<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                     ____________________________________
                                   FORM 10-K

(Mark One)
[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
     For the fiscal year ended December 31, 1999 or
                               -----------------
[_]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the transition period from ____________ to ____________.

                        Commission file number 1-10068
                                               -------
                              ACUSON CORPORATION
            (Exact name of registrant as specified in its charter)

             Delaware                               94-2784998
     ------------------------           ---------------------------------
     (State of Incorporation)           (IRS Employer Identification No.)

                             1220 Charleston Road
                 P. O. Box 7393, Mountain View, CA 94039-7393
                   (Address of principal executive offices)

     Registrant's telephone number, including area code, is (650) 969-9112
                                                            --------------
         __________________________________________________________

          Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                 Title of Each Class                    Name of Each Exchange on Which Registered Registered
           -------------------------------              ----------------------------------------------------
           Common Stock, $0.0001 par value                              New York Stock Exchange
                                                                      ---------------------------
           <S>                                          <C>
           Preferred Stock Purchase Rights                              New York Stock Exchange
</TABLE>

          Securities registered pursuant to Section 12(g) of the Act:
                                     None

                     ____________________________________

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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

The aggregate market value of the Registrant's voting stock held by non-
affiliates on March 1, 2000 (based upon the NYSE closing price on such date) was
approximately $362,375,685.

As of March 1, 2000, there were 27,609,576 shares of the Registrant's Common
Stock outstanding.

                      Documents Incorporated by Reference

Parts of the Proxy Statement for registrant's Annual Meeting of Stockholders to
be held May 1, 2000 (other than the Compensation Committee Report and
Performance Graph contained therein) (Part III) are incorporated by reference in
Parts II and III of this Form 10-K Report.

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PART I
ITEM 1
BUSINESS

General Business

This Form 10-K and Annual Report to Stockholders contain forward-looking
statements about future events, products and future financial performance that
are based on the beliefs of and estimates made by and information currently
available to, our management.  The words "expect," "anticipate," "intend,"
"plan" and similar expressions identify forward-looking statements.  The outcome
of the events described in these forward-looking statements is subject to risks
and uncertainties and actual results could differ materially from those
described here.  The sections entitled "Investment Risks," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Competition," and "Government Regulation" contain a discussion of some of the
factors that could contribute to those differences.  Additionally, we will not
necessarily update the information in this Form 10-K if any forward-looking
statement later turns out to be inaccurate.

Overview

We are a manufacturer, worldwide marketer and service provider of high-
performance systems that generate, display, archive and retrieve medical
diagnostic ultrasound images.  Hospitals, clinics and healthcare delivery
systems throughout the world use our products for a broad range of clinical
applications including radiology, cardiology, obstetrical/gynecological and
peripheral vascular.

Currently, we design, manufacture, market, sell and service the Sequoia(R),
Aspen(TM), and 128XP(R) ultrasound platforms, as well as the KinetDx(TM) PACS
(Picture Archive Communications Systems) solution.

Our ultrasound platforms - the Sequoia ultrasound platform, the Aspen ultrasound
platform and the 128XP ultrasound platform - are designed to bring cost-
effective solutions to clinical applications such as radiology, cardiology,
obstetrical/gynecological and peripheral vascular.  We believe that this family
of ultrasound systems provides significant benefits when compared with other
ultrasound technologies, including superior image quality, versatility,
reliability, ease-of-use and upgradeability.  Recent upgrades to these systems
have further improved their clinical utility.  For example, in 1998 we
introduced Native(TM) Tissue Harmonic Imaging.  This technological advance is
now available on all three of our ultrasound platforms and greatly improves
image optimization, penetration and detail and contrast resolution.  It is
especially effective with hard-to-image patients, including the obese and
elderly and those people undergoing chemotherapy or radiation treatment.  Our
two mainstream products, the Sequoia and Aspen ultrasound platforms, were
strengthened during the second half of 1999 by the introduction of the
Imagegate(TM) product upgrades and the new Perspective(TM) advanced display
option which includes several significant advances, including 3D and contrast
agent imaging. The introduction of the Imagegate and the Perspective advanced
display options significantly upgrade the quality, consistency and ease of
capturing images for the Sequoia and Aspen platforms.

     A brief description of our current product line is as follows:

     Ultrasound Systems:

     .  128XP Ultrasound System: In 1983, we revolutionized the ultrasound
        industry with the introduction of the Acuson 128 system, integrating
        ultrasound with computer technology for the first time. Upgraded to the
        128XP system in the early 1990s, there are more than 14,000 of these
        platforms installed around the world today. The list price of a 128XP
        system starts at $85,000.

     .  Sequoia Ultrasound System: In 1996, we introduced our next major
        technological advance in ultrasound with the Sequoia system, bringing
        Coherent Image Formation (a unique and patented technology that results
        in a substantial increase in image information from traditional
        ultrasound technology) and the first dedicated Digital Lab Architecture,
        providing digital acquisition, storage, display, and transfer of images,
        to ultrasound. The Sequoia system is our highest priced ultrasound
        system. The list price of a Sequoia system with an average complement of
        transducers and other options starts at $250,000.

     .  Aspen Ultrasound System: Also introduced in 1996, the Aspen system
        represents a convergence of popular 128XP features and some advances
        developed for the Sequoia system, including a Digital Lab

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        Architecture. The Aspen platform is sold at a lower price than the
        Sequoia platform, but at a higher price than the 128XP platform. The
        list price of an Aspen system with an average complement of transducers
        and other options starts at $150,000.

     New products and products under development:

     .  KinetDx PACS Solution: The KinetDx PACS solution is the first hospital-
        wide, integrated ultrasound PACS that can connect to all ultrasound
        systems including those manufactured by other companies. It provides a
        review, report and archive system, which we believe will increase
        productivity, manage costs and improve patient care. With full
        integration to a hospital's HIS/RIS/CIS systems, the KinetDx solution
        provides dynamic digital review capabilities allowing clinicians to make
        diagnoses based on dynamic images - whether during or after the exam.
        The KinetDx solution began shipping to radiology customers in December
        1999. We anticipate that shipment to cardiology customers will begin in
        the first half of 2000. KinetDx system prices depend upon the system
        configuration, including the number of workstations and the size of the
        network involved, and can range from $120,000 for a simple system to
        over $1,000,000 for more comprehensive systems.

     .  AcuNav(TM) Diagnostic Ultrasound Catheter: In 1998, we announced we were
        developing a new intracardiac ultrasound catheter called the AcuNav(TM)
        Diagnostic Ultrasound Catheter. The AcuNav catheter contains a fully
        functional ultrasound transducer miniaturized to fit into the tip of a
        catheter just over 3 millimeters in diameter. The catheter is typically
        inserted through the femoral vein directly into the heart, and is
        intended to increase image clarity and allow physicians to clearly
        visualize chambers, valves and devices within the heart. We have
        obtained 510(k) clearance from the United States Food and Drug
        Administration for this product, and we expect to begin shipping the
        AcuNav catheter in the first half of 2000.

     .  Cypress(TM) Echocardiography System: This system was being developed by
        Ecton, Inc., which we acquired in December 1999. We are continuing the
        development effort to build the Cypress system as a comprehensive
        cardiovascular ultrasound system that we believe will be simple to use
        and highly portable. We anticipate the system will weigh less than 20
        pounds and will include several superior performance elements and
        functionality presently found in higher priced ultrasound systems. We
        anticipate we will be able to sell it for between $40,000 and $60,000.
        Like our Sequoia and Aspen ultrasound platforms, the Cypress system is
        being designed with the DICOM communications standard (the medical
        industry standard for digital imaging and communication) embedded in the
        system as well as a Digital Lab Architecture.

        See "Product Development" below for a description of the status of the
development of these products.

We sell our products primarily to hospitals, clinics, private and governmental
institutions, healthcare agencies, and doctors' offices.  We and our
subsidiaries employ our own full-time sales, service and applications staff in
North America, certain European countries, Australia and Japan.  We sell through
independent distributors in other European countries, Asia, Latin America and
the Middle East.

We attempt to protect our intellectual property through a combination of trade
secrets and, where appropriate, copyrights, trademarks, and patents.  We also
rely substantially on our unpatented proprietary know-how.  See "Investment
Risks - Patents and Proprietary Technology" for a detailed discussion as well as
risk factors regarding our technology.

We were incorporated as a California corporation in 1981 and changed our state
of incorporation to Delaware in 1986.  Our principal executive offices are
located at 1220 Charleston Road, Mountain View, California 94043.  Our telephone
number is (650) 969-9112 and our Web site is located at www.acuson.com.

Acquisition of Ecton, Inc.

On December 23, 1999, we acquired Ecton, Inc., a Pennsylvania corporation.  The
aggregate consideration exchanged in connection with the acquisition of Ecton by
Acuson was 1,413,954 shares of our common stock and $4.0 million in cash.  In
addition, the merger agreement provides that up to $17.0 million, in either
shares of our common stock and/or cash, may be payable to Ecton shareholders
depending on the gross profits attributable to the sale or license of Ecton's
products through each of the four twelve month periods beginning on July 1, 2000
and ending on June 30, 2004.  The merger is intended to be a tax-free
reorganization under the Internal Revenue Code and has been accounted for as a
purchase.  See Management's Discussion and Analysis of Financial Condition and

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Results of Operations and Note 5 to the Consolidated Financial Statements for
more information concerning the acquisition of Ecton.

Service

We employ a staff of full-time service engineers who service Acuson systems in
North America and in the countries where we have international subsidiaries.
Service to customers in other international areas is provided through
independent distributors.

We warrant our products for 12 months and thereafter provide service through
service contracts and other time and material arrangements.  All domestic
ultrasound systems under Acuson warranty or full-service contracts are
guaranteed to have 99.0 percent uptime, and such systems have averaged more than
99.9 percent cumulative uptime since 1983.

Systems under warranty or service contract receive periodic maintenance by
Acuson service engineers, who also install new system capabilities or software
upgrades and respond to customer service requests.  These services may be
purchased from our service organization by customers who do not have a service
contract with Acuson.

Service revenue was 20.0 percent of total net sales in 1999, 19.8 percent in
1998, and 19.5 percent in 1997.  See Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations." See also
"Investment Risks - Service" below for risk factors related to our service
business.

Marketing and Sales

We sell our products primarily to hospitals, clinics, private and governmental
institutions, healthcare agencies, and doctors' offices.  We and our
subsidiaries employ our own full-time sales, service, and applications staff in
North America, certain European countries, Australia, and Japan.  We sell
through independent distributors in other European countries, Asia, Africa,
Latin America, and the Middle East.  We have typically sold our products below
the list price as part of our marketing strategy.  We also lease our equipment
to customers under sales-type leases.

We target the high-end segments of the ultrasound market with our 128XP, Aspen,
and Sequoia platforms.  We will target the low-to-mid range cardiovascular
market with our new Cypress system, which we anticipate beginning to ship in the
middle of year 2000.  Our marketing efforts are focused on worldwide general
imaging - including radiology, peripheral vascular, and OB/GYN - and cardiology
market segments.

We market the KinetDx PACS solution to hospital and department administrators,
chief information officers, and physicians.  We are currently primarily
targeting our marketing efforts on both the general imaging and cardiology
market segments in North America.  We intend to expand our marketing efforts
outside North America in the year 2000.

The AcuNav intracardiac catheter will initially be marketed to hospitals and
cardiology groups who specialize in interventional cardiac procedures such as
electrophysiology.  As a single-use product, AcuNav is expected to have repeat
sales to these target market groups once it begins anticipated shipment in the
first half of 2000.

The sales process for our ultrasound systems and the KinetDx Solution typically
requires six to eighteen months between initial customer contact and placement
of an order.  On-site demonstrations are often part of the customer's evaluation
process, and customers frequently make side-by-side comparisons of performance
and other features of competing systems.  We employ a staff of applications
personnel who operate the system during sales demonstrations and who also train
physicians and technicians on the use of the system after delivery.

Competition

We compete primarily on the basis of the major clinical and efficiency benefits
of the imaging performance, versatility, reliability, upgradeability, digital
image management, ease of use and price of our products.

We believe that our product capabilities can enable physicians to make earlier,
more accurate and/or more confident diagnoses and also can provide superior
long-term economic value.  As do virtually all companies in the industry, we
offer on-site system demonstrations to customers during the sales process, and
customers frequently evaluate equipment performance and other factors.  The
markets for our products have become increasingly competitive and price is an
important factor in the purchase decision.

With regard to our Sequoia, Aspen and XP systems we compete with systems offered
by a number of companies and their affiliates abroad, including ATL Ultrasound,
Inc., a division of Philips Medical Systems; Agilent Technologies

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Inc. (the recent spin-off from Hewlett-Packard Company); Aloka Co., Ltd.;
General Electric Company; Hitachi Corporation; Siemens Medical Systems, Inc.;
and Toshiba Medical Systems, Inc. With regard to the Cypress system we will be
competing with Agilent Technologies, Inc.; Biosound Esaote, Inc.; Fukuda Denshi
Co., Ltd.; and SonoSite, Inc., among others. With regard to the KinetDx
Solution, we compete with ALI Technologies, Inc.; Agilent Technologies, Inc.;
Agfa Corporation; Cemax-Icon, Inc.; General Electric Company; R4 Telemedicine
Systems, Inc.; and Siemens Medical Systems, Inc. Many of these competitors have
significantly greater financial and other resources and generally compete in
more medical imaging and other market segments and countries than Acuson. While
we believe that our products generally provide superior and advanced
capabilities and features, the products offered to date by these competitors in
some cases include features and capabilities not currently offered by us and in
some cases are substantially less expensive than our products. See "Investment
Risks -Competition" below.

Diagnostic ultrasound is generally less expensive than other competing imaging
modalities such as computed tomography and magnetic resonance imaging, and in
certain applications, offers capabilities that make it the modality of choice
regardless of cost.  However, no assurance can be given that such price and/or
performance advantages can be maintained in comparison to other current or
future imaging modalities.  In addition, ultrasound systems compete with other
imaging modalities for limited hospital funding.  See "Investment Risks -
Ultrasound Market Changes" below.

Product Development

One of our fundamental beliefs is that technological innovations can provide the
best solutions for cost-constrained medical environments.  We spent $57.9
million on product development in 1999, $57.6 million in 1998, and $57.3 million
in 1997.  See "Overview" above for a description of our products in development.

Virtually all product development for the Sequoia, Aspen, and XP(R) ultrasound
systems and most transducers has taken place at our headquarters in Mountain
View, California.  Development of the KinetDx PACS Solution also has taken place
in Ann Arbor, Michigan; development of the Cypress(TM) Echocardiography System
is taking place in Plymouth Meeting, Pennsylvania, and development of certain
transducers occurs in State College, Pennsylvania.  We maintain a strong
commitment to product development programs to develop proprietary technologies.
Product development is subject to certain risk factors.  See "Investment Risks -
Products" below.

The AcuNav catheter is in the final stages of validation and we expect to begin
shipments in the first half of 2000.

Development of the Cypress(TM) Echocardiography System continues and we
anticipate being able to commence shipments in the middle of 2000.

Government Regulation

As a manufacturer of medical devices, we are subject to extensive regulation by
federal, state and local governmental authorities, such as the United States
Food and Drug Administration (the "FDA") and the California Department of Health
Services.  Obtaining FDA clearances or approvals of our products can be time
consuming, lengthy, uncertain and expensive and can delay the marketing and sale
of our products.  Our products generally require either FDA 510(k) premarket
clearance or a premarket approval.  The review of a premarket approval
application generally takes one to two years from the date the premarket
approval is accepted for filing, but may take significantly longer.  It
generally takes from four to twelve months from submission to obtain 510(k)
premarket clearance, but it may take longer.  The FDA has recently been more
rigorous in its 510(k) clearance process, which has generally resulted in a
longer review period.  See "Investment Risks - Regulation by Government
Agencies" below.  Congress also passed the FDA Modernization Act of 1997, which
enacts significant changes in how FDA regulates medical devices.  The practical
effects of this new law on us are not known at this time.

Manufacturers of medical devices marketed in the United States are required to
adhere to FDA's applicable Quality Systems Regulations ("QSR") which include
testing, design, control and documentation requirements.  Manufacturers also
must comply with Medical Device Reporting ("MDR") requirements that a firm
report to the FDA certain adverse events associated with our devices.  We are
subject to routine inspection by the FDA and certain state agencies for
compliance with QSR requirements, MDR requirements and other applicable
regulations.  The FDA uses its statutory authority vigorously during inspections
of companies and in other enforcement matters. We also are subject to numerous
federal, state and local laws relating to such matters as healthcare "fraud and
abuse," safe working conditions, manufacturing practices, environmental
protection, fire hazard control and disposal of hazardous or potentially
hazardous substances.  Changes in existing requirements and implementation and

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adoption of new requirements could have a material adverse effect on our
business, financial condition and results of operations.  Although Acuson
believes that it is in compliance with all applicable regulations of the FDA,
the State of California and other federal, state, and local governmental
authorities, current regulations depend heavily on administrative
interpretation, and there can be no assurance that we will not incur significant
costs to comply with laws and regulations in the future or that laws and
regulations will not have a material adverse effect upon our business, financial
condition or results of operations.  In addition, the potential effects on us of
heightened enforcement of federal, state and local regulations cannot be
predicted.

The Federal government regulates hospital and physician payments for diagnostic
examinations furnished to Medicare beneficiaries, including related capital
equipment acquisition costs.  For inpatient services, hospitals are reimbursed
under the Medicare prospective payment system ("PPS") that pays hospitals a
fixed amount for services provided to an inpatient based on the patient's
diagnosis-related group ("DRG"), which is established based on principal and
secondary diagnoses and discharge status, rather than reimbursing the hospital
for its actual costs incurred.  For capital costs related to inpatient services,
in 1991 Medicare began to phase in over a ten-year period a prospective payment
system that incorporates an add-on to the DRG-based payment.  During this phase-
in period, hospital inpatient capital-related costs are paid on a decreasing
proportion of a hospital's historical costs for capital.  Beginning in fiscal
year 2001, at the conclusion of the transition period, capital payments will be
based solely on a federal PPS rate for the vast majority of hospitals.  Under
the Balanced Budget Act of 1997 ("BBA"), capital payments to hospitals will be
reduced by 2.1 percent between October 1, 1997 and September 30, 2002.

