-----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, OnmVrrFoxDBp9gGvRymmgI0bm9qsNkc8hFKIrv9Pnaw7KtFzyYQOD4CwvpZfpV0w YGNtQ5fDNWu8f1tAL0wz+w== 0001012870-98-000763.txt : 19980330 0001012870-98-000763.hdr.sgml : 19980330 ACCESSION NUMBER: 0001012870-98-000763 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE 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-K SEC ACT: SEC FILE NUMBER: 001-10068 FILM NUMBER: 98576274 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-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 For the fiscal year ended DECEMBER 31, 1997 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 0-14953 ------- 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 (650) 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 $0.0001 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 6, 1998 (based upon the NYSE closing price on such date) was approximately $513,561,110. As of March 6, 1998, there were 28,432,449 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 27, 1998 (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, 1997 (Part II). ________________________________________________________________________________ ________________________________________________________________________________ PART I ITEM 1 BUSINESS GENERAL BUSINESS Acuson Corporation ("Acuson" or the "Company") is a manufacturer, worldwide marketer and service provider of high-performance medical diagnostic ultrasound systems and image management products. Hospitals, clinics and healthcare delivery systems throughout the world use Acuson products for a broad range of clinical applications including radiology, cardiology, obstetrical/gynecological ("OB/GYN") and peripheral vascular. Set forth below is a description of the Company's business. This description includes forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Investment Risks" section set forth below as well as in the sections entitled "Competition" and "Government Regulation." COMPANY HISTORY The Company was incorporated in California in 1981 and changed its state of incorporation to Delaware in 1986. Since its inception, the Company has focused exclusively on medical diagnostic ultrasound, including ultrasound systems and products for the digital storage, review and transmission of ultrasound images. The first generation system, the Acuson 128 ultrasound system, launched in 1983, was based on an advanced computer-based ultrasound architecture. Over its seven- year life, the system grew to support many additional new ultrasound modes, transducers (the hand-held device that transmits and receives the ultrasound signals) and other capabilities. Acuson's second generation system, the Acuson 128XP(R) ultrasound system, was introduced in July 1990. This more configurable system provides a greater number of application-specific configurations for a broader range of clinical use. 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. The AEGIS(R) digital image and data management system, introduced by Acuson in October 1992, provides capabilities for the capture and storage of ultrasound examinations for on-line review, archiving and transmission within the hospital and clinical environments and over wide-area networks. During 1996, Acuson introduced two new ultrasound platforms, the Sequoia(R) ultrasound systems and the Aspen(TM) ultrasound system, to be sold along with the 128XP system. The Sequoia 512 ultrasound system for general imaging applications and the Sequoia C256 echocardiography system for cardiology applications were introduced in April 1996, and began shipping in July 1996. The Sequoia platform is Acuson's highest performance ultrasound platform. In October 1996, Acuson announced its second major ultrasound product introduction of the year: the Aspen ultrasound system. The Aspen system resulted from a convergence of select technologies from the Sequoia platform and other Acuson innovations to create a high-performance platform that is sold at a lower price than the Sequoia systems. The Aspen system began shipping in November 1996. Also during 1996, the Company introduced its EF(TM) Extended Frequency imaging upgrade for the 128XP platform. The extended frequency technology, which provides high-resolution, high-frequency imaging, resulted from the development of the Aspen ultrasound system. 1997 HIGHLIGHTS 2 ________________________________________________________________________________ During 1997, Acuson introduced Native(TM) Tissue Harmonic Imaging, the first major upgrade to the Sequoia platform. Native Tissue Harmonic Imaging produces significantly clearer diagnostic images in a portion of the patient population considered to be difficult to image. Difficult-to-image patients may be obese, elderly, extremely muscular or may suffer from the side effects of chemotherapy, smoking or cardiac surgery. Generally speaking, Native Tissue Harmonic Imaging overcomes the imaging challenges posed by this patient population by transmitting lower frequency sound waves to improve penetration into the body, while receiving and processing only the higher frequency echoes produced by the body's inherent harmonic characteristics. The result is a significant improvement in image clarity and tissue contrast resolution. A second major technology introduction in 1997 was the MICROSON(TM) high- resolution transducer family. MICROSON transducers enable clinicians to visualize with extraordinary detail tiny structures that are very close to the surface of the skin. MICROSON transducers are particularly useful in musculoskeletal examinations to look at nerves, tendons and muscles and in imaging small parts, such as breasts, thyroid glands and testicles. MICROSON transducers are available for Sequoia, Aspen and 128XP systems. For the 128XP system, the Company introduced the PerformancePlus(TM) update, which includes two new measurement tools designed to make fetal and infant measurements easier and faster, and calculation enhancements that allow clinicians to display fetal weight in pounds and ounces on the patient worksheet. The PerformancePlus update also includes several features that make using the 128XP system easier and more efficient. Acuson also introduced several new products for the digital storage, transmission and review of ultrasound images, expanding the Company's role in providing technologies to enhance the productivity and efficiency of the ultrasound department. In May, the Company introduced the WorkPro(TM) productivity package, an upgrade to the AEGIS system. In June, the Company introduced the ViewPro(TM) image review software and the WebPro(TM) web-based package, two other cost-effective solutions that allow ultrasound images to be reviewed off-line and transferred to remote sites via the Internet or an intranet. ACUSON'S PRODUCTS AND TECHNOLOGIES The Company's ultrasound platforms - the Sequoia ultrasound platform, the Aspen ultrasound platform and the 128XP ultrasound platform - are designed to bring cost-effective solutions to clinical applications such as radiology, cardiology, OB/GYN and peripheral vascular. Acuson believes that this family of ultrasound systems, along with the AEGIS digital image and data management system, provide the following 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. Acuson's breadth of product offerings provides customers with a wide range of choices depending on their budgetary and clinical needs. RELIABILITY. The Company's thousands of ultrasound systems under warranty or full-service contract in North America have achieved greater than 99.9% cumulative uptime since 1983. UPGRADABILITY. Acuson's ultrasound systems have an upgradable core architecture. Every Acuson 128 system shipped since 1983 can be upgraded to perform every diagnostic capability the Company now offers on new 128XP 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. The new Sequoia and Aspen ultrasound platforms are designed to follow the same philosophy of upgradability that was established with the Acuson 128 platform. 3 ________________________________________________________________________________ EASE OF USE. Acuson's philosophy of system design and its system architecture allow for greater ease of use. The portability and maneuverability of the Sequoia and Aspen platforms help increase hospital efficiency and productivity, while the ergonomic design of the new systems and transducers enhances both doctor and patient comfort levels. SEQUOIA ULTRASOUND PLATFORM. Sequoia system technology relies on four proprietary cornerstones: Coherent Image Formation, Doppler technology, transducer technology with patented connectors and the DIMAQ(TM) integrated ultrasound workstation. The list price of the Sequoia systems ranges from $200,000 to $350,000. COHERENT IMAGE FORMATION. Sequoia systems use multiple beamformers and scan with digital processing channels to acquire and encode both phase and amplitude data. These encoded data are then assembled to create images based on full echo information. DOPPLER TECHNOLOGY. Acuson's advances in Doppler technology on the Sequoia systems include SST(TM) Color Doppler and Solo(TM) Spectral Doppler. SST COLOR DOPPLER. With SST Color Doppler, the Sequoia C256 and Sequoia 512 systems use multiple beamformers to produce high spatial resolution color Doppler images at high frame rates. SOLO SPECTRAL DOPPLER. The Sequoia systems use a dedicated audio beamformer for spectral Doppler. This results in a high degree of sensitivity and clarity of information throughout the entire spectral waveform. TRANSDUCER TECHNOLOGY. The Sequoia platform includes a new family of transducers that feature new acoustic, connector and ergonomic design. These transducers offer a new level of high frequency capability and low noise performance. The new patented Sequoia transducer connector features a pinless design, while maintaining 512 simultaneous connections. In addition, these transducers offer expanded MultiHertz(R) multiple frequency imaging capabilities. DIMAQ INTEGRATED ULTRASOUND WORKSTATION. The Sequoia platform integrates a special-purpose ultrasound workstation into the system architecture. The DIMAQ workstation has direct access to exam data generated in the system. It offers real-time digital image processing, such as DELTA(TM) differential echo amplification, and runs special application programs. DELTA differential echo amplification is a patented, real-time processing technique for improving wall visualization and tissue conspicuity. The DIMAQ workstation provides connectivity and DICOM (the medical industry standard for digital imaging and communication) capability. DICOM is the standard format for networking medical systems in the hospital and private office environment. ASPEN ULTRASOUND PLATFORM. The Aspen ultrasound system resulted from a convergence of select technologies from the Sequoia ultrasound platform and other Acuson innovations to create a high-performance platform at a lower price than Sequoia technology. The Aspen platform is built on four major cornerstones: technology convergence, value engineering, transducer technology and the DIMAQ integrated ultrasound workstation. The list price of the Aspen system ranges from $150,000 to $250,000. TECHNOLOGY CONVERGENCE. As mentioned above, the Aspen platform represents a convergence of select technologies from the Sequoia platform and other Acuson innovations. One example of these innovations that is currently unique to the Aspen system is Convergent(TM) Color Doppler, which improves color Doppler performance in such applications as renal, obstetric, gynecological and small parts imaging. VALUE ENGINEERING. Value engineering provides versatility and upgradability, system portability and ergonomics. The Aspen system is compact, lightweight and provides a keyboard design that places the most frequently used controls at the user's fingertips. 4 ________________________________________________________________________________ TRANSDUCER TECHNOLOGY. The Aspen platform supports more than 20 transducers addressing all major ultrasound clinical applications. The Aspen system accommodates new transducers designed specifically for the Aspen platform as well as select transducers from both the 128XP and the Sequoia systems. DIMAQ INTEGRATED ULTRASOUND WORKSTATION. The DIMAQ workstation is a special-purpose ultrasound workstation that is completely integrated within the Aspen architecture. The DIMAQ workstation, which includes the hardware foundation for DICOM software and real-time JPEG compression and decompression, has direct access to exam data generated in the system. It offers real-time digital image processing and runs special application programs. 