SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 3, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
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Commission File Number 0-15160
ATL ULTRASOUND, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1353386
(State of incorporation) (IRS Employee Identification No.)
22100 Bothell-Everett Highway
Post Office Box 3003
Bothell, Washington 98041-3003
(Address of principal executive offices) (Zip Code)
(425) 487-7000
(Telephone number)
Common stock, $0.01 par value; 14,789,665 shares outstanding as of July 31, 1998
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___
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ATL ULTRASOUND, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
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Condensed Consolidated Balance Sheets -
July 3, 1998 (Unaudited) and December 31, 1997......................................3
Condensed Consolidated Statements of Income (Unaudited) -
Three Months and Six Months Ended July 3, 1998 and
June 27, 1997.......................................................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended July 3, 1998 and June 27, 1997.....................................5
Notes to Condensed Consolidated Financial Statements....................................6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations................................................10
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PART II OTHER INFORMATION
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Item 1. Legal Proceedings......................................................................14
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Item 2. Changes in Securities..................................................................14
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Item 3. Defaults Upon Senior Securities........................................................14
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Item 4. Submission of Matters to a Vote of Security Holders....................................14
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Item 5. Other Information......................................................................15
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Item 6. Exhibits and Reports on Form 8-K.......................................................15
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2
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
--------------------
ATL ULTRASOUND, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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(In thousands, except per share data) 7/3/98 12/31/97
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 46,375 $ 30,821
Receivables, net 116,424 136,351
Inventories 97,339 98,677
Prepaid expenses 3,568 2,207
Deferred income taxes, net 14,286 13,668
---------------------------------------
Total current assets 277,992 281,724
PROPERTY, PLANT AND EQUIPMENT, NET 82,654 74,630
OTHER ASSETS, NET 5,238 5,456
---------------------------------------
$ 365,884 $ 361,810
=======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 687 $ 654
Current portion of long-term debt 754 449
Accounts payable and accrued expenses 65,649 80,529
Payable to SonoSight, Inc. 12,061 -
Deferred revenue 16,538 15,831
Taxes on income 8,382 1,457
---------------------------------------
Total current liabilities 104,071 98,920
LONG-TERM DEBT 28,778 12,307
OTHER LONG-TERM LIABILITIES 22,326 20,862
SHAREHOLDERS' EQUITY 210,709 229,721
---------------------------------------
$ 365,884 $ 361,810
=======================================
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Common shares outstanding 14,760 14,413
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See accompanying notes to condensed consolidated financial statements.
3
ATL ULTRASOUND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
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(In thousands, except per share data) 7/3/98 6/27/97 7/3/98 6/27/97
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REVENUES
Product sales $ 88,617 $ 78,148 $ 170,616 $ 155,862
Service 23,095 22,660 46,512 45,064
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111,712 100,808 217,128 200,926
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COST OF SALES
Cost of product sales 40,369 37,657 78,684 77,473
Cost of service 14,930 13,725 29,234 26,247
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55,299 51,382 107,918 103,720
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GROSS PROFIT 56,413 49,426 109,210 97,206
OPERATING EXPENSES, NET
Selling, general and administrative 35,271 31,264 68,927 61,572
Research and development 14,032 15,216 28,966 29,980
Other expense, net 478 60 2,097 416
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49,781 46,540 99,990 91,968
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INCOME FROM OPERATIONS 6,632 2,886 9,220 5,238
Interest income 501 1,207 927 2,163
Interest expense (390) (908) (676) (1,650)
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INCOME BEFORE INCOME TAXES 6,743 3,185 9,471 5,751
Income tax expense 1,293 636 1,838 1,150
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NET INCOME $ 5,450 $ 2,549 $ 7,633 $ 4,601
=====================================================================
Net income per share:
Basic $ 0.38 $ 0.18 $ 0.53 $ 0.33
Diluted $ 0.35 $ 0.17 $ 0.50 $ 0.31
Weighted average common shares and
equivalents outstanding:
Basic 14,480 13,990 14,392 13,981
Diluted 15,450 14,891 15,230 14,864
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See accompanying notes to condensed consolidated financial statements.
