-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FLQxr7vpDsCmbpZ5DaLCwIT/IpnXEdw2ZYUXU3SPKy84lVw09Am91iPbotsXtqNq DH9u+KPUTP0C8FvwhDZ98A== 0001012870-98-002922.txt : 19981118 0001012870-98-002922.hdr.sgml : 19981118 ACCESSION NUMBER: 0001012870-98-002922 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACUSON CORP CENTRAL INDEX KEY: 0000717014 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 942784998 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10068 FILM NUMBER: 98750610 BUSINESS ADDRESS: STREET 1: 1220 CHARLESTON RD STREET 2: PO BOX 7393 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039 BUSINESS PHONE: 4159699112 MAIL ADDRESS: STREET 1: P O BOX 7393 STREET 2: 1220 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 74039 10-Q 1 FORM 10-Q QUARTER ENDING 10/3/1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended OCTOBER 3, 1998 or --------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission file number 0-10068 _______ ACUSON CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2784998 ------------------------------ ------------------------------------- (State of Incorporation) (IRS Employer Identification No.) 1220 CHARLESTON ROAD P. O. BOX 7393 MOUNTAIN VIEW, CA 94039-7393 (Address of principal executive offices) Registrant's telephone number, including area code, is (650) 969-9112 ______________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.0001 par value 27,443,345 shares ------------------------------------ ------------------------------- (Class) Outstanding at November 7, 1998 ________________________________________________________________________________ FORM 10-Q ACUSON CORPORATION INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets as of October 3, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Operations for the Three Months Ended October 3, 1998 and September 27, 1997 and for the Nine Months Ended October 3, 1998 and September 27, 1997 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 3, 1998 and September 27, 1997 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 13 ITEM 6. Exhibits and Reports on Form 8-K 13 Signature 14 ________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
OCTOBER 3, DECEMBER 31, 1998 1997 - ------------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 13,137 $ 22,735 Accounts receivable, net of allowance for doubtful accounts of $3,479 in 1998 and $3,475 in 1997 148,709 131,067 Inventories 87,142 75,517 Deferred income taxes 25,668 25,244 Other current assets 14,808 16,771 ---------- ---------- Total current assets 289,464 271,334 ---------- ---------- PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $148,143 and $136,888 in 1998 and 1997, respectively 77,888 70,631 OTHER ASSETS, NET 24,392 20,863 ---------- ---------- Total Assets $ 391,744 $ 362,828 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 65,000 $ 32,000 Accounts payable 26,269 21,975 Other accrued liabilities 91,928 98,754 ---------- ---------- Total current liabilities 183,197 152,729 ---------- ---------- COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY Preferred stock, par value $0.0001: authorized, 10,000 shares; outstanding, none -- -- Common stock and additional paid-in capital, common stock par value $0.0001: authorized, 50,000 shares; outstanding, 27,422 shares and 28,244 shares in 1998 and 1997, respectively 127,673 123,968 Accumulated other comprehensive loss (658) (1,472) Retained earnings 81,532 87,603 ---------- ---------- Total stockholders' equity 208,547 210,099 ---------- ---------- Total Liabilities and Stockholders' Equity $ 391,744 $ 362,828 ========== ========== - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. ________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------------- ----------------------------- OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27, 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------- NET SALES Product $ 80,186 $ 79,126 $264,726 $257,945 Service 22,671 20,964 67,202 62,418 -------- -------- -------- -------- Total net sales 102,857 100,090 331,928 320,363 -------- -------- -------- -------- COST OF SALES Product 43,098 42,118 139,673 138,278 Service 11,578 10,433 35,220 31,946 -------- -------- -------- -------- Total cost of sales 54,676 52,551 174,893 170,224 -------- -------- -------- -------- Gross profit 48,181 47,539 157,035 150,139 -------- -------- -------- -------- OPERATING EXPENSES Selling, general and administrative 28,393 27,749 92,920 86,512 Product development 13,609 14,544 43,432 42,156 -------- -------- -------- -------- Total operating expenses 42,002 42,293 136,352 128,668 -------- -------- -------- -------- Income from operations 6,179 5,246 20,683 21,471 INTEREST INCOME (EXPENSE), NET (537) 418 (918) 752 -------- -------- -------- -------- Income before income taxes 5,642 5,664 19,765 22,223 PROVISION FOR INCOME TAXES 1,467 1,135 5,704 6,105 -------- -------- -------- -------- Net income $ 4,175 $ 4,529 $ 14,061 $ 16,118 ======== ======== ======== ======== EARNINGS PER SHARE Basic $0.15 $0.16 $0.50 $0.56 ======== ======== ======== ======== Diluted $0.15 $0.15 $0.49 $0.53 ======== ======== ======== ======== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Basic 27,732 28,882 28,014 28,813 ======== ======== ======== ======== Diluted 28,333 30,862 28,804 30,721 ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------- NET INCOME $ 4,175 $ 4,529 $ 14,061 $ 16,118 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Foreign currency translation adjustments 912 (351) 814 (1,639) -------- -------- -------- -------- Comprehensive income $ 5,087 $ 4,178 $ 14,875 $ 14,479 ======== ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. - ------------------------------------------------------------------------------- ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
