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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-9983
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
incorporation or organization) Identification Number)
384 WRIGHT BROTHERS DRIVE 84116
SALT LAKE CITY, UTAH
(Address of principal executive offices) (Zip Code)
(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
----- -----
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 February 20, 1996 was
approximately $125,689,856.
As of February 20, 1996, there were 12,262,425 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 1996 Annual Meeting
of Stockholders I, III
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OEC MEDICAL SYSTEMS, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business 2
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Executive Officers of the Registrant 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
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 8
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of Registrant 8
Item 11. Executive Compensation 8
Item 12. Security Ownership of Certain Beneficial Owners
and Management 8
Item 13. Certain Relationships and Related Transactions 8
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 9
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OEC MEDICAL SYSTEMS, INC.
1995 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 the restructuring 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. (the
"Restructuring/Distribution").
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 radiographic 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, the Uroview 2600 urology table, the Mini 6600 and the
Compact 7600 all introduced in 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 and 1995 by establishing new
distributors or contracting with existing distributors in South America and
the Pacific Rim. OEC intends to continue these activities during 1996.
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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C-ARM PRODUCTS. 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.
In response to the changes brought on by managed healthcare, OEC recently
introduced two lower cost digital mobile X-ray machines - the Compact 7600
and Mini 6600. These smaller, lower cost machines are specifically designed
to address the imaging requirements of outpatient surgery centers as well as
other satellite surgery delivery sites. The move towards less invasive
surgeries with accompanying shorter recovery times is driving the need for
easy to operate, cost effective fluoroscopic guidance systems in all
locations of the healthcare delivery.
The Compact 7600 Digital Mobile C-Arm is a cost effective, simple to
operate full-body imaging system that can be utilized for most routine, less
complicated procedures. It's compact one-piece design (no separate monitor
cart) allows for ease of transport, quick positioning and minimal storage
requirements. Prices of the Compact 7600 range from $75,000 to $85,000.
The Mini 6600 Digital Mobile C-Arm is a small, low-x-ray dose digital
fluoroscopic imaging system that has been designed to provide high quality
images of upper and lower extremities. Areas of use include hospital
operating rooms and emergency rooms, outpatient surgery centers, speciality
physician offices and veterinary clincs. Prices of the Mini 6600 range from
$55,000 to $65,000.
During 1995, 1994 and 1993 the OEC C-arm business represented 82%, 84% and
80% 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 1995, 1994 and 1993 the OEC urology business represented 18%, 16%
and 20% of total sales, respectively.
QUALITY. 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.
SALES AND SERVICE. Domestic sales are made primarily through direct
representatives and exclusive independent distributors with installation and
service performed by OEC.
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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 1995, 1994 and 1993, service revenue represented 15%, 13% and 11%
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. 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.
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 Mini 6600 include Fluoroscan
Imaging Systems, Inc. and XiTec, Inc. The Compact 7600 competes with a
similar product from International 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, 1995, OEC's backlog was approximately $16.8
million, as compared with approximately $11.2 million at December 31, 1994.
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
1995 of the Uroview 2600, the Mini 6600 and the Compact 7600.
During 1995, 1994, and 1993, OEC's research and development expenses
totaled $7.7 million, $8.4 million and $8.7 million, respectively,
representing 7.6%, 8.6% and 8.7% of net sales.
EMPLOYEES. On December 31, 1995, OEC had approximately 505 employees.
None of OEC's employees are covered by collective bargaining agreements, and
OEC considers its employee relations to be satisfactory.
ACQUISITIONS. During 1995, the Company purchased 19.8% ownership position
in Barwig Medizinische Systeme GmbH (BMS), a German manufacturer of medical
equipment. The Company was granted exclusive worldwide distribution rights
for the 7600 C-Arm manufactured by BMS. During 1995, the Company has
provided long-term working capital loans of approximately $1.0 million to
BMS. The Company has the option until December 31, 1996 to convert a portion
of the loans into 51.7% ownership of BMS. At December 31, 1995, this option
had not been exercised.
RISK FACTORS. OEC's future operating results are dependent on its ability
to develop, manufacture and market innovative products that meet customers'
needs. Inherent in this process are a number of risks that the Company must
successfully manage in order to achieve favorable operating results. The
process of developing new high
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technology medical products is complex and uncertain and requires innovative
designs that anticipate customer needs, technological trends and healthcare
shifts. There can be no assurance that the Company will be able to develop and
market new products on a cost-effective and timely basis, that such products
will compete favorably with products developed by others or that technology will
not be superseded by new discoveries or breakthroughs.
Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the medical device industry places considerable importance on
obtaining patent, trademark, copyright and trade secret protection for new
technologies, products and processes. A loss of protection could have a
material adverse effect on the Company's business.
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. While the Company believes any of
these single-source items could be replaced over time, abrupt disruption in
the supply of a part for a product could have a material adverse effect on
the Company's production in cases where the existing inventory of the
components is not adequate to meet the Company's demand for the component
during such disruption and could have a material adverse effect on its
financial condition and results of operations.
The testing, marketing and sale of human healthcare products entails an
inherent risk of product liability, and there can be no assurance that
product liability claims will not be asserted against OEC. Although OEC has
product liability insurance coverage, there can be no assurance that such
coverage will provide adequate coverage against all potential claims.
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. Failure to comply with FDA regulations could
result in sanctions being imposed, including restrictions on the marketing of
or recall of the affected products.
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. 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 positions, or that its GMP compliance will not be challenged
at some subsequent point in time.
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 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 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.
A portion of the Company's research and development activities, its
corporate headquarters and other critical business operations are located
near a major earthquake fault. The ultimate impact on the Company,
significant suppliers and the general infrastructure is unknown, but
operating results could be materially affected in the event of a major
earthquake.
Although OEC believes that it has the product offerings and resources
needed for continuing success, future revenue and margin trends cannot be
reliably predicted and may cause the Company to adjust its operations.
Factors external to the Company can result in volatility of the Company's
common stock price.
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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 June 30, 2000.
ITEM 3. LEGAL PROCEEDINGS.
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, 1995 and 1994, the reserve with accrued interest totaled approximately
$3.7 million.
All but one of the pending lawsuits relating to the former MRI Division
have been favorably resolved by dismissals, summary judgment or directed
verdicts in favor of the Company. With respect to the sole exception, an
action filed by Lenox Hills Leasing Associates, Toshiba America Medical
Systems, Inc. ("Toshiba") has agreed to defend and indemnify the Company.
All of the pending actions, and any future actions related to the MRI
Division, are the subject of an arbitration award in favor of the Company and
against Toshiba. That arbitration award holds that, with certain limited
exceptions not applicable to any of the pending actions, Toshiba is obligated
to indemnify the Company for compensatory and punitive damages, if any,
awarded against the Company in any action related to the former MRI Division
and to reimburse the Company for its attorney's fees and expenses incurred in
defending such actions, regardless of whether such actions allege intentional
misconduct or fraud. This arbitration award was confirmed by a California
trial court. Toshiba appealed, and the California Court of Appeals affirmed
the ruling of the trial court in favor of the Company. Toshiba may seek
further appellate review of the award. If the award is reversed, it will not
effect the outcome of any of the pending actions, but will apply only to
future filed actions. To the extent that the award is reversed and a future
action is filed that would not be covered by the Company's indemnity or the
arbitration award, the Company 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 OEC's business or financial condition.
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 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- - ---- --- --------
Barry K. Hanover 41 Vice President, Engineering
Larry E. Harrawood 48 Vice President, Marketing
Gary N. Kilman 51 Vice President, Sales
Ruediger Naumann-Etienne 49 President and Chief Executive Officer
Randy W. Zundel 40 Chief Financial Officer
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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 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. Mr. Zundel
has held various other positions with OEC since 1981. He is also a director
of Orbtek, a start-up opthamalogy company.
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. 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 February 20, 1996 the
number of holders of record of common stock was 2,284.
Prices
Quarter Ended: High Low Close
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March 31, 1994 . . . . . . . . 7 3/4 6 1/8 6 3/8
June 30, 1994. . . . . . . . . 6 3/8 5 5 1/2
September 30, 1994 . . . . . . 6 7/8 5 1/4 6 5/8
December 31, 1994. . . . . . . 6 7/8 5 3/4 6 1/2
March 31, 1995 . . . . . . . . 5 7/8 5 5/8 5 7/8
June 30, 1995. . . . . . . . . 7 3/4 7 3/4 7 3/4
September 30, 1995 . . . . . . 8 3/8 8 1/8 8 1/8
December 31, 1995. . . . . . . 9 7/8 9 3/4 9 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.