For certain hospital outpatient services, including ultrasound examinations,
Medicare reimbursement currently is based on the lesser of the hospital's
reasonable costs or charges, or a blended amount composed of the hospital's
reasonable costs and the fee schedule amount that Medicare reimburses for such
services when furnished in a physician's office.  The BBA required hospital
outpatient reimbursement to shift to a prospective payment system by January 1,
1999.  However, because the Health Care Financing Administration ("HCFA")
experienced Year 2000 system concerns, implementation of the outpatient PPS has
been delayed until sometime in 2000 at the earliest.  The Balanced Budget
Refinement Act of 1999 (the "BBA Refinement Act") instituted a number of changes
to the BBA's hospital outpatient mandates.  These changes are designed to
minimize any adverse financial impact on hospitals posed by the adoption of an
outpatient PPS.  Among other things, the BBA Refinement Act establishes outlier
adjustments to the PPS payments for the provision of high cost services
utilizing new technologies.  Total outlier payments must be budget neutral and
cannot exceed a specified percentage of all outpatient payments.  Additionally,
the BBA Refinement Act establishes a three-year transitional period for the
implementation of outpatient PPS, during which hospitals whose PPS payment
levels are below their previous payment levels for outpatient services may
receive additional payments.  The BBA Refinement Act also requires that medical
devices that were not reimbursed by Medicare as of December 31, 1996 not be paid
under outpatient PPS.  In this period, hospitals will receive the reasonable
cost of any such device.  Since final regulations implementing this new payment
system have not been issued, it is unclear what impact this new system will have
on payment for ultrasound services.  The BBA Refinement Act specifies that,
until the outpatient PPS is implemented, capital acquisition costs for services
furnished to hospital outpatients will be reimbursed on the basis of 90 percent
of the reasonable costs actually incurred by the hospital.  Thereafter, payment
for capital will be folded into the new outpatient PPS methodology.  In general,
prospective payment systems for both inpatient and outpatient hospital services,
where reimbursement is based on a fixed fee rather than actual costs incurred,
could have a negative impact on hospital purchases of expensive diagnostic
equipment.

Physicians are reimbursed for Medicare services according to a fee schedule.
Fee schedule payments include a component to reimburse physicians for the
practice expenses incurred in their office practices, including expenses
incurred for the purchase of ultrasound devices.  Pursuant to the Social
Security Act Amendments of 1994, HCFA is required to develop a resource-based
methodology to replace the historical charge basis for determining physician
practice expenses.  The BBA requires the new payment methodology to be phased in
over four years, beginning January 1, 1999 and becoming fully effective in 2002.
HCFA has proposed to establish two separate practice expense values for each
physician service - one for when a service is furnished in a facility setting
and another when the service is performed in the office setting.  Generally, the
practice expense value will be higher when the service is performed in the
office setting.  For 1999, physician payments for ultrasound services
experienced very little change under the new payment system.  Certain changes
that HCFA might make in the practice expense values could have a negative effect
on physician reimbursement for ultrasound services provided in a facility and a
positive effect on physician reimbursement for ultrasound services provided in a
physician's office.

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The Administration and Congress from time to time consider various Medicare and
other healthcare reform proposals.  Some of these proposals could affect
significantly both private and public reimbursement for healthcare services,
including diagnostic devices, and could adversely affect the demand for such
devices.

Reimbursement for services rendered to Medicaid beneficiaries is determined
pursuant to each state's Medicaid plan, which is established by state law and
regulations, subject to requirements of federal law and regulations.  The BBA
revised the Medicaid program to allow states even more control over coverage and
payment issues.  The impact on us of this greater state control on Medicaid
payment for diagnostic services is uncertain.

Federal and state laws also regulate the sale of medical devices, the referral
of patients for diagnostic examinations utilizing such devices, and the
submission of claims to third party payers (including Medicare and Medicaid).
These laws include physician self-referral prohibitions, antikickback laws, and
false claims laws.  Subject to certain exceptions, the federal physician self-
referral law, also known as Stark II, prohibits a physician from referring
Medicare or Medicaid patients to an entity in which the physician (or a family
member) has an ownership interest or compensation relationship if the referral
is for a "designated health service," which is defined explicitly to include
radiology services such as ultrasound services.  Although final regulations
implementing Stark II have not yet been issued by the United States Department
of Health and Human Services, proposed regulations were issued in January 1998.
Under the proposed regulations, the definition of radiology services subject to
the Stark II restrictions would expressly exclude screening mammography services
(i.e., mammography services furnished to asymptomatic patients), but not
diagnostic mammography (i.e., mammography services furnished to symptomatic
patients).  Additionally, the preamble to the proposed regulations indicates
that where designated health services are sometimes provided as merely
peripheral parts of some other major service that a physician has prescribed,
the Stark II restrictions may not apply.  The preamble gives the example of when
a physician employs echocardiography (which involves ultrasound) to view the
results of bypass surgery.  Although an ultrasound procedure, HCFA indicates the
echocardiography will not be considered a designated health service, because
HCFA considers it peripheral to a major service (bypass surgery).  The Stark II
law, as well as physician self-referral restrictions that exist in a number of
states and which apply regardless of whether Medicare or Medicaid patients are
involved, may result in lower utilization of certain diagnostic procedures,
including ultrasound services.  Antikickback laws make it illegal to solicit,
offer, receive, or pay any remuneration in exchange for, or to induce, the
referral of business, including the purchase of medical devices from a
particular manufacturer or the referral of patients to a particular supplier of
diagnostic services utilizing such devices.  False claims laws prohibit anyone
from knowingly and willfully presenting, or causing to be presented, claims for
payment to third party payers (including Medicare and Medicaid) that are false
or fraudulent, for services not provided as claimed, or for medically
unnecessary services.  Violations of fraud and abuse laws are punishable by
criminal and/or civil sanctions including, in some instances, imprisonment and
exclusion from participation in federal health care programs such as Medicare
and Medicaid.  We seek to structure our arrangements with hospitals, physicians,
and other customers to be in compliance with these federal and state laws, and
to keep up-to-date on developments concerning their application by various means
including consultation with legal counsel.  However, we are unable to predict
how these laws will be applied in the future, and no assurances can be given
that our arrangements will not become subject to scrutiny under them.

Since June 1998, medical device companies wishing to sell products into those
European countries that are members of the European Union are required to place
the CE mark on their products.  To be able to place that mark on its products,
Acuson must comply with the standards of the European Medical Device Directive
(the "MDD"), and be subject to annual surveillance audits by a certified
organization to assure conformity to the MDD.  We are currently certified as
compliant with the relevant requirements of the MDD and we will undertake
activities designed to assure continued compliance; however, we cannot assure
you that we will continue to be able to place the CE mark on our products.  If
we lose our ability to place the CE mark on our products, we will not be able to
sell our products into the European Union.  In 1999, sales into the European
Union accounted for approximately 18.0 percent of our revenues.

Manufacturing

We primarily manufacture our 128XP, Aspen, and Sequoia ultrasound systems and
will be manufacturing the AcuNav catheter at our Mountain View, California
facility.  Transducers are manufactured both in Mountain View and at our Sound
Technology Incorporated facility located in State College, Pennsylvania.  For
other sub-assemblies, we generally subcontract with outside vendors for assembly
and fabrication and in addition, produce some components at our own facility in
Canoga Park, California.  Sub-assemblies are produced according to our designs
or specifications.  We perform assembly, testing and quality assurance at
various stages of completion.  The

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new Cypress product will be contract manufactured in Pennsylvania. The KinetDx
PACS Solution is manufactured in Ann Arbor, Michigan.

Component parts and microprocessors for our products and some specialty
transducers are purchased from outside vendors.  A number of these items
currently have limited or single sources of supply.  See "Investment Risks -
Manufacturing" below.

We build units to a marketing forecast that is updated periodically and utilize
a commercially available computer system for manufacturing, accounting and sales
order processing.  Because we build to forecast, we do not consider our backlog
a significant indicator of business levels.

Employees

As of December 31, 1999, we had 1,932 full-time employees.  We consider our
relations with our employees to be good.

Investment Risks

  Effect of Acquisitions

  We recently completed the acquisition of Ecton (see "Acquisition of Ecton,
  Inc." above). The process of integrating Ecton or any acquired company may
  create unforeseen operating difficulties and expenditures and is itself risky.
  The areas where we may face difficulties include:

  .  Diversion of management time (both ours and the acquired company's) during
     the period of negotiation through closing and further diversion of such
     time after closing from focus on operating the businesses to issues of
     integration and future products;

  .  Decline in employee morale and retention issues resulting from changes in
     compensation, reporting relationships, future prospects, or the direction
     of the business;

  .  The need to integrate each company's accounting, management information,
     human resources and other administrative systems to permit effective
     management, and the lack of control if the integration is delayed or not
     implemented;

  .  Difficulty in predicting the revenue and expenses attributable to an
     acquired business; and

  .  The need to implement controls, procedures and policies appropriate for a
     larger public company at companies that prior to acquisition had been
     smaller, private companies.

  We have relatively limited experience in managing this integration process.
  Moreover, the anticipated benefits of the Ecton acquisition or any future
  acquisitions may not be realized. Future acquisitions could result in
  potentially dilutive issuances of equity securities, the incurrence of debt,
  contingent liabilities or amortization expenses related to goodwill and other
  intangible assets, any of which could harm our business.

  Our Quarterly Results May Fluctuate

  Our results have varied on a quarterly basis during our operating history. Our
  operating results may fluctuate significantly as a result of a variety of
  factors, many of which are outside our control. Factors that may affect our
  quarterly operating results include the following: the introduction of new
  services and products by us or our competitors; the costs of developing our
  new products and services; consummating an acquisition; costs of integrating
  acquired operations, the amount and timing of operating costs and capital
  expenditures relating to expansion of our business, operations and
  infrastructure; and general economic conditions and economic conditions
  specific to the ultrasound technology and imaging industries. Our operating
  history and the dynamic nature of the markets in which we compete make it
  difficult for us to forecast our revenues or earnings accurately. A
  significant portion of our quarterly orders and shipments occur towards the
  end of each quarter, compounding the difficulty of accurately forecasting our
  revenues and earnings. We believe that period-to-period comparisons of our
  operating results may not be meaningful and should not be relied upon as an
  indication of future performance. Our operating results in one or more future
  quarters may fall below the expectations of securities analysts and investors.
  In that event, the trading price of our common stock would almost certainly
  decline.

                                       8
<PAGE>

 Products

 When we complete the development of the technology we acquired from Ecton we
 believe it will expand our product line for the first time into the low-to-mid
 range cardiology market segment with what we believe will be a high performance
 system with `best in its class' technology, the Cypress system.  We believe
 that expanding our product line into this market will benefit us substantially
 in the long-term.  However, the acquisition of Ecton's technology will require
 us to increase spending to complete the development of the Cypress system and
 shipments of this product are not expected to begin until the middle of year
 2000.  Further, this development may take longer and cost substantially more
 than anticipated and may not ultimately be successful.  Given that this is a
 product under development and that it will be manufactured in new facilities,
 there can be no guarantee that the product will be manufactured at currently
 expected volumes and costs.  Moreover, since we have not previously addressed
 the low and mid-price range market we will need to establish a new customer
 base and explore new and different sales strategies.  There is no guarantee
 that we will be successful in penetrating this market with this new product or
 that competitors will not introduce a superior or more cost effective product
 than the Cypress system.

 We began shipping the KinetDx PACS Solution to general imaging customers in
 December 1999 and expect to begin shipment of the KinetDx Solution to
 cardiology customers in the first half of 2000.  However, development of this
 product for the cardiology market could take longer than expected and we could
 incur increased costs in service and sales support if the product is not as
 reliable or if our planned remote service strategy is not as effective as
 planned.  Further, there is no guarantee that customers will be interested in
 purchasing a digital image management product such as the KinetDx Solution, or
 that competitors will not develop more cost-effective products with equal or
 superior qualities to the KinetDx product.

 The introduction of the AcuNav catheter will expand our business for the first
 time into the field of interventional cardiology, where the 3 millimeter
 diameter catheter is typically inserted through the femoral vein directly to
 the heart, and is intended to increase image clarity and allow physicians to
 clearly visualize the chambers, valves, and devices within the heart.  This is
 inherently a more risky procedure than diagnostic ultrasound products that we
 are selling now.  In addition, this will be the first time we will be marketing
 and selling a single use product.  With this lack of experience, there is no
 guarantee that we will be able to hire and retain qualified sales, marketing
 and training personnel to market and sell this product effectively.  We do not
 have an established customer base for this product, and interventional
 cardiologists and other physicians whom we are targeting as potential customers
 may not find a clinical need for the AcuNav catheter, or may not be willing to
 pay a price for this single use product that will make this product profitable.
 Furthermore, there is no guarantee that competitors will not introduce a
 superior or more cost effective product than the AcuNav catheter.

 In addition to the risks associated with the development and marketing of new
 products, there is no guarantee that sales of any of our existing products will
 increase or continue at their current rate.  As more Aspen and Sequoia systems
 enter the clinical environment, continued market acceptance will depend in part
 on the actual and perceived performance and quality of these products in that
 clinical environment.  In addition, we believe that the continued success of
 these products also will depend on the timely and successful completion of
 future product enhancements and capabilities.  We have a number of these new
 product enhancements and capabilities as well as additional new products under
 development at any time.  There is no guarantee, however, as to when, if ever,
 the development of such products and product enhancements and capabilities will
 be completed.

 Increased product upgrade and option sales depend upon, among other things,
 timely completion of a number of product capabilities currently under
 development and market acceptance of upgrades currently offered by us.  In
 general, the success of our products in the market and our financial results
 depend upon our continuing to develop and introduce products and software
 updates in a timely manner; success of product cost reduction designs and
 initiatives; actual and perceived levels of product performance and quality in
 a clinical environment compared to other imaging modalities and competitive
 products; continued market acceptance of our products and upgrades and their
 respective pricing; and competitor responses, including the introduction of
 competitive products and upgrades, pricing, intellectual property allegations
 and product positioning counter-strategies.

 Competition

 Diagnostic ultrasound is a well-established field in which there are a number
 of competitors.  With regard to our Sequoia, Aspen and XP systems we compete
 with several companies and their affiliates such as ATL Ultrasound, Inc., a
 division of Philips Medical Systems; Agilent Technologies, Inc. (the recent
 spin-off from Hewlett-Packard Company); Aloka Co., Ltd.; General Electric
 Company; Hitachi Corporation; Siemens Medical Systems, Inc.; and Toshiba
 Medical Systems, Inc.  With regard to the Cypress system we will be competing
 with Agilent

                                       9
<PAGE>

 Technologies, Inc.; Biosound Esaote, Inc.; Fukuda Denshi Co., Ltd.; and
 SonoSite, Inc., among others. With regard to the KinetDx Solution, we compete
 with ALI Technologies, Inc.; Agilent Technologies, Inc.; Agfa Corporation;
 Cemax-Icon, Inc.; General Electric Company; R4 Telemedicine Systems, Inc.; and
 Siemens Medical Systems, Inc. Many of these competitors have significantly
 greater financial and other resources and generally compete in more medical
 imaging and other market segments and countries than we do. While we believe
 that our products generally provide superior and advanced capabilities and
 features, the products offered to date by these competitors in some cases
 include features and capabilities not currently offered by us and in most cases
 are substantially less expensive than our products.

 Market success in diagnostic ultrasound is heavily dependent on the purchaser's
 evaluation of the system's diagnostic value, cost, ease of use and safety.  Any
 established or new ultrasound company may introduce a system or upgrades to an
 existing system that is equal to or superior to our products in quality or
 performance and no assurance can be given that our products will remain
 competitive with existing or future products.  If a competitor introduces a new
 product, customers may delay submitting new orders to us and may cancel orders
 in the backlog.

 Ultrasound Market Changes

 Diagnostic ultrasound is generally less expensive than other competing imaging
 modalities including computed tomography and magnetic resonance imaging, and,
 in certain applications, offers capabilities that make it the modality of
 choice regardless of cost.  However, these price and/or performance advantages
 may not continue in comparison to other current or future imaging modalities.
 In addition, ultrasound systems compete with other imaging modalities for
 limited hospital funding.

 The trends of health care provider consolidation, medical cost containment and
 intense competitive pressures are continuing in the market.  These factors have
 placed increased pressures on ultrasound system pricing and have put pressure
 on our product gross margins.  Further, the U.S. government is continuing to
 consider Medicare reforms.  We believe that future revenues and profitability
 will continue to be impacted by these uncertainties, especially in our domestic
 markets.  Although some portions of the international ultrasound markets are
 experiencing some economic growth, it is uncertain whether this is a temporary
 or permanent trend.

 As health care provider consolidation and medical cost containment continue in
 the market, customers are relying to an increased degree on national sales
 contracts.  In 1999, we were awarded a number of national contracts.  If we are
 unsuccessful at obtaining future national contracts, we may be precluded from
 selling to certain large customers or buying groups.  In addition, the
 contracts may be canceled during their term by the customer or may not be
 renewed.

 Patents and Proprietary Technology

 We attempt to protect our intellectual property through a combination of trade
 secrets and, where appropriate, copyrights, trademarks and patents.  We own or
 have rights to approximately 160 U.S. patents as well as many international
 counterparts, which cover certain aspects of our systems.  Additionally, we
 have over 100 U.S. patent applications pending, as well as many international
 counterparts.  No assurances can be given as to the breadth or degree of
 protection that patents, copyrights, trademarks or trade secrets will afford
 us.