NINE MONTHS ENDED ----------------------------------- OCTOBER 3, SEPTEMBER 27, 1998 1997 - ----------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 14,061 $ 16,118 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 16,948 16,714 Tax benefit of employee stock transactions 627 6,313 Changes in: Accounts receivable (16,971) (26,671) Leases receivable (3,659) (482) Inventories (11,605) 9,466 Deferred income taxes (761) (62) Other current assets 2,860 8,623 Accounts payable 4,176 1,522 Other accrued liabilities (4,647) (2,498) -------- -------- Net cash provided by operating activities 1,029 29,043 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in property and equipment (24,025) (27,315) Sale of fixed assets 340 5,713 Other (307) 423 -------- -------- Net cash used in investing activities (23,992) (21,179) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of short-term borrowings (11,000) (11,000) Proceeds from short-term borrowings 44,000 5,000 Repurchase of common stock (30,085) (21,121) Issuance of common stock under stock option and stock purchase plans 10,259 19,979 -------- -------- Net cash provided by (used in) financing activities 13,174 (7,142) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 191 (320) -------- -------- Net increase (decrease) in cash (9,598) 402 CASH, BEGINNING OF PERIOD 22,735 14,413 -------- -------- CASH, END OF PERIOD $ 13,137 $ 14,815 ======== ======== - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. ________________________________________________________________________________ ACUSON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - INTERIM STATEMENTS In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to summarize fairly Acuson Corporation's (the "Company's") condensed consolidated financial position as of October 3, 1998, and its condensed consolidated results of operations and cash flows for the nine-month periods ended October 3, 1998 and September 27, 1997. The results of operations for the three and nine-month periods ended October 3, 1998, are not necessarily indicative of the results to be expected for the entire year ending December 31, 1998. Certain information reported in the prior year has been reclassified to conform to the 1998 presentation. The Company's principle accounting policies are set forth in the financial statements for the year ended December 31, 1997, and notes thereto, contained in the Company's Annual Report filed with the Securities and Exchange Commission. NOTE 2. COMPREHENSIVE INCOME (LOSS) Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 requires that items defined as other comprehensive income, such as changes in foreign currency translation adjustments, be separately reported in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The following tables present the components, and related tax effect, of accumulated other comprehensive income: The following is a summary of the accumulated other comprehensive loss balance Accumulated Other Comprehensive Loss (in thousands) --------------------- Nine months ended October 3, 1998 Beginning balance $(1,472) Current-period change Foreign currency items 814 ------- Ending balance $ (658) ======= The following is a summary of the related tax effect allocated to each component of other comprehensive income (loss)
Tax Before-Tax (Expense) Net-of-Tax Amount or Benefit Amount (in thousands) (in thousands) (in thousands) ----------------------------------------------------------- Three months ended September 27, 1997 Foreign currency translation adjustments $ (439) $ 88 $ (351) ================= ================= ================= Nine months ended September 27, 1997 Foreign currency translation adjustments $(2,261) $622 $(1,639) ================= ================= =================
Three months ended October 3, 1998 Foreign currency translation adjustments $1,232 $(320) $912 ================= ================= ================= Nine months ended October 3, 1998 Foreign currency translation adjustments $1,145 $(331) $814 ================= ================= =================
NOTE 3 - EARNINGS PER SHARE Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if the Company's outstanding, "in the money," stock options were exercised. Diluted earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are calculated using the treasury stock method and represent incremental shares issuable upon the exercise of the Company's outstanding options. The following table provides reconciliations of the numerators and denominators used in calculating basic and diluted earnings per share for the three and nine-month periods ended September 27, 1997 and October 3, 1998:
Dilutive Effect of Options Basic Outstanding Diluted (in thousands, except per share amounts) --------------------------------------------------------- Three months ended September 27, 1997 Net income (numerator) $ 4,529 $ 4,529 Weighted average number of shares outstanding (denominator) 28,882 1,980 30,862 Earnings per share $ 0.16 $ 0.15 ======= ======= Nine months ended September 27, 1997 Net income (numerator) $16,118 $16,118 Weighted average number of shares outstanding (denominator) 28,813 1,908 30,721 Earnings per share $ 0.56 $ 0.53 ======= ======= Three months ended October 3, 1998 Net income (numerator) $ 4,175 $ 4,175 Weighted average number of shares outstanding (denominator) 27,732 601 28,333 Earnings per share $ 0.15 $ 0.15 ======= ======= Nine months ended October 3, 1998 Net income (numerator) $14,061 $14,061 Weighted average number of shares outstanding (denominator) 28,014 790 28,804 Earnings per share $ 0.50 $ 0.49 ======= =======
For the three and nine-month periods ended October 3, 1998 approximately 2,119,000 and 1,032,000 weighted average options to purchase shares of common stock, respectively, were antidilutive and were therefore not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares. Approximately 83,000 and 68,000 antidilutive weighted average options were outstanding during the three and nine-month periods ended September 27, 1997, respectively. NOTE 4 - INVENTORIES The components of inventories were as follows (in thousands): OCTOBER 3, DECEMBER 31, 1998 1997 ---------- ------------ Raw materials $25,994 $29,057 Work-in-process 19,803 16,379 Finished goods 41,345 30,081 ------- ------- Total inventories $87,142 $75,517 ======= ======= NOTE 5 - SHORT-TERM BORROWINGS The Company has a revolving, unsecured credit agreement for $75.0 million which is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. For the quarter ended October 3, 1998, the weighted average borrowings were $50.9 million and the weighted average interest rate was 6.4 percent. For the nine months ended October 3, 1998, the weighted average borrowings were $41.5 million and the weighted average interest rate was 6.5 percent. On October 3, 1998, borrowings under this facility, which are subject to certain debt covenants, totaled $65.0 million and the effective rate was 6.4 percent. On October 5, 1998, this agreement was amended, increasing the line of credit to $100.0 million. Subsequent to October 3, 1998, the Company entered into an uncommitted line of credit agreement for up to 90 day advances not to exceed an aggregate total of $10.0 million. The Company has borrowed $4.5 million against this uncommitted line of credit. NOTE 6 - LEGAL CONTINGENCIES On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million, plus interest. The Company intends to defend this suit vigorously. This suit is still in the fact finding stage. NOTE 7 - DISCLOSURE OF THE IMPACT THAT RECENTLY ISSUED FINANCIAL STANDARDS WILL HAVE ON THE FINANCIAL STATEMENTS WHEN ADOPTED IN A FUTURE PERIOD In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." This statement is effective for fiscal years beginning after December 15, 1997 but need not be applied to interim financial statements in the initial year of application; however, comparative information for interim periods in the initial year of application will be reported in the financial statements for interim periods in fiscal year 1999. The adoption of SFAS 131 will not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal years beginning after June 15, 1999. The Company anticipates the adoption of SFAS 133 will not have a material effect on the Company's financial statements. _______________________________________________________________________________ ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the quarter ended October 3, 1998, were $102.9 million compared with $100.1 million for the quarter ended September 27, 1997. For the nine months ended October 3, 1998, net sales were $331.9 million compared with $320.4 million for the first nine months of 1997. Worldwide service revenue increased 8.1 percent to $22.7 million for the third quarter of 1998, compared with $21.0 million for the third quarter of 1997. Worldwide service revenue for the nine months ended October 3, 1998, increased 7.7 percent to $67.2 million. Domestic net sales for the quarter ended October 3, 1998 increased 10.3 percent to $72.9 million while international net sales decreased 11.8 percent to $29.9 million. Domestic net sales for the first nine months of 1998 increased 10.6 percent to $234.0 million while international net sales decreased 10.0 percent to $97.9 million. International revenues were negatively impacted by the continued economic weakness in Asia and recent weakening in Latin American markets. The Company has also recently