128XP ULTRASOUND PLATFORM. The Acuson 128XP system is a clinically versatile, cost-effective ultrasound system. Since its introduction in 1990, several major upgrades to the 128XP system have been introduced, including color Doppler Energy, Acoustic Response Technology/Tissue Contrast Resolution ("ART/TCR"), DTI(TM) Doppler Tissue Imaging, EF Extended Frequency upgrade and the PerformancePlus software update. The 128XP system has also incorporated features and functions from the Sequoia and Aspen platforms, such as a wide array of transducer technologies and new diagnostic functions. The list price of the 128XP system ranges from $80,000 to $150,000. AEGIS DIGITAL IMAGE AND DATA MANAGEMENT SYSTEM. The AEGIS system enables the capture and storage of ultrasound examinations for on-line review, archiving and transmission within the hospital and over wide-area networks. The AEGIS system allows connectivity to DICOM PACS (picture archiving and communication systems) and printers and supports ultrasound systems from Acuson and from other manufacturers. The list price of the AEGIS system depends on the size and capability of the network with a typical system ranging in list price from $125,000 to $350,000. Acuson attempts to protect its intellectual property through a combination of trade secrets and, where appropriate, copyrights, trademarks and patents. The Company also relies substantially on its unpatented proprietary know-how. See "Investment Risks - Patents and Proprietary Technology" for a detailed discussion as well as certain risk factors. MARKETING AND SALES The Company sells its products primarily to hospitals, clinics, private and governmental institutions and healthcare agencies and doctors' offices. The Company and its subsidiaries employ their own full-time sales, service and applications staff in North America, certain European countries, Australia and Japan. Acuson sells through independent distributors in other European countries, Asia, South America and the Middle East. The Company focuses its efforts on the following major hospital-based ultrasound market segments: United States General Imaging, United States Cardiovascular and International. The Company entered the United States General Imaging market in 1983. The major sub-segments of this market include radiology, peripheral vascular and OB/GYN. Radiology includes examinations of abdominal organs, the gastrointestinal tract, the urinary tract, the musculoskeletal structure and small parts such as the breasts, testes and thyroid. The peripheral vascular sub-segment focuses primarily on examinations of the vessels of the leg and neck. Applications of OB/GYN center on examinations of the female reproductive system and the developing fetus. The Company entered the United States Cardiovascular market in 1988. Cardiology applications center on examinations of the heart and proximate vessels, while cardiovascular applications extend to include the entire vascular system. The Company entered the international market segment in 1984. International markets generally include the same range of clinical ultrasound applications as the domestic market. See Note 9 of Notes to Consolidated Financial Statements contained in Item 8 for a summary of operations by geographic region. 5 ________________________________________________________________________________ The sales process for ultrasound systems typically requires six to eighteen 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. 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 and thereafter provides service through service contracts and other purchase arrangements. All domestic ultrasound 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. These services may be purchased from the Company's service organization by customers who do not have a service contract with Acuson. Service revenue was 19.5%, 24.6% and 24.6% of total net sales in 1997, 1996 and 1995, respectively. See Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." See also "Investment Risks - Service" below for certain risk factors related to the Company's service business. COMPETITION Acuson competes primarily on the basis of the major clinical benefits of the imaging performance, versatility, reliability, upgradability, ease of use and price of its products. The Company believes that its 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 evaluate equipment performance and other factors. The markets for the Company's products have become increasingly competitive and price is often a factor in the purchase decision. The Company's ultrasound equipment competes with systems offered by a number of companies and their affiliates abroad, including ATL Ultrasound, Inc. ("ATL"), Aloka Co., Ltd., Diasonics Vingmed Ultrasound, Ltd., a division of Elbit Medical Imaging, Ltd. ("Diasonics"), General Electric Company, Hewlett-Packard Company, Hitachi Corporation, Siemens 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. While the Company believes that its systems provide superior and advanced capabilities and features, the products offered to date by these competitors in some cases include features and capabilities not currently offered by Acuson and in some cases are substantially less expensive than Acuson's products. See "Investment Risks - Competition" below. Diagnostic ultrasound is generally less expensive than other competing imaging modalities such as conventional x-ray, computed tomography and magnetic resonance imaging, and, in certain applications, offers capabilities that make it the modality of choice regardless of cost. However, no assurance can be given that such price and/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 limited hospital funding. See "Investment Risks - Ultrasound Market Changes" below. 6 ________________________________________________________________________________ PRODUCT DEVELOPMENT One of Acuson's fundamental beliefs is that technological innovations can provide the best solutions for cost-constrained medical environments. The Company spent $57,300,000, $60,900,000 and $66,400,000 on product development in 1997, 1996 and 1995, respectively. See "Company History" and "Acuson Products and Technologies" above. Since Acuson's founding, virtually all product development has taken place at the Company's headquarters in Mountain View, California. The Company maintains a strong commitment to product development programs to develop proprietary technologies. Product development is subject to certain risk factors. See "Investment Risks - New Products" below. GOVERNMENT REGULATION As a manufacturer of medical devices, Acuson is subject to extensive regulation by federal, state and local governmental authorities, such as, the United States Food and Drug Administration (the "FDA") and the California Department of Health Services, including marketing clearance or approval of the Company's products by the FDA. The process of obtaining such clearances or approvals to market products can be time consuming, lengthy, uncertain and expensive and can delay the marketing and sale of the Company's products. The Company's products generally require either a 510(k) premarket clearance or a premarket approval ("PMA") by the FDA. The review of a PMA application generally takes one to two years from the date the PMA is accepted for filing, but may take significantly longer. It generally takes from four to twelve months from submission to obtain 510(k) premarket clearance, but may take longer. The FDA has recently been more rigorous in its 510(k) clearance process, which has generally resulted in a longer review period. See "Investment Risks - Regulation by Government Agencies" below. Congress also recently passed the FDA Modernization Act of 1997 which enacts significant changes in how the FDA regulates medical devices. One purpose of this Act is to streamline certain processes relating to medical devices. The practical effect of this new law on the Company is not known at this time. Provisions of the new law began to take effect in February 1998. Manufacturers of medical devices marketed in the United States are required to adhere to applicable regulations setting forth detailed Good Manufacturing Practices ("GMP") requirements, which include testing, control and documentation requirements. Manufacturers also must comply with Medical Device Reporting ("MDR") requirements that a firm report to the FDA certain adverse events associated with the Company's devices. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with GMP requirements, MDR requirements and other applicable regulations. The FDA is using its statutory authority more vigorously during inspections of companies and in other enforcement matters. The FDA has recently finalized changes to the GMP regulations and has promulgated new MDR regulations, both of which will likely increase the cost of compliance with GMP requirements. The Company also is subject to numerous federal, state and local laws relating to such matters as healthcare "fraud and abuse," safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. Changes in existing requirements and implementation and adoption of new requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Although Acuson believes that it is in compliance with all applicable regulations of the FDA, the State of California and other federal, state, and local governmental authorities, current regulations depend heavily on administrative interpretation, and there can be no assurance that the Company will not incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon the Company's business, financial condition or results of operations. In addition, the potential effects on the Company of heightened enforcement of federal, state and local regulations 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 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. 7 ________________________________________________________________________________ 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. The Balanced Budget Act of 1997 ("BBA"), enacted in law August 5, 1997, will further reduce capital payments to hospitals by 2.1 percent between October 1, 1997 and September 30, 2002. 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, 42 percent of which is based on the hospital's reasonable costs and 58 percent of which is based on the fee schedule 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 has been reduced by 5.8 percent. The BBA requires capital outpatient reimbursement to shift from a cost basis to a prospective payment system by 1999. Because the Health Care Financing Administration ("HCFA") has not yet proposed regulations to implement the outpatient PPS, it is unclear what impact such a change will have on payment for ultrasound services. Until January 2000, capital acquisition costs for services furnished to hospital outpatients will be 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." Relative value units representing practice expenses, such as equipment costs, currently account for approximately 42 percent of a physician's Medicare fee schedule payment for a particular service. Under the BBA, HCFA is required to implement by January 1, 1999, a revised methodology for calculating practice expense relative value units from the current historical basis to a resource basis. HCFA already has proposed to establish two separate practice expense values for each physician service - one for when a service is furnished in a facility setting and another for when the service is performed in a physician's office. Typically, for a service that could be provided in either setting, the practice expense value would be higher when the service is performed in a physician's office as it would cover a physician's costs such as for equipment, supplies, and overhead. At this time, HCFA has yet to issue regulations setting new practice expense values. Certain revisions that HCFA might make in these values could have a negative effect on physician reimbursement for ultrasound services provided in a facility and a positive effect on physician reimbursement for ultrasound services provided in a physician's office. 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. The BBA has revised the Medicaid program to allow states even more control over coverage and payment issues. In addition, the HCFA already has granted many states waivers to allow for greater control of the Medicaid program at the state level. The impact on the Company of this greater state control on Medicaid payment for diagnostic services is uncertain. The sale of medical devices, the referral of patients for diagnostic examinations utilizing such devices, and the submission of claims to third party payers (including Medicare and Medicaid) seeking reimbursement for such services, are subject to various federal and state laws pertaining to health care "fraud and abuse," including physician self-referral prohibitions, antikickback laws, and false claims laws. Subject to certain enumerated exceptions, the federal physician self-referral law, also known as Stark II, prohibits a physician from referring Medicare or Medicaid patients to an entity in which the physician (or a family member) has an ownership interest or compensation relationship if the referral is for a "designated health service," which is defined explicitly to include radiology services such as ultrasound services. Although final regulations implementing Stark II have not yet been issued by the United States Department of Health and Human Services, proposed regulations were issued in January 1998. Under the proposed regulations, the definition of radiology services subject to the Stark II restriction would expressly exclude screening mammography services (i.e., mammography services furnished to asymptomatic patients), but not diagnostic mammography (i.e., mammography services furnished to symptomatic patients). The Stark II law, as well as physician self-referral restrictions that exist in a number of states and which apply regardless of whether Medicare or Medicaid patients are involved, may result in lower utilization of certain diagnostic procedures, including ultrasound services, which may 8 ________________________________________________________________________________ affect the demand for the Company's products. Antikickback laws make it illegal to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase of medical devices from a particular manufacturer or the referral of patients to a particular supplier of diagnostic services utilizing such devices. False claims laws prohibit anyone from knowingly and willfully presenting, or causing to be presented, claims for payment to third party payers (including Medicare and Medicaid) that are false or fraudulent, for services not provided as claimed, or for medically unnecessary services. Violations of fraud and abuse laws are punishable by criminal and/or civil sanctions including, in some instances, imprisonment and exclusion from participation in federal health care programs such as Medicare and Medicaid. The Clinton Administration and the Congress from time to time consider various Medicare and other healthcare reform proposals that could significantly affect both private and public reimbursement for healthcare 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 healthcare 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. Commencing in June 1998, medical device companies wishing to sell products into those European countries that are members of the European Union, must place the CE mark on their products. To be able to place that mark on its products, Acuson must comply with the standards of the European Medical Device Directive (the "MDD"), and be subject to annual surveillance audits by a certified organization to assure conformity to the MDD. The Company is currently certified as compliant with the relevant requirements of the MDD and the Company will undertake activities designed to assure continued compliance; however, no assurance can be given that the Company will continue to be able to place the CE mark on its products. If the Company loses its ability to place the CE mark on its products, the Company will not be able to sell its products into the European Union. In 1997, sales into the European Union accounted for approximately 20.0% of the Company's revenues. MANUFACTURING The Company primarily manufactures its products at its Mountain View, California facility. 