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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, 1995
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
ADVANCED TECHNOLOGY LABORATORIES, 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
P.O. BOX 3003
BOTHELL, WASHINGTON 98041-3003
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 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 23 1996, the aggregate market value of the voting stock held by
non affiliates of the registrant was $407,618,970 based upon the closing sale
price of $30.00 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 23, 1996: 13,815,968.
DOCUMENTS INCORPORATED BY REFERENCE PART
----------------------------------- ----
Annual Report to Shareholders for the fiscal year Part II (Items 6-8)
ended December 31, 1995 Part IV (Item 14)
Proxy Statement for the 1996 Annual General Meet- Part III (Items 10-13)
ing of Shareholders
EXHIBIT INDEX IS ON PAGE 22
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ADVANCED TECHNOLOGY LABORATORIES, INC.
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. Business....................................................... 3
ITEM 2. Properties..................................................... 13
ITEM 3. Legal Proceedings.............................................. 14
ITEM 4. Submission of Matters to a Vote of Security Holders............ 14
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 14
ITEM 6. Selected Financial Data........................................ 15
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 15
ITEM 8. Financial Statements and Supplementary Data.................... 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 16
PART III
ITEM 10. Directors and Executive Officers of the Registrant............. 16
ITEM 11. Executive Compensation......................................... 16
ITEM 12. Security Ownership of Certain Beneficial Owners and Management. 16
ITEM 13. Certain Relationships and Related Transactions................. 16
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K............................................................ 16
2
PART I
ITEM 1. BUSINESS
STRUCTURE OF THE COMPANY
Advanced Technology Laboratories, 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
products worldwide. The Company currently operates through twelve
international affiliates and through local distributors worldwide.
COMPANY HISTORY
ATL was founded in 1969 and acquired by Squibb Corporation ("Squibb") in
1980. In 1982 Squibb acquired Advanced Diagnostic Research Corporation
("ADR"), a Tempe, Arizona company which was a leader in obstetrical and
abdominal ultrasound, and A.B. Kranzbuehler ("Kranzbuehler"), a European
ultrasound manufacturer and distributor of ADR products in Europe. 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, Inc. ("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.
ATL has acquired four companies with specific ultrasound expertise, products
and markets. In 1988 the Company acquired two companies to form Nova
MicroSonics which manufactures and markets networking, digital acquisition and
measurement products for use in ultrasound data and image management by
hospitals, labs, clinics and physician offices. In 1990 the Company acquired
Precision Acoustic Devices, Inc. ("PAD") which develops, manufactures and
supplies high-performance ultrasound transducers to industrial and medical
imaging markets. In 1993 the Company relocated PAD's Fremont, California
operations to Bothell, Washington and sold the OEM transducer business of PAD
to Blatek, Inc., a transducer company in State College, Pennsylvania. 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 headquarter operations in Bothell, Washington.
In 1995 the Company reincorporated in the State of Washington from its
original corporate domicile in Delaware.
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. Ultrasound systems provide a safe,
noninvasive and painless means of observing soft tissues and internal body
organs and assessing blood flow through the heart and vessels. ATL is one of
the leading suppliers of diagnostic ultrasound systems in the world. Its High
Definition(TM) Imaging (HDI(R)), Apogee, and Ultramark(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. These product lines span a range of system prices
from mid to premium priced ultrasound products.
ATL also develops, manufactures, markets and services ultrasound information
management systems through its Nova MicroSonics division in Allendale, New
Jersey. These products provide for the acquisition, storage, display and
management of ultrasound information between ultrasound systems and peripheral
equipment, within a hospital, and between hospital networks and physicians'
offices.
3
Diagnostic ultrasound products, upgrades and accessories sold for use in
hospitals, clinics and physicians' offices accounted for an estimated $2.2
billion worldwide market in 1995. 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 1995.
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 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 premium system processing units are characterized by their
ability to fully process broadband signals characteristic of the body's
tissues digitally. ATL has been a pioneer in ultrasound digital technology and
introduced the industry's first digital beamforming processor in 1988.