4
ATL ULTRASOUND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
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(In thousands) 7/3/98 6/27/97
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OPERATING ACTIVITIES
Net income $ 7,633 $ 4,601
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 9,494 8,040
Deferred income tax benefit (618) (37)
Changes in:
Receivables, net 18,672 16,474
Inventories 710 (4,506)
Accounts payable and accrued expenses (14,358) 1,678
Deferred revenue 1,897 (2,691)
Taxes on income 7,012 (1,774)
Other (1,205) (914)
----------------------------------
Cash provided by operations 29,237 20,871
INVESTING ACTIVITIES
Investment in property, plant and equipment (15,351) (7,096)
Proceeds from sale of business interests - 4,500
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Cash used by investing activities (15,351) (2,596)
FINANCING ACTIVITIES
Increase in short-term borrowings 33 965
Proceeds from issuance of long-term debt 17,000 -
Repayment of long-term debt (224) (463)
Repurchase of common shares (919) (4,393)
Exercise of stock options 4,058 3,983
Capital contribution to SonoSight, Inc. (18,270) -
----------------------------------
Cash provided by financing activities 1,678 92
Effect of exchange rate changes (10) (101)
----------------------------------
Increase in cash and cash equivalents 15,554 18,266
Cash and cash equivalents, beginning of period 30,821 63,262
----------------------------------
Cash and cash equivalents, end of period $ 46,375 $ 81,528
==================================
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Non-cash financing transaction:
Accrual of capital contribution to SonoSight, Inc. $ 12,061 -
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See accompanying notes to condensed consolidated financial statements.
5
ATL ULTRASOUND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of ATL Ultrasound, Inc. (ATL), which includes its subsidiaries and is
referred to as the "Company". 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.
The accompanying condensed consolidated financial statements and related notes
have been prepared pursuant to the Securities and Exchange Commission rules and
regulations for Form 10- Q. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The accompanying condensed consolidated
financial statements and related notes should be read in conjunction with the
consolidated financial statements and notes thereto incorporated by reference in
the Company's 1997 Form 10-K.
The information furnished reflects, in the opinion of management, all
adjustments necessary for a fair presentation of the results for the interim
periods presented. Interim results are not necessarily indicative of results for
a full year.
2. CASH AND CASH EQUIVALENTS
The Company considers short-term investments with maturity dates of three months
or less at the date of purchase to be cash equivalents.
3. INVENTORIES
7/3/98 12/31/97
--------------- ---------------
Materials and work in process $34,526 $36,717
Finished products 21,377 20,545
Demonstrator equipment 23,950 23,838
Customer service 17,486 17,577
--------------- ---------------
$97,339 $98,677
=============== ===============
6
ATL ULTRASOUND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
4. PER SHARE DATA
In accordance with Statement of Financial Accounting Standards (FAS) No. 128,
Earnings Per Share, the Company has reported both basic and diluted net income
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 EPS have been restated to
conform with the provisions of FAS 128.
The schedules below represent a reconciliation of the numerators and
denominators of the basic and diluted EPS calculations for the second quarter of
1998 and 1997 as well as year-to-date (YTD) 1998 and 1997.
Q2 1998 Q2 1997
--------------------------------- ---------------------------------------
Income Shares EPS Income Shares EPS
--------------------------------- ----------------------------------------
Weighted-average shares outstanding 14,674 14,119
Weighted-average unvested restricted stock (194) (129)
---------- ----------
Basic EPS $5,450 14,480 $0.38 $2,549 13,990 $0.18
Effect of dilutive securities:
Restricted stock 99 35
Common stock equivalents 871 866
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Diluted EPS $5,450 15,450 $0.35 $2,549 14,891 $0.17
Common stock equivalents totaling 536 and 44 shares in the second quarter of
1998 and 1997, respectively, were excluded from the calculation of diluted EPS
as they were antidilutive.
YTD 1998 YTD 1997
------------------------------------- ------------------------------------
Income Shares EPS Income Shares EPS
------------------------------------- ------------------------------------
Weighted-average shares outstanding 14,562 14,105
Weighted-average unvested restricted stock (170) (124)
---------- ----------
Basic EPS $7,633 14,392 $0.53 $4,601 13,981 $0.33
Effect of dilutive securities:
Restricted stock 74 46
Common stock equivalents 764 837
---------- ----------
Diluted EPS $7,633 15,230 $0.50 $4,601 14,864 $0.31
Common stock equivalents totaling 541 and 190 shares YTD 1998 and 1997,
respectively, were excluded from the calculation of diluted EPS as they were
antidilutive.