 Our competitors also rely on patents to protect their technology, and numerous
 physicians, universities and other individuals or entities in the ultrasound
 field are patenting many ultrasound inventions.  We have from time to time
 received notices from such competitors and other entities or individuals that
 we may need a license to one or more of their patents in order to continue to
 sell our products.  Such a competitor, individual or entity may have, or may be
 granted, a patent to which we must obtain a license if we wish to market and
 sell any one or more of our products.  To date, patent disputes involving us
 have ultimately been resolved through licensing arrangements, sometimes
 involving the payment of royalties by us.  There can be no assurance that we
 will be able to obtain a license to any patent (if so required) or that such a
 license will be available on reasonable financial or other terms.

 We also rely heavily on our unpatented proprietary know-how.  No assurance can
 be given that others will not be able to develop substantially equivalent
 proprietary information to ours, or otherwise obtain access to our know-how.

                                       10
<PAGE>

 Regulation by Government Agencies

 As a manufacturer of medical devices, we are subject to extensive regulation by
 federal, state and local governmental authorities, such as the FDA and the
 California Department of Health Services.  Obtaining FDA market clearances or
 approvals can be time consuming, lengthy and expensive and there can be no
 assurance that the necessary clearance or approval will be granted to us or
 that FDA review will not involve delays adversely affecting us.  For example,
 we believe that the time it takes to obtain clearance for new products has
 increased and the FDA has been more rigorous in its 510(k) clearance process.

 Manufacturers of medical devices marketed in the United States are required to
 adhere to numerous regulations, including Quality Systems Regulations ("QSR"),
 which address testing, design, control and documentation requirements.
 Manufacturers also must comply with Medical Device Reporting ("MDR")
 requirements that a firm report to the FDA certain adverse events associated
 with a company's devices.  We are subject to routine inspection by the FDA and
 certain state agencies for compliance with QSR requirements, MDR requirements
 and other applicable regulations.  We believe the FDA is using its statutory
 authority more vigorously during inspections of companies and in other
 enforcement matters.  Congress also recently passed the FDA Modernization Act
 of 1997, which enacts significant changes in how the FDA regulates medical
 devices.  We also are subject to numerous federal, state and local laws
 relating to such matters as health care "fraud and abuse," safe working
 conditions, manufacturing practices, environmental protection, fire hazard
 control and disposal of hazardous or potentially hazardous substances.  Changes
 in existing requirements and implementation and adoption of new requirements
 could have a material adverse effect on our business, financial condition and
 results of operations.  Although we believe that we are in compliance with all
 applicable regulations of the FDA, the State of California and other federal,
 state and local governmental authorities, current regulations depend heavily on
 administrative interpretation, and there can be no assurance that we will not
 incur significant costs to comply with laws and regulations in the future or
 that laws and regulations will not have a material adverse effect upon our
 business, financial condition or results of operations.  In addition, the
 potential effects on our heightened enforcement of federal, state and local
 regulations cannot be predicted.

 Federal and state regulations also govern or influence the reimbursement to
 health care providers of fees and capital equipment costs in connection with
 medical examinations of certain patients.  Changes in current policies,
 including implementation of a new hospital outpatient reimbursement system,
 could impact reimbursement for the purchase and/or operation of our equipment
 by such providers and thereby adversely affect future sales of our products.
 In particular, the Clinton Administration and the Congress continue to debate
 and consider various Medicare and other health care reform proposals that could
 significantly affect both private and public reimbursement for health care
 services.  Some of these proposals, if enacted into law, could reduce
 reimbursement for or the incentive to use diagnostic devices and procedures and
 thus could adversely affect the demand for diagnostic devices, including our
 products.

 We and our customers are subject to various federal and state laws pertaining
 to health care "fraud and abuse", including physician self-referral
 prohibitions, antikickback laws and false claims laws.  We seek to structure
 our sales, marketing and other activities to comply with these and other laws.
 However, given the broad reach of these laws, there can be no assurance that
 our activities will not be subject to scrutiny and/or challenged some time in
 the future.

 Since June 1998, medical device companies wishing to sell products into those
 European countries that are members of the European Union have been required to
 place the CE mark on their products.  To be able to place that mark on our
 products, we must comply with the standards of the European Medical Device
 Directive ("MDD"), and be subject to annual surveillance audits by a certified
 organization to assure conformity to the MDD.  We are currently certified as
 compliant to the relevant requirements of the MDD and we will undertake
 activities designed to assure continued compliance; however, no assurance can
 be given that we will continue to be able to place the CE mark on our products.
 If we lose our ability to place the CE mark on our products, we will not be
 able to sell our products into the European Union.  In 1999, sales into the
 European Union accounted for approximately 18.0 percent of our revenues.

 Employees

 We believe that our continued success and future growth will depend on, among
 other factors, our ability to continue to attract and retain skilled employees.
 The loss of a significant number of employees could adversely affect our
 business, most significantly by delaying the development of new products and
 product enhancements.

                                       11
<PAGE>

 The job market in the Silicon Valley area is very competitive, especially for
 skilled electrical and software engineers. There can be no assurance that we
 will be able to retain or hire key employees.

 Manufacturing

 Component parts and microprocessors for our products and some specialty
 transducers are purchased from outside vendors.  A number of such items
 currently have limited or single sources of supply, and disruption or
 termination of those sources could have a temporary adverse effect on shipments
 and our financial results.  We believe that we could ultimately develop
 alternate sources for all such items, but that sales could be lost or deferred
 as a result of doing so.

 Service

 Approximately 20 percent of our 1999 revenues were derived from our service
 activities, including the sales of service contracts and time and material
 services.  Increasing cost containment pressures in the market have adversely
 impacted the number of customers purchasing service contracts and the prices of
 those contracts, but this impact has been somewhat offset by our increased
 installed base and an increase in time and material services.  We believe that
 the trend away from service contracts will continue and there can be no
 assurance that we will be able to continue to maintain our current levels of
 service contract revenue.  Further, introduction of the Sequoia and Aspen
 products will continue to reduce sales of new service contracts and options to
 the 128XP system installed base.  In addition, we have made significant
 expenditures in establishing remote diagnostic and other service programs
 unique to the Sequoia and Aspen systems.  There can be no assurance that this
 investment will be profitable, as the success of the Aspen and Sequoia service
 program will depend in part on the number of Aspen and Sequoia systems sold.
 Finally, we have seen an increasing trend for hospitals to purchase asset
 management contracts, in which all of the hospital's medical equipment and in
 some cases, other assets, are managed and serviced by third parties.  As we do
 not sell asset management services and only service our ultrasound systems,
 this increased trend toward asset management contracts could have an adverse
 impact on our sales of service contracts and our time and materials service
 business.

 International Operations and International Receivables

 Our business is subject to risks from potential negative political or
 geographic events in certain markets in Asia, Latin America and Europe and by
 adverse economic effects from currency fluctuations in our worldwide
 operations.  Political instability or other issues may negatively affect our
 ability to collect receivables in foreign countries.  The following table, in
 thousands, summarizes our foreign accounts and leases receivable in excess of
 $3.0 million at December 31, 1999.

<TABLE>
<CAPTION>
                       -----------------------------------------
                          Country                In Thousands
                       -----------------------------------------
                       <S>                            <C>
                           Italy                    $13,730
                       -----------------------------------------
                           Brazil                    10,465
                       -----------------------------------------
                           France                     6,024
                       -----------------------------------------
                           Japan                      5,549
                       -----------------------------------------
                           Germany                    4,174
                       -----------------------------------------
                           Sweden                     3,937
                       -----------------------------------------
                           Australia                  3,678
                       -----------------------------------------
                           China                      3,292
                       -----------------------------------------
                           England                    3,058
                       -----------------------------------------
</TABLE>

 Derivative Financial Instruments

 We operate internationally and are subject to market risk due to fluctuations
 in foreign currency exchange rates.  We manage this risk through established
 policies and procedures that include the use of derivative financial
 instruments.  We routinely enter into forward foreign currency exchange
 contracts to hedge amounts due from selected subsidiaries denominated in
 foreign currencies against fluctuations in exchange rates.  Forward currency
 contract terms are typically not more than three months and the counterparties
 to the exchange contracts are major domestic and international financial
 institutions.  The purpose of the hedging activities is to minimize the effect
 of

                                       12
<PAGE>

 foreign exchange rate movements on our operating results and on the cash flows
 we received from our foreign subsidiaries.

 Currently, we neither engage in foreign currency speculation nor hold or issue
 financial instruments for trading purposes.  Because we only enter into forward
 currency exchange contracts as hedges, any change in currency rates should not
 normally result in a material gain or loss, as any gain or loss on the
 underlying transaction being hedged would be offset by the gain or loss on the
 forward currency contract.  For this reason, we believe that neither our
 exposure to foreign currency exchange rate risk nor any potential near-term
 losses in future earnings, fair values or cash flows from reasonably possible
 near-term changes in market rates or prices would be material.  The
 counterparties to foreign currency exchange contracts are major domestic and
 international financial institutions and the contract terms are typically not
 more than three months.  Please refer to Part II Item 7A below for further
 discussion of our market risk due to fluctuations in foreign currency exchange
 rates.

 Euro Conversion

 On January 1, 1999, eleven of the fifteen member countries of the European
 Union adopted the Euro as their common legal currency.  Following the
 introduction of the Euro, the local currencies of the participating countries
 are scheduled to remain legal tender until June 30, 2002.  During this
 transition period goods and services may be paid for in either Euros or the
 participating country's local currency.  Thereafter, only the Euro will be
 legal tender in the participating countries.  Our foreign subsidiaries that are
 part of the European Union have not yet converted to the Euro and continue to
 use their respective local currencies as their functional currency.  However,
 the conversion will be completed prior to the June 30, 2002 deadline.  We
 believe our current accounting systems are capable of accommodating the Euro
 conversion with minimal intervention and that the conversion will not have a
 material impact on the competitiveness of our products in Europe.  We also
 believe any costs of addressing the Euro conversion will not have a material
 impact on our financial statements.

 Computing Environment

 During 1997, we initiated a two-phase project to replace our outdated computing
 environment with an enterprise-wide, integrated business information system to
 control many of our operating systems including order administration, service
 and financial and manufacturing processes.  The first phase of this project has
 been substantially completed.  The second phase is in progress.  We have
 retained an experienced consulting organization to assist in the conversion,
 however, our future shipments and results could be adversely impacted if,
 during and following the conversion, there are significant problems with the
 system.

 Year 2000 Readiness

 We have taken steps to ensure our products and services will continue to
 operate on and after January 1, 2000.  Our primary business information system
 is year 2000 ready.  We also engaged in a three-phase project to evaluate and
 remedy our remaining systems.  The first phase, completed in May 1998, included
 a comprehensive inventory of our systems by an experienced consulting firm and
 an analysis and determination of the criticality of each system.  This phase
 included the evaluation of both information technology ("IT") and non-IT
 systems.  Non-IT systems included systems or hardware containing embedded
 technology such as microcontrollers. The second phase was completed in March
 1999, and focused on confirming the year 2000 readiness of those systems
 identified in phase one. The third and final phase, completed in December 1999,
 involved taking any needed corrective action to make all remaining critical
 systems and components year 2000 ready and to develop contingency plans in the
 event any non-compliant critical systems were not remedied by January 1, 2000.
 We established a year 2000 project team, comprised of representatives from each
 of our functional areas, which reported to senior management. The costs
 incurred by us with respect to this project were not material and future
 anticipated costs are not expected to be material. The costs of this project
 have been charged against the budgets of our various functional areas and no
 material IT projects have been deferred in managing our year 2000 readiness
 efforts.

 Our products being shipped today are year 2000 ready and we believe our
 products previously shipped are either year 2000 ready or can be made year 2000
 ready by customer purchase of an upgrade.  We have also been communicating with
 suppliers and others we do business with to coordinate year 2000 readiness.  We
 believe that our most reasonably likely worst case scenario relating to year
 2000 readiness would be if a critical supplier of ours became unable to supply
 parts to us based on the supplier's failure to be year 2000 ready, and that as
 a result, our production of systems would be seriously affected.  We contacted
 all of what we consider to be our key technology suppliers and approximately
 100 of our largest general suppliers.  All responses were received.  The

                                       13
<PAGE>

 responses were individually assessed during the third quarter of 1999 to
 determine the potential impact to us should one or more of our suppliers not be
 year 2000 ready.  All supplier responses stated that their systems and software
 were or would be year 2000 ready by the end of the fourth quarter of 1999.  We
 identified and assessed a subset of responses that are considered high risk.
 We purchased additional inventory as safety stock in case these suppliers are
 unable to supply material as a result of the year 2000 issue.  The amount of
 the additional inventory purchased was immaterial.  Since January 1, 2000, we
 have contacted many of our critical suppliers and they have confirmed that thus
 far, they have not experienced any year 2000 problems.

 Based upon the steps we have taken to address this issue and the progress to
 date, we do not expect the financial impact of the year 2000 date conversion to
 be material to our financial position or results of operations.  However, if
 preventative and/or corrective actions by us or those suppliers with whom we do
 business are not made in a timely manner, it is still possible that we may not
 be able to provide our products to customers until successful preventative
 and/or corrective actions have been taken, and as a result, the year 2000 issue
 could have a material adverse effect on our financial statements.

 We primarily sell our products to hospitals, clinics, and other customers
 within the healthcare industry.  Although no one customer is material to our
 business, should the year 2000 issue impact the ability and willingness of
 these customers generally to purchase capital equipment, including our
 products, the year 2000 issue could have a material adverse impact on our
 consolidated financial statements.

 Industry Consolidation

 During 1998, Philips Medical Systems completed its acquisition of ATL
 Ultrasound, Inc.  We believe that consolidations such as this may provide our
 competitors with significantly greater financial and other resources with which
 to compete in the marketplace.  As companies attempt to strengthen or hold
 their market positions, future consolidation within the industry could lead to
 increased variability in our operating results and could have a material
 adverse impact on our financial statements.

 Earthquake

 Much of our research and development and manufacturing activities, our
 corporate headquarters and other critical business operations are located near
 major earthquake faults.  In the event of a major earthquake, the ultimate
 impact on us, our significant suppliers and the general infrastructure is
 unknown, but operating results could be materially affected.  We are not
 insured for losses and interruptions caused by earthquakes.

 Volatility of Stock Price

 The trading price of our common stock has been and is likely to be somewhat
 volatile.  Our stock price could be subject to fluctuations in response to a
 variety of factors, including actual or anticipated variations in our quarterly
 operating results and the difficulty of predicting those variations; additions
 or departures of key personnel; announcements of technological innovations or
 new services by us or our competitors; changes in financial estimates by
 securities analysts; conditions or trends in the ultrasound technology and
 imaging industries; changes in the market valuations of other ultrasound
 technology and imaging companies; developments in the FDA's applicable Quality
 Systems Regulations and Medical Device Reporting requirements and other
 applicable government regulations; announcements by us or our competitors of
 significant acquisitions, including Ecton, strategic partnerships, joint
 ventures or capital commitments; sales of our common stock or other securities
 in the open market; and other events or factors that may be beyond our control.

 In addition, the trading price of stocks of technology-based companies in
 general, have experienced extreme price and volume fluctuations.  These
 fluctuations often have been unrelated or disproportionate to the operating
 performance of these companies.  The valuations of many technology-based stocks
 are extraordinarily high based on conventional valuation standards such as
 price to earnings and price to sales ratios.  Any negative change in the
 public's perception of the prospects of ultrasound technology companies could
 depress our stock price regardless of our results.  Other broad market and
 industry factors may decrease the market price of our common stock, regardless
 of our operating performance.  Market fluctuations, as well as general
 political and economic conditions including recession or interest rate or
 currency rate fluctuations, also may decrease the market price of our common
 stock.

Acuson, Sequoia, XP, and 128XP are registered trademarks and AcuNav, Aspen,
Cypress, Imagegate, KinetDx, Native, and Perspective are trademarks of Acuson
Corporation.

                                       14
<PAGE>

--------------------------------------------------------------------------------

ITEM 2
PROPERTIES

We lease our facilities under operating leases.  The principal offices and
manufacturing space are located in Mountain View, California.  In addition, we
lease manufacturing facilities in Canoga Park, California; State College,
Pennsylvania; Plymouth Meeting, Pennsylvania; and sales and service facilities
in various locations in the United States and abroad.  We believe our facilities
are adequate for our present needs, in good condition and suitable for their
intended uses.

--------------------------------------------------------------------------------

ITEM 3
LEGAL PROCEEDINGS

On October 27, 1994, we were sued in Ghent, Belgium, by Cormedica NV, in
connection with the termination of our distributor relationship with Cormedica.
In the suit, Cormedica seeks indemnities and damages in the amount of
approximately $2.5 million, plus interest.  This suit is still in the fact-
finding stage.  We intend to defend this suit vigorously.

From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business.  We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a material adverse effect on us.

--------------------------------------------------------------------------------

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

--------------------------------------------------------------------------------

ITEM 4A

Directors and Executive Officers of the Registrant. Our directors and executive
officers and their ages as of March 15, 2000 are as follows:

<TABLE>
<CAPTION>
         Name             Age                      Position
--------------------------------------------------------------------------------
<S>                     <C>   <C>
Samuel H. Maslak          51  Chairman of the Board and Chief Executive Officer
Albert L. Greene          50  Director
Karl H. Johannsmeier      71  Director
William J. Mercer         51  Director
Robert J. Gallagher       56  President and Chief Operating Officer
Barry Zwarenstein         51  Vice President, Chief Financial Officer
Edward P. Cornell         55  Senior Vice President, Engineering
Rick E. Smith             53  Senior Vice President, Worldwide Sales and
                              Marketing
Bradford C. Anker         54  Vice President, Manufacturing
Charles H. Dearborn       47  Vice President, Human Resources and Legal
                              Affairs, General Counsel and Secretary
L. Thomas Morse           56  Vice President, Corporate Controller
--------------------------------------------------------------------------------
</TABLE>

Samuel H. Maslak co-founded Acuson in September 1981, and has been Chief
Executive Officer and a director since that date.  He was President of Acuson
from September 1981 until May 1995. He was appointed Chairman of the Board in
May 1995.

