-----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, JToFgRDQhlp6rVXTgIstV5bw0+yb3qOjDYJfOWc1wTpsZu7pzoklu6vvgYtjvflE gxUjKWUU4fN9cRKTT7yU4Q== 0001012870-99-001607.txt : 19990518 0001012870-99-001607.hdr.sgml : 19990518 ACCESSION NUMBER: 0001012870-99-001607 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACUSON CORP CENTRAL INDEX KEY: 0000717014 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 942784998 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10068 FILM NUMBER: 99625853 BUSINESS ADDRESS: STREET 1: 1220 CHARLESTON RD STREET 2: PO BOX 7393 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94039 BUSINESS PHONE: 4159699112 MAIL ADDRESS: STREET 1: P O BOX 7393 STREET 2: 1220 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 74039 10-Q 1 FORM 10-Q QUARTER ENDING 04/03/1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 3, 1999 or ------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission file number 1-10068 ------- ACUSON CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2784998 ---------------- ------------------ (State of Incorporation) (IRS Employer Identification No.) 1220 Charleston Road P. O. Box 7393 Mountain View, CA 94039-7393 (Address of principal executive offices) Registrant's telephone number, including area code, is (650) 969-9112 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.0001 par value 26,788,993 shares ------------------------------- -------------------------- (Class) Outstanding at May 8, 1999 ________________________________________________________________________________ FORM 10-Q ACUSON CORPORATION INDEX
Page Number PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets as of April 3, 1999 and December 31, 1998 1 Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended April 3, 1999 and April 4, 1998 2 Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 3, 1999 and April 4, 1998 3 Notes to Condensed Consolidated Financial Statements 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 12 ITEM 6. Exhibits and Reports on Form 8-K 12 Signature 13
________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
April 3, December 31, 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 13,402 $ 11,914 Accounts receivable, net of allowance for doubtful accounts of $3,542 in 1999 and $3,561 in 1998 150,263 153,672 Inventories 88,568 82,794 Deferred income taxes 21,854 21,441 Other current assets 22,768 19,059 -------- -------- Total current assets 296,855 288,880 Property and Equipment, at cost, net of accumulated depreciation and amortization of $155,332 and $150,984 in 1999 and 1998, respectively 76,824 79,009 Other assets, net 27,727 27,183 -------- -------- Total Assets $401,406 $395,072 ======== ======== Liabilities and Stockholders' Equity Current Liabilities Short-term borrowings $ 75,000 $ 65,000 Accounts payable 28,778 26,629 Other accrued liabilities 87,459 97,855 -------- -------- Total current liabilities 191,237 189,484 -------- -------- Commitments and contingencies (Note 6) Stockholders' Equity Preferred stock, par value $0.0001: authorized, 10,000 shares; outstanding, none Common stock and additional paid-in capital, common stock par value $0.0001: authorized, 50,000 shares; outstanding, 26,774 shares -- -- and 26,746 shares in 1999 and 1998, respectively 127,261 125,015 Accumulated other comprehensive loss (1,711) (1,099) Retained earnings 84,619 81,672 -------- -------- Total stockholders' equity 210,169 205,588 -------- -------- Total Liabilities and Stockholders' Equity $401,406 $395,072 ======== ========
________________________________________________________________________________ The accompanying notes are an integral part of these statements. 1 ________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share amounts)
Three Months Ended --------------------------------------- April 3, April 4, 1999 1998 - ------------------------------------------------------------------------------------------------------------ Net sales Product $ 96,627 $ 93,579 Service 22,340 22,199 -------- -------- Total net sales 118,967 115,778 -------- -------- Cost of sales Product 52,608 48,451 Service 11,349 12,013 -------- -------- Total cost of sales 63,957 60,464 -------- -------- Gross profit 55,010 55,314 -------- -------- Operating expenses Selling, general and administrative 31,697 32,030 Product development 14,678 14,890 -------- -------- Total operating expenses 46,375 46,920 -------- -------- Income from operations 8,635 8,394 Interest expense (1,214) (574) Interest income 189 390 -------- -------- Income before income taxes 7,610 8,210 Provision for income taxes 2,093 2,463 -------- -------- Net income $ 5,517 $ 5,747 ======== ======== Earnings per share Basic $ 0.21 $ 0.20 ======== ======== Diluted $ 0.20 $ 0.20 ======== ======== Weighted average common shares outstanding Basic 26,760 28,274 ======== ======== Diluted 27,160 29,131 ======== ======== - ------------------------------------------------------------------------------------------------------------ Net income $ 5,517 $ 5,747 Other comprehensive loss, net of tax Foreign currency translation adjustments (612) (213) -------- -------- Comprehensive income $ 4,905 $ 5,534 ======== ========
