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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NUMBER 1-9983
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OEC MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2538512
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
384 Wright Brothers Drive 84116
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
(801) 328-9300
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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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 Common Stock held by non-affiliates (based on
the closing sales price on the New York Stock Exchange) on March 1, 1995 was
approximately $76,732,340.
As of March 1, 1995, there were 12,527,729 shares of Common Stock with $.01
par value outstanding.
Documents Incorporated by Reference: Form 10-K Part
(1) Portions of Definitive Proxy Statement to be mailed
to stockholders in connection with the Registrant's 1995
Annual Meeting of Stockholders I, III
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OEC MEDICAL SYSTEMS, INC.
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
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PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings.. . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders.. . . . . . 7
Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data.. . . . . . . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 8
Item 8. Financial Statements and Supplemental Data. . . . . . . . . . . 9
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.. . . . . . . . . . . . . . . . . . . . . 9
PART III
Item 10. Directors and Executive Officers of Registrant. . . . . . . . 9
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 9
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 13. Certain Relationships and Related Transactions. . . . . . . . 9
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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OEC MEDICAL SYSTEMS, INC.
1994 FORM 10-K ANNUAL REPORT
PART I
ITEM 1. BUSINESS
GENERAL. OEC develops, manufactures, markets, and services computer-based
X-ray and fluoroscopic imaging systems for use in hospitals, out-patient
clinics, and surgi-centers for intraoperative and interventional procedures.
OEC was originally established in Indiana in 1942. In response to
surgeons' need for improved methods to monitor and guide the implantation of the
various internal fixation devices, OEC entered the medical X-ray imaging market
in 1972. OEC was acquired by Diasonics, Inc. in October 1983 as a separate
operating subsidiary. The Company was merged into Diasonics in September of 1993
as part of a Restructuring/Distribution in which the other operating businesses
of Diasonics were spun off to shareholders and the Diasonics, Inc. name was
changed to OEC Medical Systems, Inc.
Today, OEC is recognized as the pioneer and continued domestic market
leader of intraoperative/interventional X-ray imaging systems. These systems
combine radiographic and fluoroscopic imaging with digital image processing
capabilities. X-rays are passed through the body and either recorded on radio-
graphic film or passed through an image intensifier system and displayed as a
real-time fluoroscopic image on a video monitor. Digital image processing of
the fluoroscopic image improves the image quality, lowers X-ray dosage and
results in reduced costs for a number of applications.
OEC seeks to provide cost-effective imaging systems directed towards
medical specialties in which minimally invasive techniques are replacing
expensive open surgical procedures. High quality digital fluoroscopy has become
mandatory in today's modern operating room. Minimally invasive techniques are
expanding into many areas of surgery (vascular, neurological, orthopedic,
urologic, cardiac and general surgery). OEC's products are designed to meet the
needs of these new procedures.
Technical leadership, strong customer relationships, and a cost-effective
product line have earned OEC the domestic market share leadership position in
the intraoperative and interventional X-ray imaging markets.
OEC believes its international markets represent a significant growth
opportunity and expects to expand its network of international distributors.
Building on its leadership position in the U.S., OEC's focus is to become the
worldwide leader for intraoperative and interventional fluoroscopy imaging. With
this focus in mind, OEC has been investing in the future through research and
development. The introduction of the Series 9600 Mobile Digital Imaging System
in 1994, just two and half years after the introduction of the Series 9400 C-
arm, and the Uroview 2600 urology table introduced in February 1995, are the
results of these investments.
OEC's expanding presence in international markets is another example of the
Company's investment in the future, having strengthened its wholly-owned
subsidiaries in France, Germany, Italy and Switzerland with new personnel and
training, and by designing its new products to be more appealing and acceptable
to international customers. OEC also strengthened its international network in
new markets in 1994 by establishing new distributors or contracting with
existing distributors in South America and the Pacific Rim. OEC intends to
continue these activities during 1995.
OEC'S PRODUCTS. The products produced by OEC consist of mobile X-ray
imaging systems as well as fixed-room urological X-ray imaging systems.
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SERIES 9600 MOBILE DIGITAL IMAGING SYSTEMS (C-ARM). In March 1994, OEC
introduced the Series 9600 Mobile Digital Imaging System. This mobile imaging
device can be wheeled from operating room to operating room to provide high
quality, real-time fluoroscopic imaging for a wide variety of surgical and
interventional procedures that require X-ray control.
The modular architecture of the system allows the Series 9600 to be
tailored to meet the needs of the surgeon. For example, the 9600 can be
equipped with an expanded surgical package for general surgery and orthopedics.
When equipped with a vascular special procedures module, it can perform complex
subtraction angiography in the operating room, emergency room, or in radiology.
The most advanced version of the Series 9600 can perform many of the tasks of a
sophisticated, fixed-room digital X-ray system costing several times more than
the Series 9600. Prices of the Series 9600 Mobile Digital Imaging System range
from $100,000 to $208,000.
During 1994, 1993 and 1992 the OEC C-arm business represented 84%, 80% and
79% of total sales respectively.
UROVIEW 2600 DIGITAL IMAGING SYSTEM. Urology is another surgical specialty
requiring intraoperative imaging that is rapidly moving away from the use of
static X-ray films to monitor and guide procedural progress. Diagnostic and
interventional urological procedures are typically performed in a separate area
of the operating room environment known as the Cysto Department. Until recently,
these specialized rooms were equipped with a fixed (bolted down) urological-
specific patient positioning table (motorized in movement) that also had static
X-ray filming capability built into it. These films, once exposed, would need
to be taken to a dark room to be developed prior to being brought back to the
Cysto Department for evaluation by the urologist, resulting in long procedural
delays. Additionally, real-time events could not be recorded since radiographic
film produces a static image. Eventually, real-time fluoroscopic imaging
capabilities began to be added to these systems.
In 1987, OEC introduced the UroView product line. The UroView was the
industry's first urological table with fully integrated digital fluoroscopy,
resulting in significant image improvement, lower X-ray dosages, and reduced
costs. Prices for the UroView system presently range from $210,000 to
$230,000.
During 1994, 1993 and 1992 the OEC urology business represented 16%, 20%
and 21% of total sales, respectively.
SALES AND SERVICE. Domestic sales are made primarily through direct
representatives and exclusive independent distributors with installation and
service performed by OEC.
In Europe, OEC distributes its products primarily through wholly owned
subsidiaries in Italy, France, Germany and Switzerland. For the remainder of
Europe, the Far East and Latin America, distribution is done through independent
dealers and distributors.
OEC generally provides warranty for its products for a period of six to
twelve months from the date of installation. OEC offers service contracts for
products for which the warranty has expired.
During 1994, 1993 and 1992, service revenue represented 13.2%, 10.8% and
8.9% of net sales respectively.
MANUFACTURING. OEC's manufacturing operations are located in Salt Lake
City, Utah and Warsaw, Indiana. OEC owns sufficient property at its Salt Lake
City site to expand its facilities if needed. OEC's products incorporate
microprocessors for which proprietary software has been designed by OEC. Major
items that OEC currently purchases from others include video monitors, X-ray
tubes, image intensifiers, CCD cameras and power supplies. Some of these parts
and components are available from a limited number of single-source
manufacturers or suppliers, and termination or interruption of such sources
could have temporary adverse effect on the Company. OEC's Warsaw, Indiana
facility manufacturers the sheet metal enclosures, the mechanical C-arm assembly
and all major mechanical components for OEC's products. The electronics and
imaging components are manufactured at OEC's Salt Lake City facility, which also
performs final assembly and test of the finished devices.
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COMPETITION. The market for mobile X-ray and urology products is highly
competitive. Many of OEC's existing and potential competitors have
substantially greater financial, marketing and technological resources. In the
market for products similar to OEC's Series 9600 Mobile C-arm, OEC competes with
General Electric Corporation, Siemens Medical Systems, Inc., Philips Medical
Systems, Inc. and Toshiba Medical Systems, Inc. Competitive companies offering
products similar to the UroView 2600 include Picker International, Inc., Dornier
Medical Systems, Inc., and Liebel-Flarsheim Company. OEC competes on the basis
of price, imaging quality, technological innovation, upgradeability,
reliability, and quality of service and support.
BACKLOG. At December 31, 1994, OEC's backlog was approximately $11.2
million, as compared with approximately $17.1 million at December 31, 1993. OEC
includes in backlog only firm orders deliverable within 12 months. Backlog also
includes service contract revenue which will be earned over the next twelve
months.
RESEARCH AND DEVELOPMENT. The medical imaging business involves rapid
technological change and innovation. OEC believes the ability to use
technological innovation to advance the clinical utility of diagnostic imaging
has and will continue to be a significant factor in its success in competing in
its marketplaces. OEC has continued to invest in research and development to
identify solutions to the imaging requirements of the area of minimally invasive
medical practices. This has led to a continuous release of both improvements in
existing products and the introduction of the Series 9600 Mobile Digital Imaging
System in 1994 along with the introduction in February 1995 of the Uroview 2600.