Albert L. Greene is the President, Chief Executive Officer and co-founder of
HealthCentral.com, a web-based healthcare information services and products
company.  Mr. Greene served from 1990 to 1998 as Chief Executive Officer of
Sutter Health East Bay, Alta Bates Health Systems and Alta Bates Medical Center
in Berkeley,

                                       15
<PAGE>

California. He was Chair of The California Healthcare Association in 1998. Mr.
Greene is also a director of Quadramed Corporation, a healthcare information
technology and solutions provider, and Lumisys, Inc., a manufacturer of digital
imaging systems. Mr. Green has been a director of Acuson since March 1995.

Karl H. Johannsmeier served as a director of Acuson from September 1981 to May
1994 and also has served as a director from March 1995 to the present.  He
founded Optimetrix Corporation, a semiconductor processing equipment company,
where he served as President and Chief Executive Officer from 1976 to 1981 and
as Chairman of the Board of Directors from 1976 to 1984.  Optimetrix Corporation
was acquired by Eaton Corporation in 1982.  Mr. Johannsmeier has been a private
investor over the last twenty years.

William J. Mercer is the founder and CEO of Avocet Ventures, LLC, a private
equity investment firm specializing in strategic investments in the healthcare
and technology sectors.  Prior to his current position and since 1995, Mr.
Mercer was a director, President and Chief Executive Officer of ALARIS Medical,
Inc., a publicly traded holding company, and its wholly owned subsidiary, ALARIS
Medical Systems, Inc.  ALARIS is a global company specializing in the design,
manufacture and marketing of intravenous infusion therapy products, patient
monitoring equipment, and cardiac monitoring devices.  Mr. Mercer has been a
director of Acuson since June 1999.

Robert J. Gallagher joined Acuson in January 1983 as Vice President, Finance and
Chief Financial Officer.  Mr. Gallagher became Executive Vice President in March
1991, Chief Operating Officer in January 1994 and was a director of Acuson from
May 1994 until June 1999.  He served as President of Acuson from May 1995 until
November 1997.  He retired as Chief Operating Officer in March 1999 and as Vice
Chairman in June 1999 and became Senior Vice President.  Upon the resignation of
Daniel R. Dugan as President effective March 1, 2000, Mr. Gallagher became
interim President and Chief Operating Officer.  Mr. Gallagher is also a director
of Celeritek, Inc., a manufacturer of integrated circuits and high-frequency
radio transceiver subsystems, and Lumisys, Inc., a manufacturer of digital
imaging systems.

Barry Zwarenstein joined Acuson in November 1998 as Vice President, Chief
Financial Officer.  Prior to working for Acuson, Mr. Zwarenstein served as Chief
Financial Officer, FMC Europe from 1992 to 1996 and as Senior Vice President,
Finance & Business Development and Chief Financial Officer from 1996 to 1998 for
Logitech, S.A., a designer, manufacturer, and marketer of computer interface
devices.

Edward P. Cornell joined Acuson in September 1997 as Vice President, Engineering
and was promoted to Senior Vice President, Engineering in November 1997.  From
1990 to 1997, Mr. Cornell was Vice President of Engineering and Product
Development for Pitney Bowes, Inc., in Stamford, CT, a provider of mailing,
postage meters, reprographic and facsimile equipment and related services.

Rick E. Smith joined Acuson in 1992 as Director of Sales, General Imaging and
was promoted to Vice President, General Imaging Business Unit in 1995 and Vice
President, North America Business Operations in June 1998.  He became Senior
Vice President, Worldwide Sales and Marketing in March 1999.

Bradford C. Anker joined Acuson in December 1983 and has served as Vice
President, Manufacturing since that date.

Charles H. Dearborn joined Acuson in October 1988 and has served as General
Counsel since that date.  He was elected Secretary of Acuson in February 1991
and Vice President in February 1995.  He was appointed Vice President, Human
Resources and Legal Affairs of Acuson in June 1997.

L. Thomas Morse joined Acuson in July 1983 and has served as Corporate
Controller since that date.  He was elected an officer of Acuson in March 1989
and Vice President, Corporate Controller of Acuson in February 1991.

--------------------------------------------------------------------------------

                                       16
<PAGE>

PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Acuson's common stock, par value $0.0001, trades on the New York Stock Exchange
under the symbol ACN.  The following table sets forth the high and low closing
sales prices on the New York Stock Exchange for 1999 and 1998.

<TABLE>
<CAPTION>
              1999               High              Low
           -----------          ------           ------
           <S>                  <C>              <C>
           1st Quarter          $15.44           $13.00
           2nd Quarter           17.94            14.88
           3rd Quarter           17.44            12.06
           4th Quarter           12.69            10.00

<CAPTION>
              1998               High              Low
           -----------          ------           ------
           <S>                  <C>              <C>
           1st Quarter          $20.19           $16.88
           2nd Quarter           19.69            17.31
           3rd Quarter           18.19            14.63
           4th Quarter           19.06            13.63
</TABLE>

The approximate number of stockholders of record of the Company's common stock
as of December 31, 1999 was 1,171.  Acuson has not paid any cash dividends since
its inception and does not anticipate paying cash dividends in the foreseeable
future.

--------------------------------------------------------------------------------

                                       17
<PAGE>

ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended December 31,                                         1999       1998       1997        1996       1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>         <C>        <C>        <C>         <C>
Consolidated Statements of
Operations Data
  Net sales                                                   $475,901    $455,089   $437,762   $346,155    $328,922
  Net income (loss)                                              6,660*     20,822     22,377    (10,613)      7,055

Earnings Per Share Data
  Net income (loss)
    Basic                                                     $   0.25    $   0.75   $   0.78   $  (0.39)   $   0.25
    Diluted                                                   $   0.24*   $   0.73   $   0.73   $  (0.39)   $   0.25
Weighted average common and common
 equivalent shares outstanding
  Basic                                                         26,769      27,835     28,807     27,508      28,236
  Diluted                                                       27,194      28,601     30,627     27,508      28,662

Consolidated Balance Sheet Data
  Working capital                                             $186,005    $ 99,396   $118,605   $110,315    $121,410
  Total assets                                                 439,521     395,072    362,828    320,701     295,853
  Stockholders' equity                                         219,302     205,588    210,099    195,056     195,997
</TABLE>

QUARTERLY DATA (Unaudited)
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
1999 Quarter Ended                                     Dec. 31              Oct. 2              July 3            April 3
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>                 <C>               <C>
Net sales                                               $135,019             $101,995            $119,920         $118,967
Gross profit                                              62,291               48,006              55,240           55,010
Income (loss) before income taxes                         (4,608)               4,850               6,557            7,610
Net (loss) income                                         (7,127)               3,516               4,754            5,517
Earnings (loss) per share
  Basic                                                 $  (0.27)            $   0.13            $   0.18         $   0.21
  Diluted                                               $  (0.27)            $   0.13            $   0.17         $   0.20

<CAPTION>

1998 Quarter Ended                                    Dec. 31               Oct. 3              July 4            April 4
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                   <C>                 <C>               <C>
Net sales                                               $123,161             $102,857            $113,293         $115,778
Gross profit                                              58,314               48,181              53,540           55,314
Income before income taxes                                 8,896                5,642               5,913            8,210
Net income                                                 6,761                4,175               4,139            5,747
Earnings per share
  Basic                                                 $   0.25             $   0.15            $   0.15         $   0.20
  Diluted                                               $   0.24             $   0.15            $   0.14         $   0.20
</TABLE>

*  On December 23, 1999, we acquired Ecton, a Pennsylvania corporation.  As a
result of this acquisition, we recorded an after tax charge of $13.9 million for
purchased in-process research and development to our operating expenses.  Net
income in 1999 before the charge for purchased in-process research and
development was $20.6 million or $0.76 per share compared with $20.8 million or
$0.73 per share in 1998.

--------------------------------------------------------------------------------

                                       18
<PAGE>

ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Results of Operations

The following table sets forth, for the periods indicated, certain items in the
consolidated statements of operations as percentages of total net sales and the
percentage change of each such item from the comparable prior period.

<TABLE>
<CAPTION>
                                                                                                      Percentage Change
                                                                                                ---------------------------
                                                                                                      1999          1998
                                                         Percentage of Net Sales                       vs.           vs.
                                             ---------------------------------------------
Year Ended December 31,                             1999           1998           1997                1998          1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                   <C>            <C>           <C>                 <C>
Net sales
 Product                                             80.0%          80.2%          80.5%               4.2%          3.6%
 Service                                             20.0           19.8           19.5                6.0           5.5
                                                    -----          -----          -----

 Total net sales                                    100.0          100.0          100.0                4.6           4.0
                                                    -----          -----          -----

Cost of sales
 Product                                             43.8           42.4           42.9                8.1           2.7
 Service                                              9.9           10.3            9.9               (0.1)          8.6
                                                    -----          -----          -----

 Total cost of sales                                 53.7           52.7           52.8                6.5           3.8
                                                    -----          -----          -----

Gross profit                                         46.3           47.3           47.2                2.4           4.2
                                                    -----          -----          -----

Operating expenses
 Selling, general and administrative                 27.5           28.0           27.5                2.5           5.8
 Product development                                 12.1           12.6           13.1                0.5           0.5
 Purchased research and development                   2.9             --             --                 --            --
                                                    -----          -----          -----

 Total operating expenses                            42.5           40.6           40.6                9.4           4.1
                                                    -----          -----          -----

Income (loss) from operations                         3.8            6.7            6.6              (40.4)          4.6

 Interest expense                                    (1.1)          (0.7)          (0.3)              61.3         165.4
 Interest income                                      0.3            0.3            0.5               (6.4)        (26.9)
                                                    -----          -----          -----

Income (loss) before income taxes                     3.0            6.3            6.8              (49.7)         (3.9)

 Provision for (benefit from) income taxes            1.6            1.7            1.7               (1.1)          5.1
                                                    -----          -----          -----

Net income (loss)                                     1.4%           4.6%           5.1%            (68.0)%        (6.9)%
                                                    =====          =====          =====             ======         =====
</TABLE>

1999 Compared with 1998

Net sales increased 4.6 percent to $475.9 million for the year ended December
31, 1999, compared with $455.1 million for 1998.  Worldwide product revenue for
the year ended December 31, 1999, increased 4.2 percent from $365.1 million in
1998 to $380.5 million.  The increase in product revenue was primarily due to
increases in both domestic and international sales.  Worldwide product sales in
1999, which include option sales for our Sequoia and Aspen Systems, increased
over the prior year offsetting a continued decline in sales of our XP systems,
which were first introduced in 1990.  Worldwide service revenue increased 6.0
percent to $95.4 million from $90.0 million in 1998 due to greater service
revenue in connection with our Sequoia and Aspen systems, partially offset by a
decline in service revenue from our 128XP systems.  As greater numbers of
Sequoia and Aspen systems have been sold, we have experienced a decline in
service revenue pertaining to our 128XP systems and we expect this trend to
continue.  Domestic revenue increased 4.8 percent to $331.7 million for the year
ended December 31, 1999, compared with $316.7 million for 1998.  Domestic sales
for 1999, which represent 69.7 percent of total sales, remained consistent

                                       19
<PAGE>

with the prior year, which were 69.6 percent of total sales. International
revenue increased 4.1 percent in 1999 to $144.2 million, compared with $138.4
million for 1998. International revenues were favorably impacted by growth in
the Asian and European markets, offset by the strengthening of the dollar.

Cost of sales as a percentage of net sales rose 1.0 percent in 1999 compared to
1998.  Cost of sales was 53.7 percent of net sales for the year ended December
31, 1999, compared with 52.7 percent for 1998.

Gross profit on product sales for 1999 was 45.2 percent compared to 47.2 percent
for 1998.  Product margins decreased primarily due to continued competitive
pricing pressures, strengthening of the U.S. dollar, and increasing sales of
refurbished XP ultrasound systems which were sold at low margins.  Service
margins for 1999 were 50.8 percent of net sales compared to 47.8 percent for
1998.  This increase in margins is the result of leveraging a stable service
infrastructure across a growing installed base of serviceable units.

Selling, general and administrative expenses for the year ended December 31,
1999, were $130.7 million or 27.5 percent of net sales, compared with $127.5
million, or 28.0 percent of net sales, for 1998.  Compared to the prior year
selling, general and administrative expenses were essentially flat as a
percentage of sales.

Product development spending for the year ended December 31, 1999 was $57.9
million, reflecting a slight increase over the 1998 amount of $57.6 million.  As
a percentage of net sales, product development spending decreased to 12.1
percent in 1999 compared with 12.6 percent in 1998.  Product development
spending in terms of both dollars and as a percentage of sales was essentially
flat compared with the prior year.

Interest income was $1.4 million for the year ended December 31, 1999, compared
with $1.5 million in 1998.

Interest expense for the year ended December 31, 1999 was $5.0 million compared
with $3.1 million in 1998. The increase was the result of additional long-term
bank borrowings throughout the year.

Provision for income taxes was $7.7 million in 1999 compared with $7.8 million
in 1998.  Our effective tax rate for 1999 before the effect of the Ecton
acquisition was 27.4 percent.  However, our final effective tax rate for 1999
was 53.8 percent resulting from the purchased in-process research and
development charges arising from the Ecton acquisition, which are non-deductible
for tax purposes.

Net income including after tax charges of $13.9 million for purchased in-process
research and development charges arising from the Ecton acquisition was $6.7
million in 1999.  Net income before the charge for purchased in-process research
and development was $20.6 million compared with $20.8 million net income in
1998.

Non-recurring

Purchased In-Process Research and Development for the year ended December 31,
1999 was $13.9 million which related to expenses incurred as a result of the
Ecton acquisition in the fourth quarter of 1999.

On December 23, 1999, we acquired Ecton, a Pennsylvania corporation in the
development stage specializing in the design and development of a low cost,
portable echocardiography system.  The aggregate consideration exchanged in
connection with our acquisition of Ecton was 1,413,954 shares of our common
stock and $4.0 million in cash.  In addition, the merger agreement provides that
up to $17.0 million, in either shares of our common stock and/or cash, may be
payable to Ecton shareholders depending on the gross profits attributable to the
sale or license of Ecton's products through each of the four twelve month
periods beginning on July 1, 2000 and ending on June 30, 2004.  The merger is
intended to be a tax-free reorganization under the Internal Revenue Code and has
been accounted for as a purchase.

Under the purchase method of accounting, the purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair values at
the date of the acquisition.  Results of operations for Ecton have been included
with ours for periods subsequent to the date of acquisition.  The total purchase
price of the acquisition was $21.2 million, consisting of stock valued at $16.3
million, cash of $4.0 million and acquisition expenses of $0.9 million.  The
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values as determined by an independent appraisal
and management estimates as follows: in-process research and development of
$13.9 million, goodwill of $3.8 million, covenant not to compete of $3.8
million, deferred tax asset of $2.3 million, assembled workforce of $1.2
million, net tangible liabilities acquired of $1.8 million, and deferred tax
liability of $2.0 million.

We estimate that $13.9 million of the purchase price represents purchased in-
process research and development that has not yet reached technological
feasibility and has no alternative future use.  Accordingly, this amount was
expensed in the fourth quarter of fiscal year 1999 following consummation of the
acquisition.  The value assigned to

                                       20
<PAGE>

purchased in-process research and development was determined by identifying
research projects in areas for which technological feasibility had not been
achieved using appropriate income based valuation methodologies. The value was
determined by calculating the estimated stage of completion (expressed as a
percentage of completion) for each project, applying the percentage to the
expected net cash flows for each project, and discounting the net cash flows
back to their present value. The stage of completion was determined by analyzing
the costs incurred (as of the valuation date) divided by the total estimated
costs to complete the projects. The rates utilized to discount the net cash
flows to their present value were based on estimated cost of capital
calculations. Discount rates of 30 to 40 percent were appropriate for the in-
process research and development. These discount rates were commensurate with
Ecton's stage of development and included factors that took into account the
uncertainty surrounding the successful development of the purchased in-process
research and development projects, and the uncertainties in the revenue and
profitability estimates.

Ecton's primary in-process research and development projects involve designing
an echocardiography ultrasound system including the platform for that system,
subsequent improvements, and the related technologies.  The Ecton
echocardiography system is being initially developed as a comprehensive
cardiovascular ultrasound system that we anticipate will be simple to use and
highly portable.  We believe the technology we acquired will allow us to address
other ultrasound markets.

The nature of the efforts to develop the in-process technology into commercially
viable products principally relates to the completion of certain planning,
designing, software programming, prototyping, testing, and certification
activities.  Anticipated completion dates range from the middle of the year 2000
through the year 2001.  Development costs to complete the research and
development were estimated to be approximately $4.1 million.  The estimated
revenues for the in-process projects were expected to begin in the middle of the
year 2000 and were also expected to increase for the foreseeable future.

Development of in-process technology remains a substantial risk for us due to
many factors including the remaining effort to achieve technical feasibility,
rapidly changing customer markets and competitive threats from other companies.
The in-process research and development charge valuation was prepared by an
independent appraiser of technology assets, based on Ecton's and our inputs,
utilizing valuation methodologies and techniques we believe are reasonable.

The agreements signed between us and certain members of Ecton's management team
establishing covenants not-to-compete were valued based on assessing the
differential cash flows expected from competition in the absence of these
agreements.  The key differential drivers are expected future lost revenue and
incremental research and development costs.

To determine the value of the assembled workforce, we evaluated the workforce in
place at the acquisition date and utilized the cost approach to estimate the
value of replacing the workforce.  Costs considered in replacing the workforce
included costs to recruit and interview candidates, as well as the cost to train
new employees.

A deferred tax liability has been recognized for the difference between the
assigned values for book purposes and the tax bases of assets in accordance with
the provisions of SFAS No. 109.