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ITEM 6. SELECTED FINANCIAL DATA.
The table labeled "Five Year Summary" appearing as page 18 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 19 through 21 of
Exhibit 13 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The Consolidated Financial Statements and Notes thereto appearing at pages
22 through 32 of Exhibit 13 is incorporated herein by reference.
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 "1995 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 1995 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 1995 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 1995 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:
Exhibit 13
Page in
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Consolidated statements of operations for each of the
three years in the period ended December 31, 1995 22
Consolidated balance sheets at December 31, 1995 and 1994 23
Consolidated statements of stockholders' equity for each
of the three years in the period ended December 31, 1995 24
Consolidated statements of cash flows for each of the
three years in the period ended December 31, 1995 25
Notes to consolidated financial statements 26
Independent Auditors' Report 32
2. Index to Financial Statement Schedule
All 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
-------- -----------
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.
10.4 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.
10.10 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.
10.14 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.
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10.15 Form of Option Agreement to be generally used in connection with
options having milestone 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.
10.18 Termination Agreement between David Rose and OEC Medical Systems,
Inc., dated March 21, 1995.
10.19 Note and Stock Pledge Agreement between Ruediger Naumann-Etienne
and OEC Medical Systems, Inc., dated September 5, 1995.
13 Portions of the 1995 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
11
<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
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ruediger Naumann-Etienne and Allan W. May and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report and form 10-K, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: March 28, 1996
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Ruediger Naumann-Etienne Chairman of the Board, President & March 28, 1996
- - -------------------------------- Chief Executive Officer
Ruediger Naumann-Etienne
/s/ Gregory K. Hinckley Director March 28, 1996
- - -------------------------------
Gregory K. Hinckley
/s/ Benno P. Lotz Director March 28, 1996
- - -------------------------------
Benno P. Lotz
/s/ Allan W. May Director March 28, 1996
- - -------------------------------
Allan W. May
/s/ Chase N. Peterson Director March 28, 1996
- - -------------------------------
Chase N. Peterson
/s/ Randy W. Zundel Principal Financial & March 28, 1996
- - ------------------------------- Accounting Officer
Randy W. Zundel
</TABLE>
12
<PAGE>
EXHIBIT 10.18
MUTUAL AGREEMENT AND RELEASE
This Mutual Agreement and Release (the "Agreement") is made and entered
into effective this 21ST day of March 1995 by and between David Rose ("Rose")
and OEC Medical Systems, Inc. ("OEC").
WHEREAS, issues have arisen between Rose and OEC concerning Rose's
employment at OEC; and
WHEREAS, Rose and OEC wish to resolve these issues amicably by providing
a specified cash settlement in exchange for a release of any actual or
potential claims Rose has or may have against OEC or entities affiliated with
OEC;
THE PARTIES AGREE AS FOLLOWS:
1. RESIGNATION OR ROSE. Rose's resignation as an officer and director
of OEC is effective as of February 10, 1995.
2. SETTLEMENT. OEC and Rose agree as follows:
(a) OEC has paid to Rose the sum of $45,000;
(b) Rose will remain an executive employee of OEC until the earlier to
occur of (i) such time as Rose shall accept full or part time
employment by another entity, or (ii) 12 months from the effective
date of resignation ("Period of Salary Continuance"). During the
Period of Salary Continuance, Rose will be entitled to receive an
annual base compensation of $225,000, payable in bi-weekly
installments. Should Rose accept full or part time employment before
the expiration of said 12 months, OEC will pay to Rose the unpaid
portion of $225,000 in a lump sum. During the period of his
employment, Rose shall remain entitled to all medical dental, vision
and insurance benefits currently in effect; provided that there shall
be no entitlement to any bonus or additional amount or type of
compensation or benefit, whether or not the same are made available to
officers or directors of OEC.
(c) Rose acknowledges that, as at the effective date of his
resignation, he has no remaining accrued vacation and/or sick pay,
and further acknowledges that no vacation and/or sick pay shall accrue
during the Period of Salary Continuance.
(d) Rose shall remain entitled to the use of his company vehicle, a
lap top computer and a laser printer through April 2, 1995;
(e) Regardless of the length of Rose's employment, OEC agrees to the
continued vesting of Rose's existing OEC stock options through August
10, 1995, at which time vesting shall cease; thereafter, all vested
options shall be exercised no later than November 10, 1995, after
which all unexercised options shall automatically terminate and
expire;
(f) OEC will withhold F.I.C.A., Federal and State Income Tax, all
current normal employee withholding amounts from all payments
hereunder and will reflect all such payments on Rose's Form W-2 Wage
and Tax Statement.
(g) Should Rose not obtain re-employment within 12 months from the
effective date of resignation, (i) Rose may elect to convert the
medical coverages provided above under COBRA, which will provide
coverage for an additional 18 months, and (ii) Senior Life Insurance
shall continue for an additional period of 12 months.
(h) During the Period of Salary Continuance, Rose will remain
available to provide consulting services to OEC as may be reasonably
requested by OEC, not to exceed 20 hours per week.
<PAGE>
3. RELEASE; ADDITIONAL RELEASES.
(a) RELEASE. In consideration of this settlement and the benefits
provided in this Agreement, OEC and Rose each releases, holds harmless and
forever discharges the other, and their respective successors, assigns,
transferees, officers, employees, directors, representatives, agents,
attorneys, shareholders and parent, subsidiary or affiliated companies, as
applicable, of and from any and all actions, claims, causes of action, suits,
compensation, benefits, debts, contracts, controversies, agreements,
promises, rights, damages or demand which he has, may have or ever will have,
including but not limited to, any claim under state or federal statutory or
common law, any claim arising out of or in connection with his employment or
the termination thereof, and any claim based on an express or implied
contract.
(b) ADDITIONAL RELEASE. Rose further understands and agrees that in
consideration of the foregoing, he is waiving any rights he may have had, or
in the future may have, to pursue any and all remedies available to him under
any employment-related causes of action, including, without limitation,
claims or wrongful discharge, emotional distress, defamation, invasion of
privacy, breach of contract, violation of the provisions of the Utah
Anti-Discrimination Rights Act, as amended, the Equal Pay Act of 1963, as
amended, the Civil Rights Act of 1964, as amended, and any other laws or
regulations relating to employment discrimination.
(c) RELEASE OF UNKNOWN OR UNSUSPECTED CLAIMS. OEC and Rose expressly
waives the benefits of any rule or common law that provides, in sum or
substance, that a release does not extend to claims which the party does not
know or suspect to exist in his favor at the time of executing the release,
which is known by him, would have materially affected his settlement with the
other party.
(d) RELEASE OF AGE DISCRIMINATION CLAIMS. Rose acknowledges and
understands that he is releasing any and all claims or causes of action he
had or may have under state and federal law concerning Discrimination in
Employment Act of 1967, 29 U.S.C. Section 621 et seq. He further
acknowledges that he has been advised to seek the advice of his own
independent attorney, that he has been given 21 days in which to review and
consider this Agreement and that he has been advised that he had an
additional 7 days after he signs this Agreement to change his mind and
renounce it without any penalty to himself. This Agreement will not become
effective or enforceable until after this 7 day period has expired.
(e) WAIVER OF REINSTATEMENT OR FUTURE EMPLOYMENT. Rose waives any and
all rights to reinstatement and agrees not to seek employment with OEC or any
company affiliated with it.
4. NO ADMISSION OF LIABILITY. By entering into this Agreement, OEC and
Rose do not in any way admit or acknowledge liability for any allegation or
claim by the other and specifically deny any such liability. The parties
agree that nothing contained in this Agreement shall be treated or construed
as an admission of liability or wrongdoing of any kind by them, and their
respective predecessors, subsidiaries, affiliates, officers, directors,
agents and employees.
