-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pihx5Wvt/k6xvxR9MmSClc+iJI6mARFclzEvKZqePyzsMauHr6Eb3Cpv5mVdCfuF ch9jj6sBD+hTrKhhQPEb3w== 0000912057-96-005803.txt : 19960506 0000912057-96-005803.hdr.sgml : 19960506 ACCESSION NUMBER: 0000912057-96-005803 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OEC MEDICAL SYSTEMS INC CENTRAL INDEX KEY: 0000317814 STANDARD INDUSTRIAL CLASSIFICATION: 3845 IRS NUMBER: 942538512 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09983 FILM NUMBER: 96543058 BUSINESS ADDRESS: STREET 1: 384 WRIGHT BROTHERS DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84116 BUSINESS PHONE: 8013289300 FORMER COMPANY: FORMER CONFORMED NAME: DIASONICS INC DATE OF NAME CHANGE: 19920703 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-9983 OEC MEDICAL SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2538512 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 384 WRIGHT BROTHERS DRIVE 84116 SALT LAKE CITY, UTAH (Address of principal executive offices) (Zip Code) (801) 328-9300 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.01 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock held by non-affiliates (based on the closing sales price on the New York Stock Exchange) on February 20, 1996 was approximately $125,689,856. As of February 20, 1996, there were 12,262,425 shares of Common Stock with $.01 par value outstanding. Documents Incorporated by Reference: Form 10-K Part (1) Portions of Definitive Proxy Statement to be mailed to stockholders in connection with the Registrant's 1996 Annual Meeting of Stockholders I, III OEC MEDICAL SYSTEMS, INC. 1995 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I Item 1. Business 2 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 Executive Officers of the Registrant 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplemental Data 8 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III Item 10. Directors and Executive Officers of Registrant 8 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 9 1 OEC MEDICAL SYSTEMS, INC. 1995 FORM 10-K ANNUAL REPORT PART I ITEM 1. BUSINESS GENERAL. OEC develops, manufactures, markets, and services computer-based X-ray and fluoroscopic imaging systems for use in hospitals, out-patient clinics, and surgi-centers for intraoperative and interventional procedures. OEC was originally established in Indiana in 1942. In response to surgeons' need for improved methods to monitor and guide the implantation of the various internal fixation devices, OEC entered the medical X-ray imaging market in 1972. OEC was acquired by Diasonics, Inc. in October 1983 as a separate operating subsidiary. The Company was merged into Diasonics in September of 1993 as part of the restructuring in which the other operating businesses of Diasonics were spun off to shareholders and the Diasonics, Inc. name was changed to OEC Medical Systems, Inc. (the "Restructuring/Distribution"). Today, OEC is recognized as the pioneer and continued domestic market leader of intraoperative/ interventional X-ray imaging systems. These systems combine radiographic and fluoroscopic imaging with digital image processing capabilities. X-rays are passed through the body and either recorded on radiographic film or passed through an image intensifier system and displayed as a real-time fluoroscopic image on a video monitor. Digital image processing of the fluoroscopic image improves the image quality, lowers X-ray dosage and results in reduced costs for a number of applications. OEC seeks to provide cost-effective imaging systems directed towards medical specialties in which minimally invasive techniques are replacing expensive open surgical procedures. High quality digital fluoroscopy has become mandatory in today's modern operating room. Minimally invasive techniques are expanding into many areas of surgery (vascular, neurological, orthopedic, urologic, cardiac and general surgery). OEC's products are designed to meet the needs of these new procedures. Technical leadership, strong customer relationships, and a cost-effective product line have earned OEC the domestic market share leadership position in the intraoperative and interventional X-ray imaging markets. OEC believes its international markets represent a significant growth opportunity and expects to expand its network of international distributors. Building on its leadership position in the U.S., OEC's focus is to become the worldwide leader for intraoperative and interventional fluoroscopy imaging. With this focus in mind, OEC has been investing in the future through research and development. The introduction of the Series 9600 Mobile Digital Imaging System in 1994, just two and half years after the introduction of the Series 9400 C-arm, the Uroview 2600 urology table, the Mini 6600 and the Compact 7600 all introduced in 1995, are the results of these investments. OEC's expanding presence in international markets is another example of the Company's investment in the future, having strengthened its wholly-owned subsidiaries in France, Germany, Italy and Switzerland with new personnel and training, and by designing its new products to be more appealing and acceptable to international customers. OEC also strengthened its international network in new markets in 1994 and 1995 by establishing new distributors or contracting with existing distributors in South America and the Pacific Rim. OEC intends to continue these activities during 1996. OEC'S PRODUCTS. The products produced by OEC consist of mobile X-ray imaging systems as well as fixed-room urological X-ray imaging systems. 2 C-ARM PRODUCTS. In March 1994, OEC introduced the Series 9600 Mobile Digital Imaging System. This mobile imaging device can be wheeled from operating room to operating room to provide high quality, real-time fluoroscopic imaging for a wide variety of surgical and interventional procedures that require X-ray control. The modular architecture of the system allows the Series 9600 to be tailored to meet the needs of the surgeon. For example, the 9600 can be equipped with an expanded surgical package for general surgery and orthopedics. When equipped with a vascular special procedures module, it can perform complex subtraction angiography in the operating room, emergency room, or in radiology. The most advanced version of the Series 9600 can perform many of the tasks of a sophisticated, fixed-room digital X-ray system costing several times more than the Series 9600. Prices of the Series 9600 Mobile Digital Imaging System range from $100,000 to $208,000. In response to the changes brought on by managed healthcare, OEC recently introduced two lower cost digital mobile X-ray machines - the Compact 7600 and Mini 6600. These smaller, lower cost machines are specifically designed to address the imaging requirements of outpatient surgery centers as well as other satellite surgery delivery sites. The move towards less invasive surgeries with accompanying shorter recovery times is driving the need for easy to operate, cost effective fluoroscopic guidance systems in all locations of the healthcare delivery. The Compact 7600 Digital Mobile C-Arm is a cost effective, simple to operate full-body imaging system that can be utilized for most routine, less complicated procedures. It's compact one-piece design (no separate monitor cart) allows for ease of transport, quick positioning and minimal storage requirements. Prices of the Compact 7600 range from $75,000 to $85,000. The Mini 6600 Digital Mobile C-Arm is a small, low-x-ray dose digital fluoroscopic imaging system that has been designed to provide high quality images of upper and lower extremities. Areas of use include hospital operating rooms and emergency rooms, outpatient surgery centers, speciality physician offices and veterinary clincs. Prices of the Mini 6600 range from $55,000 to $65,000. During 1995, 1994 and 1993 the OEC C-arm business represented 82%, 84% and 80% of total sales respectively. UROVIEW 2600 DIGITAL IMAGING SYSTEM. Urology is another surgical specialty requiring intraoperative imaging that is rapidly moving away from the use of static X-ray films to monitor and guide procedural progress. Diagnostic and interventional urological procedures are typically performed in a separate area of the operating room environment known as the Cysto Department. Until recently, these specialized rooms were equipped with a fixed (bolted down) urological-specific patient positioning table (motorized in movement) that also had static X-ray filming capability built into it. These films, once exposed, would need to be taken to a dark room to be developed prior to being brought back to the Cysto Department for evaluation by the urologist, resulting in long procedural delays. Additionally, real-time events could not be recorded since radiographic film produces a static image. Eventually, real-time fluoroscopic imaging capabilities began to be added to these systems. In 1987, OEC introduced the UroView product line. The UroView was the industry's first urological table with fully integrated digital fluoroscopy, resulting in significant image improvement, lower X-ray dosages, and reduced costs. Prices for the UroView system presently range from $210,000 to $230,000. During 1995, 1994 and 1993 the OEC urology business represented 18%, 16% and 20% of total sales, respectively. QUALITY. In June 1994 the Company's Quality Assurance System received the Certificate of Compliance with ISO 9001, the international standard for quality assurance in design, development, production, installation and servicing. SALES AND SERVICE. Domestic sales are made primarily through direct representatives and exclusive independent distributors with installation and service performed by OEC. 3 In Europe, OEC distributes its products primarily through wholly owned subsidiaries in Italy, France, Germany and Switzerland. For the remainder of Europe, the Far East and Latin America, distribution is done through independent dealers and distributors. OEC generally provides warranty for its products for a period of six to twelve months from the date of installation. OEC offers service contracts for products for which the warranty has expired. During 1995, 1994 and 1993, service revenue represented 15%, 13% and 11% of net sales respectively. MANUFACTURING. OEC's manufacturing operations are located in Salt Lake City, Utah and Warsaw, Indiana. OEC owns sufficient property at its Salt Lake City site to expand its facilities if needed. OEC's products incorporate microprocessors for which proprietary software has been designed by OEC. OEC's Warsaw, Indiana facility manufacturers the sheet metal enclosures, the mechanical C-arm assembly and all major mechanical components for OEC's products. The electronics and imaging components are manufactured at OEC's Salt Lake City facility, which also performs final assembly and test of the finished devices. COMPETITION. The market for mobile X-ray and urology products is highly competitive. Many of OEC's existing and potential competitors have substantially greater financial, marketing and technological resources. In the market for products similar to OEC's Series 9600 Mobile C-arm, OEC competes with General Electric Corporation, Siemens Medical Systems, Inc., Philips Medical Systems, Inc. and Toshiba Medical Systems, Inc. Competitive companies offering products similar to the Mini 6600 include Fluoroscan Imaging Systems, Inc. and XiTec, Inc. The Compact 7600 competes with a similar product from International Medical Systems, Inc. Competitive companies offering products similar to the UroView 2600 include Picker International, Inc., Dornier Medical Systems, Inc., and Liebel-Flarsheim Company. OEC competes on the basis of price, imaging quality, technological innovation, upgradeability, reliability, and quality of service and support. BACKLOG. At December 31, 1995, OEC's backlog was approximately $16.8 million, as compared with approximately $11.2 million at December 31, 1994. OEC includes in backlog only firm orders deliverable within 12 months. Backlog also includes service contract revenue which will be earned over the next twelve months. RESEARCH AND DEVELOPMENT. The medical imaging business involves rapid technological change and innovation. OEC believes the ability to use technological innovation to advance the clinical utility of diagnostic imaging has and will continue to be a significant factor in its success in competing in its marketplaces. OEC has continued to invest in research and development to identify solutions to the imaging requirements of the area of minimally invasive medical practices. This has led to a continuous release of both improvements in existing products and the introduction of the Series 9600 Mobile Digital Imaging System in 1994 along with the introduction in 1995 of the Uroview 2600, the Mini 6600 and the Compact 7600. During 1995, 1994, and 1993, OEC's research and development expenses totaled $7.7 million, $8.4 million and $8.7 million, respectively, representing 7.6%, 8.6% and 8.7% of net sales. EMPLOYEES. On December 31, 1995, OEC had approximately 505 employees. None of OEC's employees are covered by collective bargaining agreements, and OEC considers its employee relations to be satisfactory. ACQUISITIONS. During 1995, the Company purchased 19.8% ownership position in Barwig Medizinische Systeme GmbH (BMS), a German manufacturer of medical equipment. The Company was granted exclusive worldwide distribution rights for the 7600 C-Arm manufactured by BMS. During 1995, the Company has provided long-term working capital loans of approximately $1.0 million to BMS. The Company has the option until December 31, 1996 to convert a portion of the loans into 51.7% ownership of BMS. At December 31, 1995, this option had not been exercised. RISK FACTORS. OEC's future operating results are dependent on its ability to develop, manufacture and market innovative products that meet customers' needs. Inherent in this process are a number of risks that the Company must successfully manage in order to achieve favorable operating results. The process of developing new high 4 technology medical products is complex and uncertain and requires innovative designs that anticipate customer