During 1994, 1993, and 1992, OEC's research and development expenses
totaled $8.4 million, $8.7 million and $7.1 million, respectively, representing
8.6%, 8.7% and 7.3% of net sales.
EMPLOYEES. On December 31, 1994, OEC had approximately 536 employees.
None of OEC's employees are covered by collective bargaining agreements, and OEC
considers its employee relations to be satisfactory.
GOVERNMENT REGULATION. As a manufacturer of medical devices, OEC is
subject to extensive and rigorous governmental regulation, principally by the
FDA and corresponding state and foreign agencies. The FDA administers the
Federal Food, Drug and Cosmetic Act, as amended. OEC is subject to the
standards and procedures contained in the Act and the regulations promulgated
thereunder and is subject to inspection by the FDA for compliance with such
standards and procedures. Failure to comply with FDA regulations could result
in sanctions being imposed, including restrictions on the marketing of or recall
of the affected products of OEC.
OEC's facilities and manufacturing processes have been periodically
inspected by the FDA and other agencies, but remain subject to audit from time
to time. The most recent inspection was in September 1993, and no observations
of noncompliance were issued. OEC continues to devote substantial human and
financial resources to regulatory compliance, and believes that it remains in
substantial compliance with all applicable federal and state regulations.
Nevertheless, there can be no assurance that the FDA or a state agency will
agree with OEC's position, or that its GMP compliance will not be challenged at
some subsequent point in time.
Enforcement of the GMP regulations has increased significantly in the last
several years and the FDA has publicly stated that compliance will be more
strictly scrutinized. In the event that OEC or any of its facilities was
determined to be in noncompliance, and to the extent that OEC or such facility
or operation was unable to convince the FDA or state agency of the adequacy of
its compliance, the FDA or state agency has the power to assert penalties or
remedies, including a recall or temporary suspension of product shipment until
compliance is achieved. Such penalties or remedies could have a materially
adverse effect on OEC's financial condition.
OEC has received approval from the FDA and foreign regulatory authorities
in the past, when required, to market its products. In general, the length of
time for all reviews and approvals, most particularly from the FDA, has been
lengthening and the review or approval process for medical devices has become
substantially more difficult and expensive. Moreover, regulatory approvals,
when granted, may contain significant limitations on the uses for which a
product may be marketed. Approvals may be withdrawn for failure to conform to
regulatory standards due to unforeseen problems. To date, product reviews for
medical imaging technologies have been obtained within three to twelve months.
There can be no assurance that OEC will be able to obtain necessary regulatory
approvals in the future, and delays in the receipt of or failure to receive such
approvals, the
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loss of existing approvals or failure to comply with regulatory requirements
could have a material adverse effect on the business, financial condition and
results of operation of OEC.
In June 1994 the Company's Quality Assurance System received the
Certificate of Compliance with ISO 9001, the international standard for quality
assurance in design, development, production, installation and servicing.
PATENTS AND LICENSES. OEC owns or licenses rights with respect to various
patents and has applied for other patents. These licenses generally do not have
a fixed term and expire only when the last patent covered by the license
expires. Because the licenses generally include patents on future innovations,
OEC cannot approximate any expiration date. OEC believes the loss of any patent
would not have a material adverse effect on OEC's business, the success of which
will depend principally on its engineering, marketing, service, manufacturing
skills, and upon the quality and economic value of its products. In addition,
OEC has received notices of certain patents held by third parties and it is
investigating the validity and applicability of these patents to OEC's products
and processes.
ITEM 2. PROPERTIES.
OEC owns its corporate headquarters and manufacturing facility of 105,000
square feet in Salt Lake City, Utah, and leases another 80,000 square feet of
manufacturing in Warsaw, Indiana. The lease expires on May 31, 1995, at which
time it is our intention to renew the lease.
ITEM 3. LEGAL PROCEEDINGS.
In November 1993, a $3.1 million judgment against the company was reversed
on appeal. The earlier judgment from May 1992 was the result of litigation
initiated against it in 1986 by a terminated distributor of X-ray products.
After the 1992 judgment, OEC placed $3.1 million in reserve for the full amount.
The appellate court decision in favor of the Company has been appealed by the
plaintiff to the Indiana Supreme Court. While the Company believes that the
appellate decision will stand, no determination can be made as to whether some
or all of the reserve should be reversed until all further appellate and
related proceedings have finally been determined.
On May 4, 1992, Medical Diagnostic Imaging Center filed litigation in
Superior Court of Los Angeles against Diasonics, Inc., Toshiba America, Inc.,
and others alleging misrepresentation, breach of contract, and unfair
competition. This action has been dismissed with prejudice. On May 6, 1992,
Mobil MR Venture, Ltd., filed litigation in Superior Court of San Mateo County
against the Company, Toshiba America Medical Systems ("TAMS") and others
alleging breach of contract and misrepresentation. This action has been
consolidated in an arbitration originally filed by Toshiba America Medical
Systems, Inc. in San Francisco, California against Mobile MR Venture, Ltd.
Arbitration has been stayed while various litigations not involving the Company
are being pursued. On May 8, 1992, Federal Deposit Insurance Corporation, as
receiver for Citytrust, filed litigation in the United States District Court of
the Southern District of New York against the Company, Toshiba America Medical
Systems, Inc., and others to collect on a guaranty. On June 16, 1992, Medical
Imaging Center of Southern California, Ltd. filed litigation in Superior Court
of Los Angeles against Toshiba America Medical Systems, Inc., the Company and
others alleging breach of contract and misrepresentation. TAMS has assumed
defense of this action, which resulted in a net trial verdict of approximately
$20,000. On July 1, 1992, Lenox Hills Leasing Associates and others filed
litigation in the Supreme Court of the State of New York, county of New York,
against the Company, Toshiba America Medical Systems, Inc., and others alleging
breach of contract and misrepresentation. On January 19, 1992, Toshiba America
Medical Systems, Inc., filed litigation in Superior Court of New Jersey against
TME, Inc., which subsequently brought a third party complaint against the
Company and others alleging breach of contract and misrepresentation. All of
these actions relate to the magnetic resonance imaging business which Diasonics,
Inc. sold to Toshiba America Medical Systems on November 21, 1989. As the
successor to Diasonics, Inc., the Company is now the defendant in these actions.
The Company believes that all of these actions are covered by the indemnity
provisions in the MRI Purchase Agreement with Toshiba, and the Company initiated
an arbitration in San Francisco to determine its right to reimbursement. On
December 6, 1993, the arbitration panel issued its award ruling that TAMS was
required to indemnify OEC for compensatory damages and punitive damages, if any,
awarded against OEC as well as attorney's fees and expenses incurred by OEC in
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litigation involving the MRI division of Diasonics, Inc., whether existing or
later filed, and regardless of whether the claims asserted against OEC involved
allegations of intentional misconduct or fraud. Toshiba has appealed the
arbitrator's award. While the Company believes the artibrator's award will be
sustained, the Company may incur interim expense prior to receiving full
reimbursement from TAMS. To the extent that any liability would not be covered
by its indemnity or its arbitrator's award, OEC does not believe that an
adverse outcome would have a material impact on its financial position or
results of operations.
OEC is also a defendant in other ordinary commercial litigation. In light
of available insurance and reserves, management believes that such litigation
will not have a material effect on its financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's Security Holders
during the fourth quarter of fiscal year 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
Barry K. Hanover 40 Vice President, Engineering
Larry E. Harrawood 47 Vice President, Marketing
Gary N. Kilman 50 Vice President, Sales
Ruediger Naumann-Etienne 48 President and Chief Executive
Officer
Randy W. Zundel 39 Chief Financial Officer
Barry K. Hanover has been Vice President, Engineering of the Company since
December 1992. Previously, he was Director, Mechanical Engineering from October
1992 to December 1992. Prior to that, he was President of Hanover Engineering
Services, an engineering consulting firm, from June 1992 to October 1992, and
Vice President, Technical Development and member of the Board of Directors of
Sarcos, Inc., a biomedical technology company from 1988 through 1992.
Larry E. Harrawood has been Vice President, Marketing and Business
Development of the Company since July 1987. Previously, he was Vice President,
Business Development from October 1986 to July 1987, Vice President, Sales and
Marketing from July 1985 to October 1986, and General Manager of X-ray
operations from December 1972 to July 1985.
Gary N. Kilman has been Vice President, Sales of the Company since February
1987. Previously, he was National Sales Manager for ADAC Laboratories, a
medical imaging company. Prior to that, he held progressively titles of Sales
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Rep, Regional Sales Manager, and Area Sales Manager at that company. Prior to
that he was Area Sales Manager, IBM, BioMedical Systems.
Ruediger Naumann-Etienne was named CEO and President of OEC in February
1995. He has been a director of the Company since January 1989, and was named
Chairman of the Board in September 1993. He has been Managing Director of
Intertec since July 1990. He was President and Chief Operating Officer of the
Company from December 1987 to July 1990 and Executive Vice President and Chief
Financial Officer from April 1984 to September 1988.