5. CONFIDENTIALITY, NON-COMPETITION, AND NON-ASSISTANCE IN CLAIMS.
(a) Rose and OEC each agrees that they will keep the substance of the
negotiations, conditions and terms of this Agreement strictly confidential,
except to financial advisors, who will be advised of the required
confidentiality hereof and who shall agree expressly to be bound thereby, and
as required by law. They further agree that they will be fully supportive of
each other, both privately and publicly, and that they shall refrain from
making any oral or written statement or comment disparaging or harmful to the
other, and, in the case of OEC, to its products, management, financial or
operating prospects. Rose and OEC further agree that they will not
encourage, recommend, participate in or voluntarily assist in any legal or
administrative claim against the other, its agents, officers, employees or
affiliated companies, without exception.
(b) Rose agrees that he will not accept employment or consultation in
any capacity, whether full time or part time, with any manufacturer engaged
in the medical C-arm x-ray and/or urology table business in the United States
or Europe during this Agreement and for a period of one year following the
termination of his employment with OEC.
<PAGE>
6. SEVERABILITY. In the event any part f this Agreement is determined
to be void or unenforceable, Rose and OEC agree that the remainder of the
Agreement may be enforced to the fullest extent permitted by law.
7. DISPUTES. IN the event any dispute arises between the parties
which in any way relates to this Agreement or Rose's employment with OEC, and
which dispute cannot be resolved amicably, the parties agree that any
litigation or administrative action shall take place in Salt Lake City, Utah.
Except as expressly stated otherwise in this Agreement or required by law,
ea h party shall be responsible for its own attorney's fees and costs
incurred in the event of any such disputes. The law of Utah shall control.
8. COMPLETE AGREEMENT. This Agreement sets forth the terms and
conditions of an amicable settlement in full accord and satisfaction of all
claims, controversies, issues or matters between Rose and OEC. This Agreement
is executed in conjunction with a settlement of the above-referenced claims, but
the scope of this settlement and release is broader than such claims. This
Agreement sets for the complete agreement between the parties. No other
covenants or representations have been made or relied on by the parties, and no
other consideration is due between the parties.
9. ACKNOWLEDGMENT. Rose acknowledges that he has read and understands
the foregoing provisions of this Agreement and that he is affixing this
signature to it voluntarily and without coercion. He further acknowledges
that he has given the opportunity by OEC to consult with counsel of his own
choosing concerning the waivers contained in the Agreement, that he has done
so, and that the waivers he has made are knowing, conscious and with full
appreciation that he is forever foreclosed from pursuing any of the rights so
waived.
WHEREFORE, by the signature below, the parties acknowledge that they have
read and understand the terms of this Agreement and are freely and voluntarily
entering into it.
OEC MEDICAL SYSTEMS, INC. DAVID ROSE
By /s/ Ruediger Naumann-Etienne /s/ David Rose
---------------------------------- --------------------------------
Title Chairman
------------------------------
Date 3/21/95 3/21/95
------------------------------ --------------------------------
<PAGE>
EXHIBIT 10.19
OEC MEDICAL SYSTEMS, INC.
NOTE SECURED BY STOCK PLEDGE AGREEMENT
$210,000 September 5, 1995
FOR VALUE RECEIVED, Ruediger Naumann-Etienne ("Maker") promises
to pay to the order of OEC Medical Systems, Inc. (The "Corporation"), at
its corporate offices at 384 Wright Brothers Drive, Salt Lake City, Utah
84116, the principal sum of Two Hundred and Ten Thousand Dollars ($210,000),
together with all accrued interest thereon, upon the terms and conditions
specified below.
INTEREST. Interest shall accrue on the unpaid balance outstanding
from time to time under this Note at the rate of 5.83% per annum, compounded
semi-annually, and shall be payable annually in arrears.
1. PRINCIPAL. The entire principal balance of this Note, together
with all accrued and unpaid interest, shall become due and payable in one
lump sum on October 31, 1996.
2. PAYMENT. Payment shall be made in lawful tender of the United
States and shall be applied first to the payment of all accrued and unpaid
interest and then to the payment of principal. Prepayment of the principal
balance of this Note, together with all accrued and unpaid interest, may be
made in whole or in part at any time without penalty.
3. EVENTS OF ACCELERATION. The entire unpaid principal balance of
this Note, together with all accrued and unpaid interest, shall become
immediately due and payable prior to the specified due date of this Note upon
the occurrence of one or more of the following events:
A. the failure of the Maker to pay when due the accrued interest
on this Note and the continuation of such default for more than thirty (30)
days; or
B. the expiration of the thirty (30) day period following the
date the Maker ceases for any reason to be a consultant or employee of the
Corporation; or
C. an acquisition of the Corporation (whether by merger or
acquisition of all or substantially all of the Corporation's assets or
outstanding voting stock) for consideration payable in cash or
freely-tradable securities; provided, however, that if the Pooling of
Interest Method, as described in Accounting Principles Board Opinion No. 16,
is used to account for the acquisition for financial reporting purposes,
acceleration shall not occur prior to the end of the sixty (60)-day period
immediately following the end of the applicable restriction period required
under Accounting Series Release Numbers 130 and 135; or
D. the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general assignment
for the benefit of creditors, the filing by or against the Maker of any
petition in bankruptcy or any petition for relief under the provisions of the
Federal bankruptcy act or any other state or Federal law for the relief of
debtors and the continuation of such petition without dismissal for a period
of thirty (30) days or more, the appointment of a receiver or trustee to take
possession of any property or assets of the Maker or the attachment of or
execution against any property or assets of the Maker; or
E. the occurrence of any event of default under the Stock Pledge
Agreement securing this Note or any obligation secured thereby.
<PAGE>
4. SECURITY. The proceeds of the loan evidenced by this Note shall be
applied solely to the payment of the purchase price for the exercise of
options covering 40,000 shares of the Corporation's common stock and payment
of this Note shall be secured by a pledge of those shares with the
Corporation pursuant to the Stock Pledge Agreement to be executed this date
by the Maker. The Maker, however, shall remain personally liable for payment
of this Note and assets of the Maker, in addition to the collateral under the
Stock Pledge Agreement, may be applied to the satisfaction of the Maker's
obligations hereunder.
5. COLLECTION. If action is instituted to collect this Note, the
Maker promises to pay all costs and expenses (including reasonable attorney
fees incurred in connection with such action.
6. WAIVER. A waiver of any term of this Note, the Stock Pledge
Agreement or of any of the obligations secured thereby must be made in
writing and signed by a duly-authorized officer of the Corporation and any
such waiver shall be limited to its express terms. No delay by the
Corporation in acting with respect to the terms of this Note or the Stock
Pledge Agreement shall constitute a waiver of any breach, default, or failure
of a condition under this Note, the Stock Pledge Agreement or the obligations
secured thereby.
The Maker waives presentment, demand, notice of dishonor, notice of
default or delinquency, notice of acceleration, notice of protest and
nonpayment, notice of costs, expenses or losses and interest thereon, notice
of interest on interest and diligence in taking any action to collect any
sums owing under this Note or in proceeding against any of the rights or
interests in or to properties securing payment of this Note.
7. CONFLICTING AGREEMENTS. In the event of any inconsistencies
between the terms of this Note and the terms of any other document related to
the loan evidenced by the Note, the terms of this Note shall prevail.
8. GOVERNING LAW. This Note shall be construed in accordance with the
laws of the State of Utah.
/s/ Ruediger Naumann-Etienne
---------------------------------
MAKER: Ruediger Naumann-Etienne
<PAGE>
OEC MEDICAL SYSTEMS, INC.
STOCK PLEDGE AGREEMENT
AGREEMENT made as of this 5th day of September, 1995 by and between
OEC Medical Systems, Inc., a Delaware corporation (the "Corporation") and
Ruediger Naumann-Etienne ("Pledgor").
RECITALS
A. In connection with the exercise of options to purchase 40,000
shares of the Corporation's Common Stock (the "Purchased Shares") on the
date of this Agreement from the Corporation, Pledgor has issued that certain
promissory note (the "Note") dated September 5, 1995 payable to the order
of the Corporation in the principal amount of Two Hundred and Ten Thousand
Dollars ($210,000).