See also Note 5 to the Consolidated Financial Statements concerning the
acquisition of Ecton.

1998 Compared with 1997

Net sales increased 4.0 percent to $455.1 million for the year ended December
31, 1998, compared with $437.8 million for 1997.  Worldwide product revenue for
the year ended December 31, 1998 increased 3.6 percent to $365.1 million.  The
increase in product revenue was primarily due to increased domestic sales,
mainly within the domestic cardiology market, partially offset by a decrease in
international sales.  Worldwide sales of our Sequoia and Aspen ultrasound
systems, introduced in April and October of 1996, increased over the prior year.
As greater numbers of Sequoia and Aspen systems have been sold, we have
experienced a decline in sales of our 128XP ultrasound systems, first introduced
in 1990.  Worldwide service revenue increased 5.5 percent to $90.0 million.  The
increase was due to greater service contract revenue in connection with our
Sequoia and Aspen systems, partially offset by a decline in service revenue from
our 128XP systems.  As greater numbers of Sequoia and Aspen systems have been
sold, we have experienced a decline in service revenue pertaining to our 128XP
systems.  Domestic revenue increased 8.3 percent to $316.7 million for the year
ended December 31, 1998, compared with $292.5 million for 1997.  Domestic sales
accounted for 69.6 percent of total 1998 sales, compared with 66.8 percent for
1997.  International revenue decreased 4.7 percent in 1998 to $138.4 million.
International revenues were negatively impacted by economic weakness in selected
markets in Asia, Latin America and parts of Europe.

                                       21
<PAGE>

Cost of sales as a percentage of net sales remained relatively consistent
between 1998 and 1997. Cost of sales was 52.7 percent of net sales for the year
ended December 31, 1998, compared with 52.8 percent for 1997.

Selling, general and administrative expenses for the year ended December 31,
1998 were $127.5 million or 28.0 percent of net sales, compared with $120.5
million, or 27.5 percent of net sales, for 1997.  The increase was primarily due
to higher selling expenses early in the year resulting from planned additions to
our sales organization partially offset by company-wide cost reduction efforts
during the third quarter of the year.

Product development spending for the year ended December 31, 1998 was $57.6
million, reflecting a slight increase over the 1997 amount of $57.3 million.  As
a percentage of net sales, product development spending decreased to 12.6
percent in 1998 compared with 13.1 percent in 1997.  The percentage decrease was
primarily the result of higher sales in 1998.

Interest income declined from the prior year primarily as a result of lower cash
and cash equivalent balances.  Interest income was $1.5 million for the year
ended December 31, 1998, compared with $2.0 million in 1997.

Interest expense for the year ended December 31, 1998, was $3.1 million compared
with $1.2 million in 1997.  The increase was the result of greater weighted
average short-term borrowings throughout the year.

Provision for income taxes was $7.8 million in 1998 compared with $7.5 million
in 1997.  Our effective tax rate for 1998 was 27.4 percent compared with 25.0
percent for 1997.  The rate increase was primarily due to a change in our
domestic and international sales mix.  The reduced 1998 provision rate, when
compared to the Federal statutory rate of 35.0 percent, was primarily the result
of a research and development tax credit.

Net income was $20.8 million in 1998 compared with $22.4 million in 1997.  The
decrease was primarily the result of higher interest expense incurred in 1998.

Inflation

To date, we have not experienced any significant effects from inflation.

Liquidity and Capital Resources

During 1999, our cash and cash equivalents balance increased $11.8 million to
$23.7 million and the net of short-term and long-term borrowings increased $22.5
million to $87.5 million.  We generated $25.2 million in cash from operations.
Our investing activities for 1999 used $26.9 million in cash.  We purchased
$21.8 million of equipment during the year, primarily consisting of computer
equipment, capitalized software and implementation costs associated with our new
enterprise-wide, integrated business information system.  Included in 1999
investing activities was $4.4 million incurred in connection with the
acquisition of Ecton related to payments to the Ecton shareholders and
acquisition costs.

Our 1999 financing activities provided $13.8 million.  Issuance of debt of $87.5
million and repayments of short-term borrowings of $65.0 million raised $22.5
million.  Our employee participation in our stock option and stock purchase
plans added $7.5 million.  Also included in the financing activities for 1999
was $16.1 million used for common stock repurchases.

On October 15, 1996, the Board of Directors authorized the repurchase of
4,000,000 shares of common stock over an unspecified period of time.  As of
December 31, 1998, we had repurchased 3,527,400 shares of the 4,000,000 shares
authorized at a cumulative cost of $62.4 million.  In 1999, we repurchased the
remaining 472,600 shares of the 1996 authorization at a cost of $6.4 million.
This completed the 1996 authorization resulting in a cumulative cost of $68.8
million.  During the first quarter of 1999, the Board of Directors authorized
the repurchase of an additional 4,000,000 shares of common stock over an
unspecified period of time.  In the fourth quarter of 1999, we repurchased
889,900 shares towards the 1999 authorization at a cost of $9.7 million.  The
total repurchased in 1999 was 1,362,500 shares of common stock for a total cost
of  $16.1 million.  There are 3,110,100 shares of common stock still remaining
under the 1999 repurchase authorization.

Working capital at December 31, 1999, increased $86.6 million from the prior
year primarily due to the refinancing of short-term borrowings to long-term.
The long-term debt at December 31, 1999 was $85.2 million compared to no long-
term debt at the end of 1998.  At December 31, 1999, our working capital totaled
$186.0 million.

We have a revolving, unsecured credit agreement for $40.0 million, which is in
effect through April 8, 2000.  Under the terms of the agreement, no compensating
balances are required and the interest rate is determined at the time of

                                       22
<PAGE>

borrowing based on the London interbank offered rate plus a margin, or prime
rate for overnight borrowings.  At December 31, 1999, there were no outstanding
borrowings under this facility.

We also have an uncommitted, unsecured line of credit for up to 90-day advances
not to exceed an aggregate total of $10.0 million. At December 31, 1999, there
were no borrowings against this uncommitted line of credit.

During 1999, we entered into a letter agreement with a major financial
institution to act as our exclusive placement agent in connection with the
issuance of an initial series of unsecured senior notes.  On April 9, 1999, we
received a total of $75.0 million from the private placement.  The senior notes
are made up of two series: Series A for a total of $71.0 million and Series B
for a total of $4.0 million.  The  interest rate of these notes ranges from 6.4
percent to 6.6 percent.  These notes expire in five to seven years.  On December
13, 1999, two subsequent series of unsecured senior notes were issued: Series C
for a total of $5.0 million and Series D for a total of $7.5 million.  The
interest rate of these notes ranges from 7.6 percent to 7.8 percent.  These
notes expire in five to seven years. We used the proceeds to refinance existing
debt and for other working capital and general corporate needs.

Based on our current operating plan, we believe that the liquidity provided by
our existing cash balance, cash generated from operations and borrowing
arrangements will be sufficient to meet our projected operating and capital
requirements for fiscal 2000.

New Accounting Standards

Accounting for Derivative Instruments and Hedging Activities:  In June 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards "SFAS No. 133," "Accounting for Derivative Instruments and Hedging
Activities."  This statement, as amended in June 1999, will require companies to
recognize all derivatives, including those used for hedging foreign currency
exposures, on the balance sheet at fair value and is effective for all fiscal
years beginning after June 15, 2000.  We believe the adoption of this statement
will not have a significant effect on the results of operations.

Revenue Recognition in Financial Statements:  In December 1999, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 101 "SAB 101,"
"Revenue Recognition in Financial Statements."  SAB 101 provides guidance on
applying generally accepted accounting principles to revenue recognition issues
in financial statements. We will adopt SAB 101 as required in the first quarter
of 2000 and are evaluating the effect that such adoption may have on our
consolidated results of operations and financial position.

ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Concentration of Credit Risk

We provide credit in the form of trade accounts receivable and leases to
hospitals, private and governmental institutions, healthcare agencies, medical
equipment distributors and doctors' offices.  Our products are manufactured at
our world headquarters in Mountain View, California and at other facilities in
Canoga Park, California; State College, Pennsylvania; and Ann Arbor, Michigan.
The new Cypress product will be contract manufactured in Pennsylvania.  Our
products are sold through a direct sales force in North America, Europe,
Australia and Japan, and through independent distributors in Europe, Asia, South
America and the Middle East.  We do not generally require collateral to support
customer receivables.  We perform ongoing credit evaluations of our customers
and maintain allowances which management believes are adequate for potential
credit losses.  Sales to distributors are on the basis of an arms-length
transaction and do not include any special return rights and/or price protection
features.

Financial Instruments and Credit Risk

We enter into forward foreign currency exchange contracts to hedge our exposure
to fluctuations in foreign currency exchange rates.  We designate, and
accordingly account for, these transactions as hedges based upon the contracts'
anticipated effectiveness at reducing our exposure to foreign currency exchange
rate risk.  Gains and losses are recorded in income in the same period as gains
and losses on the underlying transactions being hedged.  If an underlying
transaction is terminated earlier than anticipated, the offsetting gain or loss
on the forward exchange contract would be recorded in income in the same period.
Currently, we neither engage in foreign currency speculation nor hold or issue
financial instruments for trading purposes.  Because we only enter into forward
currency exchange contracts as hedges, any change in currency rates should not
normally result in a material gain or

                                       23
<PAGE>

loss, as any gain or loss on the underlying transaction would be offset by the
gain or loss on the forward currency contract. For this reason, we believe that
neither our exposure to foreign currency exchange rate risk nor any potential
near-term losses in future earnings, fair values or cash flows from reasonably
possible near-term changes in market rates or prices would be material. The
counterparties to foreign currency exchange contracts are major domestic and
international financial institutions and the contract terms are typically not
more than three months.

At December 31, 1999, we had outstanding forward foreign currency exchange
contracts of approximately $58.0 million.  The contracts have maturity dates of
February 2000.  Included in the total above are contracts to sell approximately
$40.4 million in Euros, $5.4 million in Japanese yen, $4.3 million in Australian
dollars, $4.1 million in Swedish krona, $2.2 million in British pounds, $893
thousand in Danish krone, and $723 thousand in Norwegian krone.  The carrying
value of these contracts approximates their fair market value as of the year
end.

--------------------------------------------------------------------------------

ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The index to the Company's consolidated Financial Statements and Schedule, and
the report of the independent public accountants appear in Part III of this Form
10-K.  Selected quarterly financial data appear in Item 6 above.

--------------------------------------------------------------------------------

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

Directors. The information required by Item 10 of Form 10-K with respect to
directors is incorporated by reference to the information contained in the
sections captioned "Nomination and Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on May 1, 2000 (the
"Proxy Statement").  See also pages 15 and 16 of this Form 10-K.

Executive Officers. See pages 15 and 16 of this Form 10-K.

--------------------------------------------------------------------------------

ITEM 11
EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated by reference to
the information contained in the sections captioned "Compensation of Directors
and Executive Officers," "Options Granted to Executive Officers," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Employment Contracts, Termination of Employment and Change in Control
Arrangements" and "Compensation Committee Interlocks and Insider Participation"
in the Proxy Statement.

--------------------------------------------------------------------------------

ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Share Ownership of
Directors, Executive Officers and Certain Beneficial Owners" in the Proxy
Statement.

--------------------------------------------------------------------------------

                                       24
<PAGE>

ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Certain Relationships and
Other Transactions" in the Proxy Statement.

--------------------------------------------------------------------------------

ITEM 14
EXHIBITS AND REPORTS ON FORM 8-K

(a)(1)  Financial Statements.  See page F-1 for index to financial statements.

The following financial statements of the Registrant are filed as part of this
report:

  Report of Independent Public Accountants
  Consolidated Balance Sheets as of December 31, 1999 and 1998
  Consolidated Statements of Operations for the years ended December 31, 1999,
  1998 and 1997
  Consolidated Statements of  Stockholders' Equity for the years ended December
  31, 1999, 1998 and 1997
  Consolidated Statements of Cash Flows for the years ended December 31, 1999,
  1998 and 1997
  Notes to Consolidated Financial Statements

(a)(2)  Financial Statement Schedules. See page F-1 for index to financial
statements.

The following financial statement schedules of Acuson Corporation are filed as
part of this report:

  Schedule II - Valuation and Qualifying Accounts

(a)(3)  Exhibits.

The following Exhibits are filed as part of, or incorporated by reference into,
this Form 10-K:

2.1  &&&            Agreement and Plan of Merger And Reorganization, dated
                    September 15, 1999, by and among the Company, Echo
                    Acquisition Corp. and Ecton, Inc. (Exhibit 10.3)

2.2  &&&&           Amendment No. 1 to Agreement and Plan of Merger And
                    Reorganization, dated November 30, 1999, by and among the
                    Company, Echo Acquisition Corp. and Ecton, Inc. (Exhibit
                    99.1)

3.1  *              Restated Certificate of Incorporation, as amended (Exhibit
                    3.8)

3.2  \              Bylaws, as amended (Exhibit 3.2)

4.1  **             Rights Agreement, dated as of June 8, 1998, between Acuson
                    Corporation and BankBoston, N.A., as Rights Agent, as
                    amended (Exhibit 1)

10.1  /// (1)       The Company's 1986 Supplemental Stock Option Plan, as
                    amended (Exhibit 10.3)

10.2  /  (1)        Form of Supplemental Stock Option (Exhibit 10.7)

10.3  *             Series A Preferred Stock Purchase Agreement, dated January
                    6, 1982, between the Company and the Purchasers listed on
                    Schedule A thereto (Exhibit 10.8)

10.4  *             Series B Preferred Stock Purchase Agreement, dated March 29,
                    1983, between the Company and the Purchasers listed on
                    Schedule A thereto (Exhibit 10.9)

10.5  *             Series C Convertible Preferred Stock Purchase Agreement,
                    dated March 30, 1984, between the Company and the Purchasers
                    listed on Exhibit A thereto (Exhibit 10.10)

10.6  \  (1)        The Company's 1991 Stock Incentive Plan, as amended (Exhibit
                    10.14)

10.7  \  (1)        Form of the Company's Supplemental and Non-Employee Director
                    Supplemental Options under the 1991 Stock Incentive Plan and
                    related exercise documents, as amended (Exhibit 10.15)

10.8  //// (1)      Form of Amendment Number 1 to Supplemental Stock Option
                    Terms Under the Company's 1986 Supplemental Stock Plan and
                    1991 Stock Incentive Plan (Exhibit 10.1)

10.9  //// (1)      Form of Supplemental Stock Option Terms Under the Company's
                    1991 Stock Incentive Plan (Exhibit 10.2)

10.10 \  (1)        The Company's 1995 Employee Stock Purchase Plan, as amended
                    (Exhibit 10.22)

10.11 \  (1)        The Company's 1995 Stock Incentive Plan, as amended (Exhibit
                    10.24)

10.12  \            Credit Agreement, dated March 28, 1997, between Acuson
                    Corporation and ABN AMRO Bank N. V., as Agent for Lenders,
                    as amended (Exhibit 10.24)

10.13  (1)          Acuson Management Incentive Plan, as amended

10.14  &  (1)       Non-Negotiable Secured Promissory Note, dated April 24,
                    1998, of Edward P. Cornell (Exhibit 10.1)

                                       25
<PAGE>

10.15  &  (1)       Deed of Trust, dated April 24, 1998, between Edward P.
                    Cornell and Commonwealth Land Title Company, as Trustee
                    (Exhibit 10.2)

10.16  \            Promissory Note, dated September 11, 1998, between Acuson
                    Corporation and Banque Nationale de Paris (Exhibit 10.28)

10.17  \            Letter agreement, dated September 11, 1998, between Acuson
                    Corporation and Banque Nationale de Paris (Exhibit 10.29)

10.18               Credit Agreement, dated April 9, 1999, between Acuson
                    Corporation and ABN AMRO BANK N.V., as agent for lenders, as
                    amended

10.19               Note Purchase Agreement, dated April 9, 1999, between Acuson
                    Corporation and each of the purchasers listed in Schedule A
                    to this Agreement, as amended

10.20  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Cudd & Co. (Exhibit 10.3)

10.21  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and J. Romeo & Co. (Exhibit 10.4)

10.22  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Atwell & Co. (Exhibit 10.5)

10.23  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Hare & Co. (Exhibit 10.6)

10.24  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Northern Life Insurance Company
                    (Exhibit 10.7)

10.25  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Reliastar Life Insurance Company
                    (Exhibit 10.8)

10.26  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Sigler & Co. (Exhibit 10.9)

10.27  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and American United Life Insurance
                    Company (Exhibit 10.10)

10.28  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and American United Life Insurance
                    Company (Exhibit 10.11)

10.29  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Modern Woodmen of America (Exhibit
                    10.12)

10.30  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Nationwide Life Insurance Company
                    (Exhibit 10.13)

10.31  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Nationwide Life and Annuity Insurance
                    Company (Exhibit 10.14)

10.32  &&           Series A Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Allied Life Insurance Company B
                    (Exhibit 10.15)

10.33  &&           Series B Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Provident Mutual Life Insurance
                    Company (Exhibit 10.16)

10.34  &&           Series B Senior Unsecured Note, dated April 9, 1999, between
                    Acuson Corporation and Provident Mutual Life & Annuity
                    Company of America (Exhibit 10.17)

10.35  &&&  (1)     Notice of Grant of Stock Options and Grant Agreement (A) by
                    and between Daniel Dugan and the Company, effective February
                    19, 1999 (Exhibit 10.1)

10.36  &&&  (1)     Notice of Grant of Stock Options and Grant Agreement (B) by
                    and between Daniel Dugan and the Company, effective February
                    19, 1999 (Exhibit 10.2)

10.37  \  (1)       Form of Change of Control Agreement for Certain Executive
                    Officers of the Company (Exhibit 10.30)

10.38  \  (1)       Form of the Company's 1995 Stock Incentive Plan (Exhibit
                    10.31)

10.39               List of Executive Officers with whom the Company has entered
                    into a Change of Control Agreement

10.40               Series C Senior Unsecured Note, dated December 13, 1999,
                    between Acuson Corporation and Modern Woodmen of America

10.41               Series D Senior Unsecured Note, dated December 13, 1999,
                    between Acuson Corporation and J. Romeo and Company

10.42               Supplemental Note Purchase Agreement, dated December 13,
                    1999, between Acuson Corporation, Modern Woodmen of America
                    and J. Romeo and Company.

