-----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, HThqw1qltyHAnre7VdRPw7RSnndJNOUll79DyqKKsYMJqYXpI3xaVvU8bx0/7QjC scmpLGjdRvIA4a1SUPaUUQ== 0000898430-98-001133.txt : 19980331 0000898430-98-001133.hdr.sgml : 19980331 ACCESSION NUMBER: 0000898430-98-001133 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATL ULTRASOUND INC CENTRAL INDEX KEY: 0000806086 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 911353386 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15160 FILM NUMBER: 98577446 BUSINESS ADDRESS: STREET 1: 22100 BOTHELL EVERETT HWY SE STREET 2: PO BOX 3003 CITY: BOTHELL STATE: WA ZIP: 98041-3003 BUSINESS PHONE: 2064877000 MAIL ADDRESS: STREET 1: 22100 BOTHELL EVERETT HWY STREET 2: PO BOX 3003 CITY: BOTHELL STATE: WA ZIP: 98041-3003 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED TECHNOLOGY LABORATORIES INC DATE OF NAME CHANGE: 19960329 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED TECHNOLOGY LABORATORIES INC/ DATE OF NAME CHANGE: 19930414 10-K 1 FORM 10-K FOR PERIOD ENDED 12/31/1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 0-15160 ATL ULTRASOUND, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WASHINGTON 91-1353386 ---------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 22100 BOTHELL-EVERETT HIGHWAY 98041-3003 P.O. BOX 3003 ---------- BOTHELL, WASHINGTON (ZIP CODE) -------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 487-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] On February 27, 1998, the aggregate market value of the voting stock held by non affiliates of the registrant was $648,604,001 based upon the closing sale price of $45.50 per share on the Nasdaq National Market on such date. Number of shares of Common Stock, $0.01 par value per share, of the registrant outstanding as of February 27, 1998: 14,464,614.
DOCUMENTS INCORPORATED BY REFERENCE PART ----------------------------------- ---- Annual Report to Shareholders for the fiscal year ended December 31, 1997.......................... Part II (Items 6-8) Part IV (Item 14) Proxy Statement for the 1998 Annual General Meeting of Shareholders.......................... Part III (Items 10-13)
EXHIBIT INDEX IS ON PAGE 24 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ATL ULTRASOUND, INC. TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. Business....................................................... 3 ITEM 2. Properties..................................................... 14 ITEM 3. Legal Proceedings.............................................. 15 ITEM 4. Submission of Matters to a Vote of Security Holders............ 15 PART II Market for Registrant's Common Equity and Related Shareholder ITEM 5. Matters........................................................ 16 ITEM 6. Selected Financial Data........................................ 16 Management's Discussion and Analysis of Financial Condition and ITEM 7. Results of Operations.......................................... 16 ITEM 7A Quantitative and Qualitative Disclosures About Market Risk..... 16 ITEM 8. Financial Statements and Supplementary Data.................... 17 Changes in and Disagreements with Accountants on Accounting and ITEM 9. Financial Disclosure........................................... 17 PART III ITEM 10. Directors and Executive Officers of the Registrant............. 17 ITEM 11. Executive Compensation......................................... 17 ITEM 12. Security Ownership of Certain Beneficial Owners and Management. 17 ITEM 13. Certain Relationships and Related Transactions................. 17 PART IV Exhibits, Financial Statement Schedules and Reports on Form 8- ITEM 14. K.............................................................. 18
2 PART I ITEM 1. BUSINESS STRUCTURE OF THE COMPANY ATL Ultrasound, Inc. ("ATL" or the "Company") is engaged in the high- technology medical systems business. ATL develops, manufactures, markets and services diagnostic medical ultrasound systems and related accessories and supplies worldwide. The Company currently operates through 14 international affiliates and through approximately 60 local distributors worldwide. COMPANY HISTORY ATL was founded in 1969 when it was incorporated as Advanced Technology Laboratories, Inc. In 1980 the Company was acquired by Squibb Corporation ("Squibb"). In 1986 Squibb organized its medical equipment businesses, including SpaceLabs Medical, Inc. ("SpaceLabs"), a manufacturer and supplier of patient monitoring and clinical information systems, under a corporate holding company, Westmark International Incorporated ("Westmark) and spun the companies off through a distribution of Westmark common stock to Squibb shareholders on January 2, 1987. In 1992 Westmark shareholders voted to separate Westmark into two publicly traded companies comprising two major operating subsidiaries, ATL and SpaceLabs. Westmark shareholders received an equal number of shares of the new separate public company, SpaceLabs, and Westmark changed its name to Advanced Technology Laboratories, Inc., the same name as that of its remaining operating subsidiary. In May 1994 the Company acquired Interspec, Inc. ("Interspec"), a developer and manufacturer of medical diagnostic ultrasound systems and transducers headquartered in Ambler, Pennsylvania through a stock for stock exchange that was approved by the shareholders of both companies. This acquisition added the Apogee(R) product lines of Interspec to those of ATL, giving the Company an expanded presence in the mid-range price and cardiology ultrasound markets. During 1995 the Company consolidated Interspec's Ambler, Pennsylvania operations with ATL's worldwide headquarters operations in Bothell, Washington. In 1995 the Company reincorporated in the state of Washington from its original domicile in Delaware. In 1997 the Company changed its name to ATL Ultrasound, Inc. to more clearly designate the focus of the Company on medical ultrasound. ATL conducts a substantial portion of its business through its domestic operating subsidiary, now known as Advanced Technology Laboratories, Inc. In February 1996 the University of Washington and ATL announced that they and partners VLSI Technology, Inc. and Harris Semiconductor had been awarded funding under the Technology Reinvestment Project by the U.S. government's Advanced Research Project Agency to develop an ultrasound diagnostic instrument small enough to hold in one's hand for use in battlefield and trauma situations. Work under this program commenced in June, 1996 and is expected to culminate in the third quarter of 1998 with the delivery of prototype handheld ultrasound systems to the U.S. Navy, which is overseeing the program. The partners in the program will retain the rights to commercial applications of the program's developments. In February 1997 the Company announced that it had formed a business unit within the Company which has as its objective the commercialization of the technology resulting from this program. In February 1998 the Company announced that it was distributing stock of a newly formed, independent company, SonoSight, Inc., to ATL shareholders as a tax-free stock dividend. This new company has as its objective the commercialization of handheld ultrasound systems in the marketplace. The Company expects to complete this spin-off in the second quarter of 1998. THE ULTRASOUND BUSINESS ATL develops, manufactures, markets and services diagnostic medical ultrasound systems that are widely used in a number of medical applications to assist the physician in monitoring and diagnosing a variety of conditions, such as tumors, inflammations, obstructions, cardiovascular diseases, fetal development, and surgical assessment. A noninvasive procedure, ultrasound uses high frequency sound waves to image the body's soft tissue, organs and blood flow in real time. It is highly cost effective and can eliminate the need for more invasive 3 and expensive procedures. ATL is one of the leading suppliers of diagnostic ultrasound systems in the world. Its High Definition(TM) Imaging (HDI(R)) and Apogee(R) product lines serve all major diagnostic ultrasound clinical markets--radiology, cardiology, obstetrics/gynecology ("OB/GYN") and vascular medicine--and a variety of newly emerging clinical markets such as musculoskeletal diagnosis. These product lines span a range of system prices from mid to premium priced ultrasound products. Diagnostic ultrasound products, upgrades and accessories sold for use in hospitals, clinics and physicians' offices accounted for an estimated $2.5 billion worldwide market in 1997. The total medical imaging market, including x-ray, MRI and CT imaging equipment is estimated by the Company to be over $8 billion worldwide in 1997. ULTRASOUND TECHNOLOGY ATL's Technology The Company believes that it has become a worldwide leader in ultrasound technology through its proprietary position in digital, broad bandwidth beamforming, advanced software, and broad bandwidth scanhead technologies. Ultrasound systems include three major components: a scanhead which transmits sound waves into the body of a patient, receives returning echoes from the patient and converts the echoes into electrical signals; a processing unit which processes the electrical echo signals into images and measurements of physiological conditions within the patient's body; and a monitor which displays the resulting images or measurement information. ATL's scanheads are characterized by the breadth of the bandwidth of ultrasonic signals which are transmitted and received. ATL's HDI systems are characterized by their ability to fully process broadband signals characteristic of the body's tissues digitally. ATL has been a pioneer in digital ultrasound technology and introduced the industry's first digital beamforming processor in 1988. In February 1997 ATL introduced the HDI 1000 system, which combines ATL's core technologies in broadband scanheads, digital beamforming, and advanced proprietary software to form a software-based color system for the world's rapidly growing mid-range markets. In July 1997 ATL introduced its fifth generation digital ultrasound system to the premium ultrasound market, the HDI 5000 system. ATL'S PRODUCTS HDI 5000 ULTRASOUND SYSTEM. In July 1997 ATL introduced its fifth generation digital ultrasound system, the HDI 5000(TM) system, for the premium ultrasound market. The HDI 5000 system is believed to be the world's most powerful ultrasound system, capable of performing over 14 billion operations per second, yet is the same physical size as ATL's previous premium performance product, the HDI 3000 system. The new system incorporates a new, more powerful digital beamformer incorporating four new ASICs (Application Specific Integrated Circuits) which make possible ATL's MicroFine(TM) Grayscale Imaging that provides more subtle tissue information and significantly reduced dot size. At the heart of the HDI 5000 system is a patented new Doppler processor which employs multi-dimensional broadband flow processing to provide new levels of flow sensitivity for deep and small vessels. The HDI 5000 system uses existing HDI scanheads and also operates with three new high-performance broadband scanheads. The HDI 5000cv model of this new system provides advanced performance for the premium cardiology market. The HDI 5000 and 5000cv systems are both available as new ultrasound systems or as on-site upgrades to the HDI 3000 system worldwide, a uniquely flexible option for existing ATL customers. The HDI 5000 system has been selected by NASA for launch on the International Space Station in the year 2001, where the system will be operated by astronauts to diagnose the effects of weightlessness and other characteristics of spaceflight on the human body. HDI 3000 ULTRASOUND SYSTEM. In October 1994 ATL introduced its fourth generation digital ultrasound system, the HDI 3000(TM) system. The HDI 3000 system is designed to address the economic imperatives of an evolving health care environment in the United States and international markets. It is lighter in weight than competitive high performance systems, providing greater mobility and enabling it to be easily moved to the bedside of critical care patients. The HDI 3000 system also features an intuitive, ergonomically designed set of user controls, which enable an ultrasonographer or physician to quickly gain confidence in operating the system and performing highly diagnostic examinations. The HDI 3000 system provides interactive menu screens with 4 diagnostic applications selectable at the touch of a button. This feature, called Tissue Specific(TM) Imaging, automatically optimizes over one thousand system operating parameters for the selected diagnostic examination and scanhead. The HDI 3000 system offers full Doppler capability including Color Power Angio(TM) imaging features, Power Motion Imaging(TM) for cardiac applications, Contrast Specific Imaging(TM) for harmonic imaging and imaging with ultrasonic contrast agents, and three dimensional imaging of the human vasculature. In March, 1997 ATL introduced Tissue Harmonic Imaging, a feature derived from the Company's early research in imaging with harmonic contrast agents, which reduces near field clutter in cardiac and deep abdominal images. The HDI 3000 system operates with a full array of broad bandwidth scanheads, including a family of Entos intraoperative scanheads designed for surgical use, the diagnosis of breast disease and musculoskeletal injuries. The HDI 3000 system can be purchased in a variety of configurations for specific clinical applications, including a fully configured model for the cardiovascular market, the HDI 3000cv system. In April, 1996 the U.S. Food and Drug Administration (FDA) approved ATL's breast premarket approval application (PMA) for the HDI system. This approval allows a new clinical application of ultrasound that, in conjunction with mammography, will provide physicians with a high level of confidence in differentiating benign from malignant or suspicious breast lesions. Studies have shown that approximately 80% of breast lump biopsies performed in the United States have resulted in a finding that the lump is benign. The PMA application was based on the results of an international multi-center study involving the examination of women with indeterminate lesions with the Ultramark 9 HDI system. In December, 1996 the FDA approved a PMA supplement which allows the HDI 3000 system to be marketed for this new application. ATL has equipped the HDI 3000 to perform examinations in accordance with the new protocol through the introduction of a new breast analysis package for the system, which was introduced in the fall of 1996. HDI 1000 ULTRASOUND SYSTEM. In February 1997 ATL introduced the HDI 1000 system, a mid-range grayscale, color and Doppler product for the general imaging and OB/GYN markets. This system makes many features of high performance ultrasound systems affordable to a broad range of potential customers through advanced software implementation: the system replaces over 50% of the hardware of a conventional ultrasound machine with software which performs over 70% of the functions of the ultrasound system. At the heart of this software-intensive system is ATL's proprietary Multitasking Software Management technology (MSM(TM)), which utilizes an "object-oriented" software architecture to perform self-contained software tasks which replace conventional ultrasound hardware. The HDI 1000 system is also unique among mid-range ultrasound products for its broad range of communication capabilities. The HDI 1000 system's MSM technology comes equipped for remote Internet/Intranet access to images and reports stored in the system's memory. ATL's patented WebLink(TM) feature enables physicians to simultaneously view images on the system and consult with colleagues around the globe directly from the HDI 1000 system. The system can even be remotely controlled through secure Web pages transmitted over the Internet. The fully integrated communication capabilities enable patient reports and ultrasound images to be printed directly on standard desktop printers. The HDI 1000 system utilizes scanheads of the other ATL HDI systems and the ease of control of HDI Tissue Specific(TM) Imaging, enabling existing ATL customers to apply their existing HDI scanheads and previously acquired operating skills directly to the HDI 1000 system. APOGEE 800PLUS SYSTEM. In 1994 the Company introduced the mid-range Apogee 800 system for the mid-range radiology and internal medicine markets. The Apogee 800 system offers features normally found on high performance systems and can be configured to address the broad array of clinical needs of the radiologist, internal medicine specialist, and OB/GYN physician. In 1996 ATL introduced an upgraded model of this product, the Apogee 800PLUS, offering improved image quality, Doppler performance, processing capability, improved analysis packages and user controls. The Apogee 800PLUS system is available in a full cardiology configuration with three convex phased array scanheads, the 4-2C15 adult cardiology probe, the 6-3C13 small adult cardiology probe, and the 8-5C11 pediatric cardiology probe, and integrated stress echo capability. 5 In September, 1996 the Company announced that it had entered into a technology transfer agreement with the Shantou Institute of Ultrasonic Instruments (SIUI), whereby SIUI will manufacture Apogee 800PLUS systems in the People's Republic of China. SIUI also acquired the exclusive right to distribute the Apogee 800PLUS system in that country. The Company completed this technology transfer in 1997. ATL continues to manufacture the Apogee 800PLUS system in Bothell, Washington for worldwide distribution outside of China. IMAGE MANAGEMENT PRODUCTS. In February 1997 the Company announced that it had entered into a memorandum of understanding to sell its Nova MicroSonics division to the Eastman Kodak Company ("Kodak"), which is establishing a worldwide presence in multi-modality image management. The Nova MicroSonics division manufactured and marketed networking, image acquisition and measurement products for use in ultrasound data and image management by hospitals, labs, clinics and physician offices. ATL had been working cooperatively with Kodak for a number of years in ultrasound image management product performance and distribution. The Company completed this transaction in May, 1997. The Company continues to work closely with Nova MicroSonics as a division of Kodak in the development and distribution of image management products. The transaction did not result in a material gain or loss to the Company. SCANHEADS. ATL believes that its internal resources devoted to development and manufacture of ultrasonic scanheads make it one of the largest ultrasound scanhead manufacturers in the world. ATL's capabilities in scanhead design and manufacture were enhanced in 1994 with the addition of the Echo Ultrasound division of Interspec, located in Reedsville, Pennsylvania. The Reedsville site now develops and manufactures scanheads for ATL products and also offers scanheads to other ultrasound companies. ACCESSORIES AND SUPPLIES. The Company sells a variety of ultrasound accessories and supplies, most of which are not manufactured by the Company. These include disposable supplies, such as ultrasound gel and thermal paper, and accessories, such as biopsy guides, printers, cameras and videocassette recorders ("VCRs"). The Company markets these products through direct sales, mail and its customer support organization. PRINCIPAL MARKETS The worldwide ultrasound market is typically categorized by clinical application, price range and geographic area. CLINICAL APPLICATIONS. Ultrasound products are used in four primary medical applications: radiology, cardiology, OB/GYN, and vascular applications. ATL also sells its products in several emerging clinical application markets, including breast and musculoskeletal applications and the surgical ultrasound market. Radiology. The radiology, or general imaging, application, at approximately 49% of the worldwide ultrasound market, is the largest market for ultrasound equipment. The major radiology markets are in the United States, Japan and Europe. Most radiology examinations are conducted in hospitals or large imaging centers. In radiology, ultrasound is used to obtain diagnostic information on organs and soft tissue, particularly in the abdominal area. It is also used to ascertain fetal development, to guide tissue biopsies and to visualize blood flow. A substantial portion of the radiology market also requires systems which include cardiac imaging capabilities. In the United States and Canada this market segment is often referred to as the shared service market. Most community or small hospitals without a dedicated cardiology department fall into this category. In Europe, the internal medicine or shared services segment requires systems which include cardiac imaging capability. ATL's radiology product offerings include the premium HDI 5000 system, the high performance HDI 3000 system, the mid-range HDI 1000 system, and the Apogee 800PLUS system. 6 Cardiology. The cardiology ultrasound, or echocardiography, application, at approximately 29%, is the second largest market for ultrasound systems. Most dedicated echocardiography system sales occur in the United States, Western Europe, and the more developed Asian and Latin American markets. While most cardiology system sales are to hospitals, the cardiology office practice represents a significant and growing share of the market for echocardiography equipment. Cardiologists use ultrasound as a noninvasive means of capturing real-time images of the heart and its valves. These images, together with various Doppler techniques, help the physician assess heart function as well as congenital and valvular disease. With new advances in scanheads plus acquisition and image display technology, echocardiography is a useful tool for the detection and assessment of coronary artery disease. Ultrasound has also been shown to be valuable in assessing the effectiveness of drug therapy and intervention for the heart attack patient. In 1996 ATL became the first ultrasound company to introduce the integrated capability to image harmonic and other ultrasonic contrast agents in the HDI 3000cv system. It is anticipated that this emerging application will gain increasing prominence as contrast agents become more widely available around the world and cardiologists become more familiar with their application and use. ATL's cardiology product offerings include the HDI 5000cv system, the HDI 3000cv system and the Apogee 800PLUS system. OB/GYN. The third largest market for ultrasound systems is the OB/GYN application, at approximately 15%. The majority of OB/GYN ultrasound system sales are to office-based practitioners in the United States, Western Europe, and the more developed Asian markets. Perinatology is a clinical specialty in OB/GYN dedicated to high risk obstetrics. Most perinatology ultrasound sales are to hospitals and institutions in the United States. Ultrasound is the preferred imaging technology for the assessment of fetal development since it is noninvasive and involves no ionizing radiation. Ultrasound is also used for general gynecological and infertility examinations. The introduction of the intravaginal scanhead in the 1980s expanded the usefulness of ultrasound for first-trimester obstetrical studies and the diagnosis of ectopic pregnancies. ATL's OB/GYN product offerings include the HDI 5000 and HDI 3000 systems for perinatology, and the HDI 1000 system and the Apogee 800PLUS system for all OB/GYN applications and markets. Vascular. The smallest of the primary clinical markets for ultrasound systems, at approximately 7%, is the vascular ultrasound application, primarily practiced in the United States and Western Europe. Most vascular ultrasound examinations are performed in hospitals. Vascular ultrasound studies utilize real-time imaging, Doppler and color Doppler information to identify plaque deposits and their characteristics, clots, and valve competence in blood vessels. Most vascular examinations are performed on the body's extremities, cerebrovascular and deep abdominal regions. ATL's vascular product offerings include the HDI 5000, the HDI 3000 and the Apogee 800PLUS systems. The Entos CL10-5 intraoperative scanhead was specially designed for vascular surgery, and addresses the increasing use of ultrasound in the surgical suite to immediately assess the results of surgical procedures. Emerging applications. Other specialized applications for ultrasound products, such as breast disease, musculoskeletal, and surgery, are included in the above market percentages. ATL provides the HDI 3000 and HDI 1000 systems with the L10-5 and Entos CL10-5 scanheads for breast clinics and orthopedic and sports medicine clinics, and with the Entos CL10-5, CT8-4 and LI9-5 intraoperative scanheads for surgical suites. The HDI 3000 system is available with the LLI9-5 laparoscopic probe for minimally invasive surgery, and with harmonic and contrast agent imaging capability for emerging applications of contrast agents in both radiology and cardiology. 7 PRICE RANGES. The world ultrasound market can be divided into five segments based on broad price ranges. Each market segment is characterized by the level of system performance and the number of scanheads and system features. Premium Performance. The premium market segment, comprising about 18% of the world market for ultrasound products, is characterized by ultrasound systems that typically sell for over $160,000 per unit. These systems provide the physician with superior definition of subtle tissue characteristics and incorporate high resolution gray scale imaging, advanced color velocity, power, and spectral Doppler capability, image acquisition storage, display and review capability, advanced automation capabilities, and other features providing additional clinical utility such as Tissue Harmonic Imaging and three dimensional imaging. Typically, systems sold in the premium market are equipped with a wide variety of specialty scanheads. The HDI 5000 and the HDI 5000cv systems are ATL's premium performance products. High Performance. The high performance market, comprising about 30% of the world ultrasound market, is characterized by systems with high resolution gray scale imaging and advanced color velocity, power and spectral Doppler capabilities. Systems in this market segment sell between $100,000 and $160,000 per unit and generally include advanced measurement and analysis software, image review capabilities, and a variety of scanhead offerings. ATL sells the HDI 3000 system and fully configured HDI 1000 systems in this market segment. Mid-Range. The mid-range market segment, comprising about 28% of the world ultrasound market, is characterized by ultrasound systems that sell between $50,000 and $100,000 per unit. These units are basic gray scale imaging, color and spectral Doppler systems used for routine examinations and reporting and utilize a minimum number of scanheads. Many of these systems are sold to small hospitals and clinics and are used in radiology, cardiology and OB/GYN applications. Refurbished premium and high performance systems with fewer purchased optional features are also sold in this price range. ATL's products in this market segment include the HDI 1000 system and the Apogee 800PLUS system. Low-End. The low-end market segment makes up the remaining 24% of the market and is characterized by basic black and white imaging systems that sell below $50,000 per unit. These systems provide limited diagnostic information and are used primarily for monitoring fetal development and in other basic radiology and OB/GYN applications. Most of these systems are sold to private office practitioners and small hospitals. Due to the growing acceptance and affordability of color Doppler systems, units with only greyscale capability represent the slowest growing portion of the market. ATL does not presently compete in this market segment. GEOGRAPHIC AREAS. The ultrasound market is divided into four major geographic markets. North America. The United States and Canada together comprise about 34% of the world ultrasound market. This market traditionally has been characterized by its emphasis on high performance systems driven by competition for patient referrals. These factors encourage the rapid adoption of new technology. Over the past four years, the emphasis in the United States has turned to more efficient health care delivery and managed care, and been marked by considerable consolidation of health care organizations. The predominately western trend toward managed care has now begun to manifest itself strongly in the eastern U.S., creating new uncertainties among healthcare buyers. With consolidation and economic pressures, the U.S. market has become increasingly value conscious while the installed base of ultrasound technology has continued to age as a whole. In 1997, following several years of stagnant growth, the U.S. market began to manifest signs of new growth, spurred by the introduction of premium ultrasound systems by a number of manufacturers and the desire to replace aging equipment with up-to-date technology. Europe. The European market, at 35% of the market, is the largest regional market for ultrasound systems. European health care systems are more centralized than the United States market and are often subject to more rigid governmental regulation. The more regulated character of health care in Europe provides more stability to the European markets than is evident in the U.S. during economic cycles of growth and contraction. Value 8 consciousness and state regulated health care has been characteristic of European markets for a number of years, unlike the United States where these effects are of relatively recent origin. In 1997 the European markets were highly competitive and many U.S.