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 with outside vendors for assembly and fabrication 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. 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. See "Investment Risks - Manufacturing" below. 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, 1997, the Company had 1,815 full-time employees. The Company considers its relations with its employees to be good. INVESTMENT RISKS 9 ________________________________________________________________________________ In evaluating and understanding Acuson's business and financial prospects and the potential success of any Acuson product, and in evaluating any forward- looking statement contained in this document or otherwise, prospective investors and stockholders should carefully consider the factors set forth below. NEW PRODUCTS. During 1996, Acuson introduced two major new products, the Sequoia and Aspen ultrasound systems. There is no guarantee that sales of such products will increase or continue at their current rate. As more Aspen and Sequoia systems enter the clinical environment, continued market acceptance will depend in part on the actual and perceived performance of these products in that clinical environment. In addition, the Company believes that the continued success of the new products will depend as well on the timely and successful completion of future product enhancements and capabilities. While the Company has a number of these new product enhancements and capabilities as well as additional new products under development at any time, there is no guarantee as to when, if ever, the development of such products and product enhancements and capabilities will be completed. COMPETITION. Diagnostic ultrasound is a well-established field in which there are a number of competitors. The Company competes with several companies and their affiliates such as ATL, Aloka Co., Ltd., Diasonics, General Electric Company, Hewlett-Packard Company, Hitachi Corporation, Siemens Medical Systems, Inc., and Toshiba Medical Systems, Inc., most of which have significantly greater financial and other resources. In addition, most of these companies compete in more medical imaging and other market segments and countries than the Company. While the Company believes that its Sequoia and Aspen systems provide superior and advanced capabilities and features, the products offered to date by these competitors in some cases include features and capabilities not currently offered by the Company and in some cases are substantially less expensive than the Company's products. Market success in diagnostic ultrasound is heavily dependent on the purchaser's evaluation of the system's diagnostic value, cost, ease of use and safety. Any established or new ultrasound company may introduce a system or upgrades to an existing system that is equal to or superior to the Company's products in quality or performance and no assurance can be given that the Company's products will remain competitive with existing or future products. If a competitor introduces a new product, customers may delay submitting new orders to the Company and may cancel orders in the backlog. During 1997, a number of the Company's competitors introduced new systems designed to compete with the Company's systems. As these competitive systems are delivered in the market, sales of the Company's systems may be adversely impacted. ULTRASOUND MARKET CHANGES. Diagnostic ultrasound is generally less expensive than other competing imaging modalities such as conventional x-ray, computed tomography and magnetic resonance imaging, and, in certain applications, offers capabilities that make it the modality of choice regardless of cost. However, these price and/or performance advantages may not continue in comparison to other current or future imaging modalities. In addition, ultrasound systems compete with other imaging modalities for limited hospital funding. The trends of health care provider consolidation, medical cost containment and intense competitive pressures are continuing in the market. These factors have placed increased pressures on ultrasound system pricing and along with start-up and other manufacturing costs of the Company's new product lines, have contributed to the decline in the Company's gross margins over the last several years. For example, the Company's gross margins have declined from 61.3% in 1990 to 47.2% in 1997. Further, the U.S. government is continuing to consider Medicare reforms. The Company believes that future revenues and profitability will continue to be impacted by these uncertainties, especially in the Company's domestic markets. Although some portions of the international ultrasound markets are experiencing some economic growth, it is uncertain whether this is temporary or permanent. As health care provider consolidation and medical cost containment continue in the market, customers are relying to an increased degree on national sales contracts. In 1997, the Company was awarded a number of national contracts, some of which are exclusive for a number of years. If the Company is unsuccessful at obtaining future national contracts, the Company may be precluded from selling to certain large customers or buying groups. In addition, the exclusive contracts may be canceled during their term by the customer or may not be renewed. PATENTS AND PROPRIETARY TECHNOLOGY. Acuson attempts to protect its intellectual property through a combination of trade secrets and, where appropriate, copyrights, trademarks and patents. The Company owns or has rights to greater 10 ________________________________________________________________________________ than sixty U.S. patents (plus many international counterparts), covering certain aspects of its systems, and it has over one hundred U.S. (plus many international counterparts) patent applications pending. No assurances can be given as to the breadth or degree of protection patents, copyrights, trademarks or trade secrets will afford the Company. The Company's competitors also rely on patents to protect their technology, and numerous physicians, universities and other individuals or entities in the ultrasound field are patenting many ultrasound inventions. The Company has from time to time received notices from such competitors and other entities or individuals that the Company may need a license to one or more of their patents in order to continue to sell its products. Such a competitor, individual, or entity may have, or may be granted, a patent to which the Company must obtain a license if it wishes to market and sell any one or more of its products. To date, patent disputes involving the Company have ultimately been resolved through licensing arrangements, sometimes involving the payment of royalties by the Company. There can be no assurance that the Company will be able to obtain a license to any patent (if so required) or that such a license will be available on reasonable financial or other terms. The Company also relies heavily on its unpatented proprietary know-how. No assurance can be given that others will not be able to develop substantially equivalent proprietary information to the Company's, or otherwise obtain access to the Company's know-how. REGULATION BY GOVERNMENT AGENCIES. As a manufacturer of medical devices, Acuson is subject to extensive regulation by federal, state and local governmental authorities, such as the FDA and the California Department of Health Services, including marketing clearance or approval of the Company's products by the FDA. The process of obtaining such clearances or approvals can be time consuming, lengthy and expensive and there can be no assurance that the necessary clearance or approval will be granted the Company or that FDA review will not involve delays adversely affecting the Company. For example, the Company believes that the time it takes to obtain clearance for new products has increased and the FDA has been more rigorous in its 510(k) clearance process. Manufacturers of medical devices marketed in the United States are required to adhere to numerous regulations setting forth detailed Good Manufacturing Practices requirements, which include testing, control and documentation requirements. Manufacturers also must comply with Medical Device Reporting requirements that a firm report to the FDA certain adverse events associated with a Company's devices. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with GMP requirements, MDR requirements and other applicable regulations. The Company believes the FDA is using its statutory authority more vigorously during inspections of companies and in other enforcement matters. The FDA has recently finalized changes to the GMP regulations and has promulgated new MDR regulations, both of which will likely increase the cost of compliance with GMP requirements. Congress also recently passed the FDA Modernization Act of 1997 which enacts significant changes in how the FDA regulates medical devices. Provisions of the new law began to take effect in February 1998. The Company also is subject to numerous federal, state and local laws relating to such matters as health care "fraud and abuse," safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. Changes in existing requirements and implementation and adoption of new requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Although Acuson believes that it is in compliance with all applicable regulations of the FDA, the State of California and other federal, state and local governmental authorities, current regulations depend heavily on administrative interpretation, and there can be no assurance that the Company will not incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon the Company's business, financial condition or results of operations. In addition, the potential effects on the Company of heightened enforcement of federal, state and local regulations cannot be predicted. Federal and state regulations also govern or influence the reimbursement to health care providers of fees and capital equipment costs in connection with medical examinations of certain patients. Changes in current policies could impact reimbursement for the purchase and/or operation of the Company's equipment by such providers and thereby adversely affect future sales of the Company's products. In particular, the Clinton Administration and the Congress continue to debate and 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. 11 ________________________________________________________________________________ Acuson and its customers are subject to various federal and state laws pertaining to health care "fraud and abuse," including physician self-referral prohibitions, antikickback laws and false claims laws. Acuson structures its sales, marketing and other activities to comply with these and other laws. However, given the broad reach of these laws, there can be no assurance that Acuson's activities would not be subject to scrutiny and/or challenge at some time in the future. 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. Commencing in June 1998, medical device companies wishing to sell products into those European countries that are members of the European Union, must place the CE mark on their products. In order to be able to place that mark on its products, Acuson must comply with the standards of the MDD, and be subject to annual surveillance audits by a certified organization to assure conformity to the MDD. The Company is currently certified as compliant to the relevant requirements of the MDD and the Company will undertake activities designed to assure continued compliance; however, no assurance can be given that the Company will continue to be able to place the CE mark on its products. If the Company loses its ability to place the CE mark on its products, the Company will not be able to sell its products into the European Union. In 1997, sales into the European Union accounted for approximately 20.0% of the Company's revenues. EMPLOYEES. Acuson believes that its continued success and future growth will depend on, among other factors, its ability to continue to attract and retain skilled employees. The loss of a significant number of employees could adversely affect its business, most significantly by delaying the development of new products and product enhancements. The job market in the Silicon Valley area is very competitive, especially for skilled electrical and software engineers. There can be no assurance that the Company will be able to retain or hire key employees. MANUFACTURING. 