ATL'S PRODUCTS
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 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
diagnostic procedures selectable at the touch of a button. This feature,
called Tissue Specific(TM) Imaging, automatically optimizes over 1000 system
operating parameters for the selected diagnostic procedure and scanhead. The
HDI 3000 system offers full Doppler capability, including Color Power Angio
imaging features and three dimensional imaging of the human vasculature.
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. In 1995 ATL
added the CT8-4 and LI9-5 intraoperative scanheads to the Entos family for
intraoperative abdominal applications.
In June, 1995 ATL added full cardiology capabilities to the HDI 3000. The
cardiology configuration, called the HDI 3000cv, is operable with ATL's newest
transesophageal echocardiography (TEE) scanhead, the MPT7-4 multiplane TEE
scanhead. Deliveries of the MPT7-4 scanhead for use with the HDI 3000cv began
in the summer of 1995.
In November, 1995 ATL began offering the first integrated three dimensional
imaging capability in an ultrasound system as an optional feature for the HDI
3000 system. This feature allows a clinician to acquire and produce a rotating
three dimensional view of the vasculature of an entire organ. Investigation of
the applications of this new technology will continue in 1996. Other new
features introduced for the HDI 3000 in 1995 include Disk Link, a technology
for storing digital ultrasound images on hard disks and optical disks which
can be transported to other devices and image management products, and
Contrast Specific Imaging, by which the operation of the ultrasound system is
optimized for producing ultrasound images enhanced by the presence of harmonic
and non harmonic contrast agents in the body.
ULTRAMARK 9 HIGH DEFINITION IMAGING (HDI) SYSTEM. The Ultramark 9 system
with High Definition Imaging ("HDI") is ATL's high performance product.
Introduced in April 1991, the system contains a digital
4
beamformer which allows high resolution images and captures a broad bandwidth
of tissue signatures. The Ultramark 9 HDI system offers a series of high
performance scanheads, including a line of broad bandwidth scanheads which
provide an extensive range of clinical applications for the system and
substantially enhance the system's competitive performance. The Ultramark 9
HDI system is also available in a full cardiology model, the Ultramark 9 HDIcv
system.
In December, 1995 an advisory panel to the U.S. Food and Drug Administration
(FDA) unanimously recommended approval of ATL's breast premarket approval
application (PMA) for the HDI system. Upon FDA approval, the PMA will allow 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 a multi-center study involving the examination of over 1000
women with the Ultramark 9 HDI system. During 1996 ATL will apply to the FDA
to extend the applicability of the PMA to the HDI 3000 system.
APOGEE 800 PLUS SYSTEM. In 1994 the Company introduced the mid-range Apogee
800 high value imaging system for the 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 March,
1996 ATL introduced an upgraded model of this product, the Apogee 800 Plus,
offering improved image quality, Doppler performance, processing capability,
improved analysis packages and user controls.
APOGEE CX 200 AND CX SYSTEMS. The Apogee CX 200 and CX systems are
moderately priced echocardiography systems designed for the hospital and high-
end office markets. The systems offer full imaging, color flow mapping,
spectral Doppler scanning, and digital image archival and can be equipped to
perform stress echo examinations. The Apogee CX 200 and CX systems are also
designed to support multiplane transesophageal echo examinations.
ULTRAMARK 4 SYSTEM. At the beginning of 1996 ATL ceased production of new
Ultramark 4 ultrasound systems. The Ultramark 4 system was first introduced in
1986 and was the Company's principal product for private OB/GYN offices and
hospital OB/GYN departments. The Ultramark 4 is a gray scale and Doppler
system for the value price segment of the market ($25,000 to $60,000).
IMAGE MANAGEMENT PRODUCTS. The Company's Nova MicroSonics division develops,
manufactures and markets a complete line of ultrasound image management
products for use in the digital acquisition, storage, display and management
of ultrasound information. In 1995 the Company began shipment of Access(TM)
Image Management System products for radiology, including a Dicom-based
acquisition module, workstation and a network file server. These products
provide efficient printing, automated image archival and retrieval and reduced
patient examination times through an ultrasound open network architecture. The
Access system connects to many types of ultrasound systems, printers or other
image management products, facilitating improved diagnostic consultations
within and between hospitals.