seen increased economic instability in Russia. The Company expects selected international markets to remain challenging through the fourth quarter of 1998 and into 1999. Gross profit for the third quarter of 1998 decreased to 46.8 percent of net sales compared with 47.5 percent for the third quarter of 1997. The decrease was primarily due to lower average realized prices per unit and lower than expected shipments partially offset by the Company's cost reduction efforts and improved service margins. For the nine months ended October 3, 1998, gross profit increased to 47.3 percent of net sales compared with 46.9 percent for the same period in 1997. The increase was primarily due to reduced warranty costs on new product installations partially offset by lower average realized prices per unit. Selling, general and administrative expenses for the quarter ended October 3, 1998, were $28.4 million or 27.6 percent of net sales, compared with $27.7 million or 27.7 percent of net sales for the quarter ended September 27, 1997. For the nine months ended October 3, 1998, selling, general and administrative expenses were $92.9 million or 28.0 percent of net sales, compared with $86.5 million or 27.0 percent of net sales for the same period in 1997. The increases were primarily due to higher selling expenses resulting from planned additions to the Company's sales infrastructure partially offset by the Company's cost reduction efforts for the third quarter of 1998. Product development spending for the third quarter of 1998 was $13.6 million or 13.2 percent of net sales, compared with $14.5 million or 14.5 percent of net sales for the third quarter of 1997. The decrease was primarily due to reduced prototype expenditures and the Company's cost reduction efforts. For the nine months ended October 3, 1998, product development costs were $43.4 million or 13.1 percent of net sales, compared with $42.2 million or 13.2 percent of net sales for the same period in 1997. The increase was primarily due to increased contracted services early in the year in support of new product development partially offset by a reduction in prototype expenses. Net interest expense for the three months ended October 3, 1998 was $0.5 million compared with net interest income of $0.4 million for the three months ended September 27, 1997. For the nine months ended October 3, 1998, net interest expense was $0.9 million compared with net interest income of $0.8 million for the same period in 1997. The increases in net interest expenses were primarily due to increases in the Company's short-term borrowings. The effective tax rate for the third quarter of 1998 was 26.0 percent resulting in a provision of $1.5 million, compared with an effective rate of 20.0 percent and a provision of $1.1 million for the third quarter of 1997. The rate increase was primarily due to a change in the Company's domestic and international sales mix. For the nine months ended October 3, 1998, the effective tax rate was 28.9 percent resulting in a provision of $5.7 million. For the nine months ended September 27, 1997, the effective rate and provision were 27.5 percent and $6.1 million, respectively. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." This statement is effective for fiscal years beginning after December 15, 1997 but need not be applied to interim financial statements in the initial year of application; however, comparative information for interim periods in the initial year of application will be reported in the financial statements for interim periods in fiscal year 1999. The adoption of SFAS 131 will not have a material effect on the Company's financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal years beginning after June 15, 1999. The Company anticipates the adoption of SFAS 133 will not have a material effect on the Company's financial statements. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended October 3, 1998, the Company's cash and cash equivalents balance decreased $9.6 million to $13.1 million and short-term borrowings increased $33.0 million to $65.0 million. During the first nine months of 1998 the Company generated $1.0 million in cash from operations. The primary source of cash from operations was net income of $14.1 million. The primary uses of cash were accounts receivable and inventory which used $17.0 million and $11.6 million in cash, respectively. The increase in accounts receivable was substantially due to a higher percentage of units shipped during the last month of the quarter which were delayed primarily as a result of the August 1998 implementation of the Company's new enterprise-wide, integrated business information system. The increase in inventory was primarily the result of both a manufacturing build up in anticipation of fourth quarter 1998 shipments and fewer than expected third quarter 1998 shipments. The Company's investing and financing activities for the nine months ended October 3, 1998, used $10.8 million in cash. The Company purchased $24.0 million of equipment during the year, primarily consisting of computer equipment. Included