-based manufacturers were disadvantaged in Europe by the strengthening of the U.S. dollar. Japan. This market accounts for approximately 11% of worldwide ultrasound sales. Its complex distribution system is highly competitive and Japanese manufacturers account for almost all sales. In 1996 ATL began to experience an emerging market presence in Japan through the efforts of Hitachi Medical Corporation (HMC), ATL's exclusive distributor in the Japanese market. The HDI 5000 system was introduced in the Japanese market in February 1998, joining the HDI 3000 system as ATL's product offerings in that market. Asia Pacific and Latin America. The remaining geographic areas of the world account for approximately 20% of the market, and are among the world's fastest growing markets for ultrasound. The Australian market is similar in structure to many European countries. Parts of Asia and Latin America represent some of the fastest growing areas for high performance and mid-range ultrasound products. Many of the newly developing countries in these regions are devoting substantial resources to building a health care infrastructure. Many ultrasound systems sold in these regions are mid-range systems, refurbished systems or new low-priced Japanese systems. RESEARCH AND DEVELOPMENT The high technology ultrasound business is characterized by rapidly evolving technology, resulting in relatively short product life cycles and continuing competitive pressure to develop and market new products and new features for existing products. Although the Company intends to continue extensive research and development activities, there can be no assurance that it will be able to develop and market new products on a cost-effective and timely basis, that such products will compete favorably with products developed by others, or that the Company's existing technology will not be superseded by new discoveries by competitors. In August 1996 the Company jointly announced with Vital Images, Inc. that the two companies had entered into agreements for the exclusive development and marketing of 3D ultrasound imaging products utilizing Vital Images' volume rendering technology. Under the agreements Vital Images will receive royalties on ATL sales of the jointly developed products. The first product resulting from this collaboration, the Advanced 3DI(TM) system, was introduced by ATL in December 1997. The Advanced 3DI system operates interactively with ATL's new HDI 5000 system which provides acquisition of ultrasound data for three dimensional images. The HDI 5000 system also features fully integrated three dimensional Color Power Angio(TM) imaging, first introduced by ATL on the HDI 3000 system in 1995, and also offers Integrated 3D Grayscale imaging, which was introduced on the HDI 5000 system in December 1997. MANUFACTURING The Company manufactures its ultrasound system products at its facility in Bothell, Washington. Scanheads for ATL products are manufactured in both Reedsville, Pennsylvania and Bothell, Washington. Reedsville also manufactures certain specialty scanheads for other ultrasound companies and users. The Company purchases certain unique scanheads from original equipment manufacturers. The Company also purchases the hard-copy output devices sold with its ultrasound systems, such as VCRs and cameras, and other materials and component parts. The OEM scanheads purchased by ATL could be manufactured by ATL, and many of the materials and components used by ATL in the manufacture of ultrasound equipment are available from more than one source of supply. Certain components, however, are single sourced, such as crystals and integrated circuits which are critical to the quality and manufacture of ultrasound equipment. Vendors can also experience difficulty in meeting quality standards the Company requires of its vendors. While any of these single-source items could be replaced over time, abrupt disruption in the supply of a single-source part could have a material adverse effect on ATL's manufacture of the products relying on such items. In addition, these items generally have long order lead times, restricting the Company's ability to respond quickly to changing market conditions. 9 Manufacturing efforts can also be impeded by third party assertions of patent infringement by the Company's products. There can be no assurance the Company will not be subject to claims of patent infringement by other parties or that such claims will not require the Company to pay substantial damages or delete certain features from its products or both. See ITEM 3, Legal Proceedings, below. SALES AND MARKETING The Company's sales and marketing strategy has been to compete in all of the major clinical, price and geographic segments of the ultrasound market with the exception of the very low priced market segment. In the United States, the Company markets its products through its direct sales organization. The United States general imaging sales organization is organized into two geographic zones, each staffed with regional management, sales representatives and clinical application specialists knowledgeable in radiology, OB/GYN, and peripheral vascular applications. A specialized sales force with its own clinical application specialists offers the Company's cardiology products to customers in the United States. The role of the application specialists is to demonstrate the products and train customers in their clinical use. The Company markets its products internationally through its direct sales and service operations in Argentina, Australia, Austria, Belgium, Canada, China, France, Germany, India, Italy, the Netherlands, Sweden, the United Kingdom and Singapore. In addition, the Company markets its products in India through a joint venture with Indchem Electronics. Other principal markets are covered through a distributor network. European, Middle Eastern and African distributors are managed through ATL's offices in Germany. Distributors serving the Pacific Rim countries are served by ATL's office in Singapore. Latin American and South American distributors are supported by ATL's U.S. offices. Customers outside of the United States accounted for 49% of revenues in 1997. The Company's marketing efforts emphasize the development of strong relationships with key medical professionals, participation in national and regional meetings and conventions for physicians and hospitals, direct mail advertising, journal advertising and sponsorship of educational programs. CUSTOMER SUPPORT AND WARRANTY The Company warrants its new and used products for all parts and labor generally for one year from the date of original delivery. The Company offers a variety of post-warranty service agreements permitting customers to contract for the level of equipment maintenance they require. Alternatively, customers can contact ATL as needed and receive service at rates based on labor and cost of parts. The Company's warranty costs are included in cost of product sales. See ITEM 8, Financial Statements and Supplementary Data. The Company maintains its own customer support organization in the United States and other countries where the Company has direct operations. Local dealers and distributors provide service and support in other countries. The Company provides manuals and expedites delivery of repair parts to all geographic locations from its facility in Bothell, Washington, with the assistance of its direct operations in Europe. The Company's customer service organizations are an integral part of its sales effort because a customer's decision to purchase a particular product is based in part on the availability and reputation of the service for that product. In addition, the customer service organization sells and installs upgrades for existing customers and provides training for biomedical technicians so customers can service their own systems. The customer education organization provides customer education programs on clinical applications and the use of the Company's products. COMPETITION The ultrasound market is highly competitive. The Company competes worldwide in the major clinical applications of the ultrasound market, in the mid and upper price ranges and in each major geographic market. 10 Four companies--Toshiba Corporation's Medical Systems Group, ATL, Hewlett- Packard Company's Medical Products Group and Acuson Corporation--account for approximately 60% of the worldwide ultrasound market. The Company believes that these four companies have similar market shares. Toshiba, ATL, and Acuson participate in all of the major clinical ultrasound markets. Hewlett-Packard holds the largest individual market share in the cardiology market and also distributes a mid-range general imaging product. General Electric Medical Systems, Inc. (GEMS) and Siemens Medical Systems, Inc., both of which have extensive businesses in other medical imaging modalities, have in recent years devoted increasing resources to development of their medical ultrasound businesses. GEMS has recently announced plans to acquire the ultrasound businesses of Elbit Ultrasound, which operates principally through subsidiaries Diasonics and Vingmed Sound. The year 1997 was marked by major new product offerings by the Company and Hewlett-Packard, continuing a trend which began in 1995. The many new product offerings in recent years have made the ultrasound market even more competitive than in the past, as customers have an even broader range of products from which to choose. The breadth of new products from many companies appears to have lengthened the time required for customers to make decisions to purchase, since customers have many more products to consider before making a purchase decision. Virtually all of the recent competitive product offerings are based upon digital technology to varying degrees, as competitors attempt to position their new products as comparable to those of ATL, which pioneered digital ultrasound systems over a decade ago. Many of the Company's major competitors, such as Hewlett-Packard Company's Medical Products Group, Toshiba' Medical Systems Group, General Electric Medical Systems, the Diasonics subsidiary of Elbit, Inc., and Siemens Medical Systems, are divisions or subsidiaries of companies much larger than ATL. GEMS and Siemens, as well as Toshiba and others, have multi-modality medical imaging product offerings, including MRI, CT, nuclear medicine and x-ray products in addition to ultrasound. These companies and several of the Company's other competitors have far greater financial, marketing, servicing, technical and research and development resources than those of the Company, and are able to support and sustain their efforts in the ultrasound market with resources derived from other imaging modalities and businesses. In the spin-off of SonoSight, Inc., the Company's handheld ultrasound division, the Company has agreed that it will not enter the handheld ultrasound business for the next five years, a business generally defined as ultrasound systems weighing ten pounds or less. ATL does have a license to use SonoSight developments of the next three years in its non-handheld business and SonoSight has corresponding rights to ATL developments in its handheld business. The Company believes that significant competitive factors in the diagnostic ultrasound market include the clinical performance of systems, cost effectiveness of products, reputation for technology leadership, upgradeability to advanced features, availability of Company-provided purchase financing, reliability, ease of use and price of products and service. See "Research and Development." The Company believes that it presently competes favorably with respect to each of these competitive factors, however, there can be no assurances that the Company will be able to fully respond to competitive inroads by companies with far greater resources than ATL. Ultrasound is only one of a number of diagnostic imaging technologies currently available, including conventional x-ray, angiography, CT, magnetic resonance imaging and P.E.T. A development in another diagnostic technology or declining prices for these other products which bring them into the range of price competition with ultrasound could adversely affect ATL and the ultrasound industry. PATENTS, TRADEMARKS AND LICENSES The Company has obtained patents on certain of its products and has applied for patents which are presently pending. The Company has also sought trademark protection for the brand names of the products it currently markets. There can be no assurance that any additional patents will be issued or that trademark protection will be granted and maintained. 11 Certain critical technology incorporated in the Company's products, including software algorithms, broad bandwidth scanhead technology and ASIC (Application Specific Integrated Circuit) technology, is protected by copyright laws and confidentiality and licensing agreements. The Company's proprietary digital beamformers are protected by confidentiality agreements, patents, copyright and trade secret law. There can be no assurances that these modes of intellectual property protection will continue to maintain the proprietary aspects of ATL's technology. Companies in high technology businesses routinely review the products of others for possible conflict with their own patent rights. The Company has from time to time received notices of claims from others alleging patent infringement. While the Company believes that it does not infringe any valid patent of any third party, there can be no assurance that the Company will not be subject to future claims of patent infringement or that any claim will not require the Company to pay substantial damages or delete certain features from its products or both. While such claims could temporarily interrupt the Company's ability to ship affected products, the Company believes that any such interruption can be overcome by technical changes to product features. See ITEM 3, Legal Proceedings, below. GOVERNMENTAL REGULATION Product Regulation. The Company's products are subject to extensive regulation by numerous governmental authorities, principally the U.S. Food and Drug Administration ("FDA") and corresponding state and foreign agencies, and to various domestic and foreign electrical safety and emission standards. The FDA has broad regulatory powers with respect to preclinical and clinical testing of new medical products and the design, manufacturing, marketing and advertising of medical products. The Company's product development processes, manufacturing facilities, and the manufacture of its products are subject to FDA regulations respecting registration of manufacturing facilities and compliance with the FDA's Quality System Regulations ("QSRs"). The Company is also subject to periodic on-site agency inspection for compliance with such regulations. The Company's ability to obtain timely FDA export and new product approvals is dependent upon the results of such inspections. In January, 1997 the FDA concluded a comprehensive inspection of the Company's Bothell, Washington facilities and all Company products as a part of the approval process for ATL's breast PMA supplement for the HDI 3000 system. The FDA has notified ATL that the Company has satisfied the requirements of this inspection. The FDA requires that all medical devices introduced to the market be preceded either by a premarket notification clearance order under Section 510(k) of the Federal Food, Drug and Cosmetic Act, as amended (the "FDC Act"), or an approved PMA application. A 510(k) premarket notification clearance order indicates FDA agreement with an applicant's determination that the product for which clearance has been sought is substantially equivalent to medical devices that were on the market prior to 1976 or have subsequently received clearance. An approved PMA application indicates that the FDA has determined that the device has been proven, through the submission of clinical trial data and manufacturing quality assurance information, to be safe and effective for its labeled indications. The process of obtaining 510(k) clearance typically takes approximately six to nine months, while the premarket approval application process typically lasts more than a year. All of ATL's current products have 510(k) clearance and additionally, the HDI 3000 system is cleared to be marketed under ATL's breast PMA application. The Company believes that its products comply generally with applicable electrical safety standards, such as those of Underwriters Laboratories and non-U.S. safety standards authorities. Several countries have in recent years changed the electronic emission requirement which must be met by ultrasound equipment. There can be no assurances that the Company will be able to continue to respond to these continually changing regulatory requirements in a timely manner. The Company's regulatory compliance programs have been expanded to encompass verification of the Company's compliance with international quality standards for medical device design, manufacture, installation, and servicing known as ISO 9001 standards. All of the Company's manufacturing facilities have qualified for 12 ISO 9001 registration. In addition, several of the Company's international sales and service subsidiaries received certification under the ISO 9002 standards for sales and service entities. ISO 9001 standards and related medical device directives will become mandatory in Europe in June 1998. The FDA has adopted the ISO 9001 standards as regulatory standards for the United States in the form of the new QSR requirements, which go into effect in June 1998. ATL's HDI and Apogee products have received the European Community (CE) mark in Europe. The CE mark means that the HDI products satisfy the regulatory requirements of all of the countries of the European community, enabling the product to be freely marketed throughout Europe. The CE mark will be required to market products in Europe beginning in 1998. Federal, state and foreign regulations are constantly undergoing change. The increasing attention given to the national health care legislation has caused U.S. ultrasound customers to become more cautious in making expenditures and investing in capital equipment. In addition, the U.S. health care system has undergone significant consolidations and restructuring in recent years. The Company cannot predict what effect, if any, such change may have on its business, or when the deleterious effect of these conditions on its business will change. Reimbursement. The Company's products are used by health care providers for diagnostic testing services and other services for which the providers may seek reimbursement from third-party payers, principally in the United States, Medicare, Medicaid and private health insurance plans. Such reimbursement is subject to the regulations and policies of governmental agencies and other third-party payers. For example, the Medicare program, which reimburses hospitals and physicians for services provided to a significant percentage of hospital patients, places certain limitations on the methods and levels of reimbursement of hospitals for procedure costs and for capital expenditures made to purchase equipment, such as that sold by the Company. The Medicare program also limits the level of reimbursement to physicians for diagnostic tests. The state-administered Medicaid programs and private payers also place limitations on the reimbursement of both facilities and physicians for services provided in connection with diagnostic and clinical procedures. Reduced governmental expenditures in the United States and many other countries continue to put pressure on diagnostic procedure reimbursement. The Company cannot predict what changes may be forthcoming in these policies and procedures, nor the effect of such changes on its business. Third-party payers worldwide, including governmental agencies, are under increasing pressure to contain medical costs. Limits on reimbursement or other cost containment measures imposed by third-party payers may adversely affect the financial condition and ability of hospitals and other users to purchase products, such as those of the Company, by reducing funds available for capital expenditures or otherwise. The Company is unable to forecast what additional legislation or regulation, if any, relating to the health care industry or third-party reimbursement may be enacted in the future or what effect such legislation or regulation would have on the Company. Environmental. The Company is subject to Federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Although the Company's current operations have not been significantly affected by compliance with environmental laws or regulations, Federal, state and local governments are becoming increasingly sensitive to environmental issues, and the Company cannot predict what impact future environmental regulations may have on its operations. EMPLOYEES As of December 31, 1997, the Company had 2,669 employees worldwide. None of the Company's United States employees are covered by collective bargaining agreements, and the Company considers its employee relations to be satisfactory. 13 FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Information set forth in "Geographic Segment Information" of the Notes to the Consolidated Financial Statements contained in Note 20 on page 30 of the 1997 Annual Report to Shareholders is incorporated by reference herein. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is information concerning certain officers of the Company who are not Directors. Donald D. Blem. Mr. Blem has served as Senior Vice President, Operations since October 1993. He served as Vice President, Operations from February 1988 to October 1993. Castor F. Diaz. Mr. Diaz has served as Senior Vice President, Worldwide Sales and Marketing, since February 1995 and as Vice President, ATL Europe from October 1988 to February 1995. He also held various sales and marketing positions with ATL from May 1987 to October 1988. Pamela L. Dunlap. Ms. Dunlap has served as Senior Vice President, Finance and Administration, and Chief Financial Officer since February 1998. She served as Vice President and Treasurer of the Company from May 1996 to February 1998, and as Treasurer of the Company from August 1995 to May 1996. From 1992 until August 1995 Ms. Dunlap served as Assistant Treasurer. Prior to that time, she held various financial and administrative positions since joining ATL in March 1987. Prior to joining ATL, Ms. Dunlap was an auditor with Arthur Andersen and Company. Jacques Souquet, Ph.D. Dr. Souquet has served as Senior Vice President, Product Generation since October 1993. He served as Vice President, Product Generation from October 1992 to October 1993, as Vice President, Strategic Marketing and Product Planning from July 1990 to October 1992 and as Director of Strategic Marketing and Product Planning from March 1989 to June 1990. ITEM 2. PROPERTIES The Company owns two buildings on the corporate campus at 22100 Bothell Everett Highway, Bothell, Washington 98021, consisting of 365,000 square feet and is presently constructing a third building of 101,000 square feet which it expects to occupy during the third quarter of 1998. These buildings include the Company's corporate headquarters and its major manufacturing facility, as well as the Company's research and development, sales, service, marketing and administrative functions. The Company also leases space in several buildings in nearby business parks. 14 The Company's Reedsville facility occupies 63,000 square feet in a building owned by the Company in Reedsville, Pennsylvania. ATL continues to own a building of 70,000 square feet in Ambler, Pennsylvania, which is occupied by the Company's cardiology sales organization. The unused space in the Ambler building is currently listed for lease. The Company's direct business operations in the United States and other countries lease office and warehouse space in their respective countries. There are no significant unutilized facilities for ongoing operations, other than those discussed above, and the Company believes its existing facilities are sufficient to meet its near-term operating requirements. ITEM 3. LEGAL PROCEEDINGS The Company is subject to various claims and other proceedings which arise in the ordinary course of its businesses and believes that such proceedings, individually or in the aggregate, will not have a material adverse effect on the business or financial condition of the Company. Insured claims arising from ATL's businesses are covered by the Company's insurance policies. The Company intends to maintain insurance coverage against business risks at levels that take into account the nature and magnitude of the respective businesses to be conducted by ATL. There can be no assurance that the Company's current insurance coverage will prove adequate or that the amount or type of coverage available to the Company will remain available on a cost- effective basis. In May 1996, a U.S. District Court in California ordered the Company to pay damages in the amount of $27.9 million together with interest, costs and attorney fees on a patent infringement claim by SRI International, Inc. ("SRI") relating to an electrical circuit alleged to be used in several of the Company's discontinued products. The patent expired in 1994. In September 1997 the Federal Circuit Court of Appeals in Washington, D.C. upheld the decision of the District Court. The Company completed payment of the assessed damages and the supersedeas bond was released in the fourth quarter of 1997. The Company accrued a provision in 1996 for the full amount of the damages awarded and accrued interest during the appeal process. See Note 10 of the Notes to the Consolidated Financial Statements on page 24 of the 1997 Annual Report to Shareholders incorporated by reference herein. There can be no assurance the Company will not be subject to claims of patent infringement by other parties or that such claims will not require the Company to pay substantial damages or delete certain features from its products or both. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Market and Market Price for Common Stock. The Company's Common Stock, $0.01 par value, trades on the Nasdaq Stock Market under the symbol ATLI and is an authorized security for quotation on the Nasdaq Stock Market's National Market System (the "Nasdaq National Market"). The market prices of the Company's Common Stock during the two-year period ended December 31, 1997 are set forth below. The prices reflect the high and low trading prices during each quarter as reported by the Nasdaq National Market to ATL.