For cardiac applications, Nova MicroSonics offers products that facilitate
the review and comparison of images produced at different times during a
cardiac study, expanding the diagnostic applications of echocardiography to
the detection of coronary artery disease. The ImageVue/DCR Workstation is a
state-of-the-art digital ultrasound image management system. This workstation
performs analysis and review of ultrasound exams conducted from a variety of
ultrasound systems.
The Image LAN Network provides network connection between ultrasound
systems, workstations, printers and other medical imaging devices and operates
with both the radiology and cardiology image management products.
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
5
scanhead design and manufacture were enhanced in 1994 with the addition of the
Echo Ultrasound division of Interspec. The Echo Ultrasound division, located
in Reedsville, Pennsylvania, produces 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
and 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 sports medicine and the surgical ultrasound market.
Radiology. The radiology, or general imaging, application, at approximately
44%, 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 HDI 3000 system, the Apogee
800 Plus system, the Ultramark 9 HDI system and the Access image management
products. Ultramark 9 HDI systems are sold as new and as refurbished (used)
systems.
Cardiology. The cardiology ultrasound, or echocardiography, application, at
approximately 30%, 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.
ATL's cardiology product offerings include the HDI 3000cv system, the
Ultramark 9 HDIcv system, the Apogee CX products, and the ImageVue and DCR
image management products.
OB/GYN. The third largest market for ultrasound systems is the OB/GYN
application, at approximately 14%. The majority of OB/GYN ultrasound system
sales are to office-based practitioners in the United States,
6
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 Ultramark 9 HDI system and the
Apogee 800 Plus system for the office market.
Vascular. The smallest of the primary clinical markets for ultrasound
systems, at approximately 4%, 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 3000 and the Ultramark 9
HDI 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, account for
approximately 8% of the worldwide ultrasound market. ATL provides the HDI 3000
system with the L10-5 and Entos CL10-5 scanheads for breast clinics, the HDI
3000 system or the Ultramark 9 HDI system with the Entos CL10-5 scanhead for
orthopedic and sports medicine clinics, and the HDI 3000 system with the CT8-4
and LI9-5 intraoperative scanheads or the Ultramark 9 HDI system with the
Entos CL10-5 scanhead for surgical suites.
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 is characterized by
ultrasound systems that typically sell for over $150,000 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. Typically, systems sold
in the premium market are equipped with a wide variety of specialty scanheads.
Fully featured HDI 3000 and the HDI 3000cv systems are ATL's premium
performance products.
High Performance. The high performance 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
$135,000 to $150,000 per unit and generally include advanced measurement and
analysis software, image review capabilities, and a variety of scanhead
offerings. ATL sells minimally configured HDI 3000 systems in this market
price.
Upper Mid-Range. The upper mid-range market is characterized by systems with
good gray scale imaging and the full range of Doppler features, as well as all
of the standards measurement and analysis capabilities, image review
functions, and available scanheads. Systems in this market segment sell
between $100,000 to $135,000 per unit. New and refurbished Ultramark 9 HDI
systems are sold in this market segment.
Mid-Range. The mid-range market segment 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
7
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
Apogee 800 Plus system, the Apogee CX 200 and CX systems, and Ultramark 9 HDI
systems.
Low-End. The low-end market segment 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 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.
With the discontinuation of production of new Ultramark 4 systems, ATL does
not presently compete in this market segment.
GEOGRAPHIC AREAS. The ultrasound market is divided into four major
geographic markets.
United States. The United States, at 31% of the market, is the largest
single country market for ultrasound. 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. In 1993 and 1994, with the emphasis in the United States
turning to more efficient health care delivery and managed care and the
consolidation of health care organizations, the U.S. market has become
increasingly value conscious.
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. In 1995 the European markets began to emerge from one
of the more pronounced recessionary cycles for health care in many years. This
recessionary effect has been moderated somewhat by the more regulated
character of health care in Europe, providing more stability to the European
markets. Value 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.