Randy W. Zundel is the Chief Financial Officer. He was the Chief Operating
Officer of the Company from February 1990 to September 1993. Prior to that he
was Vice President, Operations from May 1987 to February 1990.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is presently traded on the New York Stock
Exchange under the trading symbol OXE. Prior to the Restructuring/Distribution
on October 1, 1993 and the spin-out of its other operating businesses, the
Company was traded under the symbol DIA. Prices shown for the periods prior to
the quarter beginning October 1, 1993 are for the stock trading as DIA and are
not meaningful when compared to OXE stock because it now excludes the separately
traded shares of Diasonics Ultrasound (NASDAQ: DIAU through October 1994, then
acquired by Elbit, Ltd.) and Focus Surgery (NASDAQ: FCUS). Prices shown are the
range of high and low closing prices per share on the New York Stock Exchange --
Composite Transactions, as reported by the Wall Street Journal. On March 1,
1995, the number of holders of record of common stock was 3,536.
Prices
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Quarter Ended: High Low
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Trading as DIA:
March 31, 1993 . . . . . . . . . . . . 15 7/8 11 5/8
June 30, 1993. . . . . . . . . . . . . 13 1/2 10 1/4
September 30, 1993 . . . . . . . . . . . 13 1/4 11
Trading as OXE:
December 31, 1993. . . . . . . . . . . . 8 1/8 6 1/8
March 31, 1994 . . . . . . . . . . . . 7 3/4 6 1/8
June 30, 1994. . . . . . . . . . . . . 6 3/8 5
September 30, 1994 . . . . . . . . . . 6 7/8 5 1/4
December 31, 1994. . . . . . . . . . . . 6 7/8 5 3/4
The Company has not paid any dividend on its common stock. The Company
presently intends to retain all earnings for use in the business and, therefore,
does not anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The table labeled "Five Year Summary" appearing as page 1 of Exhibit 13 is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The section labeled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing as pages 2 through 4 of Exhibit
13 is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The Consolidated Financial Statements and Notes thereto appearing at pages
5 through 13 of Exhibit 13 is incorporated herein by reference.
For Financial Statement Schedule and Independent Auditors' Report thereon
filed as part of this report, see Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Information concerning the directors of the Company is incorporated by
reference to the sections titled "Information with Respect to Nominees" and in
the definitive Proxy Statement to be filed in connection with the Annual Meeting
of Stockholders (the "1994 Proxy Statement"). Information regarding executive
officers is set forth in Part I of this report.
Pursuant to Section 16(b) of the Securities Act of 1934, the Company's
directors, its executive (and certain other) officers, and any persons holding
more than 10 percent of the Company's stock are required to report their
ownership and any changes in beneficial ownership of the Company's stock to the
Securities and Exchange Commission and to the New York Stock Exchange. Specific
due dates for these reports have been established and the Company is required to
report any failure to file by these dates.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning management compensation is incorporated by reference
to the section titled "Cash Compensation of Executive Officers" in the 1994
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning the stock ownership of each person known to the
Company to be a beneficial owner of five percent or more of the Company's Common
Stock and management is incorporated by reference to the sections titled
"Information with Respect to Nominees" and "Principal Stockholders" in the 1994
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning relationships and related transactions is
incorporated by reference to the section titled "Transactions with Management
and Others" in the 1994 Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Index to Financial Statements
The following consolidated financial statements of the Company are
included in Exhibit 13 of this Form 10-K:
Page in
EXHIBIT 13
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Consolidated statements of operations for each of the three years in the
period ended December 31, 1994 . . . . . . . . . . . . . . . . . 5
Consolidated balance sheets at December 31, 1994 and 1993. . . . . 6
Consolidated statements of stockholders' equity for each of the
three years in the period ended December 31, 1994. . . . . . . . . 7
Consolidated statements of cash flows for each of the three years in the
period ended December 31, 1994 . . . . . . . . . . . . . . . . . 8
Notes to consolidated financial statements . . . . . . . . . . . . 9-13
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 14
2. Index to Financial Statement Schedule
The following consolidated financial statement schedule of the Company
is filed as part of this report:
Page in
Form 10-K
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Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 14
Schedule VIII -- Valuation and qualifying accounts . . . . . . . . 15
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements, including the notes thereto.
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3. Index to Exhibits
The following exhibits (numbered in accordance with Item 601 of SEC
Regulation S-K) are filed as part of this report or are incorporated by
reference as indicated below:
Exhibit
Number Description
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2 Agreement and Plan of Merger. Incorporated by reference to the
OEC Medical Systems, Inc. Form 10-K, filed March 30, 1994.
3.1 Certificate of Incorporation, as amended. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed March
30, 1994.
3.2 By-Laws, as amended. Incorporated by reference to the OEC Medical
Systems, Inc. Form 10-K, filed March 30, 1994.
4 Rights Agreement, dated as of June 20, 1988, between Diasonics,
Inc. and Bank of America NT&SA. Incorporated by reference to
Exhibit 4.3 of the Diasonics, Inc. Form 8-K, filed August 1, 1988.
10.1 Diasonics, Inc. 1979 Stock Option Plan, amended and restated as of
June 1, 1982. Incorporated by reference to Exhibit 10.6 of the
Diasonics, Inc. Registration Statement on Form S-8, filed May 2,
1983.
10.2 Termination Agreement between Diasonics, Inc. and Stewart Carrell
dated November 16, 1987. Incorporated by reference to Exhibit
10.69 of the Diasonics, Inc. Form 10-K, filed on March 9, 1988.
10.3 Amendment to Termination Agreement between Diasonics, Inc. and
Stewart Carrell. Incorporated by reference to Exhibit 10.77 of
the Diasonics, Inc. Form 10-K, filed on March 31, 1990.
10.4 Diasonics, Inc. 1990 Stock Option/Stock Purchase Plan.
Incorporated by reference to Exhibit 10.79 of the Diasonics, Inc.
Form S-8, filed on May 1, 1991.
10.5 Warrant for the Purchase of Common Shares issued to PaineWebber
R&D Partners II, L.P., as amended. Incorporated by reference to
the OEC Medical Systems, Inc. Form 10-K, filed on March 30, 1994.
10.6 Amendment, dated September 8, 1993, to Termination Agreement
between Diasonics, Inc. and Stewart Carrell dated December 8,
1989. Incorporated by reference to OEC Medical Systems, Inc. Form
10-K, filed on March 30, 1994.
10.7 Asset Stock Exchange Agreement between Diasonics, Inc. and
Diasonics Ultrasound, Inc. dated April 30, 1993. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed on
March 30, 1994.
10.8 Asset Stock Exchange Agreement between Diasonics, Inc. and FOCAL
Surgery, Inc. dated April 30, 1993. Incorporated by reference to
the OEC Medical Systems, Inc. Form 10-K, filed on March 30, 1994.
10.9 Distribution Agreement by and among Diasonics, Inc. (OEC Medical
Systems, Inc.), Diasonics Ultrasound, Inc. and FOCAL Surgery, Inc.
dated September 17, 1993. Incorporated by reference to Diasonics
Ultrasound, Inc. Form 10-A, filed September 17, 1993.
11
<PAGE>
10.10 Tax Allocation Agreement by and among Diasonics, Inc. and
Diasonics Ultrasound, Inc. and FOCAL Surgery, Inc. dated September
30, 1993. Incorporated by reference to Diasonics Ultrasound, Inc.
Form 10-A, filed September 17, 1993.
10.11 Cross License Agreement by and between Diasonics, Inc., Diasonics
Ultrasound, Inc. and FOCAL Surgery, Inc. dated September 17, 1993.
Incorporated by reference to Diasonics Ultrasound, Inc. Form 10-A,
filed September 17, 1993.
10.12 Employment Benefits Allocation Agreement by and among Diasonics,
Inc., Diasonics Ultrasound, Inc., and FOCAL Surgery, Inc. dated
September 17, 1993. Incorporated by reference to Diasonics
Ultrasound, Inc. Form 10-A, filed September 17, 1993.
10.13 Note agreement between OEC Medical Systems, Inc. and Diasonics
Ultrasound, Inc. dated September 30, 1993, as amended.
Incorporated by reference to Diasonics Ultrasound, Inc. Form 10-A,
filed September 17, 1993.
10.14 Form of Option Agreement to be generally used in connection with
options having service vesting provisions. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed March
30, 1994.
10.15 Form of Option Agreement to be generally used in connection with
options having milestone vesting provisions. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed March
30, 1994.
10.16 Form of Option Agreement to be generally used in connection with
automatic option grant program for non-employee directors.
Incorporated by reference to the OEC Medical Systems, Inc. Form
10-K, filed March 30, 1994.
10.17 Second Amendment, dated October 17, 1994, to Termination Agreement
between Diasonics, Inc., and Stewart Carrell dated December 8,
1989.
13 Portions of the 1994 Annual Report to Shareholders, including Five
Year Summary, Management's Discussion & Analysis of Financial
Condition and Results of Operations, and Consolidated Financial
Statements and Notes thereto.