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, but that sales could be lost or deferred as a result of doing so. SERVICE. Approximately 19.5% of the Company's 1997 revenues were derived from the Company's service activities, including the sales of service contracts and time and material services. Increasing cost containment pressures in the market have adversely impacted the number of customers purchasing service contracts and the prices of those contracts, but this impact has been somewhat offset by the Company's increased installed base and an increase in time and material services. The Company believes that the trend away from service contracts will continue and there can be no assurance that the Company will be able to continue to maintain its current levels of service contract revenue. Further, the introduction of the Sequoia and Aspen products by the Company will continue to reduce the sale of new service contracts and options to the 128XP system installed base. In addition, the Company has made significant expenditures in establishing remote diagnostic and other service programs unique to the new Sequoia and Aspen systems. There can be no assurance that this investment will be profitable, as the success of the Aspen and Sequoia service program will depend in part on the number of Aspen and Sequoia systems sold. Currently, most Aspen and Sequoia systems sold are still under one year warranty. Finally, the Company has seen an increasing trend for hospitals to purchase asset management contracts, in which all of the hospital's medical equipment and in some cases, other assets, are managed and serviced by third parties. As Acuson does not sell asset management services and only services Acuson ultrasound systems, this increased trend toward asset management contracts could have an adverse impact on the Company's sales of service contracts and its time and materials service business. INTERNATIONAL OPERATIONS AND INTERNATIONAL RECEIVABLES. The Company's international business is subject to risks of potential negative impacts from economic weakness in certain countries in Asia and Europe and by the strength of 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 exceeds $11,000,000. In France the amount of receivables exceeds $6,000,000 and in China, the amount of receivables exceeds $5,000,000. Political instability or 12 ________________________________________________________________________________ other issues may impact the ability of the Company to collect receivables in foreign countries. The Company enters into foreign currency exchange contracts as described in Note 2 to its Consolidated Financial Statements for the year ended December 31, 1997 and does not believe it has significant risk from changes in exchange rates. YEAR 2000 COMPLIANCE AND THE COMPANY'S COMPUTING ENVIRONMENT. The Company uses a centralized computing environment to control its order administration, financial and manufacturing processes. During 1997, the Company decided to replace its existing computing environment with an enterprise-wide business information system in two phases. Both phases of this conversion are scheduled to be completed before 2000. The new system will control many of the significant aspects of the Company's operations and the Company has retained an experienced consulting organization to assist in the conversion. However, the Company's 1998 shipments and results could be adversely impacted if, following the conversion, there are significant problems with the new system. When this new system is operational, the Company believes its computer systems will be year 2000 compliant. EARTHQUAKE. The Company's research and development and manufacturing activities, its corporate headquarters, and other critical business operations are located near major earthquake faults. In the event of a major earthquake, the ultimate impact on the Company, significant suppliers and the general infrastructure is unknown, but operating results could be materially affected. The Company is not insured for losses and interruptions caused by earthquakes. Acuson, AEGIS, MultiHertz, Sequoia, XP and 128XP are registered trademarks and Aspen, Convergent, DELTA, DIMAQ, EF, MICROSON, Native, PerformancePlus, Solo, SST, ViewPro, WebPro and WorkPro are trademarks of Acuson Corporation. ________________________________________________________________________________ 13 ________________________________________________________________________________ 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. ________________________________________________________________________________ ITEM 3 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. ________________________________________________________________________________ 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 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors and executive officers of the Company and their ages as of March 31, 1998 are as follows:
NAME Age Position - ------------------------- ------- --------------------------------------------------------------------- Samuel H. Maslak 49 Chairman of the Board and Chief Executive Officer Robert J. Gallagher 54 Vice Chairman of the Board and Chief Operating Officer (Principal Financial Officer) Albert L. Greene 48 Director Karl H. Johannsmeier 69 Director Alan C. Mendelson 50 Director Daniel R. Dugan 43 President Edward P. Cornell 53 Senior Vice President, Engineering Bradford C. Anker 52 Vice President, Manufacturing Charles H. Dearborn 45 Vice President, Human Resources and Legal Affairs, General Counsel and Secretary L. Thomas Morse 54 Vice President, Corporate Controller
SAMUEL H. MASLAK co-founded the Company in September 1981 and has served as Chief Executive Officer and a director since that date. He served as President of the Company from September 1981 until May 1995. He was appointed Chairman of the Board in May 1995. 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, Chief Operating Officer in January 1994 and was elected a director of the Company in May 1994, and President of the Company in May 1995. He was appointed Vice Chairman of the Board in November 1997. 14 ________________________________________________________________________________ ALBERT L. GREENE became a director of the Company in March 1995. Mr. Greene served as President and Chief Executive Officer of Alta Bates Medical Center in Berkeley, California from May 1990 until March 1998 and as President and Chief Executive Officer of Alta Bates Health System from February 1996 to March 1998. In February 1996, Mr. Greene was appointed and continues to serve as Chief Executive Officer of Sutter Health East Bay Service Area. He sits on the board of the Alta Bates Medical Center Board of Trustees, Alta Bates Health System Board of Directors, Sutter Delta Medical Center Board of Trustees, Sutter Solano Medical Center Board of Trustees and serves as Chair of the Sutter Health East Bay Service Area Planning Council. In 1998, he was elected Chair of the California Healthcare Association. Mr. Greene is also a director of Quadramed Corporation. KARL H. JOHANNSMEIER served as a director of the Company from September 1981 to May 1994 and also has served as a director from March 1995 to the present. He founded Optimetrix Corporation, a semiconductor processing equipment company, where he served as President and Chief Executive Officer from 1976 to 1981 and as Chairman of the Board of Directors from 1976 to 1984. Optimetrix Corporation was acquired by Eaton Corporation in 1982. Mr. Johannsmeier has been a private investor over the last twenty years. ALAN C. MENDELSON became a director of the Company in March 1995. Mr. Mendelson has been a partner in the law firm of Cooley Godward LLP since January 1980 and was the Managing Partner of its Palo Alto office from May 1990 to March 1995 and from November 1996 to November 1997. Mr. Mendelson was Acting General Counsel of Cadence Design Systems, Inc., an electronic design automation software company, from November 1995 until June 1996. Mr. Mendelson is also a director of Isis Pharmaceuticals, Inc., a biopharmaceutical company and CoCensys, Inc., a biopharmaceutical company. 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 served as 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 and President of the Company in November 1997. EDWARD P. CORNELL joined the Company in September 1997 as Vice President, Engineering and was promoted to Senior Vice President, Engineering in November 1997. Prior to working for Acuson, Mr. Cornell served as Vice President of Engineering for Pitney-Bowes, Inc. 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. He was appointed Vice President, Human Resources and Legal Affairs in June 1997. 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. ________________________________________________________________________________ 15 ________________________________________________________________________________ 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, 1997 (the "1997 Annual Report"). ________________________________________________________________________________ ITEM 6 SELECTED CONSOLIDATED 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 1997 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 1997 Annual Report. ________________________________________________________________________________ ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. ________________________________________________________________________________ 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 1997 Annual Report. ________________________________________________________________________________ ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ________________________________________________________________________________ With the exception of the information specifically incorporated by reference from the 1997 Annual Report in Part II of this Form 10-K, the Company's 1997 Annual Report is not to be deemed filed as part of this Form 10-K. ________________________________________________________________________________ 16 ________________________________________________________________________________ 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 "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 27, 1998 (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. ________________________________________________________________________________ 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 NOTE: This copy of the Company's Form 10-K does not include Exhibits. (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 1997 Annual Report: Consolidated Statements of Operations -- For the Three Years Ended December 31, 1997 Consolidated Balance Sheets -- As of December 31, 1997 and 1996 Consolidated Statements of Stockholders' Equity -- For the Three Years Ended December 31, 1997 Consolidated Statements of Cash Flows -- For the Three Years Ended December 31, 1997 Notes to Consolidated Financial Statements Report of Independent Public Accountants Supplementary Information Quarterly Data (Unaudited) (2) Financial Statement Schedules. The following financial statement schedule of Acuson Corporation for the three years ended December 31, 1997 is filed as part of this Form 10-K:
Page ---- Report of Independent Public Accountants on Valuation and Qualifying Accounts Schedule S-1 Valuation and Qualifying Accounts For The Three Years Ended December 31, 1997 (Schedule II) 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 1997 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 amended (Exhibit 3.1) @@@ 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 "1986 Purchase Plan"), as amended (Exhibit 10.2) /(1) 10.3 Form of Employee Stock Purchase Agreement to be used under the 1986 Purchase Plan (Exhibit 10.5) *(1) 10.4 The Company's 1982 Incentive Stock Option Plan, as amended (Exhibit 10.4) /(1) 10.5 Form of Incentive Stock Option and related exercise documents (Exhibit 10.5) **(1) 10.6 The Company's 1986 Supplemental Stock Option Plan, as amended (Exhibit 10.6) /(1) 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 The Company's 1991 Stock Incentive Plan, as amended (Exhibit 10.3) =(1) 10.20 Form of the Company's Supplemental and Non-Employee Director Supplemental Options under the 1991 Stock Incentive Plan and related exercise documents as amended (Exhibit 10.23) /(1) 10.21 Non-Negotiable Secured Promissory Note, dated August 8, 1991, of Daniel R. Dugan (Exhibit 19.1) ++++(1) 10.22 Second Deed of Trust, dated August 8, 1991, between Daniel R. Dugan and First American Title Insurance Company, as Trustee (Exhibit 19.2) ++++ 10.23 Lease of office space, dated July 31, 1991, between Shoreline Investments V and the Company (Exhibit 19.3) ++++ 10.24 First Amendment to the Company's 401(k) Plan (Exhibit 10.31) #(1) 10.25 Lease of office space, dated January 31, 1992, between Shoreline Investments V and the Company (Exhibit 19.1) ## 10.26 Officers' Bonus Plan (Exhibit 10.30) ####(1) 10.27 Form of Amendment Number 1 to Supplemental Stock Option Terms Under the Company's 1986 Supplemental Stock Plan and 1991 Stock Incentive Plan (Exhibit 10.1) ////(1) 10.30 Form of Supplemental Stock Option Terms Under the Company's 1991 Stock Incentive Plan (Exhibit 10.2) ////(1) 10.31 Credit Agreement between Acuson Corporation and the First National Bank of Boston, as Agent, dated July 2, 1992 as amended, dated April 14, 1995 (Exhibit 10.1) @@ 10.32 The Company's 1995 Employee Stock Purchase Plan, as amended (Exhibit 10.1) =(1) 10.33 The Company's 1995 Stock Incentive Plan, as amended (Exhibit 10.2) =(1) 10.34 Credit Agreement, dated March 28, 1997, between Acuson Corporation and ABN AMRO Bank N. V., as Agent for Lenders (Exhibit 4.1) = 10.35 Acuson Management Incentive Plan (Exhibit 10.35) (1) 11.1 Statement regarding computation of per share earnings for the fiscal year ended December 31, 1993 (Exhibit 11.2) / 11.2 Statement regarding computation of per share earnings for the fiscal period ended April 2, 1994 (Exhibit 11.1) // 11.3 Statement regarding computation of per share earnings for the fiscal period ended July 2, 1994 (Exhibit 11.1) /// 11.4 Statement regarding computation of per share earnings for the fiscal period ended October 1, 1994 (Exhibit 11.1) //// 11.5 Statement regarding computation of per share earnings for the fiscal year ended December 31, 1994 (Exhibit 11.6) @ 11.6 Statement regarding computation of per share earnings for the fiscal period ended April 1, 1995 (Exhibit 11.1) @@ 13.1 The portion of the Annual Report to security holders for the fiscal year ended December 31, 1997, which is incorporated by reference.
20 ________________________________________________________________________________ 21.1 Subsidiaries of Registrant 23.1 Consent of Independent Public Accountants 27.1 Financial Data Schedule for the year ended December 31, 1997
(b) The Registrant filed no reports on Form 8-K during the fourth quarter of the fiscal year covered by this report.
* 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.