B. Such Note is secured by the Purchased Shares and other collateral
upon the terms set forth in this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF SECURITY INTEREST. Pledgor hereby grants the Corporation
a security interest in, and assigns, transfers to and pledges with the
Corporation, the following securities and other property (collectively, the
"Collateral"):
(i) the Purchased Shares delivered to and deposited with the
Corporation as collateral for the Note;
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the Purchased Shares which
are to be delivered to and deposited with the Corporation pursuant to the
requirements of Paragraph 3 of this Agreement;
(iii) any and all other property and money which is delivered to or
comes into the possession of the Corporation pursuant to the terms of this
Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the property
and securities described in subparagraphs (i), (ii) or (iii) above.
2. WARRANTIES. Pledgor hereby warrants that Pledgor is the owner of
the Collateral and has the right to pledge the Collateral and that the
Collateral is free from all liens, adverse claims and other security
interests (other than those created hereby).
3. DUTY TO DELIVER. Any new, additional or different securities or
other property (other than regular cash dividends) which may now or hereafter
become distributable with respect to the Collateral by reason of (i) any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the Common Stock as a class
without the Corporation's receipt of consideration or (ii) any merger,
consolidation or other reorganization affecting the capital structure of the
Corporation shall, upon receipt by Pledgor be promptly delivered to and
deposited with the Corporation as part of the Collateral hereunder. Any such
securities shall be accompanied by one or more properly-endorsed stock power
assignments.
4. PAYMENT OF TAXES AND OTHER CHARGES. Pledgor shall pay, prior to
the delinquency date, all taxes, liens, assessments and other charges against
the Collateral, and in the event of Pledgor's failure to do so, the
Corporation may at its election pay any or all of such taxes and other
charges without contesting the validity or legality thereof. The payments so
made shall become part of the indebtedness secured hereunder and until paid
shall bear interest at the minimum per annum rate, compounded semi-annually,
required to avoid the imputation of interest income to the Corporation and
compensation income to Pledgor under the Federal tax laws.
<PAGE>
5. SHAREHOLDER RIGHTS. So long as there exists no event of default
under Paragraph 10 of this Agreement, Pledgor may exercise all shareholder
voting rights and be entitled to receive any and all regular cash dividends
paid on the Collateral and all proxy statements and other shareholder
materials pertaining to the Collateral.
6. RIGHTS AND POWERS OF CORPORATION. The Corporation may, without
obligation to do so, exercise at any time and from time to time one or more
of the following rights and powers with respect to any or all of the
Collateral:
(i) subject to the applicable limitations of Paragraph 9, accept in its
discretion other property of Pledgor in exchange for all or part of the
Collateral and release Collateral to Pledgor to the extent necessary to
effect such exchange, and in such event the other property received in the
exchange shall become part of the Collateral hereunder;
(ii) perform such acts as are necessary to preserve and protect the
Collateral and the rights, powers and remedies granted with respect to such
Collateral by this Agreement; and
(iii) transfer record ownership of the Collateral to the Corporation
or its nominee and receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Collateral, provided and only if there exists at the time an
outstanding event of default under Paragraph 10 of this Agreement. Any cash
sums which the Corporation may so receive shall be applied to the payment of
the Note and any other indebtedness secured hereunder, in such order of
application as the Corporation deems appropriate. Any remaining cash shall
be paid over to Pledgor.
Any action by the Corporation pursuant to the provisions of this
Paragraph 6 may be taken without notice to Pledgor. Expenses reasonably
incurred in connection with such action shall be payable by Pledgor and form
part of the indebtedness secured hereunder as provided in Paragraph 12.
7. CARE OF COLLATERAL. The Corporation shall exercise reasonable care
in the custody and preservation of the Collateral. However, the Corporation
shall have no obligation to (i) initiate any action with respect to, or
otherwise inform Pledgor of, any conversion, call, exchange right, preemptive
right, subscription right, purchase offer or other right or privilege
relating to or affecting the Collateral, (ii) preserve the rights of Pledgor
against adverse claims or protect the Collateral against the possibility of a
decline in market value or (iii) take any action with respect to the
Collateral requested by Pledgor unless the request is made in writing and the
Corporation determines that the requested action will not unreasonably
jeopardize the value of the Collateral as security for the Note and other
indebtedness secured hereunder.
Subject to the limitations of Paragraph 9, the Corporation may at any
time release and deliver all or part of the Collateral to Pledgor, and the
receipt thereof by Pledgor shall constitute a complete and full acquittance
for the Collateral so released and delivered. The Corporation shall
accordingly be discharged from any further liability or responsibility for
the Collateral, and the released Collateral shall no longer be subject to the
provisions of this Agreement.
8. TRANSFER OF COLLATERAL. In connection with the transfer or
assignment of the Note (whether by negotiation, discount or otherwise), the
Corporation may transfer all or any part of the Collateral, and the
transferee shall thereupon succeed to all the rights, powers and remedies
granted the Corporation hereunder with respect to the Collateral so
transferred. Upon such transfer, the Corporation shall be fully discharged
from all liability and responsibility for the transferred Collateral.
9. RELEASE OF COLLATERAL. Provided all indebtedness secured hereunder
(other than payments not yet due and payable under the Note) shall at the
time have been paid in full and there does not otherwise exist any event of
default under Paragraph 10, the Purchased Shares, together with any
additional Collateral which may hereafter be pledged and deposited hereunder,
shall be released from pledge and returned to Pledgor in accordance with the
following provisions:
<PAGE>
(i) Upon payment or prepayment of principal under the Note, together
with payment of all accrued interest to date, one or more of the Purchased
Shares held as Collateral hereunder shall (subject to the applicable
limitations of Paragraphs 9(iii) and 9(v) below) be released to Pledgor
within thirty (30) days after such payment or prepayment. The number of the
shares to be so released shall be equal to the number obtained by multiplying
(i) the total number of Purchased Shares held under this Agreement at the
time of the payment or prepayment, by (ii) a fraction, the numerator of which
shall be the amount of the principal paid or prepaid and the denominator of
which shall be the unpaid principal balance of the Note immediately prior to
such payment or prepayment. In no event, however, shall any fractional shares
be released.
(ii) Any additional Collateral which may hereafter be pledged and
deposited with the Corporation (pursuant to the requirements of Paragraph 3)
with respect to the Purchased Shares shall be released at the same time the
particular shares of Common Stock to which the additional Collateral relates
are to be released in accordance with the applicable provisions of Paragraph
9(i).
(iii) Under no circumstances, however, shall any Purchased Shares or
any other Collateral be released if previously applied to the payment of any
indebtedness secured hereunder. In addition, in no event shall any Purchased
Shares or other Collateral be released pursuant to the provisions of
Paragraph 9(i) or 9(ii) if, and to the extent, the fair market value of the
Common Stock and all other Collateral which would otherwise remain in pledge
hereunder after such release were effected would be less than the unpaid
principal and accrued interest under the Note.
(iv) For all valuation purposes under this Agreement, the fair market
value per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:
(A) If the Common Stock is at the time traded on the Nasdaq
National Market, the fair market value shall be the closing selling price per
share of Common Stock on the date in question, as such prices are reported by
the National Association of Securities Dealers on its Nasdaq system or any
successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative of
fair market value.
(B) If the Common Stock is at the time listed on the American
Stock Exchange or the New York Stock Exchange, then the fair market value
shall be the closing selling price per share of Common Stock on the date in
question on the securities exchange serving as the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the date in question, then the fair market value shall be
the closing selling price on the exchange on the last preceding date for
which such quotation exists.
(C) If the Common Stock is at the time neither listed on any
securities exchange nor traded on the Nasdaq National Market, the fair market
value shall be determined by the Corporation's Board of Directors after
taking into account such factors as the Board shall deem appropriate.
(v) In the event the Collateral becomes in whole or in part comprised
of "margin securities" within the meaning of Section 207.2(i) of Regulation
G of the Federal Reserve Board, then no Collateral shall thereafter be
substituted for any Collateral under the provisions of Paragraph 6(i) or be
released under Paragraph 9(i) or (ii), unless there is compliance with each
of the following additional requirements:
(A) The substitution or release must not increase the amount by
which the indebtedness secured hereunder at the time of such substitution or
release exceeds the maximum loan value (as defined below) of the Collateral
immediately prior to such substitution or release.
(B) The substitution or release must not cause the amount of
indebtedness secured hereunder at the time of such substitution or release to
exceed the maximum loan value of the Collateral remaining after such
substitution or release is effected.