needs, technological trends and healthcare shifts. There can be no assurance that the Company will be able to develop and market new products on a cost-effective and timely basis, that such products will compete favorably with products developed by others or that technology will not be superseded by new discoveries or breakthroughs. Because of the substantial length of time and expense associated with bringing new products through development and regulatory approval to the marketplace, the medical device industry places considerable importance on obtaining patent, trademark, copyright and trade secret protection for new technologies, products and processes. A loss of protection could have a material adverse effect on the Company's business. Major items that OEC currently purchases from others include video monitors, X-ray tubes, image intensifiers, CCD cameras and power supplies. Some of these parts and components are available from a limited number of single-source manufacturers or suppliers. While the Company believes any of these single-source items could be replaced over time, abrupt disruption in the supply of a part for a product could have a material adverse effect on the Company's production in cases where the existing inventory of the components is not adequate to meet the Company's demand for the component during such disruption and could have a material adverse effect on its financial condition and results of operations. The testing, marketing and sale of human healthcare products entails an inherent risk of product liability, and there can be no assurance that product liability claims will not be asserted against OEC. Although OEC has product liability insurance coverage, there can be no assurance that such coverage will provide adequate coverage against all potential claims. As a manufacturer of medical devices, OEC is subject to extensive and rigorous governmental regulation, principally by the FDA and corresponding state and foreign agencies. Failure to comply with FDA regulations could result in sanctions being imposed, including restrictions on the marketing of or recall of the affected products. OEC's facilities and manufacturing processes have been periodically inspected by the FDA and other agencies, but remain subject to audit from time to time. OEC continues to devote substantial human and financial resources to regulatory compliance and believes that it remains in substantial compliance with all applicable federal and state regulations. Nevertheless, there can be no assurance that the FDA or a state agency will agree with OEC's positions, or that its GMP compliance will not be challenged at some subsequent point in time. OEC has received approval from the FDA and foreign regulatory authorities in the past, when required, to market its products. In general, the length of time for all reviews and approvals, most particularly from the FDA, has been lengthening and the review or approval process for medical devices has become substantially more difficult and expensive. Moreover, regulatory approvals, when granted, may contain significant limitations on the standards due to unforeseen problems. To date, product reviews for medical imaging technologies have been obtained within three to twelve months. There can be no assurance that OEC will be able to obtain necessary regulatory approvals in the future, and delays in the receipt of or failure to receive such approvals, the loss of existing approvals or failure to comply with regulatory requirements could have a material adverse effect on the business, financial condition and results of operation of OEC. A portion of the Company's research and development activities, its corporate headquarters and other critical business operations are located near a major earthquake fault. The ultimate impact on the Company, significant suppliers and the general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake. Although OEC believes that it has the product offerings and resources needed for continuing success, future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its operations. Factors external to the Company can result in volatility of the Company's common stock price. 5 ITEM 2. PROPERTIES. OEC owns its corporate headquarters and manufacturing facility of 105,000 square feet in Salt Lake City, Utah, and leases another 80,000 square feet of manufacturing in Warsaw, Indiana. The lease expires on June 30, 2000. ITEM 3. LEGAL PROCEEDINGS. In 1993, the Company announced that a $3.1 million judgment against the Company had been reversed on appeal. The original litigation was instituted in 1986 by a terminated distributor of the Company's products, and an initial unfavorable judgment was received in 1992. The Company established a full reserve for the judgment at that time, which with accrued interest totaled approximately $3.3 million as of December 31, 1992. The appellate decision has been appealed by the plaintiff. While the Company believes that the appellate decision will stand, no determination can be made as to whether some or all of the reserve should be reversed until all further appellate and related proceedings have finally been determined. As a result, at December 31, 1995 and 1994, the reserve with accrued interest totaled approximately $3.7 million. All but one of the pending lawsuits relating to the former MRI Division have been favorably resolved by dismissals, summary judgment or directed verdicts in favor of the Company. With respect to the sole exception, an action filed by Lenox Hills Leasing Associates, Toshiba America Medical Systems, Inc. ("Toshiba") has agreed to defend and indemnify the Company. All of the pending actions, and any future actions related to the MRI Division, are the subject of an arbitration award in favor of the Company and against Toshiba. That arbitration award holds that, with certain limited exceptions not applicable to any of the pending actions, Toshiba is obligated to indemnify the Company for compensatory and punitive damages, if any, awarded against the Company in any action related to the former MRI Division and to reimburse the Company for its attorney's fees and expenses incurred in defending such actions, regardless of whether such actions allege intentional misconduct or fraud. This arbitration award was confirmed by a California trial court. Toshiba appealed, and the California Court of Appeals affirmed the ruling of the trial court in favor of the Company. Toshiba may seek further appellate review of the award. If the award is reversed, it will not effect the outcome of any of the pending actions, but will apply only to future filed actions. To the extent that the award is reversed and a future action is filed that would not be covered by the Company's indemnity or the arbitration award, the Company does not believe that an adverse outcome would have a material impact on its financial position or results of operations. OEC is also a defendant in other ordinary commercial litigation. In light of available insurance and reserves, management believes that such litigation will not have a material effect on OEC's business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's Security Holders during the fourth quarter of fiscal year 1995. EXECUTIVE OFFICERS OF THE REGISTRANT Name Age Position - - ---- --- -------- Barry K. Hanover 41 Vice President, Engineering Larry E. Harrawood 48 Vice President, Marketing Gary N. Kilman 51 Vice President, Sales Ruediger Naumann-Etienne 49 President and Chief Executive Officer Randy W. Zundel 40 Chief Financial Officer 6 Barry K. Hanover has been Vice President, Engineering of the Company since December 1992. Previously, he was Director, Mechanical Engineering from October 1992 to December 1992. Prior to that, he was President of Hanover Engineering Services, an engineering consulting firm, from June 1992 to October 1992, and Vice President, Technical Development and member of the Board of Directors of Sarcos, Inc., a biomedical technology company from 1988 through 1992. Larry E. Harrawood has been Vice President, Marketing and Business Development of the Company since July 1987. Previously, he was Vice President, Business Development from October 1986 to July 1987, Vice President, Sales and Marketing from July 1985 to October 1986, and General Manager of X-ray operations from December 1972 to July 1985. Gary N. Kilman has been Vice President, Sales of the Company since February 1987. Previously, he was National Sales Manager for ADAC Laboratories, a medical imaging company. Prior to that, he held progressively titles of Sales Rep, Regional Sales Manager, and Area Sales Manager at that company. Prior to that he was Area Sales Manager, IBM, BioMedical Systems. Ruediger Naumann-Etienne was named CEO and President of OEC in February 1995. He has been a director of the Company since January 1989, and was named Chairman of the Board in September 1993. He has been Managing Director of Intertec since July 1990. He was President and Chief Operating Officer of the Company from December 1987 to July 1990 and Executive Vice President and Chief Financial Officer from April 1984 to September 1988. Randy W. Zundel is the Chief Financial Officer. He was the Chief Operating Officer of the Company from February 1990 to September 1993. Prior to that he was Vice President, Operations from May 1987 to February 1990. Mr. Zundel has held various other positions with OEC since 1981. He is also a director of Orbtek, a start-up opthamalogy company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is presently traded on the New York Stock Exchange under the trading symbol OXE. Prices shown are the range of high and low closing prices per share on the New York Stock Exchange -- Composite Transactions, as reported by the Wall Street Journal. On February 20, 1996 the number of holders of record of common stock was 2,284. Prices Quarter Ended: High Low Close ------------- ---- ------ ----- March 31, 1994 . . . . . . . . 7 3/4 6 1/8 6 3/8 June 30, 1994. . . . . . . . . 6 3/8 5 5 1/2 September 30, 1994 . . . . . . 6 7/8 5 1/4 6 5/8 December 31, 1994. . . . . . . 6 7/8 5 3/4 6 1/2 March 31, 1995 . . . . . . . . 5 7/8 5 5/8 5 7/8 June 30, 1995. . . . . . . . . 7 3/4 7 3/4 7 3/4 September 30, 1995 . . . . . . 8 3/8 8 1/8 8 1/8 December 31, 1995. . . . . . . 9 7/8 9 3/4 9 3/4 The Company has not paid any dividend on its common stock. The Company presently intends to retain all earnings for use in the business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. 7 ITEM 6. SELECTED FINANCIAL DATA. The table labeled "Five Year Summary" appearing as page 18 of Exhibit 13 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The section labeled "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing as pages 19 through 21 of Exhibit 13 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. The Consolidated Financial Statements and Notes thereto appearing at pages 22 through 32 of Exhibit 13 is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. Information concerning the directors of the Company is incorporated by reference to the sections titled "Information with Respect to Nominees" and in the definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders (the "1995 Proxy Statement"). Information regarding executive officers is set forth in Part I of this report. Pursuant to Section 16(b) of the Securities Act of 1934, the Company's directors, its executive (and certain other) officers, and any persons holding more than 10 percent of the Company's stock are required to report their ownership and any changes in beneficial ownership of the Company's stock to the Securities and Exchange Commission and to the New York Stock Exchange. Specific due dates for these reports have been established and the Company is required to report any failure to file by these dates. ITEM 11. EXECUTIVE COMPENSATION. Information concerning management compensation is incorporated by reference to the section titled "Cash Compensation of Executive Officers" in the 1995 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information concerning the stock ownership of each person known to the Company to be a beneficial owner of five percent or more of the Company's Common Stock and management is incorporated by reference to the sections titled "Information with Respect to Nominees" and "Principal Stockholders" in the 1995 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information concerning relationships and related transactions is incorporated by reference to the section titled "Transactions with Management and Others" in the 1995 Proxy Statement. 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Index to Financial Statements The following consolidated financial statements of the Company are included in Exhibit 13 of this Form 10-K: Exhibit 13 Page in ---------- Consolidated statements of operations for each of the three years in the period ended December 31, 1995 22 Consolidated balance sheets at December 31, 1995 and 1994 23 Consolidated statements of stockholders' equity for each of the three years in the period ended December 31, 1995 24 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1995 25 Notes to consolidated financial statements 26 Independent Auditors' Report 32 2. Index to Financial Statement Schedule All schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, including the notes thereto. 9 3. Index to Exhibits The following exhibits (numbered in accordance with Item 601 of SEC Regulation S-K) are filed as part of this report or are incorporated by reference as indicated below: Exhibit Number Description -------- ----------- 2 Agreement and Plan of Merger. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed March 30, 1994. 3.1 Certificate of Incorporation, as amended. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed March 30, 1994. 3.2 By-Laws, as amended. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed March 30, 1994. 4 Rights Agreement, dated as of June 20, 1988, between Diasonics, Inc. and Bank of America NT&SA. Incorporated by reference to Exhibit 4.3 of the Diasonics, Inc. Form 8-K, filed August 1, 1988 10.1 Diasonics, Inc. 1979 Stock Option Plan, amended and restated as of June 1, 1982. Incorporated by reference to Exhibit 10.6 of the Diasonics, Inc. Registration Statement on Form S-8, filed May 2, 1983. 