21 List of Subsidiaries.
23 Independent Auditors' Consent.
27 Financial Data Schedule (FDS) for Edgar Filing.
(b) Reports on Form 8-K:
Not applicable
12
<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.
OEC MEDICAL SYSTEMS, INC.
By: /s/ Randy W. Zundel
---------------------------------
Randy W. Zundel
Vice President & Chief Financial Officer
Date: March 28, 1995
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 date indicated.
/s/ Ruediger Naumann-Etienne Chairman, President & CEO March 28, 1995
- --------------------------------
Ruediger Naumann-Etienne
/s/ Edwin W. Macrae Director March 28, 1995
- --------------------------------
Edwin W. Macrae
/s/ Allan W. May Director March 28, 1995
- --------------------------------
Allan W. May
/s/ Chase N. Peterson Director March 28, 1995
- --------------------------------
Chase N. Peterson
/s/ Randy W. Zundel Principal Financial & March 28, 1995
- -------------------------------- Accounting Officer
Randy W. Zundel
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
OEC Medical Systems, Inc.:
We have audited the consolidated financial statements of OEC Medical
Systems, Inc. and subsidiaries as of December 31, 1994 and 1993, and for each of
the three years in the period ended December 31, 1994, and have issued our
report thereon dated January 20, 1995; such consolidated financial statements
and report are included in your 1994 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of OEC Medical Systems, Inc. and subsidiaries,
listed in Item 14. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
January 20, 1995
14
<PAGE>
SCHEDULE VIII
OEC MEDICAL SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ADDITIONS
BALANCE -------------------- BALANCE
ALLOWANCE FOR DOUBTFUL BEGINNING CHARGED CHARGED END OF
ACCOUNTS RECEIVABLE OF PERIOD TO EXPENSE TO OTHER WRITEOFFS PERIOD
- ---------------------- --------- ---------- -------- --------- -------
Year ended:
December 31, 1994. . . . . . . . . . . . . . . $ 2,024 $ 245 $ -- $ 1,544 $ 725
December 31, 1993. . . . . . . . . . . . . . . $ 375 $ 1,695 $ -- $ 46 $ 2,024
December 31, 1992. . . . . . . . . . . . . . . $ 275 $ 100 $ -- $ -- $ 375
INVENTORY RESERVES
Year ended:
December 31, 1994. . . . . . . . . . . . . . . $ 3,033 $ 1,630 $ -- $ 1,174 $ 3,489
December 31, 1993. . . . . . . . . . . . . . . $ 471 $ 360 $(2,900)(1) $ 698 $ 3,033
December 31, 1992. . . . . . . . . . . . . . . $ 474 $ 320 $ -- $ 323 $ 471
<FN>
(1) Represents reserves related to assets distributed under corporate
reorganization (see Note 2 to the consolidated financial statements).
</TABLE>
15
<PAGE>
EXHIBIT 10.17
SECOND AMENDMENT
TO AGREEMENT DATED DECEMBER 8, 1989
THIS SECOND AMENDMENT is made and entered into as of October 17, 1994,
by and between OEC MEDICAL SYSTEMS, INC. ("OEC"), formerly known as Diasonics,
Inc. ("Diasonics") and Stewart Carrell ("Carrell").
RECITALS
1. Carrell was formerly employed as President and CEO of Diasonics.
2. Carrell and Diasonics entered into an Agreement ("Agreement")
relating to his employment and related matters on or about December 8, 1989 that
was amended on September 8, 1993 ("First Amendment"). The Agreement and First
Amendment are collectively referred to as the "Amended Agreement."
3. Carrell has since terminated his employment with Diasonics/OEC.
4. Certain disputes have arisen between Carrell and OEC relating to
Carrell's rights under the Amended Agreement covering the payment of severance
and/or retirement benefits, and other employment benefits, to Carrell.
5. The parties have agreed to resolve those disputes by virtue of
this Second Amendment and have further agreed to settle and release all existing
claims between them; and
6. The parties intend that their respective obligations shall
continue to be governed by the Amended Agreement as further amended by this
Second Amendment.
IT IS THEREFORE AGREED AS FOLLOWS;
1. OEC agrees to establish a "Rabbi Trust" (Grantor Trust) for the
benefit of Carrell in the form attached hereto as Exhibit A.
1
<PAGE>
2. The life insurance to be provided to Carrell by OEC shall be
extended for an additional twelve months over and above whatever insurance
benefits are currently provided for by the Amended Agreement.
3. OEC will extend Carrell's medical and dental coverage as provided
for in the Amended Agreement through age 65, by reimbursing Focus Surgery for
the expense of insuring Carrell on its health plan. If Carrell no longer is
covered by the Focus Surgery Plan, or covered by a similar plan with another
Company, then it will be the responsibility of the Company ("OEC") to provide
such coverage by a mutually agreeable arrangement, consistent with the terms of
the Original Agreement as amended.
4. The exercise period of all stock options granted by OEC/Diasonics
to Carrell will be extended to their original expiration date or June 30, 1997,
whichever comes first. A schedule setting forth the expiration dates is
attached hereto as Exhibit B.
5. Except as provided above, the Amended Agreement shall remain in
full force and effect and that Agreement, together with this Second Amendment,
shall define the parties' respective rights with respect to Carrell's retirement
benefits from OEC.
6. In consideration of this Second Amendment, the parties,
respectively, agree on behalf of themselves, their agents, employees,
representatives, affiliates, heirs, successors and assigns to fully release each
other from any and all existing claims, known or unknown, that either may have
against the other, it being their intent that their rights and obligations shall
be defined solely by the Amended Agreement and this Second Amendment. In
particular, and not by way of limitation on the foregoing, Carrell agrees to
waive all existing claims under Section 4(e) of the First Amendment. Each party
shall bear its own fees and costs in connection with any matter released
hereunder.
2
<PAGE>
7. Each party, having been informed of and having read the
provisions of California Civil Code Section 1542, knowingly and intentionally
waives any protection afforded to them by Civil Code Section 1542, which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
This Second Amendment is intended to resolve all claims or possible
claims arising out of or related to those matters referenced or impliedly
covered in the release in paragraph 6 above, whether the same are known, unknown
or hereafter discovered or ascertained, and the provisions of Section 1542 of
the California Civil Code are hereby expressly waived.
8. The parties agree that the terms of this Second Amendment shall
be kept confidential and shall not be disclosed to any other person or party for
any reason whatsoever except to either party's accountants or except as required
by law.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed as of the date first written above.
OEC MEDICAL SYSTEMS, INC.
By /s/ RUEDIGER NAUMANN-ETIENNE
-----------------------------
Ruediger Naumann-Etienne
/s/ STEWART CARRELL
-----------------------------
Stewart Carrell
3
<PAGE>
EXHIBIT 13.
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
(In thousands, except per share amounts) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales:
Product $85,206 $89,215 $88,225 $83,044 $68,797
Service 12,952 10,799 8,653 6,663 5,334
- ----------------------------------------------------------------------------------------------------------------------------
Total net sales 98,158 100,014 96,878 89,707 74,131
- ----------------------------------------------------------------------------------------------------------------------------
Cost of sales:
Product 52,734 50,290 49,443 44,356 34,335
Service 7,942 8,278 5,023 4,556 3,925
- ----------------------------------------------------------------------------------------------------------------------------
Total cost of sales 60,676 58,568 54,466 48,912 38,260
- ----------------------------------------------------------------------------------------------------------------------------
Gross margin 37,482 41,446 42,412 40,795 35,871
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 8,416 8,689 7,067 5,239 4,181
Marketing and sales 16,487 17,001 15,524 12,836 10,884
Administrative, general and other 5,776 8,149 5,337 4,456 4,282
Litigation judgment -- -- 3,100 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 30,679 33,839 31,028 22,531 19,347
- ----------------------------------------------------------------------------------------------------------------------------
Operating income 6,803 7,607 11,384 18,264 16,524
Interest income 346 529 743 756 133
Interest expense (257) (105) (19) (15) (20)
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 6,892 8,031 12,108 19,005 16,637
Income tax benefit (expense) 1,816 1,776 (362) (1,251) 807
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 8,708 9,807 11,746 17,754 17,444
Income (loss) from discontinued operations -- (13,060) (30,793) 1,111 (1,049)
Gain on disposal of discontinued
operations, net -- -- -- -- 13,222
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $8,708 $(3,253) $(19,047) $18,865 $29,617
- ----------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------
Income (loss) per common and common
equivalent share:
Income from continuing operations $0.69 $0.80 $0.96 $1.40 $1.29
Income (loss) from discontinued operations -- (1.06) (2.52) 0.09 (0.08)
Gain on disposal of discontinued operations, net -- -- -- -- 0.98
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $0.69 $(0.26) $(1.56) $1.49 $2.19
- ----------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------
Common and common equivalent shares 12,552 12,281 12,182 12,658 13,552
- ----------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------
<CAPTION>
December 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA FOR CONTINUING OPERATIONS
Cash and temporary cash investments $ 7,608 $ 5,383 $ 1,924 $ 1,260 $ 3,496
Working capital 31,199 16,949 18,172 23,278 19,639
Total assets 81,555 77,134 64,214 56,651 52,941
Long-term debt -- -- 55 55 26,145
Stockholders' equity 58,913 43,298 40,680 46,009 42,064
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The Company has never paid a dividend on its common stock.
