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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, 1997
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 Identification Number)
incorporation or organization)
384 WRIGHT BROTHERS DRIVE 84116
SALT LAKE CITY, UTAH Zip Code
(Address of principal executive offices)
(801) 328-9300
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Listed on the New York Stock Exchange (NYSE)
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 or for such short period that the Registrant
was required such reports and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates (based on
the closing sales price on the New York Stock Exchange) on March 1, 1998 was
approximately $279,175,810.
As of March 1, 1998, there were 12,725,963 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 1998 Annual Meeting of Stockholders I, III
(2) Portions of the Annual Report to Shareholders for fiscal year ended
December 31, 1997 II
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OEC MEDICAL SYSTEMS, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 5
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 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures about Market Risk N/A
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
</TABLE>
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OEC MEDICAL SYSTEMS, INC.
1997 FORM 10-K ANNUAL REPORT
PART I
Except for historical information, this discussion contains forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those projected. Such risk and uncertainties include:
product demand and market acceptance; the effect of general economic conditions
and foreign currency fluctuations; the impact of competitive products and
pricing; new product development and commercialization; the effect of the
continuing shift in growth from domestic to international healthcare customers,
and the impact of managed care initiatives in the United States and the ability
to increase operating margins on higher sales as further described in the "Risk
Factors" section on page 4 of this Form 10-K.
ITEM 1. BUSINESS
General. OEC develops, manufactures, markets, and services computer-based
X-ray fluoroscopic imaging systems for use in hospitals, outpatient clinics,
physicians' offices and surgery-centers for minimally invasive 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 various
internal fixation devices, OEC entered the medical X-ray imaging market in 1972.
Diasonics, Inc. (Diasonics) in October 1983 acquired OEC as a separate operating
subsidiary. The Company was merged into Diasonics in September of 1993. As part
of the restructuring, the other operating businesses of Diasonics were spun off
to shareholders and the Diasonics name was changed to OEC Medical Systems, Inc.
Today, OEC is recognized as the pioneer and continuing United States market
leader of intraoperative 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, contributes to lowering 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 and more traumatic open surgical procedures. High quality digital
fluoroscopy has become mandatory in many of today's modern operating room.
Minimally invasive techniques are expanding into many areas of surgery
(vascular, neurological, orthopedic, urological, cardiac and general surgery).
OEC's products are designed to meet the needs of these new procedures.
Technical leadership, strong customer relationships, a cost-effective
product line and full-line service capabilities have earned OEC the United
States market leadership position in the intraoperative X-ray imaging markets
which it addresses.
OEC believes its international markets represent a significant growth
opportunity and continues 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 fluoroscopic imaging.
With this focus in mind, OEC has been investing in the future through research
and development. The introductions of the Series 9600 Mobile Digital Imaging
System in 1994, the Uroview 2600 urology table, the Mini 6600 and the Compact
7600 all introduced in 1995, the 9600 Mobile Cardiac Cath Lab and the dual mode
Mini 6600 introduced in 1997, are the results of these investments.
OEC's expanding presence in international markets is another example of the
Company's investment in the future. OEC has strengthened its wholly owned
subsidiaries in France, Germany, Italy and Switzerland with additional personnel
and training, and has designed its new products to be more appealing and
acceptable to international customers. OEC also strengthened its international
network in new markets by establishing new distributors and strengthening
existing distributors throughout the world. OEC intends to continue these
activities during 1998.
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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.
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
guidance.
The modular architecture of the system allows the Series 9600 to be
tailored to meet the needs of the surgeon. For example, the Series 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 $230,000.
The Series 9600 Mobile Cardiac Cath Lab was introduced in 1997. This
proprietary version of the Series 9600 offers the same imaging capability found
in many fixed room cath labs with all the convenience and cost effectiveness of
a mobile imaging system. This system is the basis for the Company's strategic
alliances with device manufacturers associated with minimally invasive cardiac
surgeries. Surgeons use the Series 9600 Cardiac system to confirm patency
following minimally invasive cardiac procedures. Prices for the Series 9600
Mobile Cardiac Cath Lab range from $190,000 to $250,000.
In response to changes brought on by managed healthcare, OEC introduced
three lower cost digital mobile X-ray machines - the Compact 7600, Series 7600
and the 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 network.
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. Its 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 $95,000. The
Series 7600 has the same functionality as that of the Compact, but it has a
separate workstation. The addition of the workstation allows the Series 7600 to
be upgraded in features and capabilities in order to perform more complicated
procedures. The price range for the Series 7600 is $80,000 to $100,000.
The dual mode version of the Mini 6600 Digital Mobile C-Arm was introduced
in 1997. Like its forerunner the Mini 6600, it is a smaller digital fluoroscopic
imaging system that has been specifically designed to provide high quality
images of upper and lower extremities. Areas of use include hospital operating
rooms and emergency rooms, outpatient surgery centers, specialty physician
offices and veterinary clinics. Prices of the Mini 6600 range from $45,000 to
$70,000.
During 1997, 1996 and 1995, the OEC C-arm business represented 80%, 77% and
82% of total product sales, respectively.
UroView 2600 Digital Imaging System. Urology is another surgical specialty
requiring intraoperative imaging that has largely moved away from the use of
static X-ray films to monitor and guide procedural progress. Diagnostic and
interventional urological procedures are often performed in a separate area of
the operating room environment known as the Cysto Department. Until the late
80s, 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 in. These films, once exposed, would
need to be taken to a darkroom in radiology to be developed prior to being
brought back to the Cysto Department for evaluation by the urologist. This
resulted in long procedural delays. Additionally, real-time events could not be
recorded since radiographic film produces only a static image. Eventually,
real-time fluoroscopic imaging capabilities were added to these systems. In
1987, OEC introduced the Uroview, which was the industry's first urological
table with fully integrated digital fluoroscopy. This resulted in significant
image improvement, pulsed fluoro for lower dose than prior systems, and
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reduced costs compared to existing urological imaging systems. Prices for the
Uroview system presently range from $210,000 to $230,000.
During 1997, 1996 and 1995, the OEC urology business represented 20%, 23%
and 18% of total product 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 dealers,
direct representatives and exclusive independent distributors, with installation
and service performed by OEC. Most of these distributors have represented OEC
products over many years.
In Europe, OEC distributes its products primarily through wholly owned
subsidiaries in Italy, France, Germany and Switzerland. For the rest of the
world, distribution is accomplished through independent dealers and
distributors.
OEC generally warrants its products for twelve months from the date of
installation. OEC offers service contracts for products for which the warranty
has expired.
During 1997, 1996 and 1995, service revenue represented 11%, 13% and 15% of
net sales, respectively.
Manufacturing. OEC's manufacturing operations are located in Salt Lake
City, Utah; Warsaw, Indiana, and as of January 1, 1997, Wendelstein, Germany.
The Salt Lake City facility has just been expanded by 40,000 square feet to
accommodate increased product demand and future anticipated growth. The 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 for the Mini 6600, Series 9600, and Uroview 2600 are
manufactured at OEC's Salt Lake City facility, which also performs final
assembly and test of the finished devices. The Wendelstein, Germany facility
manufactures the Compact 7600 and the Series 7600.
Competition. The market for mobile X-ray and urological imaging products is
highly competitive. Many of OEC's existing and potential competitors have
substantially greater financial, marketing and technological resources than OEC.
In the market for products similar to OEC's Series 9600 Mobile C-arm, OEC
competes with General Electric, Siemens Medical Systems, Inc., Philips Medical
Systems, Inc. and Toshiba Medical Systems, Inc. Competitive companies offering
products similar to the Mini 6600 include Hologic, Inc., Lunar Corporation, and
XiTec, Inc. The Compact 7600 and Series 7600 compete with similar products from
International Medical Systems, Inc. Competitive companies offering products
similar to the Uroview 2600 include Shimadzu, 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 the quality of service and support.
Backlog. At December 31, 1997, OEC's backlog was approximately $32.3
million, as compared with approximately $24.1 million at December 31, 1996. 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 that its ability to use
technological innovation to advance the clinical utility of diagnostic imaging
has been and will continue to be a significant factor in its success. 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. In 1997 OEC introduced the 9600 Mobile Cardiac Cath Lab and the Mini 6600
Dual mode systems.
During 1997, 1996, and 1995, OEC's research and development expenses
totaled $11.2 million, $8.9 million and $7.7 million, respectively, representing
7.2%, 6.9% and 7.6% of net sales.
Employees. On December 31, 1997, OEC had approximately 635 employees. None
of OEC's employees are covered by collective bargaining agreements, and OEC
considers its employee relations to be satisfactory.
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Acquisitions. 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. On January 1, 1997, the Company purchased
the remaining outstanding shares of BMS, making it a wholly owned subsidiary of
the Company. Costs associated with this acquisition were not material.
Risk Factors. The Company's business involves risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include: product demand and market acceptance; the effect of
general economic conditions and foreign currency fluctuations; the impact of
competitive products and pricing; new product development and commercialization;
the effect of the continuing shift in growth from domestic to international
healthcare customers, the impact of managed care initiatives in the United
States and the ability to increase operating margins on higher sales.