10.4 Diasonics, Inc. 1990 Stock Option/Stock Purchase Plan. Incorporated by reference to Exhibit 10.79 of the Diasonics, Inc. Form S-8, filed on May 1, 1991. 10.5 Warrant for the Purchase of Common Shares issued to PaineWebber R&D Partners II, L.P., as amended. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed on March 30, 1994. 10.6 Amendment, dated September 8, 1993, to Termination Agreement between Diasonics, Inc. and Stewart Carrell dated December 8, 1989. Incorporated by reference to OEC Medical Systems, Inc. Form 10-K, filed on March 30, 1994. 10.7 Asset Stock Exchange Agreement between Diasonics, Inc. and Diasonics Ultrasound, Inc. dated April 30, 1993. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed on March 30, 1994. 10.8 Asset Stock Exchange Agreement between Diasonics, Inc. and FOCAL Surgery, Inc. dated April 30, 1993. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed on March 30, 1994. 10.10 Tax Allocation Agreement by and among Diasonics, Inc. and Diasonics Ultrasound, Inc. and FOCAL Surgery, Inc. dated September 30, 1993. Incorporated by reference to Diasonics Ultrasound, Inc. Form 10-A, filed September 17, 1993. 10.11 Cross License Agreement by and between Diasonics, Inc., Diasonics Ultrasound, Inc. and FOCAL Surgery, Inc. dated September 17, 1993. Incorporated by reference to Diasonics Ultrasound, Inc. Form 10-A, filed September 17, 1993. 10.14 Form of Option Agreement to be generally used in connection with options having service vesting provisions. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed March 30, 1994. 10 10.15 Form of Option Agreement to be generally used in connection with options having milestone provisions. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed March 30, 1994. 10.16 Form of Option Agreement to be generally used in connection with automatic option grant program for non-employee directors. Incorporated by reference to the OEC Medical Systems, Inc. Form 10-K, filed March 30, 1994. 10.17 Second Amendment, dated October 17, 1994, to Termination Agreement between Diasonics, Inc., and Stewart Carrell dated December 8, 1989. 10.18 Termination Agreement between David Rose and OEC Medical Systems, Inc., dated March 21, 1995. 10.19 Note and Stock Pledge Agreement between Ruediger Naumann-Etienne and OEC Medical Systems, Inc., dated September 5, 1995. 13 Portions of the 1995 Annual Report to Shareholders, including Five Year Summary, Management's Discussion & Analysis of Financial Condition and Results of Operations, and Consolidated Financial Statements and Notes thereto. 21 List of Subsidiaries. 23 Independent Auditors' Consent. 27 Financial Data Schedule (FDS) for Edgar Filing. (b) Reports on Form 8-K: Not applicable 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OEC MEDICAL SYSTEMS, INC. By: /s/ Randy W. Zundel --------------------------------------- Randy W. Zundel VICE PRESIDENT & CHIEF FINANCIAL OFFICER POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ruediger Naumann-Etienne and Allan W. May and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report and form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Date: March 28, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ Ruediger Naumann-Etienne Chairman of the Board, President & March 28, 1996 - - -------------------------------- Chief Executive Officer Ruediger Naumann-Etienne /s/ Gregory K. Hinckley Director March 28, 1996 - - ------------------------------- Gregory K. Hinckley /s/ Benno P. Lotz Director March 28, 1996 - - ------------------------------- Benno P. Lotz /s/ Allan W. May Director March 28, 1996 - - ------------------------------- Allan W. May /s/ Chase N. Peterson Director March 28, 1996 - - ------------------------------- Chase N. Peterson /s/ Randy W. Zundel Principal Financial & March 28, 1996 - - ------------------------------- Accounting Officer Randy W. Zundel
12 EX-10.18 2 EXHIBIT 10.18 EXHIBIT 10.18 MUTUAL AGREEMENT AND RELEASE This Mutual Agreement and Release (the "Agreement") is made and entered into effective this 21ST day of March 1995 by and between David Rose ("Rose") and OEC Medical Systems, Inc. ("OEC"). WHEREAS, issues have arisen between Rose and OEC concerning Rose's employment at OEC; and WHEREAS, Rose and OEC wish to resolve these issues amicably by providing a specified cash settlement in exchange for a release of any actual or potential claims Rose has or may have against OEC or entities affiliated with OEC; THE PARTIES AGREE AS FOLLOWS: 1. RESIGNATION OR ROSE. Rose's resignation as an officer and director of OEC is effective as of February 10, 1995. 2. SETTLEMENT. OEC and Rose agree as follows: (a) OEC has paid to Rose the sum of $45,000; (b) Rose will remain an executive employee of OEC until the earlier to occur of (i) such time as Rose shall accept full or part time employment by another entity, or (ii) 12 months from the effective date of resignation ("Period of Salary Continuance"). During the Period of Salary Continuance, Rose will be entitled to receive an annual base compensation of $225,000, payable in bi-weekly installments. Should Rose accept full or part time employment before the expiration of said 12 months, OEC will pay to Rose the unpaid portion of $225,000 in a lump sum. During the period of his employment, Rose shall remain entitled to all medical dental, vision and insurance benefits currently in effect; provided that there shall be no entitlement to any bonus or additional amount or type of compensation or benefit, whether or not the same are made available to officers or directors of OEC. (c) Rose acknowledges that, as at the effective date of his resignation, he has no remaining accrued vacation and/or sick pay, and further acknowledges that no vacation and/or sick pay shall accrue during the Period of Salary Continuance. (d) Rose shall remain entitled to the use of his company vehicle, a lap top computer and a laser printer through April 2, 1995; (e) Regardless of the length of Rose's employment, OEC agrees to the continued vesting of Rose's existing OEC stock options through August 10, 1995, at which time vesting shall cease; thereafter, all vested options shall be exercised no later than November 10, 1995, after which all unexercised options shall automatically terminate and expire; (f) OEC will withhold F.I.C.A., Federal and State Income Tax, all current normal employee withholding amounts from all payments hereunder and will reflect all such payments on Rose's Form W-2 Wage and Tax Statement. (g) Should Rose not obtain re-employment within 12 months from the effective date of resignation, (i) Rose may elect to convert the medical coverages provided above under COBRA, which will provide coverage for an additional 18 months, and (ii) Senior Life Insurance shall continue for an additional period of 12 months. (h) During the Period of Salary Continuance, Rose will remain available to provide consulting services to OEC as may be reasonably requested by OEC, not to exceed 20 hours per week. 3. RELEASE; ADDITIONAL RELEASES. (a) RELEASE. In consideration of this settlement and the benefits provided in this Agreement, OEC and Rose each releases, holds harmless and forever discharges the other, and their respective successors, assigns, transferees, officers, employees, directors, representatives, agents, attorneys, shareholders and parent, subsidiary or affiliated companies, as applicable, of and from any and all actions, claims, causes of action, suits, compensation, benefits, debts, contracts, controversies, agreements, promises, rights, damages or demand which he has, may have or ever will have, including but not limited to, any claim under state or federal statutory or common law, any claim arising out of or in connection with his employment or the termination thereof, and any claim based on an express or implied contract. (b) ADDITIONAL RELEASE. Rose further understands and agrees that in consideration of the foregoing, he is waiving any rights he may have had, or in the future may have, to pursue any and all remedies available to him under any employment-related causes of action, including, without limitation, claims or wrongful discharge, emotional distress, defamation, invasion of privacy, breach of contract, violation of the provisions of the Utah Anti-Discrimination Rights Act, as amended, the Equal Pay Act of 1963, as amended, the Civil Rights Act of 1964, as amended, and any other laws or regulations relating to employment discrimination. (c) RELEASE OF UNKNOWN OR UNSUSPECTED CLAIMS. OEC and Rose expressly waives the benefits of any rule or common law that provides, in sum or substance, that a release does not extend to claims which the party does not know or suspect to exist in his favor at the time of executing the release, which is known by him, would have materially affected his settlement with the other party. (d) RELEASE OF AGE DISCRIMINATION CLAIMS. Rose acknowledges and understands that he is releasing any and all claims or causes of action he had or may have under state and federal law concerning Discrimination in Employment Act of 1967, 29 U.S.C. Section 621 et seq. He further acknowledges that he has been advised to seek the advice of his own independent attorney, that he has been given 21 days in which to review and consider this Agreement and that he has been advised that he had an additional 7 days after he signs this Agreement to change his mind and renounce it without any penalty to himself. This Agreement will not become effective or enforceable until after this 7 day period has expired. (e) WAIVER OF REINSTATEMENT OR FUTURE EMPLOYMENT. Rose waives any and all rights to reinstatement and agrees not to seek employment with OEC or any company affiliated with it. 4. NO ADMISSION OF LIABILITY. By entering into this Agreement, OEC and Rose do not in any way admit or acknowledge liability for any allegation or claim by the other and specifically deny any such liability. The parties agree that nothing contained in this Agreement shall be treated or construed as an admission of liability or wrongdoing of any kind by them, and their respective predecessors, subsidiaries, affiliates, officers, directors, agents and employees. 5. CONFIDENTIALITY, NON-COMPETITION, AND NON-ASSISTANCE IN CLAIMS. (a) Rose and OEC each agrees that they will keep the substance of the negotiations, conditions and terms of this Agreement strictly confidential, except to financial advisors, who will be advised of the required confidentiality hereof and who shall agree expressly to be bound thereby, and as required by law. They further agree that they will be fully supportive of each other, both privately and publicly, and that they shall refrain from making any oral or written statement or comment disparaging or harmful to the other, and, in the case of OEC, to its products, management, financial or operating prospects. Rose and OEC further agree that they will not encourage, recommend, participate in or voluntarily assist in any legal or administrative claim against the other, its agents, officers, employees or affiliated companies, without exception. (b) Rose agrees that he will not accept employment or consultation in any capacity, whether full time or part time, with any manufacturer engaged in the medical C-arm x-ray and/or urology table business in the United States or Europe during this Agreement and for a period of one year following the termination of his employment with OEC. 6. SEVERABILITY. In the event any part f this Agreement is determined to be void or unenforceable, Rose and OEC agree that the remainder of the Agreement may be enforced to the fullest extent permitted by law. 7. DISPUTES. IN the event any dispute arises between the parties which in any way relates to this Agreement or Rose's employment with OEC, and which dispute cannot be resolved amicably, the parties agree that any litigation or administrative action shall take place in Salt Lake City, Utah. Except as expressly stated otherwise in this Agreement or required by law, ea h party shall be responsible for its own attorney's fees and costs incurred in the event of any such disputes. The law of Utah shall control. 8. COMPLETE AGREEMENT. This Agreement sets forth the terms and conditions of an amicable settlement in full accord and satisfaction of all claims, controversies, issues or matters between Rose and OEC. This Agreement is executed in conjunction with a settlement of the above-referenced claims, but the scope of this settlement and release is broader than such claims. This Agreement sets for the complete agreement between the parties. No other covenants or representations have been made or relied on by the parties, and no other consideration is due between the parties. 9. ACKNOWLEDGMENT. Rose acknowledges that he has read and understands the foregoing provisions of this Agreement and that he is affixing this signature to it voluntarily and without coercion. He further acknowledges that he has given the opportunity by OEC to consult with counsel of his own choosing concerning the waivers contained in the Agreement, that he has done so, and that the waivers he has made are knowing, conscious and with full appreciation that he is forever foreclosed from pursuing any of the rights so waived. WHEREFORE, by the signature below, the parties acknowledge that they have read and understand the terms of this Agreement and are freely and voluntarily entering into it. OEC MEDICAL SYSTEMS, INC. DAVID ROSE By /s/ Ruediger Naumann-Etienne /s/ David Rose ---------------------------------- -------------------------------- Title Chairman ------------------------------ Date 3/21/95 3/21/95 ------------------------------ -------------------------------- EX-10.19 3 EXHIBIT 10.19 EXHIBIT 10.19 OEC MEDICAL SYSTEMS, INC. NOTE SECURED BY STOCK PLEDGE AGREEMENT $210,000 September 5, 1995 FOR VALUE RECEIVED, Ruediger Naumann-Etienne ("Maker") promises to pay to the order of OEC Medical Systems, Inc. (The "Corporation"), at its corporate offices at 384 Wright Brothers Drive, Salt Lake City, Utah 84116, the principal sum of Two Hundred and Ten Thousand Dollars ($210,000), together with all accrued interest thereon, upon the terms and conditions specified below. INTEREST. Interest shall accrue on the unpaid balance outstanding from time to time under this Note at the rate of 5.83% per annum, compounded semi-annually, and shall be payable annually in arrears. 