1
<PAGE>
MANAGEMENT DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SALES
Net sales for the year ended December 31, 1994 were $98.2 million compared to
$100.0 million in 1993.
Product sales in 1994, at $85.2 million, declined by 5% compared with $89.2
million in 1993. The decrease was caused mainly by lower sales of the Company's
urology product. The Company feels healthcare reforms still remain a larger
factor for OEC in the fixed room urology market where system prices tend to be
higher and subject to greater limitations on capital expenditures. Product
sales for the year were also affected by a delay in the introduction of the new
Series 9600 Mobile Digital Imaging System until the second quarter. This impact
was largest in the second quarter and the Company did not fully regain the lost
revenue during the year.
Programs put in place at the beginning of 1994 had a strong impact on service
revenue, which was up approximately 20% to $13.0 million in 1994, compared to
$10.8 million in 1993. The increase was the result of more focused marketing
efforts and simplified pricing, which netted a higher contract capture rate.
At December 31, 1994, OEC's backlog was approximately $11.2 million, as compared
with approximately $17.1 million at December 31, 1993. OEC includes in backlog
only firm orders deliverable within 12 months. Backlog also includes service
contract revenue which will be earned over the next twelve months.
The following sets forth OEC's operating results from continuing operations as a
percentage of net sales:
<TABLE>
<CAPTION>
December
-------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Product 86.8 89.2 91.1
Service 13.2 10.8 8.9
----- ----- -----
Total net sales 100.0 100.0 100.0
----- ----- -----
Cost of sales
Product 53.7 50.3 51.0
Service 8.1 8.3 5.2
----- ----- -----
Total cost of sales 61.8 58.6 56.2
----- ----- -----
Gross margin 38.2 41.4 43.8
----- ----- -----
Operating expenses:
Research and development 8.6 8.7 7.3
Marketing and sales 16.8 17.0 16.0
Administrative, general and other 5.9 8.1 8.7
----- ----- -----
Total operating expenses 31.3 33.8 32.0
----- ----- -----
Operating income 6.9 7.6 11.8
Income from continuing operations 8.9 9.8 12.1
</TABLE>
MARGIN ANALYSIS
The Company's gross margin declined in 1994 to 38.2% of sales as compared to
41.4% in 1993. This was due to several factors including increased manufacturing
costs of the Series 9600, increases in reserves for obsolete inventory, and a
shift to lower priced product configurations. Margins also continued to be
affected by costs associated with programs designed to enhance compliance with
FDA Good Manufacturing Practices. Manufacturing efficiencies were not realized
as soon as expected due to delays in key component shipments from a critical
vendor. The Company has resolved the vendor situation and is focusing its
attention on manufacturing efficiencies and product cost reductions to improve
its gross margin. Although the growing demand for lower priced products
presents new opportunities for the Company, it also suggests that a return to
former gross margin levels will be difficult.
2
<PAGE>
OEC's service segment was able to lower costs by $336,000 or 4% from the prior
year. This was attained by improved reliability in 1994 and programs put in
place in late 1993. These programs included more efficient utilization of
manpower based on location, increased training of personnel and better
allocation of repair parts.
R&D EXPENSE
R&D expense as a percentage of sales remained virtually flat compared to 1993.
In dollar terms, it declined by $273,000, or 3%, to $8.4 million. The decline
reflects the completion of the Series 9600. The company will maintain its
commitment to R&D investment while continuing its effort to increase
efficiencies in product design.
MARKETING & SALES EXPENSE
Marketing and sales expense declined in 1994 by $514,000 to $16.5 million, or 3%
below 1993. The decrease was due to lower commission expense as a result of
lower sales. As a percentage of net sales, marketing and sales expense was
basically flat. This was accomplished despite an increased investment in
European sales operations.
ADMINISTRATIVE, GENERAL & OTHER EXPENSE
Administrative, general and other expense as a total was down $2.4 million or
29% in 1994 compared to the previous year. This was largely the result of
special factors. In 1993 expenses included a one time charge of $1.3 million
against accounts receivable from a former dealer. In the second quarter of
1994, there was a credit of $750,000 (a portion of which was offset by
reserves) which was the Company's portion of a litigation settlement paid by
Acuson to Diasonics Ultrasound.
INCOME TAXES
During 1994, the reversal of reserves against deferred tax assets resulted in a
tax benefit of $2.3 million. This benefit was offset by $0.5 million of tax
provision for various state income taxes and federal alternative minimum tax.
In addition, $2.1 million of tax benefit was recorded directly to stockholders'
equity for the tax benefit derived from stock option exercises. After
accounting for the 1994 taxable income, the company had deferred tax assets of
$16.0 million, offset by reserves of $9.7 million, on December 31, 1994.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
Through a corporate restructuring/distribution on September 30, 1993, Diasonics,
Inc., spun off two other operating businesses to the shareholders and then
merged with OEC, changing its name to OEC Medical Systems, Inc.
NET SALES
Net sales for the year ended December 31, 1993 were $100 million compared with
$96.9 million in 1992. The 3% increase in sales was made despite continued
softness in markets due to uncertainty surrounding the administrations's health
care program, as well as competitive pressures. This was particularly true in
the fixed room urology market which experienced a downturn similar to other
types of fixed room systems.
MARGIN ANALYSIS
The Company's gross margin declined in 1993 to 41.4% of sales from 43.8% of
sales in 1992, primarily a result of three factors. Cost of sales in 1993
included higher than normal costs related to various upgrade and enhancement
programs undertaken by the Company. These programs were completed by the second
quarter of 1994. In addition, as a result of the separation of the Company's
service operation from that of the former Diasonics, Inc. business units,
additional personnel were required. Margins were also impacted by the continued
efforts and costs associated with ongoing programs to enhance compliance with
FDA Good Manufacturing Practices guidelines.
3
<PAGE>
R&D EXPENSE
R&D expense rose by $1.6 million or 22.9% over 1992 to $8.7 million. As a
percentage of net sales, research and development expenditures in 1993 also rose
to 8.7% of net sales compared to 7.3% of net sales in 1992. The increase was
attributable to the Series 9600 Mobile Digital Imaging System which was
introduced in 1994 along with product enhancements for current products.
MARKETING & SALES EXPENSE
Marketing and sales expense was higher in 1993 by $1.5 million or 9.5% over
1992. As a percentage of net sales such expenditures rose to 17.0% compared with
16.0% of net sales the previous year. The increase was due to higher commission
expense as a result of a higher proportion of domestic sales compared to
international or dealer sales. International and dealer sales carry no
commission but are sold at a reduced net price.
ADMINISTRATIVE, GENERAL & OTHER EXPENSE
Administrative, general and other expense as a total was relatively flat in
1993 compared to 1992, although both years included unusual items. In 1993,
there was a $1.3 million reserve against accounts receivables from a former
dealer. In 1992, there was a $3.1 million dollar reserve established for an
unfavorable litigation result with a former distributor. The main additional
expense in 1993 was due to increased regulatory emphasis in regards to GMP
compliance and preparation for IPSO 9001 certification.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 adopts the asset and liability method of comprehensive
interperiod income tax accounting. The adoption of SFAS 109 by the Company in
the first quarter of 1993 did not have a material impact on the Company's
financial position or results of operations at that time. However, in the third
quarter, the reversal of certain reserves against deferred tax assets resulted
in a tax benefit of $2.0 million, or $0.16 per share. This benefit was offset
by $0.2 million of tax provision required for income earned in certain states.
INFLATION
To date, the company has not experienced any significant effects from inflation.
LIQUIDITY & CAPITAL RESOURCES
Cash provided by operating activities from the Company's continuing operations
was $9.3 million in 1994 compared with $5.7 million in 1993 and $14.7 million in
1992. In 1994, the company made a $5.1 million principal and interest payment
on a note to Diasonics Ultrasound, Inc. A second installment was not required
to be paid under the note agreement because of the sale of Diasonics Ultrasound
to Elbit. The gain to the Company was credited to equity.
The Company's capital expenditures totalled $3.4 million in 1994 compared with
$3.3 million in 1993 and $2.3 in 1992. Capital expenditures in all three years
were made primarily to upgrade and increase manufacturing operations. At
December 31, 1994, the Company had no significant commitments for capital
expenditures. Cash and temporary cash investments increased to $7.6 million at
December 31, 1994 from $5.4 million at December 31, 1993.
A stock repurchase program of 750,000 shares of its outstanding common stock was
announced in December 1994. The Company believes the stock is undervalued and
is a sound investment for a portion of its cash reserves. The manner and timing
of the repurchase will depend on market conditions and the company's cash
reserves. As of December 31, 1994, no stock had been repurchased.