Future operating results are dependent on the Company's 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
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 failure to obtain protection or the loss
of such 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 regulatory agencies. Failure to comply with FDA and other regulatory
regulations could result in sanctions being imposed, including restrictions on
the marketing of or recall of the affected products.
The FDA and other agencies have periodically inspected OEC's facilities and
manufacturing processes, 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, state and foreign regulations. Nevertheless, there can be no
assurance that the FDA or a state, federal or foreign regulatory 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. 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 four
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.
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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.
ITEM 2. PROPERTIES.
OEC owns its corporate headquarters and manufacturing facility of 145,000
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. The
Company has the right to renew this lease for another five years if it so
desires and also has the option to buy. The Company leases 10,000 square feet of
manufacturing in Wendelstein, Germany for the OEC GmbH operations. The lease
expires in October 1998. The company also has the right to renew this lease at
its discretion.
ITEM 3. LEGAL PROCEEDINGS.
A terminated distributor instituted litigation against the Company in 1986.
The trial court rendered an unfavorable decision in the amount of $3.1 million
in 1992. As a result of that decision, the Company established a reserve for the
judgment. The Company appealed the trial court decision on a number of grounds,
and in November 1993, the appellate court reversed the trial court and held for
the Company on the ground that the distributor had released his claims against
the Company in the settlement of other litigation and did not reach the other
issues raised on appeal. The distributor filed a petition in the Indiana Supreme
Court requesting that the court vacate the appellate court ruling and remand the
case to the appellate court for consideration of the other issues raised on
appeal. On December 31, 1996, the Indiana Supreme Court reversed the ruling of
the Indiana Circuit Court of Appeals and held that the trial court correctly
determined that the release executed by the distributor did not release the
Company. The case was remanded back to the appellate court for consideration of
the remaining issues raised on the appeal. On December 23, 1997 the appellate
court affirmed the trial court's judgement "in all matters except the
prejudgment interest which was reversed." As of December 31, 1997, the reserve
with accrued interest totaled approximately $4.7 million.
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 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position
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<S> <C> <C>
Joseph W. Pepper 51 President and Chief Executive Officer
Randy W. Zundel 42 Chief Operating Officer, Chief Financial Officer
Executive Vice President
Barry K. Hanover 43 Chief Technical Officer and
Executive Vice President, Engineering
Larry E. Harrawood 50 Vice President, Marketing and Business Development
Ted L. Parrot 56 Vice President, Regulatory Affairs & Quality Assurance
Clarence R. Verhoef 42 Vice President, Finance, Treasurer & Secretary
</TABLE>
Joseph W. Pepper was named President and Chief Executive Officer, and
appointed to the Board of Directors of OEC Medical Systems, Inc., in May of
1997. Prior to joining OEC, he was President of the Medical Devices
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Division of Ohmeda, Inc., from 1995 to 1997. From 1992 to 1995 he was President
of Ohmeda's Medical Systems Division, and from 1988 to 1992 he was Vice
President in charge of the Monitoring Business Unit. Prior to that, Pepper held
engineering management positions at General Electric and at the Electric Power
Research Institute. He is a director on the board of Heartlab, Inc.
Randy W. Zundel is an Executive Vice President and the Chief Operating
Officer and the Chief Financial Officer of the Company. He was appointed Chief
Operating Officer in September 1996. He has been the Chief Financial Officer of
the Company since October 1993. He was the Chief Operating Officer 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.
Barry K. Hanover is the Chief Technical Officer and Executive Vice
President, Engineering of the Company. He was appointed Chief Technical Officer
in September 1996. He has been the Vice President, Engineering 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.
Ted L. Parrot was named Vice President, Quality Systems and Regulatory
Affairs in 1994. Prior to joining OEC he held various positions at PPG
Biomedical Systems including Director of Marketing, Director of Engineering and
Director of Quality Assurance and Regulatory Affairs. He has 30 years experience
in the field of diagnostic imaging including 20 years with Philips Medical
Systems.
Clarence R. Verhoef has been Vice President, Finance since September 1996
and Treasurer since October 1993. He was appointed Secretary in March 1998. Mr.
Verhoef held the positions of Director of Finance, from August 1993 to September
1996, Assistant Secretary from August 1993 to March 1998 and Controller from
October 1989 to August 1993. He has held various other positions with OEC since
1977.
During 1997, Ruediger Naumann-Etienne resigned the position of President
and Chief Executive Officer upon the hiring of Joseph W. Pepper. Dr.
Naumann-Etienne remains the Chairman of the Board for OEC Medical Systems, Inc.
Also in 1997, Gary Kilman resigned the post of Vice President of Sales.
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 March 1, 1998, the
number of holders of record of common stock was 2,036.
<TABLE>
<CAPTION>
Prices
Quarter Ended: High Low Close
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<S> <C> <C> <C>
March 31, 1996................... 13 3/4 9 1/2 11 3/4
June 30, 1996.................... 13 5/8 11 1/4 13 5/8
September 30, 1996............... 13 1/2 10 3/4 12 1/2
December 31, 1996................ 16 7/8 12 1/4 15
March 31, 1997................... 18 1/2 14 7/8 16 3/8
June 30, 1997.................... 17 15/16 13 3/8 17 13/16
September 30, 1997............... 19 3/8 15 3/8 18 7/8
December 31, 1997................ 20 13/16 16 11/16 19 15/16
</TABLE>
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The Company has not paid any dividends on its common stock. The Company
presently intends to retain all earnings for use in the business and, therefore,
does not anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The table labeled "Five Year Summary" appearing as page 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 23 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
27 through 35 of Exhibit 13 are 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 "1997 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 1997
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 1997
Proxy Statement.
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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 1997 Proxy Statement.
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:
<TABLE>
<CAPTION>
Page in
Exhibit 13
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<S> <C>
Consolidated statements of operations for each of the three years in the
period ended December 31, 1997................................................................. 24
Consolidated balance sheets at December 31, 1997 and 1996............................................. 25
Consolidated statements of stockholders' equity for each of the three years in
the period ended December 31, 1997............................................................. 26
Consolidated statements of cash flows for each of the three years in the
period ended December 31, 1997................................................................. 27
Notes to consolidated financial statements............................................................ 28
Independent Auditors' Report.......................................................................... 36
</TABLE>
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.
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
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 May 15, 1997. Incorporated by reference to the OEC
Medical Systems, Inc. Form 10-Q, filed August 8, 1997.
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.
10.14 Form of Option Agreement used in connection with options having
service-vesting provisions. Incorporated by reference to the OEC
Medical Systems, Inc. Form 10-K, filed March 30, 1994.
10.15 Form of Option Agreement 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 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.
10.19 Note and Stock Pledge Agreement between Ruediger Naumann-Etienne and
OEC Medical Systems, Inc., dated September 5, 1995. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed April 1,
1996.
10.20 Form of Warrant Agreement used in connection with grant to independent
contractors for the purchase of common shares. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed March 27,
1997.
10.21 Agreement dated December 17, 1996, to acquire full ownership of Barwig
Medizinische Systeme GmbH (BMS). Incorporated by reference to the OEC
Medical Systems, Inc. Form 10-K, filed March 27, 1997.
10.22 Agreement dated January 10, 1997 to repurchase warrants for the
purchase of common shares issued to PaineWebber R&D Partners II, L.P.
Incorporated by reference to the OEC Medical Systems, Inc. Form 10-Q,
filed May 13, 1997.
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.23 Offer of Employment between Joseph W. Pepper and OEC Medical Systems,
Inc. dated April 21, 1997. Incorporated by reference to the OEC Medical
Systems, Inc. Form 10-Q, filed August 8, 1997.
11 Statement of Computation of Per Share Earnings.
13 Portions of the 1997 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. Incorporated by reference to the OEC Medical
Systems, Inc. Form 10-Q, filed May 13, 1997.
23 Independent Auditor's Consent.
27.1 Financial Data Schedule (FDS) for Edgar Filing.
27.2 Restated Financial Data Schedule (FDS) for Edgar Filing for 1996.
27.3 Restated Financial Data Schedule (FDS) for Edgar Filing for 3rd
quarter 1996.
27.4 Restated Financial Data Schedule (FDS) for Edgar Filing for 2nd
quarter 1996.
27.5 Restated Financial Data Schedule (FDS) for Edgar Filing for 1st
quarter 1996.
27.6 Restated Financial Data Schedule (FDS) for Edgar Filing for 1995.
27.7 Restated Financial Data Schedule (FDS) for Edgar Filing for 3rd
quarter 1997.
27.8 Restated Financial Data Schedule (FDS) for Edgar Filing for 2nd
quarter 1997.
27.9 Restated Financial Data Schedule (FDS) for Edgar Filing for 1st
quarter 1997.