1. PRINCIPAL. The entire principal balance of this Note, together with all accrued and unpaid interest, shall become due and payable in one lump sum on October 31, 1996. 2. PAYMENT. Payment shall be made in lawful tender of the United States and shall be applied first to the payment of all accrued and unpaid interest and then to the payment of principal. Prepayment of the principal balance of this Note, together with all accrued and unpaid interest, may be made in whole or in part at any time without penalty. 3. EVENTS OF ACCELERATION. The entire unpaid principal balance of this Note, together with all accrued and unpaid interest, shall become immediately due and payable prior to the specified due date of this Note upon the occurrence of one or more of the following events: A. the failure of the Maker to pay when due the accrued interest on this Note and the continuation of such default for more than thirty (30) days; or B. the expiration of the thirty (30) day period following the date the Maker ceases for any reason to be a consultant or employee of the Corporation; or C. an acquisition of the Corporation (whether by merger or acquisition of all or substantially all of the Corporation's assets or outstanding voting stock) for consideration payable in cash or freely-tradable securities; provided, however, that if the Pooling of Interest Method, as described in Accounting Principles Board Opinion No. 16, is used to account for the acquisition for financial reporting purposes, acceleration shall not occur prior to the end of the sixty (60)-day period immediately following the end of the applicable restriction period required under Accounting Series Release Numbers 130 and 135; or D. the insolvency of the Maker, the commission of any act of bankruptcy by the Maker, the execution by the Maker of a general assignment for the benefit of creditors, the filing by or against the Maker of any petition in bankruptcy or any petition for relief under the provisions of the Federal bankruptcy act or any other state or Federal law for the relief of debtors and the continuation of such petition without dismissal for a period of thirty (30) days or more, the appointment of a receiver or trustee to take possession of any property or assets of the Maker or the attachment of or execution against any property or assets of the Maker; or E. the occurrence of any event of default under the Stock Pledge Agreement securing this Note or any obligation secured thereby. 4. SECURITY. The proceeds of the loan evidenced by this Note shall be applied solely to the payment of the purchase price for the exercise of options covering 40,000 shares of the Corporation's common stock and payment of this Note shall be secured by a pledge of those shares with the Corporation pursuant to the Stock Pledge Agreement to be executed this date by the Maker. The Maker, however, shall remain personally liable for payment of this Note and assets of the Maker, in addition to the collateral under the Stock Pledge Agreement, may be applied to the satisfaction of the Maker's obligations hereunder. 5. COLLECTION. If action is instituted to collect this Note, the Maker promises to pay all costs and expenses (including reasonable attorney fees incurred in connection with such action. 6. WAIVER. A waiver of any term of this Note, the Stock Pledge Agreement or of any of the obligations secured thereby must be made in writing and signed by a duly-authorized officer of the Corporation and any such waiver shall be limited to its express terms. No delay by the Corporation in acting with respect to the terms of this Note or the Stock Pledge Agreement shall constitute a waiver of any breach, default, or failure of a condition under this Note, the Stock Pledge Agreement or the obligations secured thereby. The Maker waives presentment, demand, notice of dishonor, notice of default or delinquency, notice of acceleration, notice of protest and nonpayment, notice of costs, expenses or losses and interest thereon, notice of interest on interest and diligence in taking any action to collect any sums owing under this Note or in proceeding against any of the rights or interests in or to properties securing payment of this Note. 7. CONFLICTING AGREEMENTS. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by the Note, the terms of this Note shall prevail. 8. GOVERNING LAW. This Note shall be construed in accordance with the laws of the State of Utah. /s/ Ruediger Naumann-Etienne --------------------------------- MAKER: Ruediger Naumann-Etienne OEC MEDICAL SYSTEMS, INC. STOCK PLEDGE AGREEMENT AGREEMENT made as of this 5th day of September, 1995 by and between OEC Medical Systems, Inc., a Delaware corporation (the "Corporation") and Ruediger Naumann-Etienne ("Pledgor"). RECITALS A. In connection with the exercise of options to purchase 40,000 shares of the Corporation's Common Stock (the "Purchased Shares") on the date of this Agreement from the Corporation, Pledgor has issued that certain promissory note (the "Note") dated September 5, 1995 payable to the order of the Corporation in the principal amount of Two Hundred and Ten Thousand Dollars ($210,000). B. Such Note is secured by the Purchased Shares and other collateral upon the terms set forth in this Agreement. NOW, THEREFORE, it is hereby agreed as follows: 1. GRANT OF SECURITY INTEREST. Pledgor hereby grants the Corporation a security interest in, and assigns, transfers to and pledges with the Corporation, the following securities and other property (collectively, the "Collateral"): (i) the Purchased Shares delivered to and deposited with the Corporation as collateral for the Note; (ii) any and all new, additional or different securities or other property subsequently distributed with respect to the Purchased Shares which are to be delivered to and deposited with the Corporation pursuant to the requirements of Paragraph 3 of this Agreement; (iii) any and all other property and money which is delivered to or comes into the possession of the Corporation pursuant to the terms of this Agreement; and (iv) the proceeds of any sale, exchange or disposition of the property and securities described in subparagraphs (i), (ii) or (iii) above. 2. WARRANTIES. Pledgor hereby warrants that Pledgor is the owner of the Collateral and has the right to pledge the Collateral and that the Collateral is free from all liens, adverse claims and other security interests (other than those created hereby). 3. DUTY TO DELIVER. Any new, additional or different securities or other property (other than regular cash dividends) which may now or hereafter become distributable with respect to the Collateral by reason of (i) any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Common Stock as a class without the Corporation's receipt of consideration or (ii) any merger, consolidation or other reorganization affecting the capital structure of the Corporation shall, upon receipt by Pledgor be promptly delivered to and deposited with the Corporation as part of the Collateral hereunder. Any such securities shall be accompanied by one or more properly-endorsed stock power assignments. 4. PAYMENT OF TAXES AND OTHER CHARGES. Pledgor shall pay, prior to the delinquency date, all taxes, liens, assessments and other charges against the Collateral, and in the event of Pledgor's failure to do so, the Corporation may at its election pay any or all of such taxes and other charges without contesting the validity or legality thereof. The payments so made shall become part of the indebtedness secured hereunder and until paid shall bear interest at the minimum per annum rate, compounded semi-annually, required to avoid the imputation of interest income to the Corporation and compensation income to Pledgor under the Federal tax laws. 5. SHAREHOLDER RIGHTS. So long as there exists no event of default under Paragraph 10 of this Agreement, Pledgor may exercise all shareholder voting rights and be entitled to receive any and all regular cash dividends paid on the Collateral and all proxy statements and other shareholder materials pertaining to the Collateral. 6. RIGHTS AND POWERS OF CORPORATION. The Corporation may, without obligation to do so, exercise at any time and from time to time one or more of the following rights and powers with respect to any or all of the Collateral: (i) subject to the applicable limitations of Paragraph 9, accept in its discretion other property of Pledgor in exchange for all or part of the Collateral and release Collateral to Pledgor to the extent necessary to effect such exchange, and in such event the other property received in the exchange shall become part of the Collateral hereunder; (ii) perform such acts as are necessary to preserve and protect the Collateral and the rights, powers and remedies granted with respect to such Collateral by this Agreement; and (iii) transfer record ownership of the Collateral to the Corporation or its nominee and receive, endorse and give receipt for, or collect by legal proceedings or otherwise, dividends or other distributions made or paid with respect to the Collateral, provided and only if there exists at the time an outstanding event of default under Paragraph 10 of this Agreement. Any cash sums which the Corporation may so receive shall be applied to the payment of the Note and any other indebtedness secured hereunder, in such order of application as the Corporation deems appropriate. Any remaining cash shall be paid over to Pledgor. Any action by the Corporation pursuant to the provisions of this Paragraph 6 may be taken without notice to Pledgor. Expenses reasonably incurred in connection with such action shall be payable by Pledgor and form part of the indebtedness secured hereunder as provided in Paragraph 12. 7. CARE OF COLLATERAL. The Corporation shall exercise reasonable care in the custody and preservation of the Collateral. However, the Corporation shall have no obligation to (i) initiate any action with respect to, or otherwise inform Pledgor of, any conversion, call, exchange right, preemptive right, subscription right, purchase offer or other right or privilege relating to or affecting the Collateral, (ii) preserve the rights of Pledgor against adverse claims or protect the Collateral against the possibility of a decline in market value or (iii) take any action with respect to the Collateral requested by Pledgor unless the request is made in writing and the Corporation determines that the requested action will not unreasonably jeopardize the value of the Collateral as security for the Note and other indebtedness secured hereunder. Subject to the limitations of Paragraph 9, the Corporation may at any time release and deliver all or part of the Collateral to Pledgor, and the receipt thereof by Pledgor shall constitute a complete and full acquittance for the Collateral so released and delivered. The Corporation shall accordingly be discharged from any further liability or responsibility for the Collateral, and the released Collateral shall no longer be subject to the provisions of this Agreement. 8. TRANSFER OF COLLATERAL. In connection with the transfer or assignment of the Note (whether by negotiation, discount or otherwise), the Corporation may transfer all or any part of the Collateral, and the transferee shall thereupon succeed to all the rights, powers and remedies granted the Corporation hereunder with respect to the Collateral so transferred. Upon such transfer, the Corporation shall be fully discharged from all liability and responsibility for the transferred Collateral. 9. RELEASE OF COLLATERAL. Provided all indebtedness secured hereunder (other than payments not yet due and payable under the Note) shall at the time have been paid in full and there does not otherwise exist any event of default under Paragraph 10, the Purchased Shares, together with any additional Collateral which may hereafter be pledged and deposited hereunder, shall be released from pledge and returned to Pledgor in accordance with the following provisions: (i) Upon payment or prepayment of principal under the Note, together with payment of all accrued interest to date, one or more of the Purchased Shares held as Collateral hereunder shall (subject to the applicable limitations of Paragraphs 9(iii) and 9(v) below) be released to Pledgor within thirty (30) days after such payment or prepayment. The number of the shares to be so released shall be equal to the number obtained by multiplying (i) the total number of Purchased Shares held under this Agreement at the time of the payment or prepayment, by (ii) a fraction, the numerator of which shall be the amount of the principal paid or prepaid and the denominator of which shall be the unpaid principal balance of the Note immediately prior to such payment or prepayment. In no event, however, shall any fractional shares be released. (ii) Any additional Collateral which may hereafter be pledged and deposited with the Corporation (pursuant to the requirements of Paragraph 3) with respect to the Purchased Shares shall be released at the same time the particular shares of Common Stock to which the additional Collateral relates are to be released in accordance with the applicable provisions of Paragraph 9(i). (iii) Under no circumstances, however, shall any Purchased Shares or any other Collateral be released if previously applied to the payment of any indebtedness secured hereunder. In addition, in no event shall any Purchased Shares or other Collateral be released pursuant to the provisions of Paragraph 9(i) or 9(ii) if, and to the extent, the fair market value of the Common Stock and all other Collateral which would otherwise remain in pledge hereunder after such release were effected would be less than the unpaid principal and accrued interest under the Note. (iv) For all valuation purposes under this Agreement, the fair market value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (A) If the Common Stock is at the time traded on the Nasdaq National Market, the fair market value shall be