________________________________________________________________________________ The accompanying notes are an integral part of these statements. 2 ________________________________________________________________________________ ACUSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended --------------------------------------- April 3, April 4, 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 5,517 $ 5,747 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 6,556 5,636 Tax benefit of employee stock transactions (6) 312 Changes in: Accounts receivable 2,872 1,288 Inventories (5,739) (3,527) Deferred income taxes (384) (626) Other current assets (2,522) (257) Leases receivable (2,780) (2,095) Accounts payable 2,323 1,695 Other accrued liabilities (8,737) (7,233) -------- -------- Net cash provided by (used in) operating activities (2,900) 940 -------- -------- Cash flows from investing activities Investment in property and equipment (5,470) (7,800) Sale of fixed assets 493 602 Decrease in other assets (37) 512 -------- -------- Net cash used in investing activities (5,014) (6,686) -------- -------- Cash flows from financing activities Proceeds from short-term borrowings 32,000 19,000 Repayment of short-term borrowings (22,000) (9,000) Repurchase of common stock (3,758) (12,330) Issuance of common stock under stock option and stock purchase plans 3,439 5,026 -------- -------- Net cash provided by financing activities 9,681 2,696 -------- -------- Effect of exchange rate changes on cash (279) (147) -------- -------- Net increase (decrease) in cash and cash equivalents 1,488 (3,197) Cash and cash equivalents, beginning of period 11,914 22,735 -------- -------- Cash and cash equivalents, end of period $ 13,402 $ 19,538 ======== ========
________________________________________________________________________________ The accompanying notes are an integral part of these statements. 3 ________________________________________________________________________________ ACUSON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Interim Statements In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to summarize fairly Acuson Corporation's (the "Company's") condensed consolidated financial position as of April 3, 1999 and its condensed consolidated results of operations and cash flows for the three- month periods ended April 3, 1999 and April 4, 1998. The results of operations for the three months ended April 3, 1999 are not necessarily indicative of the results to be expected for the entire year ending December 31, 1999. Certain information reported in the prior year has been reclassified to conform to the 1999 presentation. The Company's principle accounting policies are set forth in the financial statements for the year ended December 31, 1998, and notes thereto, contained in the Company's Annual Report filed with the Securities and Exchange Commission. Note 2. Comprehensive Income (Loss) Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," requires that items defined as other comprehensive income, such as changes in foreign currency translation adjustments, be separately reported in the financial statements and that the accumulated balance of other comprehensive income be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The following is a summary, in thousands, of the accumulated other comprehensive loss balance:
Accumulated Other Comprehensive Loss ---------------------- Three months ended April 3, 1999 Beginning balance $(1,099) Current-period change (612) ------- Ending balance $(1,711) =======
The following is a summary, in thousands, of the related tax effect allocated to each component of other comprehensive income (loss):
Tax Before-Tax (Expense) Net-of-Tax Amount Or Benefit Amount --------------------------------------------------------- Three months ended April 4, 1998 Foreign currency translation adjustments $(304) $ 91 $(213) ===== ==== ===== Three months ended April 3, 1999 Foreign currency translation adjustments $(844) $232 $(612) ===== ==== =====
Note 3. Earnings Per Share Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if the Company's outstanding, "in the money," stock options were exercised. Diluted earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are calculated using the treasury stock method and represent incremental 4 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 quarters ended April 4, 1998 and April 3, 1999:
(In thousands, except per share amounts) Dilutive Effect of Options Basic Outstanding Diluted ------------------------------------------------------- Quarter Ended April 4, 1998 Net income (numerator) $ 5,747 $ 5,747 Weighted average number of Shares outstanding (denominator) 28,274 857 29,131 Earnings per share $ 0.20 $ 0.20 =================== =================== Quarter Ended April 3, 1999 Net income (numerator) $ 5,517 $ 5,517 Weighted average number of Shares outstanding (denominator) 26,760 400 27,160 Earnings per share $ 0.21 $ 0.20 =================== ===================
At April 3, 1999 approximately 2,400,000 weighted average options to purchase shares of common stock were antidilutive and were therefore 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. Approximately 700,000 antidilutive weighted average options were outstanding at April 4, 1998. Note 4 - Inventories The components of inventories were as follows (in thousands):
April 3, December 31, 1999 1998 ---------------------------------------- Raw materials $27,783 $25,052 Work-in-process 20,643 21,656 Finished goods 40,142 36,086 ------- ------- Total inventories $88,568 $82,794 ======= =======
Note 5 - Short-Term Borrowings On April 3, 1999, the Company had a revolving, unsecured credit agreement in effect for $100.0 million. Under the terms of the agreement, no compensating balances were required and the interest rate was determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. At April 3, 1999, borrowings under this facility, which were subject to certain debt covenants, totaled $75.0 million and the effective rate was 5.9 percent. On April 9, 1999, the Company issued an initial series of unsecured senior notes for $75.0 million. Of this total, senior notes in the amount of $71.0 million were issued with an effective coupon of 6.59 percent and a final maturity of seven years with an average life of five years. The remaining senior notes, totaling $4.0 million, were issued with an effective coupon of 6.39 percent and a final maturity of five years with an average life of three years. Subsequent series of senior notes totaling $5.0 million may be issued at the discretion of the Company. The proceeds from the issuance of the senior notes were used to refinance existing debt, and on April 9, 1999, the Company repaid in full the $75.0 million outstanding under the $100.0 million credit agreement noted above. Also on April 9, 1999, the $100.0 million credit agreement was terminated and replaced with a new revolving unsecured credit agreement for $40.0 million. The terms and conditions of the new agreement are similar to the terms and conditions of the $100.0 million agreement that was in effect on April 3, 1999. 5 The Company also has an uncommitted line of credit for up to 90-day advances not to exceed an aggregate total of $10.0 million. At April 3, 1999, there were no borrowings against this uncommitted line of credit. For the quarter ended April 3, 1999, the Company's weighted average borrowings were $72.7 million and the weighted average interest rate was 6.1 percent. Note 6 - Legal Contingencies On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in connection with the Company's termination of its distributor relationship with Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of approximately $2.5 million, plus interest. The Company intends to defend this suit vigorously. This suit is still in the fact-finding stage. Note 7 - Industry Segment and Geographic Information During 1998 the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information." The Company is organized based upon the nature of the products and services it offers. Under this organizational structure, the Company operates in two fundamental business segments: product and service. The product segment includes the development, manufacture and sale of the Company's systems that generate, display, archive and retrieve medical diagnostic ultrasound images. The service segment provides service and support for the Company's products in accordance with the various service contracts and other purchase arrangements the Company makes available to its customers. The Company's products are 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 independent distributors in Europe, Asia, South America and the Middle East. The information in the following tables is derived directly from the Company's internal financial reporting used for corporate management purposes. The Company evaluates its segments' performance based on several factors, of which the primary financial measure is controllable contribution. Controllable contribution is gross margin less selling expenses. Unallocated costs include corporate and other costs not allocated to business segments for management reporting purposes. The accounting policies followed by the Company's business segments are the same as those set forth in the financial statements for the year ended December 31, 1998, and notes thereto, contained in the Company's Annual Report filed with the Securities and Exchange Commission. Except for inventory, the Company does not allocate assets by segment for management reporting purposes.