in the financing activities for the first nine months of 1998, were $10.3 million raised through employee participation in the Company's stock option and stock purchase plans and $30.1 million, including $2.7 million accrued in 1997, used for share repurchases. Also included in the financing activities for the first nine months of 1998 were net short-term borrowings of $33.0 million. On October 15, 1996, the Board of Directors authorized the repurchase of 4,000,000 shares of common stock over an unspecified period of time. During the third quarter of 1998, the Company repurchased 812,700 shares at a total cost of $12.9 million. As of October 3, 1998, the Company had repurchased 2,827,400 shares toward the 4,000,000 share repurchase authorization at a cumulative cost of $52.5 million. Working capital at October 3, 1998 decreased $12.3 million from the year ended December 31, 1997. At October 3, 1998, the Company's working capital totaled $106.3 million. The Company has a revolving, unsecured credit agreement for $75.0 million which is in effect through March 2000. Under the terms of the agreement, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. For the quarter ended October 3, 1998, the weighted average borrowings were $50.9 million and the weighted average interest rate was 6.4 percent. For the nine months ended October 3, 1998, the weighted average borrowings were $41.5 million and the weighted average interest rate was 6.5 percent. On October 3, 1998, borrowings under this facility, which are subject to certain debt covenants, totaled $65.0 million and the effective rate was 6.4 percent. On October 5, 1998, this agreement was amended, increasing the line of credit to $100.0 million. Subsequent to October 3, 1998, the Company entered into an uncommitted line of credit agreement for up to 90 day advances not to exceed an aggregate total of $10.0 million. The Company has borrowed $4.5 million against this uncommitted line of credit. Based on its current operating plan, the Company believes that the liquidity provided by its existing cash, cash generated from operations, and the borrowing arrangement described above will be sufficient to meet the Company's projected operating and capital requirements for fiscal 1998. INVESTMENT RISKS The Management's Discussion and Analysis of Financial Condition and Results of Operations section in this report contains forward-looking statements regarding the Company and its products. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. The Company's actual results could differ materially from those discussed in this document. In evaluating the forward-looking statements contained in this document, prospective investors and shareholders should carefully consider the factors set forth below. The success of Acuson's products depends on the timely completion of additional product capabilities and software updates; actual and perceived levels of product performance in a clinical environment compared to other imaging modalities and competitive ultrasound systems; continued market acceptance of the products and their pricing; and competitor responses including the introduction of competitive products, pricing, intellectual property allegations and product positioning counter-strategies. The Company's business is also subject to risks from potential negative impacts of weakness and instability in certain markets in Asia, Latin America and Europe and fluctuations in exchange rates for the U.S. dollar. As the Company's international business has grown, the Company has an increasing percentage of its receivables in other countries. In Italy and Brazil the amount of receivables each exceeds $11,000,000. In France the amount of receivables exceeds $8,000,000. In Germany and Japan the amount of receivables each exceeds $4,000,000 and in Australia and China the amount of receivables each exceeds $3,000,000. Political instability or other issues may impact the ability of the Company to collect receivables in foreign countries. During 1997, the Company initiated a two phase project to replace its outdated computing environment with an enterprise-wide, integrated business information system to control many of its operating systems including order administration, service and financial and manufacturing processes. The first phase of this project has been substantially completed and the second phase is currently scheduled to be completed during the latter half of 1999. The Company has retained an experienced consulting organization to assist in the conversion, however, the Company's future shipments and results could be adversely impacted if, following the conversion, there are significant problems with the system. YEAR 2000 The Company is taking steps to ensure its products and services will continue to operate on and after January 1, 2000. In addition to the new business information system noted above, which is year 2000 compliant and will be replacing a significant portion of the Company's critical systems, the Company is currently engaged in a three-phase project to evaluate and remedy those