7
ATL ULTRASOUND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
5. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued FAS No. 130,
Reporting Comprehensive Income, which became effective for fiscal years
beginning after December 15, 1997. FAS 130 requires that an entity report an
amount representing total comprehensive income in condensed financial statements
of interim periods issued to Company shareholders. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Comprehensive income represents the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources and includes net income as well as items referred to as other
comprehensive income or loss. For the periods presented, the only item of other
comprehensive loss for the Company is the foreign currency translation
adjustment resulting from the consolidation of foreign operations. The table
below provides a reconciliation of net income to total comprehensive income for
each period presented.
Three months ended Six months ended
------------------------------ ----------------------------------
7/3/98 6/27/97 7/3/98 6/27/97
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Net income $5,450 $2,549 $7,633 $4,601
Foreign currency translation adjustments
resulting in other comprehensive loss (303) (828) (1,325) (3,191)
------------------------------ -------------------------------
Comprehensive income $5,147 $1,721 $6,308 $1,410
============================== ===============================
At July 3, 1998, the accumulated total of other comprehensive loss relating to
foreign currency translation adjustments was $7.7 million.
6. RECLASSIFICATIONS
Certain amounts reported in the previous year have been reclassified to conform
to the 1998 presentation.
8
ATL ULTRASOUND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
7. Distribution
On February 2, 1998, the Company approved a plan to spin-off its handheld
business division as an independent, publicly owned company (SonoSight, Inc.) to
its shareholders. A registration statement on Form 10 was filed with the
Securities and Exchange Commission in the name of SonoSight, Inc. and became
effective on April 2, 1998. The spin-off was effected through a tax-free
distribution of SonoSight shares to ATL shareholders on April 6, 1998 (the
"Distribution"). The Company's shareholders received one share of SonoSight
common stock for each three shares of the Company's common stock held. In
connection with the Distribution, the Company contributed to SonoSight
additional funding of $18,000 in cash on the Distribution date and will
contribute $12,000 in cash in January 1999. The Company and SonoSight have
entered into a number of agreements to facilitate the Distribution and the
transition of the company to an independent business.
Handheld business division spending totaled approximately $1,200 for the three
month period ended June 27, 1997. The EPS impact of the handheld business net
operating expenses was approximately $0.07 in the second quarter of 1997. There
was no handheld spending during the second quarter of 1998. Handheld business
division spending totaled approximately $2,500 and $2,200, respectively, for the
six month periods ended July 3, 1998 and June 27, 1997. The EPS impact of the
handheld business net operating expenses was approximately $0.13 and $0.12,
respectively, for the first half of 1998 and 1997. In connection with the
Distribution, the Company incurred stock distribution expenses of approximately
$1,300 in the first quarter of 1998. The EPS impact of the stock distribution
expenses was approximately $0.07 for the first six months of 1998.
8. Subsequent Event
On July 29, 1998, Royal Philips Electronics (Philips) of the Netherlands and the
Company announced the signing of an Agreement and Plan of Merger for Philips to
acquire all of the outstanding shares of the Company for approximately $800,000
or $50.50 per share for each outstanding share of the Company's common stock.
The transaction will be a cash tender offer followed by a cash merger to acquire
any shares not previously tendered. As a result of the transaction, the Company
will become a wholly owned subsidiary of Philips.
The Company's Board of Directors unanimously approved the transaction. Philips
commenced its cash tender offer on August 4, 1998. The cash tender offer is
subject to Philips receiving at least a majority of the fully diluted shares of
the Company as well as the receipt of customary regulatory approvals. Completion
of the transaction is expected in September 1998 provided the above conditions
are met.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
---------------------
Three months ended Six months ended
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(In millions, except per share data) 7/3/98 6/27/97 % Change 7/3/98 6/27/97 % Change
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues $111.7 $100.8 10.8% $217.1 $200.9 8.1%
Gross Profit $ 56.4 $ 49.4 14.1% $109.2 $ 97.2 12.3%
Operating Expenses $ 49.8 $ 46.5 7.0% $100.0 $ 92.0 8.7%
Net Income $ 5.5 $ 2.5 113.8% $ 7.6 $ 4.6 65.9%
Diluted Net Income per Share $ 0.35 $ 0.17 106.1% $ 0.50 $ 0.31 61.6%
- ------------------------------------------------------------------------------------------------------------------------------------
The Company reported net income of $5.5 million or $0.35 per share in the second
quarter of 1998 compared with net income of $2.5 million or $0.17 per share in
the second quarter of 1997. For the first six months, the Company reported net
income of $7.6 million or $0.50 per share in 1998 compared with net income of
$4.6 million or $0.31 per share in 1997. The impact on YTD net income and net
income per share from the SonoSight, Inc. stock distribution expenses incurred
during the first quarter of 1998 was approximately $1.0 million and $0.07 per
share, respectively. All per share amounts are stated on a diluted basis.