ATL COMMON STOCK HIGH LOW ---------------- ------ ------ Quarter ended December 31, 1997.............................. 48.125 39.438 Quarter ended September 26, 1997............................. 47.875 33.75 Quarter ended June 27, 1997.................................. 45.25 27 Quarter ended March 28, 1997................................. 37 28.75 Quarter ended December 31, 1996.............................. 33.25 25 Quarter ended September 27, 1996............................. 38.50 25.25 Quarter ended June 28, 1996.................................. 40.75 26.50 Quarter ended March 29, 1996................................. 31.50 20.50
Shareholders. The number of shareholders of record of the Company's Common Stock as recorded on the books of ATL's Registrar and Transfer Agent as of March 20, 1998 was 7,256. Dividends. The Company has not paid cash dividends on its capital stock and does not currently have any plans to pay such dividends in the foreseeable future. The Company's dividend policy is dependent upon its earnings, the overall financial condition of ATL, and other factors to be considered by the Board of Directors from time to time. ITEM 6. SELECTED FINANCIAL DATA Reference is made to page 12 of the 1997 Annual Report to Shareholders, which is incorporated herein by reference and made a part hereof in response to the information required by this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to pages 13 through 16 of the 1997 Annual Report to Shareholders, which is incorporated herein by reference and made a part hereof in response to the information required by this item. Updating the "Capital Resources and Liquidity" section on page 15 of "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," the Company has recently decided to contribute capital of $18 million in cash to SonoSight, Inc. on the Distribution Date, and $12 million in cash on January 15, 1999. SonoSight, Inc. is the wholly-owned subsidiary consisting of ATL's handheld business which the Company intends to spin-off to ATL shareholders through a tax-free stock distribution in the second quarter of 1998. This change in capital structure was prompted by Nasdaq National Market listing requirements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. The Company is a non-bank and non-thrift registrant which is not subject to this reporting requirement until fiscal years ending after June 15, 1998. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements are incorporated herein by reference and made a part hereof from the 1997 Annual Report to Shareholders in response to the information required by this item:
PAGE ----- Independent Auditors' Report........................................ 17 Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 1997 and 1996......... 18 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1997........................ 19 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1997........................ 20 Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended December 31, 1997........... 21 Notes to Consolidated Financial Statements........................ 22-31
See Part IV, Item 14, for the Financial Statement Schedules filed with this Form 10-K Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Part III (Items 10) is partially set forth in ATL's definitive proxy statement for the Company's 1998 Annual General Meeting of Shareholders which will be filed pursuant to Regulation 14A within 120 days of December 31, 1997. Such information is incorporated herein by reference and made a part hereof. The information set forth in ITEM 1 "Executive Officers of the Registrant", found on page 14 of this Form 10-K is incorporated herein by reference in response to the information required by this item. ITEM 11. EXECUTIVE COMPENSATION The information required by Part III (Item 11) is set forth in ATL's definitive proxy statement for the Company's 1998 Annual General Meeting of Shareholders which will be filed pursuant to Regulation 14A within 120 days of December 31, 1997. Such information is incorporated herein by reference and made a part hereof. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Part III (Item 12) is set forth in ATL's definitive proxy statement for the Company's 1998 Annual General Meeting of Shareholders which will be filed pursuant to Regulation 14A within 120 days of December 31, 1997. Such information is incorporated herein by reference and made a part hereof. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Part III (Item 13) is set forth in ATL's definitive proxy statement for the Company's 1998 Annual General Meeting of Shareholders which will be filed pursuant to Regulation 14A within 120 days of December 31, 1997. Such information is incorporated herein by reference and made a part hereof. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT: 1. Financial Statements. As noted in Part II, Item 8, the following financial statements have been incorporated by reference from the Company's 1997 Annual Report to Shareholders: Independent Auditors' Report Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 1997 and 1996 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1997. Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1997. Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended December 31, 1997. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules. An index to the financial statement schedules required to be filed by Part II, Item 8 of this Form 10-K is set forth immediately before the attached financial statement schedule on page 18 of this filing. 3. Management Contracts and Compensatory Arrangements. Exhibits constituting management contracts and compensatory arrangements are indicated by footnote (M). (B) REPORTS ON FORM 8-K: None (C) EXHIBITS: The required exhibits are included at the back of this Form 10-K and are described in the Exhibit Index immediately preceding the first exhibit. INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE ---- Independent Auditors' Report.............................................. (19) II--Valuation and Qualifying Accounts for the Years ended December 31, 1997, 1996 and 1995...................................................... (27)
All other schedules are omitted because they are not applicable, the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. 18 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders ATL Ultrasound, Inc.: Under date of February 13, 1998 we reported on the consolidated balance sheets of ATL Ultrasound, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, as contained in the 1997 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule of valuation and qualifying accounts. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Seattle, Washington February 13, 1998 19 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors ATL Ultrasound, Inc.: We consent to incorporation by reference in the registration statements, 333-41217, 333-29955, 333-08881, 33-61807, 33-38218, 33-38217, 33-28830, 33- 28092, 33-22434, 33-10618, 33-47967, 33-54757, 33-59914 and 33-66298 on Form S-8, of ATL Ultrasound, Inc., of our reports dated February 13, 1998, relating to the consolidated balance sheets of ATL Ultrasound, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, and related financial statement schedule, which reports appear in the December 31, 1997 annual report on Form 10-K, or are incorporated by reference therein from the 1997 annual report to shareholders of ATL Ultrasound, Inc. KPMG Peat Marwick LLP Seattle, Washington March 27, 1998 20 SIGNATURES KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints DENNIS C. FILL, PAMELA L. DUNLAP, and W. BRINTON YORKS, Jr. and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution, and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. ATL Ultrasound, Inc. (Registrant) /s/ Dennis C. Fill By __________________________________ Dennis C. Fill Chairman of the Board PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Dennis C. Fill Chairman of the Board, Chief March 27, 1998 ____________________________________ Executive Officer, Dennis C. Fill President and Director /s/ Pamela L. Dunlap Senior Vice President and March 27, 1998 ____________________________________ Chief Financial Officer Pamela L. Dunlap /s/ Kirby L. Cramer Director March 27, 1998 ____________________________________ Kirby L. Cramer /s/ Harvey Feigenbaum Director March 27, 1998 ____________________________________ Harvey Feigenbaum M.D. /s/ Eugene A. Larson Director March 27, 1998 ____________________________________ Eugene A. Larson /s/ Ernest Mario Director March 27, 1998 ____________________________________ Ernest Mario, Ph.D.
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SIGNATURE TITLE DATE --------- ----- ---- /s/ John R. Miller Director March 27, 1998 ____________________________________ John R. Miller /s/ Phillip M. Nudelman Director March 27, 1998 ____________________________________ Phillip M. Nudelman /s/ Harry Woolf Director March 27, 1998 ____________________________________ Harry Woolf, Ph.D. /s/ Edith M. Feild Vice President and Corporate March 27, 1998 ____________________________________ Controller (Principal Edith M. Feild Accounting Officer)
22 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- (A) 3.1 Articles of Incorporation of ATL Ultrasound, Inc. (B) 3.2 Certificate of Designation of Series A, Participating Cumulative Preferred Stock Setting Forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Such Series of Preferred Stock of ATL Ultrasound, Inc. (C) 3.3 Bylaws of ATL Ultrasound, Inc. (D) 4.1 Amended and Restated Rights Agreement between Advanced Technology Laboratories, Inc. and First Chicago Trust Company of New York dated as of June 26, 1992. (E) 4.2 Revolving Credit Loan Agreement by and among Advanced Technology Laboratories, Inc. (Washington), Advanced Technology Laboratories, Inc. (Delaware) and Seattle-First National Bank dated as of June 26, 1992 and supplemental letter dated February 4, 1993. (E) 4.3 Uncommitted Line of Credit for $10 million by and among Advanced Technology Laboratories, Inc. (Washington), Advanced Technology Laboratories, Inc. (Delaware) and Seattle-First National Bank dated as of June 18, 1992. (F) 10.1 Lease between WRC Properties, Inc. and Advanced Technology Laboratories, Inc. dated January 10, 1992. (G) 10.2 Note dated November 30, 1989 in the principal amount of $2,000,000 issued by Montgomery County Industrial Development Corporation to The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.27 on Form 10-K, filed on February 25, 1994). (G) 10.3 Loan Agreement dated November 30, 1989 between Montgomery County Industrial Development Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.26 on Form 10-K, filed on February 25, 1994). (G) 10.4 Mortgage dated November 30, 1989 between Montgomery County Industrial Development Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.28 on Form 10-K, filed on February 25, 1994). (G) 10.5 Memorandum of Installment Sale Agreement and Amendment dated November 30, 1989 between Montgomery County Industrial Development Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.13 on Form 10-K, filed on February 25, 1994). (G) 10.6 Amendment to Installment Sale Agreement dated November 30, 1989 between Montgomery County Industrial Development Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.12 on Form 10-K, filed on February 25, 1994). (G) 10.7 Assignment of Installment Sale Agreement and Amendment dated November 30, 1989 by Montgomery County Industrial Development Corporation to The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.14 on Form 10-K, filed on February 25, 1994). (G) 10.8 Consent, Subordination and Assumption Agreement dated November 30, 1989 between Montgomery County Industrial Development Corporation and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.25 on Form 10-K, filed on February 25, 1994).
23
EXHIBIT NO. DESCRIPTION ----------- ----------- (G) 10.9 Promissory Note dated May 29, 1990 in the principal amount of $1,500,000 from Mifflin County Industrial Development to The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.19 on Form 10-K, filed on February 25, 1994). (G) 10.10 Loan Agreement dated May 29, 1990 between Mifflin County Industrial Development and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.33 on Form 10-K, filed on February 25, 1994). (G) 10.11 Mortgage dated May 29, 1990 between Mifflin County Industrial Development and The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.20 on Form 10-K, filed on February 25, 1994). (G) 10.12 Installment Sale Agreement dated October 14, 1988 between Mifflin County Industrial Development and Interspec, Inc.; Amendment of to Installment Sale Agreement dated December 9, 1988; and Second Amendment to Installment Sale Agreement dated May 29, 1990 (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.22 on Form 10-K, filed on February 25, 1994). (G) 10.13 Assignment of Installment Sale Agreement dated May 29, 1990 by Mifflin County Industrial Development to The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.23 on Form 10-K, filed on February 25, 1994). (G) 10.14 Consent, Subordination and Assumption Agreement dated May 29, 1990 by Mifflin County Industrial Development to The Pennsylvania Industrial Development Authority (incorporated by reference from Interspec, Inc. 1993 Annual Report, filed as Exhibit 10.32 on Form 10-K, filed on February 25, 1994). (H) 10.15 Purchase and Sale Agreement by and between ELDEC Corporation, N.C. ELDEC Inc. and ATL for the sale of ELDEC Building and surrounding property. (H) 10.16 Certificate and Indemnity Agreement by ATL for the benefit of Seattle First National Bank for $11,500,000 loan for ELDEC Building and surrounding property. (H) 10.17 Deed of Trust, Security Agreement as of December 28, 1994, by ATL to Rainier Trust Company for the Benefit of Seattle-First National Bank, for ELDEC Building and surrounding property. (H) 10.18 Promissory Note for $11,500,000 dated December 28, 1994 from ATL to Seattle-First National Bank for ELDEC Building and surrounding property. (I)(M)(R) 10.19 1986 Amended and Restated Option, Restricted Stock, Stock Appreciation Right and Performance Unit Plan. (M)(R) 10.20 Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan, Amended and Restated effective January 1, 1997. (M) 10.21 First Amendment to the Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan, effective July 1, 1997. (M)(C) 10.22 Advanced Technology Laboratories, Inc. Supplemental Benefit Plan A, Amended and Restated January 1, 1996. (M)(C) 10.23 ATL Supplemental Benefit Plan B, Amended and Restated January 1, 1996. (H) 10.24 Trust Agreement for Incentive Savings and Stock Ownership Plan by and between Advanced Technology Laboratories, Inc. and First Interstate Bank of Washington, N.A. effective June 26, 1992.
24
EXHIBIT NO. DESCRIPTION ----------- ----------- (M)(J) 10.25 Amended and Restated Retirement Plan, effective May 17, 1994. (M)(J) 10.26 First Amendment to ATL Retirement Plan dated December 29, 1995. (M)(C) 10.27 Second Amendment to ATL Retirement Plan dated July 25, 1996. 10.28 Third Amendment to the Advanced Technology Laboratories, Inc. Retirement Plan. (H) 10.29 Amended and Restated Retirement Plan Trust Agreement by and between Advanced Technology Laboratories, Inc. and First Interstate Bank of Washington, N.A. effective December 29, 1993. (K)(M)(R) 10.30 Management Incentive Compensation Plan. (L)(M) 10.31 Amendment to Management Incentive Compensation Plan, effective May 5, 1993. (E) 10.32 Employee Benefit Allocation Agreement between Westmark International Incorporated and SpaceLabs Medical, Inc. dated as of May 18, 1992. (N)(M)(R) 10.33 Amended 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan, dated May 8, 1996. (E) 10.34 Forms of Option Grant, Restricted Stock Award Agreement and Restricted Stock Award Letter under the 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan. (L)(M) 10.35 Long Term Incentive Plan, effective January 1, 1993. (N) 10.36 Amended Nonemployee Director Stock Option Plan, dated May 8, 1996. (I)(M) 10.37 Change of Control Employment Agreement with Dennis C. Fill dated January 1, 1991. (E)(M) 10.38 First Amendment to Employment Agreement with Dennis C. Fill dated May 18, 1992. (C)(M) 10.39 Third Amendment to Employment Agreement with Dennis C. Fill dated July 25, 1996. (M) 10.40 Fourth Amendment to Employment Agreement with Dennis C. Fill, dated June 9, 1997. (O)(R) 10.41 Amended and Restated Nonofficer Employee Option, Restricted Stock and Stock Grant Plan. (P)(R) 10.42 1992 Nonofficer Employee Stock Option Plan. (M)(P) 10.43 ATL Employee Stock Purchase Plan, adopted October 25, 1996. (Q) 10.44 Amended and Restated Agreement and Plan of Merger as of February 10, 1994 between ATL and Interspec, Inc. and Press Releases dated February 10, and February 24, 1994. 13 1997 Annual Report to Shareholders (Such report, except to the extent incorporated herein by reference, is being provided for the information of the Securities and Exchange Commission, only, and is not deemed to be filed as a part of this Annual Report on Form 10-K). 21 Subsidiaries of ATL as of December 31, 1997. 23 Consent of KPMG Peat Marwick LLP. Reference is made to the Consent on page 19 of this filing in response to this item. 27.1 Financial Data Schedule for Fiscal Year 1997. 27.2 Restated Financial Data Schedule for Fiscal Year 1996. 27.3 Restated Financial Data Schedule for Fiscal Year 1995. (S) 28 Proxy Statement to Shareholders for ATL's 1998 Annual General Meeting of Shareholders.