the closing selling price per share of Common Stock on the date in question, as such prices are reported by the National Association of Securities Dealers on its Nasdaq system or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of fair market value. (B) If the Common Stock is at the time listed on the American Stock Exchange or the New York Stock Exchange, then the fair market value shall be the closing selling price per share of Common Stock on the date in question on the securities exchange serving as the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the fair market value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. (C) If the Common Stock is at the time neither listed on any securities exchange nor traded on the Nasdaq National Market, the fair market value shall be determined by the Corporation's Board of Directors after taking into account such factors as the Board shall deem appropriate. (v) In the event the Collateral becomes in whole or in part comprised of "margin securities" within the meaning of Section 207.2(i) of Regulation G of the Federal Reserve Board, then no Collateral shall thereafter be substituted for any Collateral under the provisions of Paragraph 6(i) or be released under Paragraph 9(i) or (ii), unless there is compliance with each of the following additional requirements: (A) The substitution or release must not increase the amount by which the indebtedness secured hereunder at the time of such substitution or release exceeds the maximum loan value (as defined below) of the Collateral immediately prior to such substitution or release. (B) The substitution or release must not cause the amount of indebtedness secured hereunder at the time of such substitution or release to exceed the maximum loan value of the Collateral remaining after such substitution or release is effected. (C) For purposes of this Paragraph 9(v), the maximum loan value of each item of Collateral shall be determined on the day the substitution or release is to be effected and shall, in the case of the shares of Common Stock and any additional Collateral (other than margin securities), equal the good faith loan value thereof (as defined in Section 207.2(e)(1) of Regulation G) and shall, in the case of all margin securities (other than the Common Stock), equal fifty percent (50%) of the current market value of such securities. 10. EVENTS OF DEFAULT. The occurrence of one or more of the following events shall constitute an event of default under this Agreement: (i) the failure of Pledgor to pay, when due under the Note, any installment of principal or accrued interest; or (ii) the occurrence of any other acceleration eventspecified in the Note; or (iii) the failure of Pledgor to perform any obligation imposed upon Pledgor by reason of this agreement; or (iv) the breach of any warranty of Pledgor contained in this Agreement. Upon the occurrence of any such event of default, the Corporation may, at its election, declare the Note and all other indebtedness secured hereunder to become immediately due and payable and may exercise any or all of the rights and remedies granted to a secured party under the provisions of the Utah Uniform Commercial Code (as now or hereafter in effect), including (without limitation) the power to dispose of the Collateral by public or private sale or to accept the Collateral in full payment of the Note and all other indebtedness secured hereunder. Any proceeds realized from the disposition of the Collateral pursuant to the foregoing power of sale shall be applied first to the payment of expenses incurred by the Corporation in connection with the disposition, then to the payment of the Note and finally to any other indebtedness secured hereunder. Any surplus proceeds shall be paid over to Pledgor. However, in the event such proceeds prove insufficient to satisfy all obligations of Pledgor under the Note, then Pledgor shall remain personally liable for the resulting deficiency. 11. OTHER REMEDIES. The rights, powers and remedies granted to the Corporation pursuant to the provisions of this Agreement shall be in addition to all rights, powers and remedies granted to the Corporation under any statute or rule of law. Any forbearance, failure or delay by the Corporation in exercising any right, power or remedy under this Agreement shall not be deemed to be a waiver of such right, power or remedy. Any single or partial exercise of any right, power or remedy under this Agreement shall not preclude the further exercise thereof, and every right, power and remedy of the Corporation under this Agreement shall continue in full force and effect unless such right, power or remedy is specifically waived by an instrument executed by the Corporation. 12. COSTS AND EXPENSES. All costs and expenses (including reasonable attorneys fees) incurred by the Corporation in the exercise or enforcement of any right, power or remedy granted it under this Agreement shall become part of the indebtedness secured hereunder and shall constitute a personal liability of Pledgor payable immediately upon demand and bearing interest until paid at the minimum per annum rate, compounded semi-annually, required to avoid the imputation of interest income to the Corporation and compensation income to Pledgor under the Federal tax laws. 13. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah without resort to that State's conflict-of-laws rules. 14. SUCCESSORS. This Agreement shall be binding upon the Corporation and its successors and assigns and upon Pledgor and the executors, heirs and legatees of Pledgor's estate. 15. SEVERABILITY. If any provision of this Agreement is held to be invalid under applicable law, then such provision shall be ineffective only to the extent of such invalidity, and neither the remainder of such provision nor any other provisions of this Agreement shall be affected thereby. IN WITNESS WHEREOF, this Agreement has been executed by Pledgor and the Corporation on this 5TH day of September, 1995. OEC MEDICAL SYSTEMS, INC. Ruediger Naumann- Etienne, PLEDGOR By: /s/ Randy Zundel /s/ Ruediger Naumann-Etienne ---------------------- ----------------------------- Title: Chief Financial Officer 12985 Skyline Drive ----------------------- Oakland, CA 94619 EX-13 4 EXHIBIT 13 EXHIBIT 13 Portions of the 1995 Annual Report to Shareholders Including Five Year Summary Management's Discussion & Analysis of Financial Condition and Results of Operations Consolidated Financial Statements and Notes FINANCIAL INFORMATION - - ------------------------------------------------------------------------------- TABLE OF CONTENTS Five Year Financial Summary . . . . . . . . . .Page 18 Management's Discussion & Analysis. . . . . . .Page 19 Consolidated Financial Statements . . . . . . .Page 22 Notes to Consolidated Financial Statements. . .Page 26 Independent Auditors' Report. . . . . . . . . .Page 32 RESULTS 17 FIVE YEAR SUMMARY
- - --------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991 - - --------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA NET SALES Product $86,415 $85,206 $89,215 $88,225 $83,044 Service 15,121 12,952 10,799 8,653 6,663 ----------------------------------------------- Total net sales 101,536 98,158 100,014 96,878 89,707 ----------------------------------------------- COST OF SALES Product 51,408 52,734 50,290 49,443 44,356 Service 8,922 7,942 8,278 5,023 4,556 ----------------------------------------------- Total cost of sales 60,330 60,676 58,568 54,466 48,912 ----------------------------------------------- Gross Margin 41,206 37,482 41,446 42,412 40,795 ----------------------------------------------- OPERATING EXPENSES Research and development 7,728 8,416 8,689 7,067 5,239 Marketing and sales 17,668 16,487 17,001 15,524 12,836 Administrative, general and other 5,498 5,776 8,149 5,337 4,456 Litigation judgment -- -- -- 3,100 -- ----------------------------------------------- Total operating expenses 30,894 30,679 33,839 31,028 22,531 ----------------------------------------------- Operating income 10,312 6,803 7,607 11,384 18,264 Interest income 676 346 529 743 756 Interest expense (11) (257) (105) (19) (15) ----------------------------------------------- Income from continuing operations before income taxes 10,977 6,892 8,031 12,108 19,005 Income tax benefit (expense) 856 1,816 1,776 (362) (1,251) ----------------------------------------------- Income from continuing operations 11,833 8,708 9,807 11,746 17,754 Income (loss) from discontinued operations -- -- (13,060) (30,793) 1,111 ----------------------------------------------- Net income (loss) $11,833 $8,708 $(3,253) $(19,047) $18,865 ----------------------------------------------- Income (loss) per common and common equivalent share: Income from continuing operations $0.94 $0.69 $0.80 $0.96 $1.40 Income (loss) from discontinued operations -- -- (1.06) (2.52) 0.09 ----------------------------------------------- Net income (loss) $0.94 $0.69 $(0.26) $(1.56) $1.49 ----------------------------------------------- Common and common equivalent shares 12,585 12,552 12,281 12,182 12,658 ----------------------------------------------- BALANCE SHEET DATA FOR CONTINUING OPERATIONS Cash and temporary cash investments $16,584 $ 7,608 $ 5,383 $ 1,924 $ 1,260 Working capital 43,900 31,199 16,949 18,172 23,278 Total assets 91,462 81,555 77,134 64,214 56,651 Long-term debt -- -- -- 55 55 Stockholders' equity 69,070 58,913 43,298 40,680 46,009 ----------------------------------------------- - - ---------------------------------------------------------------------------
Note: The Company has never paid a dividend on its common stock. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS - - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. NET SALES Net sales for the year ended December 31, 1995 were $101.5 million compared to $98.2 million in 1994. Product sales in 1995 were $86.4 million compared with $85.2 million in 1994, an increase of 1.5%. The increase was primarily due to a large increase in international sales. Domestic sales declined by 10.5%, a factor of backlog erosion in 1994. Domestic bookings for all products in 1995 were approximately $75.1 million, compared with $73.0 million in 1994, an increase of 2.9%. International bookings increased approximately 125% from $7.5 million in 1994 to $16.9 million in 1995. The geographic difference in growth rates reflects expanding market penetration and opportunities in the international arena compared with continuing weakness in the U.S. healthcare market. The Company's urology product bookings increased approximately 28%, following the introduction of the Uroview 2600 in the first quarter of 1995. Mobile C-Arm bookings increased approximately 9% worldwide. Total OEC bookings increased 14% to approximately $91.9 million from $80.5 the prior year. As a result, at December 31, 1995, OEC's backlog had improved to approximately $16.8 million, compared with $11.2 million 1994 year end. OEC includes in backlog only firm orders deliverable within 12 months. Backlog also includes service contract revenue which will be earned over the next twelve months. OEC service revenue increased 16.8%, from $13.0 million to $15.1 million in 1995. These results were attained from an increased contract capture rate despite very aggressive competition from third-party service organizations. The following table sets forth OEC's operating results from continuing operations as a percentage of net sales:
DECEMBER 1995 1994 1993 - - ---------------------------------------------------------------- Net Sales Product 85.1 86.8 89.2 Service 14.9 13.2 10.8 --------------------------- Total net sales 100.0 100.0 100.0 --------------------------- Cost of sales Product 50.6 53.7 50.3 Service 8.8 8.1 8.3 --------------------------- Total cost of sales 59.4 61.8 58.6 --------------------------- Gross margin 40.6 38.2 41.4 --------------------------- Operating expenses Research and development 7.6 8.6 8.7 Marketing and sales 17.4 16.8 17.0 Administrative, general and other 5.4 5.9 8.1 --------------------------- Total operating expenses 30.4 31.3 33.8 --------------------------- Operating income 10.2 6.9 7.6 Income from continuing operations 11.7 8.9 9.8 - - ----------------------------------------------------------------