REVENUES AND GROSS PROFIT
- -------------------------
The Company's worldwide revenues increased 10.8% to $111.7 million in the second
quarter of 1998 compared with $100.8 million in the second quarter of 1997. The
majority of this growth can be attributed to product sales which increased by
$10.5 million or 13.4% in the second quarter of 1998 compared to the same period
in the prior year. The increase in product sales reflects strong worldwide
demand for the Company's HDI(R) 5000 and HDI 3000 systems, partially offset by
the foreign exchange impact of the stronger U.S. dollar on international
business and the sale of the Company's image management business in the second
quarter of 1997. Service revenues approximated amounts reported in the same
period of 1997. For the first six months of 1998, worldwide revenues increased
8.1% to $217.1 million compared with $200.9 million in the prior year for the
reasons noted above.
Gross profit was $56.4 million in the second quarter of 1998, an increase of
$7.0 million compared with gross profit of $49.4 million in the same quarter of
the prior year. Total gross margin for the second quarter of 1998 increased to
50.5% compared with 49.0% in the prior year. The improvement in gross margin
reflects the favorable shift in product mix to the Company's higher margin HDI
products. Gross profit rose on higher unit volumes of both the HDI 5000 and HDI
3000, partially offset by the impact of a stronger U.S. dollar on international
business and the sale of the Company's image management business. For the first
six months of 1998, gross profit was $109.2 million compared to $97.2 million
for the same period of 1997. YTD gross margin increased to 50.3% from 48.4% in
1997 for the reasons noted above.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
(Continued)
OPERATING EXPENSES, NET
- -----------------------
Operating expenses increased to $49.8 million in the second quarter of 1998 from
$46.5 million in the same period of 1997. Selling, general and administrative
expenses were $35.3 million, an increase of 12.8% over the second quarter of
1997. The increase in selling, general, and administrative expenses reflects
higher sales volumes over the prior year and increased market development
expenditures in Asia and Latin America. These increases were partially offset by
the spin-off of SonoSight in April 1998, favorable impacts of foreign exchange
and the sale of the Company's image management business in 1997. Research and
development (R&D) expenses decreased 7.8% to $14.0 million in the second quarter
of 1998 compared with $15.2 million in the second quarter of 1997. The decrease
in R&D expenses is primarily due to the spin-off of SonoSight and the sale of
the Company's image management business as discussed above. Handheld business
division spending totaled approximately $1.2 million for the three month period
ended June 27, 1997. The EPS impact of the handheld business net operating
expenses was approximately $0.07 in the second quarter of 1997. There was no
handheld spending during the second quarter of 1998.
For the first six months of 1998, operating expenses increased to $100.0 million
or 46.1% of total revenues compared to $92.0 million or 45.8% of total revenues
in 1997. This increase is primarily due to one-time stock distribution expenses
of approximately $1.3 million incurred during the first quarter of 1998 for the
spin-off of SonoSight as well as the factors noted above. Handheld business
division spending totaled approximately $2.5 million and $2.2 million,
respectively, for the six month periods ended July 3, 1998 and June 27, 1997.
The EPS impact of the handheld business net operating expenses was approximately
$0.13 and $0.12, respectively, for the first half of 1998 and 1997.
INTEREST INCOME AND EXPENSE
- ---------------------------
The Company earned net interest income of $0.1 million during the second quarter
of 1998 compared with net interest income of $0.3 million during the same period
in 1997. Net interest income includes interest income earned on cash balances
available for investment, extended term receivables and leasing activity, offset
by interest expense on long-term debt. 1997 interest expense also includes
post-judgment interest expense accrued on patent litigation damages which were
fully paid in the fourth quarter of 1997.