21 ________________________________________________________________________________
//// Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended October 1, 1994. @ Incorporated by reference to the indicated exhibit in the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1994. @@ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended April 1, 1995. @@@ Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended July 1, 1995. & Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended September 28, 1996. = Incorporated by reference to the indicated exhibit in the Company's Form 10-Q Quarterly Report for the quarterly period ended March 29, 1997. (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 27, 1998 By /s/ Samuel H. Maslak -------------------- Samuel H. Maslak Chairman and Chief Executive Officer March 27, 1998 By /s/ Robert J. Gallagher ----------------------- Robert J. Gallagher Vice Chairman and Chief Operating Officer (Principal Financial Officer) March 27, 1998 By /s/ L. Thomas Morse ------------------- L. Thomas Morse Vice President, Corporate Controller
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 - -------------------- Chairman and Chief Executive Officer March 27, 1998 (Samuel H. Maslak) /s/ Robert J. Gallagher - ----------------------- Vice Chairman and Chief Operating Officer March 27, 1998 (Robert J. Gallagher) (Principal Financial Officer) /s/ L. Thomas Morse - ------------------- Vice President, Corporate Controller March 27, 1998 (L. Thomas Morse) /s/ Albert L. Greene - -------------------- Director March 27, 1998 (Albert L. Greene) /s/ Karl H. Johannsmeier - ------------------------ Director March 27, 1998 (Karl H. Johannsmeier) /s/ Alan C. Mendelson - --------------------- Director March 27, 1998 (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 Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 29, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed at Part IV, Item 14(a)(2) is the responsibility of the Company's management and is presented for purposes 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 San Jose, California January 29, 1998 S-1 ________________________________________________________________________________ ACUSON CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (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, 1995 $3,432 $ (175) $ (259) $2,998 December 31, 1996 $2,998 $ 442 $ (472) $2,968 December 31, 1997 $2,968 $ 868 $ (361) $3,475 ACCRUED WARRANTY: Year ended: December 31, 1995 $4,475 $ 8,146 $ (8,181) $4,440 December 31, 1996 $4,440 $ 9,526 $ (7,942) $6,024 December 31, 1997 $6,024 $15,207 $(12,276) $8,955
S-2 EX-10.35 2 MANAGEMENT INCENTIVE PLAN ACUSON CORPORATION EXHIBIT 10.35 ACUSON MANAGEMENT INCENTIVE PLAN - OFFICERS - 1997 Acuson's Management Incentive Plan (MIP-Officer) has been established as a means to reward and retain corporate officers and to provide incentives for them to exert maximum efforts for the success of the Company. It is also intended to reward individual performance against objectives for both individual and work group goals, as well as to encourage teamwork among the Company's key employees as a means of achieving ongoing company success. PLAN DESIGN: - ------------ Our MIP-Officer is a "Performance Based" plan, which links incentive award directly to the achievement of goals and objectives and planned financial results. The plan consists of personal objectives for achieving individual and work group goals and corporate objectives. The target incentive bonus percentage for plan participants is set by the Board of Directors Compensation Committee. For all officers other than the Chief Executive Officer, personal objectives will be set by the officers' immediate supervisor and reviewed by the CEO. At full achievement of personal objectives, for all officers other than the Designated Officers as described below, the MIP will pay out the target bonus percentage times the base salary paid during the measurement period. A percentage of the full pay out amount may be linked to each objective. In order for any amount to be paid for achievement of personal objectives, a satisfactory level of overall personal performance must be maintained. The Company reserves the right to modify objectives to meet changing business requirements by notifying participants within 30 days of the change. The Compensation Committee of the Board of Directors will determine the percentage of target bonus to be paid to the CEO, the COO, the President, and such other executive officers as the Committee may designate ("Designated Officers"), based on its evaluation of a number of factors, which may include the personal objectives described above as well as corporate and department objectives such as financial results, orders, shipments, profit margins, relative market share, meeting in a timely manner product development milestones and expense controls, achievement vs. difficulty of corporate objectives and positioning the Company for the future. Depending on which corporate objectives are met, the plan will pay out to each officer an additional amount (corporate match) of either 50% or 100% of the determined percentage of the payout to such officer for the achievement of personal objectives. PARTICIPATION: - -------------- Participation in Acuson's MIP-Officer is at the sole discretion of the Compensation Committee of the Board of Directors, and is limited to executive officers. Participation in this plan during one measurement period does not entitle you to participate in any subsequent period or plan, should there be one, as each period and plan will be independent of the other. Target bonus percentage levels may vary from one measurement period to the next, and within a measurement period, may vary among participants. Measurement periods may vary from year to year. Members of this plan will not participate in the company-wide profit sharing program. To participate, the employee must be an executive officer of the Company. To receive a payout, the officer must be an active employee of the company on the date of plan payout. Should an officer's job change during the measurement period, s/he may be removed from this plan, and will then become eligible to participate in the company-wide profit sharing plan. PAYOUT: - ------- Payout will occur during Q1 or Q2 1998. The measurement period for the target bonus and for the corporate match is the Company fiscal 1997 earnings (i.e. January 1, 1997 - December 31, 1997). Participants hired after March 1st of the plan year will receive a payout for individual objectives prorated by the number of months worked between January 1, 1997 and December 31, 1997. Payment will be made in cash (less required taxes) and be immediately vested. AUTHORITY: - ---------- Full authority to set, interpret, administer, amend or terminate this plan resides with the Compensation Committee of the Board of Directors. Decisions of the Compensation Committee will be final. This plan and its provisions create no vested rights. This plan and its provisions may be modified or terminated at any time at the Company's discretion, including during any measurement period. The plan is not an employment contract and neither this plan nor participation in this plan shall confer upon any participant any right to continue in the employ of the Company and shall not affect the Company's right to terminate the employment of any person, with or without cause. Attachment A 1997 Target Bonuses for Named Executive Officers (as defined in Item 402(a)(3) of Regulation S-K) Samuel H. Maslak 30% Robert J. Gallagher 25% Daniel R. Dugan 25% Bradford C. Anker 20% Stephen T. Johnson 20% EX-13.1 3 ANNUAL REPORT ACUSON CORPORATION EXHIBIT 13.1 ________________________________________________________________________________ ACUSON CORPORATION ------------------ PORTION OF THE ANNUAL REPORT TO SECURITY HOLDERS ------------------------------------------------- INCORPORTED BY REFERENCE INTO FORM 10-K ---------------------------------------
FINANCIAL CONTENTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2 SELECTED CONSOLIDATED FINANCIAL DATA 6 QUARTERLY DATA 6 CONSOLIDATED STATEMENTS OF OPERATIONS 7 CONSOLIDATED BALANCE SHEETS 8 CONSOLIDATED STATEMENTS OF CASH FLOWS 9 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 20 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 21
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 1997 1996 vs. vs. Year Ended December 31, 1997 1996 1995 1996 1995 ____________________________________________________________________________________________________________________________ Net sales Product 80.5% 75.4% 75.4% 35.1% 5.3% Service 19.5 24.6 24.6 0.1 5.1 ----- ----- ----- Total net sales 100.0 100.0 100.0 26.5 5.2 ----- ----- ----- Cost of sales Product 42.9 40.1 35.6 35.3 18.6 Service 9.9 12.0 10.9 4.2 15.4 ----- ----- ----- Total cost of sales 52.8 52.1 46.5 28.1 17.8 ----- ----- ----- Gross profit 47.2 47.9 53.5 24.7 (5.7) ----- ----- ----- Operating expenses Selling, general and administrative 27.5 36.4 31.7 (4.4) 20.7 Product development 13.1 17.6 20.2 (6.0) (8.2) ----- ----- ----- Total operating expenses 40.6 54.0 51.9 (4.9) 9.5 ----- ----- ----- Income (loss) from operations 6.6 (6.1) 1.6 * * Interest income, net 0.2 0.9 1.2 (72.5) (21.1) ----- ----- ----- Income (loss) before income taxes 6.8 (5.2) 2.8 * * Provision for (benefit from) income taxes 1.7 (2.1) 0.6 * * ----- ----- ----- Net income (loss) 5.1% (3.1)% 2.2% * * ===== ===== =====
* not meaningful 1997 COMPARED WITH 1996 Net sales increased 26.5% to $437.8 million for the year ended December 31, 1997, compared with $346.2 million for the year ended December 31, 1996. The increase was primarily due to shipments of the Sequoia(R) ultrasound systems and the Aspen(TM) ultrasound system, which began in July and November of 1996, respectively. Worldwide service revenue remained relatively constant at $85.3 million compared with $85.2 million for the years ended December 31, 1997 and 1996, respectively. Domestic net sales increased 38.0% to $292.5 million for the year ended December 31, 1997, compared with $212.0 million for 1996. Domestic net sales accounted for 66.8% of total net sales in 1997, compared with 61.2% of total net sales in 1996. International net sales increased 8.3% to $145.3 million for the year ended December 31, 1997, compared with $134.2 million for 1996. International net 2 sales accounted for 33.2% of total net sales in 1997, compared with 38.8% of total net sales in 1996. Although international net sales grew over the prior year, incoming orders and revenues were negatively impacted by weakness in certain markets in Asia and Europe, and by the current strength of the U.S. dollar. The Company expects these trends to continue in 1998. Cost of Sales increased as a percentage of net sales to 52.8% for 1997 compared with 52.1% for 1996. The increase was primarily due to product mix changes and higher service costs. Selling, general and administrative expenses for the year ended December 31, 1997, declined to 27.5% of net sales, or $120.5 million, compared with 36.4% of net sales, or $126.1 million for 1996. In the prior year, significant advertising and other product launch-related expenses were incurred in connection with the introduction of the Sequoia and Aspen ultrasound systems. Product development spending for 1997 declined to $57.3 million or 13.1% of net sales, compared with $60.9 million or 17.6% of net sales for 1996. The decrease was primarily due to reduced prototype expenses from the 1996 period when the Company was completing development of the Sequoia and Aspen products. Although product development expenses have declined in 1997, the Company plans to continue to aggressively support new product programs. Provision for income taxes was $7.5 million in 1997 compared with a benefit of $7.4 million in 1996. The Company's 1997 effective tax rate was a provision of 25.0% compared with a benefit of 41.1% in 1996. The reduced 1997 provision, when compared to the Federal statutory rate of 35.0%, was primarily the result of the research and development tax credit. The prior year benefit resulted from the carryback of 1996 losses to pre-1996 tax liabilities. Net income was $22.4 million in 1997 compared with a net loss of $10.6 million in 1996. The 1996 loss resulted primarily from substantial expenditures for manufacturing, marketing and other product launch-related expenses in conjunction with the worldwide introduction of the Company's Sequoia and Aspen ultrasound systems. 1996 COMPARED WITH 1995 Net sales for the fiscal year 1996 increased by 5.2% to $346.2 million from $328.9 million in 1995. During 1996, Acuson introduced two new ultrasound platforms, the Sequoia ultrasound systems, launched in April, and the Aspen ultrasound system, launched in October. The Sequoia and Aspen systems began shipment in July and November, respectively. With the help of new systems shipments, worldwide product revenues in 1996 increased by $13.1 million to $261.0 million, a 5.3% increase. The Company experienced an overall decrease in unit volume which was offset by an increase in average unit selling price as a result of the new product introductions. International revenues increased 10.3% in 1996 to $134.2 million, totaling 38.8% of the Company's sales as compared with 37.0% in 1995. Total domestic revenues increased 2.2% to $212.0 million. Cost of Sales increased as a percentage of net sales to 52.1% for 1996 compared with 46.5% for 1995. The percentage increase in 1996 was primarily a reflection of higher product costs for the manufacturing startup and initial production of the new systems. Selling, general and administrative costs were $126.1 million for 1996 compared with $104.4 million for 1995. As a percentage of net sales, these expenses increased to 36.4% in 1996 from 31.7% in 1995. The increase was primarily because of the expenses related to the extensive worldwide introduction of the Sequoia and Aspen ultrasound systems. Product development spending for 1996 declined to $60.9 million from $66.4 million for 1995. As a percentage of net sales, product development was 17.6% in 1996, a decrease of 2.6 percentage points. The $5.4 million decline in 1996 spending represented a planned reduction following the new product introductions. Benefit from income taxes was $7.4 million in 1996 versus a provision of $2.0 million in 1995. The Company's 1996 overall tax rate was a benefit rate of 41.1% compared with a provision rate of 22.4% in 1995. The benefit was due to federal loss carrybacks, state loss carryforwards and continuing tax credits. 