OEC believes that it has sufficient liquidity and anticipated cash flow to meet
it obligations in 1995. In addition, OEC continues to carry an unused $10
million line of credit.
4
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
(In thousands, except per share amounts) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Product $85,206 $ 89,215 $88,225
Service 12,952 10,799 8,653
- ---------------------------------------------------------------------------
Total net sales 98,158 100,014 96,878
- ---------------------------------------------------------------------------
Cost of sales:
Product 52,734 50,290 49,443
Service 7,942 8,278 5,023
- ---------------------------------------------------------------------------
Total cost of sales 60,676 58,568 54,466
- ---------------------------------------------------------------------------
Gross margin 37,482 41,446 42,412
- ---------------------------------------------------------------------------
Operating expenses:
Research and development 8,416 8,689 7,067
Marketing and sales 16,487 17,001 15,524
Administrative, general and other 5,776 8,149 8,437
- ---------------------------------------------------------------------------
Total operating expenses 30,679 33,839 31,028
- ---------------------------------------------------------------------------
Operating income 6,803 7,607 11,384
Interest income 346 529 743
Interest expense (257) (105) (19)
- ---------------------------------------------------------------------------
Income before income taxes 6,892 8,031 12,108
Income tax benefit (expense) 1,816 1,776 (362)
- ---------------------------------------------------------------------------
Income from continuing operations 8,708 9,807 11,746
Loss from operation of discontinued
operations [net of income tax benefit
(expense) of ($238) and $507] -- (13,060) (30,793)
- ---------------------------------------------------------------------------
Net income (loss) $8,708 $(3,253) $(19,047)
- ---------------------------------------------------------------------------
-------------------------------
Income (loss) per common and common
equivalent share:
Continuing operations $0.69 $ 0.80 $ 0.96
Discontinued operations -- (1.06) (2.52)
- ---------------------------------------------------------------------------
Net income (loss) $0.69 $(0.26) $(1.56)
- ---------------------------------------------------------------------------
-------------------------------
Common and common equivalent shares 12,552 12,281 12,182
- ---------------------------------------------------------------------------
-------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------
(In thousands, except per share amounts) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 7,608 $ 5,383
Accounts and notes receivable, net 24,289 25,184
Inventories 18,463 19,120
Prepaid expenses and other current assets 835 1,098
Deferred income taxes 2,646 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 53,841 50,785
Long-term receivables 903 1,361
Property and equipment, net 11,388 10,698
Cost in excess of net assets acquired, net 11,495 12,136
Deferred income taxes 3,676 2,000
Other assets, net 252 154
- ----------------------------------------------------------------------------------------------------------------------------------
Total $81,555 $77,134
- ----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,158 $ 4,242
Note payable to related party -- 9,700
Accrued salaries and benefits 2,520 2,341
Accrued warranty and installation costs 1,115 1,363
Deferred income on service contracts and customer deposits 5,228 4,816
Income taxes payable 415 816
Accrued legal fees and litigation settlements 4,319 4,075
Accrued restructuring costs -- 3,259
Accrued distributor commissions 2,260 2,422
Other accrued liabilities 1,627 802
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 22,642 33,836
- ----------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; Authorized -- 2,000 shares,
including 1,100 shares of convertible preferred stock, none outstanding
Common stock, $.01 par value; Authorized -- 30,000 shares
Issued -- 12,482 and 12,411 in 1994 and 1993, respectively 125 124
Capital in excess of par value 73,783 66,858
Accumulated deficit (14,959) (23,667)
Foreign currency translation (36) (17)
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 58,913 43,298
- ----------------------------------------------------------------------------------------------------------------------------------
Total $81,555 $77,134
- ----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Capital
Common Stock In Excess Treasury Stock Foreign
------------------ of Par Accumulated ---------------- Currency
(In thousands) Shares Amount Value Deficit Shares Amount Translation Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 15,041 $150 $201,596 $5,109 2,914 $ (45,493) -- $161,362
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of stock under employee/
consultant benefit plans 88 1 978 -- -- -- -- 979
Net loss -- -- -- (19,047) -- -- -- (19,047)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 15,129 151 202,574 (13,938) 2,914 (45,493) -- 143,294
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement of treasury shares (2,914) (29) (38,988) (6,476) (2,914) 45,493 -- --
Issuance of stock under employee/
consultant benefit plans 196 2 1,501 -- -- -- -- 1,503
Net book value of assets distributed to
stockholders in connection with
corporate restructuring -- -- (98,229) -- -- -- -- (98,229)
Foreign currency translation -- -- -- -- -- -- $(17) (17)
Net loss -- -- -- (3,253) -- -- -- (3,253)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 12,411 124 66,858 (23,667) -- -- (17) 43,298
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of stock under employee/
consultant benefit plans 71 1 359 -- -- -- -- 360
Tax benefit attributable to appreciation of
common stock options exercised -- -- 2,091 -- -- -- -- 2,091
Cancellation of note payable originally
issued in connection with 1993
corporate restructuring -- -- 4,475 -- -- -- -- 4,475
Foreign currency translation -- -- -- -- -- -- (19) (19)
Net income -- -- -- 8,708 -- -- -- 8,708
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 12,482 $125 $73,783 $(14,959) -- -- $(36) $58,913
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------
(In thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $8,708 $9,807 $11,746
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization 3,546 2,812 2,480
Bad debt expense 245 1,695 100
Legal settlement recorded as reduction of note payable
to related party (750) -- --
Deferred income tax benefit (2,280) (2,000) --
Current tax benefit attributable to stock options exercised 49 -- --
Changes in current assets and liabilities:
Accounts and notes receivable 650 (1,097) (6,928)
Inventories 657 (5,890) 940
Prepaid expenses and other current assets 263 (383) (517)
Other assets (252) 60 3
Accounts payable 916 1,534 127
Accrued salaries and benefits 179 604 26
Accrued warranty and installation costs (248) (387) 170
Deferred income on service contracts and customer deposits 412 1,874 517
Income taxes payable (401) (108) 884
Accrued legal fees and litigation settlements 244 (1,585) 934
Accrued restructuring costs (3,259) (991) 4,250
Accrued distributor commissions (162) 127 664
Other accrued liabilities 825 (411) (659)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 9,342 5,661 14,737
Net cash provided (used) by discontinued operations -- 1,025 (3,925)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,342 6,686 10,812
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Reduction (increase) in long-term receivables 458 (1,361) --
Additions to property and equipment (3,441) (3,297) (2,315)
Change in net long-term assets of discontinued operations -- -- (8,906)
Other (19) (17) 94
- --------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (3,002) (4,675) (11,127)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Sales of common stock 360 1,503 979
Payments on notes payable (4,475) (55)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (4,115) 1,448 979
- --------------------------------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments 2,225 3,459 664
Cash and temporary cash investments at beginning of year 5,383 1,924 1,260
- --------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of year $7,608 $5,383 $1,924
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (FOR CONTINUING
AND DISCONTINUED OPERATIONS):
Cash paid during the year for interest $257 $1,815 $3,282
Cash paid during the year for income taxes $357 $1,491 $1,887
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1993, the Company was restructured and divided into three
separate publicly traded companies (see Note 2). In connection
with the restructuring, the following net assets of the Company were
distributed to the Company's stockholders:
Assets distributed $147,866
Liabilities distributed [including $9,700 note payable to
related party (see Note 9)] (49,637)
--------
Net book value of assets distributed $ 98,229
--------
--------
</TABLE>
During 1994, the remaining balance of the note payable to related party, in the
amount of $4,475 was cancelled with the corresponding benefit credited to
capital in excess of par value. In addition, the tax benefit in the amount of
$2,042 attributable to the appreciation of common stock options exercised prior
to 1994 was credited directly to capital in excess of par value.
See accompanying notes to consolidated financial statements.
8
<PAGE>
OEC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of OEC Medical Systems, Inc.
(formerly Diasonics, Inc.) (see Note 2) and its wholly-owned subsidiaries ("the
Company"). All material intercompany balances and transactions have been
eliminated in consolidation.
OPERATIONS
The Company designs, manufactures, markets and services computer-based medical
instruments (primarily X-ray imaging systems) for use in hospitals, out-patient
clinics, and private practice surgi-centers. The systems are marketed through
direct sales forces of the Company and through independent distributors and
dealers.
REVENUE RECOGNITION
Sales are generally recognized at the time the products are shipped, as are
provisions for estimated installation costs, warranty costs, agents' commissions
and sales allowances. Amounts received upon the sale of service contracts are
deferred and recognized as service revenue over the life of the contract.
CASH,TEMPORARY CASH INVESTMENTS
& LINE OF CREDIT
Temporary cash investments are interest bearing investments readily convertible
to cash with original short-term maturities less than 90 days and are stated at
cost, which approximates market. At December 31, 1994, the Company has a line
of credit for $10 million which expires May 1996. No borrowing had been made
under this line as of December 31, 1994.