Revenue from external customers Quarter Ended Quarter Ended (In thousands) April 3, 1999 April 4, 1998 - ---------------------------------------------------------------------------------------------- Product $ 96,627 $ 93,579 Service 22,340 22,199 -------- -------- Total revenue $118,967 $115,778 ======== ========
Income before income taxes Quarter Ended Quarter Ended (In thousands) April 3, 1999 April 4, 1998 - ----------------------------------------------------------------------------------------------- Product $ 17,583 $ 19,101 Service 10,365 10,095 -------- -------- Controllable contribution 27,948 29,196 Unallocated expense (19,313) (20,802) Interest expense (1,214) (574) Interest income 189 390 -------- -------- Income before income taxes $ 7,610 $ 8,210 ======== ========
6
Segment Assets - Inventory Quarter Ended Year Ended (In thousands) April 3, 1999 December 31, 1998 - ---------------------------------------------------------------------------------------------- Product $73,723 $69,381 Service 14,845 13,413 ------- ------- Total inventory 88,568 82,794 ======= =======
Geographic area information is as follows:
Revenue from external customers Quarter Ended Quarter Ended (In thousands) April 3, 1999 April 4, 1998 - ---------------------------------------------------------------------------------------------- United States $ 80,809 $ 79,185 Europe 24,240 26,791 Other foreign 13,918 9,802 -------- -------- Total revenue $118,967 $115,778 ======== ========
Assets Quarter Ended Year Ended (In thousands) April 3, 1999 December 31, 1998 - ----------------------------------------------------------------------------------------------- United States $380,840 $370,115 Europe 70,411 72,454 Other foreign 18,683 18,677 Eliminations (68,528) (66,174) -------- -------- Total assets $401,406 $395,072 ======== ========
Geographic revenue from external customers represents shipments to foreign customers from both domestic and foreign operations. As of and for the quarters ended April 3, 1999, and April 4, 1998, as well as for the year ended December 31, 1998, operations in any single non-U.S. country did not account for more than 10 percent of consolidated net sales or total assets. Also, during 1999 and 1998, no single customer or group under common control represented 10 percent or more of the Company's sales. Note 8 - Disclosure Of The Impact That Recently Issued Financial Standards Will Have On The Financial Statements When Adopted In A Future Period In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement will require companies to recognize all derivatives, including those used for hedging foreign currency exposures, on the balance sheet at fair value and is effective for all fiscal years beginning after June 15, 1999. Management has not yet determined what effect SFAS 133 will have on the Company's financial statements or results of operations. ________________________________________________________________________________ 7 _______________________________________________________________________________ ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales increased 2.8 percent to $119.0 million for the quarter ended April 3, 1999, compared with $115.8 million for the quarter ended April 4, 1998. Worldwide product revenue increased 3.3 percent to $96.6 million and worldwide service revenue remained relatively constant at $22.3 million. Domestic revenue increased 2.0 percent to $80.8 million for the first quarter of 1999. Domestic revenue from sales of new ultrasound systems increased 11.0 percent over the prior year quarter, but were offset by reduced sales of product options the Company offers on all of its systems. The Company expects options sales to increase during the second half of 1999 as it ramps up shipments of its new Native Tissue Harmonic Imaging option for its installed base of 128XP ultrasound systems. International revenue increased 4.3 percent to $38.2 million for the first quarter of 1999. The increase was primarily due to the shipment of a large order to China. Although international revenue for the first quarter of 1999 increased over the prior year quarter, the Company expects selected international markets to remain depressed. Gross profit decreased to 46.2 percent of net sales for the first quarter of 1999, compared with 47.8 percent for the first quarter of 1998. The decrease was primarily due to product mix, which was largely the result of reduced options sales during the quarter. The decrease was also partly due to temporary production difficulties, partially offset by higher service margins. The Company expects gross profit to increase during the second half of 1999 as options sales increase. The Company also intends to continue to pursue manufacturing efficiencies and cost reduction efforts. Selling, general and administrative expenses and product development spending for the first quarter of 1999 each remained relatively consistent with the prior year quarter. Selling, general and administrative expenses were $31.7 million, or 26.6 percent of net sales, for the quarter ended April 3, 1999, compared to $32.0 million, or 27.7 percent of net sales, for the quarter ended April 4, 1998. Product development spending was $14.7 million, or 12.3 percent of net sales, for the first quarter of 1999, compared to $14.9 million, or 12.9 percent of net sales for the first quarter of 1998. As the Company continues to invest in new product development and related sales support, future operating expenses are expected to increase. Interest expense for the first quarter of 1999 was $1.2 million, compared with $0.6 million for the first quarter of 1998. The increase was the result of greater weighted average short-term borrowings during the first quarter of 1999. The effective tax rate for the quarter ended April 3, 1999, was 27.5 percent resulting in a provision of $2.1 million, compared with an effective rate of 30.0 percent and a provision of $2.5 million for the quarter ended April 4, 1998. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement will require companies to recognize all derivatives, including those used for hedging foreign currency exposures, on the balance sheet at fair value and is effective for all fiscal years beginning after June 15, 1999. Management has not yet determined what effect SFAS 133 will have on the Company's financial statements or results of operations. Liquidity and Capital Resources During the first quarter of 1999, the Company's cash and cash equivalents balance increased $1.5 million to $13.4 million. The Company's operating activities used $2.9 million in cash. The primary uses of cash for operations were a decrease in other accrued liabilities and an increase in inventory, which used $8.7 million and $5.7 million, respectively. The decrease in other accrued liabilities was primarily due to payments of previously accrued compensation. The increase in inventory was largely the result of the Company's continued support of its refurbished systems business and loaned systems programs. The primary source of cash from operations was net income of $5.5 million. The Company's investing and financing activities for the three months ended April 3, 1999, provided $4.7 million in cash. The Company purchased $5.5 million of equipment during the quarter, primarily consisting of computer equipment, software, and other capitalized expenses associated with its new enterprise- wide, integrated business 8 information system. Included in the financing activities for the first quarter of 1999, were net short-term borrowings of $10.0 million and $3.4 million raised through employee participation in the Company's stock option and stock purchase plans. Also included in the financing activities for the first quarter of 1999 was $3.8 million used for share repurchases. During 1996, the Board of Directors authorized the repurchase of 4,000,000 shares of common stock over an unspecified period of time. During the first quarter of 1999, the Company repurchased 250,000 shares at a total cost of $3.8 million. As of April 3, 1999, the Company had repurchased 3,777,400 shares toward the 1996 authorization at a cumulative cost of $66.2 million. During the first quarter of 1999, the Board of Directors authorized the repurchase of an additional 4,000,000 shares of common stock over an unspecified period of time. As of April 3, 1999, there have been no repurchases against this authorization. On April 3, 1999, the Company had a revolving, unsecured credit agreement in effect for $100.0 million. Under the terms of the agreement, no compensating balances were required and the interest rate was determined at the time of borrowing based on the London interbank offered rate plus a margin, or prime rate. At April 3, 1999, borrowings under this facility, which were subject to certain debt covenants, totaled $75.0 million and the effective rate was 5.9 percent. On April 9, 1999, the Company issued an initial series of unsecured senior notes for $75.0 million. Of this total, senior notes in the amount of $71.0 million were issued with an effective coupon of 6.59 percent and a final maturity of seven years with an average life of five years. The remaining senior notes, totaling $4.0 million, were issued with an effective coupon of 6.39 percent and a final maturity of five years with an average life of three years. Subsequent series of senior notes totaling $5.0 million may be issued at the discretion of the Company. The proceeds from the issuance of the senior notes were used to refinance existing debt, and on April 9, 1999, the Company repaid in full the $75.0 million outstanding under the $100.0 million credit agreement noted above. Also on April 9, 1999, the $100.0 million credit agreement was terminated and replaced with a new revolving unsecured credit agreement for $40.0 million. The terms and conditions of the new agreement are similar to the terms and conditions of the $100.0 million agreement that was in effect on April 3, 1999. The Company also has an uncommitted line of credit for up to 90-day advances not to exceed an aggregate total of $10.0 million. At April 3, 1999, there were no borrowings against this uncommitted line of credit. For the quarter ended April 3, 1999, the Company's weighted average borrowings were $72.7 million and the weighted average interest rate was 6.1 percent. Based on its current operating plan, the Company believes that the liquidity provided by its existing cash, the borrowing arrangements described above and anticipated cash generated from operations will be sufficient to meet the Company's projected operating and capital requirements for fiscal 1999. Investment Risks and Other Factors That May Affect Future Results The Management's Discussion and Analysis of Financial Condition and Results of Operations section in this report contains forward-looking statements regarding the Company and its products. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. The Company's actual results could differ materially from those discussed in this document. In evaluating the forward-looking statements contained in this document, prospective investors and shareholders should carefully consider the factors set forth below. Increased option sales during the second half of 1999 depend, among other things, upon timely completion of a number of product capabilities currently under development and market acceptance of upgrades currently offered by the Company, including Native Tissue Harmonic Imaging for the 128XP system, and those under development for introduction this year. In addition, in general, the success of the Company's products in the market and the Company's financial results depend upon the Company continuing to develop and introduce products and software updates in a timely manner; upon the success of product cost reduction designs and initiatives; upon the actual and perceived levels of product performance and quality in a clinical environment compared to other imaging modalities and competitive products; upon continued market acceptance of the Company's products and upgrades and their 9 respective pricing; and upon competitor responses, including the introduction of competitive products and upgrades, pricing, intellectual property allegations and product positioning counter-strategies. International Operations and International Receivables: The Company's business is subject to risks from potential negative impacts of weakness in certain markets in Asia, Latin America and Europe, and by adverse economic impacts from currency fluctuations in its worldwide operations. Political instability or other issues may impact the ability of the Company to collect receivables in foreign countries. The following table, in thousands, summarizes the Company's foreign accounts and leases receivable in excess of $3.0 million at April 3, 1999.
April 3, 1999 ------------- Italy $15,788 Brazil 13,075 China 10,035 France 6,287 Japan 5,737 Germany 4,492 Australia 4,317 Sweden 4,222 United Kingdom 3,343
Company's Computing Environment: During 1997, the Company initiated a two-phase project to replace its outdated computing environment with an enterprise-wide, integrated business information system to control many of its operating systems including order administration, service and financial and manufacturing processes. The first phase of this project has been substantially completed and the second phase is currently scheduled to be completed during the latter half of 2000. The Company has retained an experienced consulting organization to assist in the conversion, however, the Company's future shipments and results could be adversely impacted if, during and following the conversion, there are significant problems with the system. Year 2000 Readiness: The Company is taking steps to ensure its products and services will continue to operate on and after January 1, 2000. In addition to the new business information system noted above, which is year 2000 ready and will be replacing a significant portion of the Company's critical systems, the Company is currently engaged in a three-phase project to evaluate and remedy those systems not being replaced. The first phase, completed in May 1998, included a comprehensive inventory of the Company's systems by an experienced consulting firm and an analysis and determination of the criticality of each system. This phase included the evaluation of both information technology ("IT") and non-IT systems. Non-IT systems include systems or hardware containing embedded technology such as microcontrollers. The second phase was completed in December 1998, and focused on confirming the year 2000 readiness of those systems identified in phase one. The third and final phase, which is expected to be completed early in the fourth quarter of 1999, will involve taking any needed corrective action to make all remaining critical systems and components year 2000 ready and to develop a contingency plan in the event any non-compliant critical systems are not remedied by January 1, 2000. The Company expects the project to be successfully completed during the fourth quarter of 1999 and has established a year 2000 project team, comprised of representatives from each of the Company's functional areas, which reports to senior management. However, if by January 1, 2000, systems material to the Company's operations have not been made year 2000 ready, or if the Company fails to retain or recruit knowledgeable experts, the year 2000 issue could have a material impact on the Company's financial statements. To date, the costs incurred by the Company with respect to this project have not been material and future anticipated costs are not expected to be material. The Company's products being shipped today are year 2000 ready and the Company believes its products previously shipped are either year 2000 ready or can be made year 2000 ready by customer purchase of an upgrade. The Company has also been communicating with suppliers and others it does business with to coordinate year 2000 readiness. The responses received by the Company to date have indicated that steps are currently being undertaken to address this concern. 