3 Net loss was $10.6 million in 1996 versus net income of $7.1 million in 1995. The results of 1996 were impacted by substantial expenditures for market introduction and manufacturing startup for the new systems. INFLATION To date, the Company has not experienced any significant effects from inflation. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents balance increased $8.3 million in 1997 to $22.7 million. The Company's short-term borrowings also increased $19.0 million in 1997 to $32.0 million. During 1997 the Company generated $31.3 million in cash from operations. Primary sources of cash included net income of $22.4 million and a $7.4 million decrease in inventory. The primary use of cash was a $39.7 million increase in accounts receivable. The decrease in inventory was a result of reducing product inventories that had been built up in 1996 in preparation for new product introductions. The increase in accounts receivable was primarily due to higher revenues, changes in shipping patterns, and lengthening collections in certain areas. During 1996 the Company used $29.6 million in cash from operations. The Company's investing and financing activities for 1997 used $22.4 million in cash. The Company purchased $37.4 million of equipment during the year, primarily consisting of computer and test equipment. Included in the financing activities for 1997 was $20.8 million raised through employee participation in the Company's stock option and stock purchase plans and $33.3 million used for share repurchases. During 1996, employee participation in the Company's stock plans generated $22.1 million and repurchases of common stock used $14.6 million. Also included in the financing activities for 1997 was net short-term borrowings of $19.0 million. During 1996, the Company received net short-term borrowings of $13.0 million. In 1993, the Board of Directors authorized the repurchase of 4,000,000 shares of the Company's common stock over an unspecified period of time. In 1996, the Board of Directors authorized the repurchase of an additional 4,000,000 shares of common stock over an unspecified period of time. During 1997, the Company completed the 1993 repurchase authorization by repurchasing 299,100 shares at a total cost of $8.0 million. Also during 1997, the Company repurchased 1,262,800 shares at a total cost of $25.2 million towards the 1996 repurchase authorization. Total stock repurchases during 1997 were 1,561,900 shares at a total cost of $33.2 million. Working capital as of December 31, 1997 increased $8.3 million over the prior year due to increased cash flow from operations and growth in accounts receivable balances primarily from higher net sales, partially offset by stock repurchases. At December 31, 1997, the Company's working capital totaled $118.6 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 year ended December 31, 1997, the weighted average borrowings were $16.6 million and the weighted average interest rate was 6.6%. At December 31, 1997, borrowings under this facility, which are subject to certain debt covenants, totaled $32.0 million and the effective rate was 7.0%. Based on its current operating plan, the Company believes that the liquidity provided by its existing cash balance, cash generated from operations and the borrowing arrangement described above will be sufficient to meet the Company's operating and capital requirements for fiscal 1998. INVESTMENT RISKS The Shareholders' Letter, subsequent product discussion and the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") sections in this report contain forward-looking statements regarding the Company and its products. These forward-looking statements are based on current 4 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, including those in the Opportunities for Continued Growth section and the final paragraph of the Shareholders' Letter, and in the MD&A, prospective investors and shareholders should carefully consider the factors set forth below. The success of the Company'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 recently introduced competitive products, pricing, intellectual property allegations and product positioning counter-strategies. The Company's business is subject to further risks from developments in other imaging modalities and changes in government regulation of the marketing of ultrasound equipment. Also, the Company's business is subject to risks from potential negative impacts from weakness in certain markets in Asia and Europe, the potential uncertainty relating to the collectability of accounts receivable balances from companies in certain South American and Asian countries, and by the current strength of the U.S. dollar. The foregoing Investment Risks relate to the forward-looking statements contained in this document. For a description of the general investment considerations and risks surrounding the Company's overall business and financial prospects, refer to the Company's Form 10-K filed with the Securities and Exchange Commission for fiscal year 1997. NEW ACCOUNTING STANDARDS Earnings Per Share Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." This statement established new standards for the computation, presentation and disclosure requirements for earnings per share. In accordance with the provisions of SFAS 128, all prior period earnings per share data have been restated. The adoption of SFAS 128 did not have a material effect on the Company's financial statements. Please see Note 8 to the consolidated financial statements for further discussion. Capital Structure Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standards No. 129 ("SFAS 129"), "Disclosure of Information about Capital Structure." The adoption of SFAS 129 did not have a material effect on the Company's financial statements. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, ("SFAS 130"), "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997. This adoption will not have a material effect on the Company's financial statements. Segment Reporting 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," which is effective for fiscal years beginning after December 15, 1997. This adoption will not have a material effect on the Company's financial statements. YEAR 2000 COMPLIANCE The Company is currently in the process of implementing a project to make its computer systems Year 2000 compliant. This includes a major computer system conversion to replace its current business computing environment with an enterprise-wide business information system and is scheduled to be completed before the year 2000. Please refer to the Company's Form 10-K filed with the Securities and Exchange Commission for fiscal year 1997 for further discussion. ________________________________________________________________________________ 5 SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31, (In thousands, except per share amounts) 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- Consolidated Statements of Operations Data Net sales $437,762 $346,155 $328,922 $350,484 $295,289 Net income (loss) 22,377 (10,613) 7,055 18,267 3,711 Earnings Per Share Data Net income (loss) Basic $ 0.78 $ (0.39) $ 0.25 $ 0.64 $ 0.13 Diluted $ 0.73 $ (0.39) $ 0.25 $ 0.62 $ 0.13 Weighted average common and common equivalent shares outstanding Basic 28,807 27,508 28,236 28,600 28,939 Diluted 30,627 27,508 28,662 29,393 29,548 Consolidated Balance Sheet Data Working capital $118,605 $110,315 $121,410 $138,336 $113,502 Total assets 362,828 320,701 295,853 304,638 271,081 Stockholders' equity 210,099 195,056 195,997 207,785 183,261
QUARTERLY DATA (Unaudited)
1997 Quarter Ended (In thousands, except per share amounts) DEC. 31 SEPT. 27 JUNE 28 MARCH 29 - ------------------------------------------------------------------------------------------------------------------------------ Net sales $117,399 $100,090 $112,692 $107,581 Gross profit 56,620 47,539 51,839 50,761 Income before income taxes 7,610 5,664 7,899 8,660 Net income 6,259 4,529 5,744 5,845 Earnings per share Basic 0.22 0.16 0.20 0.20 Diluted 0.21 0.15 0.19 0.19 1996 Quarter Ended (In thousands, except per share amounts) DEC. 31 SEPT. 28 JUNE 29 MARCH 30 - ------------------------------------------------------------------------------------------------------------------------------ Net sales $ 93,669 $ 93,305 $ 74,355 $ 84,826 Gross profit 43,427 43,520 34,855 44,043 Income (loss) before income taxes (4,811) 1,570 (16,583) 1,803 Net income (loss) (2,939) 1,648 (10,584) 1,262 Earnings (loss) per share Basic (0.10) 0.06 (0.39) 0.05 Diluted (0.10) 0.06 (0.39) 0.05
6 CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, (In thousands, except per share amounts) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- NET SALES Product $352,476 $260,975 $247,863 Service 85,286 85,180 81,059 -------- -------- -------- Total net sales 437,762 346,155 328,922 -------- -------- -------- COST OF SALES Product 187,737 138,800 117,043 Service 43,266 41,510 35,961 -------- -------- -------- Total cost of sales 231,003 180,310 153,004 -------- -------- -------- Gross profit 206,759 165,845 175,918 -------- -------- -------- OPERATING EXPENSES Selling, general and administrative 120,499 126,067 104,426 Product development 57,286 60,926 66,367 -------- -------- -------- Total operating expenses 177,785 186,993 170,793 -------- -------- -------- Income (loss) from operations 28,974 (21,148) 5,125 Interest income, net 859 3,127 3,961 -------- -------- -------- Income (loss) before income taxes 29,833 (18,021) 9,086 Provision for (benefit from) income taxes 7,456 (7,408) 2,031 -------- -------- -------- NET INCOME (LOSS) $ 22,377 $(10,613) $ 7,055 ======== ======== ======== EARNINGS (LOSS) PER SHARE Basic $0.78 $(0.39) $0.25 ======== ======== ======== Diluted $0.73 $(0.39) $0.25 ======== ======== ======== Weighted average common and common equivalent shares outstanding Basic 28,807 27,508 28,236 ======== ======== ======== Diluted 30,627 27,508 28,662 ======== ======== ========
The accompanying notes are an integral part of these statements. 7 CONSOLIDATED BALANCE SHEETS
December 31, (In thousands, except per share amounts) 1997 1996 - --------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 22,735 $ 14,413 Accounts receivable, net of allowance for doubtful accounts of $3,475 in 1997 and $2,968 in 1996 131,067 93,647 Inventories 75,517 83,196 Deferred income taxes 25,244 22,316 Other current assets 16,771 22,388 --------- --------- Total current assets 271,334 235,960 --------- --------- PROPERTY AND EQUIPMENT, AT COST Furniture and fixtures 14,893 15,216 Test equipment 39,638 34,718 Machinery and equipment 125,429 111,403 Leasehold improvements 27,559 23,065 --------- --------- 207,519 184,402 Accumulated depreciation and amortization (136,888) (118,518) --------- --------- Total property and equipment, net 70,631 65,884 --------- --------- OTHER ASSETS Net investment in leases, net of current portion 10,528 9,413 --------- --------- Other long-term assets, net 10,335 9,444 --------- --------- Total assets $ 362,828 $ 320,701 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 32,000 $ 13,000 Accounts payable 21,975 20,235 Accrued compensation 30,725 28,168 Deferred revenue 21,711 23,967 Accrued warranty 8,955 6,024 Accrued income taxes 14,177 9,992 Customer deposits 7,159 6,921 Other accrued liabilities 16,027 17,338 --------- --------- Total current liabilities 152,729 125,645 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 5) 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, 28,244 shares in 1997 and 28,246 shares in 1996 123,968 102,756 Cumulative translation adjustment (1,472) 527 Retained earnings 87,603 91,773 --------- --------- Total stockholders' equity 210,099 195,056 --------- --------- Total liabilities and stockholders' equity $ 362,828 $ 320,701 ========= =========
The accompanying notes are an integral part of these statements. 8 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 22,377 $(10,613) $ 7,055 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 22,356 18,773 17,315 Provision for losses on accounts receivables 868 442 (175) Tax benefit of employee stock transactions 6,970 4,035 327 Changes in: Accounts receivable (39,665) (15,722) 1,510 Leases receivable (1,698) 6,461 (5,503) Inventories 7,439 (32,805) (331) Deferred income taxes (3,697) (152) 2,137 Other current assets 5,960 (10,783) 2,507 Accounts payable 1,950 3,945 (106) Accrued compensation 2,976 4,371 943 Deferred revenue (1,700) (615) 3,605 Accrued warranty 2,931 1,584 (35) Accrued income taxes 4,182 858 (1,245) Customer deposits 386 384 (292) Other accrued liabilities (358) 245 (1,354) -------- -------- -------- Net cash provided by (used in) operating activities 31,277 (29,592) 26,358 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease in short-term investments -- 9,983 28,634 Investment in property and equipment (37,377) (36,699) (20,271) Sale of fixed assets 8,850 2,234 2,117 Decrease (increase) in other assets (427) 1,893 500 -------- -------- -------- Net cash provided by (used in) investing activities (28,954) (22,589) 10,980 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings 35,000 18,000 -- Repayment of short-term borrowings (16,000) (5,000) -- Repurchase of common stock (33,315) (14,591) (27,259) Issuance of common stock under stock option and stock purchase plans 20,846 22,142 6,977 -------- -------- -------- Net cash provided by (used in) financing activities 6,531 20,551 (20,282) -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (532) (92) 408 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 8,322 (31,722) 17,464 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,413 46,135 28,671 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 22,735 $ 14,413 $ 46,135 ======== ======== ========