11.1 @              Statement regarding computation of per share earnings for
                    the fiscal year ended December 31, 1994 (Exhibit 11.6)

                                       26
<PAGE>

21.1                Subsidiaries of the Company

23.1                Consent of Arthur Andersen LLP, Independent Public
                    Accountants

27.1                Financial Data Schedule for the year ended December 31, 1999

*         Incorporated by reference to the indicated exhibit in the Company's
          Registration Statement on Form S-1 (File No. 33-7838), as amended.

**        Incorporated by reference to the indicated exhibit in the Company's
          Form 8-A dated December 31, 1998.

/         Incorporated by reference to the indicated exhibit in the Company's
          Form 10-K Annual Report for the fiscal year ended December 31, 1993.

///       Incorporated by reference to the indicated exhibit in the Company's
          Form 10-Q Quarterly Report for the quarterly period ended July 2,
          1994.

////      Incorporated by reference to the indicated exhibit in the Company's
          Form 10-Q Quarterly Report for the quarterly period ended October 1,
          1994.

@         Incorporated by reference to the indicated exhibit in the Company's
          Form 10-K Annual Report for the fiscal year ended December 31, 1994.

@@        Incorporated by reference to the indicated exhibit in the Company's
          Form 10-Q Quarterly Report for the quarterly period ended July 1,
          1995.

&         Incorporated by reference to the indicated exhibit in the Company's
          Form 10-Q Quarterly Report for the quarterly period ended July 4,
          1998.

&&        Incorporated by reference to the indicated exhibit in the Company's
          Form 10-Q Quarterly Report for the quarterly period ended July 3,
          1999.

&&&       Incorporated by reference to the indicated exhibit in the Company's
          Form 10-Q Quarterly Report for the quarterly period ended October 2,
          1999.

&&&&      Incorporated by reference to the indicated exhibit in the Company's
          Form 8-K Current Report dated November 30, 1999.

\         Incorporated by reference to the indicated exhibit in the Company's
          Form 10-K Annual Report for the fiscal year ended December 31, 1998.

(1)       Management contract or compensatory plan required to be filed as an
          exhibit.

(b)  Reports on Form 8-K.

The Company filed a report on Form 8-K on December 6, 1999 to announce the
November 30, 1999 amendment of the Agreement and Plan of Merger and
Reorganization, dated September 15, 1999, by and among the Company, Echo
Acquisition Corp. and Ecton, Inc. and to file a copy of this amendment.

(c)  Financial Data Schedule.

See Exhibit Index of this Form 10-K Annual Report.

                                       27
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                           ACUSON CORPORATION

March 15, 2000                             By: /s/ Samuel H. Maslak
                                           ------------------------
                                           Samuel H. Maslak
                                           Chairman and Chief Executive Officer

March 15, 2000                             By: /s/ Barry Zwarenstein
                                           -------------------------
                                           Barry Zwarenstein
                                           Vice President, Chief Financial
                                           Officer (Principal Financial Officer)

March 15, 2000                             By: /s/ L. Thomas Morse
                                           -----------------------
                                           L. Thomas Morse
                                           Vice President, Corporate Controller
                                           (Principal Accounting Officer)

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Samuel H. Maslak and Barry Zwarenstein or either of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to this 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 and necessary to be done
in connection therewith, 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 either of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.

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.

<TABLE>
<CAPTION>
          Signature                                      Title                                       Date
---------------------------------------------------------------------------------------------------------------
<S>                                      <C>                                                   <C>
/s/ Samuel H. Maslak                     Chairman and Chief Executive Officer                  March 15, 2000
--------------------
(Samuel H. Maslak)

/s/ Robert J. Gallagher                  President and Chief Operating Officer                 March 15, 2000
-----------------------
(Robert J. Gallagher)

/s/ Barry Zwarenstein                    Vice President, Chief Financial Officer               March 15, 2000
---------------------
(Barry Zwarenstein)                      (Principal Financial Officer)

/s/ L. Thomas Morse                      Vice President, Corporate Controller                  March 15, 2000
-------------------
(L. Thomas Morse)                        (Principal Accounting Officer)

/s/ Albert L. Greene                     Director                                              March 15, 2000
--------------------
(Albert L. Greene)

/s/ Karl H. Johannsmeier                 Director                                              March 15, 2000
------------------------
(Karl H. Johannsmeier)

/s/ William J. Mercer                    Director                                              March 15, 2000
---------------------
(William J. Mercer)
</TABLE>

                                       28
<PAGE>

ACUSON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                  Pages
                                                                                  -----
<S>                                                                               <C>
Consolidated Financial Statements:

  Report of Independent Public Accountants                                         F-2

  Consolidated Balance Sheets as of December 31, 1999 and 1998                     F-3

  Consolidated Statements of Operations and Comprehensive Income
     for the years ended December 31, 1999, 1998 and 1997                          F-4

  Consolidated Statements of Stockholders' Equity
     for the years ended December 31, 1999, 1998 and 1997                          F-5

  Consolidated Statements of Cash Flows
     for the years ended December 31, 1999, 1998 and 1997                          F-6

  Notes to Consolidated Financial Statements                                       F-7

Financial Statement Schedule:

  Schedule II - Valuation and Qualifying Accounts                                  F-19
</TABLE>

                                      F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Acuson Corporation:

We have audited the accompanying consolidated balance sheets of Acuson
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations and
comprehensive income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Acuson Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.

/s/ Arthur Andersen LLP


San Jose, California
January 31, 2000

                                      F-2
<PAGE>

ACUSON CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
December 31,                                                                             1999             1998
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>              <C>
Assets
Current Assets
 Cash and cash equivalents                                                             $  23,704        $  11,914
 Accounts receivable, net of allowance for doubtful accounts
  of $3,488 in 1999 and $3,561 in 1998.                                                  157,483          153,672
 Inventories                                                                              97,243           82,794
 Deferred income taxes                                                                    18,945           21,441
 Other current assets                                                                     23,649           19,059
                                                                                       ---------        ---------
   Total current assets                                                                  321,024          288,880
                                                                                       ---------        ---------

Property and Equipment, at cost
 Furniture and fixtures                                                                   17,315           17,087
 Test equipment                                                                           41,111           40,764
 Machinery and equipment                                                                 154,582          144,467
 Leasehold improvements                                                                   29,436           27,675
                                                                                       ---------        ---------
  Gross property and equipment, at cost                                                  242,444          229,993
 Accumulated depreciation and amortization                                              (165,471)        (150,984)
                                                                                       ---------        ---------
   Total property and equipment, net                                                      76,973           79,009
                                                                                       ---------        ---------

Other Assets
 Net investment in leases, net of current portion                                         16,553           15,450
                                                                                       ---------        ---------
 Other long-term and intangible assets, net                                               24,971           11,733
                                                                                       ---------        ---------

   Total assets                                                                        $ 439,521        $ 395,072
                                                                                       =========        =========

Liabilities and Stockholders' Equity
Current Liabilities
 Short-term borrowings                                                                 $      --        $  65,000
 Current portion of long-term debt                                                         2,300               --
 Accounts payable                                                                         28,078           26,629
 Accrued compensation                                                                     31,514           32,703
 Deferred revenue                                                                         22,054           20,209
 Accrued warranty                                                                          8,009            8,298
 Accrued income taxes                                                                     17,371           11,378
 Customer deposits                                                                         7,071            8,595
 Other accrued liabilities                                                                18,622           16,672
                                                                                       ---------        ---------
   Total current liabilities                                                             135,019          189,484
                                                                                       ---------        ---------

Long-term debt                                                                            85,200               --
                                                                                       ---------        ---------

Commitments and Contingencies (Note 6)
Stockholders' Equity
 Preferred stock, par value $0.0001: authorized, 10,000 shares;
  outstanding, none                                                                           --               --
 Common stock and additional paid-in capital, common stock par value
  $0.0001: authorized, 50,000 shares; outstanding, 27,386 shares in 1999
  and 26,746 shares in 1998                                                              143,433          125,015
 Deferred compensation, net of amortization                                                 (720)              --
 Accumulated other comprehensive loss                                                     (2,255)          (1,099)
 Retained earnings                                                                        78,844           81,672
                                                                                       ---------        ---------
   Total stockholders' equity                                                            219,302          205,588
                                                                                       ---------        ---------

   Total liabilities and stockholders' equity                                          $ 439,521        $ 395,072
                                                                                       =========        =========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                      F-3
<PAGE>

ACUSON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended December  31,                                             1999             1998            1997
------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>             <C>
Net Sales
  Product                                                          $380,504         $365,111        $352,476
  Service                                                            95,397           89,978          85,286
                                                                   --------         --------        --------

   Total net sales                                                  475,901          455,089         437,762
                                                                   --------         --------        --------

Cost of Sales
  Product                                                           208,410          192,736         187,737
  Service                                                            46,944           47,004          43,266
                                                                   --------         --------        --------

   Total cost of sales                                              255,354          239,740         231,003
                                                                   --------         --------        --------

   Gross profit                                                     220,547          215,349         206,759
                                                                   --------         --------        --------

Operating Expenses
  Selling, general and administrative                               130,682          127,450         120,499
  Product development                                                57,902           57,598          57,286
  Purchased research and development                                 13,900               --              --
                                                                   --------         --------        --------

   Total operating expenses                                         202,484          185,048         177,785
                                                                   --------         --------        --------

   Income from operations                                            18,063           30,301          28,974

  Interest expense                                                   (5,047)          (3,129)         (1,179)
  Interest income                                                     1,393            1,489           2,038
                                                                   --------         --------        --------

   Income before income taxes                                        14,409           28,661          29,833

  Provision for income taxes                                          7,749            7,839           7,456
                                                                   --------         --------        --------

   Net income                                                      $  6,660         $ 20,822        $ 22,377
                                                                   ========         ========        ========

Earnings Per Share
  Basic                                                            $   0.25         $   0.75        $   0.78
                                                                   ========         ========        ========
  Diluted                                                          $   0.24         $   0.73        $   0.73
                                                                   ========         ========        ========

Weighted average common and common equivalent shares
 outstanding
  Basic                                                              26,769           27,835          28,807
                                                                   ========         ========        ========
  Diluted                                                            27,194           28,601          30,627
                                                                   ========         ========        ========

------------------------------------------------------------------------------------------------------------

Net income                                                         $  6,660         $ 20,822        $ 22,377

Other comprehensive income (loss), net of tax
 Foreign currency translation adjustments                            (1,156)             373          (1,999)
                                                                   --------         --------        --------

Comprehensive income                                               $  5,504         $ 21,195        $ 20,378
                                                                   ========         ========        ========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                      F-4
<PAGE>

ACUSON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
For the Three Years Ended December 31, 1999                                       Accumulated
                                                                      Deferred        Other                        Total
                                                   Common Stock       Compen-    Comprehensive     Retained     Stockholders'
                                                 Shares    Amount      sation     Income (loss)    Earnings       Equity
                                               ------------------------------------------------------------------------------
<S>                                             <C>       <C>         <C>        <C>               <C>          <C>
Balance, December 31, 1996                       28,246   $102,756    $     --          $   527    $ 91,773        $195,056

Net income                                           --         --          --               --      22,377          22,377
Foreign currency translation adjustments             --         --          --           (1,999)         --          (1,999)
Exercise of stock options at $7.17 to
 $20.63 per share                                 1,142     14,579          --               --          --          14,579
Repurchase of common stock at $15.93 to
 $28.75 per share                                (1,561)    (6,604)         --               --     (26,547)        (33,151)
Issuance of stock under employee stock
 purchase plan at $11.69 and $22.90
 per share                                          417      6,267          --               --          --           6,267
Tax benefit of employee stock transactions           --      6,970          --               --          --           6,970
                                               ----------------------------------------------------------------------------
Balance, December 31, 1997                       28,244   $123,968          --          $(1,472)   $ 87,603        $210,099

Net income                                           --         --          --               --      20,822          20,822
Foreign currency translation adjustments             --         --          --              373          --             373
Exercise of stock options at $10.75 to
 $18.92 per share                                   373      4,994          --               --          --           4,994
Repurchase of common stock at $13.75 to
 $19.89 per share                                (2,265)   (10,451)         --               --     (26,753)        (37,204)
Issuance of stock under employee stock
 purchase plan at $15.62 and $12.43
per share                                           394      5,529          --               --          --           5,529
Tax benefit of employee stock transactions           --        975          --               --          --             975
                                               ----------------------------------------------------------------------------
Balance, December 31, 1998                       26,746   $125,015          --          $(1,099)   $ 81,672        $205,588

Net income                                           --         --          --               --       6,660           6,660
Foreign currency translation adjustments             --         --          --           (1,156)         --          (1,156)
Exercise of stock options at $10.00 to
 $17.94 per share                                   150      1,829          --               --          --           1,829
Repurchase of common stock at $10.77 to
 $15.53 per share                                (1,362)    (6,624)         --               --      (9,488)        (16,112)
Issuance of stock under employee stock
 purchase plan at $12.86 per share                  438      5,630          --               --          --           5,630
Common stock issued in connection with
 Ecton acquisition                                1,414     16,308          --                                       16,308
Tax benefit of employee stock transactions           --        375          --               --          --             375
Deferred compensation                                          900        (900)                                           0
Amortization of deferred compensation                                      180                                          180
                                               ----------------------------------------------------------------------------
Balance, December 31, 1999                       27,386   $143,433       $(720)         $(2,255)   $ 78,844        $219,302
                                               ============================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

                                      F-5
<PAGE>

ACUSON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Year Ended December 31,                                                         1999           1998           1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>        <C>            <C>
Cash flows from operating activities

 Net income                                                                   $  6,660       $ 20,822       $ 22,377
 Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation and amortization                                                 23,141         23,067         22,356
  Write-off of acquired in-process research and development                     13,900             --             --
  Amortization of goodwill                                                          38             --             --
  Amortization of deferred non-cash compensation                                   180             --             --
  Provision for losses on accounts receivables                                     575            212            868
  Tax benefit of employee stock transactions                                       375            975          6,970
  Changes in:
    Accounts receivable                                                         (5,549)       (22,513)       (39,665)
    Leases receivable                                                          (27,964)       (26,688)       (20,293)
    Proceeds from sales of leases receivable                                    24,142         19,976         18,595
    Inventories                                                                (14,417)        (7,308)         7,439
    Deferred income taxes                                                          704          3,190         (3,697)
    Other assets                                                                (2,905)          (686)         5,960
    Accounts payable                                                             1,368          4,540          1,950
    Accrued compensation                                                          (740)         1,788          2,976
    Deferred revenue                                                             1,987         (1,501)        (1,700)
    Accrued warranty                                                              (289)          (657)         2,931
    Accrued income taxes                                                         5,978         (2,762)         4,182
    Customer deposits                                                           (1,383)         1,417            386
    Other accrued liabilities                                                     (588)         3,163           (358)
                                                                              --------       --------       --------

     Net cash provided by operating activities                                  25,213         17,035         31,277
                                                                              --------       --------       --------

Cash flows from investing activities

 Purchases of property and equipment                                           (21,826)       (31,288)       (37,377)
 Sale of fixed assets                                                              387            258          8,850
 Cash paid in connection with acquisition of Ecton, net of cash acquired        (4,400)            --             --
 Increase in other assets                                                       (1,022)          (618)          (427)
                                                                              --------       --------       --------

     Net cash used in investing activities                                     (26,861)       (31,648)       (28,954)
                                                                              --------       --------       --------

Cash flows from financing activities

 Proceeds from bank borrowings                                                  87,500         50,500         35,000
 Repayment of and proceeds from short-term borrowings, net                     (65,000)       (17,500)       (16,000)
 Repurchase of common stock                                                    (16,112)       (39,977)       (33,315)
 Proceeds from issuance of common stock under stock plans                        7,459         10,524         20,846
                                                                              --------       --------       --------

     Net cash provided by financing activities                                  13,847          3,547          6,531
                                                                              --------       --------       --------

Effect of exchange rate changes on cash and cash equivalents                      (409)           245           (532)
                                                                              --------       --------       --------

 Net increase (decrease) in cash and cash equivalents                           11,790        (10,821)         8,322

Cash and cash equivalents, beginning of year                                    11,914         22,735         14,413
                                                                              --------       --------       --------

Cash and cash equivalents, end of year                                        $ 23,704       $ 11,914       $ 22,735
                                                                              ========       ========       ========
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.

                                      F-6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Nature of Operations

Founded in 1981, Acuson Corporation (the "Company") is a United States-based
multinational corporation. The Company is a leading manufacturer, worldwide
marketer and service provider of systems that generate, display, archive and
retrieve medical diagnostic ultrasound images. The markets for Acuson products
are North America, Europe, Australia, Asia, South America and the Middle East.
The Company's products are sold primarily to hospitals, private and governmental
institutions, healthcare agencies, medical equipment distributors and doctors'
offices. The Company operates in two business segments: product and service.

Note 2.   Significant Accounting Policies

Basis of Presentation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.  All significant
intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Translation of Foreign Currencies: The functional currency of the Company's
foreign subsidiaries is the local currency. The Company translates all assets
and liabilities to U.S. dollars at current exchange rates as of the applicable
balance sheet date. Sales and expenses are translated at the average exchange
rates prevailing during the period. Gains and losses resulting from the
translation of the foreign subsidiaries' financial statements are reported as a
separate component of stockholders' equity.