ACCOUNTS RECEIVABLE
The allowance for doubtful accounts included in accounts and notes receivable is
as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31, (In thousands) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Allowance for doubtful accounts $725 $2,024
- ----------------------------------------------------------------------
-----------------------------
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost (utilizing the first-in/first-out
method) or market. Inventories consist of the following:
9
<PAGE>
<TABLE>
<CAPTION>
December 31, (In thousands) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Purchased parts and completed
subassemblies $ 8,295 $ 7,819
Work-in-process 3,281 4,145
Finished goods 5,661 6,800
Service and repair parts 4,715 3,389
- ----------------------------------------------------------------------
Total 21,952 22,153
Less reserves (3,489) (3,033)
- ----------------------------------------------------------------------
Net $18,463 $19,120
- ----------------------------------------------------------------------
-----------------------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. The Company uses the straight-line method to depreciate and
amortize the cost of assets over their estimated useful lives. Property and
equipment consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31, (In thousands) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Buildings and land $ 6,400 $ 5,537
Machinery and equipment 13,290 12,982
Leasehold improvements 815 781
Furniture and fixtures 171 190
- ----------------------------------------------------------------------
Total 20,676 19,490
Less accumulated depreciation
and amortization (9,288) (8,792)
- ----------------------------------------------------------------------
Net $11,388 $10,698
- ----------------------------------------------------------------------
-----------------------------
</TABLE>
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired include the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31, (In thousands) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Cost in excess of net assets acquired $18,396 $18,396
Less accumulated amortization (6,901) (6,260)
- ----------------------------------------------------------------------
Net $11,495 $12,136
- ----------------------------------------------------------------------
-----------------------------
</TABLE>
Cost in excess of net assets acquired is being amortized on a straight-line
basis over 30 years. Amortization amounted to $641,000 in each of the three
years ended December 31, 1994.
9
<PAGE>
OTHER ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31, (In thousands) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Patents and licenses $990 $ 990
Less accumulated amortization (990) (836)
Deposits 252 --
- ----------------------------------------------------------------------
Net $252 $154
- ----------------------------------------------------------------------
-----------------------------
</TABLE>
Patents and licenses are amortized on a straight-line basis over 16 years.
Amortization amounted to approximately $60,000 in each of the two years ended
December 31, 1993 and $154,000 in the year ended December 31, 1994.
ACCRUED WARRANTY AND INSTALLATION COSTS
The Company provides currently for the estimated cost to repair or replace
products under warranty provisions in effect at the time of sale.
CONTINGENCIES
As a manufacturer of medical products, the Company is subject to certain
regulations of the United States Food and Drug Administration ("FDA'') and
various state agencies. These regulations require review or approval of the
Company's products, facilities and manufacturing processes, including periodic
inspections of manufacturing facilities for compliance with Good Manufacturing
Practices as established by the FDA. The Company has devoted substantial human
and financial resources to regulatory compliance, and believes that it is in
substantial compliance with all applicable federal and state regulations.
INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
Income (loss) per common and common equivalent share is computed using the
weighted average number of the Company's common shares outstanding and, for
1994, dilutive common equivalent shares from stock options and warrants, as
calculated using the treasury stock method.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are measured
using local currencies as the functional currency. Assets and liabilities are
translated into US dollars at year-end rates of exchange and results of
operations are translated at average rates for the year. Gains and losses
resulting from these translations are accumulated in a separate component of
stockholders' equity until such time as the entity's operations are
discontinued, sold or substantially liquidated.
Through December 31, 1994, the Company's foreign operations have not been
significant.
10
<PAGE>
2. RESTRUCTURING
Effective September 30, 1993, Diasonics, Inc., the Company's predecessor,
effected a restructuring and distribution whereby the Company was divided into
three separate publicly traded companies. In this transaction, Diasonics, Inc.
distributed to its stockholders all of the outstanding stock of (i) Diasonics
Ultrasound, Inc., a wholly-owned subsidiary that operated Diasonics, Inc.'s
worldwide ultrasound business, including its Sonotron Holding AG medical
products distribution subsidiary and its Vingmed Sound, A/S cardiac ultrasound
subsidiary, and of (ii) FOCAL Surgery, Inc., a wholly-owned subsidiary of
Diasonics, Inc. that operated Diasonics, Inc.'s therapeutic products division.
These businesses are now accounted for as discontinued operations for all
periods presented through September 30, 1993. Concurrently with the
restructuring and distribution, OEC-Diasonics, Inc., Diasonics, Inc.'s sole
remaining business, was merged into Diasonics, Inc. and the Company changed its
name to OEC Medical Systems, Inc.
Estimated expenses associated with the restructuring of $9.0 million were
accrued as of December 31, 1992 and are included in discontinued operations for
that year. Such restructuring charges consist primarily of transaction and
professional fees, personnel reductions and facility consolidations.
Revenues from the discontinued operations totaled $136.7 million and $202.7
million for the years 1993 and 1992, respectively.
3. INCOME TAXES
Income tax benefit (expense) represents the consolidated amount provided by the
Company for its continuing operations, excluding amounts allocated to
discontinued operations as calculated on a stand-alone basis. Income tax benefit
(expense) from continuing operations consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current Expense:
State $ (351) $(224) $(362)
- ----------------------------------------------------------------------
Federal (2,033) -- --
Less utilization of
operating loss carryforward 1,920 -- --
- ----------------------------------------------------------------------
Net Federal (113) -- --
- ----------------------------------------------------------------------
Total Current (464) (224) (362)
- ----------------------------------------------------------------------
Deferred Benefit:
Reversal of valuation
allowance $5,125 $2,000 --
Net operating loss utilized
currently (1,920) -- --
Other deferred assets utilized (925) -- --
- ----------------------------------------------------------------------
Total deferred 2,280 2,000 --
- ----------------------------------------------------------------------
Net $1,816 $1,776 $(362)
- ----------------------------------------------------------------------
----------------------------------
</TABLE>
10
<PAGE>
Income tax benefit (expense) differs from the amount computed by applying the
statutory federal tax rate to income from continuing operations for the
following reasons:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Computed federal income tax
expense at statutory
rate of 35% (34% in 1992) $(2,412) $(2,811) $(4,117)
State income taxes (351) (224) (362)
Losses of subsidiaries for which
benefits are not recorded (314) -- --
Utilization of losses of
discontinued operations -- 3,082 4,390
Change in valuation allow-
ance for deferred tax
assets 5,125 2,000 --
Permanent differences (232) (271) (273)
- ----------------------------------------------------------------------
Income tax benefit (expense) $1,816 $1,776 $(362)
- ----------------------------------------------------------------------
--------------------------------
</TABLE>
For federal income tax purposes, the Company has a tax net operating loss
carryforward of approximately $9,096,000 expiring through the year 2008. Of the
total federal tax loss carryforward, approximately $300,000 is attributable to
certain items, the future benefit of which would be reflected in stockholders'
equity.
The Company has investment and research and experimental tax credit
carryforwards of approximately $6,422,000 expiring in the period 1995 through
2003, plus alternative minimum tax credit carryforwards of approximately
$2,246,000.
The Company implemented Statement of Financial Accounting Standard No. 109
effective January 1, 1993. The implementation did not have a material impact on
its financial position or results of operations.
Deferred income taxes reflect the net tax effects of: (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes; and
(b) operating loss and tax credit carryforwards. The tax effects of significant
items comprising the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserves not
currently deductible $ 3,875 $ 5,687
Operating loss
carryforwards 3,479 6,295
Tax credit carryforwards 8,668 8,577
- ----------------------------------------------------------------------
Total deferred taxes 16,022 20,559
Valuation allowance (9,700) (18,559)
- ----------------------------------------------------------------------
Net deferred taxes $6,322 $ 2,000
- ----------------------------------------------------------------------
----------------------------
</TABLE>
11
<PAGE>
The deferred tax assets related to operating loss carryforwards include
approximately $108,000 attributable to certain items, the future benefit of
which would be reflected in stockholders' equity.
4. COMMITMENTS
The Company leases certain of its manufacturing facilities and certain equipment
under operating leases. Future minimum annual rental payments under the
Company's operating leases are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Years Ended December 31, (In thousands)
- -----------------------------------------------------------
<S> <C>
1995 $ 928
1996 644
1997 131
1998 61
- -----------------------------------------------------------
Total $1,764
- -----------------------------------------------------------
----------
</TABLE>
Total rent expense in 1994, 1993, and 1992 was $1,028,000, $422,000 and
$276,000, respectively.
The Company has entered into various agreements for the purchase of
materials and research and development services. The aggregate noncancellable
component of such commitments was approximately $6.1 million at December 31,
1994.
The Company sponsors a 401(k) savings plan in which most domestic salaried
employees of the Company are eligible to participate. Contributions made to the
plan by the Company are based on a percentage of employee contributions, and
totaled $436,000, $378,000, and $313,000, in 1994, 1993 and 1992, respectively.
5. COMMON STOCK
The Company's 1990 stock plan (which incorporates active options under
predecessor plans) permits officers, directors, employees and independent
contractors to acquire options or other rights to purchase Company common stock.