The accompanying notes are an integral part of these statements. 9 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized Common Stock Cumulative Holding Total For the Three Years Ended December 31, 1997 ------------------- Translation Gain Retained Stockholders' (In thousands, except per share amounts) Shares Amount Adjustment (Loss) Earnings Equity - ------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1994 28,904 $ 79,183 $(1,240) $(370) $130,212 $207,785 Exercise of stock options at $0.40 to $13.92 per share 263 2,186 -- -- -- 2,186 Repurchase of common stock at $10.75 to $13.88 per share (2,347) (6,785) -- -- (21,215) (28,000) Issuance of stock under employee stock purchase plan at $10.52 per share 455 4,791 -- -- -- 4,791 Tax benefit of employee stock transactions -- 327 -- -- -- 327 Translation adjustments -- -- 1,446 -- -- 1,446 Unrealized holding gain on investment securities -- -- -- 407 -- 407 Net income -- -- -- -- 7,055 7,055 ------ -------- ----------- ---------- -------- -------- BALANCE, DECEMBER 31, 1995 27,275 79,702 206 37 116,052 195,997 Exercise of stock options at $0.60 to $19.83 per share 1,494 16,910 -- -- -- 16,910 Repurchase of common stock at $14.00 to $16.03 per share (986) (3,122) -- -- (13,666) (16,788) Issuance of stock under employee stock purchase plan at $11.05 and $11.58 per share 463 5,231 -- -- -- 5,231 Tax benefit of employee stock transactions -- 4,035 -- -- -- 4,035 Translation adjustments -- -- 321 -- -- 321 Unrealized holding loss on investment securities -- -- -- (37) -- (37) Net loss -- -- -- -- (10,613) (10,613) ------ -------- ----------- ---------- -------- -------- BALANCE, DECEMBER 31, 1996 28,246 102,756 527 -- 91,773 195,056 Exercise of stock options at $7.17 to $20.63 per share 1,142 14,579 -- -- -- 14,579 Repurchase of common stock at $15.93 to $28.75 per share (1,561) (6,604) -- -- (26,547) (33,151) Issuance of stock under employee stock purchase plan at $11.69 and $22.90 per share 417 6,267 -- -- -- 6,267 Tax benefit of employee stock transactions -- 6,970 -- -- -- 6,970 Translation adjustments -- -- (1,999) -- -- (1,999) Net income -- -- -- -- 22,377 22,377 ------ -------- ----------- ---------- -------- -------- BALANCE, DECEMBER 31, 1997 28,244 $123,968 $(1,472) $ -- $ 87,603 $210,099 ====== ======== =========== ========== ======== ========
The accompanying notes are an integral part of these statements. 10 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, 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, healthcare 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 the Company's foreign subsidiaries is the local currency. The Company 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. Concentration of Credit Risk The Company provides credit in the form of trade accounts receivable and leases to hospitals, private and governmental institutions, healthcare agencies, medical equipment distributors and doctors' offices. The Company's products are manufactured at its world headquarters in Mountain View, California, and are sold through a direct sales force in North America, Europe, Australia and Japan, and through 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 typically not more than three months. The counterparties to foreign currency exchange contracts are major domestic and international financial institutions. At December 31, 1997, the Company had forward exchange contracts maturing from January 1998 through April 1998 to sell a net equivalent of approximately $43.5 million of foreign currencies, of which approximately $9.9 million are in French francs, $9.7 million are in Italian lire, $7.6 million are in Japanese yen, $3.5 million are in Australian dollars, $3.4 million are in German deutsche marks and $3.0 million are in Swedish krona. The carrying value of these contracts approximates their fair market value as of the year end. Derivatives The Company's only use of derivative securities is its routine usage of forward contracts to hedge foreign currency exposure. 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: 11
(In thousands) 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Raw materials $29,057 $38,224 Work-in-process 16,379 18,740 Finished goods 30,081 26,232 ------- ------- Total inventories $75,517 $83,196 ------- -------
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 3-6 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 Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." SFAS 128 replaced the presentation of primary earnings per share with a presentation of basic earnings per share and required dual presentation of basic and diluted earnings per share on the face of the income statement. In accordance with the provisions of SFAS 128, all prior period earnings per share data have been restated. The adoption of SFAS 128 did not have a material effect on the Company's financial statements. See Note 8 to the consolidated financial statements for further discussion. Consolidated Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 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 were as follows for each of the years ended December 31:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Income taxes $ 953 $ 183 $1,193 Interest expense $1,137 $ 322 $ 58
In conjunction with the repurchase of common stock in 1997, 1996 and 1995 (see Note 6), the Company incurred a liability due to the timing of the settlement dates.
(In thousands) 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Repurchase of common stock $ 33,151 $ 16,788 $ 28,000 Cash paid for repurchase of common stock (33,315) (14,591) (27,259) -------- -------- -------- Net cash effect $ (164) $ 2,197 $ 741 -------- -------- --------
Reclassifications Certain information reported in previous years has been reclassified to conform to the 1997 presentation. Capital Structure Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standards No. 129 ("SFAS 129"), "Disclosure of Information about Capital Structure." The adoption of SFAS 129 did not have a material impact on the results of operations or financial position of the Company. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." This statement establishes 12 standards for reporting and displaying comprehensive income and its components (revenue, expenses, gains, and losses) in a full set of general-purpose financial statements and is effective for fiscal years beginning after December 15, 1997. The adoption of this statement will not have a material impact on the Company's results of operations or financial position. Segment Reporting 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 establishes standards for reporting selected segment information quarterly and to report entity-wide disclosures about products and services, geographic areas, and major customers. This statement is effective for fiscal years beginning after December 15, 1997. The adoption of this statement will not have a material impact on the Company's results of operations or financial position. NOTE 3. 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 year ended December 31, 1997, the weighted average borrowings were $16.6 million and the weighted average interest rate was 6.6%. At December 31, 1997, borrowings under this facility, which are subject to certain debt covenants, totaled $32.0 million and the effective rate was 7.0%. NOTE 4. 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 one to six years. The following lists the components of the net investment in sales-type leases as of December 31, 1997:
(In thousands) Amount - --------------------------------------------------------------------------------------------------------------------- Minimum amounts receivable $15,448 Less: Allowance for uncollectibles (557) ------- Net minimum lease payments receivable 14,891 Estimated residual values of leased property 243 Less: Unearned interest income (402) ------- Net investment in leases 14,732 Less: Current portion (included in other current assets) (4,204) ------- Long-term portion $10,528 -------
Minimum amounts receivable under existing leases as of December 31, 1997, were as follows:
(In thousands) Amount - ----------------------------------------------------------------------------------------------------------------------- 1998 $ 5,294 1999 4,278 2000 3,321 2001 1,781 2002 607 Thereafter 167 ------- Total minimum amounts receivable $15,448 -------
13 The Company sold portions of its lease portfolio, with recourse, for $18.4 million, $23.4 million and $3.0 million in 1997, 1996 and 1995, respectively. As of December 31, 1997, the maximum recourse liability to the Company for these transactions is approximately $5.8 million. NOTE 5. COMMITMENTS AND CONTINGENCIES The Company leases its facilities and certain other equipment under operating lease agreements expiring through November 30, 2003. Future minimum lease payments as of December 31, 1997, were as follows:
(In thousands) Amount - --------------------------------------------------------------------------------------------------------------------------------- 1998 $12,104 1999 11,463 2000 8,264 2001 5,888 2002 2,499 Thereafter 48 ------- Total future minimum lease payments $40,266 -------
Rent expense was approximately $12.1 million, $11.5 million and $10.7 million in 1997, 1996 and 1995, respectively. 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. NOTE 6. 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 three-for-two 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 ten 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 $0.01 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 In May 1995, the stockholders approved the Company's 1995 Stock Incentive Plan (the "1995 Plan") which authorizes the issuance of up to 3,500,000 shares of common stock in the form of options, restricted stock grants or bonuses and stock appreciation rights. In addition, the Company has in effect a 1991 Stock Incentive Plan (the "1991 Plan"). Under the 1995 Plan and 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. Options covering 2,958,427 shares were available for future grant at December 31, 1997. On August 2, 1994, the Board of Directors approved an amendment to outstanding non-qualified stock options that provides in general 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. 14 The following table summarizes option activity for the past three years:
(In thousands, Weighted Average except per share amounts) Shares Exercise Price - --------------------------------------------------------------------------------------------------- OUTSTANDING AT DECEMBER 31, 1994 6,657 $13.02 Granted 1,395 $12.02 Exercised (263) $ 8.73 Expired or canceled (718) $15.07 ------ OUTSTANDING AT DECEMBER 31, 1995 7,071 $12.77 Granted 1,433 $15.01 Exercised (1,495) $11.38 Expired or canceled (589) $14.45 ------ OUTSTANDING AT DECEMBER 31, 1996 6,420 $13.44 Granted 490 $21.24 Exercised (1,142) $12.53 Expired or canceled (267) $14.55 ------ OUTSTANDING AT DECEMBER 31, 1997 5,501 $14.27 ------
The following table summarizes information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable --------------------------------------------------------------- -------------------------------------- Weighted Average Range of Number Remaining Weighted Average Number Weighted Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - -------------------------------------------------------------------------------- -------------------------------------- $10.75 1,113,914 5.42 $10.75 1,113,771 $10.75 $11.00 - $11.63 586,827 7.71 $11.47 295,263 $11.45 $11.63 - $12.38 375,901 6.95 $12.30 211,825 $12.27 $12.38 - $13.13 698,697 5.82 $13.09 566,242 $13.09 $13.25 - $14.38 674,049 7.97 $14.14 189,570 $13.96 $14.38 - $16.42 851,230 4.47 $15.64 587,934 $15.97 $16.44 - $18.59 642,474 6.38 $17.45 311,182 $17.67 $18.63 - $28.25 552,612 7.83 $21.31 146,309 $20.22 $28.50 - $36.13 5,100 3.38 $31.19 5,100 $31.19 $37.38 200 3.16 $37.38 200 $37.38 --------------------------------------------------------- ----------------------------- $10.75 - $37.38 5,501,004 6.34 $14.27 3,427,396 $13.43 - -------------------------------------------------------------------------- -----------------------------
Employee Stock Purchase Plan Offerings under the 1986 Employee Stock Purchase Plan (the "1986 Purchase Plan") ended in August 1995. In May 1995, the stockholders approved the Company's 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"), which authorizes the issuance of up to 2,000,000 shares of common stock, subject to adjustment upon changes in capitalization of the Company. Offerings under the 1995 Purchase Plan commenced in September 1995, and as of December 31, 1997, the Company had reserved 1,120,351 shares of common stock for issuance under the 1995 Purchase Plan. Pursuant to the 1986 Purchase Plan, qualified employees elected to have between 3% and 15% of their salary withheld. The salary so withheld was 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 the specified dates determined at the commencement of the offering period. The withholding requirements and determination of the stock purchase price under the 1995 Purchase Plan are the same as in the 1986 Purchase Plan. Under the Plans, the Company sold 417,017 shares, 462,632 shares and 455,887 shares in 1997, 1996 and 1995, respectively. 15 Pro Forma Stock Based Compensation Expense Effective January 1, 1996, the Company adopted the disclosure provisions of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." In accordance with the provisions of SFAS 123, the Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. In accordance with the disclosure requirements of SFAS 123, if the Company had elected to recognize compensation cost based on the fair value of the options and stock purchase rights as prescribed by SFAS 123, income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated in the following table. The pro forma effect on net income (loss) for 1997, 1996 and 1995 is not representative of the pro forma effect on net income (loss) in future years because it does not take into consideration pro forma compensation expense related to stock options and purchase rights granted prior to 1995.