25
EXHIBIT NO. DESCRIPTION - ----------- ----------- (A) Previously filed with, and incorporated herein by reference to, ATL's Current Report on Form 8-K, File No. 0-15160, filed July 9, 1997. (B) Previously filed with, and incorporated herein by reference to, ATL's Current Report on Form 8-K, File No. 0-15160, filed on January 11, 1996. (C) Previously filed with, and incorporated herein by reference to ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March 28, 1997. (D) Previously filed with, and incorporated herein by reference to, Westmark International Incorporated's Amendment to Application Form 8, filed on June 25, 1992. (E) Previously filed with, and incorporated herein by reference to, ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March 25, 1993. (F) Previously filed with, and incorporated herein by reference to, Westmark's Annual Report on Form 10-K, File No. 0-15160, filed on March 26, 1992. (G) Previously filed and incorporated herein by reference from Interspec, Inc.'s Annual Report on Form 10-K/A, File No. 0-15883, filed on February 25, 1994. (H) Previously filed with, and incorporated herein by reference to, ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March 30, 1995. (I) Previously filed with, and incorporated herein by reference to, Westmark's Annual Report on Form 10-K, File No. 0-15160, filed on March 22, 1991. (J) Previously filed and incorporated herein by reference to, ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March 28, 1996. (K) Previously filed with, and incorporated herein by reference to, Westmark's Registration Statement on Form 10, File No. 0-15160. (L) Previously filed with, and incorporated herein by reference to, ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March 4, 1994. (M) Management Contracts and Compensatory Arrangements. (N) Previously filed with, and incorporated herein by reference to, ATL's Registration Statement on Form S-8, Registration No. 333-08881, filed on July 26, 1996. (O) Previously filed with, and incorporated herein by reference to, Westmark International Incorporated's Registration Statement on Form S-8, Registration No. 33-38218, filed on December 14, 1990. (P) Previously filed and incorporated herein by reference to ATL's Registration Statement on Form S-8, Registration No. 333-29955, filed on June 25, 1997. (Q) Previously filed with, and incorporated herein by reference to, ATL's Current Report on Form 8-K, File No. 0-15160, filed on February 17, 1994 and March 4, 1994. (R) Previously filed and incorporated herein by reference to ATL's Post Effective Amendment No. 1 on Form S-8, filed on August 14, 1995. (S) To be filed within 120 days of the 1996 fiscal year end pursuant to General Instruction G to Form 10-K.
26 SCHEDULE II ATL ULTRASOUND, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
ADDITIONS ------------------- BALANCE BALANCE AT CHARGED TO CHARGED AT END BEGINNING COSTS AND TO OTHER OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ---------- ---------- -------- ---------- ------- (IN THOUSANDS) Year ended December 31, 1997 Valuation accounts deducted from assets: Allowance for doubtful receivables and sales returns .............. $ 9,621 $1,744 $ -- $3,585(1) $ 7,780 ======= ====== ===== ====== ======= Year ended December 31, 1996: Valuation accounts deducted from assets: Allowance for doubtful receivables and sales returns............... $10,140 $1,553 $ -- $2,072(1) $ 9,621 ======= ====== ===== ====== ======= Year ended December 31, 1995: Valuation accounts deducted from assets: Allowance for doubtful receivables and sales returns............... $10,428 $1,521 $ -- $1,809(1) $10,140 ======= ====== ===== ====== =======
NOTE: (1) Accounts charged off, net of recoveries. 27 EX-10.21 2 FIRST AMEND. TO INCENTIVE SAVINGS AND STOCK PLAN EXHIBIT 10.21 FIRST AMENDMENT TO THE ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN The Advanced Technology Laboratories, Inc. Inventive Savings and Stock Ownership Plan (the "Plan"), as amended and restated effective January 1, 1997, is amended as follows pursuant to Section 12.1 of the Plan, effective July 1, 1997, except as otherwise stated herein: 1. The first paragraph of the Preamble is deleted in its entirety and replaced with the following provision: THIS SAVINGS AND STOCK OWNERSHIP PLAN (hereinafter referred to as the "Plan"), formerly known as the Westmark International Incorporated Incentive Savings and Stock Ownership Plan and the Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan and now known as the ATL Ultrasound, Inc. Incentive Savings and Stock Ownership Plan, was amended and restated effective January 1, 1997, by Advanced Technology Laboratories, Inc., which is now known as ATL Ultrasound, Inc., a Washington corporation. 2. The following provisions are inserted after the eighth paragraph of the Preamble: WHEREAS, effective July 1, 1997, the Company changed it's name to ATL Ultrasound, Inc. a Washington corporation; and WHEREAS, effective July 1, 1997, the Plan's name is changed to "ATL Ultrasound, Inc. Incentive Savings and Stock Ownership Plan;" and 3. Section 1.8 Committee, is deleted in its entirety and replaced with the following: 1.8 Committee "Committee" means the ATL Ultrasound, Inc. Benefits Committee as from time to time constituted and appointed by the Compensation Committee of the Board of Directors of the Company to administer the Plan. 4. Section 1.9 Company, is deleted in its entirety and replaced with the following: 1.9 Company "Company" means ATL Ultrasound, Inc. a Washington corporation. For purposes other than Section 12, 13 and 14, the term "Company" ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERHSIP PLAN APPENDIX I shall also include other Participating Companies as provided from time to time in Appendix I to this Plan. 5. Effective January 1, 1998, the first paragraph of Section 1.17 Earnings shall be replaced in its entirety by the following: "Earnings" for any Plan Year means straight-time pay paid to an Employee for services rendered to the Participating Company (calculated without regard to any reduction for Before-tax Contributions or pre-tax contributions to a cafeteria plan pursuant to Section 125 of the Code), including: (1) special geographical location allowances, holiday pay, sick leave pay (exempt and non-exempt), short-term disability (exempt and non- exempt), retroactive pay as it applies to any of the above, and pay for vacation hours taken; (2) overtime pay, shift differentials, and bonuses (including MICP and bullet bonuses) not in excess of fifty percent (50%) of the annualized straight-time pay prior to reduction as described above; (3) salesperson commissions and service commissions/incentives. Notwithstanding the foregoing, Earnings shall not include non-refundable draw, employee referral bonuses, Performance Unit Plan awards, car allowances, stock option payments, restricted stock awards, lump sum payments or cash payoffs for unused vacation, severance pay, retention bonus, hiring bonus, long-term disability payments (exempt and non-exempt), relocation payments in the form of reimbursement or relocation bonus, and any wage paid by a foreign branch or subsidiary of the Company under a non- U.S. payroll. 6. Section 1.30 Plan, is deleted in its entirety and replaced with the following: 1.30 Plan "Plan" means the ATL Ultrasound, Inc. Incentive Savings and Stock Ownership Plan either in its previous form or as amended from time to time. 7. Section 6.5 Changes in Investment of Existing Accounts is amended by replacing the last sentence of the first paragraph with the following: "Accounts may not be transferred to the Company Stock Fund or the Spacelabs Stock Fund, except that amounts may be transferred from the Spacelabs Stock Fund to the Company Stock Fund in accordance with Section 5.2(e). ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERHSIP PLAN APPENDIX I 8. Section 6.5 Changes in Investment of Existing Accounts is amended by replacing "thirty percent (30%)" in the third paragraph with "fifty percent (50%)". 9. Section 11.9 Domestic Relations Orders shall be amended by inserting the following sentence at the end of the second paragraph: "Distributions to an alternate payee of any interest in stock shall be distributed in cash in lieu of the shares of stock. 10. Appendix I of the Plan is deleted and replaced with the attached Appendix I. IN WITNESS WHEREOF, ATL Ultrasound, Inc. has caused this First Amendment to be duly executed on the ______________ day of __________, 1997. FOR ATL ULTRASOUND, INC. __________________________ By:_____________________________ Witness Title: _________________________ ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERHSIP PLAN APPENDIX I 3 APPENDIX I TO THE ATL ULTRASOUND, INC. INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN "Participating Companies" as defined in Section 1.27 of the ATL Ultrasound, Inc. Incentive Savings and Stock Ownership Plan shall also include the following companies during the specified time: Company Beginning Ending - ------------------------------------------------------------------------------- ATL Ultrasound, Inc. (formerly Advanced Technology Laboratories, Inc. (Washington)) January 1, 1987 Interspec, Inc. January 1, 1995 August 31, 1995 ACKNOWLEDGED AND ACCEPTED: By: ______________________________ Title: ___________________________ Date: ____________________________ ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERHSIP PLAN FIRST AMENDMENT EX-10.28 3 THIRD AMEND. TO ATL RETIREMENT PLAN EXHIBIT 10.28 THIRD AMENDMENT TO THE ADVANCED TECHNOLOGY LABORATORIES, INC. RETIREMENT PLAN The Advanced Technology Laboratories, Inc. Retirement Plan ("Plan"), as amended and restated effective May 17, 1994, is amended as follows pursuant to Section 11.1 of the Plan, effective May 11, 1997, except as otherwise provided. 1. Effective July 1, 1997, the first paragraph of the Preamble is deleted in its entirety and replaced with the following provision: THIS RETIREMENT PLAN (hereinafter referred to as the "Plan", formerly known as the Westmark International Incorporated Retirement Plan and the Advanced Technology Laboratories, Inc. Retirement Plan, and now known as the ATL Ultrasound, Inc. Retirement Plan) is amended and restated effective May 17, 1994, by ATL Ultrasound, Inc., a Washington corporation (formerly known as Advanced Technology Laboratories, Inc., a Delaware corporation). 2. Effective July 1, 1997, the following provisions are inserted after the ninth paragraph in the Preamble: WHEREAS, effective July 1, 1997, the Employer changed its name to ATL Ultrasound, Inc., a Washington corporation; and WHEREAS, effective July 1, 1997, the Plan's name is changed to "ATL Ultrasound, Inc. Retirement Plan. 3. Effective July 1, 1997, Section 1.7 Committee is deleted in its entirety and replaced with the following: 1.7 Committee "Committee" means the ATL Ultrasound, Inc. Benefits Committee as from time to time constituted and appointed by the Compensation Committee of the Board of Directors of the Employer to administer the Plan. 4. Effective July 1, 1997, the reference to "Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan" in subsection (b) of Section 1.11 Earnings is deleted and replaced with "ATL Ultrasound, Inc. Incentive Savings and Stock Ownership Plan." THIRD AMENDMENT ADVANCED TECHNOLOGY LABORATORIES, INC. RETIREMENT PLAN 1 5. Effective July 1, 1997, Section 1.15 Employer is deleted and replaced with the following: "Employer" means ATL Ultrasound, Inc., a Washington corporation. For purposes other than Sections 10, 11 and 12, the term "Employer" shall also include other Affiliated Companies that adopt the Plan with the approval of the Board of Directors of ATL Ultrasound, Inc., as provided from time to time in Appendix I to this Plan. 6. Effective July 1, 1997, the first sentence of Section 1.22 Period of Service is deleted and replaced with the following: Period of Service means the period of time commencing with the Employment Commencement Date and ending on the Severance From Service Date, provided that Period of Service with ATL Ultrasound, Inc. beginning before the Effective Date shall be included. 7. Effective July 1, 1997, Section 1.26 Plan is deleted and replaced with the following provision: "Plan" means ATL Ultrasound, Inc. Retirement Plan in either its previous or present form, or as amended from time to time. 8. A new subsection (c) is inserted at the end of Section 2.1 Eligibility for Participation to state as follows: (c) Employees Transferred to Kodak, Inc. Each Eligible Employee who: (i) was employed by Nova MicroSonics, a division of the Employer, on May 11, 1997; (ii) transferred employment to Kodak, Inc. on May 12, 1997; and (iii) was not already a Participant shall become a Participant under this Plan on May 11, 1997, irrespective of his or her Period of Service or Hours of Service. 9. The following paragraph is inserted at the end of Section 7.1 Vesting to state as follows: Further, each Eligible Employee who: (i) was employed by Nova MicroSonics, a division of the Employer, on May 11, 1997; (ii) transferred employment to Kodak, Inc. on May 12, 1997; and (iii) was not already vested shall have a one hundred percent (100%) nonforfeitable right to his or her Accrued Benefit as of May 11, 1997, irrespective of his or her Period of Service. THIRD AMENDMENT ADVANCED TECHNOLOGY LABORATORIES, INC. RETIREMENT PLAN 2 10. Effective July 1, 1997, the heading and the first sentence in Appendix I of the Plan are deleted and replaced with the following: APPENDIX I TO THE ATL ULTRASOUND, INC. RETIREMENT PLAN "Employer" as defined in Section 1.15 of the ATL Ultrasound Inc. Retirement Plan shall also include the following companies during the specified period of time. IN WITNESS WHEREOF, ATL Ultrasound, Inc. has caused this Third Amendment to be duly executed on the _______ day of _______________, 1997. ATL ULTRASOUND, INC. _________________________ By:_______________________________ Witness Title:____________________________ THIRD AMENDMENT ADVANCED TECHNOLOGY LABORATORIES, INC. RETIREMENT PLAN 3 EX-10.40 4 FOURTH AMEND. TO EMPLOYMENT AGREEMENT EXHIBIT 10.40 FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT THIS FOURTH AMENDMENT to an employment agreement by and between ATL Ultrasound, Inc., a Washington corporation (the "Company"), and Dennis C. Fill (the "Executive") is effective as of the 9th day of June, 1997. WITNESSETH: WHEREAS, the Executive has for the past nine years served the Company as its Chairman of the Board and Chief Executive Officer under the terms of an EMPLOYMENT AGREEMENT dated November 2, 1990, as amended by a FIRST AMENDMENT of May 18, 1992 and a THIRD AMENDMENT of July 25, 1996; and WHEREAS, the Company and the Executive desire to further amend such amended EMPLOYMENT AGREEMENT by the following terms and conditions; NOW, THEREFORE, the Company and the Executive agree as follows: 1. CERTAIN DEFINITIONS All defined terms used herein, unless defined herein, shall have the meanings stated in the EMPLOYMENT AGREEMENT and its amendments. 2. BASE SALARY During the Employment Period, the Executive shall receive an annual base salary of $625,000, effective as of the first Company payroll period commencing after May 1, 1997. 3. CONSULTING AGREEMENT The five year consulting agreement provided in Section 3b(v) of the THIRD AMENDMENT shall, in recognition of the deferral of its intended 1996 start date, have a per annum payment of $450,000, payable quarterly, and otherwise shall be in accordance with the terms and conditions stated in the THIRD AMENDMENT. 4. INCENTIVE COMPENSATION The Executive is entitled to the following incentive compensation, payable under the Company's Management Incentive Compensation Plan, and measured and determined on January 1, 1999: a. The receipt of 10,000 shares of the Company's Common Stock if a successor CEO is employed in such position by the Company on or before December 31, 1998 by a vote of a majority of the Directors of the Board of Directors, not including the votes of the Executive and the successor CEO. b. The receipt of 7,500 shares of the Company's Common Stock if the average of the closing prices of the Common Stock for the prior 20 trading days to the earlier of Executive's last day of employment as CEO or January 1, 1999 is at least $30 per share. c. The receipt of 7,500 shares of the Company's Common Stock if the average of the closing prices of the Common Stock for the prior 20 trading days to the earlier of Executive's last day of employment as CEO or January 1, 1999 is at least $40 per share. The foregoing incentive compensation is in addition to any other incentive compensation which the Board may in its discretion award the Executive under the Management Incentive Compensation Plan or any other Company incentive plans in recognition of his accomplishments during 1997 or 1998. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Dennis C. Fill ---------------------------------------- Dennis C. Fill ATL ULTRASOUND, INC. By: /s/ Kirby L. Cramer ------------------------------------ Kirby L. Cramer Chairman Compensation Committee Board of Directors of ATL Ultrasound, Inc. Dated: June 9, 1997 EX-13 5 1997 ANNUAL REPORT TO SHAREHOLDERS [PHOTOS OF SURFACE MOUNT MANUFACTURING AND CIRCUIT BOARD, AND IMAGE MONTAGE OF ULTRASOUND IMAGE OF BLOODFLOW IN KIDNEY] 97 ATL ULTRASOUND ANNUAL REPORT ATL Ultrasound is a worldwide leader in diagnostic medical ultrasound. The Company is dedicated to improving the quality of health care for people worldwide through leadership in the innovation and clinical expansion of diagnostic ultrasound; providing professional challenge and satisfaction to our employees; supporting our community; and assuring a fair return to our shareholders. Cover: Breakthroughs in ATL's color Doppler technology allow physicians to see into the microvasculature of the body. This image demonstrates kidney blood flow in striking detail. FINANCIAL SUMMARY
(In thousands, except per share data) 1997 1996 1995 RESULTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------- Revenues $431,244 $419,157 $399,446 Gross profit 213,819 204,982 184,525 Selling, general and administrative expenses 128,739 122,990 119,955 Research and development expenses 59,710 53,969 50,255 Net income (loss) $ 21,171 $ (828) $ 12,002 Net income, excluding non-recurring items $ 21,171 $ 21,829 $ 10,617 Net income (loss) per share - diluted $1.41 $(0.06) $0.88 Net income per share, excluding non- recurring items - diluted $1.41 $1.47 $0.78 BALANCE SHEET - ---------------------------------------------------------------------------------------------------- Cash and short-term investments $ 30,821 $ 63,262 $ 35,654 Total assets 361,810 380,201 353,448 Long-term debt 12,307 12,936 14,837 Shareholders' equity 229,721 211,250 210,923 Common shares outstanding 14,413 14,023 13,610
[PERFORMANCE GRAPH APPEARS HERE]
TOTAL REVENUES U.S. INTERNATIONAL TOTAL - -------------- ---- ------------- ----- 1995 $210 $189 $399 1996 $212 $207 $419 1997 $221 $210 $431
[PERFORMANCE GRAPH APPEARS HERE]
TOTAL GROSS MARGIN - ------------------ 1995 46.2% 1996 48.9% 1997 49.6%
[PERFORMANCE GRAPH APPEARS HERE]
SHAREHOLDER'S CAPITAL STRUCTURE LT DEBT EQUITY - ----------------- ------- ------------- 1995 14.8 210.9 1996 12.9 211.3 1997 12.3 229.7
[PERFORMANCE GRAPH APPEARS HERE]
EPS * - ----- 1995 $0.78 1996 $1.47 1997 $1.41
* Excluding non-recurring items 1997 ATL Annual Report 1 [PHOTO OF DENNIS C. FILL] Fellow Shareholders, 1997 was a remarkable year for ATL. The year's highlights were topped by the worldwide launch of two major products, the HDI(R) 1000 and the HDI 5000 systems, each a milestone of technical achievement. These introductions broadened the markets addressed by our successful all-digital HDI product line to the mid-range and premium-performance markets. As the year came to a close, the total worldwide installed base of HDI systems had grown to over 9,000 systems, firmly establishing ATL as the leader in all-digital ultrasound. With the increased investment required by the worldwide introductions of two new HDI systems, and the inevitable pause in orders as customers evaluated the new products, we were pleased to report 1997 net income of $21.2 million or $1.41 per share, nearly matching the record profitability ATL achieved in 1996, excluding its non-recurring charge. For the year, revenues grew 3% to a record $431.2 million. With the momentum of the new products beginning to build at year-end, revenue growth accelerated to 9% in the fourth quarter, and we reported record quarterly revenues of $137.3 million, record gross margins of 52.4% and record quarterly net income of $18.5 million or $1.23 per share. GROWING WORLDWIDE DEMAND The United States market for ultrasound came back to life during the year with a robustness that exceeded our expectations. After years of little to no growth as the country's health care delivery system streamlined and reconfigured itself, new demand for ultrasound was propelled by replacement of aging equipment and by technology advances that opened new clinical applications offering better patient care, increased efficiency and lower health care costs. Over half of ATL's product revenues are derived from countries outside of the United States, a proportion that we expect to continue to increase even with the resumption of U.S. market growth. These international markets were characterized by a variety of countervailing trends that made for lively conditions. The strong U.S. dollar held back positive revenue comparisons 2 1997 ATL Annual Report in Europe, although unit growth continued its upward trend, particularly in Italy, the United Kingdom, Scandinavia, Austria and the Benelux countries. Other key markets--Australia, China, Latin America and Eastern Europe--exhibited excellent growth. In May 1997, we opened our 14th subsidiary, ATL China, with offices in Beijing, Shanghai, Guangzhou and Hong Kong. We anticipate that the Southeast Asian and Korean markets could remain challenging for some time. Although these countries currently account for less than 10% of ATL's revenues, we believe they offer substantial future opportunity, and we will continue to invest in building our distribution channels there. THE MOST POWERFUL ULTRASOUND SYSTEM IN THE WORLD The Company's new premium-performance system, the HDI 5000, represents over a decade of ATL investment and commitment to developing digital ultrasound technology. Capable of performing more than 14 billion operations per second, the HDI 5000 system provides a quantum leap in both the amount of diagnostic information acquired and the ability to process it, giving health care providers new information about the human body and how it works. The HDI 5000 is the first system to apply supercomputed processing, patented new blood flow imaging technology and adaptive system intelligence to diagnostic ultrasound. Of fundamental value to thousands of customers worldwide is that their HDI 3000 system is fully upgradable, on-site, to the new HDI 5000 technology. With the introduction of the HDI 5000, ATL customers now have the choice of two engines on one platform, the HDI 5000 or the HDI 3000, demonstrating the platform's inherent scalability. Customer shipments of the HDI 5000 began in November with prestigious institutions such as The Toronto General Hospital, Montefiore Medical Center of New York and Hutzel Hospital of Detroit placing multi-system orders for a complement of HDI 3000 and 5000 systems. NASA also elected to upgrade to the HDI 5000 technology for the International Space Station, scheduled for launch in the year 2000. Astronauts will use the HDI 5000 system to perform 1997 ATL Annual Report 3 sophisticated medical diagnostics while on board the Space Station. These images will be transmitted to earth for scientists to study the effects of zero gravity on blood flow, the heart and other organs. By year-end, the HDI 5000 system had been introduced to over 30,000 physicians at key medical congresses and clinical symposia held in cities around the world. ATL'S SECOND TECHNICAL INFLECTION POINT We believe the introduction of the HDI 1000 system in February 1997 marked a second technological inflection point as significant as our decision to embark on an all-digital strategy 15 years ago. The HDI 1000 is a revolutionary software-based system that migrates ATL's acclaimed HDI broadband digital beamforming technology to the large and rapidly growing mid-range market for general imaging applications. ATL proprietary technology, MSM(TM) (Multitasking Software Management), replaces more than half of the ultrasound system's hardware components with sophisticated, flexible software. Designed for the new health care environment where increasing numbers of ultrasound examinations are performed in hospital satellite clinics, the HDI 1000 system offers integrated Internet connectivity so that physicians can simultaneously view and consult on clinical cases with colleagues in other locations. During major medical meetings in the United States, Brazil and Austria, ultrasound images were transferred via Internet technology directly from the HDI 1000 system to laptop computers in other countries. The HDI 1000 system has enjoyed early success in U.S. markets particularly in the Ob/Gyn segment, where ATL has established a strong franchise. During 1998, the feature set of the HDI 1000 will be further expanded to enhance its clinical utility. ULTRA-PORTABLE ULTRASOUND ATL's success in compressing ever-higher levels of performance into the same or smaller amount of space is based on our leadership in developing high density, proprietary microchips, ASIC's (Application Specific Integrated Circuits), and advanced system software. While ATL has employed these technologies primarily to increase the power and resolution of ultrasound imaging, we have recognized an equally strong imperative to develop a smaller, less expensive device that could be used as an examination tool and carried by the physician much like a stethoscope. 