(b) Reports on Form 8-K:
Not applicable
</TABLE>
12
<PAGE> 13
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
Executive Vice President &
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph W. Pepper and Clarence R. Verhoef 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 26, 1998
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>
<S> <C> <C>
/s/ Ruediger Naumann-Etienne Chairman of the Board March 26, 1998
- ------------------------------
Ruediger Naumann-Etienne
/s/ Gregory K. Hinckley Director March 26, 1998
- ------------------------------
Gregory K. Hinckley
/s/ Benno P. Lotz Director March 26, 1998
- ------------------------------
Benno P. Lotz
/s/ Allan W. May Director March 26, 1998
- ------------------------------
Allan W. May
/s/ Chase N. Peterson Director March 26, 1998
- ------------------------------
Chase N. Peterson
/s/ Joseph W. Pepper Director March 26, 1998
- ------------------------------ President & CEO
Joseph W. Pepper
/s/ Randy W. Zundel Principal Financial & March 26, 1998
- ------------------------------ Accounting Officer
Randy W. Zundel
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
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 May 15, 1997. Incorporated by reference to the OEC
Medical Systems, Inc. Form 10-Q, filed August 8, 1997.
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.
10.14 Form of Option Agreement used in connection with options having
service-vesting provisions. Incorporated by reference to the OEC
Medical Systems, Inc. Form 10-K, filed March 30, 1994.
10.15 Form of Option Agreement 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 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.
10.19 Note and Stock Pledge Agreement between Ruediger Naumann-Etienne and
OEC Medical Systems, Inc., dated September 5, 1995. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed April 1,
1996.
10.20 Form of Warrant Agreement used in connection with grant to independent
contractors for the purchase of common shares. Incorporated by
reference to the OEC Medical Systems, Inc. Form 10-K, filed March 27,
1997.
10.21 Agreement dated December 17, 1996, to acquire full ownership of Barwig
Medizinische Systeme GmbH (BMS). Incorporated by reference to the OEC
Medical Systems, Inc. Form 10-K, filed March 27, 1997.
10.22 Agreement dated January 10, 1997 to repurchase warrants for the
purchase of common shares issued to PaineWebber R&D Partners II, L.P.
Incorporated by reference to the OEC Medical Systems, Inc. Form 10-Q,
filed May 13, 1997.
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.23 Offer of Employment between Joseph W. Pepper and OEC Medical Systems,
Inc. dated April 21, 1997. Incorporated by reference to the OEC Medical
Systems, Inc. Form 10-Q, filed August 8, 1997.
11 Statement of Computation of Per Share Earnings.
13 Portions of the 1997 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. Incorporated by reference to the OEC Medical
Systems, Inc. Form 10-Q, filed May 13, 1997.
23 Independent Auditor's Consent.
27.1 Financial Data Schedule (FDS) for Edgar Filing.
27.2 Restated Financial Data Schedule (FDS) for Edgar Filing for 1996.
27.3 Restated Financial Data Schedule (FDS) for Edgar Filing for 3rd
quarter 1996.
27.4 Restated Financial Data Schedule (FDS) for Edgar Filing for 2nd
quarter 1996.
27.5 Restated Financial Data Schedule (FDS) for Edgar Filing for 1st
quarter 1996.
27.6 Restated Financial Data Schedule (FDS) for Edgar Filing for 1995.
27.7 Restated Financial Data Schedule (FDS) for Edgar Filing for 3rd
quarter 1997.
27.8 Restated Financial Data Schedule (FDS) for Edgar Filing for 2nd
quarter 1997.
27.9 Restated Financial Data Schedule (FDS) for Edgar Filing for 1st
quarter 1997.
(b) Reports on Form 8-K:
Not applicable
</TABLE>
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE: 1997 1996 1995
(In thousands, except per share amounts) ---- ---- ----
<S> <C> <C> <C>
Net income*............................... $12,178 $12,912 $11,833
Earnings per common share:
Basic................................... $0.98 $1.05 $0.96
Diluted................................. $0.93 $1.01 $0.94
Shares outstanding (average):
Common shares........................... 13,330 12,991 12,695
Treasury shares......................... (930) (728) (337)
------- ------- -------
Common shares -- basic (average) 12,400 12,263 12,358
Options: common equivalents............... 679 526 227
Warrants: common equivalents.............. -- 8 --
------- ------- -------
Common shares -- diluted (average)........ 13,079 12,797 12,585
======= ======= =======
</TABLE>
*Note: The Company did not have any outstanding preferred stock for the periods
ending December 31, 1995 through 1997.
<PAGE> 1
Exhibit 13.1
Financial
Information
Table of Contents
<TABLE>
<S> <C>
Five Year Financial Summary .............................. Page 18
Management's Discussion & Analysis ....................... Page 19
Consolidated Financial Statements ........................ Page 24
Notes to Consolidated Financial Statements ............... Page 28
Independent Auditors' Report ............................. Page 36
</TABLE>
<PAGE> 2
Five
Year Summary
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Income Statement Data
Net sales
Product $ 137,723 $ 111,383 $ 86,415 $ 85,206 $ 89,215
Service 17,703 16,602 15,121 12,952 10,799
-----------------------------------------------------------------------------
Total net sales 155,426 127,985 101,536 98,158 100,014
=============================================================================
Cost of sales
Product 78,837 65,334 51,408 52,734 50,290
Service 12,863 11,372 8,922 7,942 8,278
-----------------------------------------------------------------------------
Total cost of sales 91,700 76,706 60,330 60,676 58,568
=============================================================================
Gross margin 63,726 51,279 41,206 37,482 41,446
-----------------------------------------------------------------------------
Operating expenses
Research and development 11,159 8,854 7,728 8,416 8,689
Marketing and sales 25,986 21,494 17,668 16,487 17,001
Administrative, general and other 8,653 7,260 5,498 5,776 8,149
-----------------------------------------------------------------------------
Total operating expenses 45,798 37,608 30,894 30,679 33,839
-----------------------------------------------------------------------------
Operating income 17,928 13,671 10,312 6,803 7,607
Interest income 916 786 676 346 529
Interest expense (419) (9) (11) (257) (105)
-----------------------------------------------------------------------------
Income from continuing operations
before income taxes 18,425 14,448 10,977 6,892 8,031
Income tax (expense) benefit (6,247) (1,536) 856 1,816 1,776
-----------------------------------------------------------------------------
Income from continuing operations 12,178 12,912 11,833 8,708 9,807
Loss from discontinued operations -- -- -- -- (13,060)
-----------------------------------------------------------------------------
Net income (loss) $ 12,178 $ 12,912 $ 11,833 $ 8,708 $ (3,253)
=============================================================================
Net income (loss) per common share - diluted
Income from continuing operations $ .93 $ 1.01 $ .94 $ .69 $ .80
Loss from discontinued operations -- -- -- -- (1.06)
Net income (loss) $ .93 $ 1.01 $ .94 $ .69 $ (.26)
-----------------------------------------------------------------------------
Common and common equivalent shares - diluted 13,079 12,797 12,585 12,552 12,281
=============================================================================
Balance Sheet Data for Continuing Operations
Cash and securities $ 20,345 $ 17,103 $ 16,584 $ 7,608 $ 5,383
Working capital 63,961 53,847 43,900 31,199 16,949
Total assets 130,687 111,946 91,462 81,555 77,134
Stockholders' equity 94,552 82,174 69,070 58,913 43,298
=============================================================================
-----------------------------------------------------------------------------
</TABLE>
eighteen
<PAGE> 3
MANAGEMENT'S
Discussion and Analysis
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER31, 1997 COMPARED TO YEAR ENDED DECEMBER31, 1996.
Net Sales
Net sales for the year ended December 31, 1997 increased 21% to $155.4 million,
compared with $128.0 million for 1996.
Product sales in 1997 were $137.7 million compared to $111.4 million in 1996, an
increase of 24%. The increase was due to several factors: a broadened product
line, gain in market share of the Company's existing products and an increase in
international sales due to the increased number of countries where the Company
is selling products. The Company introduced two new products in 1997, the dual
mode Mini 6600 and the Series 9600 Cardiac Digital Mobile Imaging System. In
addition, the Company introduced the Series 7600 in the U.S. The Company's
urology product sales were up 3% over 1996, in a flat market. International
sales for all products were up 27% as compared to 1996.
Domestic bookings in 1997 were approximately $122.2 million, compared to $92.0
million in 1996, an increase of 33%. International bookings were basically flat
at $24.4 million in 1997 as compared to 1996. The devaluation of the foreign
currency against the U.S. dollar is the main reason for the flat bookings. In
constant currency terms, the Company's international bookings increase would
have grown approximately 10%. The Company cannot predict the future performance
of international currency fluctuations or bookings. However, bookings are
expected to improve going forward. Worldwide, the Company's C-arm product
bookings increased 31% from the prior year while the urology bookings increased
approximately 5%.
Total bookings increased 26% to approximately $146.6 million from $116.4 million
the prior year. As a result, at December 31, 1997, the Company's backlog had
grown to approximately $32.3 million compared with $24.1 million at the prior
year end. The Company includes in backlog only firm orders deliverable within 12
months. Backlog also includes service contract revenue, which will be earned
over the next twelve months.