<PAGE>
(C) For purposes of this Paragraph 9(v), the maximum loan value of
each item of Collateral shall be determined on the day the substitution or
release is to be effected and shall, in the case of the shares of Common
Stock and any additional Collateral (other than margin securities), equal the
good faith loan value thereof (as defined in Section 207.2(e)(1) of
Regulation G) and shall, in the case of all margin securities (other than the
Common Stock), equal fifty percent (50%) of the current market value of such
securities.
10. EVENTS OF DEFAULT. The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
(i) the failure of Pledgor to pay, when due under the Note, any
installment of principal or accrued interest; or
(ii) the occurrence of any other acceleration eventspecified in the
Note; or
(iii) the failure of Pledgor to perform any obligation imposed upon
Pledgor by reason of this agreement; or
(iv) the breach of any warranty of Pledgor contained in this Agreement.
Upon the occurrence of any such event of default, the Corporation may,
at its election, declare the Note and all other indebtedness secured
hereunder to become immediately due and payable and may exercise any or all
of the rights and remedies granted to a secured party under the provisions of
the Utah Uniform Commercial Code (as now or hereafter in effect), including
(without limitation) the power to dispose of the Collateral by public or
private sale or to accept the Collateral in full payment of the Note and all
other indebtedness secured hereunder.
Any proceeds realized from the disposition of the Collateral pursuant to
the foregoing power of sale shall be applied first to the payment of expenses
incurred by the Corporation in connection with the disposition, then to the
payment of the Note and finally to any other indebtedness secured hereunder.
Any surplus proceeds shall be paid over to Pledgor. However, in the event
such proceeds prove insufficient to satisfy all obligations of Pledgor under
the Note, then Pledgor shall remain personally liable for the resulting
deficiency.
11. OTHER REMEDIES. The rights, powers and remedies granted to the
Corporation pursuant to the provisions of this Agreement shall be in addition
to all rights, powers and remedies granted to the Corporation under any
statute or rule of law. Any forbearance, failure or delay by the Corporation
in exercising any right, power or remedy under this Agreement shall not be
deemed to be a waiver of such right, power or remedy. Any single or partial
exercise of any right, power or remedy under this Agreement shall not
preclude the further exercise thereof, and every right, power and remedy of
the Corporation under this Agreement shall continue in full force and effect
unless such right, power or remedy is specifically waived by an instrument
executed by the Corporation.
12. COSTS AND EXPENSES. All costs and expenses (including reasonable
attorneys fees) incurred by the Corporation in the exercise or enforcement of
any right, power or remedy granted it under this Agreement shall become part
of the indebtedness secured hereunder and shall constitute a personal
liability of Pledgor payable immediately upon demand and bearing interest
until paid at the minimum per annum rate, compounded semi-annually, required
to avoid the imputation of interest income to the Corporation and
compensation income to Pledgor under the Federal tax laws.
13. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Utah without resort to that
State's conflict-of-laws rules.
14. SUCCESSORS. This Agreement shall be binding upon the Corporation
and its successors and assigns and upon Pledgor and the executors, heirs and
legatees of Pledgor's estate.
15. SEVERABILITY. If any provision of this Agreement is held to be
invalid under applicable law, then such provision shall be ineffective only
to the extent of such invalidity, and neither the remainder of such provision
nor any other provisions of this Agreement shall be affected thereby.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by Pledgor and the
Corporation on this 5TH day of September, 1995.
OEC MEDICAL SYSTEMS, INC. Ruediger Naumann- Etienne, PLEDGOR
By: /s/ Randy Zundel /s/ Ruediger Naumann-Etienne
---------------------- -----------------------------
Title: Chief Financial Officer 12985 Skyline Drive
----------------------- Oakland, CA 94619
<PAGE>
EXHIBIT 13
Portions of the 1995 Annual Report to Shareholders
Including Five Year Summary
Management's Discussion & Analysis of Financial Condition and Results
of Operations
Consolidated Financial Statements and Notes
<PAGE>
FINANCIAL INFORMATION
- - -------------------------------------------------------------------------------
TABLE OF CONTENTS
Five Year Financial Summary . . . . . . . . . .Page 18
Management's Discussion & Analysis. . . . . . .Page 19
Consolidated Financial Statements . . . . . . .Page 22
Notes to Consolidated Financial Statements. . .Page 26
Independent Auditors' Report. . . . . . . . . .Page 32
RESULTS
17
<PAGE>
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- - ---------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
NET SALES
Product $86,415 $85,206 $89,215 $88,225 $83,044
Service 15,121 12,952 10,799 8,653 6,663
-----------------------------------------------
Total net sales 101,536 98,158 100,014 96,878 89,707
-----------------------------------------------
COST OF SALES
Product 51,408 52,734 50,290 49,443 44,356
Service 8,922 7,942 8,278 5,023 4,556
-----------------------------------------------
Total cost of sales 60,330 60,676 58,568 54,466 48,912
-----------------------------------------------
Gross Margin 41,206 37,482 41,446 42,412 40,795
-----------------------------------------------
OPERATING EXPENSES
Research and development 7,728 8,416 8,689 7,067 5,239
Marketing and sales 17,668 16,487 17,001 15,524 12,836
Administrative, general
and other 5,498 5,776 8,149 5,337 4,456
Litigation judgment -- -- -- 3,100 --
-----------------------------------------------
Total operating expenses 30,894 30,679 33,839 31,028 22,531
-----------------------------------------------
Operating income 10,312 6,803 7,607 11,384 18,264
Interest income 676 346 529 743 756
Interest expense (11) (257) (105) (19) (15)
-----------------------------------------------
Income from continuing
operations before
income taxes 10,977 6,892 8,031 12,108 19,005
Income tax benefit
(expense) 856 1,816 1,776 (362) (1,251)
-----------------------------------------------
Income from continuing
operations 11,833 8,708 9,807 11,746 17,754
Income (loss) from
discontinued operations -- -- (13,060) (30,793) 1,111
-----------------------------------------------
Net income (loss) $11,833 $8,708 $(3,253) $(19,047) $18,865
-----------------------------------------------
Income (loss) per common
and common equivalent
share:
Income from continuing
operations $0.94 $0.69 $0.80 $0.96 $1.40
Income (loss) from
discontinued operations -- -- (1.06) (2.52) 0.09
-----------------------------------------------
Net income (loss) $0.94 $0.69 $(0.26) $(1.56) $1.49
-----------------------------------------------
Common and common
equivalent shares 12,585 12,552 12,281 12,182 12,658
-----------------------------------------------
BALANCE SHEET DATA FOR CONTINUING OPERATIONS
Cash and temporary cash
investments $16,584 $ 7,608 $ 5,383 $ 1,924 $ 1,260
Working capital 43,900 31,199 16,949 18,172 23,278
Total assets 91,462 81,555 77,134 64,214 56,651
Long-term debt -- -- -- 55 55
Stockholders' equity 69,070 58,913 43,298 40,680 46,009
-----------------------------------------------
- - ---------------------------------------------------------------------------
</TABLE>
Note: The Company has never paid a dividend on its common stock.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
NET SALES
Net sales for the year ended December 31, 1995 were $101.5 million compared
to $98.2 million in 1994.
Product sales in 1995 were $86.4 million compared with $85.2 million in 1994,
an increase of 1.5%. The increase was primarily due to a large increase in
international sales. Domestic sales declined by 10.5%, a factor of backlog
erosion in 1994.
Domestic bookings for all products in 1995 were approximately $75.1 million,
compared with $73.0 million in 1994, an increase of 2.9%. International
bookings increased approximately 125% from $7.5 million in 1994 to $16.9
million in 1995. The geographic difference in growth rates reflects
expanding market penetration and opportunities in the international arena
compared with continuing weakness in the U.S. healthcare market. The
Company's urology product bookings increased approximately 28%, following the
introduction of the Uroview 2600 in the first quarter of 1995. Mobile C-Arm
bookings increased approximately 9% worldwide.
Total OEC bookings increased 14% to approximately $91.9 million from $80.5
the prior year. As a result, at December 31, 1995, OEC's backlog had
improved to approximately $16.8 million, compared with $11.2 million 1994
year end. 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.
OEC service revenue increased 16.8%, from $13.0 million to $15.1 million in
1995. These results were attained from an increased contract capture rate
despite very aggressive competition from third-party service organizations.