4 1997 ATL Annual Report A year ago we formed a business division with responsibility for product and commercial market development of a handheld, all-digital ultrasound system. On February 11, 1998, we announced the spin-off of the Handheld Systems Business Division as a tax-free stock dividend to our shareholders, on a one-for-three ATL shares basis. We believe a handheld ultrasound device for use as a first-stage medical examination tool will create entirely new markets for ultrasound that are intrinsically different from those served by ATL today as characterized by clinical use, the end user, manufacturing requirements and distribution channels. As an independent company, the Handheld Division will have the focus, speed and agility necessary to address this evolving set of new clinical and technical demands, thereby best serving our objective of enhancing long-term shareholder value. Through licensing agreements, ATL and the new company will continue to collaborate on technology innovations that will be of benefit to both companies. THE EXPANDING CLINICAL REALM OF ULTRASOUND In the final analysis, the case for advancing ultrasound technology must be justified by improved patient care--faster diagnosis, less physical and emotional trauma or lower cost. The great versatility of ultrasound leads to its use in a multiplicity of diagnostic evaluations ranging from determining the adequacy of blood supply to the brain, to revealing changes in the vital organs of our bodies, to monitoring fetal health. A host of new ultrasound applications are on the horizon--applications that will relieve the need to use radioactive isotopes and more expensive, invasive tests to understand what is happening inside the body. Working with clinicians and scientists, ATL is leading research in image acquisition and signal processing technologies that is expanding the diagnostic utility of ultrasound. One such area, 3D ultrasound imaging, provides more complete examination data while making it easier for a variety of medical specialists to more quickly grasp anatomical structures and relationships. Harmonic ultrasound imaging--with and without contrast agents--is another area offering great promise to replace expensive procedures by expanding the range of applications and patients that can be successfully studied. Physicians have found that ATL's Tissue Harmonic Imaging enables a dramatic reduction in a naturally occurring image artifact, or haze, caused by the interaction of certain tissue types and low frequency soundwaves, 1997 ATL Annual Report 5 thereby reducing the need for further confirmatory diagnostic tests. ATL is also at the forefront of research on a new generation of harmonic contrast agents. We are collaborating closely with contrast agent manufacturers and over 50 medical institutions around the world on the development of ultrasound techniques that may enhance the effectiveness of agents to diagnose heart attacks faster and more accurately, and also help in the detection and evaluation of tumors in the abdomen, breast and prostate. We enter 1998 in the strongest position yet by any measure--market share, product line, technology and financial--in our history. For ATL Ultrasound, 1997 represented a feat of teamwork and accomplishment and the beginning of a new world of possibilities. My deepest appreciation and thanks go to all ATL employees. Finally, we thank you, our fellow shareholders, for your ongoing support. Sincerely, /s/ Dennis C. Fill Dennis C. Fill Chairman and Chief Executive Officer February 24, 1998 6 1997 ATL Annual Report [ARTISTIC INTRODUCTORY PAGE TO NARRATIVE: CARDIOVASCULAR AND FETAL ULTRASOUND IMAGES; HEART RENDERING IN BACKGROUND] The great versatility of ultrasound leads to its use in a multiplicity of diagnostic evaluations ranging from determining the adequacy of blood supply to the brain, to revealing changes in the vital organs of our bodies, to monitoring fetal health. [COLLAGE OF MANUFACTURING IMAGES; SURFACE MOUNT TECHNOLOGY AND CIRCUIT BOARD] INNOVATION [ULTRASOUND IMAGE OF 16 WEEK FETUS] 16 WEEK FETUS Capable of performing more than 14 billion operations per second, the HDI 5000 reveals new information on the inner world of the developing fetus. [ULTRASOUND IMAGE OF CAROTID ARTERY DISEASE] CAROTID ARTERY DISEASE Ultrasound allows earlier diagnosis and treatment of vascular disease that limits blood flow to the brain, saving millions from experiencing impairment or death from stoke. [PHOTOGRAPH OF WOMEN PERFORMING MICRO-SOLDERING OF SCANHEAD ASSEMBLY] Collaborating closely with clinicians and scientists, ATL is at the forefront of research that is [COLLAGE OF PHOTOGRAPHS; EMPLOYEE AT MICROSCOPE, MACHINERY AND ATL ULTRASOUND MACHINE] PRECISION [DISPLAY OF CARDIAC CONTRAST IMAGING] CARDIAC CONTRAST IMAGING Tiny microbubbles of a contrast agent reflect harmonic ultrasound energy to highlight the boarder of the heart's left ventricle. This new ultrasound technique may one day offer better, faster diagnoses of heart attacks. IMAGE COURTESY OF HARALD BECHER, MD, UNIVERSITY OF BONN [DISPLAY OF 3D IMAGE OF GALLSTONES] 3D IMAGE OF GALLSTONES Recent developments in three-dimensional ultrasound promise to pinpoint with exquisite accuracy the exact location of disease to assist physicians in better visualizing anatomy and making treatment decisions. [PHOTOGRAPH OF ENGINEER PERFORMING ENGINEERING TESTS (CHECKLIST) ON ATL ULTRASOUND MACHINES] ATL is the leader in broad-band, all digital ultrasound with over 9,000 HDI systems installed in hospitals and clinics around the world. FINANCIAL REVIEW
YEAR ENDED December 31, 1997 1996 1995 1994 1993 Dollars in thousands, except per share data - ----------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: Revenues $431,244 $419,157 $399,446 $366,152 $360,497 Gross profit 213,819 204,982 184,525 163,583 165,849 Selling, general, and administrative expenses 128,739 122,990 119,955 115,595 110,752 Research and development expenses 59,710 53,969 50,255 56,426 51,265 Income (loss) from operations 25,262 (3,072) 14,895 (21,616) (3,106) Income (loss) before income taxes 25,893 (2,574) 14,488 (20,858) (1,735) Net income (loss) $ 21,171 $ (828) $ 12,002 $(20,204) $ (3,321) Net income (loss), excluding non - recurring items $ 21,171 $ 21,829 $ 10,617 $ (8,191) $ 954 Net income (loss) per share - diluted $ 1.41 $ (0.06) $ 0.88 $ (1.55) $ (0.25) Net income (loss) per share, excluding non-recurring items - diluted $ 1.41 $ 1.47 $ 0.78 $ (0.63) $ 0.07 - ----------------------------------------------------------------------------------------------------------------- PERCENT OF TOTAL REVENUES: Gross margin 49.6% 48.9% 46.2% 44.7% 46.0% Selling, general and administrative expenses 29.9% 29.3% 30.0% 31.6% 30.7% Research and development expenses 13.8% 12.9% 12.6% 15.4% 14.2% Income (loss) from operations 5.9% (0.7%) 3.7% (5.9%) (0.9%) Income (loss) before income taxes 6.0% (0.6%) 3.6% (5.7%) (0.5%) Net income (loss) 4.9% (0.2%) 3.0% (5.5%) (0.9%) Net income (loss), excluding non-recurring items 4.9% 5.2% 2.7% (2.2%) 0.3% - ----------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA (END OF PERIOD): Cash and short-term investments $ 30,821 $ 63,262 $ 35,654 $ 22,901 $ 54,758 Receivables 136,351 126,924 129,226 105,500 94,559 Inventories 98,677 89,911 94,877 96,065 88,692 Working capital 182,804 166,294 161,581 134,117 157,878 Total assets 361,810 380,201 353,448 321,150 322,164 Short-term borrowings, including current portion of long-term debt 1,103 1,091 3,466 3,818 5,749 Long-term debt 12,307 12,936 14,837 17,688 11,600 Shareholders' equity 229,721 211,250 210,923 191,176 210,835 - --------------------------------------------------------------------------------------------------------------------
Net loss in 1996 includes a patent litigation provision of $29,557 and the related $6,900 tax benefit. Net income in 1995 includes a net gain of $1,385 from Hitachi's investment in an ATL R&D joint venture, a benefit for a Washington State B&O tax refund and restructuring and relocation expenses. Net loss in 1994 includes $12,013 of merger and related costs, restructuring expenses and a patent litigation provision. Net loss in 1993 includes restructuring expenses of $4,275. 12 1997 ATL Annual Report - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS ATL is a worldwide leader in the development, manufacture, distribution and service of diagnostic medical ultrasound systems and related accessories and supplies. Sales are made through a direct sales force in the U.S. and through direct sales or third party distributors in international markets. The ultrasound industry is highly competitive and market demand is influenced by a variety of factors. These include the introduction of new technologies which may offer improved clinical capabilities and create demand for new products, the relative cost-effectiveness and clinical utility of competing diagnostic technologies, the structure of health care delivery organizations, government policies with respect to reimbursement and medical cost containment, and the economies and demographics in countries the Company markets its products. Although ultrasound systems are typically sold based on image quality, Doppler sensitivity, product reliability, upgradability, clinical versatility and ease of use, price competition is also an important factor. ATL markets and services ultrasound products worldwide. International revenues accounted for 49% of 1997 revenues. A significant portion of these revenues as well as the operating expenses of the Company's direct sales and service operations were denominated in foreign currencies. In addition, some of ATL's competitors are foreign companies whose production costs are incurred in foreign currencies. As a result, fluctuations in foreign currency exchange rates may impact the Company's competitive position and financial results. The Company hedges foreign exchange exposure related to its intercompany accounts payable and receivable balances which are denominated in foreign currencies through the use of forward exchange contracts. The Company does not otherwise hedge foreign currency exposures. ATL reported net income in 1997 of $21.2 million or $1.41 per share. In 1996, ATL reported a net loss of $0.8 million or $0.06 per share. Excluding a one- time patent litigation charge and the related tax benefit, ATL earned net income of $21.8 million or $1.47 per share in 1996. Noteworthy business events impacting results of operations for 1997 include successful introduction of the HDI 1000 and HDI 5000 ultrasound systems, unfavorable fluctuations of foreign exchange rates, sale of the Company's image management business and accelerated expenditures related to the development of the Company's handheld ultrasound technology. All per share amounts are stated on a diluted basis and calculated per Statement of Financial Accounting Standards (FAS) No. 128, Earnings Per Share, which became effective in the fourth quarter of 1997. REVENUES AND GROSS PROFIT
Dollars in millions 1997 1996 1995 ------ ------ ------ Total Revenues..................... $431.2 $419.2 $399.4 Percent change................... 3% 5% 9% Gross Profit....................... $213.8 $205.0 $184.5 As a % of revenues............... 49.6% 48.9% 46.2%
Revenues increased 3% to $431.2 million in 1997. Product sales increased $8.9 million over 1996, reflecting the successful introduction of two major new products, growth in the U.S. high-end cardiology market and the establishment of new affiliate operations in China. The phase out of older products from the product line, such as the UM9 HDI and the Apogee CX/CX200 systems, in addition to the unfavorable impact of foreign exchange rates and the sale of the Company's image management business to Eastman Kodak partially offset the revenue growth noted above. The Company's new systems provided strong incremental revenues in the mid-range and high-end markets. The HDI 5000cv system, which began customer shipments in November 1997, along with the continued success of the HDI 3000cv drove revenue growth in the cardiology market segment in 1997. Service revenues increased $3.1 million from 1996 on the continued growth in the worldwide installed base of ATL's products. International revenues grew at rates in excess of 10% for all regions outside of Europe which experienced a revenue decline over 1996 due to the unfavorable impact of foreign exchange. Overall, international revenue grew by 2% to $210.5 million during 1997. The U.S. market showed signs of recovery in 1997 with revenues growing to $220.7 million, up 4% from 1996. 1996 revenues increased 5% or $19.8 million over 1995 reflecting continued success of the premium performance, all-digital HDI 3000 system, growth in the cardiology market, initial benefits of ATL's strategic partnerships and favorable changes in product mix toward the HDI 3000 and the mid-range Apogee product lines. The HDI 3000cv system, introduced in June 1995 with complete cardiology capabilities, drove revenue growth in the cardiology market segment in 1996. Service revenues increased $6.1 million from 1995 on the continued growth in the worldwide installed base of ATL's products. Gross profit increased 4.3% in 1997 to $213.8 million, compared with $205.0 million in 1996. Gross margin in 1997 was 49.6% compared with 48.9% in 1996. The improvement in gross margin is due to the favorable shift in product mix to the Company's higher margin HDI products achieved through the successful expansion of this product family during 1997. Gross profit rose on higher unit volumes of the HDI 3000 and new sales of the 1997 ATL Annual Report 13 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- HDI 1000 and HDI 5000 systems, but the growth was partially offset by lower volumes of products being phased out and the impact of foreign exchange. 1996 gross margin improved to 48.9% compared with 46.2% in 1995. Gross profit rose on higher unit volumes of the HDI and Apogee products, but the growth was partially offset by lower volume of older product lines and the impact of competitive pressures on the mid-range product prices. OPERATING EXPENSES, NET
Dollars in millions 1997 1996 1995 ------ ------ ------ SG&A............................... $128.7 $123.0 $120.0 As a % of revenues............... 29.9% 29.3% 30.0% R&D................................ $ 59.7 $ 54.0 $ 50.3 As a % of revenues............... 13.8% 12.9% 12.6% Other expense, net................. $ 0.1 $ 1.5 $ 0.7* As a % of revenues............... 0.03% 0.4% 0.2%
* 1995 other expense, net, excludes a $6.2 million gain from an R&D joint venture and a $1.0 million B&O tax benefit. Selling, general and administrative (SG&A) expenses increased by $5.7 million in 1997 and increased slightly as a percent of revenues to 29.9% compared with 29.3% in 1996 while remaining below the 30.0% level from 1995. The increase in SG&A is attributed primarily to product launch expenses for the HDI 1000 and HDI 5000 systems, market development expenditures in Asia and investments in the Company's business information systems. These increases were partially offset by the impact of foreign exchange and the sale of the Company's image management business to Eastman Kodak. In 1996, SG&A expenses increased $3.0 million from 1995 as a result of marketing programs related to the promotion of the HDI system for differentiation of solid breast tumors and investments in the Company's business information systems. ATL continued its commitment to advancing broadband digital ultrasound technology by investing $59.7 million in research and development (R&D) expenses in 1997. As a percent of revenues, 1997 R&D expenses were 13.8% compared with 12.9% in 1996 and 12.6% in 1995. Most of the increase in R&D expenses during 1997 related to two new product introductions as well as increased expenditures related to the development of handheld ultrasound technology. On February 20, 1997, ATL introduced the HDI 1000 system, a fundamentally new software based mid-range system. Shipments of the HDI 1000 system began in the second quarter of 1997. Some of the technology used in the HDI 1000 system was developed by ATL as part of a R&D joint venture project with Hitachi Medical Corporation (Hitachi) which began in the fourth quarter of 1995. The technology resulting from this joint venture is available to both ATL and Hitachi for new product offerings and product features. On July 22, 1997 ATL introduced the premium performance HDI 5000 system. Shipments of the HDI 5000 system began in the fourth quarter of 1997. R&D expenditures related to the development of handheld ultrasound technology have increased significantly over 1996 as discussed below. A working prototype is expected in the third quarter of 1998. 1996 R&D expenses increased $3.7 million from 1995 to $54.0 million. The increase in R&D expenses over 1995 was related to preliminary work on the HDI 1000 and 5000 systems that were under development at the time. Other expense, net, was $0.1 million in 1997. This includes a gain on the sale of the Company's image management business and foreign exchange losses. In 1996, ATL reported $1.5 million of other expense, net. This consists primarily of Washington State Business and Occupation (B&O) tax expense as well as foreign exchange losses. B&O tax is imposed on gross receipts for products manufactured in the State of Washington and is levied in lieu of a state income tax. PATENT LITIGATION, RESTRUCTURING AND RELOCATION PROVISIONS The Company accrued a patent litigation provision of $29.6 million in the second quarter of 1996 in addition to $5.0 million previously accrued in 1994. In October 1997, the U.S. Court of Appeals affirmed the lower court judgment awarding damages of $27.9 million, plus interest and legal fees, in favor of the plaintiff. The claim was paid in full as of December 31, 1997 (see Note 10 to the Consolidated Financial Statements, Patent Litigation Provision). In 1995, the Company consolidated its East Coast operations located in Ambler, Pennsylvania with the Company's corporate headquarters in Bothell, Washington. The consolidation resulted in the relocation of Ambler manufacturing, administrative and R&D functions to Bothell (see Note 2 to the Consolidated Financial Statements, Restructuring and Relocation). INTEREST INCOME AND EXPENSE
Dollars in millions 1997 1996 1995 ----- ----- ----- Interest Income.................... $ 3.7 $ 3.4 $ 1.7 Interest Expense................... (3.1) (2.9) (2.1)
Interest income increased slightly in 1997, reflecting higher cash balances available for investment compared with 1996 through the third quarter of 1997. The higher interest expense in 1997 reflects nearly a full year of post-judgment interest accrued on the damages awarded for the patent litigation claim. Interest expense increased in 1996 compared with 1995 reflecting a partial year of post-judgment interest accrued on the damages awarded for the patent litigation claim (see Note 10 to the Consolidated Financial Statements, Patent Litigation Provision). 14 1997 ATL Annual Report TAXES AND NET INCOME (LOSS)
Dollars in millions 1997 1996 1995 ----- ----- ----- Income (Loss) Before Income Taxes.. $25.9 $(2.6) $14.5 Income tax expense (benefit): U.S. income taxes.................. $ 0.6 $(4.7) $ 1.1 Foreign income taxes............... 4.1 3.0 1.4 ----- ----- ----- $ 4.7 $(1.7) $ 2.5 As a % of income (loss) before income taxes.. 18% 68% 17% Net Income (Loss)*.................. $21.2 $(0.8) $12.0
* Includes non-recurring items discussed previously of $22.7 million expense in 1996; $1.4 million net gain in 1995. In determining the realizability of deferred tax assets, the Company primarily considers its deferred tax liabilities, tax planning strategies, future earnings and potential carryback opportunities. The provision for income taxes includes benefits from the utilization of U.S. federal and foreign tax loss carryforwards and carrybacks. Tax loss carryforwards of approximately $3.6 million remain at the end of 1997. CAPITAL RESOURCES AND LIQUIDITY
Dollars in millions 1997 1996 1995 ------ ------ ------ Cash and short-term investments..... $ 30.8 $ 63.3 $ 35.7 Receivables......................... 136.4 126.9 129.2 Inventories......................... 98.7 89.9 94.9 Short-term borrowings, including current portion of long-term debt.. 1.1 1.1 3.5 Long-term debt...................... 12.3 12.9 14.8 Shareholders' equity................ 229.7 211.3 210.9 Return on shareholders' equity...... 9.6% (0.4%) 6.0% Return on shareholders' equity, excluding non-recurring items...... 9.6% 10.3% 5.3%