The Company's service revenue increased 7%, from $16.6 million to $17.7 million
in 1997. The slower growth was a result of pricing pressures for service
contracts, continuing improvement in product reliability and competition from
third party service organizations. The Company has implemented an aggressive
service pricing strategy designed to regain market share through higher contract
capture rates and to increase the number of billable customers. The Company has
developed partnerships with several OEM's to service their products. These
agreements will increase service revenue by helping to gain economies of scale
through increased efficiencies.
The following table sets forth OEC's operating results as a percentage of net
sales:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales
Product 88.6% 87.0% 85.1%
Service 11.4 13.0 14.9
---------------------------------
Total net sales 100.0 100.0 100.0
=================================
Cost of sales
Product 50.7 51.1 50.6
Service 8.3 8.9 8.8
---------------------------------
Total cost of sales 59.0 60.0 59.4
=================================
Gross margin 41.0 40.0 40.6
---------------------------------
Operating expenses
Research and
development 7.2 6.9 7.6
Marketing and sales 16.7 16.8 17.4
Administrative, general and other 5.5 5.7 5.4
---------------------------------
Total operating expenses 29.4 29.4 30.4
=================================
Operating income 11.6 10.6 10.2
Net income 7.8 10.0 11.7
</TABLE>
nineteen
<PAGE> 4
MARGIN ANALYSIS
The Company's gross margin increased in 1997 to 41% of sales as compared to 40%
in 1996 in a very competitive market. There continues to be pricing pressures
worldwide for the Company's products. In spite of the pricing pressures, the
Company has been able to increase the gross margin by continuing to focus on
cost containment and manufacturing efficiencies, along with an increased mix of
higher margin products.
The Company's net service costs increased 13% or $1.5 million from 1996. The
largest part of the cost increase was investment in additional service
personnel. The additional personnel are needed to handle the broadened product
lines, the increase in number of systems sold and to maintain product support
for existing customers.
R&D EXPENSE
R & D expense increased 26% in 1997 to $11.2 million, versus $8.9 million in
1996. The increase reflects the costs associated with the development and
introduction of two new products in 1997, along with the increase in sustaining
engineering expense associated with the broadened product offering. As a percent
of net sales, R & D expense increased slightly over 1996. The Company
anticipates that R & D expense will grow proportionally with increasing
revenues.
MARKETING AND SALES EXPENSE
Marketing and sales expense increased in 1997 by $4.5 million to $26.0 million,
or a 21% increase over 1996. The largest part of the increase in expense is due
to the increase in commission expense in direct relation to increased revenue.
The other factor is the continuing investment worldwide for coverage due to
broadened product lines and new markets addressed by the new products. As a
percentage of net sales, marketing and sales expense was slightly lower in 1997
compared to 1996.
ADMINISTRATIVE, GENERAL & OTHER EXPENSE
Administrative, general and other expenses increased 19% in 1997 to $8.7
million, versus $7.3 million in 1996. As a percentage of net sales, expenses
were down 0.2%. The main increase in expense resulted from costs associated with
the implementation of a new company-wide computer system and the associated
training costs for personnel. The conversion was completed by year-end 1997.
INCOME TAX
During 1997, the Company recorded tax expense of $6.2 million compared to $1.5
million for 1996. Included in the 1996 tax expense was a deferred benefit of
$4.3 million resulting from the reversal of the valuation allowance as the
Company recognized the likelihood of fully utilizing the deferred tax assets.
The Company also recorded $1.1 million and $0.9 million of tax benefit directly
to stockholders' equity for the benefit derived from stock options exercised
during the years ended December 31, 1997 and 1996, respectively.
YEAR ENDED DECEMBER31, 1996 COMPARED TO YEAR ENDED DECEMBER31, 1995.
NET SALES
Net sales for the year ended December 31, 1996 were $128.0 million compared to
$101.5 million in 1995.
Product sales in 1996 were $111.4 million compared to $86.4 million in 1996, an
increase of 29%. The increase was due to a broadened product line and increased
market penetration of existing products. International sales were up 22% as
compared to 1995.
Domestic bookings for all products in 1996 were approximately $92.0 million,
compared to $75.1 million in 1995, an increase of 22%. International bookings
increased approximately 44% from $16.8 million in 1995 to $24.4 million in 1996.
As a result, at December 31,1996, OEC's backlog had improved to approximately
$24.1 million compared with $16.8 million at the prior year end.
twenty
<PAGE> 5
OEC service revenue increased 10%, from $15.1 million to $16.6 million in 1996.
The percentage growth increase has slowed compared to prior years. The slower
growth was the result of improved product reliability and increased competition
from third party service organizations.
MARGIN ANALYSIS
The Company's gross margin decreased slightly in 1996 to 40.1% of sales compared
with 40.6% in 1995. The main reason for the slight decrease was due to increased
pricing pressures worldwide. The Company's continued focus in 1995 and 1996 on
manufacturing costs and efficiencies helped offset most of these pricing
effects.
The Company's net service costs increased 27% or $2.5 million from 1995.
Although actual service expense increased in line with revenues at 10%, warranty
utilization credits declined significantly due to the increased reliability of
the Company's products.
R&D EXPENSE
R & D expense increased 15% in 1996 to $8.9 million, versus $7.7 million in
1995. The increase reflects the costs associated with the development of two new
products in 1996, as well as the continuing engineering expense associated with
supporting existing products.
MARKETING & SALES EXPENSE
Marketing and sales expense increased in 1996 by $3.8 million to $21.5 million,
or 22% above 1995. The increase in expense is primarily due to additional
commission expense in direct relation to the growth of product sales.
ADMINISTRATIVE, GENERAL & OTHER EXPENSE
Administrative, general and other expenses increased 32% in 1996 to $7.3
million, versus $5.5 million in 1995. Part of the increase resulted from costs
associated with the implementation of a new company-wide computer system that
the company purchased in the second quarter of 1996.
INCOME TAXES
During 1996, the Company recorded current tax expense of $4.7 million. However,
due to the recognition of the deferred benefit of $3.2 million, the net tax
expense was $1.5 million for 1996 compared to a net tax benefit of $0.9 million
in 1995. Included in the 1996 deferred benefit was the reversal of the remaining
$4.3 million of valuation allowance as the Company recognized the likelihood of
fully utilizing the deferred tax assets. The Company also recorded $0.9 million
of tax benefit directly to stockholders' equity for the benefit derived from
stock options exercised.
GENERAL INFORMATION
INFLATION
To date, the Company has not experienced any significant effects from inflation.
LIQUIDITY & CAPITAL RESOURCES
Cash provided by the Company's operations was $10.2 million in 1997 compared
with $6.3 million in 1996 and $12.8 million in 1995. The primary uses of cash in
both 1997 and 1996 were increases in accounts receivable and inventory which is
a reflection of the Company's decision to utilize its cash position to assist
the sales force through extended credit terms and more demonstration equipment.
The Company's capital expenditures totalled $5.6 million in 1997 compared with
$4.5 million in 1996 and $1.1 million in 1995. Additions to the Salt Lake City
facilities as well as investments in manufacturing equipment were the primary
capital expenditures designed to position the Company to meet its growth
expectations. At December 31, 1997, the Company had approximately $1.0 million
of work remaining on the building expansion.
twenty-one
<PAGE> 6
Cash and temporary cash investments increased to $17.5 million at December 31,
1997 from $17.1 million at December 31, 1996. In addition, the Company had $2.8
million of securities available for sale as of December 31, 1997.
A stock repurchase program of 750,000 shares of the Company's outstanding common
stock was announced in December 1994 and was increased to 1,250,000 shares in
January 1996. As of December 31, 1997, 1,040,083 shares have been repurchased,
of which 87,983 were retired and 952,100 are recorded as treasury stock. The
combination of the repurchase of 200,000 warrants (See Note 4) and the stock
repurchase program has resulted in the acquisition of 1,240,083 shares.
OEC believes that it has sufficient liquidity and anticipated cash flow to meet
its obligations in 1998. In addition, OEC continues to carry an unused $10
million line of credit.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for historical information, this discussion contains forward looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those projected. Such risks and uncertainties include:
product demand and market acceptance; the effect of general economic conditions
and foreign currency fluctuations; the impact of competitive products and
pricing; new product development and commercialization; the effect of the
continuing shift in growth from domestic to international healthcare customers;
the impact of managed care initiatives in the United States; and the ability to
increase operating margins on higher sales.
OEC's future operating results are dependent on its ability to develop,
manufacture and market innovative products that meet customers' needs. 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 and on its financial condition and results of operations in cases
where the existing inventory of the components is not adequate to meet the
Company's demand for the component during such disruption.
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
further inspections 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 or ISO compliance will not be
challenged at some subsequent point in time.
twenty-two
<PAGE> 7
A portion of the Company's research and development activities, some of its
single-source vendors, 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.
FOREIGN CURRENCY RATE EXPOSURE
The Company has operating subsidiaries located in Europe and utilizes forward
exchange contracts with durations generally less than six months to hedge
against the effect of exchange rate fluctuations of European income. The Company
also has other customers located throughout the world; however, these customers'
invoices are denominated in U.S. dollars. As a result, the Company has not
incurred material gains or losses resulting from foreign currency fluctuations.
The Company's forward exchange contracts are not material.