Japan. This market accounts for approximately 16% of worldwide ultrasound
sales. Its complex distribution system is highly competitive and Japanese
manufacturers account for almost all sales. In 1995 ATL entered into an
agreement with Hitachi Medical Corporation (HMC) as ATL's distributor in the
Japanese market. HMC is currently pursuing regulatory approvals for
distribution of the HDI 3000 system in Japan. Sales of these products are
expected to commence in 1996 after these approvals have been received.
Asia Pacific, Latin America and Canada. The remaining geographic areas of
the world account for approximately 18% of the market. The Australian and
Canadian markets are similar in structure to those of the European countries.
Parts of Asia and Latin America represent some of the fastest growing areas
for high performance and mid-range ultrasound products. The remainder of this
group are mostly developing countries with limited resources to devote to
health care. Many ultrasound systems sold in these regions are mid-range
systems, refurbished systems or new low-priced Japanese systems. The Asia
Pacific and Latin America markets are among the fastest growing markets.
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 October, 1995 ATL announced that it had entered into an R&D joint venture
with HMC. This collaboration will concentrate on the development of new
ultrasound technologies which can be utilized by both
8
companies in their respective products and markets. HMC is providing financial
support for this venture as agreed upon development milestones are achieved.
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 Advanced Research
Project Agency of the U.S. Department of Defense to develop an ultrasound
diagnostic instrument small enough to hold in one's hand for use in
battlefield and trauma situations. This program is expected to start during
the first half of 1996 and continue for several years, during which time
government funding will be provided as program milestones are achieved. The
partners in the program will retain the rights to commercial applications of
the program's developments.
MANUFACTURING
The Company manufactures its ultrasound system products at its facility in
Bothell, Washington. The image management systems of Nova MicroSonics are
manufactured in Nova's New Jersey facilities. The Echo Ultrasound division of
ATL is located in Reedsville, Pennsylvania. Scanheads for ATL products are
manufactured in both Reedsville and Bothell.
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 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.
Manufacturing efforts can also be impeded by third party assertions of
patent infringement by the Company's products, such as the litigation claim
discussed below. 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,
with the exception of the third-party business of Nova MicroSonics, the
Company markets its products through its direct sales organization. The United
States 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,
France, Germany, Italy, the Netherlands, 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 dealers are managed
through ATL's offices in Germany. Distributors serving the Pacific Rim
countries, Latin America and South America are managed from Bothell,
Washington. Customers outside of the United States accounted for 47% of
revenues in 1995.
9
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
in 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 support group sells and installs upgrades
for existing customers and provides training for biomedical technicians so
customers can service their own systems. The customer support group also
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. Four companies--ATL,
Toshiba Corporation's Medical Systems Group, 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 approximately equal market shares. Each of the Company's primary
competitors initially participated in only one or two of the clinical
ultrasound markets (such as radiology or cardiology), but all are increasingly
seeking to sell their ultrasound products in additional markets.
In addition to the Company's traditional competitors listed above, several
large, multi-modality companies of the medical imaging industry--the Medical
Systems Group of General Electric Company and Siemens Medical Systems, Inc.--
have signaled their intention to become more competitive in the ultrasound
market. In the past two years General Electric has introduced a digital
product, and is contracting with the nation's largest hospital networks to
assist with the acquisition and servicing of all of the networks' diagnostic
equipment, including ultrasound. Siemens has located its ultrasound
headquarters in Issaquah, Washington, approximately twelve miles from ATL's
headquarters, and has recently introduced three new ultrasound products,
including one digital product. Elbit, Inc., an Israeli supplier of a broad
range of diagnostic imaging equipment, continues to promote the products of
Diasonics, Inc., which is now a division of Elbit, and has announced plans to
create a separate diagnostic imaging business. 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.
The Company believes that significant competitive factors in the diagnostic
ultrasound market include the clinical performance of systems, depth of
product line, 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
10
diagnostic technology, and 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.