The Company finances its operations primarily with internal resources, including cash and short-term investments. The Company held $30.8 million in cash and cash equivalents at December 31, 1997. Short-term borrowings represent working capital lines of credit maintained at some of the Company's foreign subsidiaries to facilitate intercompany cash flow. As shown in the statement of cash flows, ATL used cash from operations of $16.7 million in 1997 compared with $45.2 million generated in 1996. The change in cash flows from operations primarily reflects the payment of patent litigation damages of $37.4 million coupled with higher inventory and receivable balances. Cash flows from investing activities included $17.5 million used for property, plant and equipment purchases. During 1997, exercise of employee stock options and Employee Stock Purchase Plan issuances generated cash flow of $10 million. The Company repurchased 343,000 shares of its own common stock in the open market for $11.9 million in 1997 under share repurchase programs intended to service ATL's benefit programs. The Company repurchased 289,000 shares totaling $8.5 million in 1996. In May 1997, the Board of Directors authorized the Company to purchase up to 1,000,000 shares of its common stock, subject to certain criteria. A similar authorization was also granted in May 1996. Long-term debt at December 31, 1997 was $12.3 million. Interest rates on long- term debt outstanding at December 31, 1997 averaged approximately 6.7%. The Company began construction of a new 101,000 square foot building on its corporate campus in August 1997. The building's projected completion date is scheduled for July 1998 and has an estimated cost of $15-16 million. Initial funding for the project will come from working capital with a transition to long-term debt as the building reaches completion in 1998. The Company intends to spin-off its handheld business after the first quarter of 1998 (the "Distribution"). In connection with the spin-off, the Company will contribute capital of $15 million in cash on the Distribution date and $15 million in cash on January 15, 1999 (see Note 23 to the Consolidated Financial Statements, Subsequent Event). In addition to its cash balances, the Company has available unsecured credit facilities of $25 million, including a committed line of credit of $15 million. Barring any unforeseen circumstances, events or unanticipated expenses, management expects existing cash and available credit lines, long-term debt and cash generated from operations should be sufficient to meet the Company's operating and capital requirements for 1998. OTHER BUSINESS FACTORS Like many companies in high technology businesses, the Company can from time to time experience difficulty with the availability of technology employed in its products. Such difficulties can lead to increases in component costs, long order lead times or delays in the Company's manufacture of products. Manufacturing efforts can also be impeded by third party assertions of patent infringement by the Company's products, such as the litigation claim previously discussed. There can be no assurance that the Company will not be subject to claims of patent infringement by other parties or that such claims will not require the Company to pay substantial damages or delete certain features from its products or both. The Company is subject to certain rules, regulations and inspections of the FDA and other regulatory agencies regarding the design, manufacture, marketing and performance of its products. The Company's ability to manufacture products and obtain timely FDA export and new product approvals is dependent upon the results of FDA inspections and reviews. The Company can incur substan- 1997 ATL Annual Report 15 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- tial expense in responding to process improvements and modification of products previously sold to customers which stem from comments and new requirements of the FDA. The Company's regulatory programs are in compliance with international quality system standards known as ISO 9000 standards. ATL has maintained registration under the ISO 9000 quality systems standards for its operations. By 1998, all medical device companies marketing products in the European Community will be required to meet these standards. The current HDI product family has qualified to display the European Community (CE) Mark. The Company is currently reviewing its ultrasound product line and business information systems for compliance with the Year 2000 issue. In general, the Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the century date change occurs, date-sensitive systems may not recognize the year 2000. The Company believes the Year 2000 issue will not have a significant effect on its operations. SUBSEQUENT EVENT On February 2, 1998, ATL's Board of Directors approved a plan to spin-off its handheld business as an independent, publicly owned company. The handheld business incurred net operating expenses which totaled $6.0 million and $1.8 million in 1997 and 1996, respectively, which were included in the consolidated results of ATL (see Note 23 to the Consolidated Financial Statements, Subsequent Event). FORWARD LOOKING INFORMATION In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following information. In 1998, the Company will continue to pursue its long-term goal of achieving a return on shareholders' equity of 15%, compared with 1997 results of approximately 10%. The Company expects quarterly revenues and earnings in 1998 to be greater than 1997 levels, excluding first quarter expenses related to the shareholder stock dividend of the handheld business, and to be principally influenced by gross margin improvement during the first half of the year, and additionally aided by revenue growth during the second half of the year. Service gross margin is expected to be in the range of 40% to 42% for 1998. Revenues for the full year are expected to be approximately 10% above 1997 levels, and gross margin for the full year is expected to be in the range of 50% to 52%. Operating expenses for 1998 are expected to be less than 10% above 1997 levels. Diluted shares during the year are expected to rise from approximately 15.3 million shares during the first quarter of 1998 to 15.6 million by the end of 1998. The Company is targeting earnings of around $2.35 per share for the full year of 1998. For the first quarter of 1998 the Company expects to realize a gross margin of approximately 50% and to have earnings in the range of $0.10 to $0.13 per share, which includes the effect of charges for the distribution of stock of the handheld business to ATL shareholders. These distribution expenses are expected to be less than $1.5 million before tax. The expenses for the handheld business which are consolidated with ATL's other expenses during the first quarter are expected to be in the range of $2 million to $3 million, or about $0.12 per share. When these expenses are considered together with the Company's expected earnings for the first quarter of 1998, the Company is estimating the earnings from its core business (excluding expenses associated with the handheld business) for the quarter to be in the range of $0.29 to $0.32. The above statements are forward looking statements that involve a number of risks and uncertainties, and should be read in conjunction with the Company's SEC filings and news releases. Among the ongoing factors that could cause actual results to differ materially from the above are the following considerations. The ultrasound market in some European countries remains sluggish and certain Asian markets are troubled by turbulent economic conditions, which may cause revenue growth to fall short of expectations. Worldwide competition in the ultrasound market has intensified over the past year, and most of the Company's competitors have introduced new ultrasound products within the past two years. The time required for customers to evaluate the many new products on the market may lengthen the sales cycle for ultrasound purchases, and the Company may lose sales to other product offerings. These factors may adversely impact the Company's sales volume or selling prices or both. Unanticipated events, such as delays in the Company's product development and cost reduction programs, a delay in the distribution of the handheld business, the unavailability of components critical to the Company's products due to natural disasters, changes in vendor businesses or otherwise, economic instability in Asian and other markets, the stronger U.S. dollar, delays in receiving necessary regulatory approvals, or other unforeseen events could adversely impact the Company's financial results for 1998. 16 1997 ATL Annual Report - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Directors and Shareholders, ATL Ultrasound, Inc. We have audited the accompanying consolidated balance sheets of ATL Ultrasound, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ATL Ultrasound, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Seattle, Washington February 13, 1998 1997 ATL Annual Report 17 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- At December 31, 1997 1996 In thousands, except per share data - -------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 30,821 $ 63,262 Receivables, net 136,351 126,924 Inventories 98,677 89,911 Prepaid expenses 2,207 2,777 Deferred income taxes, net 13,668 18,246 -------- -------- Total current assets 281,724 301,120 Property, Plant and Equipment, Net 74,630 72,400 Other Assets, Net 5,456 6,681 -------- -------- $361,810 $380,201 ======== ======== - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 654 $ 507 Current portion of long-term debt 449 584 Accounts payable and accrued expenses 80,529 69,855 Accrual for litigation claim -- 35,636 Deferred revenue 15,831 19,351 Taxes on income 1,457 8,893 -------- -------- Total current liabilities 98,920 134,826 Long-Term Debt 12,307 12,936 Other Long-Term Liabilities 20,862 21,189 Commitments, Contingencies and Subsequent Event Shareholders' Equity 229,721 211,250 -------- -------- $361,810 $380,201 ======== ======== - -------------------------------------------------------------------------------- Common stock, par value $0.01, 50,000 shares authorized Issued shares 14,413 14,023 Outstanding shares 14,413 14,023 Preferred stock, par value $1.00, 6,000 shares authorized Issued shares -- -- Outstanding shares -- -- See accompanying Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 18 1997 ATL Annual Report - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- YEAR ENDED December 31, 1997 1996 1995 In thousands, except per share data - -------------------------------------------------------------------------------- Revenues Product sales $338,637 $329,689 $316,102 Service 92,607 89,468 83,344 -------- -------- -------- 431,244 419,157 399,446 -------- -------- -------- Cost of Sales Cost of product sales 163,006 162,433 163,928 Cost of service 54,419 51,742 50,993 -------- -------- -------- 217,425 214,175 214,921 -------- -------- -------- Gross Profit 213,819 204,982 184,525 -------- -------- -------- Operating Expenses, Net Selling, general and administrative 128,739 122,990 119,955 Research and development 59,710 53,969 50,255 Provision for litigation claim -- 29,557 -- Restructuring and relocation expenses -- -- 5,935 Other (income) expense, net 108 1,538 (6,515) -------- -------- -------- 188,557 208,054 169,630 -------- -------- -------- Income (Loss) From Operations 25,262 (3,072) 14,895 Interest Income 3,737 3,397 1,728 Interest Expense (3,106) (2,899) (2,135) -------- -------- -------- Income (Loss) Before Income Taxes 25,893 (2,574) 14,488 Income Tax Expense (Benefit) 4,722 (1,746) 2,486 -------- -------- -------- Net Income (Loss) $ 21,171 $ (828) $ 12,002 ======== ======== ======== Net Income (Loss) Per Share: Basic $1.51 $(0.06) $0.91 Diluted $1.41 $(0.06) $0.88 Weighted average common shares and equivalents outstanding: Basic 14,051 13,900 13,226 Diluted 14,970 13,900 13,574 See accompanying Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1997 ATL Annual Report 19 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- YEAR ENDED December 31, 1997 1996 1995 In thousands - -------------------------------------------------------------------------------- Operating Activities Net income (loss) $ 21,171 $ (828) $ 12,002 Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: Depreciation and amortization 16,282 14,972 16,419 Deferred income tax expense (benefit) 3,776 (7,944) (1,009) Gain from R&D joint venture -- -- (6,220) Changes in: Receivables, net (15,109) 1,325 (20,983) Inventories (14,609) 4,033 4,790 Prepaid expenses 348 194 (726) Accounts payable and accrued expenses 13,675 (3,934) (1,031) Accrual for litigation claim (35,636) 30,636 -- Deferred revenue (3,010) 325 4,213 Taxes on income (4,640) 3,030 3,489 Other 1,099 3,350 2,571 -------- -------- -------- Cash provided (used) by operations (16,653) 45,159 13,515 -------- -------- -------- Investing Activities Investment in property, plant and equipment (17,515) (14,902) (13,771) Proceeds from maturing short-term investments -- 4,988 -- Proceeds from sale of business interests 4,500 -- 10,000 Other -- 500 (350) -------- -------- -------- Cash used by investing activities (13,015) (9,414) (4,121) -------- -------- -------- Financing Activities Increase (decrease) in short-term borrowings 146 (2,404) (656) Repayment of long-term debt (764) (659) (2,391) Repurchases of common shares (11,888) (8,539) -- Exercise of employee stock optons and Employee Stock Purchase Plan issuances 9,973 8,569 2,145 -------- -------- -------- Cash used by financing activities (2,533) (3,033) (902) -------- -------- -------- Effect of exchange rate changes (240) (116) (727) -------- -------- -------- Increase (decrease) in cash and cash equivalents (32,441) 32,596 7,765 Cash and cash equivalents,beginning of year 63,262 30,666 22,901 -------- -------- -------- Cash and cash equivalents, end of year $ 30,821 $ 63,262 $ 30,666 ======== ======== ======== - -------------------------------------------------------------------------------- Non-cash investing and financing transactions: Conversion of long-term debt to $ -- $ 1,213 $ 2,162 common shares Issuance of common shares to benefit plans $ 232 $ 521 $ -- - -------------------------------------------------------------------------------- Supplemental Disclosure: Cash paid during the year for interest $ 2,545 $ 1,731 $ 2,135 See accompanying Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 20 1997 ATL Annual Report - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------
Common Unearned Foreign Stock and Restricted Currency Total Paid-In Share Accumulated Translation Shareholders' In thousands Capital Compensation Deficit Adjustment Equity - --------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 $233,328 $(1,779) $(38,097) $(2,276) $191,176 Net income -- -- 12,002 -- 12,002 Issuance of restricted shares 297 (297) -- -- -- Amortization of restricted share compensation -- 1,003 -- -- 1,003 Exercise of employee stock options 2,145 -- -- -- 2,145 Conversion of long-term debt to common shares 2,162 -- -- -- 2,162 Foreign currency translation adjustment -- -- -- 2,435 2.435 -------- ------- -------- ------- -------- BALANCE, DECEMBER 31, 1995 237,932 (1,073) (26,095) 159 210,923 Net loss -- -- (828) -- (828) Issuance of restricted shares 2,033 (2,033) -- -- -- Amortization of restricted share compensation -- 972 -- -- 972 Exercise of employee stock options 8,569 -- -- -- 8,569 Issuance of common shares to benefit plans 521 -- -- -- 521 Conversion of long-term debt to common shares 1,213 -- -- -- 1,213 Repurchase of common shares (8,539) -- -- -- (8,539) Foreign currency translation adjustment -- -- -- (1,581) (1,581) -------- ------- -------- ------- -------- BALANCE, DECEMBER 31, 1996 241,729 (2,134) (26,923) (1,422) 211,250 Net income -- -- 21,171 -- 21,171 Issuance of restricted shares 3,588 (3,588) -- -- -- Amortization of restricted share compensaton -- 1,428 -- -- 1,428 Exercise of employee stock options 9,049 -- -- -- 9,049 Issuance of common shares to benefit plans 232 -- -- -- 232 Employee Stock Purchase Plan issuances 924 -- -- -- 924 Tax benefit from exercise of employee stock options 2,532 -- -- -- 2,532 Repurchase of common shares (11,888) -- -- -- (11,888) Foreign currency translation adjustment -- -- -- (4,977) (4,977) -------- ------- -------- -------- -------- BALANCE, DECEMBER 31, 1997 $246,166 $(4,294) $ (5,752) $ (6,399) $229,721 ======== ======= ======== ======== ========
See accompanying Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1997 ATL Annual Report 21 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Dollars in thousands, except per share data 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of ATL Ultrasound, Inc. (ATL), formerly known as Advanced Technology Laboratories, Inc., which include its subsidiaries and is referred to as the "Company." All significant intercompany accounts and transactions have been eliminated in consolidation. Operations The Company is a worldwide leader in the development, manufacture, distribution and service of diagnostic medical ultrasound systems and related accessories and supplies. The Company sells its products to hospitals, clinics and physicians for use in radiology, cardiology, women's health care, vascular, musculoskeletal and intraoperative applications. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments which potentially subject the Company to credit risk consist primarily of foreign currency exchange contracts and trade receivables. The Company's investment portfolio is diversified and consists primarily of investment grade securities that approximate fair market value. The Company concentrates its foreign currency exchange contracts primarily with one major U.S. financial institution. Concentrations of credit risk with respect to receivables are limited due to the Company's large, diverse customer base, generally short payment terms and the dispersion of customers across geographic areas. The Company generally performs credit evaluations of its customers' financial condition and requires collateral, such as letters of credit, in certain circumstances. The Company has sales in certain Latin American countries where extended credit terms are offered. The long-term installment receivables created from these sales are subject to greater risk of loss than the remainder of the Company's trade receivables. The Company believes it has adequately provided for these risks in the allowance for doubtful accounts. Financial Instruments The Company enters into foreign currency exchange contracts to reduce exposure to foreign currency fluctuations associated with settlement of intercompany receivables and payables denominated in foreign currencies. Foreign exchange contracts generally have maturities of less than one year and are accounted for on the fair value method. Gains and losses resulting from these instruments are recognized in the same period as the underlying foreign currency transaction gains and losses and are included in other (income) expense, net. At December 31, 1997 and 1996, the Company had foreign currency exchange contracts to purchase totaling $19,029 and $15,632 and to sell totaling $40,863 and $28,260, respectively. The Company does not use foreign currency exchange contracts or other derivative financial instruments for speculative or trading purposes. The Company has other financial instruments consisting of cash and cash equivalents, trade receivables, long-term installment receivables, accounts payable, short-term borrowings and long-term debt. The fair value of the Company's financial instruments based on current market indicators or quotes from brokers approximates their carrying amount. Foreign Currency Revenues, costs and expenses of the Company's international operations denominated in foreign currencies are translated to U.S. dollars at average rates of exchange prevailing during the year. Assets and liabilities are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are accumulated and reported in shareholders' equity. Realized and unrealized gains and losses on foreign currency transactions and forward exchange contracts are included in other (income) expense, net. Cash and Cash Equivalents For purposes of the statement of cash flows, cash equivalents are defined as investments with maturities of three months or less at the date of purchase. Inventories Inventories are valued at the lower of cost, determined by the first-in, first-out method, or market. The Company follows a uniform policy for its worldwide operations to provide adequate reserves for inventory obsolescence. Property, Plant and Equipment The costs of significant additions and improvements to property, plant and equipment are capitalized. Maintenance and repair costs are expensed as incurred. Buildings, machinery, equipment, computers and purchased software are depreciated primarily using the straight-line method over the following estimated useful lives: -------------------------------------------------- Buildings 40 years Machinery and equipment 3-10 years Computers and purchased software 3-5 years -------------------------------------------------- Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. For long-lived assets, including property, plant and equipment, the Company evaluates the carrying value of the assets by - -------------------------------------------------------------------------------- 22 1997 ATL Annual Report comparing the estimated future cash flows generated from the use of the asset and its eventual disposition with the assets' reported net book value. The carrying value of assets is evaluated for impairment when events or changes in circumstances occur which may indicate the carrying amount of the asset may not be recoverable. Revenue Revenue is generally recognized upon shipment of products and delivery of services to customers. Deferred revenue consists of deposits received from customers and unrecognized service contract revenue. Service contracts are issued for annual and multi-year periods. The revenue derived from these contracts is initially deferred and subsequently recognized on the straight-line method over the lives of the contracts. Sales-type Leases and Installment Sales Contracts The Company leases its ultrasound imaging products to customers under sales-type leases and installment sales contracts with terms ranging from two to five years. The Company currently sells its contract receivables to outside parties on a regular basis, the majority without recourse. Contract receivables which have not been sold as of the balance sheet date are included in receivables, net. Product Warranty At the time of shipment, the Company provides for the estimated cost to repair or replace products sold under warranties. Such warranties generally cover a 12-month period. Stock-based Compensation The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations in measuring compensation costs for its stock option and stock purchase plans. The Company discloses proforma net income (loss) and net income (loss) per share as if compensation cost had been determined consistent with Statement of Financial Accounting Standard (FAS) No. 123, Accounting for Stock-Based Compensation. Per Share Data In accordance with FAS No. 128, Earnings Per Share, the Company has reported both basic and diluted net income (loss) per common share for each period presented. Basic earnings per share (EPS) is calculated based on the weighted average number of common shares outstanding during the period. The computation of diluted EPS includes the effect of all dilutive potential common shares outstanding. Conversion of dilutive potential common shares is assumed based on the average market price of common shares outstanding during the period. All previously reported earnings per share data have been restated to conform with the provisions of FAS 128. Reclassifications Certain amounts reported in previous years have been reclassified to conform to the 1997 presentation. 2. RESTRUCTURING & RELOCATION In 1995, the Company consolidated its East Coast operations located in Ambler, Pennsylvania with the Company's corporate headquarters in Bothell, Washington. The consolidation resulted in the relocation of Ambler manufacturing, administrative and R&D functions to Bothell. The Company intends to hold the Ambler land and building and is marketing the facility for lease. The Company has evaluated the carrying value of the property by comparing the estimated future cash flows expected to be generated from the property to its current net book value in accordance with FAS 121. The actual cash flows to be generated from the use and disposal of the property could differ materially from the amounts assumed in performing the evaluation of the carrying value and could result in an impairment being recognized in the future. 3. SALE OF IMAGE MANAGEMENT BUSINESS Effective May 12, 1997, the Company sold its image management business to Eastman Kodak. Revenues from this business were $2,074, $8,112 and $11,335 in 1997, 1996 and 1995, respectively. 4. RECEIVABLES, NET 1997 1996 -------- -------- Trade receivables $139,084 $132,728 Less allowance for doubtful accounts and sales returns (7,534) (8,624) -------- -------- 131,550 124,104 Other receivables 4,801 2,820 -------- -------- $136,351 $126,924 ======== ======== Lease contract receivables of $4,896 and $7,818 and the current portion of Latin American installment receivables of $1,854 and $6,135, net of allowance, at December 31, 1997 and 1996, respectively, are included in trade receivables. 