The purchase price for the shares is their fair market value on the date the
option or purchase right is granted. Options and purchase rights generally vest
over a 5-year period.
The Company also maintains an Incentive Stock Acquisition Plan (ISAP) in
which only employees may participate. Under the ISAP, the purchase price is 85
percent of the fair market value of the shares on the trading day before the
six-month participation period begins or the last trading day of the
participation period, whichever is less.
11
<PAGE>
A summary of stock plan activities is as follows:
<TABLE>
<CAPTION>
(In thousands, except average prices) 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Options:
Outstanding beginning of year 2,006 1,561 1,517
Granted 85 719 244
Cancelled (95) (110) (142)
Exercised (44) (164) (58)
- ------------------------------------------------------------------------------
Outstanding end of year 1,952 2,006 1,561
- ------------------------------------------------------------------------------
Exercisable at end of year 1,335 1,074 1,114
Available for grant at end of year 526 517 126
Consideration received for
options exercised during year $232 $1,110 $536
Aggregate purchase price of
options outstanding at
end of year $12,239 $12,634 $16,056
Range of purchase prices of
options outstanding at
end of year $5.25 $5.25 $8.45
$14.37 $14.37 $29.40
Average purchase price of
options exercised during year $5.27 $6.77 $9.24
Shares purchased under ISAP 27 32 30
Consideration received for purchases
made under ISAP $128 $393 $443
</TABLE>
WARRANTS
In connection with the signing of a product development agreement in 1990,
the Company issued warrants to purchase 200,000 shares of its common stock. The
warrants are exercisable at a price of $12.70 per share over the period
August 31, 1994 through August 31, 1997. As of December 31, 1994, none of the
warrants had been exercised.
STOCK REPURCHASE
A stock repurchase program of 750,000 shares of its outstanding common
stock was announced in December 1994. The Company believes the stock is
undervalued and is a sound investment for a portion of its cash reserves. The
manner and timing of the repurchase will depend on market conditions and the
company's cash reserves. As of December 31, 1994 no stock had been repurchased.
6. LITIGATION
In 1993, the Company announced that a $3.1 million judgment against the Company
had been reversed on appeal. The original litigation was instituted in 1986 by
a terminated distributor of the Company's products, and an initial unfavorable
judgment was received in 1992. The Company established a full reserve for the
judgment at that time, which with accrued interest totaled approximately $3.3
million as of December 31, 1992. The appellate decision has been appealed by
the plaintiff. While the Company believes that the appellate decision will
stand, no determination can be made as to whether some or all of the reserve
should be reversed until all further appellate and related proceedings have
finally been determined. As a result, at December 31, 1994 and 1993, the
reserve with accrued interest totaled approximately $3.7 million.
12
<PAGE>
As the successor to Diasonics, Inc., the Company is now the defendant in
actions related to the magnetic resonance imaging business (MRI business) which
Diasonics, Inc., sold to Toshiba America Medical Systems (TAMS) in 1989. The
Company believes that all of these actions are covered by the indemnity
provisions in the MRI Purchase Agreement with TAMS, and in December 1993, an
arbitration panel issued its award ruling that TAMS was required to indemnify
the Company for compensatory damages and punitive damages, if any, awarded
against the Company as well as attorneys' fees and expenses incurred by the
Company in all of these, and any future, actions. TAMS has appealed the
arbitration award to a California court. While the Company believes that the
award will be upheld, the Company may incur interim expense prior to receiving
full reimbursement from TAMS. To the extent that any liability would not be
covered by its indemnity or its arbitration award, the Company does not believe
that an adverse outcome would have a material impact on its financial position
or results of operations.
The Company is also a defendant in other ordinary commercial litigation.
In light of available insurance and reserves, management believes that such
litigation will not have a material effect on its financial position or results
of operations.
7. PREFERRED SHARE PURCHASE RIGHTS
In July 1988, the Company declared a dividend distribution of one Preferred
Share Purchase Right (a "Right'') on each outstanding share of common stock.
Prior to the acquisition by a person or group of beneficial ownership of 25% or
more of the Company's common stock, the Rights are redeemable for one-half cent
per Right at the option of the Board of Directors.
The Rights will trade together with the common stock until they become
exercisable. The Rights will be exercisable only if a person or group acquires
25% or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 25% or
more of the common stock. Each right will entitle stockholders to buy five one-
hundredths of a share of a new series of junior participating preferred stock at
an exercise price of $10. At December 31, 1994 and 1993, the Company had
2,000,000 shares of such preferred stock authorized with none outstanding. The
preferred stock generally carries rights equivalent to one hundred times those
of common stock rights and is subject to certain non-dilutive and repurchase
options.
12
<PAGE>
If the Company is acquired in a merger or engages in certain other
acquisition transactions with a person or group that holds 25% or more of the
Company's common stock, each Right will entitle its holder to purchase, at the
Right's then-current exercise price, a number of the acquiring company's common
shares having a market value at the time of twice the Right's exercise price.
In addition, if a person or group acquires 25% or more of the Company's
outstanding common stock, each Right will entitle its holder (other than such
person or members of such group) to purchase, at the Right's then-current
exercise price, a number of the Company's common shares having a market value of
twice the Right's exercise price. This ability to purchase common shares does
not operate if the acquisition of 25% occurs pursuant to a cash tender offer for
all shares in which such person or group increases its stake from below 25% to
80% or more of the outstanding shares of common stock.
Following the acquisition by a person or group of beneficial ownership of
25% or more of the Company's common stock and prior to an acquisition of 50% or
more of the common stock, the Board of Directors may exchange the Rights (other
than Rights owned by such person or group), in whole or in part, at an exchange
ratio of one share of common stock (or one-hundredth for a share of the new
series of junior participating preferred stock) per Right.
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Net sales $23,260 $19,384 $27,303 $28,211
Gross margin 9,559 7,125 10,350 10,448
Net income 2,277 344 2,943 3,144
Income per share .18 .03 .23 .25
<CAPTION>
Quarter
- -----------------------------------------------------------------------------
First Second Third Fourth
<S> <C> <C> <C> <C>
1993
Net sales $22,758 $22,477 $26,622 $28,157
Gross margin from
continuing operations 9,733 8,929 11,021 11,763
Income from continuing
operations 2,310 202 4,568 2,727
Loss from discontinued
operations (4,264) (5,279) (3,517) --
Net income (loss) (1,954) (5,077) 1,051 2,727
Income (loss) per share:
Continuing .19 .02(1) .37 .22
Discontinued (.35) (.43) (.28) --
Total (.16) (.41) .09 .22
<FN>
(1) Includes an accrual of $1.3 million reserve against accounts receivable from
a former dealer.
</TABLE>
9. RELATED PARTIES
At December 31, 1993, the Company had a note payable to Diasonics Ultrasound,
Inc., its former subsidiary (see Note 2), for $9,700,000, due in two equal
installments, plus interest at 3% per annum, on June 30, 1994 and December 31,
1994. The note was cancelable under certain conditions, including a merger,
acquisition or other transaction resulting in a change in control of Diasonics
Ultrasound., Inc. The note was offset by $750,000 in the second quarter of 1994,
which was the Company's portion of a litigation settlement paid by Acuson, Inc.,
to Diasonics Ultrasound, Inc. This reduction of $750,000 has been reflected in
the Company's accompanying consolidated statement of operations for the year
ended December 31, 1994 as a reduction of administrative, general and other
expenses. The first installment of principal in the amount of $4,475,000 was
made in the third quarter of 1994. The second installment in the remaining
amount of $4,475,000 was not required to be paid under the terms of the note,
due to a change in control of Diasonics Ultrasound, Inc. Upon cancellation, the
$4,475,000 was credited to capital in excess of par value.
Sales to Diasonics, Ultrasound, Inc. were $1.9 million in the fourth quarter
of 1993 and $5.2 million during 1994.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of OEC Medical Systems, Inc.
We have audited the accompanying consolidated balance sheets of OEC Medical
Systems, Inc. and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of OEC Medical Systems, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
/s/
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
January 20, 1995
14
<PAGE>
EXHIBIT 21.
OEC MEDICAL SYSTEMS, INC.
LIST OF SUBSIDIARIES
OEC Europe, Ltd. (England)
Frank Manufacturing
Diasonics Export Sales Corp. (Disc)
Chromosonics, Inc.
Diasonics Foreign Sales Corp. (FSC)
OEC Medical Systems (Europe) AG
OEC Medical Systems SA
OEC Medical Systems GmbH
OEC Medical Systems S.R.L.
<PAGE>
EXHIBIT 23.
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements Nos. 33-
69672, 33-37396, and 33-40280 of OEC Medical Systems, Inc. on Forms S-8 of our
reports dated January 20, 1995, appearing in and incorporated by reference in
this Annual Report on Form 10-K of OEC Medical Systems, Inc. for the year ended
December 31, 1994.
/s/
DELOITTE & TOUCHE LLP
March 17, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 7,608
<SECURITIES> 0
<RECEIVABLES> 25,014
<ALLOWANCES> 725
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0
0
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