INTEREST RATE RISK EXPOSURE
The Company has purchased certain debt obligations of the U.S. government and
various corporations with maturities generally less than one year. As of
December 31, 1997, such investments totaled approximately $2.8 million and the
difference between amortized cost and fair market value is immaterial. Interest
rate risk and default risk underlying these securities is not considered to be
significant.
OTHER EXPOSURES
The Company has not entered into any speculative derivatives and does not
foresee utilizing such instruments in the future. The Company does not utilize
commodities in the normal course of its manufacturing process. Accordingly, the
Company does not believe it has any significant commodity risks or exposures.
YEAR 2000 COMPLIANCE
The Company has reviewed its primary financial and other business information
systems and it believes that these systems will be able to manage and manipulate
all material data involving the transition from 1999 to 2000 without functional
or data abnormality and without inaccurate results related to such data. Two
tertiary computer systems are in the process of being upgraded to Year 2000
compliance and reviews are underway with all suppliers, especially sole-source
vendors, to ensure compliance. The Company has reviewed the software associated
with the operation of its products to ensure Year 2000 compliance and has
determined that such software is capable of meeting the compliance standards.
While the Company believes the issues associated with Year 2000 compliance have
been or are being addressed, there remains the risk that suppliers may encounter
disruptions due to year 2000 compliance or the costs associated with
implementing computer system changes would have an adverse effect on the
Company's results of operations and financial condition. There is also risk that
Year 2000 compliance may have an effect on the purchase patterns of customers
that would adversely affect demand for the Company's products for a period of
time.
twenty-three
<PAGE> 8
CONSOLIDATED
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995
--------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
NET SALES
Product $ 137,723 $ 111,383 $ 86,415
Service 17,703 16,602 15,121
-------------------------------------------
Total net sales 155,426 127,985 101,536
-------------------------------------------
COST OF SALES
Product 78,837 65,334 51,408
Service 12,863 11,372 8,922
-------------------------------------------
Total cost of sales 91,700 76,706 60,330
-------------------------------------------
Gross margin 63,726 51,279 41,206
-------------------------------------------
OPERATING EXPENSES
Research and development 11,159 8,854 7,728
Marketing and sales 25,986 21,494 17,668
Administrative, general and other 8,653 7,260 5,498
-------------------------------------------
Total operating expenses 45,798 37,608 30,894
-------------------------------------------
Operating income 17,928 13,671 10,312
Interest income 916 786 676
Interest expense (419) (9) (11)
-------------------------------------------
Income before income taxes 18,425 14,448 10,977
Income tax (expense) benefit (6,247) (1,536) 856
-------------------------------------------
Net income $ 12,178 $ 12,912 $ 11,833
===========================================
Net income per common share:
Diluted $ .93 $ 1.01 $ .94
Basic $ .98 $ 1.05 $ .96
Common shares:
Diluted 13,079 12,797 12,585
Basic 12,400 12,263 12,358
</TABLE>
See accompanying notes to consolidated financial statements.
twenty-four
<PAGE> 9
CONSOLIDATED
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
(In thousands, except par value amounts)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,502 $ 17,103
Securities available for sale 2,843 --
Accounts and notes receivable, net of allowances
of $1,114 and $853, respectively 40,058 33,191
Inventories, net 28,376 23,868
Prepaid expenses and other current assets 2,988 1,451
Income taxes receivable 1,025 --
Deferred income taxes 7,304 8,006
--------------------------
Total current assets 100,096 83,619
Long-term receivables 998 1,627
Property and equipment, net 15,307 11,903
Cost in excess of net assets acquired, net of accumulated
amortization of $9,155 and $8,183, respectively 10,893 10,213
Deferred income taxes 2,643 3,879
Other assets 750 705
--------------------------
Total $ 130,687 $ 111,946
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,339 $ 7,358
Accrued salaries and benefits 5,172 4,127
Accrued warranty and installation costs 2,258 1,748
Deferred income and customer deposits 5,075 5,462
Income taxes payable -- 509
Accrued legal fees and litigation settlements 4,697 4,062
Accrued distributor commissions 3,725 2,891
Other accrued liabilities 4,869 3,615
--------------------------
Total current liabilities 36,135 29,772
==========================
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 -- 13,474 and 13,158 shares, respectively 135 132
Capital in excess of par value 82,317 79,341
Retained earnings 21,964 9,786
Treasury stock, 970 and 801 shares at cost, respectively (9,678) (6,850)
Foreign currency translation adjustment (186) (235)
--------------------------
Total stockholders' equity 94,552 82,174
--------------------------
Total $ 130,687 $ 111,946
==========================
</TABLE>
See accompanying notes to consolidated financial statements.
twenty-five
<PAGE> 10
CONSOLIDATED
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
CAPITAL RETAINED
IN EXCESS EARNINGS/
COMMON STOCK OF PAR (ACCUMULATED
(IN THOUSANDS) SHARES AMOUNT VALUE DEFICIT)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
--------------------------------------------------------
Balance, January 1, 1995 12,482 $ 125 $ 73,783 $(14,959)
--------------------------------------------------------
Issuance of stock under
employee/consultant
benefit plans 355 4 1,919 --
Tax benefit attributable to
appreciation of common
stock options exercised -- -- 950 --
Purchase of treasury stock -- -- -- --
Retirement of treasury stock (88) (1) (518) --
Issuance of stock subscription
receivable 40 -- 210 --
Foreign currency translation -- -- -- --
Net income -- -- -- 11,833
--------------------------------------------------------
Balance, December 31, 1995 12,789 128 76,344 (3,126)
--------------------------------------------------------
Issuance of stock under
employee/consultant
benefit plans 369 4 2,115 --
Tax benefit attributable to
appreciation of common
stock options exercised -- -- 882 --
Purchase of treasury stock -- -- -- --
Receipt of stock subscription
receivable -- -- -- --
Foreign currency translation -- -- -- --
Net income -- -- -- 12,912
--------------------------------------------------------
Balance, December 31, 1996 13,158 132 79,341 9,786
--------------------------------------------------------
Issuance of stock under
employee/consultant
benefit plans 316 3 2,411 --
Tax benefit attributable to
appreciation of common
stock options exercised -- -- 1,137 --
Purchase of treasury stock -- -- -- --
Purchase of stock warrants -- -- (1,000) --
Valuation of non-employee
stock options granted -- -- 428 --
Foreign currency translation -- -- -- --
Net income -- -- -- 12,178
--------------------------------------------------------
Balance, December 31, 1997 13,474 $ 135 $ 82,317 $ 21,964
========================================================
</TABLE>
<TABLE>
<CAPTION>
FOREIGN STOCK
TREASURY STOCK CURRENCY SUBSCRIPTION
SHARES AMOUNT TRANSLATION RECEIVABLE TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------
Balance, January 1, 1995 -- -- $ (36) -- $ 58,913
------------------------------------------------------------------------
Issuance of stock under
employee/consultant
benefit plans -- -- -- -- 1,923
Tax benefit attributable to
appreciation of common
stock options exercised -- -- -- -- 950
Purchase of treasury stock (648) $ (4,575) -- -- (4,575)
Retirement of treasury stock 88 519 -- -- --
Issuance of stock subscription
receivable -- -- -- $ (210) --
Foreign currency translation -- -- 26 -- 26
Net income -- -- -- -- 11,833
------------------------------------------------------------------------
Balance, December 31, 1995 (560) (4,056) (10) (210) 69,070
------------------------------------------------------------------------
Issuance of stock under
employee/consultant
benefit plans -- -- -- -- 2,119
Tax benefit attributable to
appreciation of common
stock options exercised -- -- -- -- 882
Purchase of treasury stock (241) (2,794) -- -- (2,794)
Receipt of stock subscription
receivable -- -- -- 210 210
Foreign currency translation -- -- (225) -- (225)
Net income -- -- -- -- 12,912
------------------------------------------------------------------------
Balance, December 31, 1996 (801) (6,850) (235) -- 82,174
------------------------------------------------------------------------
Issuance of stock under
employee/consultant
benefit plans -- -- -- -- 2,414
Tax benefit attributable to
appreciation of common
stock options exercised -- -- -- -- 1,137
Purchase of treasury stock (169) (2,828) -- -- (2,828)
Purchase of stock warrants -- -- -- -- (1,000)
Valuation of non-employee
stock options granted -- -- -- -- 428
Foreign currency translation -- -- 49 -- 49
Net income -- -- -- -- 12,178
------------------------------------------------------------------------
Balance, December 31, 1997 (970) $ (9,678) $ (186) -- $ 94,552
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
twenty-six
<PAGE> 11
CONSOLIDATED
Statements of Cash Flow
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,178 $ 12,912 $ 11,833
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,203 3,117 3,272
Bad debt expense (recoveries) (205) 45 20
Deferred income tax expense (benefit) 1,938 (3,177) (1,611)
Current tax benefit attributable to stock options exercised 1,137 882 175
Non-employee stock option expense 154 -- --
Changes in current assets and liabilities:
Accounts and notes receivable, net (6,520) (8,254) (713)
Inventories (3,783) (5,837) 432
Prepaid expenses and other current assets (1,455) (566) (50)
Other assets, net (234) (157) (296)
Accounts payable 1,957 2,685 (485)
Accrued salaries and benefits 1,045 1,207 400
Accrued warranty and installation costs 510 489 144
Deferred income and customer deposits (387) (49) 283
Income taxes (1,534) 97 (3)
Accrued legal fees and litigation settlements 635 269 (526)
Accrued distributor commissions 834 999 (368)
Other accrued liabilities 725 1,683 305
----------------------------------------
Net cash provided by operating activities 10,198 6,345 12,812
----------------------------------------
INVESTING ACTIVITIES
Reduction in long-term receivables (469) (625) (99)
Additions to property and equipment (5,612) (4,511) (1,111)
Purchase of securities available for sale (2,843) -- --
Cash acquired in connection with the acquisition of BMS 116 -- --
Other 149 (225) 26
----------------------------------------
Net cash used in investing activities (8,659) (5,361) (1,184)
----------------------------------------
FINANCING ACTIVITIES
Common stock issued under benefit plans and other 2,688 2,329 1,923
Purchases of treasury stock (2,828) (2,794) (4,575)
Purchase of stock warrants (1,000) -- --
----------------------------------------
Net cash used in financing activities (1,140) (465) (2,652)
----------------------------------------
Net increase in cash and cash equivalents 399 519 8,976
Cash and cash equivalents at beginning of year 17,103 16,584 7,608
----------------------------------------
Cash and cash equivalents at end of year $ 17,502 $ 17,103 $ 16,584
========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 21 $ 9 $ 11
Cash paid during the year for income taxes $ 5,843 $ 3,734 $ 583
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: During
the years ended December 31, 1997, 1996 and 1995, the tax benefits in the
amounts of $1,137, $882 and $950, respectively, attributable to the appreciation
of common stock options exercised 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,
which was repaid to the Company during the year ended December 31, 1996.