MARGIN ANALYSIS The Company's gross margin increased in 1995 to 40.6% of sales compared with 38.2% in 1994. Management's focus on manufacturing efficiencies starting in the latter part of 1994 and continuing through 1995 has enabled the Company to reduce its cost of sales. These improvements were achieved despite the higher percentage of international sales through distributors at larger discounts than to domestic end-users, price erosion and a shift in the mix to lower priced products. OEC's service costs increased approximately $1.0 million from 1994 or 12.3% while service revenue grew by 16.8%. R&D EXPENSE R&D expense declined 8.2% in 1995 to $7.7 million, versus $8.4 million in 1994. The decline reflects the completion of the Series 9600 project in mid-1994. The Company believes that success in a global marketplace requires a continuing flow of innovative, high quality products. The investment in BMS, a German manufacturer of mobile C-Arms, has increased our design capabilities and thus will help in getting new products to the market faster. The Company will maintain its commitment to R&D investments while continuing its efforts to increase efficiencies in product design. 19 MARKETING & SALES EXPENSE Marketing and sales expense increased in 1995 by $1.2 million to $17.7 million, or 7.6% above 1994. The increase reflects the continuing investment in international sales and the cost increase in the domestic market due to competitive pressures. ADMINISTRATIVE, GENERAL & OTHER EXPENSE Administrative, general and other expense was basically flat from 1994. As a percentage of net sales it was down .5%. INCOME TAXES During 1995, the reversal of reserves against deferred tax assets resulted in a deferred tax benefit of $1.6 million. This benefit was offset by $0.7 million of current tax provision for various state income taxes and federal alternative minimum tax. In addition, $1.0 million of tax benefit was recorded directly to stockholders' equity for the tax benefit derived from stock option exercises. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993. NET SALES Net Sales for the year ended December 31, 1994 were $98.2 million compared to $100.0 million in 1993. Product sales in 1994, at $85.2 million, declined by 5% compared with $89.2 million in 1993. The decrease was caused mainly by lower sales of the Company's urology product. Product sales for the year were also affected by a delay in the introduction of the new Series 9600 Mobile Digital Imaging System until the second quarter. Programs put in place at the beginning of 1994 had a strong impact on service revenue, which was up approximately 20% to $13.0 million in 1994, compared to $10.8 million in 1993. The increase was the result of more focused marketing efforts and simplified pricing, which netted a higher contract capture rate. MARGIN ANALYSIS The Company's gross margin declined in 1994 to 38.2% of sales as compared to 41.4% in 1993. This was due to several factors including increased manufacturing costs of the Series 9600, increases in reserves for obsolete inventory, and a shift to lower priced product configurations. Margins also continued to be affected by costs associated with programs designed to enhance compliance with FDA Good Manufacturing Practices. R&D EXPENSE R&D expense as a percentage of sales remained virtually flat compared to 1993. In dollar terms, it declined by $273,000 or 3%, to $8.4 million. The decline reflects the completion of the Series 9600. MARKETING & SALES EXPENSE Marketing and sales expense declined in 1994 by $514,000 to $16.5 million, or 3% below 1993. The decrease was due to lower commission expense as a result of lower sales. As a percentage of net sales, marketing and sales expense was basically flat. This was accomplished despite an increased investment in European sales operations. ADMINISTRATIVE, GENERAL & OTHER EXPENSE Administrative, general and other expense as a total was down $2.4 million or 29% in 1994 compared to the previous year. This was largely the result of special factors. In 1993 expenses included a one time charge of $1.3 million against accounts receivable from a former dealer. In the second quarter of 1994, there was a credit of $75,000 (a portion of which was offset by reserves) which was the Company's portion of a litigation settlement paid by Acuson to Diasonics Ultrasound. INCOME TAXES During 1994, the reversal of reserves against deferred tax assets resulted in a deferred tax benefit of $2.3 million. This benefit was offset by $0.5 million of current tax provision for various state income taxes and federal alternative minimum tax. In addition, $2.1 million of tax benefit was recorded directly to stockholders' equity for the tax benefit derived from stock option exercises. INFLATION To date, the Company has not experienced any significant effects from inflation. LIQUIDITY & CAPITAL RESOURCES Cash provided by operating activities from the Company's continuing operations was $12.8 million in 1995 compared with $9.3 million in 1994 and $5.7 million in 1993. The Company's capital expenditures totalled $1.1 million in 1995 compared with $3.4 million in 1994 and $3.3 in 1993. Capital expenditures in all three years were made primarily to upgrade and increase manufacturing operations. At December 31, 1995, the Company had no significant commitments for capital expenditures. 20 Cash and temporary cash investments increased $16.6 million at December 31, 1995 from $7.6 million at December 31, 1994. A stock repurchase program of 750,000 shares of its outstanding common stock was announced in December 1994 and the authorized amount was increased to 1,250,000 shares in January 1996. The Company believes its stock is undervalued and is a sound investment for a portion of its cash reserves. The manner and timing of the repurchase will depend on market conditions and the Company's cash reserves. As of December 31, 1995, 648,183 shares have been repurchased at a cost of $4,575,000, of which 87,983 shares were retired and 560,200 shares were recorded as treasury stock. OEC believes that it has sufficient liquidity and anticipated cash flow to meet its obligations in 1996. In addition, OEC continues to carry an unused $10 million line of credit. FACTORS THAT MAY AFFECT FUTURE RESULTS OEC's future operating results are dependent on its ability to develop, manufacture and market innovative products that meet customers' needs. Inherent in this process are a number of risks that the Company must successfully manage in order to achieve favorable operating results. The process of developing new high technology medical products is complex and uncertain and requires innovative designs that anticipate customer needs, technological trends and healthcare shifts. There can be no assurance that the Company will be able to develop and market new products on a cost-effective and timely basis, that such products will compete favorably with products developed by others or that existing technology will not be superseded by new discoveries or breakthroughs. Because of the substantial length of time and expense associated with bringing new products through development and regulatory approval to the marketplace, the medical device industry places considerable importance on obtaining patent, trademark, copyright and trade secret protection for new technologies, products and processes. The loss of protection could have a material adverse effect on the Company's business. OEC depends on some significant and single-source vendors for certain important component parts for certain products. While the Company believes any of these single-source items could be replaced over time, abrupt disruption in the supply of a part for a product could have a material adverse effect on the Company's production in cases where the existing inventory of the components is not adequate to meet the Company's demand for the component during such disruption and could have a material adverse effect on its financial condition and results of operations. The testing, marketing and sale of human healthcare products entails an inherent risk of product liability, and there can be no assurance that product liability claims will not be asserted against OEC. Although OEC has product liability insurance coverage, there can be no assurance that such coverage will provide adequate coverage against all potential claims. As a manufacturer of medical devices, OEC is subject to extensive and rigorous governmental regulation, principally by the FDA and corresponding state and foreign agencies. Failure to comply with FDA regulations could result in sanctions being imposed, including restrictions on the marketing of or recall of the affected products. OEC's facilities and manufacturing processes have been periodically inspected by the FDA and other agencies, but remain subject to audit from time to time. OEC continues to devote substantial human and financial resources to regulatory compliance and believes that it remains in substantial compliance with all applicable federal and state regulations. Nevertheless, there can be no assurance that the FDA or a state agency will agree with OEC's positions, or that its GMP compliance will not be challenged at some subsequent point in time. A portion of the Company's research and development activities, its corporate headquarters and other critical business operations are located near a major earthquake fault. The ultimate impact on the Company, significant suppliers and the general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake. Although OEC believes that is has the product offerings and resources needed for continuing success, future revenue and margin trends cannot be reliably predicted and may cause the Company to adjust its operations. Factors external to the Company can result in volatility of the Company's common stock price. 21 CONSOLIDATED STATEMENTS OF OPERATIONS - - --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 1994 1993 - - ----------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET SALES Product $ 86,415 $ 85,206 $ 89,215 Service 15,121 12,952 10,799 ---------------------------------- Total net sales 101,536 98,158 100,014 ---------------------------------- COST OF SALES Product 51,408 52,734 50,290 Service 8,922 7,942 8,278 ---------------------------------- Total cost of sales 60,330 60,676 58,568 ---------------------------------- Gross margin 41,206 37,482 41,446 ---------------------------------- OPERATING EXPENSES Research and development 7,728 8,416 8,689 Marketing and sales 17,668 16,487 17,001 Administrative,general and other 5,498 5,776 8,149 ---------------------------------- Total operating expenses 30,894 30,679 33,839 ---------------------------------- Operating income 10,312 6,803 7,607 Interest income 676 346 529 Interest expense (11) (257) (105) ---------------------------------- Income before income taxes 10,977 6,892 8,031 Income tax benefit 856 1,816 1,776 ---------------------------------- Income from continuing operations 11,833 8,708 9,807 Loss from discontinued operations [including income tax expense of $238] -- -- (13,060) ---------------------------------- Net income (loss) $ 11,833 $ 8,708 $ (3,253) ---------------------------------- ---------------------------------- Income (loss) per common and common equivalent share: Continuing operations $ 0.94 $ 0.69 $ 0.80 Discontinued operations -- -- (1.06) ---------------------------------- Net income (loss) $ 0.94 $ 0.69 $(0.26) ---------------------------------- ---------------------------------- Common and common equivalent shares 12,585 12,552 12,281 ---------------------------------- ----------------------------------
- - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 22 CONSOLIDATED BALANCE SHEETS - - --------------------------------------------------------------------------------
DECEMBER 31, 1995 1994 - - -------------------------------------------------------------------------------------------------- (IN THOUSANDS) ASSETS Current assets: Cash and temporary cash investments $ 16,584 $ 7,608 Accounts and notes receivable, net 24,982 24,289 Inventories 18,031 18,463 Prepaid expenses and other current assets 885 835 Deferred income taxes 5,810 2,646 ---------------------- Total current assets 66,292 53,841 Long-term receivables 1,002 903 Property and equipment, net 9,868 11,388 Cost in excess of net assets acquired, net 10,854 11,495 Deferred income taxes 2,898 3,676 Other assets, net 548 252 ---------------------- Total $ 91,462 $ 81,555 ---------------------- ---------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,673 $ 5,158 Accrued salaries and benefits 2,920 2,520 Accrued warranty and installation costs 1,259 1,115 Deferred income on service contracts and customer deposits 5,511 5,228 Income taxes payable 412 415 Accrued legal fees and litigation settlements 3,793 4,319 Accrued distributor commissions 1,892 2,260 Other accrued liabilities 1,932 1,627 ---------------------- Total current liabilities 22,392 22,642 ---------------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; Authorized -- 2,000 shares, including, 1,100 shares of convertible preferred stock, none outstanding Common stock, $.01 par value; Authorized -- 30,000 shares Issued - 12,789 and 12,482 in 1995 and 1994, respectively 128 125 Capital in excess of par value 76,344 73,783 Stock subscription receivable (210) -- Accumulated deficit (3,126) (14,959) Treasury stock, 560 shares at cost (4,056) -- Foreign currency translation (10) (36) ---------------------- Total stockholders' equity 69,070 58,913 ---------------------- Total $ 91,462 $ 81,555 ---------------------- ----------------------
- - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 23 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL COMMON STOCK IN EXCESS TREASURY STOCK FOREIGN STOCK ------------ OF PAR ACCUMULATED ---------------- CURRENCY SUBSCRIPTION (IN THOUSANDS) SHARES AMOUNT VALUE DEFICIT SHARES AMOUNT TRANSLATION RECEIVABLE TOTAL - - ------------------------------------------------------------------------------------------------------------------------- --------- Balance, January 1, 1993 15,129 $ 151 $ 202,574 $ (13,938) (2,914) $(45,493) -- -- $ 143,294 ----------------------------------------------------------------------------------------------- Retirement of treasury shares (2,914) (29) (38,988) (6,476) 2,914 45,493 -- -- -- Issuance of stock under employee/consultant benefit plans 196 2 1,501 -- -- -- -- -- 1,503 Net book value of assets distributed to stockholders in connection with corporate restructuring -- -- (98,229) -- -- -- -- -- (98,229) Foreign currency translation -- -- -- -- -- -- $ (17) -- (17) Net loss -- -- -- (3,253) -- -- -- -- (3,253) ------------------------------------------------------------------------------------------------ Balance, December 31, 1993 12,411 124 66,858 (23,667) -- -- (17) -- 43,298 ------------------------------------------------------------------------------------------------ Issuance of stock under employee/consultant benefit plans 71 1 359 -- -- -- -- -- 360 Tax benefit attributable to appreciation of common stock options exercised -- -- 2,091 -- -- -- -- -- 2,091 Cancellation of note payable originally issued in connection with the 1993 corporate restructuring -- -- 4,475 -- -- -- -- -- 4,475 Foreign currency translation -- -- -- -- -- -- (19) -- (19) Net income -- -- -- 8,708 -- -- -- -- 8,708 ----------------------------------------------------------------------------------------------- Balance, December 31, 1994 12,482 125 73,783 (14,959) -- -- (36) -- 58,913 ----------------------------------------------------------------------------------------------- Issuance of stock under employee/consultant benefit plans 355 4 1,919 -- -- -- -- -- 1,923 Tax benefit attributable to appreciation of common stock options exercised -- -- 950 -- -- -- -- -- 950 Purchase of treasury shares -- -- -- -- (648) (4,575) -- -- (4,575) Retirement of treasury shares (88) (1) (518) -- 88 519 -- -- -- Issuance of stock subscription receivable 40 -- 210 -- -- -- -- $ (210) -- Foreign currency translation -- -- -- -- -- -- 26 -- 26 Net income -- -- -- 11,833 -- -- -- -- 11,833 ----------------------------------------------------------------------------------------------- Balance, December 31, 1995 12,789 $ 128 $ 76,344 $ (3,126) (560) $ (4,056) $ (10) $ (210) $69,070 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 24 CONSOLIDATED STATEMENTS OF CASH FLOW - - -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 1994 1993 - - --------------------------------------------------------------------------------------------------------- (IN THOUSANDS) OPERATING ACTIVITIES Income from continuing operations $11,833 $8,708 $9,807 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Depreciation and amortization 3,272 3,546 2,812 Bad debt expense 20 245 1,695 Legal settlement recorded as reduction of note payable to related party -- (750) -- Deferred income tax benefit (1,611) (2,280) (2,000) Current tax benefit attributable to stock options exercised 175 49 -- Changes in current assets and liabilities: Accounts and notes receivable, net (713) 650 (1,097) Inventories 432 657 (5,890) Prepaid expenses and other current assets (50) 263 (383) Other assets, net (296) (252) 60 Accounts payable (485) 916 1,534 Accrued salaries and benefits 400 179 604 Accrued warranty and installation costs 144 (248) (387) Deferred income on service contracts and customer deposits 283 412 1,874) Income taxes payable (3) (401) (108) Accrued legal fees and litigation settlements (526) 244 (1,585) Accrued restructuring costs -- (3,259) (991) Accrued distributor commissions (368) (162) 127 Other accrued liabilities 305 825 (411) ------------------------------ Net cash provided by continuing operations 12,812 9,342 5,661 Net cash provided by discontinued operations -- -- 1,025 ------------------------------ Net cash provided by operating activities 12,812 9,342 6,686 ------------------------------ INVESTING ACTIVITIES Reduction (increase) in long-term receivables (99) 458 (1,361) Additions to property and equipment (1,111) (3,441) (3,297) Other 26 (19) (17) ------------------------------ Net cash used in investing activities (1,184) (3,002) (4,675) ------------------------------ FINANCING ACTIVITIES Sales of common stock 1,923 360 1,503 Purchases of treasury stock (4,575) -- -- Payments on notes payable -- (4,475) (55) ------------------------------ Net cash provided by (used in) financing activities (2,652) (4,115) 1,448 Net increase in cash and temporary cash investments 8,976 2,225 3,459 Cash and temporary cash investments at beginning of year 7,608 5,383 1,924 ------------------------------ Cash and temporary cash investments at end of year $16,584 $7,608 $5,383 ------------------------------ ------------------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (for continuing and discontinued operations): Cash paid during the year for interest $11 $257 $1,815 Cash paid during the year for income taxes $583 $357 $1,491
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: During 1993, the Company was restructured and divided into three separate publicly traded companies (see Note 2). In connection with the restructuring, the following net assets of the Company were distributed to the Company's stockholders:
Assets distributed $147,866 Liabilities distributed [including $9,700 note payable to related party (see Note 10)] (49,637) -------- Net book value of assets distributed $ 98,299 -------- --------
During 1994, the remaining balance of the note payable to related party, in the amount of $4,475 was cancelled with the corresponding benefit credited to capital in excess of par value. During the years ended December 31, 1995 and 1994, the tax benefits in the amount of $775 and $2,042, respectively, attributable to the appreciation of common stock options were credited directly to capital in excess of par value. During the year ended December 31, 1995, the Company sold 40 shares of its common stock in exchange for a note receivable in the amount of $210. See accompanying notes to consolidated financial statements. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include those of OEC Medical Systems, Inc. (formerly Diasonics, Inc.) (see Note 2) and its wholly-owned subsidiaries ("the Company"). All material intercompany balances and transactions have been eliminated in consolidation. OPERATIONS The Company designs, manufactures, markets and services computer-based medical instruments (primarily X-ray imaging systems) for use in hospitals, outpatient clinics, and private practice surgi-centers. The manufacturing facilities are located in Salt Lake City, Utah and Warsaw, Indiana. The systems are marketed through direct sales forces of the Company and through independent distributors and dealers primarily in the United States, Europe and the Pacific Rim (see Note 8). RECENT FINANCIAL ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement addresses the accounting for the impairment of long-lived assets, such as premises, furniture and equipment, certain identifiable intangibles and goodwill related to those assets. Long-lived assets and certain identifiable intangibles are to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the sum of the future cash flows (undiscounted and without interest charges expected from the use of the asset and its eventual disposition) is less than the carrying amount of the asset. The statement also requires that long-lived assets and identifiable intangibles, except for assets of a discontinued operation held for disposal, be accounted for at the lower of cost or fair value less cost to sell. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. The impact of SFAS No. 121 on the Company is not expected to be material in relation to the consolidated financial statements. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" which will be effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25 which is based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS The preparation of financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUES RECOGNITION Sales are generally recognized at the time the products are shipped, as are provisions for estimated installation costs, warranty costs, agents' commissions and sales allowances. Amounts received upon the sale of service contracts are deferred and recognized as service revenue over the life of the contract. CASH, TEMPORARY CASH INVESTMENTS & LINE OF CREDIT Temporary cash investments are interest-bearing investments readily convertible to cash with original short-term maturities less than 90 days and are stated at cost, which approximates market. At December 31, 1995, the Company had a line of credit for $10 million which expires May 1997. No borrowings had been made under this line as of December 31, 1995. 26 ACCOUNTS AND NOTES RECEIVABLE The allowance for doubtful accounts included in accounts and notes receivable is as follows:
DECEMBER 31, 1995 1994 - - ----------------------------------------------- (IN THOUSANDS) Allowance for doubtful accounts $577 $725 ------------- - - -----------------------------------------------
INVENTORIES Inventories are stated at the lower of cost (utilizing the first-in/first-out method) or market. Inventories consist of the following:
DECEMBER 31, 1995 1994 - - ------------------------------------------------- (IN THOUSANDS) Purchase parts and completed subassemblies $8,190 $ 8,295 Work-in-process 3,216 3,281 Finished goods 5,147 5,661 Service and repair parts 4,171 4,715 ---------------- Total $20,724 $21,952 Less reserves (2,693) (3,489) ---------------- Net $18,031 $18,463 ---------------- ---------------- - - -------------------------------------------------
PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. The Company uses the straight-line method to depreciate and amortize the cost of assets over their estimated useful lives. Property and equipment consist of the following:
DECEMBER 31, 1995 1994 - - -------------------------------------------------- (IN THOUSANDS) Buildings and land $ 6,586 $ 6,400 Machinery and equipment 13,754 13,290 Leasehold improvements 700 815 Furniture and fixtures 164 171 ----------------- Total $ 21,204 $20,676 Less accumulated depreciation and amortization (11,336) (9,288) ----------------- Net $ 9,868 $11,388 ----------------- ----------------- - - --------------------------------------------------
COST IN EXCESS OF NET ASSETS ACQUIRED Cost in excess of net assets acquired include the following:
DECEMBER 31, 1995 1994 - - ------------------------------------------------ (IN THOUSANDS) Cost in excess of net assets acquired $18,396 $18,396 Less accumulated amortization (7,542) (6,901) ----------------- Net $10,854 $11,495 ----------------- ----------------- - - ------------------------------------------------
Cost in excess of net assets acquired is being amortized on a straight-line basis over approximately 30 years. Amortization amounted to $641,000 in each of the three years ended December 31, 1995. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, 1995 1994 - - -------------------------------------------------- (IN THOUSANDS) Patents and licenses -- $ 990 Less accumulated amortization -- (990) Deposits $345 252 Investment in subsidiary, at cost 203 -- -------------- Net $548 $ 252 -------------- -------------- - - --------------------------------------------------
Patents and licenses are amortized on a straight-line basis over 16 years. Amortization amounted to approximately $60,000 in the year ended December 31, 1993 and $154,000 in the year ended December 31, 1994. ACCRUED WARRANTY AND INSTALLATION COSTS The Company provides currently for the estimated cost to repair or replace products under warranty provisions in effect at the time of sale. CONTINGENCIES As a manufacturer of medical products, the Company is subject to certain regulations of the United States Food and Drug Administration ("FDA") and various state agencies. These regulations require review or approval of the Company's products, facilities and manufacturing processes, including periodic inspections of manufacturing facilities for compliance with Good Manufacturing Practices as established by the FDA. The Company has devoted substantial human and financial resources to regulatory compliance, and believes that it is in substantial compliance with all applicable federal and state regulations. 27 INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Income (loss) per common equivalent share is computed using the weighted average number of the Company's common shares outstanding and, for 1994 and 1995, dilutive common equivalent shares from stock options and warrants, as calculated using the treasury stock method. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's foreign subsidiaries are measured using local currencies as the functional currency. Assets and liabilities are translated into US dollars at year-end rates of exchange and results of operations are translated at average rates of exchange for the year. Gains and losses resulting from these translations are accumulated in a separate component of stockholders' equity until such time as the subsidiary's operations are discontinued, sold or substantially liquidated. 2. RESTRUCTURING Effective September 30, 1993, Diasonics, Inc., the Company's predecessor, effected a restructuring and distribution whereby Diasonics was divided into three separate publicly traded companies. In this transaction, Diasonics, Inc. distributed to its stockholders all of the outstanding stock of (i) Diasonics Ultrasound, Inc., a wholly-owned subsidiary that operated Diasonics Inc.'s worldwide ultrasound business, including its Sonotron Holding AG medical products distribution subsidiary and its Vingmed Sound A/S cardiac ultrasound subsidiary, and of (ii) FOCAL Surgery, Inc., a wholly-owned subsidiary of Diasonics Ultrasound, Inc. that operated Diasonics, Inc.'s therapeutic products division. These businesses are now accounted for as discontinued operations for the period presented through September 30, 1993. Concurrently with the restructuring and distribution, OEC-Diasonics, Inc., Diasonics, Inc.'s sole remaining business, was merged into Diasonics, Inc. and the Company changed its name to OEC Medical Systems, Inc. Revenues from the discontinued operations totaled $136.7 million for 1993. 3. INCOME TAXES Income tax benefit represents the consolidated amount provided by the Company for its continuing operations, excluding amounts allocated to discontinued operations as calculated on a stand-alone basis. Income tax benefit from continuing operations consists of the following:
YEARS ENDED DECEMBER 31, 1995 1994 1993 - - ------------------------------------------------------------- (IN THOUSANDS) Current Expense: State $ (598) $ (351) $ (224) --------------------------- Federal (3,771) (2,033) -- Less utilization of operating loss carryforwards and tax credits 3,614 1,920 -- --------------------------- Net Federal (157) (113) -- --------------------------- Total Current (755) (464) (224) --------------------------- Deferred Benefit: Reversal of valuation allowance 5,394 $ 5,125 $2,000 Net operating loss utilized currently (3,614) (1,920) -- Other deferred tax assets utilized (169) (925) -- --------------------------- Total Deferred 1,611 2,280 2,000 ------------------------ Net $ 856 $ 1,816 $1,776 --------------------------- --------------------------- - - -------------------------------------------------------------
Income tax benefit differs from the amount computed by applying the statutory federal tax rate to income from continuing operations for the following reasons:
YEARS ENDED DECEMBER 31, 1995 1994 1993 - - ------------------------------------------------------------- (IN THOUSANDS) Computed federal income tax expense at statutory rate of 35% $(3,842) $(2,412) $(2,811) State income taxes (598) (351) (224) Gains (losses) of subsidiaries for which effects are not recorded 16 (314) -- Utilization of net losses of discontinued operations -- -- 3,082 Change in valuation allowance for deferred tax assets 5,394 5,125 2,000 Permanent differences (114) (232) (271) ------------------------------ Income tax benefit $856 $1,816 $1,776 ------------------------------ ------------------------------ - - -------------------------------------------------------------