systems not being replaced. The first phase, completed in May 1998, included a comprehensive inventory of the Company's systems by an experienced consulting firm and an analysis and determination of the criticality of each system. This phase included the evaluation of both information technology ("IT") and non-IT systems. Non-IT systems include systems or hardware containing embedded technology such as microcontrollers. Phase two will focus on confirming the year 2000 compliance of those systems identified in phase one and is expected to be completed during the fourth quarter of 1998. The third and final phase, which is expected to be completed during the third quarter of 1999, will involve taking any needed corrective action to bring all remaining critical systems and components into compliance and to develop a contingency plan in the event any non-compliant critical systems are not remedied by January 1, 2000. The Company fully expects the project to be successfully completed well before the millennium and has created a year 2000 steering committee, comprised of senior executives, to monitor the progress of the project. However, if by January 1, 2000, systems material to the Company's operations have not been made year 2000 compliant, the year 2000 issue could have a material impact on the Company's financial statements. To date, the costs incurred by the Company with respect to this project have not been material. Future anticipated costs will be difficult to estimate until after the completion of phase two, however with the implementation of the Company's new business information system, the Company does not anticipate those costs to be material. The Company's products being shipped today are year 2000 compliant and the Company believes its products previously shipped are either year 2000 compliant or can be made year 2000 compliant by customer purchase of an upgrade. The Company has also been communicating with suppliers and others it does business with to coordinate year 2000 readiness. The responses received by the Company to date have indicated that steps are currently being undertaken to address this concern. Based upon the steps being taken to address this issue and the progress to date, the Company does not expect the financial impact of the year 2000 date conversion to be material to its financial position or results of operations. However, if preventative and/or corrective actions by the Company or those the Company does business with are not made in a timely manner, the year 2000 issue could have a material adverse effect on the Company's financial statements. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union are scheduled to adopt the Euro as their common legal currency. Following the introduction of the Euro, the local currencies are scheduled to remain legal tender in the participating countries until January 1, 2002. During this transition period goods and services may be paid for in either Euros or the participating country's local currency. Thereafter, only the Euro will be legal tender in the participating countries. The Euro conversion is expected to stimulate cross-border competition by creating cross-border price transparency. The Company believes its current accounting systems are capable of accommodating the Euro conversion with minimal intervention and that the conversion will not have a material impact on the competitiveness of its products in Europe. The Company also believes any costs of addressing the Euro conversion will not have a material impact on the Company's financial statements. For a description of the general investment considerations and risks surrounding Acuson's overall business and financial prospects, refer to the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997. ________________________________________________________________________________ ________________________________________________________________________________ PART II ITEM 1 LEGAL PROCEEDINGS On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million, plus interest. The Company intends to defend this suit vigorously. This suit is still in the fact finding stage. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits -------- 27.1 Financial Data Schedule b) Reports on Form 8-K ------------------- The Company filed no reports on Form 8-K during the quarter ended October 3, 1998. ________________________________________________________________________________ ________________________________________________________________________________ SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACUSON CORPORATION (Registrant) November 16, 1998 By /s/ Robert J. Gallagher -------------------------------- Robert J. Gallagher Vice Chairman and Chief Operating Officer (duly authorized Officer and Principal Financial Officer) EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 OCT-03-1998 13,137 0 152,188 3,479 87,142 289,464 226,031 148,143 391,744 183,197 0 0 0 127,673 80,874 391,744 264,726 331,928 139,673 174,893 136,352 0 918 19,765 5,704 14,061 0 0 0 14,061 0.50 0.49
-----END PRIVACY-ENHANCED MESSAGE-----