Effective January 1, 1997, the Company increased its ownership in BMS from 19.8%
to 100% as follows:
<TABLE>
<S> <C>
Original 19.8% interest $ 190
January 1, 1997 transactions:
Cash payment 193
Options granted 274
Loans converted to equity 615
Net liabilities acquired 380
------
Cost in excess of net assets acquired $1,652
======
</TABLE>
See accompanying notes to consolidated financial statements.
twenty-seven
<PAGE> 12
NOTES
to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of OEC Medical Systems, Inc.
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, Warsaw, Indiana and Wendelstein, Germany. The
systems are marketed through direct sales forces of the Company and through
independent distributors and dealers worldwide (see Note 7).
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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.
REVENUE RECOGNITION
Sales are generally recognized at the time the products are shipped, as are
provisions for estimated installation costs, warranty costs, agents' commissions
and sales allowances. Amounts received upon the sale of service contracts are
deferred and recognized as service revenue over the lives of the contracts.
CASH AND CASH EQUIVALENTS AND LINE OF CREDIT
The Company considers all highly liquid investments with original maturities
less than 90 days to be cash equivalents. All such investments are stated at
cost, which approximates market. As of December 31, 1997 and 1996, the Company
had a line of credit for $10 million which expires in May 1998. No borrowings
had been made under this line as of December 31, 1997 and 1996.
SECURITIES AVAILABLE FOR SALE
The Company's securities were comprised of debt obligations of the U.S.
Government and various corporations and generally mature in less than one year.
All of the Company's securities are classified as available for sale and are
carried at fair market value with the unrealized gains and losses recorded as a
separate component of stockholders' equity. As of December 31, 1997, the
difference between amortized cost and fair market value is immaterial. The cost
of investment securities sold is determined using the specific identification
method. Interest rate risk and default risk underlying the securities is not
considered to be significant. During the year ended December 31, 1997 there were
no significant gains or losses on disposals of securities.
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, (In thousands) 1997 1996
-------- --------
<S> <C> <C>
Purchased parts and completed
subassemblies $ 13,340 $ 8,672
Work-in-process 4,301 3,097
Finished goods 456 3,783
Demonstration equipment 8,985 8,203
Service and repair parts 5,077 4,475
------------------------
Total 32,159 28,230
Reserves for excess and obsolete inventory (3,783) (4,362)
------------------------
Net $ 28,376 $ 23,868
========================
</TABLE>
twenty-eight
<PAGE> 13
LONG-LIVED ASSETS
Impairment of long-lived assets is determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and of Long-Lived Assets to be Disposed Of," which was adopted
on January 1, 1996. There were no impairments as of December 31, 1997.
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 as follows:
<TABLE>
<CAPTION>
Estimated
DECEMBER 31, (In thousands) Useful Lives 1997 1996
------------ ------- --------
<S> <C> <C> <C>
Buildings and land 30 years $10,170 $ 7,591
Machinery and equipment 3 to 10 years 15,960 16,486
Leasehold improvements Life of lease (June, 2000) 971 886
Furniture and fixtures 2 to 5 years 376 204
--------------------------
Total 27,477 25,167
Less accumulated depreciation
and amortization (12,170) (13,264)
Net $15,307 $11,903
==========================
</TABLE>
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, (In thousands) 1997 1996
-------- --------
<S> <C> <C>
Lost in excess of net assets acquired $ 20,048 $ 18,396
Less accumulated amortization (9,155) (8,183)
------------------------
Net $ 10,893 $ 10,213
========================
</TABLE>
Cost in excess of net assets acquired is being amortized on a straight-line
basis over approximately 5 to 30 years. Amortization amounted to approximately
$972,000 during the year ended December 31, 1997 and approximately $641,000 in
each of the years ended December 31, 1996 and 1995.
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.
NET INCOME PER COMMON SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share", and retroactively restated its earnings per share for 1996 and 1995, to
conform with the statement. Accordingly, net income per common share is computed
by both the basic method, which uses the weighted average number of the
Company's common shares outstanding and the diluted method, which includes the
dilutive common shares from stock options and warrants, as calculated using the
treasury stock method. The difference between the Company's basic and diluted
earnings per share is attributable to stock options and warrants. The effect of
stock options and warrants was to increase the number of common shares by
approximately 679,000, 534,000, and 227,000 during the years ended December 31,
1997, 1996, and 1995, respectively.
twenty-nine
<PAGE> 14
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 U.S. dollars at year-end rates of exchange and results of
operations are translated at average rates of exchange for the year, with the
difference accumulated in a separate component of stockholders' equity until
such time as the subsidiary's operations are discontinued, sold or substantially
liquidated.
2. INCOME TAXES
Income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (In thousands) 1997 1996 1995
------- ------- -------
Current (Expense) Benefit:
<S> <C> <C> <C>
State $ (736) $ (719) $ (598)
-------------------------------------
Federal (5,630) (6,507) (3,771)
Less utilization of operating loss
carryforwards and tax credits 2,057 2,513 3,614
-------------------------------------
Net Federal (3,573) (3,994) (157)
-------------------------------------
Total Current (4,309) (4,713) (755)
-------------------------------------
Deferred (Expense) Benefit:
Reversal of valuation allowance -- 4,306 5,394
Utilization of operating loss and tax credit
carryforwards (2,057) (2,513) (3,614)
Other deferred tax assets created (utilized) 119 1,384 (169)
-------------------------------------
Total Deferred (1,938) 3,177 1,611
-------------------------------------
Net $(6,247) $(1,536) $ 856
=====================================
</TABLE>
Income tax (expense) 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, (In thousands) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Computed Federal income tax expense at
statutory rate of 35% $(6,449) $(5,057) $(3,842)
State income taxes (736) (719) (598)
Generation of research and development tax credits 1,008 -- --
Effects of foreign subsidiaries on U.S. tax rates 30 58 16
Change in valuation allowance for deferred tax assets -- 4,306 5,394
Permanent differences (100) (124) (114)
-------------------------------------
Income tax (expense) benefit $(6,247) $(1,536) $ 856
=====================================
</TABLE>
The Company has research and development tax credit carryforwards of
approximately $2,427,000 expiring in the period 1998 through 2012, plus
alternative minimum tax credit carryforwards of approximately $2,236,000. The
Company also has foreign net operating losses in Germany and France and various
states in the U.S. which expire in the period from 2008 through 2012.
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 income taxes are as follows:
thirty
<PAGE> 15
<TABLE>
DECEMBER 31, (In thousands) 1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible for tax purposes:
Allowance for bad debts $ 366 $ 570
Inventory 840 1,546
Litigation 1,666 1,543
Warranty 686 598
Deferred income 383 392
Vacation accrual 227 452
Other 273 368
Foreign & state net operating loss carryforwards 843 704
Tax credit carryforwards 4,663 5,712
---------------------
Total deferred taxes $ 9,947 $11,885
=====================
</TABLE>
3. COMMITMENTS
The Company leases certain of its manufacturing facilities and certain equipment
under operating leases. Future minimum annual lease payments under the Company's
operating leases are as follows:
YEARS ENDING DECEMBER 31, (In thousands)
<TABLE>
<S> <C>
1998 $ 1,450
1999 1,315
2000 300
2001 3
-------
Total $ 3,068
=======
</TABLE>
Total rent expense under the operating leases in 1997, 1996, and 1995 was
approximately $1,346,000, $1,296,000, and $1,076,000, 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 approximately $883,000, $766,000, and $690,000 in 1997, 1996, and 1995,
respectively.
