acquires more than 20% of the Company's then outstanding stock without the approval of the Board of Directors. The following table summarizes option activity for the past three years.
(In thousands, except per share data) Shares Price per Share ----------------------------------------------------------------------------------- Outstanding at December 31, 1991 5,677 $ 0.13 - $38.63 Granted 1,888 $15.38 - $32.00 Exercised (86) $ 0.13 - $29.13 Expired or cancelled (213) $ 0.40 - $38.63 ------- Outstanding at December 31, 1992 7,266 $ 0.13 - $38.63 Granted 4,499 $10.75 - $14.88 Exercised (108) $ 0.13 - $14.67 Expired or cancelled (4,968) $ 0.40 - $38.63 ------- Outstanding at December 31, 1993 6,689 $ 0.13 - $37.38 Granted 859 $ 1.80 - $17.75 Exercised (592) $ 0.13 - $17.17 Expired or cancelled (299) $ 0.13 - $37.38 ------- OUTSTANDING AT DECEMBER 31, 1994 6,657 $ 0.40 - $37.38 =======
At December 31, 1994, there were options for 3,614,907 shares exercisable under these Plans at $0.40 to $37.38 per share. Employee Stock Purchase Plan. During 1993, the Board of Directors amended the Company's 1986 Employee Stock Purchase Plan (the "Plan") to increase the number of shares which may be issued by 1,250,000. As of December 31, 1994, the Company has reserved 631,834 shares of common stock for issuance under the Plan. Qualified employees may elect to have between 3% and 15% of their salary withheld pursuant to the Plan. The salary so withheld is then used to purchase shares of the Company's common stock at a price not less than 85% of the market value of the stock on specified dates determined at the commencement of the offering period. Common Stock Repurchase Program. In 1992, the Board of Directors authorized the repurchase of 8,000,000 shares of the Company's common stock. This program was completed in 1993. On October 26, 1993, the Board of Directors authorized the repurchase of an additional 4,000,000 shares over an 27 unspecified period of time. As of December 31, 1994, the Company had repurchased 367,700 shares for an aggregate price of $5.4 million. The difference between the original issue price and the repurchase price has been accounted for as a reduction in retained earnings. NOTE 8. RESTRUCTURING In 1993, the Company restructured its worldwide operations in order to address the weakness in the worldwide demand for premium quality medical diagnostic ultrasound products. The restructuring consisted of a series of planned actions, including a reduction of approximately 15% of the Company's worldwide work force, the restructuring of facilities and the write-down of certain assets. In connection with these actions, the Company recorded a one-time pre-tax charge of $12.0 million during the second quarter of 1993. Substantially all of the $1.1 million restructuring balance which remained at December 31, 1993, was used during the year. The actual costs of the restructuring were substantially in alignment with original expectations. NOTE 9. INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes," which supersedes SFAS No. 96. The Company adopted the provisions of SFAS No. 109 on a prospective basis effective January 1, 1993, and the effect on its financial statements was not significant. In 1992 the Company accounted for income taxes by directive of Accounting Principles Board Opinion No. 11. Income before provision for income taxes and the components of the provision for income taxes consisted of the following:
Year Ended December 31, (In thousands) 1994 1993 1992 ------------------------------------------------------------------------------- Income (loss) before provision for income taxes: Domestic $23,709 $ 7,677 $57,302 Foreign 2,086 (2,872) 1,924 Eliminations (231) (1,376) (948) ------- ------- ------- $25,564 $ 3,429 $58,278 ======= ======= ======= Provision for income taxes: Federal Current $ 8,812 $ 5,175 $19,702 Deferred (3,567) (5,605) (2,478) ------- ------- ------- 5,245 (430) 17,224 ======= ======= ======= State Current 1,362 1,102 4,871 Deferred (748) (1,217) (977) ------- ------- ------- 614 (115) 3,894 ======= ======= ======= Foreign Current 1,438 263 445 Deferred -- -- (91) ------- ------- ------- 1,438 263 354 ------- ------- ------- Total provision (benefit) $ 7,297 $ (282) $21,472 ======= ======= =======
The provision for income taxes differs from the amounts obtained by applying the Federal statutory rate to income before taxes as follows:
1994 1993 1992 ------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 34.0% State taxes, net of Federal income tax benefit 1.6 (7.9) 4.4 Foreign subsidiary income (loss) 1.8 29.4 (0.5) Research and development tax credits (13.3) (67.1) (2.2) Other 3.4 2.4 1.1 ------ ------ ----- Provision rate 28.5% (8.2)% 36.8% ====== ====== =====
The components of deferred tax assets were as follows:
Year Ended December 31, (In thousands) 1994 1993 ------------------------------------------------------------------------------- Reserves not currently deductible $12,346 $ 9,032 Inventory amortization 5,005 5,315 Accruals not currently deductible 4,959 5,289 Vacation accrual 2,471 1,627 Research and development credit carryback 2,629 -- Depreciation 933 755 State income tax accruals (1,368) (1,213) Other 1,751 518 ------- ------- Deferred tax assets $28,726 $21,323 ======= =======
NOTE 10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in one industry segment: the development, manufacture and sale of medical diagnostic ultrasound imaging systems and image management products. Acuson products are manufactured at the world headquarters in Mountain View, California, and are sold through a direct sales force in North America, Europe, Australia and Japan, and through distributors in Europe, Asia, South America and the Middle East. Sales from domestic operations to subsidiaries are recorded on the basis of arms-length prices established by the Company. 28 A summary of the Company's operations by geographic area for the three years ended December 31, 1994 is as follows:
From Domestic From Foreign (In thousands) Operations Operations Eliminations Total ------------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers 1994 $279,753 $70,731 $ -- $350,484 1993 249,473 45,816 -- 295,289 1992 285,970 56,862 -- 342,832 ------------------------------------------------------------------------------------------------------------------------- Transfers between geographic areas 1994 $ 38,432 $ -- $(38,432) $ -- 1993 27,907 -- (27,907) -- 1992 32,588 -- (32,588) -- ------------------------------------------------------------------------------------------------------------------------- Total sales 1994 $318,185 $70,731 $(38,432) $350,484 1993 277,380 45,816 (27,907) 295,289 1992 318,558 56,862 (32,588) 342,832 ------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 1994 $ 20,515 $ 1,714 $ (231) $ 21,998 1993 3,361 (3,221) (1,376) (1,236) 1992 50,110 1,654 (948) 50,816 ------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 1994 $ 23,709 $ 2,086 $ (231) $ 25,564 1993 7,677 (2,872) (1,376) 3,429 1992 57,302 1,924 (948) 58,278 ------------------------------------------------------------------------------------------------------------------------- Identifiable assets 1994 $257,915 $49,336 $ (2,613) $304,638 1993 237,760 39,377 (6,056) 271,081 1992 243,710 39,545 (4,698) 278,557 -------------------------------------------------------------------------------------------------------------------------
Foreign Sales. Shipments to foreign customers from both domestic and foreign operations for each of the three years ended December 31, were as follows:
Percent of (In thousands) Foreign Sales Total Sales ------------------------------------------------------------------------------ 1994 $111,144 31.7% 1993 78,498 26.6 1992 87,500 25.5
29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Acuson Corporation: We have audited the accompanying consolidated balance sheets of Acuson Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Acuson Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Arthur Andersen LLP San Jose, California February 3, 1995 30 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Acuson's Common Stock, par value $.0001, trades on the New York Stock Exchange under the symbol ACN. The following table sets forth the high and low closing sales price on the New York Stock Exchange for 1994 and 1993. 1994 HIGH LOW ----------------------------------------------------------------------------- 1ST QUARTER $13.25 $11.38 2ND QUARTER 15.25 12.13 3RD QUARTER 16.25 11.63 4TH QUARTER 18.38 14.88 1993 High Low ----------------------------------------------------------------------------- 1st Quarter $15.50 $12.13 2nd Quarter 14.00 10.75 3rd Quarter 12.88 11.13 4th Quarter 14.25 12.00