TAXES AND NET INCOME
- --------------------
For the second quarter of 1998, the Company reported an income tax expense of
$1.3 million, which represents a 19.2% effective tax rate for U.S. federal,
state and foreign income. For the second quarter of 1997, the Company reported
income tax expense of $0.6 million which represents a 20% effective tax rate for
U.S. federal, state and foreign income.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
(Continued)
CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
- -----------------------------------------------------------------------------------------------
(In millions) 7/3/98 12/31/97
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents $ 46.4 $ 30.8
Total Assets $ 365.9 $ 361.8
Long-term debt $ 28.8 $ 12.3
Shareholders' Equity $ 210.7 $ 229.7
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents totaled $46.4 million at July 3, 1998 compared with
$30.8 million at December 31, 1997. As shown in the Condensed Consolidated
Statement of Cash Flows, during the first six months of 1998, the Company
generated $29.2 million from operating activities while financing activities
provided cash of $1.7 million. At July 3, 1998, receivables, net, decreased
$18.7 million and accounts payable and accrued expenses decreased $14.4 million
from December 31, 1997 reflecting seasonally high activity levels in the fourth
quarter of 1997. During the second quarter of 1998, the Company borrowed
approximately $17 million to finance the construction of a new building on its
corporate campus and contributed $18 million of cash to SonoSight in connection
with the spin-off (see detailed discussion of items below). In addition, $4.1
million was generated from the exercise of employee stock options during the
first six months of 1998.
The Company began to take occupancy of the new 101,000 square foot building on
its corporate campus in July 1998. The building has an estimated completion cost
of approximately $15 to $16 million. Initial funding for the project came from
working capital with the transition to long-term debt in the second quarter of
1998.
The Company spun-off its handheld business on April 6, 1998 (the
"Distribution"). In connection with the spin-off, the Company contributed
capital of $18 million in cash on the Distribution date and will contribute an
additional $12 million in cash in January 1999 (see Note 7 to the Condensed
Consolidated Financial Statements, Distribution).
The Company repurchased 16,700 shares of its own common stock in the open market
for $0.7 million during the second quarter of 1998 under repurchase programs
intended to service the Company's benefit programs. The Company repurchased
5,000 shares totaling $0.2 million during the first quarter of 1998 and 343,000
shares totaling $11.9 million in 1997. 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.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
(Continued)
In addition to its cash balances, the Company has available domestic credit
facilities of $35 million, including a committed line of credit of $25 million.
Barring any unforeseen circumstances or events, management expects existing
cash, available credit lines and funds from operations to be sufficient to meet
the Company's operating requirements for 1998 (see Forward Looking Information).
FORWARD LOOKING INFORMATION
- ---------------------------
As an update to the forward looking information provided in the Company's 1997
Annual Report to Shareholders and the Form 10-Q filing for the first quarter of
1998, the Company provides the following information.
The Company reiterates the guidance provided at the end of the first quarter of
1998 that it is targeting earnings for the 1998 fiscal year to be in the range
of approximately $2.35 per share.
Certain statements in this report relating to the sufficiency of credit lines
and funds from operations, the tender offer and consummation and success of the
merger, and anticipated financial results for the balance of 1998 are forward
looking statements which involve a number of risks and uncertainties which could
cause actual results to differ materially from those anticipated in the forward
looking statements. Among the ongoing factors that could cause actual results to
differ materially from the above are the following considerations. Growth in the
ultrasound market in Europe remains slow 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 continues at an
intense level, 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, 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. The
factors which may impede the merger and its outcome include securing all
necessary governmental and other approvals, the satisfaction of all conditions
to the merger, changing business or other market conditions, and the success of
the business combination as planned by the parties. If the merger is not
completed the Company will nonetheless bear significant legal, investment
banking, and other costs attendant to preparation for the merger, and the price
of the Company's stock can become volatile. These and other factors could
adversely affect the outcome and financial effects of the plans and events
described herein.
13
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings - None.
-----------------
Item 2. Changes in Securities - None.