The following table sets forth OEC's operating results from continuing
operations as a percentage of net sales:
<TABLE>
<CAPTION>
DECEMBER 1995 1994 1993
- - ----------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Product 85.1 86.8 89.2
Service 14.9 13.2 10.8
---------------------------
Total net sales 100.0 100.0 100.0
---------------------------
Cost of sales
Product 50.6 53.7 50.3
Service 8.8 8.1 8.3
---------------------------
Total cost of sales 59.4 61.8 58.6
---------------------------
Gross margin 40.6 38.2 41.4
---------------------------
Operating expenses
Research and development 7.6 8.6 8.7
Marketing and sales 17.4 16.8 17.0
Administrative, general
and other 5.4 5.9 8.1
---------------------------
Total operating expenses 30.4 31.3 33.8
---------------------------
Operating income 10.2 6.9 7.6
Income from continuing operations 11.7 8.9 9.8
- - ----------------------------------------------------------------
</TABLE>
MARGIN ANALYSIS
The Company's gross margin increased in 1995 to 40.6% of sales compared with
38.2% in 1994. Management's focus on manufacturing efficiencies starting in
the latter part of 1994 and continuing through 1995 has enabled the Company
to reduce its cost of sales. These improvements were achieved despite the
higher percentage of international sales through distributors at larger
discounts than to domestic end-users, price erosion and a shift in the mix to
lower priced products.
OEC's service costs increased approximately $1.0 million from 1994 or 12.3%
while service revenue grew by 16.8%.
R&D EXPENSE
R&D expense declined 8.2% in 1995 to $7.7 million, versus $8.4 million in
1994. The decline reflects the completion of the Series 9600 project in
mid-1994. The Company believes that success in a global marketplace requires
a continuing flow of innovative, high quality products. The investment in
BMS, a German manufacturer of mobile C-Arms, has increased our design
capabilities and thus will help in getting new products to the market faster.
The Company will maintain its commitment to R&D investments while continuing
its efforts to increase efficiencies in product design.
19
<PAGE>
MARKETING & SALES EXPENSE
Marketing and sales expense increased in 1995 by $1.2 million to $17.7
million, or 7.6% above 1994. The increase reflects the continuing investment
in international sales and the cost increase in the domestic market due to
competitive pressures.
ADMINISTRATIVE, GENERAL & OTHER EXPENSE
Administrative, general and other expense was basically flat from 1994. As a
percentage of net sales it was down .5%.
INCOME TAXES
During 1995, the reversal of reserves against deferred tax assets resulted in
a deferred tax benefit of $1.6 million. This benefit was offset by $0.7
million of current tax provision for various state income taxes and federal
alternative minimum tax. In addition, $1.0 million of tax benefit was
recorded directly to stockholders' equity for the tax benefit derived from
stock option exercises.
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. 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.
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.
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.
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.
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 $75,000 (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 deferred tax benefit of $2.3 million. This benefit was offset by $0.5
million of current 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.
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 $12.8 million in 1995 compared with $9.3 million in 1994 and
$5.7 million in 1993.
The Company's capital expenditures totalled $1.1 million in 1995 compared
with $3.4 million in 1994 and $3.3 in 1993. Capital expenditures in all
three years were made primarily to upgrade and increase manufacturing
operations. At December 31, 1995, the Company had no significant commitments
for capital expenditures.
20
<PAGE>
Cash and temporary cash investments increased $16.6 million at December 31,
1995 from $7.6 million at December 31, 1994.
A stock repurchase program of 750,000 shares of its outstanding common stock
was announced in December 1994 and the authorized amount was increased to
1,250,000 shares in January 1996. The Company believes its 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, 1995, 648,183 shares have
been repurchased at a cost of $4,575,000, of which 87,983 shares were retired
and 560,200 shares were recorded as treasury stock.
OEC believes that it has sufficient liquidity and anticipated cash flow to
meet its obligations in 1996. In addition, OEC continues to carry an unused
$10 million line of credit.
FACTORS THAT MAY AFFECT FUTURE RESULTS
OEC's future operating results are dependent on its ability to develop,
manufacture and market innovative products that meet customers' needs.
Inherent in this process are a number of risks that the Company must
successfully manage in order to achieve favorable operating results. The
process of developing new high technology medical products is complex and
uncertain and requires innovative designs that anticipate customer needs,
technological trends and healthcare shifts. There can be no assurance that
the Company will be able to develop and market new products on a
cost-effective and timely basis, that such products will compete favorably
with products developed by others or that existing technology will not be
superseded by new discoveries or breakthroughs.
Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the medical device industry places considerable importance on
obtaining patent, trademark, copyright and trade secret protection for new
technologies, products and processes. The loss of protection could have a
material adverse effect on the Company's business.
OEC depends on some significant and single-source vendors for certain
important component parts for certain products. While the Company believes
any of these single-source items could be replaced over time, abrupt
disruption in the supply of a part for a product could have a material
adverse effect on the Company's production in cases where the existing
inventory of the components is not adequate to meet the Company's demand for
the component during such disruption and could have a material adverse effect
on its financial condition and results of operations.
The testing, marketing and sale of human healthcare products entails an
inherent risk of product liability, and there can be no assurance that
product liability claims will not be asserted against OEC. Although OEC has
product liability insurance coverage, there can be no assurance that such
coverage will provide adequate coverage against all potential claims.
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. Failure to comply with FDA regulations could
result in sanctions being imposed, including restrictions on the marketing of
or recall of the affected products.
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.
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
positions, or that its GMP compliance will not be challenged at some
subsequent point in time.
A portion of the Company's research and development activities, its corporate
headquarters and other critical business operations are located near a major
earthquake fault. The ultimate impact on the Company, significant suppliers
and the general infrastructure is unknown, but operating results could be
materially affected in the event of a major earthquake.
Although OEC believes that is has the product offerings and resources needed
for continuing success, future revenue and margin trends cannot be reliably
predicted and may cause the Company to adjust its operations. Factors
external to the Company can result in volatility of the Company's common
stock price.