Certain critical technology incorporated in the Company's products,
including software algorithms, broad bandwidth scanhead technology and ASIC
technology, is protected by copyright laws and confidentiality and licensing
agreements. The Company's proprietary digital beamformer is protected by
confidentiality agreements, 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 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 manufacturing, marketing and advertising of medical products. The
Company's manufacturing facilities and the manufacture of its products are
subject to FDA regulations respecting registration of manufacturing facilities
and compliance with the FDA's Good Manufacturing Practices regulations. The
Company is also subject to periodic on-site 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
February, 1996 the FDA concluded an inspection of the Company's Bothell,
Washington facilities. This inspection commenced as expected as a part of the
approval process for ATL's PMA, but then expanded into a full biennial
facility inspection. ATL believes that the FDA is satisfied with the results
of the inspection, which will permit the PMA approval process and ATL's
ultrasound business in general to proceed as the Company anticipates.
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 required only 510(k) clearance. On December 11,
1995 an FDA Advisory Committee Panel voted unanimously to recommend approval,
with certain modifications, of the PMA application of ATL which would allow a
new clinical application of ultrasound that, in conjunction with mammography,
would provide physicians
11
with a high level of confidence in differentiating benign from malignant or
suspicious breast lesions and thereby reduce the need for breast biopsy in
certain circumstances. The FDA usually follows the recommendations of the
Advisory Committee Panel but is not obligated to do so. On January 26, 1996,
the FDA determined the PMA to be approvable pending the satisfaction by ATL of
certain conditions and requirements. The Company is in the process of
responding to the FDA. A final determination on approval of the PMA is
expected in 1996. The clearance provided by the PMA would permit ATL to market
its Ultramark 9 HDI product for a new clinical application for ultrasound in
women's health.
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 standards for
medical device design, manufacture, installation, and servicing known as ISO
9001 standards. All of the Company's manufacturing facilities have qualified
for 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 will become
mandatory in Europe in 1999. The FDA is in the process of adopting the ISO
9001 standards as regulatory standards for the United States, and it is
anticipated these standards will be phased in for U.S. manufacturers of
medical devices over a period of time.
ATL's HDI 3000 system has received the European Community (CE) mark in
Europe. The CE mark means that the HDI 3000 satisfies 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
national focus on possible 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 payors, 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 payors. 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 payors 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 payors worldwide, including governmental agencies, are under
increasing pressure to contain medical costs. Limits on reimbursement or other
cost containment measures imposed by third-party payors 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
12
reimbursement may be enacted in the future or what effect such legislation or
regulation would have on the Company. Many of ATL's ultrasound systems are
used in an outpatient setting, replace higher-cost imaging modalities or
enable a hospital or clinic to receive higher payments for services
commensurate with the higher level of diagnostic information provided.
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, 1995, the Company had 2,514 employees
worldwide. None of the Company's United States employees is covered by
collective bargaining agreements, and the Company considers its employee
relations to be satisfactory.
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 19 on page 26 of the
1995 Annual Report to Shareholders is incorporated by reference herein.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information concerning 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
since October 1988. He also held various international sales and marketing
positions with ATL from May 1987 to October 1988.
Harvey N. Gillis. Mr. Gillis has served as Senior Vice President, Finance
and Administration, and Chief Financial Officer since September 1992. He
served as Senior Vice President, Finance and Administration and Chief
Financial Officer for NeoPath, Inc. from 1991 to 1992. He served as Chief
Operating Manager of Samuel Stroum Enterprises from 1985 to 1991.
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 at 22100 Bothell Everett Highway, Bothell,
Washington 98041, consisting of 365,000 square feet. These adjoining 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. A number of these functions were moved
to a building on the adjoining property which the Company purchased in
December 1994 for $11.5 million, consisting of 80,000 square feet and
approximately 18 acres of land. In 1995, the Company also completed
consolidation of leased space in a nearby business park into these two
facilities.
13
The Company's Nova MicroSonics division occupies approximately 33,000 square
feet in leased buildings in Allendale, New Jersey and Indianapolis, Indiana,
and the Echo Ultrasound division 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 Company plans to lease
approximately 45,000 square feet of unused space in the Ambler building.
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 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 product liability 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 November 1992, a U.S. District Court in California granted a motion by
SRI International, Inc. ("SRI") requesting partial summary judgment on a
patent infringement claim relating to an electrical circuit alleged to be used
in several of the Company's discontinued products. The patent expired in 1994.