10 Based upon the steps being taken to address this issue and the progress to date, the Company does not expect the financial impact of the year 2000 date conversion to be material to its financial position or results of operations. However, if preventative and/or corrective actions by the Company or those the Company does business with are not made in a timely manner, the year 2000 issue could have a material adverse effect on the Company's financial statements. The Company primarily sells its products to hospitals, clinics, and other customers within the healthcare industry. Should the year 2000 issue impact the ability and willingness of these customers to purchase capital equipment, the year 2000 issue could have a material adverse impact on the Company's consolidated financial statements. Derivative Financial Instruments: The Company operates internationally and is subject to market risk due to fluctuations in foreign currency exchange rates. The Company manages this risk through established policies and procedures that include the use of derivative financial instruments. The Company routinely enters into forward foreign currency exchange contracts to hedge amounts due from selected subsidiaries denominated in foreign currencies against fluctuations in exchange rates. Forward currency contract terms are typically not more than three months and the counterparties to the exchange contracts are major domestic and international financial institutions. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the Company's operating results and on the cash flows it receives from its foreign subsidiaries. Currently, the Company neither engages in foreign currency speculation nor holds or issues financial instruments for trading purposes. Because the Company only enters into forward currency exchange contracts as hedges, any change in currency rates would not result in a material gain or loss, as any gain or loss on the underlying transaction being hedged would be offset by the gain or loss on the forward currency contract. For this reason, the Company believes that neither its exposure to foreign currency exchange rate risk nor any potential near-term losses in future earnings, fair values or cash flows from reasonably possible near-term changes in market rates or prices would be material. Readers are referred to the Company's 1998 Form 10-K, filed with the Securities and Exchange Commission for further discussion of the Company's market risk due to fluctuations in foreign currency exchange rates. Euro Conversion: On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the Euro as their common legal currency. Following the introduction of the Euro, the local currencies of the participating countries are scheduled to remain legal tender until June 30, 2002. During this transition period goods and services may be paid for in either Euros or the participating country's local currency. Thereafter, only the Euro will be legal tender in the participating countries. The Company's foreign subsidiaries that are part of the European Union have not yet converted to the Euro and continue to use their respective local currencies as their functional currency. However, the conversion will be completed prior to the June 30, 2002 deadline. The Company believes its current accounting systems are capable of accommodating the Euro conversion with minimal intervention and that the conversion will not have a material impact on the competitiveness of its products in Europe. The Company also believes any costs of addressing the Euro conversion will not have a material impact on the Company's financial statements. For a description of the general investment considerations and risks surrounding Acuson's overall business and financial prospects, refer to the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998. 128XP and Acuson are registered trademarks and Native is a trademark of Acuson Corporation. ________________________________________________________________________________ 11 ________________________________________________________________________________ PART II ITEM 1 LEGAL PROCEEDINGS The current status is the same as previously reported in the Company's Form 10-K for the fiscal year ended December 31, 1998. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits -------- 27.1 Financial Data Schedule b) Reports on Form 8-K ------------------- The Company filed no reports on Form 8-K during the quarter ended April 3, 1999. ________________________________________________________________________________ 12 ________________________________________________________________________________ SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACUSON CORPORATION (Registrant) May 17, 1999 By /s/ Barry Zwarenstein ---------------------- Barry Zwarenstein Vice President, Chief Financial Officer (duly authorized Officer and Principal Financial Officer) 13 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 APR-03-1999 13,402 0 153,805 3,542 88,568 296,855 232,156 155,332 401,406 191,237 0 0 0 127,261 82,908 401,406 96,627 118,967 52,608 63,957 46,375 0 1,025 7,610 2,093 5,517 0 0 0 5,517 0.21 0.20
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