In thousands, except per share amounts 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Net income (loss) - as reported $22,377 $(10,613) $7,055 Net income (loss) - pro forma 19,239 (13,668) 5,580 Earnings (loss) per share - as reported Basic 0.78 (0.39) 0.25 Diluted 0.73 (0.39) 0.25 Earnings (loss) per share - pro forma Basic 0.67 (0.50) 0.20 Diluted 0.63 (0.50) 0.19
The following assumptions and resulting fair values were used to determine the pro forma compensation expense using the Black-Scholes option-pricing model:
Stock Options: 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock volatility 40.5 - 50.4 % 29.8 - 42.4 % 29.8 - 42.4 % Risk-free interest rate 5.2 - 6.5 % 5.4 - 6.3 % 5.4 - 6.3 % Expected life of options from vest date 1.2 years 1.1 years 1.1 years Forfeiture rate actual actual actual Weighted average fair value $8.40 $4.40 $4.02
Employee Stock Purchase Plan: 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Expected dividend yield 0.0 % 0.0 % 0.0 % Expected stock volatility 42.9 - 59.4 % 38.5 - 48.5 % 25.3 - 29.1 % Risk-free interest rate 5.39 - 5.65 % 5.07 - 5.42 % 5.56 - 6.07 % Expected life of options from vest date 0.5 years 0.5 years 0.5 years Weighted average fair values: March to August $7.19 $3.68 $2.76 September to February $8.33 $3.67 $2.99
Common Stock Repurchase Program In 1993, the Board of Directors authorized the repurchase of 4,000,000 shares of the Company's common stock over an unspecified period of time. In 1996, the Board of Directors authorized the repurchase of an additional 4,000,000 shares of common stock over an unspecified period of time. During 1997, the Company completed the 1993 repurchase authorization by repurchasing 299,100 shares at a total cost of $8.0 million. Also during 1997, the Company repurchased 1,262,800 shares at a total cost of $25.2 million towards the 1996 repurchase authorization. Total stock repurchases during 1997 were 1,561,900 shares at a total cost of $33.2 million. The difference between the average original issue price and the repurchase price has been accounted for as a reduction in retained earnings. NOTE 7. INCOME TAXES Income before provision for income taxes and the components of the provision for income taxes consisted of the following: 16
Year Ended December 31, 1997 1996 1995 (In thousands) - --------------------------------------------------------------------------------------------------------------------- Income (loss) before provision for income taxes: Domestic $32,256 $(14,480) $6,043 Foreign (1,317) (2,444) 2,300 Eliminations (1,106) (1,097) 743 ------- -------- ------ Total income (loss) before provision $29,833 $(18,021) $9,086 ------- -------- ------ Provision for income taxes: Federal Current $10,056 $ (187) $ (400) Deferred (2,607) (5,764) 222 ------- ------- ------ 7,449 (5,951) (178) ------- ------- ------ State Current 1,700 200 (166) Deferred (2,043) (2,226) 621 ------- ------- ------ (343) (2,026) 455 ------- ------- ------ Foreign Current 244 1,111 1,924 Deferred 106 (542) (170) ------- ------- ------ 350 569 1,754 ------- ------- ------ Total provision (benefit) $ 7,456 $(7,408) $2,031 ------- ------- ------
The provision for income taxes differs from the amounts obtained by applying the federal statutory rate to income before taxes as follows:
1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% Research and development tax credits and foreign tax credits (9.7) 10.3 (22.3) State taxes, net of federal income tax benefit (0.7) 7.3 3.1 Foreign Sales Corp. benefits (1.3) 0.9 (4.4) Other (1.6) (1.0) (3.0) Non-deductible expenses 2.0 (3.8) 6.5 Foreign subsidiary income 1.3 (7.6) 7.5 ---- ---- ----- Provision rate 25.0% 41.1% 22.4% ---- ---- -----
The Company has recorded deferred tax assets of $30.8 million. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of the future taxable income are reduced. The components of deferred tax assets at year end were as follows:
December 31, 1997 1996 (In thousands) - ------------------------------------------------------------------------------------------------------- Reserves not currently deductible $12,432 $10,146 Accruals not currently deductible 5,405 4,661 State research and development credit carryforward 3,450 2,672 Inventory amortization 3,395 4,153 Vacation accrual 3,113 3,206 Federal research and development credit 1,657 1,358 Other 921 270 State manufacturers investment credit carryforward 789 -- Depreciation 599 1,755 Alternative minimum tax credit carryforward 287 -- Capitalized assets 253 253 Foreign tax credit and charitable contribution carryforward 214 679 State income tax accruals (1,703) (1,960) ------- ------- Deferred tax assets $30,812 $27,193 ------- -------
17 The Company has tax credits, deductions and net operating losses which will be carried forward. The following lists the carryforward credits, deductions and losses and their year of expiration.
Year Ended December 31, (In thousands) 1998 2001 2004 2011 UNLIMITED - ----------------------------------------------------------------------------------------------------------------- State research & development credit $ -- $ -- $ -- $ -- $3,450 Foreign tax credits 84 130 -- -- -- State manufacturers' investment credit -- -- 789 -- -- Alternative minimum tax credit -- -- -- -- 287 carryforward Federal research & development credit -- -- -- 1,657 --
NOTE 8. 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 prior three years:
Dilutive Effect of Options Basic Outstanding Diluted ---------------------------------------------------------------- Year Ended December 31, 1995 Net income (numerator) $ 7,055 $ 7,055 Weighted average number of shares outstanding (denominator) 28,236 426 28,662 Earnings per share $ 0.25 $ 0.25 ======== ======== Year Ended December 31, 1996 Net loss (numerator) $(10,613) $(10,613) Weighted average number of shares outstanding (denominator) 27,508 -- 27,508 Loss per share $ (0.39) $ (0.39) ======== ======== Year Ended December 31, 1997 Net income (numerator) $ 22,377 $ 22,377 Weighted average number of shares outstanding (denominator) 28,807 1,820 30,627 Earnings per share $ 0.78 $ 0.73 ======== ========
Options to purchase approximately 0.1 million and 3.2 million weighted average shares of common stock were outstanding during 1997 and 1995, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. During 1996, options to purchase approximately 7.1 million weighted average shares of common stock were outstanding but were not included in the computation of diluted earnings per share. Of this total, options to purchase 18 approximately 0.5 million weighted average shares were excluded because the options' exercise prices were greater than the average market price of the common shares. The remaining options to purchase approximately 6.6 million weighted average shares were excluded as a result of their antidilutive effect due to the loss available to common shareholders. NOTE 9. 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. The Company's products are manufactured at its world headquarters in Mountain View, California, and are sold through a direct sales force in North America, Europe, Australia and Japan, and through 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. A summary of the Company's operations by geographic area for each of the three years ended December 31 is as follows:
From From From Other Total From Domestic European Foreign Foreign (In thousands) Operations Operations Operations Operations Eliminations Total - ------------------------------------------------------------------------------------------------------------------ Sales to unaffiliated 1997 $341,907 $77,246 $18,609 $95,855 $ -- $437,762 customers 1996 256,784 69,968 19,403 89,371 -- 346,155 1995 249,231 69,144 10,547 79,691 -- 328,922 - ------------------------------------------------------------------------------------------------------------------- Transfers between 1997 $ 72,499 $ -- $ -- $ -- $(72,499) $ -- geographic areas 1996 62,521 -- -- -- (62,521) -- 1995 43,367 -- -- -- (43,367) -- - ------------------------------------------------------------------------------------------------------------------- Total sales 1997 $414,406 $77,246 $18,609 $95,855 $(72,499) $437,762 1996 319,305 69,968 19,403 89,371 (62,521) 346,155 1995 292,598 69,144 10,547 79,691 (43,367) 328,922 - ------------------------------------------------------------------------------------------------------------------- Operating income (loss) 1997 $ 31,882 $(1,261) $ (541) $(1,802) $ (1,106) $ 28,974 1996 (17,189) (3,575) 714 (2,861) (1,098) (21,148) 1995 2,775 2,961 (1,354) 1,607 743 5,125 - ------------------------------------------------------------------------------------------------------------------- Income (loss) before 1997 $ 32,417 $(1,060) $ (418) $(1,478) $ (1,106) $ 29,833 income taxes 1996 (14,413) (3,355) 845 (2,510) (1,098) (18,021) 1995 6,110 3,405 (1,172) 2,233 743 9,086 - ------------------------------------------------------------------------------------------------------------------- Identifiable assets 1997 $339,301 $60,635 $14,248 $74,883 $(51,356) $362,828 1996 293,193 59,094 6,338 65,432 (37,924) 320,701 1995 241,963 51,759 8,189 59,948 (6,058) 295,853 - -------------------------------------------------------------------------------------------------------------------
FOREIGN SALES Shipments to foreign customers from both domestic and foreign operations for each of the three years ended December 31 were as follows:
European Other Foreign Total Foreign Percent of (In thousands) Sales Sales Sales Total Sales - ------------------------------------------------------------------------------------------------------------------ 1997 $92,442 $52,841 $145,283 33.2 % 1996 85,638 48,556 134,194 38.8 1995 86,249 35,359 121,608 37.0
19 ________________________________________________________________________________ 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, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP San Jose, California January 29, 1998 20 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Acuson's Common Stock, par value $0.0001, trades on the New York Stock Exchange under the symbol ACN. The following table sets forth the high and low closing sales prices on the New York Stock Exchange for 1997 and 1996.
1997 High Low - --------------------------------------------------------------- 1st Quarter $29.50 $23.38 2nd Quarter 26.38 21.38 3rd Quarter 27.88 19.75 4th Quarter 27.38 15.94 1996 High Low - --------------------------------------------------------------- 1st Quarter $15.75 $12.25 2nd Quarter 20.50 14.38 3rd Quarter 18.13 12.88 4th Quarter 24.75 16.63
The approximate number of shareholders of record of the Company's Common Stock as of December 31, 1997 was 1,357. Acuson has not paid any cash dividends since its inception and does not anticipate paying cash dividends in the foreseeable future. 21 EX-21.1 4 LIST OF SUBSIDIARIES ACUSON CORPORATION EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Acuson Corporation has the following wholly-owned subsidiaries: 1. Acuson Pty. Ltd., organized under the laws of Australia. 2. Acuson GesmbH, organized under the laws of Austria. 3. Acuson Belgium SA/NV, organized under the laws of Belgium. 4. Acuson Canada Ltd., organized under the laws of Ontario, Canada. 5. Acuson A/S, organized under the laws of Denmark. 6. Acuson OY, organized under the laws of Finland. 7. Acuson S.A.R.L., organized under the laws of France. 8. Acuson GmbH, organized under the laws of Germany. 9. Acuson Hong Kong Ltd., organized under the laws of Hong Kong. 10. Acuson S.p.A., organized under the laws of Italy. 11. Acuson Nippon K.K., organized under the laws of Japan. 12. Acuson A/S, organized under the laws of Norway. 13. Acuson Singapore Ltd., organized under the laws of Singapore. 14. Acuson Iberica SA, organized under the laws of Spain. 15. Acuson AB, organized under the laws of Sweden. 16. Acuson Ltd., organized under the laws of the United Kingdom. 17. Acuson Foreign Sales Corporation, organized under the laws of the Virgin Islands. 18. Acuson International Sales Corporation, organized under the laws of the State of California. 19. Acuson Worldwide Sales Corporation, organized under the laws of the State of California. 20. Sound Technology, Inc., organized under the laws of the State of Pennsylvania.
EX-23.1 5 CONSENT OF ARTHUR ANDERSEN ACUSON CORPORATION EXHIBIT 23.1 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, 33-59707 and 33-61691. /s/ Arthur Andersen LLP San Jose, California March 27, 1998 EX-27.1 6 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 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 22,735 0 134,542 3,475 75,517 271,334 207,519 136,888 362,828 152,729 0 0 0 123,968 86,131 362,868 352,476 437,762 187,737 231,003 177,785 0 (859) 29,833 7,456 22,377 0 0 0 22,377 0.78 0.73
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