The decision in favor of SRI was upheld by an appellate court, and in October,
1995 a bench trial was held to determine SRI's damage award. At the trial, SRI
contended for royalties for past sales and an enhancement of royalties for
willful infringement and attorney fees. Interest will be imposed on the amount
of damages, and the court may enhance damages by up to three times if willful
infringement is found. 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. Information related to SRI is set forth in
Notes to the Consolidated Financial Statements, Note 18 on page 26 of the 1995
Annual Report to Shareholders incorporated by reference herein.
The Company is involved in various other legal actions and claims arising in
the ordinary course of business. The Company believes the resolution of these
matters individually and in the aggregate will not have a material adverse
effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 in Nasdaq National Market System ("Nasdaq
National Market").
14
The market prices of the Company's Common Stock during the two-year period
ended December 31, 1995 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, 1995............................. 28 1/2 17 3/4
Quarter ended September 29, 1995............................ 19 1/4 15 1/4
Quarter ended June 30, 1995................................. 17 1/2 14 1/2
Quarter ended March 31, 1995................................ 18 1/2 13
Quarter ended December 31, 1994............................. 19 1/2 14 3/4
Quarter ended September 30, 1994............................ 17 1/4 13
Quarter ended July 1, 1994.................................. 15 3/4 12 1/2
Quarter ended March 31, 1994................................ 17 1/4 15
Shareholders. The approximate 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 1, 1996 was 8,573.
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 10 of the 1995 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 11 through 15 of the 1995 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements are incorporated herein by
reference and made a part hereof from the 1995 Annual Report to Shareholders
in response to the information required by this item:
PAGE
-----
Independent Auditors' Report...................................... 15
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and 1994....... 16
Consolidated Statements of Operations for each of the years in
the three-year period ended December 31, 1995.................. 17
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1995.................. 18
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 31, 1995......... 19
Notes to Consolidated Financial Statements...................... 20-27
See Part IV, Item 14, for the Financial Statement Schedules filed with Form
10-K Report.
15
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 which will be filed pursuant to Regulation
14A within 120 days of December 31, 1995. 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 13 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 which will be filed pursuant to Regulation 14A
within 120 days of December 31, 1995. 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 which will be filed pursuant to Regulation 14A
within 120 days of December 31, 1995. 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 (Items 13) is set forth in ATL's
definitive proxy statement which will be filed pursuant to Regulation 14A
within 120 days of December 31, 1995. Such information is incorporated herein
by reference and made a part hereof.
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 1995 Annual Report to
Shareholders:
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 1995.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1995.
16
Consolidated Statements of Shareholders' Equity for each of the years
in the three-year period ended December 31, 1995.
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:
One report was filed on Form 8-K on January 11, 1996 related to the May 11,
1995 reincorporation merger which changed the Company's domicile from Delaware
to Washington, and a December 11, 1995 Press Release related to an FDA
Advisory Committee Panel's recommendation for approval of a PMA application
submitted by ATL for a new clinical application of ultrasound.
(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.
17
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Independent Auditors' Report........................................ (19)
II Valuation and Qualifying Accounts for the Years ended December
31, 1995, 1994 and 1993............................................ (26)
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
Advanced Technology Laboratories, Inc:
Under date of February 13, 1996 we reported on the consolidated balance
sheets of Advanced Technology Laboratories, Inc. and subsidiaries as of
December 31, 1995 and 1994, 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, 1995, as contained in the 1995 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 1995. 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 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, 1996
19
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Advanced Technology Laboratories, Inc.:
We consent to incorporation by reference in the registration statements,
333-00163 on Form S-3 and 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
Advanced Technology Laboratories, Inc., of our reports dated February 13,
1996, relating to the consolidated balance sheets of Advanced Technology
Laboratories, Inc. and subsidiaries as of December 31, 1995 and 1994, 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, 1995,
and related financial statement schedule, which reports appear in the December
31, 1995 annual report on Form 10-K, or are incorporated by reference therein
from the 1995 annual report to shareholders, of Advanced Technology
Laboratories, Inc.