28 The Company has investment and research and experimental tax credit carryforwards of approximately $6,452,000 expiring in the period 1996 through 2009, plus alternative minimum tax credit carryforwards of approximately $2,236,000. The Company implemented Statement of Financial Accounting Standard No. 109 effective January 1, 1993. The implementation did not have a material impact on its financial position or results of operations. Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes; and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's deferred taxes are as follows:
DECEMBER 31, 1995 1994 - - -------------------------------------------------------- (IN THOUSANDS) DEFERRED TAX ASSETS: Reserves not currently deductible $ 4,326 $ 3,875 Operating loss carryforwards -- 3,479 Tax credit carryforwards 8,688 8,668 ------------------ Total Deferred Taxes 13,014 16,022 Valuation allowance (4,306) (9,700) Net deferred taxes $ 8,708 $ 6,322 ------------------ ------------------ - - --------------------------------------------------------
4. COMMITMENTS The Company leases certain of its manufacturing facilities and certain equipment under operating leases. Future minimum annual rental payments under the Company's operating leases are as follows:
YEARS ENDED DECEMBER 31, - - ---------------------------------------- (IN THOUSANDS) 1996 $956 1997 820 1998 206 1999 155 2000 82 ------ Total $2,219 ------ ------ - - ----------------------------------------
Total rent expense in 1995, 1994, and 1993 was $1,076,000, $1,028,000, and $422,000, respectively. The company sponsors a 401(k) savings plan in which most domestic salaried employees of the Company are eligible to participate. Contributions made to the plan by the Company are based on a percentage of employee contributions, and totaled $690,000, $436,000, and $378,000, in 1995, 1994, and 1993, respectively. 5. COMMON STOCK The Company's 1990 stock plan (which incorporates active options under predecessor plans) permits officers, directors, employees and independent contractors to acquire options or other rights to purchase Company common stock. The purchase price for the shares is their fair market value on the date the option or purchase right is granted. Options and purchase rights generally vest over a 5-year period. The Company also maintains an Incentive Stock Acquisition Plan (ISAP) in which only employees may participate. Under the ISAP, the purchase price is 85 percent of the fair market value of the shares on the trading day before the six-month participation period begins or the last trading day of the participation period, whichever is less. A summary of stock plan activities is as follows:
YEARS ENDED DECEMBER 31, 1995 1994 1993 - - ---------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT AVERAGE PRICES) OPTIONS: Outstanding beginning of year 1,952 2,006 1,561 Granted 714 85 719 Cancelled (600) (95) (110) Exercised (326) (44) (164) ------------------------------ Outstanding end of year 1,740 1,952 2,006 ------------------------------ ------------------------------ Exercisable at end of year 780 1,335 1,074 Available for grant at end of year 412 526 517 Consideration received for options exercised during year $1,779 $232 $1,110 Aggregate purchase price of options outstanding at end of year $10,478 $12,239 $12,634 Range of purchase prices of options outstanding at end of year - low $5.25 $5.25 $5.25 - high $12.03 $14.37 $14.37 Average purchase price of options exercised during year $5.46 $5.27 $6.77 Shares purchased under ISAP 69 27 32 Consideration received for purchases made under ISAP $354 $128 $393 - - ----------------------------------------------------------------------------
29 WARRANTS In connection with the signing of a product development agreement in 1990, the Company's predecessor issued warrants to purchase 200,000 shares of its common stock. The warrants are exercisable at a price of $12.70 per share over the period August 31, 1994 through August 31, 1997. As of December 31, 1995, none of the warrants had been exercised. STOCK REPURCHASE A stock repurchase program of 750,000 shares of the Company's outstanding common stock was announced in December 1994 and an additional 500,000 shares in January 1996. The Company believes its stock is undervalued and is a sound investment for a portion of its cash reserves. The manner and timing of the repurchase will depend on market conditions and the company's cash reserves. As of December 31, 1995, 648,183 shares have been repurchased, of which 87,983 were retired and 560,200 are recorded as treasury stock. 6. LITIGATION In 1993, the Company announced that a $3.1 million judgment against the Company had been reversed on appeal. The original litigation was instituted in 1986 by a terminated distributor of the Company's products, and an initial unfavorable judgment was received in 1992. The Company established a full reserve for the judgment at that time, which with accrued interest totaled approximately $3.3 million as of December 31, 1992. The appellate decision has been appealed by the plaintiff. While the Company believes that the appellate decision will stand, no determination can be made as to whether some or all of the reserve should be reversed until all further appellate and related proceedings have finally been determined. As a result, at December 31, 1995 and 1994, the reserve with accrued interest totalled approximately $3.7 million. All but one of the pending lawsuits relating to the former MRI Division have been favorably resolved by dismissals, summary judgment or directed verdicts in favor of the Company. With respect to the sole exception, an action filed by Lenox Hills Leasing Associates, Toshiba America Medical Systems, Inc. ("Toshiba") has agreed to defend and indemnify the Company. All of the pending actions, and any future actions related to the MRI Division, are the subject of an arbitration award in favor of the Company and against Toshiba. That arbitration award holds that, with certain limited exceptions not applicable to any of the pending actions, Toshiba is obligated to indemnify the Company for compensatory and punitive damages, if any, awarded against the Company in any action related to the former MRI Division and to reimburse the Company for its attorney's fees and expenses incurred in defending such actions, regardless of whether such actions allege intentional misconduct or fraud. This arbitration award was confirmed by a California trial court. Toshiba appealed, and the California Court of Appeals affirmed the ruling of the trial court in favor of the Company. Toshiba may seek further appellate review of the award. If the award is reversed, it will not effect the outcome of any of the pending actions, but will apply only to future filed actions. To the extent that the award is reversed and a future action is filed that would not be covered by the Company's indemnity or the arbitration award, the Company does not believe that an adverse outcome would have a material impact on its financial position or results of operations. The Company is also a defendant in other ordinary commercial litigation. In light of available insurance and reserves, management believes that such litigation will not have a material effect on its financial position or results of operations. 7. PREFERRED SHARE PURCHASE RIGHTS In July 1988, the Company through its predecessor, Diasonics Inc., declared a dividend distribution of one Preferred Share Purchase Right (a "Right") on each outstanding share of common stock. Prior to the acquisition by a person or group of beneficial ownership of 25% or more of the Company's common stock, the Rights are redeemable for two and one-half cents per Right at the option of the Board of Directors. The Rights will trade together with the common stock until they become exercisable. The Rights will be exercisable only if a person or group acquires 25% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 25% or more of the common stock. Each right will entitle stockholders to buy five one-hundredths of a share of a new series of junior participating preferred stock at an exercise price of $10. At December 31, 1995 and 1994, the Company had 2,000,000 shares of such preferred stock authorized with none outstanding. The preferred stock generally carries rights equivalent to one hundred times those of common stock rights and is subject to certain non-dilutive and repurchase options. If the Company is acquired in a merger or engages in certain other acquisition transactions with a person or group that holds 25% or more of the common stock, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring company's common shares having a market value at the time of twice the Right's exercise price. In addition, if a person or group acquires 25% or more of the Company's outstanding common stock, each Right will entitle its holder (other than such person or members of such group) to purchase, at the Right's then-current exercise price, a number of the Company's common shares having a market value of twice the Right's exercise price. 30 This ability to purchase common shares does not operate if the acquisition of 25% occurs pursuant to a cash tender offer for all shares in which such person or group increases its stake from below 25% to 80% or more of the outstanding shares of common stock. Following the acquisition by a person or group of beneficial ownership of 25% or more of the Company's common stock and prior to an acquisition of 50% or more of the common stock, the Board of Directors may exchange the Rights (other than Rights owned by such person or group), in whole or in part, at an exchange ratio of one share of common stock (or one-hundredth for a share of the new series of junior participating preferred stock) per Right. 8. FOREIGN SALES The Company markets its products internationally through subsidiaries in Switzerland, Germany, France and Italy as well as dealers and distributors in all other countries were applicable. The following table summarizes approximate foreign product sales:
YEARS ENDED DECEMBER 31, 1995 1994 1993 - - -------------------------------------------------------- Europe $ 8,770 $2,294 $2,950 Other 8,078 5,201 5,348 ----------------------------- Total foreign sales $16,848 $7,495 $8,298 ----------------------------- ----------------------------- - - --------------------------------------------------------
9. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 1995 is as follows (in thousands, except for per share data):
QUARTER FIRST SECOND THIRD FOURTH - - -------------------------------------------------------- 1995 Net Sales $22,802 $26,129 $25,470 $27,135 Gross margin 9,221 10,695 10,426 10,864 Net income 2,492 2,762 3,141 3,438 Income per share .20 .22 .25 .27 1994 Net sales $23,260 $19,384 $27,303 $28,211 Gross margin 9,559 7,125 10,350 10,448 Net Income 2,277 344 2,943 3,144 Income per share .18 .03 .23 .25 - - --------------------------------------------------------
10. RELATED PARTIES At December 31, 1995, the Company had a note payable to Diasonics Ultrasound, Inc., its former subsidiary (see Note 2), for $9,700,000, due in two equal installments, plus interest at 3% per annum, on June 30, 1994 and December 31, 1994. The note was cancelable under certain conditions, including a merger, acquisition or other transaction resulting in a change in control of Diasonics Ultrasound, Inc. The note was offset by $750,000 in the second quarter of 1994, which was the Company's portion of a litigation settlement paid by Acuson, Inc., to Diasonics Ultrasound, Inc. This reduction of $750,000 has been reflected in the Company's accompanying consolidated statement of operations for the year ended December 31, 1994 as reduction of administrative, general and other expenses. The first installment of principal in the amount of $4,475,000 was made in the third quarter of 1994. The second installment in the remaining amount of $4,475,000 was not required to be paid under the terms of the note, due to a change in control of Diasonics Ultrasound, Inc. Upon cancellation, the $4,475,000 was credited to capital in excess of par value. Sales to Diasonics, Ultrasound, Inc. were $1.9 million in the fourth quarter of 1993 and $5.2 million during 1994. During 1995, the Company purchased a 19.8% ownership position in Barwig Medizinische Systeme GmbH (BMS), a German manufacturer of medical equipment. The Company was granted exclusive worldwide distribution rights for the 7600 C-Arm manufactured by BMS. During 1995, the Company provided long-term working capital loans to BMS of approximately $1.0 million. The company has the option until December 31, 1996, to convert a portion of the loan into a total of 51.7% ownership of BMS. At December 31, 1995, this option has not been exercised. 31 INDEPENDENT AUDITORS' REPORT - - -------------------------------------------------------------------------------- The Board of Directors and Stockholders of OEC Medical Systems, Inc.: We have audited the accompanying consolidated balance sheets of OEC Medical Systems, Inc. (formerly Diasonics, Inc.) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of OEC Medical Systems, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Salt Lake City, Utah January 19, 1996 32 EX-21 5 EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARIES OEC Europe, Ltd. (England) Frank Manufacturing Diasonics Export Sales Corp. (Disc) Chromosonics, Inc. Diasonics Foreign Sales Corp. (FSC) OEC Medical Systems (Europe) AG OEC Medical Systems SA OEC Medical Systems GmbH OEC Medical Systems S.R.L. EX-23 6 EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statements Nos. 33-69672, 33-37396, and 33-40280 of OEC Medical Systems, Inc. on Forms S-8 of our report dated January 19, 1996, incorporated by reference in the Annual Report on Form 10-K of OEC Medical Systems, Inc. for the year ended December 31, 1995. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Salt Lake City, Utah March 29, 1996 EX-27 7 FDS EX.27
5 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. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 16,584 0 25,559 577 18,031 66,292 21,204 11,336 91,462 22,392 0 0 0 128 68,942 91,462 86,415 101,536 51,408 60,330 30,894 0 11 10,977 (856) 11,833 0 0 0 11,833 .94 .94
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