4. 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 the Company's common
stock. The purchase price for the shares is their fair market value on the date
the option or purchase right was granted. Options and purchase rights generally
vest over a four to six 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.
thirty-one
<PAGE> 16
A summary of stock plan activities is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995
------------------- ------------------- -------------------
(In thousands, except average prices) WEIGHTED Weighted Weighted
NUMBER AVG. Number Avg. Number Avg.
OF EXERCISE of Exercise of Exercise
SHARES PRICE Shares Price Shares Price
----- ------ ----- ------ ----- ------
Options:
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 2,000 $ 7.80 1,740 $ 6.02 1,952 $ 6.27
Granted 319 16.25 579 11.84 714 5.87
Cancelled (35) 12.99 (8) 6.09 (600) 6.96
Exercised (269) 6.94 (311) 5.43 (326) 5.46
-------------------------------------------------------------------------
Outstanding end of year 2,015 $ 9.17 2,000 $ 7.80 1,740 $ 6.02
-------------------------------------------------------------------------
Weighted average fair market value of options
granted during year $ 6.53 $ 5.34 $ 2.31
Shares purchased under ISAP 47 58 69
Weighted average fair market value of shares
purchased under ISAP $ 2.16 $ 1.28 $ 0.90
</TABLE>
The following table summarizes information about stock options outstanding as of
December 31, 1997 (in thousands, except price information).
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------ ----- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
$5.38 - 8.00 1,166 6.2 years $ 6.08 1,103 $ 6.08
8.01 -12.00 468 8.6 years 11.49 151 11.38
12.01 -20.31 381 8.8 years 15.78 72 16.24
$5.38 -20.31 2,015 7.2 years $ 9.17 1,326 $ 7.24
</TABLE>
The Company accounts for stock options granted using Accounting Principles Board
(APB) Opinion No. 25. Accordingly, compensation cost of approximately $154,000
and $0 for the years ended December 31, 1997 and 1996, respectively, has been
recognized for stock options granted to non-employees. Had compensation cost for
the Company's stock-based compensation plans for employees been recorded based
on the fair value at the grant dates for awards under those plans, the Company's
net income and net income per common share would have changed to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
DECEMBER 31, (In thousands) 1997 1996
------- -------
Net income:
<S> <C> <C>
As reported $12,178 $12,912
Pro forma $10,894 $12,286
Net income per common share-diluted:
As reported $ .93 $ 1.01
Pro forma $ .83 $ .96
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996: dividend yield of 0.00%; expected
volatility ranging from 36.59% to 40.29%; risk-free interest rates ranging from
5.50% to 6.56%, and expected lives of 2.5 years subsequent to vesting date.
thirty-two
<PAGE> 17
WARRANTS
In connection with the signing of a product development agreement in 1990, the
Company, through its predecessor, issued warrants to purchase 200,000 shares of
its common stock. The warrants were exercisable at a price of $12.70 per share
over the period August 31, 1994 through August 31, 1997. On January 26, 1997,
the Company repurchased the warrants for $1.0 million which was recorded as a
reduction to capital in excess of par value. During 1996, the Company issued
warrants to purchase 38,000 shares to independent distributors which are
exercisable at a price of $11.75 per share during the period of October 1, 1999
to December 31, 1999.
5. LITIGATION
Litigation was instituted against the Company by a terminated distributor in
1988. An unfavorable decision in the amount of $3.1 million was rendered by the
trial court in 1992. As a result of that decision, the Company established a
reserve for the judgment. The Company appealed the trial court's decision on a
number of grounds, and in November, 1993, the appellate court reversed the trial
court and held for the Company on the ground that the distributor had released
his claims against the Company in the settlement of other litigation, and did
not reach the other issues raised on appeal. The distributor filed a petition in
the Indiana Supreme Court requesting that the court vacate the appellate court
ruling and remand the case to the appellate court for consideration of the other
issues raised on appeal. On December 31, 1996, the Indiana Supreme Court
reversed the ruling of the appellate court and held that the trial court
correctly determined that the release executed by the distributor did not
release the Company. The case was remanded back to the Indiana Circuit Court of
Appeals which on December 23, 1997 affirmed the trial court's 1992 judgment plus
interest from 1992. The Company is aggressively pursuing additional avenues of
the appeals process. In the event that all such appeals are exhausted and this
judgment stands, the effect will not be material to the future operating results
of the Company. As of December 31, 1997 and 1996, the reserve with accrued
interest totaled approximately $4.6 million and $4.1 million, respectively.
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.
6. 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. As of December 31, 1997 and 1996, 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 Company's
common stock, each Right will entitle its holder to purchase, at the Right's
then-current exercise price, a number of the acquiring company's common shares
having a market value at the time of twice the Right's exercise price. In
addition, if a person or group acquires 25% or more of the Company's outstanding
common stock, each Right will entitle its holder (other than such person or
members of such group) to purchase, at the Right's then-current exercise price,
a number of the Company's common shares having a market value of twice the
Right's exercise price. This ability to purchase common shares does not operate
if the acquisition of 25% occurs pursuant to a cash tender offer for all shares
in which such person or group increases its stake from below 25% to 80% or more
of the outstanding shares of common stock.
thirty-three
<PAGE> 18
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. These Rights will expire
effective August 20, 1998.
7. 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 where applicable. The following table summarizes approximate
foreign product sales:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Europe $16,099 $11,892 $ 8,770
Other 9,988 8,689 8,078
-----------------------------------
Total foreign sales $26,087 $20,581 $16,848
===================================
</TABLE>
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Net sales $32,314 $38,880 $38,959 $45,273
Gross margin 12,697 15,963 16,129 18,937
Net income 2,301 2,743 3,445 3,689
Income per share:
Diluted $ .18 $ .21 $ .26 $ .28
Basic $ .19 $ .22 $ .27 $ .30
1996
Net sales $26,183 $30,594 $34,027 $37,181
Gross margin 10,538 12,245 13,623 14,873
Net income 2,739 3,336 3,875 2,962
Income per share:
Diluted $ .22 $ .26 $ .30 $ .23
Basic $ .23 $ .27 $ .31 $ .24
</TABLE>
9. ACQUISITION OF BMS
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 a ten year
period for the 7600 C-arm manufactured by BMS. During 1995 and 1996, the Company
provided long-term working capital loans to BMS of approximately $1.1 million.
Effective January 1, 1997, the Company increased its ownership of BMS to 100% in
exchange for cash payments of approximately $193,000, stock options valued at
approximately $274,000, and cancellation of loans to BMS of approximately
$615,000. The Company accounted for the acquisition using the purchase method
which resulted in the recording of approximately $1.6 million of goodwill which
is being amortized over a 5 year period. The pro forma financial information
reflecting this transaction for 1996 and 1995 has not been presented as it is
not materially different from the Company's historical results.
thirty-four
<PAGE> 19
10. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The adoption of
SFAS No. 130 may result in additional disclosures regarding the Company's
comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which redefines how public business
enterprises report information about operating segments in annual financial
statements. The statement also establishes standards for related disclosures
about products and services, geographical areas, and major customers. SFAS No.
131 is effective for financial statements for periods beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated. The adoption of SFAS No. 131 will result in
additional disclosures regarding the Company's segments.
thirty-five
<PAGE> 20
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. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
[SIG]
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
January 22, 1998
thirty-six
<PAGE> 21
CORPORATE
Information
OFFICERS
JOSEPH W. PEPPER
President & Chief Executive Officer
RANDY W. ZUNDEL
Executive Vice President,
Chief Operating & Chief Financial Officer
BARRY K. HANOVER
Executive Vice President, Engineering &
Chief Technical Officer
HEINZ GLOOR
Vice President, International
GARY E. GLOWE
Vice President, Manufacturing
LARRY E. HARRAWOOD
Vice President, Marketing & Business
Development
ROY J. ORPHEY
Vice President, Service
TED L. PARROT
Vice President, Regulatory Affairs &
Quality Assurance
CLARENCE R. VERHOEF
Vice President, Finance
Secretary & Treasurer
HURLEY P. RAYNOR
Director of National Accounts
F. DAN EDWARDS
National Sales Manager
DIRECTORS
RUEDIGER NAUMANN-ETIENNE
Chairman of the Board
GREGORY K. HINCKLEY Section+
Executive Vice President, COO & CFO,
Mentor Graphics, Inc.
BENNO P. LOTZ Section
Former President & CEO
OEC Medical Systems, Inc., retired
ALLAN W. MAY ++Section
President & CEO
Intella Interventional Systems
JOSEPH W. PEPPER
President & CEO
OEC Medical Systems, Inc.