KPMG Peat Marwick LLP
Seattle, Washington
March 28, 1996
20
SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DENNIS C. FILL, HARVEY N. GILLIS, 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.
Advanced Technology Laboratories,
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 28, 1996
____________________________________ Executive Officer,
Dennis C. Fill President and Director
/s/ Harvey N. Gillis Senior Vice President and March 28, 1996
____________________________________ Chief Financial Officer
Harvey N. Gillis
/s/ Kirby L. Cramer Director March 28, 1996
____________________________________
Kirby L. Cramer
/s/ Harvey Feigenbaum Director March 28, 1996
____________________________________
Harvey Feigenbaum, M.D.
/s/ Eugene A. Larson Director March 28, 1996
____________________________________
Eugene A. Larson
/s/ Phillip M. Nudelman Director March 28, 1996
____________________________________
Phillip M. Nudelman
/s/ John R. Miller Director March 28, 1996
____________________________________
John R. Miller
/s/ Harry Woolf Director March 28, 1996
____________________________________
Harry Woolf, Ph.D.
/s/ Richard S. Totorica Corporate Controller March 28, 1996
____________________________________ (Principal Accounting
Richard S. Totorica Officer)
21
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
(A) 3.1 Articles of Incorporation of Advanced Technology Laboratories,
Inc.
(A) 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 Advanced Technology Laboratories, Inc.
(A) 3.3 Bylaws of Advanced Technology Laboratories, Inc.
(B) 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.
(C) 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.
(C) 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.
(C) 10.1 Distribution Agreement between Westmark International Incorporated
and SpaceLabs Medical, Inc. dated as of May 18, 1992.
(C) 10.2 Intercompany Agreement between Westmark International Incorporated
and SpaceLabs Medical, Inc. dated as of May 18, 1992.
(C) 10.3 Tax Allocation Agreement between Westmark International
Incorporated and SpaceLabs Medical, Inc. dated as of May 18, 1992.
(D) 10.4 Lease between Le Bien and Nova MicroSonics dated November 9, 1988
(Indianapolis facility).
(E) 10.5 Lease between Advent Realty Partnership II and Nova MicroSonics
dated December 14, 1993 (Allendale, New Jersey facility).
(F) 10.6 Lease between WRC Properties, Inc. and Advanced Technology
Laboratories, Inc. dated January 10, 1992.
(G) 10.7 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) 10.8 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) 10.9 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) 10.10 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) 10.11 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).
22
EXHIBIT NO. DESCRIPTION
--------------- -----------
(G) 10.12 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) 10.13 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).
(G) 10.14 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) 10.15 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) 10.16 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) 10.17 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) 10.18 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) 10.19 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).
(E) 10.20 Purchase and Sale Agreement by and between ELDEC Corporation,
N.C. ELDEC Inc. and ATL for the sale of ELDEC Building and
surrounding property.
(E) 10.21 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.
(E) 10.22 Deed of Trust, Security Agreement as of December 28, 1994, by
ATL to Ranier Trust Company for the Benefit of Seattle-First
National Bank, for ELDEC Building and surrounding property.
(E) 10.23 Promissory Note for $11,500,000 dated December 28, 1994 from
ATL to Seattle-First National Bank, for ELDEC Building and
surrounding property.
(H)(M)(O) 10.24 1986 Amended and Restated Option, Restricted Stock, Stock
Appreciation Right and Performance Unit Plan.
(E)(M)(O) 10.25 Amended and Restated July 1, 1994 Advanced Technology
Laboratories, Inc. Incentive Savings and Stock Ownership Plan.
(M) 10.26 First Amendment to the ATL Incentive Savings and Stock
Ownership Plan dated March 15, 1996.
23
EXHIBIT NO. DESCRIPTION
--------------- -----------
(E)(M) 10.27 Advanced Technology Laboratories, Inc. Supplemental Benefit
Plan, Amended and Restated January 1, 1994.
(M) 10.28 First Amendment to ATL Supplemental Benefit Plan dated March
15, 1996.
(E)10.29 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.
(M) 10.30 Amended and Restated Retirement Plan, effective May 17, 1994.