---------------------
Item 3. Defaults Upon Senior Securities - None.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Annual General Meeting of Shareholders was held on May 5, 1998
(b) At the Annual General Meeting of Shareholders there were four
matters submitted to a vote of security holders. Proxies were solicited
pursuant to Regulation 14 of the Securities and Exchange Act of 1934
and there was no solicitation in opposition to management's nominees as
listed in the proxy statement. Each director nominated and proposal
submitted to a vote passed and the voting outcome of each proposal is
as follows:
(1) Election of Directors:
Kirby L. Cramer For: 12,789,282 Withheld: 39,595
Harvey Feigenbaum For: 12,794,692 Withheld: 43,185
Dennis C. Fill For: 12,793,116 Withheld: 44,761
Eugene A. Larson For: 12,795,913 Withheld: 41,964
Ernest Mario For: 12,786,976 Withheld: 50,901
John R. Miller For: 12,792,438 Withheld: 45,439
Phillip M. Nudelman For: 12,790,007 Withheld: 47,870
Harry Woolf For: 12,789,873 Withheld: 48,004
(2) The adoption of an amendments to the 1992, Option, Stock
Appreciation Right, Restricted Stock, Stock Grant and Performance Unit
Plan, including an increase in the number of shares issuable under the
plan by 850,000:
For: 8,567,911 Opposed: 2,441,328 Abstained: 122,695 Broker Non-
votes: 1,705,943
(3) The adoption of an amendment to the Nonemployee Director Stock
Option Plan to increase the number of shares issuable under the plan by
100,000:
For: 9,906,014 Opposed: 1,096,822 Abstained: 52,966 Broker Non-
votes: 1,782,075
(4) Ratification of Auditors - The Company proposal to approve the
appointment of KPMG Peat Marwick LLP as independent auditors for the
Company for 1998:
For: 12,780,081 Withheld: 18,220 Abstained: 39,576
14
Item 5. Other Information
-----------------
On July 29, 1998, Royal Philips Electronics (Philips) of the Netherlands and the
Company announced the signing of an Agreement and Plan of Merger for Philips to
acquire all of the outstanding shares of the Company for approximately $800,000
or $50.50 per share for each outstanding share of the Company's common stock.
The transaction will be a cash tender offer followed by a cash merger to acquire
any shares not previously tendered. As a result of the transaction, the Company
will become a wholly owned subsidiary of Philips.
The Company's Board of Directors unanimously approved the transaction. Philips
commenced its cash tender offer on August 4, 1998. The cash tender offer is
subject to Philips receiving at least a majority of the fully diluted shares of
the Company as well as the receipt of customary regulatory approvals. Completion
of the transaction is expected in September 1998 provided the above conditions
are met.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - Financial Data Schedule
Exhibit Description
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l0.1 Revolving Credit Loan Agreement and Guaranty by and
among Advanced Technology Laboratories, Inc., ATL
Ultrasound, Inc. and Seafirst Bank, dated as of July
1, 1997.
10.2 Revolving Credit Loan Modification Agreement, dated
as of April 21, 1998, to Revolving Credit Loan
Agreement, by and among Advanced Technology
Laboratories, Inc., ATL Ultrasound, Inc. and Seafirst
Bank.
10.3 Loan Modification Agreement between Seafirst Bank,
Advanced Technology Laboratories, Inc., and ATL
Ultrasound, Inc. dated as of June 16, 1998.
10.4 Guaranty of Payment and Performance by ATL
Ultrasound, Inc. to Seafirst Bank, dated as of June
16, 1998.
10.5 Promissory Note to Seafirst Bank, made by Advanced
Technology Laboratories, Inc., dated as of June16,
1998.
10.6(A) Form of Employment Agreements between ATL Ultrasound,
Inc. and Donald D. Blem, Castor F. Diaz, Pamela L.
Dunlap, and Jacques Souquet, effective as of January
1, 1997.
10.7 Agreement and Plan of Merger, dated as of July 29,
1998 among ATL Ultrasound, Inc. Philips North America
Corporation and Philips Acquisition, Inc.
(Incorporated by reference from Philips Acquisition
Inc. Tender Offer Statement on Schedule 14D-1 dated
August 4, 1998.)
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(A) Management Contracts and Compensatory Arrangements.
(b) Reports of Form 8-K - None.
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATL ULTRASOUND, INC.
(Registrant)
Date: August 13, 1998 BY: /s/ Pamela L. Dunlap
______________________________
Pamela L. Dunlap
Senior Vice President
Finance and Administration
and Chief Financial Officer
16