21
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- - -----------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES
Product $ 86,415 $ 85,206 $ 89,215
Service 15,121 12,952 10,799
----------------------------------
Total net sales 101,536 98,158 100,014
----------------------------------
COST OF SALES
Product 51,408 52,734 50,290
Service 8,922 7,942 8,278
----------------------------------
Total cost of sales 60,330 60,676 58,568
----------------------------------
Gross margin 41,206 37,482 41,446
----------------------------------
OPERATING EXPENSES
Research and development 7,728 8,416 8,689
Marketing and sales 17,668 16,487 17,001
Administrative,general and other 5,498 5,776 8,149
----------------------------------
Total operating expenses 30,894 30,679 33,839
----------------------------------
Operating income 10,312 6,803 7,607
Interest income 676 346 529
Interest expense (11) (257) (105)
----------------------------------
Income before income taxes 10,977 6,892 8,031
Income tax benefit 856 1,816 1,776
----------------------------------
Income from continuing operations 11,833 8,708 9,807
Loss from discontinued operations
[including income tax expense of $238] -- -- (13,060)
----------------------------------
Net income (loss) $ 11,833 $ 8,708 $ (3,253)
----------------------------------
----------------------------------
Income (loss) per common and common
equivalent share:
Continuing operations $ 0.94 $ 0.69 $ 0.80
Discontinued operations -- -- (1.06)
----------------------------------
Net income (loss) $ 0.94 $ 0.69 $(0.26)
----------------------------------
----------------------------------
Common and common equivalent shares 12,585 12,552 12,281
----------------------------------
----------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- - --------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 16,584 $ 7,608
Accounts and notes receivable, net 24,982 24,289
Inventories 18,031 18,463
Prepaid expenses and other current assets 885 835
Deferred income taxes 5,810 2,646
----------------------
Total current assets 66,292 53,841
Long-term receivables 1,002 903
Property and equipment, net 9,868 11,388
Cost in excess of net assets acquired, net 10,854 11,495
Deferred income taxes 2,898 3,676
Other assets, net 548 252
----------------------
Total $ 91,462 $ 81,555
----------------------
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,673 $ 5,158
Accrued salaries and benefits 2,920 2,520
Accrued warranty and installation costs 1,259 1,115
Deferred income on service contracts and customer deposits 5,511 5,228
Income taxes payable 412 415
Accrued legal fees and litigation settlements 3,793 4,319
Accrued distributor commissions 1,892 2,260
Other accrued liabilities 1,932 1,627
----------------------
Total current liabilities 22,392 22,642
----------------------
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 - 12,789 and 12,482 in 1995 and 1994, respectively 128 125
Capital in excess of par value 76,344 73,783
Stock subscription receivable (210) --
Accumulated deficit (3,126) (14,959)
Treasury stock, 560 shares at cost (4,056) --
Foreign currency translation (10) (36)
----------------------
Total stockholders' equity 69,070 58,913
----------------------
Total $ 91,462 $ 81,555
----------------------
----------------------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN EXCESS TREASURY STOCK FOREIGN STOCK
------------ OF PAR ACCUMULATED ---------------- CURRENCY SUBSCRIPTION
(IN THOUSANDS) SHARES AMOUNT VALUE DEFICIT SHARES AMOUNT TRANSLATION RECEIVABLE TOTAL
- - ------------------------------------------------------------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 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 the 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
-----------------------------------------------------------------------------------------------
Issuance of stock under
employee/consultant
benefit plans 355 4 1,919 -- -- -- -- -- 1,923
Tax benefit attributable to
appreciation of common
stock options exercised -- -- 950 -- -- -- -- -- 950
Purchase of treasury shares -- -- -- -- (648) (4,575) -- -- (4,575)
Retirement of treasury shares (88) (1) (518) -- 88 519 -- -- --
Issuance of stock subscription
receivable 40 -- 210 -- -- -- -- $ (210) --
Foreign currency translation -- -- -- -- -- -- 26 -- 26
Net income -- -- -- 11,833 -- -- -- -- 11,833
-----------------------------------------------------------------------------------------------
Balance, December 31, 1995 12,789 $ 128 $ 76,344 $ (3,126) (560) $ (4,056) $ (10) $ (210) $69,070
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
OPERATING ACTIVITIES
Income from continuing operations $11,833 $8,708 $9,807
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization 3,272 3,546 2,812
Bad debt expense 20 245 1,695
Legal settlement recorded as reduction of note payable to related party -- (750) --
Deferred income tax benefit (1,611) (2,280) (2,000)
Current tax benefit attributable to stock options exercised 175 49 --
Changes in current assets and liabilities:
Accounts and notes receivable, net (713) 650 (1,097)
Inventories 432 657 (5,890)
Prepaid expenses and other current assets (50) 263 (383)
Other assets, net (296) (252) 60
Accounts payable (485) 916 1,534
Accrued salaries and benefits 400 179 604
Accrued warranty and installation costs 144 (248) (387)
Deferred income on service contracts and customer deposits 283 412 1,874)
Income taxes payable (3) (401) (108)
Accrued legal fees and litigation settlements (526) 244 (1,585)
Accrued restructuring costs -- (3,259) (991)
Accrued distributor commissions (368) (162) 127
Other accrued liabilities 305 825 (411)
------------------------------
Net cash provided by continuing operations 12,812 9,342 5,661
Net cash provided by discontinued operations -- -- 1,025
------------------------------
Net cash provided by operating activities 12,812 9,342 6,686
------------------------------
INVESTING ACTIVITIES
Reduction (increase) in long-term receivables (99) 458 (1,361)
Additions to property and equipment (1,111) (3,441) (3,297)
Other 26 (19) (17)
------------------------------
Net cash used in investing activities (1,184) (3,002) (4,675)
------------------------------
FINANCING ACTIVITIES
Sales of common stock 1,923 360 1,503
Purchases of treasury stock (4,575) -- --
Payments on notes payable -- (4,475) (55)
------------------------------
Net cash provided by (used in) financing activities (2,652) (4,115) 1,448
Net increase in cash and temporary cash investments 8,976 2,225 3,459
Cash and temporary cash investments at beginning of year 7,608 5,383 1,924
------------------------------
Cash and temporary cash investments at end of year $16,584 $7,608 $5,383
------------------------------
------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(for continuing and discontinued operations):
Cash paid during the year for interest $11 $257 $1,815
Cash paid during the year for income taxes $583 $357 $1,491
</TABLE>
SUPPLEMENTAL DISCLOSURES 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:
<TABLE>
<CAPTION>
<S> <C>
Assets distributed $147,866
Liabilities distributed [including $9,700 note payable to related party (see Note 10)] (49,637)
--------
Net book value of assets distributed $ 98,299
--------
--------
</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. During the years ended December 31, 1995 and
1994, the tax benefits in the amount of $775 and $2,042, respectively,
attributable to the appreciation of common stock options were credited directly
to capital in excess of par value. During the year ended December 31, 1995, the
Company sold 40 shares of its common stock in exchange for a note receivable in
the amount of $210.
See accompanying notes to consolidated financial statements.
25
<PAGE>
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, outpatient
clinics, and private practice surgi-centers. The manufacturing facilities are
located in Salt Lake City, Utah and Warsaw, Indiana. The systems are marketed
through direct sales forces of the Company and through independent distributors
and dealers primarily in the United States, Europe and the Pacific Rim (see
Note 8).
RECENT FINANCIAL ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This statement addresses the accounting for the impairment
of long-lived assets, such as premises, furniture and equipment, certain
identifiable intangibles and goodwill related to those assets. Long-lived
assets and certain identifiable intangibles are to be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment loss is recognized when the
sum of the future cash flows (undiscounted and without interest charges
expected from the use of the asset and its eventual disposition) is less than
the carrying amount of the asset. The statement also requires that long-lived
assets and identifiable intangibles, except for assets of a discontinued
operation held for disposal, be accounted for at the lower of cost or fair
value less cost to sell. SFAS No. 121 is effective for fiscal years beginning
after December 15, 1995. The impact of SFAS No. 121 on the Company is not
expected to be material in relation to the consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply
APB Opinion No. 25 which is based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUES 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, 1995, the Company had a line
of credit for $10 million which expires May 1997. No borrowings had been made
under this line as of December 31, 1995.
26
<PAGE>
ACCOUNTS AND NOTES RECEIVABLE
The allowance for doubtful accounts included in accounts and notes
receivable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- - -----------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Allowance for doubtful accounts $577 $725
-------------
- - -----------------------------------------------
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost (utilizing the first-in/first-out
method) or market. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- - -------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Purchase parts and completed
subassemblies $8,190 $ 8,295
Work-in-process 3,216 3,281
Finished goods 5,147 5,661
Service and repair parts 4,171 4,715
----------------
Total $20,724 $21,952
Less reserves (2,693) (3,489)
----------------
Net $18,031 $18,463
----------------
----------------
- - -------------------------------------------------
</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, 1995 1994
- - --------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Buildings and land $ 6,586 $ 6,400
Machinery and equipment 13,754 13,290
Leasehold improvements 700 815
Furniture and fixtures 164 171
-----------------
Total $ 21,204 $20,676
Less accumulated depreciation
and amortization (11,336) (9,288)
-----------------
Net $ 9,868 $11,388
-----------------
-----------------
- - --------------------------------------------------
</TABLE>
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired include the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- - ------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Cost in excess of net assets
acquired $18,396 $18,396
Less accumulated amortization (7,542) (6,901)
-----------------
Net $10,854 $11,495
-----------------
-----------------
- - ------------------------------------------------
</TABLE>
Cost in excess of net assets acquired is being amortized on a straight-line
basis over approximately 30 years. Amortization amounted to $641,000 in each
of the three years ended December 31, 1995.
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- - --------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Patents and licenses -- $ 990
Less accumulated amortization -- (990)
Deposits $345 252
Investment in subsidiary, at cost 203 --
--------------
Net $548 $ 252
--------------
--------------
- - --------------------------------------------------
</TABLE>
Patents and licenses are amortized on a straight-line basis over 16 years.
Amortization amounted to approximately $60,000 in the year 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.
27
<PAGE>
INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Income (loss) per common equivalent share is computed using the weighted
average number of the Company's common shares outstanding and, for 1994 and
1995, 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 of exchange for the year. Gains
and losses resulting from these translations are accumulated in a separate
component of stockholders' equity until such time as the subsidiary's
operations are discontinued, sold or substantially liquidated.
2. RESTRUCTURING
Effective September 30, 1993, Diasonics, Inc., the Company's predecessor,
effected a restructuring and distribution whereby Diasonics 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 Ultrasound, Inc. that operated Diasonics, Inc.'s
therapeutic products division. These businesses are now accounted for as
discontinued operations for the period 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.