CHASE N. PETERSON Section+++
President Emeritus & Professor (Clinical) Departments of
Internal Medicine and Family & Preventive Medicine
University of Utah
Section Audit Committee
+ Compensation Committee
++ Nominations Committee
INVESTOR INFORMATION
Reports on sales, earnings and activities of the Company can be accessed through
our News-On-Call service by calling 1-800-758-5804 Ext. 630450. A copy (without
exhibits) of the Company's report to the Securities and Exchange Commission on
Form 10-K may be obtained from the Company without charge. Other
publications--news releases, 10-Qs, etc., are also available. Direct your
written request to:
INVESTOR RELATIONS
Linda M. Etzel
OEC Medical Systems, Inc.
384 Wright Brothers Drive
Salt Lake City, Utah 84116
(801) 536-4806
e-mail address: [email protected]
Home Page: http://www.oecmed.com
INDEPENDENT AUDITORS
Deloitte and Touche LLP
Salt Lake City, Utah
TRANSFER AGENT & REGISTRAR
ChaseMellon Shareholder Services
50 California Street, 10th Floor
San Francisco, CA 94111
(800) 356-2017
ANNUAL MEETING
Notice of the Annual Meeting of Shareholders of OEC Medical Systems, Inc., and
proxy statements will be mailed to shareholders of record in advance of the
meeting.
QUARTERLY STOCK PRICE
<TABLE>
<CAPTION>
High Low Close
-------- -------- --------
<S> <C> <C> <C>
December 31, 1997 20 13/16 16 11/16 19 15/16
September 30, 1997 19 3/8 15 3/8 18 7/8
June 30, 1997 17 15/16 13 3/8 17 13/16
March 31, 1997 18 1/2 14 7/8 16 3/8
December 31, 1996 16 7/8 12 1/4 15
September 30, 1996 13 1/2 10 3/4 12 1/2
June 30, 1996 13 5/8 11 1/4 13 5/8
March 31, 1996 13 3/4 9 1/2 11 3/4
</TABLE>
DIVIDENDS
The Company has never issued a dividend to shareholders.
SHAREHOLDERS
The Company has 2,036 shareholders of record as of March 1, 1998.
TRADING INFORMATION
Traded on the New York Stock Exchange
NYSE: OXE.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-69672, 33-37396, and 33-40280 of OEC Medical Systems, Inc. on Forms S-8 of
our report dated January 22, 1998, appearing in and incorporated by reference
in the Annual Report of Form 10-K of OEC Medical Systems, Inc., for the year
ended December 31, 1997.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 1997 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,502
<SECURITIES> 2,843
<RECEIVABLES> 41,172
<ALLOWANCES> 1,114
<INVENTORY> 28,376
<CURRENT-ASSETS> 100,096
<PP&E> 27,477
<DEPRECIATION> 12,170
<TOTAL-ASSETS> 130,687
<CURRENT-LIABILITIES> 36,135
<BONDS> 0
0
0
<COMMON> 135
<OTHER-SE> 94,417
<TOTAL-LIABILITY-AND-EQUITY> 130,687
<SALES> 137,723
<TOTAL-REVENUES> 155,426
<CGS> 78,837
<TOTAL-COSTS> 91,700
<OTHER-EXPENSES> 45,798
<LOSS-PROVISION> (205)
<INTEREST-EXPENSE> 419
<INCOME-PRETAX> 18,425
<INCOME-TAX> 6,247
<INCOME-CONTINUING> 12,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,178
<EPS-PRIMARY> .980<F1>
<EPS-DILUTED> .930
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 1996 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 17,103
<SECURITIES> 0
<RECEIVABLES> 34,044
<ALLOWANCES> 853
<INVENTORY> 23,868
<CURRENT-ASSETS> 83,619
<PP&E> 25,167
<DEPRECIATION> 13,264
<TOTAL-ASSETS> 111,946
<CURRENT-LIABILITIES> 29,772
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 82,042
<TOTAL-LIABILITY-AND-EQUITY> 111,946
<SALES> 111,383
<TOTAL-REVENUES> 127,985
<CGS> 65,334
<TOTAL-COSTS> 76,706
<OTHER-EXPENSES> 37,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 14,448
<INCOME-TAX> 1,536
<INCOME-CONTINUING> 12,912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,912
<EPS-PRIMARY> 1.05<F1>
<EPS-DILUTED> 1.01
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 3RD QUARTER 10-Q 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 13,889
<SECURITIES> 0
<RECEIVABLES> 32,988
<ALLOWANCES> 854
<INVENTORY> 23,870
<CURRENT-ASSETS> 79,293
<PP&E> 24,431
<DEPRECIATION> 13,046
<TOTAL-ASSETS> 106,501
<CURRENT-LIABILITIES> 28,604
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 77,768
<TOTAL-LIABILITY-AND-EQUITY> 106,501
<SALES> 78,611
<TOTAL-REVENUES> 90,804
<CGS> 46,170
<TOTAL-COSTS> 54,398
<OTHER-EXPENSES> 27,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 9,950
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,950
<EPS-PRIMARY> .81<F1>
<EPS-DILUTED> .78
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 2ND QUARTER 10-Q 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 12,600
<SECURITIES> 0
<RECEIVABLES> 31,904
<ALLOWANCES> 671
<INVENTORY> 21,477
<CURRENT-ASSETS> 73,683
<PP&E> 23,452
<DEPRECIATION> 12,435
<TOTAL-ASSETS> 100,124
<CURRENT-LIABILITIES> 25,882
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 74,113
<TOTAL-LIABILITY-AND-EQUITY> 100,124
<SALES> 48,663
<TOTAL-REVENUES> 56,777
<CGS> 28,693
<TOTAL-COSTS> 33,994
<OTHER-EXPENSES> 17,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 6,075
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,075
<EPS-PRIMARY> .50<F1>
<EPS-DILUTED> .48
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 1ST QUARTER 10-Q 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 15,203
<SECURITIES> 0
<RECEIVABLES> 27,493
<ALLOWANCES> 623
<INVENTORY> 19,739
<CURRENT-ASSETS> 68,571
<PP&E> 22,587
<DEPRECIATION> 11,875
<TOTAL-ASSETS> 95,246
<CURRENT-LIABILITIES> 24,316
<BONDS> 0
0
0
<COMMON> 129
<OTHER-SE> 70,801
<TOTAL-LIABILITY-AND-EQUITY> 95,246
<SALES> 22,198
<TOTAL-REVENUES> 26,183
<CGS> 13,203
<TOTAL-COSTS> 15,645
<OTHER-EXPENSES> 7,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 2,739
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,739
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,739
<EPS-PRIMARY> .23<F1>
<EPS-DILUTED> .22
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<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>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<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> .96<F1>
<EPS-DILUTED> .94
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 3RD QUARTER 10-Q 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 15,190
<SECURITIES> 0
<RECEIVABLES> 40,295
<ALLOWANCES> 1,064
<INVENTORY> 28,216
<CURRENT-ASSETS> 94,166
<PP&E> 28,737
<DEPRECIATION> 15,092
<TOTAL-ASSETS> 122,379
<CURRENT-LIABILITIES> 32,653
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 89,562
<TOTAL-LIABILITY-AND-EQUITY> 122,379
<SALES> 97,209
<TOTAL-REVENUES> 110,153
<CGS> 55,959
<TOTAL-COSTS> 65,364
<OTHER-EXPENSES> 32,479
<LOSS-PROVISION> (240)
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 12,981
<INCOME-TAX> 4,492
<INCOME-CONTINUING> 8,489
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,489
<EPS-PRIMARY> .68<F1>
<EPS-DILUTED> .65
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 2ND QUARTER 10-Q 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 14,235
<SECURITIES> 0
<RECEIVABLES> 37,435
<ALLOWANCES> 1,063
<INVENTORY> 26,589
<CURRENT-ASSETS> 88,022
<PP&E> 27,033
<DEPRECIATION> 14,445
<TOTAL-ASSETS> 116,280
<CURRENT-LIABILITIES> 30,462
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 85,805
<TOTAL-LIABILITY-AND-EQUITY> 116,280
<SALES> 62,690
<TOTAL-REVENUES> 71,194
<CGS> 36,417
<TOTAL-COSTS> 42,534
<OTHER-EXPENSES> 21,401
<LOSS-PROVISION> (240)
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 7,711
<INCOME-TAX> 2,667
<INCOME-CONTINUING> 5,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,044
<EPS-PRIMARY> .41<F1>
<EPS-DILUTED> .39
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 1ST QUARTER 10-Q 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 14,983
<SECURITIES> 0
<RECEIVABLES> 33,355
<ALLOWANCES> 953
<INVENTORY> 26,848
<CURRENT-ASSETS> 84,161
<PP&E> 25,593
<DEPRECIATION> 13,779
<TOTAL-ASSETS> 113,264
<CURRENT-LIABILITIES> 29,477
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 83,655
<TOTAL-LIABILITY-AND-EQUITY> 113,264
<SALES> 28,120
<TOTAL-REVENUES> 32,314
<CGS> 16,634
<TOTAL-COSTS> 19,617
<OTHER-EXPENSES> 9,571
<LOSS-PROVISION> (270)
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 3,378
<INCOME-TAX> 1,077
<INCOME-CONTINUING> 2,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,301
<EPS-PRIMARY> .19<F1>
<EPS-DILUTED> .18
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
