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EXHIBIT 99.2
December 28, 2000
Mr. Carl A. Lombardi, Chairman and Chief Executive Officer
and Members of the Board of Directors of Spacelabs Medical, Inc.
Spacelabs Medical, Inc.
15220 N.E. 40th Street
P.O. Box 97013
Redmond, WA 98073-9713
Dear Mr. Lombardi and Members of the Board of Directors:
We are writing to you on behalf of our clients, who are shareholders of
Spacelabs Medical, Inc. ("Spacelabs" or the "Company"). Tweedy, Browne Company
LLC is a registered investment advisor and, as such, we exercise investment
discretion and/or voting authority for our clients , who currently own 1,323,963
shares of Common Stock of Spacelabs, Par Value $0.01 per share (the "Common
Stock"). These shareholdings represent an aggregate of 13.0% of the Company's
Common Stock outstanding.
It should come as no surprise to you that we are concerned about both the
continuing inadequate profitability and the marked deterioration in the
financial strength of the Company. Shown below is a snapshot of Spacelabs'
financial performance since becoming a separately traded company in 1992.
<TABLE>
<CAPTION>
Net Debt Tangible Stated Return on Beginning
Year EPS (Cash)/share BV BV Stated Equity
---- --- ------------ -- -- -------------
<S> <C> <C> <C> <C> <C>
9 mos. 2000 $ (0.64) $ 7.45 $ 14.72 $ 16.93 Negative
1999 1.04 7.13 15.68 17.91 6.1%
1998 0.29 7.12 14.44 17.08 1.7%
1997 (2.13) 5.27 14.49 17.42 Negative
1996 0.25 (1.81) 19.25 19.97 1.3%
1995 1.77 (3.56) 18.77 19.39 10.1%
1994 1.68 (3.53) 16.89 17.58 10.5%
1993 1.71 (4.00) 15.26 15.98 11.8%
1992 1.57 (2.23) 13.68 14.47
</TABLE>
Annualized growth in book value: 0.9% 2.0%
As the above schedule shows, stated book value has grown from $14.47 per share
to $16.93 per share, or a rate of 2% compounded annually, since 1992. The
Company did not pay a dividend, so all earnings were reinvested in the business.
During this same period, the Company went from a net cash position of $2.23 per
share to a net debt position of $7.45 per share. This 2% annual growth rate
appears to significantly overstate the gain in the intrinsic value of the
business. In 1992, the Company reported operating income of $31 million or $2.79
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per share which, if capitalized at 10 times and adjusted for net cash, works out
to a valuation of $30.13 per share ($2.79 x 10 = $27.90 + 2.23 = $30.13). The
trend in operating income has been downward since then and the Company is now
reporting operating losses. Clearly, with the benefit of hindsight, shareholders
would have been better off if the business had been sold in 1992 and the
proceeds invested in municipal bonds.
Over long periods of time, poor financial performance not only translates into
unsatisfactory returns for the owners of the business but also undermines the
competitive position of the Company. Listening to Spacelabs' quarterly
conference calls, we have been struck by the number of other shareholders that
regularly question the company's basic ability to compete against larger, better
financed and more profitable firms in the medical equipment field. Despite
assertions to the contrary, we suspect the company is losing ground to the
competition.
We have no reason to believe that present management hasn't worked diligently to
improve the profitability of the Company. We wish to thank you and your fellow
Board Members for grappling with the significant decline in profitability that
Spacelabs has experienced, particularly over the last few years. We know that
service as a Director is always more enjoyable when a company's profits are
rising rather than declining, and we appreciate your commitment.
We are encouraged by the Company's announcement that it has retained UBS Warburg
LLC to explore all strategic alternatives to maximize shareholder value. We
note, however, that the Company has had no comment on the public announcement by
Cardiac Science, Inc. of a proposal to acquire Spacelabs for $15 per share or
more. In light of the Company's financial record, we would like to encourage you
to meet with the management of Cardiac Science in order to discuss their
proposal. After weighing all the facts, we have concluded that a sale of the
Company would be in the best interest of all concerned, shareholders, employees,
and customers alike. We urge you to evaluate all possible purchasers as well as
Cardiac Science.
Very truly yours,
TWEEDY, BROWNE COMPANY LLC
By: /s/ John D. Spears
--------------------
John D. Spears
Member
cc: Raymond W. Cohen, President and Chief Executive Officer
Cardiac Science, Inc.
<TABLE>
<CAPTION>
Percentage 13F
Large Shareholders: Ownership Filing Date
------------------- --------- -----------
<S> <C> <C>
Heartland Advisors 12.58% 9/00
Dimensional Fund 8.22% 9/00
Mellon Financial 7.13% 2/00*
Wellington Management 5.93% 9/00
TWC Group Inc. 5.58% 9/00
Benson Associates 4.00% 9/00
Royce Associates 3.73% 9/00
David J. Greene 3.51% 9/00
*Proxy
</TABLE>