Revenues from the discontinued operations totaled $136.7 million for
1993.
3. INCOME TAXES
Income tax benefit 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 from
continuing operations consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- - -------------------------------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
Current Expense:
State $ (598) $ (351) $ (224)
---------------------------
Federal (3,771) (2,033) --
Less utilization of
operating loss
carryforwards and
tax credits 3,614 1,920 --
---------------------------
Net Federal (157) (113) --
---------------------------
Total Current (755) (464) (224)
---------------------------
Deferred Benefit:
Reversal of valuation
allowance 5,394 $ 5,125 $2,000
Net operating loss utilized
currently (3,614) (1,920) --
Other deferred tax assets
utilized (169) (925) --
---------------------------
Total Deferred 1,611 2,280 2,000
------------------------
Net $ 856 $ 1,816 $1,776
---------------------------
---------------------------
- - -------------------------------------------------------------
</TABLE>
Income tax benefit 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, 1995 1994 1993
- - -------------------------------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS)
Computed federal income
tax expense at statutory
rate of 35% $(3,842) $(2,412) $(2,811)
State income taxes (598) (351) (224)
Gains (losses) of
subsidiaries for
which effects are not
recorded 16 (314) --
Utilization of net losses
of discontinued operations -- -- 3,082
Change in valuation
allowance for deferred
tax assets 5,394 5,125 2,000
Permanent differences (114) (232) (271)
------------------------------
Income tax benefit $856 $1,816 $1,776
------------------------------
------------------------------
- - -------------------------------------------------------------
</TABLE>
28
<PAGE>
The Company has investment and research and experimental tax credit
carryforwards of approximately $6,452,000 expiring in the period 1996 through
2009, plus alternative minimum tax credit carryforwards of approximately
$2,236,000.
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, 1995 1994
- - --------------------------------------------------------
<S> <C> <C>
(IN THOUSANDS)
DEFERRED TAX ASSETS:
Reserves not currently deductible $ 4,326 $ 3,875
Operating loss carryforwards -- 3,479
Tax credit carryforwards 8,688 8,668
------------------
Total Deferred Taxes 13,014 16,022
Valuation allowance (4,306) (9,700)
Net deferred taxes $ 8,708 $ 6,322
------------------
------------------
- - --------------------------------------------------------
</TABLE>
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,
- - ----------------------------------------
<S> <C>
(IN THOUSANDS)
1996 $956
1997 820
1998 206
1999 155
2000 82
------
Total $2,219
------
------
- - ----------------------------------------
</TABLE>
Total rent expense in 1995, 1994, and 1993 was $1,076,000, $1,028,000, and
$422,000, respectively.
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 $690,000, $436,000, and $378,000, in 1995, 1994,
and 1993, 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.
A summary of stock plan activities is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT AVERAGE PRICES)
OPTIONS:
Outstanding beginning of year 1,952 2,006 1,561
Granted 714 85 719
Cancelled (600) (95) (110)
Exercised (326) (44) (164)
------------------------------
Outstanding end of year 1,740 1,952 2,006
------------------------------
------------------------------
Exercisable at end of year 780 1,335 1,074
Available for grant at end of year 412 526 517
Consideration received for options
exercised during year $1,779 $232 $1,110
Aggregate purchase price of options
outstanding at end of year $10,478 $12,239 $12,634
Range of purchase prices of options
outstanding at end of year - low $5.25 $5.25 $5.25
- high $12.03 $14.37 $14.37
Average purchase price of options
exercised during year $5.46 $5.27 $6.77
Shares purchased under ISAP 69 27 32
Consideration received for purchases
made under ISAP $354 $128 $393
- - ----------------------------------------------------------------------------
</TABLE>
29
<PAGE>
WARRANTS
In connection with the signing of a product development agreement in 1990,
the Company's predecessor 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, 1995,
none of the warrants had been exercised.
STOCK REPURCHASE
A stock repurchase program of 750,000 shares of the Company's outstanding
common stock was announced in December 1994 and an additional 500,000 shares in
January 1996. The Company believes its 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, 1995, 648,183 shares have been repurchased, of which 87,983
were retired and 560,200 are recorded as treasury stock.
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, 1995 and 1994, the reserve with accrued interest totalled approximately
$3.7 million.
All but one of the pending lawsuits relating to the former MRI Division
have been favorably resolved by dismissals, summary judgment or directed
verdicts in favor of the Company. With respect to the sole exception, an
action filed by Lenox Hills Leasing Associates, Toshiba America Medical
Systems, Inc. ("Toshiba") has agreed to defend and indemnify the Company. All
of the pending actions, and any future actions related to the MRI Division,
are the subject of an arbitration award in favor of the Company and against
Toshiba. That arbitration award holds that, with certain limited exceptions
not applicable to any of the pending actions, Toshiba is obligated to
indemnify the Company for compensatory and punitive damages, if any, awarded
against the Company in any action related to the former MRI Division and to
reimburse the Company for its attorney's fees and expenses incurred in
defending such actions, regardless of whether such actions allege intentional
misconduct or fraud. This arbitration award was confirmed by a California
trial court. Toshiba appealed, and the California Court of Appeals affirmed
the ruling of the trial court in favor of the Company. Toshiba may seek
further appellate review of the award. If the award is reversed, it will not
effect the outcome of any of the pending actions, but will apply only to
future filed actions. To the extent that the award is reversed and a future
action is filed that would not be covered by the Company's indemnity or the
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 through its predecessor, Diasonics Inc., 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 two and one-half cents 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, 1995 and 1994, 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.
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
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.
30
<PAGE>
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. FOREIGN SALES
The Company markets its products internationally through subsidiaries in
Switzerland, Germany, France and Italy as well as dealers and distributors in
all other countries were applicable. The following table summarizes
approximate foreign product sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- - --------------------------------------------------------
<S> <C> <C> <C>
Europe $ 8,770 $2,294 $2,950
Other 8,078 5,201 5,348
-----------------------------
Total foreign sales $16,848 $7,495 $8,298
-----------------------------
-----------------------------
- - --------------------------------------------------------
</TABLE>
9. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for 1995 is as follows (in thousands,
except for per share data):
<TABLE>
<CAPTION>
QUARTER FIRST SECOND THIRD FOURTH
- - --------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net Sales $22,802 $26,129 $25,470 $27,135
Gross margin 9,221 10,695 10,426 10,864
Net income 2,492 2,762 3,141 3,438
Income per share .20 .22 .25 .27
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
- - --------------------------------------------------------
</TABLE>
10. RELATED PARTIES
At December 31, 1995, 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 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.
During 1995, the Company purchased a 19.8% ownership position in Barwig
Medizinische Systeme GmbH (BMS), a German manufacturer of medical equipment.
The Company was granted exclusive worldwide distribution rights for the 7600
C-Arm manufactured by BMS. During 1995, the Company provided long-term working
capital loans to BMS of approximately $1.0 million. The company has the option
until December 31, 1996, to convert a portion of the loan into a total of 51.7%
ownership of BMS. At December 31, 1995, this option has not been exercised.
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
- - --------------------------------------------------------------------------------
The Board of Directors and Stockholders of OEC Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of OEC Medical
Systems, Inc. (formerly Diasonics, Inc.) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
January 19, 1996
32
<PAGE>
EXHIBIT 21
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 report dated January 19, 1996, incorporated by reference in the Annual
Report on Form 10-K of OEC Medical Systems, Inc. for the year ended December
31, 1995.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's 1995 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 16,584
<SECURITIES> 0
<RECEIVABLES> 25,559
<ALLOWANCES> 577
<INVENTORY> 18,031
<CURRENT-ASSETS> 66,292
<PP&E> 21,204
<DEPRECIATION> 11,336
<TOTAL-ASSETS> 91,462
<CURRENT-LIABILITIES> 22,392
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 68,942
<TOTAL-LIABILITY-AND-EQUITY> 91,462
<SALES> 86,415
<TOTAL-REVENUES> 101,536
<CGS> 51,408
<TOTAL-COSTS> 60,330
<OTHER-EXPENSES> 30,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 10,977
<INCOME-TAX> (856)
<INCOME-CONTINUING> 11,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,833
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