Concentration of Credit Risk: The Company provides credit in the form of trade
accounts receivable and leases to hospitals, private and governmental
institutions, healthcare agencies, medical equipment distributors and doctors'
offices. The Company's products are manufactured at its world headquarters in
Mountain View, California and at other facilities in Canoga Park, California;
State College, Pennsylvania; and Ann Arbor, Michigan. The new Cypress product
will be contract manufactured in Pennsylvania. The Company's products are sold
through a direct sales force in North America, Europe, Australia and Japan, and
through independent distributors in Europe, Asia, South America and the Middle
East. The Company does not generally require collateral to support customer
receivables. The Company performs ongoing credit evaluations of its customers
and maintains allowances which management believes are adequate for potential
credit losses. Sales to distributors are on the basis of an arms-length
transaction and do not include any special return rights and/or price protection
features.

Financial Instruments and Credit Risk: The Company enters into forward foreign
currency exchange contracts to hedge its exposure to fluctuations in foreign
currency exchange rates. The Company designates, and accordingly accounts for,
these transactions as hedges based upon the contracts' anticipated effectiveness
at reducing the Company's exposure to foreign currency exchange rate risk. Gains
and losses are recorded in income in the same period as gains and losses on the
underlying transactions being hedged. If an underlying transaction is terminated
earlier than anticipated, the offsetting gain or loss on the forward exchange
contract would be recorded in income in the same period. Currently, the Company
neither engages in foreign currency speculation nor holds or issues financial
instruments for trading purposes. Because the Company only enters into forward
currency exchange contracts as hedges, any change in currency rates should not
normally result in a material gain or loss, as any gain or loss on the
underlying transaction would be offset by the gain or loss on the forward
currency contract. The counterparties to foreign currency exchange contracts are
major domestic and international financial institutions and the contract terms
are typically not more than three months.

At December 31, 1999, the Company had outstanding forward foreign currency
exchange contracts of approximately $58.0 million. The contracts have maturity
dates of February 2000. Included in the total above are contracts to sell
approximately $40.4 million in Euros, $5.4 million in Japanese yen, $4.3 million
in Australian dollars, $4.1 million in Swedish krona, $2.2 million in British
pounds, $893 thousand in Danish krone, and $723 thousand in Norwegian krone. The
carrying value of these contracts approximates their fair market value as of the
year end.

                                      F-7
<PAGE>

Derivatives: The Company's only use of derivative securities is its routine
usage of forward foreign exchange contracts to hedge foreign currency exposure.

Inventories: Inventories are stated at the lower of cost (first-in, first-out)
or market and include material, labor and manufacturing overhead. The components
of inventories were as follows as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                         1999           1998
--------------------------------------------------------------------------------
<S>                                                    <C>            <C>
Raw materials                                          $27,322        $25,052
Work-in-process                                         23,446         21,656
Finished goods                                          46,475         36,086
                                                       -------        -------

     Total inventories                                 $97,243        $82,794
                                                       =======        =======
</TABLE>

Property and Equipment: Property and equipment are stated at cost and are
depreciated or amortized using the straight-line method over the following
estimated useful lives:

--------------------------------------------------------------------------------

Furniture and fixtures                                                   5 years
Test equipment                                                         3-5 years
Machinery and equipment                                                3-6 years
Leasehold improvements                                             Term of lease

Intangible assets: Intangible assets are amortized over estimated useful lives
as follows:

--------------------------------------------------------------------------------

Goodwill                                                                 7 years
Covenant not to compete                                                  5 years
Assembled workforce                                                      3 years

The assembled workforce, covenant not to compete and goodwill will be amortized
on a straight-line basis.

Revenue Recognition: Revenues from equipment sales and sales-type leases are
generally recognized when the equipment has been shipped and lease contracts, if
applicable, have been executed. Estimated costs of installation, which consist
of simple routine set up processes, are minimal and are accrued at the time
revenue is recognized. Service revenues are recognized ratably over the
contractual period or as the services are provided.

Product Warranty: The Company provides, at the time of sale, for estimated
warranty costs. The Company warrants its systems products for a period of one
year and its option products for 90 days. The Company's warranty costs are
included in cost of product sales.

Advertising Costs: The Company accounts for advertising costs in accordance with
Statement of Position No. 97-3, "Reporting on Advertising Costs." Advertising
costs are expensed during the period in which they are incurred. For the years
ended December 31, 1999, 1998 and 1997, the Company incurred advertising
expenses of $5.9 million, $4.7 million, and $5.6 million, respectively.

Consolidated Statement of Cash Flows: For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents. For
purposes of the statements of cash flows, the Company classifies cash flows from
hedging contracts in the same category as the cash flows from the items being
hedged.

Cash paid for income taxes and interest expense were as follows for each of the
years ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                        1999            1998            1997
--------------------------------------------------------------------------------
<S>                                    <C>             <C>             <C>
Income taxes                           $4,509          $3,058          $  953
Interest expense                       $4,099          $2,945          $1,137
</TABLE>

Comprehensive Income: The Company has adopted Statement of Financial Accounting
Standards "SFAS No. 130," "Reporting Comprehensive Income." Comprehensive income
is defined as the change in equity of a company during a period from
transactions and other events and circumstances, excluding transactions
resulting from

                                      F-8
<PAGE>

investments by owners and distribution to owners. The primary difference between
net income and comprehensive income, for the Company, is due to foreign currency
translation adjustments. See Note 10 to the consolidated financial statements
for further discussion.

Segment Reporting: The Company has adopted Statement of Financial Accounting
Standards "SFAS No. 131," "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 supersedes "SFAS No. 14," "Financial
Reporting for Segments of a Business Enterprise," and replaces the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of a company's
reportable segments. SFAS No. 131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS No. 131
did not affect results of operations or financial position. See Note 11 to the
consolidated financial statements for further discussion.

Reclassifications: Certain information reported in previous years has been
reclassified to conform to the 1999 presentation.

Recent Accounting Pronouncements

Accounting for Derivative Instruments and Hedging Activities: In June 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards "SFAS No. 133," "Accounting for Derivative Instruments and Hedging
Activities." This statement, as amended in June 1999, will require companies to
recognize all derivatives, including those used for hedging foreign currency
exposures, on the balance sheet at fair value and is effective for all fiscal
years beginning after June 15, 2000. The Company believes the adoption of this
statement will not have a significant effect on the results of operations.

Revenue Recognition in Financial Statements: In December 1999, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 101 "SAB 101,"
"Revenue Recognition in Financial Statements." SAB 101 provides guidance on
applying generally accepted accounting principles to revenue recognition issues
in financial statements. The Company will adopt SAB 101 as required in the first
quarter of 2000 and is evaluating the effect that such adoption may have on the
Company's consolidated results of operations and financial position.

Note 3.  Short-Term Borrowings

The Company has a revolving, unsecured credit agreement for $40.0 million, which
expires April 8, 2000. Under the terms of the agreement, no compensating
balances are required and the interest rate is determined at the time of
borrowing based on the London interbank offered rate plus a margin, or prime
rate for overnight borrowings. At December 31, 1999, there were no outstanding
borrowings under this facility.

The Company also has an uncommitted, unsecured line of credit for up to 90-day
advances not to exceed an aggregate total of $10.0 million. At December 31,
1999, there were no borrowings against this uncommitted line of credit.

On April 9, 1999 the Company issued $75.0 million unsecured senior notes. The
senior notes are made up of two series: Series A for a total of $71.0 million
and Series B for a total of $4.0 million. The interest rate of these notes
ranges from 6.4 percent to 6.6 percent. These notes expire in five to seven
years. On December 13, 1999, two subsequent series of unsecured senior notes
were issued: Series C for a total of $5.0 million and Series D for a total of
$7.5 million. The interest rate of these notes ranges from 7.6 percent to 7.8
percent. These notes expire in five to seven years. The Company used the
proceeds to refinance existing debt and for other working capital and general
corporate needs.

Note 4.  Net Investment in Sales-Type Leases

The Company leases equipment to customers under sales-type leases as defined in
SFAS No. 13. The Company's leasing operations consist of leases of medical
equipment which expire over a period of one to six years. The following lists
the components of the net investment in sales-type leases as of December 31,
1999 and 1998 (in thousands):

                                      F-9
<PAGE>

<TABLE>
<CAPTION>
December 31,                                                         1999          1998
-----------------------------------------------------------------------------------------
<S>                                                               <C>            <C>
Minimum amounts receivable                                        $25,276        $22,063
Less: Allowance for uncollectibles                                   (362)          (682)
                                                                  -------        -------
   Net minimum lease payments receivable                           24,914         21,381
Estimated residual values of leased property                          346            346
Less: Unearned interest income                                       (177)          (259)
                                                                  -------        -------

   Net investment in leases                                        25,083         21,468
Less: Current portion (included in other current assets)           (8,530)        (6,018)
                                                                  -------        -------

   Long-term portion                                              $16,553        $15,450
                                                                  =======        =======
</TABLE>

Minimum amounts receivable under existing leases as of December 31, 1999, were
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          Amount
--------------------------------------------------------------------------------
<S>                                                                      <C>
2000                                                                     $ 8,885
2001                                                                       7,955
2002                                                                       4,424
2003                                                                       2,352
2004                                                                       1,295
Thereafter                                                                   365
                                                                         -------
  Total minimum amounts receivable                                       $25,276
                                                                         =======
</TABLE>

The Company frequently transfers future payments under many of its lease
contracts to a financing institution. Such transfers are accounted for under the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities." Transfers are recorded as sales when
control of the related receivables has been surrendered. The Company records the
fair value of its estimated recourse liability upon completion of the transfer.
During 1999, 1998 and 1997, the Company sold portions of its lease portfolio for
approximately $24.1 million, $20.0 million and $18.4 million, respectively. At
December 31, 1999, the maximum recourse liability to the Company under these
transactions was approximately $11.9 million.

Note 5.  Acquisition

On December 23, 1999, the Company acquired Ecton, Inc. ("Ecton"), a Pennsylvania
corporation in the development stage specializing in the design and development
of a low cost, portable echocardiography system. The aggregate consideration
exchanged in connection with the acquisition of Ecton by Acuson was 1,413,954
shares of the Company's common stock, valued at $11.53 per share, and $4.0
million in cash. In addition, the merger agreement provides that up to $17.0
million, in either shares of the Company's common stock and/or cash, may be
payable to Ecton shareholders depending on the gross profits attributable to the
sale or license of Ecton's products through each of the four twelve month
periods beginning on July 1, 2000 and ending on June 30, 2004. The merger is
intended to be a tax-free reorganization under the Internal Revenue Code of
1986, as amended, and was accounted for as a purchase in accordance with the
provisions of APB 16. Under the purchase method of accounting, the purchase
price is allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of the acquisition. Results of operations for
Ecton have been included with those of the Company for the period subsequent to
the date of acquisition. The total purchase price of the acquisition was $21.2
million, consisting of stock valued at $16.3 million, cash of $4.0 million and
acquisition expenses of $0.9 million. The purchase price was allocated to the
assets acquired and liabilities assumed based on their estimated fair values as
determined by an independent appraisal and management estimates as follows (in
millions):

<TABLE>
<CAPTION>
                                                                         Amount
--------------------------------------------------------------------------------
<S>                                                                      <C>
In-process research and development                                      $ 13.9
Goodwill                                                                    3.8
Covenant not to compete                                                     3.8
Deferred tax asset                                                          2.3
Assembled workforce                                                         1.2
Net tangible liabilities acquired                                          (1.8)
Deferred tax liability                                                     (2.0)
                                                                         ------
  Total                                                                  $ 21.2
                                                                         ======
</TABLE>

                                      F-10
<PAGE>

Upon the acquisition of Ecton the Company expensed $13.9 million related to
Ecton's in process research and development that had not yet reached
technological feasibility and has no alternative future use. The intangible
assets, consisting of workforce in place, covenant not to compete, and goodwill
will be amortized on a straight-line basis over three, five and seven years,
respectively. Amortization expense of intangible assets was $38,000 for the
eight days ended December 31, 1999.

As discussed above, Ecton is in the development stage, has not generated product
revenues to date and has incurred expenses of $4.4 million and $1.8 million for
the years ended December 31, 1999 and 1998, respectively. The pro forma results
reflecting the Ecton acquisition as if it occurred at the beginning of each year
would be net income of $3.4 million and $19.5 million for 1999, and 1998,
respectively and fully diluted earnings per share of $0.12 and $0.65 for 1999
and 1998, respectively.

Note 6.  Commitments and Contingencies

Lease Commitments:

The Company leases its facilities and certain other equipment under operating
lease agreements expiring through May 2012. Future minimum lease payments as of
December 31, 1999, were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         Amount
--------------------------------------------------------------------------------
<S>                                                                     <C>
2000                                                                    $ 12,554
2001                                                                      11,595
2002                                                                      12,860
2003                                                                      13,807
2004                                                                      12,726
Thereafter                                                                84,697
                                                                        --------

      Total future minimum lease payments                               $148,239
                                                                        ========
</TABLE>

Facility rent expense was approximately $12.3 million, $12.5 million, and $12.1
million in 1999, 1998, and 1997, respectively.

Legal Contingencies:

On October 27, 1994, the Company was sued in Ghent, Belgium, by Cormedica NV, in
connection with the Company's termination of its distributor relationship with
Cormedica. In the suit, Cormedica seeks indemnities and damages in the amount of
approximately $2.5 million, plus interest. The Company intends to defend this
suit vigorously. This suit is still in the fact-finding stage.

From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a material adverse effect on us.

Note 7.  Common Stock

Preferred Stock Purchase Rights: During 1998, the Company authorized and
declared a dividend distribution of one preferred stock purchase Right for each
outstanding share of common stock to stockholders of record at the close of
business on June 8, 1998, and authorized the issuance of one preferred stock
purchase Right (a "Right") with each future share of common stock issued by the
Company before the Rights become exercisable, or before the Rights are redeemed
by the Company, or before the Rights expire on June 8, 2008. The Rights will
attach to all certificates representing shares of outstanding common stock of
the Company and will not be exercisable or transferable apart from the common
stock until ten days after another person or group of persons acquires 15
percent (or in certain circumstances, 20 percent) or more of the Company's
common stock or commences a tender or exchange offer for at least 15 percent (or
in certain circumstances, 20 percent) of the Company's common stock (as more
fully described in the Amended and Restated Rights Agreement incorporated herein
by reference as Exhibit 4.1 hereto). Each Right entitles the holder to purchase
from the Company one one-hundredth of a share of Series A Preferred Stock (a
"Unit") at $120 per Unit, subject to adjustments for dilutive events. If, after
the Rights have been distributed, either the acquiring party holds 15 percent
(or in certain circumstances, 20 percent) or more of the Company's common stock
or the Company is a party to a merger or other acquisition transaction (other
than a merger or other acquisition transaction pursuant to a merger or other
acquisition agreement approved by the Company's Board of Directors),

                                      F-11
<PAGE>

then each Right (other than those held by the acquiring party) will entitle the
holder to receive, upon exercise, that number of Units or shares of common stock
of the surviving company with a value equal to two times the exercise price of
the Right. The Board of Directors may redeem the Rights, at any time until the
tenth day following an announcement of the acquisition of 15 percent (or in
certain circumstances, 20 percent) or more of the Company's common stock, at
$0.01 per Right, payable in cash, common shares or other consideration. In
addition, the Board of Directors may also, without consent of the holders of the
Rights, amend the terms of the Rights to lower the threshold for exercisability
of the Rights.

Deferred Compensation Expense:  In connection with the grant of certain stock
options to an employee during fiscal 1999 the Company recorded deferred
compensation of approximately $0.9 million, representing the difference between
the estimated fair value of the common stock and the option exercise price at
the date of grant. Such amount is presented as a reduction of stockholders'
equity and amortized over the vesting period of the applicable options using a
straight-line method of amortization. The Company recorded amortization of
deferred compensation of $0.2 million for the year ended, December 31, 1999.

Stock Option Plans: In May 1995, the stockholders approved the Company's 1995
Stock Incentive Plan (the "1995 Plan") which authorizes the issuance of up to
3,500,000 shares of common stock in the form of options, restricted stock grants
or bonuses and stock appreciation rights. In addition, the Company has in effect
a 1991 Stock Incentive Plan (the "1991 Plan"). Under the 1995 Plan and the 1991
Plan, incentive and supplemental stock options may be granted to employees,
directors and consultants to purchase common stock at a price which is not less
than 100 percent of the market value (or 10 percent for supplemental stock
options) of the shares at the grant date. The options can be granted for periods
of up to ten years and are subject to exercise and vesting schedules as
determined by the Board of Directors. Options covering 527,644 shares were
available for future grant at December 31, 1999.

On August 2, 1994, the Board of Directors approved an amendment to outstanding
non-qualified stock options that, in general, provides for accelerated vesting
of such options in the event that some person or entity acquires more than 20
percent of the Company's then outstanding stock without the approval of the
Board of Directors.