(M) 10.31 First Amendment to ATL Retirement Plan dated December 29,
1995.
(E) 10.32 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.
(I)(M)(O) 10.33 Management Incentive Compensation Plan.
(J)(M) 10.34 Amendment to Management Incentive Compensation Plan, effective
May 5, 1993.
(C) 10.35 Employee Benefit Allocation Agreement between Westmark
International Incorporated and SpaceLabs Medical, Inc. dated
as of May 18, 1992.
(K)(M)(O) 10.36 Amended 1992 Option, Stock Appreciation Right, Restricted
Stock, Stock Grant and Performance Unit Plan. Adopted by
Shareholders on May 5, 1993.
(C) 10.37 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.
(J)(M) 10.38 Long Term Incentive Plan, effective January 1, 1993.
(G) 10.39 Interspec Supplemental Executive Retirement Plan (incorporated
by reference from Interspec, Inc. 1993 Annual Report, filed as
Exhibit 10.8 on Form 10-K, filed on February 25, 1994).
(H)(M) 10.40 Change of Control Employment Agreement with Dennis C. Fill
dated January 1, 1991.
(C)(M) 10.41 First Amendment to Employment Agreement with Dennis C. Fill
dated May 18, 1992.
(M) 10.42 Second Amendment to Employment Agreement with Dennis C. Fill
dated July 4, 1994.
(C)(M) 10.43 Change of Control Employment Agreement with David M. Perozek
dated May 18, 1992.
(C)(M) 10.44 Change of Control Employment Agreement with Harvey N. Gillis
dated September 23, 1992.
(L)(O) 10.45 Amended and Restated Nonofficer Employee Option, Restricted
Stock and Stock Grant Plan.
(K)(O) 10.46 1992 Nonofficer Employee Stock Option Plan.
(N) 10.47 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 1995 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, 1995.
23 Consent of KPMG Peat Marwick LLP. Reference is made to the
Consent on page 20 of this filing in response to this item.
(P) 28 Proxy Statement to Stockholders for ATL's 1996 Annual General
Meeting of Shareholders.
24
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 on
January 11, 1996.
(B) Previously filed with, and incorporated herein by reference to,
Westmark International Incorporated's Amendment to Application
Form 8, filed on June 25, 1992.
(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
25, 1993.
(D) Previously filed with, and incorporated herein by reference to,
Westmark's Annual Report on Form 10-K, File No. 0-15160, filed on
March 21, 1989.
(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
30, 1995.
(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,
Westmark's Annual Report on Form 10-K, File No. 0-15160, filed on
March 22, 1991.
(I) Previously filed with, and incorporated herein by reference to,
Westmark's Registration Statement on Form 10, File No. 0-15160.
(J) 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.
(K) Previously filed with, and incorporated herein by reference to,
ATL's Registration Statement on Form S-8, Registration Nos. 33-
66298, 33-54757 and 33-61807, filed July 22, 1993, July 24, 1994
and August 14, 1995, respectively.
(L) 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.
(M) Management Contracts and Compensatory Arrangements.
(N) 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.
(O) Previously filed and incorporated herein by reference to ATL's
Post Effective Amendment
No. 1 on Form S-8, filed on August 14, 1995.
(P) To be filed within 120 days of the 1994 fiscal year end pursuant
to General Instruction G to Form 10-K.
25
SCHEDULE II
ADVANCED TECHNOLOGY LABORATORIES, INC.
VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
ADDITIONS
-----------------
CHARGED BALANCE
BALANCE AT TO COSTS CHARGED AT END
BEGINNING AND TO OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- -------- -------- ---------- -------
(IN THOUSANDS)
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
======= ====== ==== ====== =======
Year ended December 31, 1994:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables and sales
returns................. $ 7,460 $5,015 $-- $2,047(1) $10,428
======= ====== ==== ====== =======
Year ended December 31, 1993:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables and sales
returns................. $ 6,301 $1,801 $-- $ 642(1) $ 7,460
======= ====== ==== ====== =======
- --------
NOTE:
(1) Accounts charged off, net of recoveries.
26