Item 1. Business
Overview
MDT Corporation ("MDT" or the "Company") was organized in 1971 and is incorporated in Delaware. The Company is a holding company whose principal operating subsidiaries are MDT Biologic Company, which produces and sells Sterility Assurance Systems, MDT Diagnostic Company, which produces and sells Examining and Operatory Equipment, and MDT Technionic Company, which provides product support, maintenance, repair and other services to customers of MDT Biologic Company, MDT Diagnostic Company and other manufacturers, and which also sells to such customers parts and consumable products relating to Sterility Assurance Systems and Examining and Operatory Equipment. The Company also operates several international sales and service subsidiaries, including MDT Asia Limited, MDT Canada Limited and MDT International Limited. Unless the context otherwise requires, references to "MDT" and the "Company" include the Company and its subsidiaries.
MDT Biologic Company develops, manufactures and markets Sterility Assurance Systems, including sterilizers, ultrasonic cleaners, decontaminators, dryers, scrub sinks and related equipment, accessories and consumables. This equipment is necessary for cleaning, decontaminating, disinfecting, sterilizing, drying, aerating, storing and retrieving instruments and other critical items for use in invasive procedures. Sterility Assurance Systems are used by healthcare professionals and scientific customers principally to prevent cross-infection of communicable diseases caused by the use of contaminated instruments or products.
MDT Diagnostic Company develops, manufactures and markets Examining and Operatory Equipment for use in diagnostic and therapeutic procedures performed in hospitals and medical and dental offices, clinics and other non-hospital treatment facilities. Products include examination, treatment and surgical tables and lighting systems, dental x-ray machines, dental operatory equipment (which includes dental chairs, lights and instrument delivery systems) and other products, together with related accessories and consumables.
MDT Technionic Company services and otherwise supports the installed base of equipment from both product groups, as well as the installed base of equipment of other manufacturers.
The Company currently derives approximately 45% and 19% of its revenues from sales of Sterility Assurance Systems and Examining and Operatory Equipment, respectively, and approximately 36% of its revenues from the sale of parts, service and consumables in support of both product groups and, to a much lesser degree, competitors' products. International sales and service from all product groups, including the sale of parts, service and consumables, currently account for approximately 18.5% of the Company's revenues. Financial information can be found in Items 6, 7 and 8 of this Annual Report.
MDT intends to maintain and, where and when possible, expand its healthcare products and service business through the internal development of new products and services complementary to its current activities. See "Business --Product Development." The Company anticipates that expansion may also take place, both domestically and internationally, through the development of new manufacturing, distribution, sales and other strategic relationships with third parties. See "Business -- Products" and "Business -- Marketing."
Several trends are influencing the need for and use of Sterility Assurance Systems in the hospital market, including increased utilization of smaller sterilizers for departmental use to facilitate more rapid turnaround of expensive instruments and other critical items; a perceived market need to switch from ethylene oxide sterilizers to newer technology plasma units; aging of the patient population, with a corresponding increased need for medical care and greater susceptibility to infection; expanding use of organ replacements and treatment modalities for patients with cancer, diabetes and other illnesses
requiring immunosuppressant drug therapies which, by necessity, require more stringent aseptic practices; and greater use of reusable versus disposable surgical articles to support healthcare cost containment and to address concerns about infectious waste.
Other factors are influencing demand for Sterility Assurance Systems in the dental market. Principally as a result of the use of fluoride in drinking water by most industrialized countries, the incidence of cavities in their young adult populations has substantially declined. At the same time, those populations are living longer and retaining more of their teeth throughout their lives. Accordingly, while services for the restoration of cavities are expected to decrease, treatment of periodontal disease, orthodontic procedures, cosmetic care and other general and specific oral and facial procedures are expected to increase.
Demand for Sterility Assurance Systems in the hospital, dental and medical markets is expected to grow over time, due in part to increased professional awareness and public concern about the risk of cross-infection of virulent diseases such as AIDS, herpes, hepatitis B and tuberculosis.