The following table summarizes option activity for the past three years (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                Weighted Average
                                                  Shares         Exercise Price
--------------------------------------------------------------------------------
<S>                                               <C>           <C>
Outstanding at December 31, 1996                   6,420             $13.44
  Granted                                            490             $21.24
  Exercised                                       (1,142)            $12.53
  Expired or canceled                               (267)            $14.55
                                                  ------

Outstanding at December 31, 1997                   5,501             $14.27
  Granted                                          1,082             $16.90
  Exercised                                         (373)            $13.47
  Expired or canceled                               (707)            $16.33
                                                  ------

Outstanding at December 31, 1998                   5,503             $14.57
  Granted                                          1,833             $13.85
  Exercised                                         (150)            $12.36
  Expired or canceled                               (314)            $15.75
                                                  ------

Outstanding at December 31, 1999                   6,872             $14.38
                                                  ======
</TABLE>

                                      F-12
<PAGE>

The following table summarizes information about stock options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                                    Options Outstanding                         Options Exercisable
                     -----------------------------------------------    ---------------------------------
                                       Weighted
                                        Average
                                       Remaining         Weighted                             Weighted
Range of Exercise       Number        Contractual         Average            Number           Average
     Prices          Outstanding          Life        Exercise Price       Exercisable    Exercise Price
--------------------------------------------------------------------    ---------------------------------
<S>                  <C>              <C>            <C>                <C>               <C>
$ 5.94                  100,000            9.14           $ 5.94             100,000          $ 5.94
$10.19 - $10.75       1,008,907            3.59           $10.74             983,507          $10.75
$11.00 - $12.38       1,149,523            6.90           $11.96             696,691          $11.79
$12.50 - $13.38         718,944            4.75           $13.15             603,983          $13.11
$13.38 - $14.88         895,366            6.32           $14.49             632,128          $14.50
$14.88 - $15.06         801,735            9.06           $14.97              36,235          $15.06
$15.13 - $16.75         860,513            8.29           $15.77             303,183          $16.51
$15.88 - $18.00         759,917            7.80           $17.69             219,787          $17.60
$18.13 - $36.13         576,755            5.89           $21.11             333,732          $20.92
$37.38                      200            1.16           $37.38                 200          $37.38
                      ---------                                            ---------

$5.94 - $37.38        6,871,860            6.59           $14.38           3,909,446          $13.52
                      =========                                            =========
</TABLE>

Employee Stock Purchase Plan: In May 1995, the stockholders approved the
Company's 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"), which
authorizes the issuance of up to 2,000,000 shares of common stock, subject to
adjustment upon changes in capitalization of the Company. Offerings under the
1995 Purchase Plan commenced in September 1995, and as of December 31, 1999, the
Company had reserved 288,516 shares of common stock for future issuance.
Pursuant to the 1995 Purchase Plan, qualified employees elect to have between 3
percent and 15 percent of their salary withheld. The salary so withheld is then
used to purchase shares of the Company's common stock at a price not less than
85 percent of the market value of the stock on the specified dates determined at
the commencement of the offering period. Under the 1995 Purchase Plan the
Company has sold 437,563 shares, 394,272 shares, and 417,017 shares in 1999,
1998, and 1997, respectively.

Pro Forma Stock-Based Compensation Expense: Effective January 1, 1996, the
Company adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." In accordance with the provisions of SFAS 123, the
Company applies APB Opinion 25 and related interpretations in accounting for its
stock option plans. In accordance with the disclosure requirements of SFAS 123,
if the Company had elected to recognize compensation cost based on the fair
value of the options and stock purchase rights as prescribed by SFAS 123, income
and earnings per share would have been reduced to the pro forma amounts
indicated in the following table. The pro forma effect on net income for 1999,
1998 and 1997 is not representative of the pro forma effect on net income in
future years because it does not take into consideration pro forma compensation
expense related to stock options and purchase rights granted prior to 1995.

<TABLE>
<CAPTION>
(In thousands, except per share amounts)       1999          1998        1997
--------------------------------------------------------------------------------
<S>                                           <C>          <C>        <C>
Net income - as reported                      $6,660       $20,822     $22,377
Net income - pro forma                           989        16,731      19,239
Earnings per share - as reported
  Basic                                         0.25          0.75        0.78
  Diluted                                       0.24          0.73        0.73
Earnings per share - pro forma
  Basic                                         0.04          0.60        0.67
  Diluted                                       0.04          0.58        0.63
</TABLE>

                                      F-13
<PAGE>

The following assumptions and resulting fair values were used to determine the
pro forma compensation expense using the Black-Scholes option-pricing model:

<TABLE>
<CAPTION>
Stock Options:                                        1999               1998             1997
-----------------------------------------------------------------------------------------------------
<S>                                              <C>                <C>              <C>
  Expected dividend yield                                0.0%               0.0%             0.0%
  Expected stock volatility                      37.5 - 40.5%       40.8 - 46.9%     40.5 - 50.4%
  Risk-free interest rate                          5.5 - 6.9%         5.2 - 5.5%       5.2 - 6.5%
  Expected life of options from vest date          1.3 years          1.3 years        1.2 years
  Forfeiture rate                                     Actual             Actual           Actual
  Weighted average fair value                          $5.52              $6.47            $8.40

Employee Stock Purchase Plan:                         1999                1998             1997
-----------------------------------------------------------------------------------------------------
 Expected dividend yield                                 0.0%               0.0%             0.0%
 Expected stock volatility                       29.4 - 49.2%       35.6 - 55.1%     42.9 - 59.4%
 Risk-free interest rate                           5.1 - 5.3%         5.1 - 5.7%       5.4 - 5.7%
 Expected life of options from vest date           0.5 years          0.5 years        0.5 years
 Weighted average fair values:
  March to August                                      $3.69              $4.74            $7.19
  September to February                                $4.62              $4.70            $8.33
</TABLE>

Common Stock Repurchase Program: On October 15, 1996, the Board of Directors
authorized the repurchase of 4,000,000 shares of common stock over an
unspecified period of time. As of December 31, 1998, the Company had repurchased
3,527,400 shares of the 4,000,000 shares authorized at a cumulative cost of
$62.4 million. In 1999, the Company repurchased the remaining 472,600 shares of
the 1996 authorization at a cost of $6.4 million. This completed the 1996
authorization resulting in a cumulative cost of $68.8 million. During the first
quarter of 1999, the Board of Directors authorized the repurchase of an
additional 4,000,000 shares of common stock over an unspecified period of time.
In the fourth quarter of 1999, the Company repurchased 889,900 shares towards
the 1999 authorization at a cost of $9.7 million. The total repurchased in 1999
was 1,362,500 shares of common stock for a total cost of $16.1 million. The
difference between the average original issue price and the repurchase price has
been accounted for as a reduction in retained earnings. There are 3,110,100
shares of common stock still outstanding under the 1999 repurchase
authorization.

Note 8.  Income Taxes

Income before provision for income taxes and the components of the provision for
income taxes consisted of the following (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,                                        1999             1998           1997
-----------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>             <C>
Income (loss) before provision for income taxes:
  Domestic                                                   $18,796          $32,661        $32,256
  Foreign                                                     (6,012)          (3,670)        (1,317)
  Elimination                                                  1,625             (330)        (1,106)
                                                             -------          -------        -------
     Total income before provision                           $14,409          $28,661        $29,833
                                                             =======          =======        =======
Provision (benefit) for income federal taxes:
  Current                                                    $ 9,215          $ 5,968        $10,056
  Deferred                                                     1,375            4,702         (2,607)
                                                             -------          -------        -------
                                                              10,590           10,670          7,449
                                                             -------          -------        -------
Provision (benefit) for income state taxes:
  Current                                                      1,801              535          1,700
  Deferred                                                    (2,594)          (2,334)        (2,043)
                                                             -------          -------        -------
                                                                (793)          (1,799)          (343)
                                                             -------          -------        -------
Provision (benefit) for income foreign taxes:
  Current                                                       (411)            (902)           244
  Deferred                                                    (1,637)            (130)           106
                                                             -------          -------         ------
                                                              (2,048)          (1,032)           350
                                                             -------          -------         ------
     Total provision                                         $ 7,749          $ 7,839         $7,456
                                                             =======          =======         ======
</TABLE>

                                      F-14
<PAGE>

The provision for income taxes differs from the amounts obtained by applying the
federal statutory rate to income before taxes as follows:

<TABLE>
<CAPTION>
                                                                       1999          1998          1997
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>           <C>
Federal statutory tax rate                                             35.0 %        35.0 %        35.0 %
Research and development tax credits and foreign tax credits          (16.9)         (6.8)         (9.7)
State taxes, net of federal income tax benefit                         (3.6)         (4.1)         (0.7)
Foreign Sales Corp. benefits                                           (1.2)         (0.8)         (1.3)
Foreign subsidiary income                                               4.6           2.0           1.3
Foreign net operating losses not benefited                              4.3           1.7           2.0
Ecton in process research and development                              33.9            --            --
Other                                                                  (2.3)          0.4          (1.6)
                                                                     ------         -----         -----
Provision rate                                                         53.8 %        27.4 %        25.0 %
                                                                     ======         =====         =====
</TABLE>

The Company has recorded deferred tax assets of $29.4 million.  Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax assets will be realized.  The amount of the deferred tax
assets considered realizable, however, could be reduced in the near term if
estimates of the future taxable income are reduced.

The components of deferred tax assets at year end were as follows (in
thousands):

<TABLE>
<CAPTION>
December 31,                                                        1999           1998
-----------------------------------------------------------------------------------------
<S>                                                               <C>            <C>
Reserves not currently deductible                                 $10,971        $11,473
State research and development credit carryforward                  8,469          6,460
Accruals not currently deductible                                   5,147          4,663
Vacation accrual                                                    2,420          4,218
Inventory reserves                                                  5,969          4,114
State manufacturers investment credit carryforward                  1,741          1,477
State alternative minimum tax credit carryforward                      59             --
Federal research and development credit                               327            684
Federal alternative minimum tax credit carryforward                   287            287
Capitalized assets                                                    253            253
Federal net operating loss carryforward                             2,106             --
State income tax accruals                                          (3,673)        (3,151)
Depreciation                                                       (5,222)        (2,629)
Other                                                                 528           (207)
                                                                  -------        -------
   Deferred tax assets                                            $29,382        $27,642
                                                                  =======        =======
</TABLE>

The Company has tax credits, deductions and net operating losses which will be
carried forward.  The following lists the carryforward credits, deductions and
losses and their year of expiration.

<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands)                               2004      2005       2006        2007      2020   Unlimited
---------------------------------------------------------------------------------------------------------
<S>                                        <C>       <C>        <C>         <C>       <C>      <C>
State research & development credit        $   --    $   --     $   --      $   --    $   --    $8,469
State manufacturers' investment credit        789       344        304         304        --        --
Federal alternative minimum tax credit
  carryforward                                 --        --         --          --        --       287
State alternative minimum tax credit
  carryforward                                 --        --         --          --        --        59
Federal research & development credit          --        --         --          --       327        --
Federal net operating loss carryforward        --        --         --          --        --     2,106
</TABLE>

Note 9.    Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding.  Diluted
earnings per share reflects the potential dilution that could occur if the
Company's outstanding, "in the money," stock options were exercised. Diluted
earnings per share is computed by

                                      F-15
<PAGE>

dividing net income by the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares are
calculated using the treasury stock method and represent incremental shares
issuable upon the exercise of the Company's outstanding options. The following
table provides reconciliations of the numerators and denominators used in
calculating basic and diluted earnings per share for the prior three years:

<TABLE>
<CAPTION>
                                                                 Dilutive
                                                             Effect of Options
(In thousands, except per share amounts)           Basic       Outstanding         Diluted
-------------------------------------------------------------------------------------------
<S>                                              <C>         <C>                  <C>
Year Ended December 31, 1997
 Net income (numerator)                          $22,377                          $22,377
 Weighted average number of
  shares outstanding (denominator)                28,807            1,820          30,627
 Earnings per share                              $  0.78                          $  0.73
                                                 =======                          =======

Year Ended December 31, 1998
 Net income (numerator)                          $20,822                          $20,822
 Weighted average number of
  shares outstanding (denominator)                27,835              766          28,601
 Earnings per share                              $  0.75                          $  0.73
                                                 =======                          =======

Year Ended December 31, 1999
 Net income (numerator)                          $ 6,660                          $ 6,660
 Weighted average number of
  shares outstanding (denominator)                26,769              425          27,194
 Earnings per share                              $  0.25                          $  0.24
                                                 =======                          =======
</TABLE>

Options to purchase approximately 3.6 million, 1.3 million and 0.1 million
weighted average shares of common stock were outstanding during 1999, 1998 and
1997, respectively, but were not included in the computation of diluted earnings
per share because the exercise prices were greater than the average market price
of the common shares.

Note 10.  Comprehensive Income

Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS 130 requires that items defined as other
comprehensive income, such as changes in foreign currency translation
adjustments, be separately reported in the financial statements and that the
accumulated balance of other comprehensive income be reported separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet.

The following is a summary, in thousands, of the accumulated other comprehensive
loss balance:

<TABLE>
<CAPTION>
                                                               Accumulated Other
                                                              Comprehensive Loss
--------------------------------------------------------------------------------
<S>                                                           <C>
Year ended December 31, 1999

 Beginning balance                                                  $(1,099)
 Current-period change:
  Foreign currency items                                             (1,156)
                                                                    -------
 Ending balance                                                     $(2,255)
                                                                    =======
</TABLE>

                                      F-16
<PAGE>

The following is a summary, in thousands, of the related tax effect allocated to
each component of other comprehensive income (loss):

<TABLE>
<CAPTION>
                                                        Before-Tax      Tax (Expense)    Net-of-Tax
                                                          Amount         or Benefit        Amount
---------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>              <C>
Year ended December 31, 1997
Foreign currency translation adjustments                 $(2,665)          $ 666          $(1,999)
                                                         =======           =====          =======

Year ended December 31, 1998
Foreign currency translation adjustments                 $   513           $(140)         $   373
                                                         =======           =====          =======

Year ended December 31, 1999
Foreign currency translation adjustments                 $(1,592)          $ 436          $(1,156)
                                                         =======           =====          =======
</TABLE>

Note 11.  Industry Segment and Geographic Information

During 1998 the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information."

The Company is organized based upon the nature of the products and services it
offers. Under this organizational structure, the Company operates in two
fundamental business segments: product and service. The product segment includes
the development, manufacture and sale of the Company's systems that generate,
display, archive and retrieve medical diagnostic ultrasound images. The service
segment provides service and support for the Company's products in accordance
with the various service contracts and other purchase arrangements the Company
makes available to its customers. The Company's products are manufactured at its
world headquarters in Mountain View, California, and are sold through a direct
sales force in North America, Europe, Australia and Japan, and through
independent distributors in Europe, Asia, South America and the Middle East.

The information in the following tables is derived directly from the Company's
internal financial reporting used for corporate management purposes. The Company
evaluates its segments' performance based on several factors, of which the
primary financial measure is controllable contribution. Controllable
contribution is gross margin less selling expenses. Unallocated costs include
corporate and other costs not allocated to business segments for management
reporting purposes. The accounting policies followed by the Company's business
segments are the same as those described in Note 2 to the consolidated financial
statements. Except for inventory, the Company does not allocate assets by
segment for management reporting purposes.

<TABLE>
<CAPTION>
                                                           Revenue from external customers
                                                   -----------------------------------------------
Year ended December 31,                                1999              1998              1997
--------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                 <C>               <C>               <C>
Product                                             $380,504          $365,111          $352,476
Service                                               95,397            89,978            85,286
                                                    --------          --------          --------
  Total net sales                                   $475,901          $455,089          $437,762
                                                    ========          ========          ========

                                                               Income before income taxes
                                                   -----------------------------------------------
Year ended December 31,                                1999              1998              1997
--------------------------------------------------------------------------------------------------
(In thousands)

Product                                             $ 68,523          $ 71,169          $ 67,284
Service                                               45,743            41,871            41,770
                                                    --------          --------          --------
  Controllable contribution                          114,266           113,040           109,054
Unallocated expense                                  (96,203)          (82,739)          (80,080)
Interest expense                                      (5,047)           (3,129)           (1,179)
Interest income                                        1,393             1,489             2,038
                                                    --------          --------          --------
  Income before income taxes                        $ 14,409          $ 28,661          $ 29,833
                                                    ========          ========          ========
</TABLE>

                                      F-17
<PAGE>

<TABLE>
<CAPTION>
                                                                    Segment Assets
                                                     -------------------------------------------
Year ended December 31,                                 1999             1998             1997
------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                   <C>              <C>              <C>
Product                                               $ 80,143         $ 69,381         $ 58,757
Service                                                 17,100           13,413           16,760
                                                      --------          --------        --------
  Total inventory                                     $ 97,243         $ 82,794         $ 75,517
                                                      ========         ========         ========
</TABLE>

Geographic area information is as follows:

<TABLE>
<CAPTION>
                                                           Revenue from external customers
                                                     -------------------------------------------
Year ended December 31,                                 1999             1998             1997
------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                   <C>              <C>              <C>
United States                                         $331,732         $316,656         $292,479
Europe                                                  93,772           98,468           92,442
Other foreign                                           50,397           39,965           52,841
                                                      --------         --------         --------
  Total net sales                                     $475,901         $455,089         $437,762
                                                      ========         ========         ========

<CAPTION>
                                                                     Total assets
                                                     -------------------------------------------
Year ended December 31,                                 1999             1998             1997
------------------------------------------------------------------------------------------------
(In thousands)
<S>                                                   <C>              <C>              <C>
United States                                         $420,266         $370,115         $338,992
Europe                                                  71,246           72,454           60,635
Other foreign                                           19,856           18,677           14,557
Elimination                                            (71,847)         (66,174)         (51,356)
                                                      --------         --------         --------
  Total assets                                        $439,521         $395,072         $362,828
                                                      ========         ========         ========
</TABLE>

Geographic revenue from external customers represents shipments to foreign
customers from both domestic and foreign operations. As of and for the years
ended December 31, 1999, 1998 and 1997, operations in any single non-U.S.
country did not account for more than 10 percent of consolidated net sales or
total assets. Also, during 1999, 1998 and 1997, no single customer or group
under common control represented 10 percent or more of the Company's net sales.

                                      F-18
<PAGE>

ACUSON CORPORATION                                                   SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                     Balance at     Charged to
                                      Beginning      Costs and                 Balance at End
(In thousands)                        of Period      Expenses     Write-Offs     of Period
---------------------------------------------------------------------------------------------
<S>                                  <C>            <C>          <C>           <C>
Allowance for doubtful accounts:
 Year ended:
  December 31, 1997                    $2,968            868          (361)        $3,475
  December 31, 1998                    $3,475            212          (126)        $3,561
  December 31, 1999                    $3,561            575          (648)        $3,488

Accrued warranty:
 Year ended:
  December 31, 1997                    $6,024         15,207       (12,276)        $8,955
  December 31, 1998                    $8,955         14,357       (15,014)        $8,298
  December 31, 1999                    $8,298         13,521       (13,810)        $8,009
</TABLE>

                                      F-19