The approximate number of record holders of the Company's Common Stock as of December 31, 1994, was 1,791. Acuson has not paid any cash dividends since its inception and does not anticipate paying cash dividends in the foreseeable future. 31 CORPORATE DIRECTORY DIRECTORS Royce Diener Retired Chairman American Medical International, Inc. /1, 3/ Robert J. Gallagher Chief Operating Officer Acuson Corporation /2/ Albert L. Greene President and Chief Executive Officer Alta Bates Medical Center Karl H. Johannsmeier Private Investor Samuel H. Maslak President and Chief Executive Officer Acuson Corporation /2/ Alan C. Mendelson Partner Cooley Godward Castro Huddleson & Tatum OFFICERS Samuel H. Maslak President and Chief Executive Officer Robert J. Gallagher Chief Operating Officer Daniel R. Dugan Senior Vice President Worldwide Sales, Service and Marketing Judith A. Heyboer Senior Vice President Bradford C. Anker Vice President, Manufacturing Charles H. Dearborn Vice President Secretary and General Counsel Stephen T. Johnson Vice President, Chief Financial Officer and Treasurer L. Thomas Morse Vice President Corporate Controller William C. Varley Vice President, Cardiology Business Operations ACUSON PRINCIPAL FELLOW Amin M. Hanafy CORPORATE HEADQUARTERS 1220 Charleston Road Mountain View, CA 94043 (415) 969-9112 REGIONAL OFFICES Central Region Office Cincinnati, Ohio MidAtlantic Region Office Columbia, Maryland Midwest Region Office Schaumburg, Illinois Northeast Region Office Elmwood Park, New Jersey Southeast Region Office Atlanta, Georgia Southwest Region Office Irving, Texas Western Region Office San Jose, California SUBSIDIARIES Acuson Pty. Ltd. Epping, N.S.W. Australia Acuson Canada Ltd. Oakville, Ontario Canada Acuson OY Hameenlinna Finland Acuson S.A.R.L. Les Ulis France Acuson GmbH Erlangen Germany Acuson Hong Kong Ltd. Hong Kong Acuson S.p.A. Milan Italy Acuson Nippon K.K. Tokyo Japan Acuson A/S Skarer Norway Acuson CIS Moscow Russia Acuson AB Arlandastad Sweden Acuson Ltd. Uxbridge United Kingdom AUDITORS Arthur Andersen LLP San Jose, California REGISTRAR AND TRANSFER AGENT The First National Bank of Boston Boston, Massachusetts STOCK LISTING Acuson Corporation Common Stock is traded on the New York Stock Exchange under the symbol ACN. SHAREHOLDER INFORMATION Inquiries should be directed to Shareholder Relations P.O. Box 7393 Mountain View, California 94039-7393 (800) 433-1447 (415) 969-9112 in California /1./ Member of Audit Committee /2./ Member of Executive Committee /3./ Member of Compensation Committee Acuson, MultiHertz, XP and the XP logo are registered trademarks of Acuson Corporation. CDE, Color Doppler Energy, DTI, Doppler Tissue Imaging,128XP, AEGIS and The Sonography Management System are trademarks of Acuson Corporation. ACU541-30M395 EX-22.1 5 SUBSIDIARIES ________________________________________________________________________________ ACUSON CORPORATION EXHIBIT 22.1 SUBSIDIARIES OF THE REGISTRANT Acuson Corporation has the following wholly-owned subsidiaries: 1. Acuson Pty. Ltd., organized under the laws of Australia. 2. Acuson Canada Ltd., organized under the laws of Ontario, Canada. 3. Acuson OY, organized under the laws of Finland. 4. Acuson S.A.R.L., organized under the laws of France. 5. Acuson GmbH, organized under the laws of Germany. 6. Acuson Hong Kong Ltd., organized under the laws of Hong Kong. 7. Acuson S.p.A., organized under the laws of Italy. 8. Acuson Nippon K.K., organized under the laws of Japan. 9. Acuson Benelux BV, organized under the laws of the Netherlands. 10. Acuson A/S, organized under the laws of Norway. 11. Acuson AB, organized under the laws of Sweden. 12. Acuson Ltd., organized under the laws of the United Kingdom. 13. Acuson Foreign Sales Corporation, organized under the laws of the Virgin Islands. 14. Acuson International Sales Corporation, organized under the laws of the State of California. 15. Acuson Worldwide Sales Corp., organized under the laws of the State of California. 16. Sound Technology, Inc., organized under the laws of the State of Pennsylvania. ________________________________________________________________________________ EX-24.1 6 CONSENT ________________________________________________________________________________ ACUSON CORPORATION EXHIBIT 24.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, File Nos. 33-29596, 33-43606, 33-59250, and 33-66734. /s/ Arthur Andersen LLP Arthur Andersen LLP San Jose, California March 23, 1995 EX-27 7 ART. 5-FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 28,671 38,421 81,966 3,432 49,926 235,189 141,214 92,217 304,638 96,853 0 79,183 0 0 128,602 304,638 275,754 350,484 116,233 152,164 176,322 597 151 25,564 7,297 18,267 0 0 0 18,267 $ 0.62 $ 0.62