5. INVENTORIES 1997 1996 -------- -------- Materials and work in process $ 36,717 $ 30,132 Finished products 20,545 20,481 Demonstrator equipment 23,838 19,643 Customer service 17,577 19,655 -------- -------- $ 98,677 $ 89,911 ======== ======== - -------------------------------------------------------------------------------- 1997 ATL Annual Report 23 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6. PROPERTY, PLANT AND EQUIPMENT, NET 1997 1996 -------- -------- Land and improvements $ 7,918 $ 7,930 Buildings and leasehold improvements 36,062 35,231 Machinery and equipment 57,194 51,672 Computers and purchased software 45,255 42,370 -------- -------- 146,429 137,203 Less accumulated depreciation and amortization (71,799) (64,803) -------- -------- $ 74,630 $ 72,400 ======== ======== Land and buildings with a net book value of $34,084 serve as collateral on long-term debt at December 31, 1997. 7. OTHER ASSETS, NET Other assets, net, includes $1,317 and $2,355 of long-term installment receivables, net of allowance for doubtful accounts of $246 and $997 in 1997 and 1996, respectively. Long-term installment receivables represent scheduled monthly, quarterly or semi-annual payments due from Latin American customers beyond one year (see Note 1, Concentration of Credit Risk). Payment terms on extended term receivables generally range from one to four years and the Company generally charges interest at rates of 8% to 11%. Amortization of intangible assets included in other assets, net, was $897 in 1997, $948 in 1996 and $1,481 in 1995. 8. SHORT-TERM BORROWINGS At December 31, 1997, short-term borrowings represent foreign currency borrowings carrying interest rates ranging from 8% to 18% under lines of credit maintained by foreign subsidiaries for working capital purposes. These credit lines are primarily unsecured or are guaranteed by the parent company. The weighted average interest rate on short-term borrowings was 8.5% and 15% at December 31, 1997 and 1996, respectively. At December 31, 1997, the Company had available unsecured credit facilities totaling $25,000, including a committed line of credit of $15,000. No borrowings were outstanding under these facilities at December 31, 1997. The loan agreement for the committed line of credit includes various covenants relating to financial ratios and restrictions on cash dividends. The Company was in compliance with these covenants at December 31, 1997. 9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1997 1996 -------- -------- Accounts payable $ 33,181 $ 24,769 -------- -------- Accrued expenses Salaries and other compensation 27,238 25,983 Warranty reserves 5,281 4,574 Other 14,829 14,529 -------- -------- 47,348 45,086 -------- -------- $ 80,529 $ 69,855 ======== ======== 10. PATENT LITIGATION PROVISION The Company accrued a patent litigation provision of $29,557 in the second quarter of 1996 in addition to $5,000 previously accrued in 1994. The underlying lawsuit was filed in the U.S. District Court for the Northern District of California and concerned a patent on an electrical circuit used in three of ATL's discontinued products sold primarily in the 1980's. The patent expired in 1994 and the circuit in dispute has never been used in any of ATL's current product lines. In October 1997, the U.S. Court of Appeals affirmed the lower court judgment awarding damages of $27,948, plus interest and legal fees, in favor of the plaintiff. The claim was paid in full as of December 31, 1997. The decision in this lawsuit did not adversely affect past or existing product shipments and will not have any effect on the sale, use or service of any current or past products. 11. LONG-TERM DEBT 1997 1996 -------- -------- Bank term loan at LIBOR plus 1.25% (7.25% at December 31, 1997), twenty-five year amortization, secured by land and buildings, matures February 2005 $ 10,971 $ 11,171 3% Pennsylvania Industrial Development & Authority bonds, secured by land and buildings, due February 2005 1,785 2,033 Other -- 316 -------- -------- 12,756 13,520 Less current portion 449 584 -------- -------- Long-term debt, less current portion $ 12,307 $ 12,936 ======== ======== - -------------------------------------------------------------------------------- 24 1997 ATL Annual Report In February 1996, ATL converted $1,213 of subordinated convertible debentures into 71,577 shares of the Company's common stock. The bank term loan includes various covenants relating to financial ratios and restrictions on cash dividends. The Company was in compliance with these covenants at December 31, 1997. At December 31, 1997, the aggregate maturities of long-term debt are as follows: $449 in 1998, $473 in 1999, $497 in 2000, $523 in 2001, $549 in 2002 and $10,265 thereafter. 12. OTHER LONG-TERM LIABILITIES 1997 1996 -------- -------- Deferred revenue on multi-year service contracts $ 11,245 $ 11,639 Deferred income taxes 4,276 5,188 Long-term pension obligations 5,341 4,362 -------- -------- $ 20,862 $ 21,189 ======== ======== 13. EMPLOYEE BENEFIT PLANS Substantially all employees of the Company's U.S. operations are covered under a noncontributory, defined benefit pension plan (Retirement Plan). The benefits are based on each employee's years of service and highest consecutive five year average compensation. The Company also maintains supplemental defined benefit pension plans (Supplemental Plans) providing benefits to employees which may not be paid from the Retirement Plan due to tax limitations plus special benefits to certain employees. The Company makes annual contributions to the Retirement Plan sufficient to comply with the requirements of the Employee Retirement Income Security Act of 1974. The Supplemental Plans are unfunded. Retirement Plan assets include primarily marketable equity and fixed income securities. 1997 1996 1995 ------ ------ ------ Service cost for benefits earned during the year $2,496 $2,335 $1,916 Interest cost on projected benefit obligation 2,049 1,643 1,041 Income on plan assets (4,248) (1,897) (2,241) Net amortization and deferral 3,065 1,309 1,727 ------ ------ ------ Net pension costs $3,362 $3,390 $2,443 ====== ====== ====== The funded status of the plans at December 31, 1997 and 1996 is: - -------------------------------------------------------------------------------- RETIREMENT PLAN - -------------------------------------------------------------------------------- 1997 1996 ------- ------- Accumulated benefit obligation, substantially all vested $18,949 $14,716 ------- ------- Projected benefit obligation, including the effect of projected future salary increases $28,584 $21,909 Plan assets at fair value 21,656 15,732 ------- ------- Excess of projected benefit obligation over plan assets 6,928 6,177 Unrecognized prior service costs (182) (344) Unrecognized net experience loss (4,590) (4,416) ------- ------- Accrued pension cost $ 2,156 $ 1,417 ======= ======= - ------------------------------------------------------------------------------- SUPPLEMENTAL PLANS - -------------------------------------------------------------------------------- 1997 1996 ------ ------ Accumulated benefit obligation, substantially all vested $3,185 $2,945 ------ ------ Projected benefit obligation, including the effect of projected future salary increases $3,715 $3,179 Plan assets at fair value -- -- ------ ------ Excess of projected benefit obligation over plan assets 3,715 3,719 Unrecognized prior service costs (613) (704) Unrecognized net experience loss (504) (162) Adjustment to recognize minimum liability 587 632 ------ ------ Accrued pension costs $3,185 $2,945 ====== ====== - ------------------------------------------------------------------------------- The Company has reported an additional minimum liability of $587 and $632 at December 31, 1997 and 1996, respectively, representing the excess of the accumulated benefit obligation over accrued pensions costs for the Supplemental Plans. A corresponding amount is recognized as an intangible asset to the extent of unrecognized prior service costs. The projected benefit obligations are based on employee census information as of the beginning of each year. The weighted average discount rate used in determining the end of year acturial present value of the projected benefit obligation was 7.25% for 1997, 7.5% for 1996 and 7.25% for 1995. The assumed annual rate of increase in future compensation levels was 7.5% for the first five years of service and 5% thereafter. The expected long-term rate of return on plan assets was 10% for 1997 and 1996 and 9% in 1995. A 401(k) retirement savings plan is maintained for all U.S. employees. The Company's contributions to this plan were $1,447, $1,376 and $1,317 in 1997, 1996 and 1995, respectively. The Company has a profit sharing program which provides for employee incentive awards when pre-tax return on sales exceeds 7%. No awards have been made under this program. - -------------------------------------------------------------------------------- 1997 ATL Annual Report 25 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 14. SHAREHOLDERS' EQUITY At December 31, 1997, the Company had the following stock compensation plans: the 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan, the 1992 Nonofficer Employee Stock Option Plan, the 1986 Management Incentive Plan (collectively the Employee Stock Plans); the Nonemployee Director Stock Option Plan and the Employee Stock Purchase Plan. Had compensation cost for the Company's stock-based compensation plans been determined consistent with FAS 123, the Company's net income and earnings per share would have been reduced to the proforma amounts as indicated below:
- ------------------------------------------------------------------------------------------------------ 1997 1996 1995 ----------------------------------------- Net Income (Loss) As Reported $21,171 $ (828) $12,002 Proforma 17,567 (2,342) 11,727 Basic net income (loss) per share As Reported $ 1.51 $ (0.06) $ 0.91 Proforma 1.25 (0.17) 0.89 Diluted net income (loss) per share As Reported $ 1.41 $ (0.06) $ 0.88 Proforma 1.19 (0.17) 0.86 - ------------------------------------------------------------------------------------------------------
Under the Employee Stock Plans, 3,320,000 shares of common stock are authorized primarily for issuance upon exercise of stock options at prices equal to the fair market value of the Company's common shares at the date of grant, for restricted shares at par value, and for unrestricted shares at par value. At December 31, 1997, 97,300 shares were available for grants under the Employee Stock Plans. Stock options are generally exercisable at 25% each year over a four year vesting period and generally have a term of 10 years from date of grant. Under the Nonemployee Director Stock Option Plan, 105,000 shares of common stock are authorized for the issuance of stock options at prices equal to the fair market value of the Company's common shares at the date of grant. At December 31, 1997, 11,000 shares were available for grants under this plan. Under the 1986 Option, Restricted Stock, Stock Appreciation Right and Performance Unit Plan, there were approximately 222,000 stock options outstanding at December 31, 1997. Use of this plan for grants of stock, stock options and other awards terminated in 1992. Proforma compensation expense is recognized for the fair value of each option estimated on the date of grant using the Black-Scholes pricing model. The following assumptions were used for option grants in 1997, 1996 and 1995, respectively: expected volatility of 39%, 34% and 26%; risk-free interest rates of 6.2%, 6.6% and 6.7%; expected lives of 4.25 years and zero dividend yield. A summary of the Company's stock option plans as of December 31 and changes during the year ended on those dates is presented below (shares in thousands):
- ---------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ---------------------------------------------------------------------------------------------- Outstanding at beginning of year 2,158 $18.38 2,206 $15.73 2,109 $15.37 Granted 293 $39.91 545 $31.50 344 $16.06 Exercised (562) $12.56 (544) $15.71 (140) $10.58 Canceled (42) $24.15 (49) $20.96 (107) $16.40 ----- ----- ----- Outstanding at end of year 1,847 $23.44 2,158 $18.38 2,206 $15.73 ===== ===== ===== Options exercisable at year-end 984 1,102 1,175 Weighted-average fair value of options granted during the year $15.26 $12.64 $5.83 - ----------------------------------------------------------------------------------------------------------------------------
The following is a summary of stock options outstanding at December 31, 1997 (shares in thousands):
- ---------------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable ----------------------------------------------------------------------------------------------------------- Range of Weighted-Average Exercise Number Life Remaining Weighted-Average Number Weighted-Average Prices Outstanding Contractual Exercise Price Exercisable Exercise Price - ---------------------------------------------------------------------------------------------------------------------------- $5 - $25 1,084 5.4 years $16.05 858 $15.94 $26 - $46 763 8.7 years $34.05 126 $32.60 - ----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 26 1997 ATL Annual Report Effective January 1, 1997, the Company implemented an Employee Stock Purchase Plan (ESPP) for the benefit of substantially all employees. Under the terms of the ESPP, the Company is authorized to issue up to 300,000 shares of common stock. The ESPP enables employees to purchase shares of ATL common stock at a discounted price through after-tax payroll deductions. The Company does not participate in the funding of this plan. The Company issued 67,852 shares for employee stock purchases in 1997. At December 31, 1997, 232,148 shares were available for purchase under this plan. Proforma compensation expense is recognized for the fair value of each employee stock purchase right estimated on the date of grant using the Black-Scholes pricing model. The following assumptions were used for employee stock purchases in 1997: expected volatility of 42%; risk-free interest rates of 5.1%; expected lives of .5 years; and zero dividend yield. The weighted-average fair value of employee stock purchase rights granted in 1997 was $12.59. In 1997, 1996 and 1995, 95,700, 70,000 and 14,680 shares, respectively, of restricted stock were issued at par value. The weighted-average fair value of those restricted shares granted in 1997, 1996 and 1995 was $37.02, $29.41 and $15.80, respectively. The Company repurchased 343,000 shares of its own common stock in the open market for $11,888 in 1997 under share repurchase programs intended to service ATL's benefit programs. The Company repurchased 289,000 shares totaling $8,539 in 1996. In May 1997, the Board of Directors authorized the Company to purchase up to 1,000,000 shares of its common stock, subject to certain criteria. A similar authorization was also granted in May 1996. 15. INCOME TAXES The components of income (loss) before income taxes were: - ------------------------------------------------------------------------------- 1997 1996 1995 U.S. operations $17,684 $(9,236) $ 9,491 International operations 8,209 6,662 4,997 ------- ------- ------- $25,893 $(2,574) $14,488 ======= ======= ======= Income tax expense (benefit) consists of the following: - ------------------------------------------------------------------------------ 1997 1996 1995 ------- ------- ------ Current: U.S. Federal $(3,494) $ 2,418 $1,378 U.S. State and Local 200 500 500 International 4,240 3,280 1,617 Deferred: U.S. Federal 3,939 (7,608) (825) International (163) (336) (184) ------- ------- ------ $ 4,722 $(1,746) $2,486 ======= ======= ====== - ------------------------------------------------------------------------------ For Federal income tax purposes, the Company receives a deduction arising from the exercise of employee stock options equal to the difference between the fair market value at date of exercise and the original option grant price. This tax benefit of $2,532 is reported as a credit to paid-in capital at December 31, 1997. The difference between taxes computed by applying the U.S. Federal income tax rate of 34% to income (loss) before income taxes and the actual income tax expense (benefit) follows:
- -------------------------------------------------------------------------------------------------- 1997 1996 1995 ------- ------- ------- Expected income taxes at U.S. statutory rate $ 8,804 $ (875) $ 4,926 Increase (reduction) in income taxes resulting from: State and local income taxes 2,006 (1,150) 330 Taxes related to foreign operations 1,325 324 941 Tax accrual adjustment 1,545 1,405 -- Change in valuation allowance excluding intraperiod items (6,073) (727) (4,030) Increase in R&D Credit (3,628) (1,269) -- Other, net 743 546 319 ------- ------- ------- $ 4,722 $(1,746) $ 2,486 ======= ======= ======= - --------------------------------------------------------------------------------------------------
The Company had net payments of income taxes of $5,767, $3,574 and $632 in 1997, 1996 and 1995, respectively. - -------------------------------------------------------------------------------- 1997 ATL Annual Report 27 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. The tax effects of temporary differences and carryforwards which give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are presented below. - ------------------------------------------------------------------------------- 1997 1996 -------- -------- Deferred tax assets Receivables $ 5,652 $ 2,849 Inventories 11,800 13,635 Net operating loss carryforwards 1,307 767 State taxes 2,995 4,869 Compensation 5,225 4,870 Provision for litigation claim -- 12,116 Research and experimentation credit carryforwards 11,362 7,734 Other 764 1,084 -------- -------- Gross deferred tax assets $ 39,105 $ 47,924 Less valuation allowance (25,437) (29,678) -------- -------- Net deferred tax assets $ 13,668 $ 18,246 Deferred tax liabilities, primarily depreciation and intangible assets (4,386) (5,188) -------- -------- Deferred income taxes, net $ 9,282 $ 13,058 ======== ======== - ------------------------------------------------------------------------------- In determining the realizability of deferred tax assets, the Company primarily considers its deferred tax liabilities, tax planning strategies, future earnings and potential carryback opportunities. At December 31, 1997, the Company had net operating loss carryforwards for statutory purposes of approximately $3,600, which begin to expire after 2000 or have no expiration date. The Company also has U.S. research and experimentation credit carryforwards of approximately $11,400 with expiration dates from 1998 through 2012. Utilization of carryforwards from acquired subsidiaries may be limited due to change in ownership rules of the Internal Revenue Code. Provision has not been made for U.S. or additional foreign taxes on the undistributed earnings of the Company's foreign subsidiaries which total approximately $11,100. These earnings could become subject to additional tax if they were remitted as dividends, lent to the Company, or if the Company should sell its stock in these subsidiaries. With the exception of Australia and the United Kingdom, it is anticipated that the undistributed earnings will be reinvested. The tax impact of repatriating undistributed earnings from Australia and the United Kingdom will be substantially offset by realization of foreign tax credits. 16. RESEARCH AND DEVELOPMENT ARRANGEMENTS In December 1995, the Company entered into a research and development joint venture with Hitachi Medical Corporation (Hitachi). The Company received proceeds of $10,000 and reported a $6,220 gain. The gain is reported in other (income) expense, net, in 1995. The technology resulting from this joint venture is available to both ATL and Hitachi for new product offerings and product features. ATL will receive royalty payments in the future based upon Hitachi's revenues from jointly developed technology. ATL received funding from Hitachi of $1,150 in 1997, $2,300 in 1996 and $1,000 in 1995 which is reported in research and development expenses. In May 1996, ATL, the University of Washington, Harris Semiconductor and VLSI Technology, Inc. entered into a consortium to develop a handheld ultrasound device for use in military and commercial applications. The U.S. Government's Advanced Research Projects Agency selected the project for matched funding and will contribute approximately half of the estimated project costs with the remaining funding coming from the project consortium. ATL recognized funding of $2,948 and $1,029 in 1997 and 1996, respectively, on this project which is reported in research and development expense. See Note 23, Subsequent Event, for a description of the tax-free distribution of handheld business shares to ATL shareholders. 17. OTHER (INCOME) EXPENSE, NET Other (income) expense, net, includes foreign exchange gains and losses consisting of realized gains and losses on cash transactions involving various foreign currencies, unrealized gains and losses resulting from exchange rate fluctuations primarily affecting intercompany accounts and gains and losses on forward exchange contracts. Net losses from foreign currency transactions were $641, $329 and $22 in 1997, 1996 and 1995, respectively. Other (income) expense, net, also includes Washington State Business and Occupation (B&O) taxes of $83, $652 and $(606) in 1997, 1996 and 1995, respectively. This tax is a gross receipts tax imposed on products manufactured in the State of Washington and is levied in lieu of a state income tax. The Company reported a benefit related to a B&O tax audit which was concluded in 1995, of which $1,000 is classified as other (income) expense, net. In 1997, other (income) expense, net includes a gain from the sale of the Company's image management business as discussed in Note 3, Sale of Image Management Business. Other (income) expense, net, in 1995 includes a $6,220 gain from the Hitachi R&D joint venture, as discussed in Note 16, Research and Development Arrangements. - -------------------------------------------------------------------------------- 28 1997 ATL Annual Report 18. COMMITMENTS AND CONTINGENCIES Leases The Company was obligated at December 31, 1997 under long-term operating leases for various types of property and equipment, with minimum aggregate rentals totaling $15,958 as follows: $5,214 in 1998, $3,647 in 1999, $2,662 in 2000, $2,069 in 2001, $1,946 in 2002 and $420 thereafter. Many of the Company's leases contain renewal options and clauses for escalations of rent and payment of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Certain leases are expected to be renewed or replaced at expiration. Total rental expense under operating leases was $8,449, $8,078 and $6,940 in 1997, 1996 and 1995, respectively. Building Commitments The Company began construction of a new 101,000 square foot building on its corporate campus in August 1997. On December 12, 1997, the Company signed an addendum to its construction contract authorizing additional expenditures of up to $10,000 on the project, substantially all of which remains outstanding at December 31, 1997. Legal Contingencies The Company is involved in various legal actions and claims arising in the ordinary course of business. The Company believes the ultimate resolution of these matters individually and in the aggregate will not have a material adverse effect on the Company's financial condition or results of operations. Other Like many companies in high technology businesses, the Company can from time to time experience difficulty with the availability of components employed in its products. Such difficulties can lead to long order lead time or delays in the Company's manufacture of products. The Company is subject to certain rules and regulations of the U.S. Food and Drug Administration (FDA) and other regulatory agencies regarding the design, documentation, manufacture, marketing and reporting of the performance of its products. The Company's ability to obtain timely FDA export and new product approvals is dependent upon the results of FDA inspections and reviews. The Company can also incur substantial expense in responding to process improvements and modification of products previously sold to customers which stem from comments and new requirements of the FDA. 19. EARNINGS PER SHARE The following schedule represents a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations.
- ---------------------------------------------------------------------------------------------------------------- 1997 1996 1995 ------------------------ ----------------------- ------------------------ Income Shares EPS Loss Shares EPS Income Shares EPS ------------------------ ----------------------- ------------------------ Weighted-average shares outstanding 14,176 14,025 13,376 Weighted-average unvested restricted stock (125) (125) (150) BASIC EPS $21,171 14,051 $1.51 $(828) 13,900 $(0.06) $12,002 13,226 $0.91 Effect of Dilutive Securities Restricted Stock 54 - 79 Common stock equivalents 865 - 269 Diluted EPS $21,171 14,970 $1.41 $(828) 13,900 $(0.06) $12,002 13,574 $0.88 - ----------------------------------------------------------------------------------------------------------------
Common stock equivalents totaling 171,000, 2,408,000 and 509,000 shares in 1997, 1996 and 1995, respectively, were excluded from the calculation of diluted earnings per share as they were antidilutive. - -------------------------------------------------------------------------------- 1997 ATL Annual Report 29 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 20. GEOGRAPHIC SEGMENT INFORMATION The Company operates in one industry segment: developing, manufacturing, marketing and servicing diagnostic medical ultrasound imaging systems and related accessories and supplies. Internationally, the Company's products are marketed through its subsidiaries and independent distributors, with subsidiaries located in Asia, Europe, South America, Australia and Canada. In some of these countries, changes in the political and economic conditions could adversely impact the Company's ability to market products or recover assets. A summary of the Company's operations by geographic area follows: - ----------------------------------------------------------------------------- 1997 1996 1995 -------- -------- -------- Revenues: U.S. $282,223 $270,880 $261,762 Transfers between geographic areas 92,928 88,464 84,505 -------- -------- -------- Total U.S. 375,151 359,344 346,267 International: Europe 96,775 108,210 106,168 Other 52,246 40,067 31,516 -------- -------- -------- Total International 149,021 148,277 137,684 Eliminations (92,928) (88,464) (84,505) -------- -------- -------- $431,244 $419,157 $399,446 ======== ======== ======== Income (loss) before income taxes: U.S. $ 17,692 $(10,752) $ 8,684 International: Europe 2,842 3,390 4,468 Other 5,367 3,272 529 -------- -------- -------- Total International 8,209 6,662 4,997 Adjustments/eliminations (8) 1,516 807 -------- -------- -------- $ 25,893 $ (2,574) $ 14,488 ======== ======== ======== - ----------------------------------------------------------------------------- 1997 1996 -------- -------- Geographic Assets: U.S. $250,761 $250,012 International: Europe 61,061 59,048 Other 41,937 32,016 -------- -------- Total International 102,998 91,064 Adjustments/eliminations (4,195) (7,885) -------- -------- Geographic Assets $349,564 $333,191 General corporate assets (cash and cash equivalents) 12,246 47,010 Consolidated assets $361,810 $380,201 ======== ======== Net assets of International subsidiaries $ 74,449 $ 66,667 ======== ======== - ----------------------------------------------------------------------------- International revenues, including both international operations and U.S. export sales, were as follows: - ------------------------------------------------------------------------------- 1997 1996 1995 -------- -------- -------- International operations $149,021 $148,277 $137,684 U.S. export sales 61,474 58,526 50,991 -------- -------- -------- Total international revenues $210,495 $206,803 $188,675 ======== ======== ======== - ------------------------------------------------------------------------------- 21. MARKET INFORMATION AND DIVIDEND POLICY (UNAUDITED) The Company's Common Stock, $0.01 par value, trades on the Nasdaq National Market under the symbol ATLI. The following table sets forth the high and low sale prices per share of the Company's Common Stock as reported on the Nasdaq National Market for each quarter during the last two fiscal years. - ------------------------------------------------------------------------------- 1997 HIGH LOW - ---- ------- -------- First Quarter $37 $28 3/4 Second Quarter $45 1/4 $27 Third Quarter $47 7/8 $33 3/4 Fourth Quarter $48 1/8 $39 7/16 1996 HIGH LOW - ---- ------- -------- First Quarter $31 1/2 $20 1/2 Second Quarter $40 3/4 $26 1/2 Third Quarter $38 1/2 $25 1/4 Fourth Quarter $33 1/4 $25 - ------------------------------------------------------------------------------- The approximate number of shareholders of record of the Company's Common Stock as of December 31, 1997 was 7,335. The Company has not paid any cash dividends on its capital stock and does not currently have any plans to pay such dividends in the foreseeable future. The Company's dividend policy is dependent upon its earnings, its overall financial condition and other factors to be considered by the Board of Directors from time to time. - ------------------------------------------------------------------------------- 30 1998 ATL Annual Report 22. QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------ QUARTERS -------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- -------- -------- 1997 Revenues $100,118 $100,808 $ 92,988 $137,330 $431,244 Gross profit 47,780 49,426 44,643 71,970 213,819 Income (loss) from operations 2,454 3,010 (2,604) 22,402 25,262 Income (loss) before income taxes 2,566 3,185 (2,454) 22,596 25,893 Net income (loss) $ 2,052 $ 2,549 $ (1,962) $ 18,532 $ 21,171 Net income (loss) per share-diluted $ 0.14 $ 0.17 $ (0.14) $ 1.23 $ 1.41 1996 Revenues $ 94,799 $ 98,593 $100,265 $125,500 $419,157 Gross profit 45,097 47,753 49,254 62,878 204,982 Income (loss) from operations 3,491 (25,495) 4,789 14,143 (3,072) Income (loss) before income taxes 3,712 (25,210) 4,733 14,191 (2,574) Net income (loss) $ 2,970 $(19,179) $ 3,787 $ 11,594 $ (828) Net income (loss) per share-diluted $ 0.20 $ (1.38) $ 0.25 $ 0.78 $ (0.06) - ------------------------------------------------------------------------------------------------------------------------------
Quarterly per share data shown do not add to the total in 1997 and 1996 due to changes in the number of weighted-average shares outstanding during the year from exclusion of common stock equivalents in loss periods as they were antidilutive. The 1996 results include a non-recurring expense of $29,557 for a patent litigation provision and a $(6,900) related income tax benefit in the second quarter. The Company is providing the following information to assist in identifying trends in existing and ongoing business operations. This information represents a non-GAAP measure of net income which should not be relied upon as a substitute for the actual reported measures of net income.
- ------------------------------------------------------------------------------------------------------------------------------ QUARTERS -------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- -------- -------- 1996 Net income, excluding non-recurring item $2,970 $3,478 $3,787 $11,594 $21,829 Net income per share, excluding non-recurring item - diluted $ 0.20 $ 0.23 $ 0.25 $ 0.78 $ 1.47 - ------------------------------------------------------------------------------------------------------------------------------
23. SUBSEQUENT EVENT On February 2, 1998, the Company approved a plan to spin-off its handheld business as an independent, publicly owned company. This transaction is to be effected through the tax-free distribution of handheld business shares to ATL shareholders after the first quarter of 1998 (the "Distribution"). The Company's shareholders will receive one share of handheld business common stock for each three shares of the Company's common stock held. In connection with the Distribution, the Company will contribute to the handheld business, capital of $15,000 in cash on the Distribution date and $15,000 in cash on January 15, 1999. The Company and the handheld business will also enter into a number of agreements to facilitate the Distribution and the transition of the Company to an independent business. A registration statement on Form 10 was filed with the Securities and Exchange Commission in the name of Handheld Ultrasound Systems, Inc. on February 13, 1998. To date, there have been no revenues from the sale of handheld ultrasound devices. The handheld business has been focused on the research, development and commercialization of handheld technology and all business activities, including U.S. Government development contract funding, have been reported in the Company's operating expenses which totaled $5,994 and $1,764, respectively, for the years ended December 31, 1997 and 1996. The unaudited earnings per share impact of the handheld business net operating expenses was $0.32 in 1997 and $0.12 in 1996. - -------------------------------------------------------------------------------- 1997 ATL Annual Report 31 - -------------------------------------------------------------------------------- DIRECTORS AND CORPORATE OFFICERS - -------------------------------------------------------------------------------- BOARD OF DIRECTORS CORPORATE OFFICERS Dennis C. Fill Dennis C. Fill Chairman of the Board Chairman of the Board Chief Executive Officer Chief Executive Officer Kirby L. Cramer Pamela L. Dunlap Chairman of the Organization and Senior Vice President Nominating Committee; Finance and Administration, Chairman Emeritus Chief Financial Officer Hazleton Laboratories Corporation Kirkland, Washington SENIOR VICE PRESIDENTS Harvey Feigenbaum, M.D. Donald D. Blem Chairman of the Scientific Advisory Board; Distinguished Professor of Medicine Cass F. Diaz Indiana University Medical Center Indianapolis, Indiana Victor H. Reddick Eugene A. Larson Jacques Souquet, Ph.D. Scientific Consultant Former President of ATL Ultrasound VICE PRESIDENTS Ernest Mario, Ph.D. Greg J. Brand Chairman of the Compensation Committee; Chairman and Chief Executive Officer Anne Marie Bugge ALZA Corporation Palo Alto, California Sanjoy Chatterji John R. Miller Robert F. Dockendorff Senior Advisor Chanen, Painter & Company, Ltd. William J. Doherty Investment Bankers Seattle, Washington Edith M. Feild Phillip M. Nudelman, Ph.D. Brian R. Lee Chairman of the Audit Committee; Chairman and President Ken A. Likkel Kaiser/Group Health Seattle, Washington Max E. Neves Harry Woolf, Ph.D. Arthur J. Schenck Professor Emeritus and Former Director Institute for Advanced Study Dieter A. Schwartmann Princeton, New Jersey Terrence J. Sweeney Richard S. Totorica W. Brinton Yorks, Jr. - -------------------------------------------------------------------------------- 32 1997 ATL Annual Report GENERAL INFORMATION CORPORATE HEADQUARTERS ATL Ultrasound, Inc. 222100 Bothell Everett Highway, 98021-8431 P.O. Box 3003, 98041-3003 Bothell, Washington EUROPEAN HEADQUARTERS ATL Munich Edisonstrasse 6 D-85716 Unterschleissheim Munich, Germany PRINCIPAL INTERNATIONAL SUBSIDIARIES AND FIELD OPERATIONS Buenos Aires, Argentina Sydney, Australia Vienna, Austria Brussels, Belgium Toronto, Canada Beijing, China Letchworth, England Paris, France Solingen, Germany Madras, India Milan, Italy Woerden, Netherlands Singapore Stockholm, Sweden SHAREHOLDER INFORMATION A copy of the Company's Form 10-K and quarterly news releases may be obtained by contacting the Corporate and Investor Relations Department, ATL Ultrasound, P.O. Box 3003 Bothell, WA 98041-3003 Telephone: (800) 426-2670, Ext. 7427 Press releases and other corporate information are available on ATL's Web Site at http://www.atl.com STOCK LISTING ATL Ultrasound Common Stock is listed on the Nasdaq Stock Market under the symbol ATLI. TRANSFER AGENT/REGISTRAR Inquiries regarding change of address, stock transfer or your shareholder account should be sent directly to: First Chicago Trust Company of New York Shareholder Relations Dept. P.O. Box 2500 Jersey City, NJ 07303-2500 Telephone: (201) 324-1644 Shareholder inquiries can also be made to Transfer Agent/Registrar on the Worldwide Web at http://www.fctc.com. E-mail only: fctc@em.fcnbd.com. It is helpful to include your social security or tax ID number. [BACK COVER: CONTINUATION OF PHOTOS FROM FRONT COVER OF SURFACE MOUNT MANUFACTURING AND CIRCUIT BOARD] EX-21 6 ATL PARENT AND LIST OF SUBSIDIARIES ATL ULTRASOUND, INC. -------------------- (Washington Corporation) ------------------------ PARENTS & SUBSIDIARIES
JURISDICTION OF PERCENTAGE OF REGISTRANT INCORPORATION VOTING CONTROL - ---------- ---------------- --------------- ATL Ultrasound, Inc............................................................... Washington Subsidiaries included in the consolidated financial statements contained herein: Advanced Technology Laboratories, Inc. ........................................... Washington 100 ATL Medizinishe Gerate Service und Handelgesellschaft m.b.H. ................. Austria 100 Advanced Technology Laboratories United Kingdom - Limited..................... England 99(1) Advanced Technology Laboratories (Deutschland) GmbH........................... Germany 98(2) Advanced Technology Laboratories S.A.R.L. .................................... France 99.9997(3) Advanced Technology Laboratories S.p.A. ...................................... Italy 100 Advanced Technology Laboratories Singapore Private Ltd. ...................... Singapore 100 Advanced Technology Laboratories Argentina S.A. .............................. Argentina 99(4) ATL China Ltd. ............................................................... Hong Kong 99(4) ATL Ultrasound, A.B. ......................................................... Sweden 100 Advanced Technology Laboratories Hong Kong Limited............................ Hong Kong 99(4) Advanced Technology Laboratories - ATL do Brasil Ltda. ........................ Brasil 99(4) Scientific Medical Systems International, Inc. ............................... Delaware 100 Advanced Technology Laboratories.............................................. Delaware 100 Handheld Ultrasound Systems, Inc. ............................................ Washington 100 ATL (India) Limited........................................................... India 51(5) ATL International, Inc. ...................................................... Washington 100 Advanced Technology Laboratories Australia Pty., Ltd. .................... Australia 99.99(6) Advanced Technology Laboratories - Belgium N.V. .......................... Belgium 99(1) Advanced Technology Laboratories Nederland B.V. .......................... Netherlands 100 Advanced Technology Laboratories (Canada), Inc. .......................... Canada 100 ATL Financial Services, Inc. ................................................. Washington 100 Atlas Diagnostics International, Inc. ........................................ Washington 100 Atlantis Diagnostics International, L.L.C. ................................... Washington 60(7)
(1) 1% held by Advanced Technology Laboratories, Inc. (Delaware) (2) 2% held by Scientific Medical Systems International, Inc. (3) 432,869 parts held by ATL Ultrasound, Inc. and 1 part owned by ATL International, Inc. (4) 1% held by ATL International, Inc. (5) 49% held by Sanmar Electrotech Holdings Ltd. (6) .01 held by Gregory John Brand (7) Limited Liability Company. Ownership consists of Members, ATL Ultrasound, Inc. owns a 60% interest and Hitachi Medical Corporation owns a 40% interest. As of 12/31/97 EX-27.1 7 FINANCIAL DATA SCHEDULE FOR FISCAL YEAR ENDED 12/31/1997
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 30,821 0 139,084 7,534 98,677 281,724 146,429 71,799 361,810 98,920 12,307 0 0 136 229,585 361,810 338,637 431,244 163,006 217,425 188,557 0 (3,106) 25,893 4,722 21,171 0 0 0 21,171 1.51 1.41 THE COMPANY ALSO HAS LONG-TERM INSTALLMENT RECEIVABLES OF $1,563 AND A RELATED ALLOWANCE OF $246 WHICH ARE REPORTED AS NON-CURRENT ASSETS.
EX-27.2 8 FINANCIAL DATA SCHEDULE FOR FISCAL YEAR ENDED 12/31/1996
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 63,262 0 132,728 8,624 89,911 301,120 137,203 64,803 380,201 134,826 12,936 0 0 140 211,110 380,201 329,689 419,157 162,433 214,175 208,054 0 (2,899) (2,574) (1,746) (828) 0 0 0 (828) (0.06) (0.06) THE COMPANY ALSO HAS LONG-TERM INSTALLMENT RECEIVABLES OF $3,352 AND A RELATED ALLOWANCE OF $977 WHICH ARE REPORTED AS NON-CURRENT ASSETS. OTHER EXPENSE INCLUDES A $29,557 NONRECURRING PROVISION FOR A PATENT LITIGATION CLAIM.
EX-27.3 9 FINANCIAL DATA SCHEDULE FOR FISCAL YEAR ENDED 12/31/1995
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 30,666 4,988 133,705 8,607 94,877 271,812 135,173 64,043 353,448 110,231 14,837 136 0 0 210,787 353,448 316,102 399,446 163,928 214,921 169,630 0 (2,135) 14,488 2,486 12,002 0 0 0 12,002 .91 .85 THE COMPANY ALSO HAS LONG-TERM INSTALLMENT RECEIVABLES OF $5,457 AND A RELATED ALLOWANCE OF $1,533 WHICH ARE REPORTED AS NON-CURRENT ASSETS.
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