According to various market sources, the total number of surgical procedures performed in all settings (hospital-based, surgery center and medical offices) will approach 31 million in 1996. This is an increase of almost 41% from the 22 million performed in 1985. During this same period, the proportion of procedures performed in an outpatient setting has increased from just under 40% in 1985 to a predicted level of almost 70% in 1996. These trends are increasing the utilization of and ultimately the demand for both Sterility Assurance Systems and Examining and Operatory Equipment.
A general cautionary note regarding the overall demand for hospital and medical equipment is the growing national concern about the steep rise in the overall cost of healthcare and its availability, resulting in increasing pressure by governments, insurers, employers and providers to reduce the growth rates of healthcare operating and capital costs. The continuing debate on healthcare reform reflects these and other concerns. Independent of healthcare reform proposals, healthcare consolidations and alliances are increasing industry efficiencies and strengthening the bargaining position of large providers of healthcare services. Activities intended to contain the rise in healthcare costs could continue negatively to impact customer demand for the Company's products and services.
Recent Company Events
Getinge Transaction
On May 12, 1996, the Company announced that it had entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which it is proposed to be acquired by Getinge Industrier AB, a Swedish manufacturer of hospital and scientific equipment. On May 17, 1996, Getinge commenced a tender offer for all outstanding shares of the Company's common stock for a cash price of $4.50 per share. On July 12, 1996, Getinge announced an extension of its tender offer until July 25, 1996 and an increase in the offer price to $5.50 per share. Consummation of the tender offer is subject to certain terms and conditions set forth in the Merger Agreement, including the approval of the holders of two-thirds of the shares to be acquired and certain regulatory approvals. If the tender offer is consummated, those shares not acquired in the tender offer will be converted into $5.50 in cash pursuant to a merger to be effected following completion of the tender offer.
Environmental Remediation
In connection with Getinge's investigation of the Company, the conduct of environmental tests revealed previously undiscovered soil and groundwater contamination at the Company's manufacturing facilities in Henrietta, New York and North Charleston, South Carolina. The Company estimates that the cost of remediating such contamination will range from $1,350,000 to $2,700,000, and a reserve of $1,350,000 was established in the fourth quarter of fiscal year 1996 to meet anticipated remediation obligations. See Item 2
Item 2. Properties
The Company owns approximately 32.5 acres of land and related buildings and improvements in Henrietta, New York, which house the headquarters and certain operations for two of its operating subsidiaries, MDT Biologic Company and MDT Technionic Company, as well as several corporate activities. The Company owns approximately three acres of land and a manufacturing and engineering facility in Rancho Dominguez, California which is utilized by MDT Biologic Company. The Henrietta and Rancho Dominguez properties are part of the security for the Company's amended bank credit agreement having an aggregate outstanding principal balance of $33,300,000 as of March 31, 1996. The Company is currently in default under certain financial covenants contained in the amended bank credit agreement. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note 8 and Note 9 to Consolidated Financial Statements. The Company owns approximately 2.5 acres of land and a manufacturing and engineering facility in Mercersburg, Pennsylvania, which is also utilized by MDT Biologic Company. The Mercersburg property secures two loans with an aggregate outstanding principal balance of $236,000 as of March 31, 1996. See Note 9 of Notes to Consolidated Financial Statements.
The Company occupies four leased facilities in North Charleston, South Carolina, under the terms of three coterminous leases. These facilities house the Company's third operating subsidiary, MDT Diagnostic Company, and a service center for MDT Technionic Company. The Company owns 15 acres of land in Summerville, South Carolina (adjacent to North Charleston), on which it intended to construct and occupy a new manufacturing and engineering facility. Due to the present business climate and financial results, the Company has listed the real property for sale.
The Company occupies its corporate headquarters in Durham, North Carolina under the terms of a lease which expires August 11, 2001. The Company also leases a government sales office in Arnold, Maryland and sales and service offices in Athens, Greece and Hong Kong. Warehouse facilities as well as sales and service offices are leased in Mississauga, Ontario, and Montreal, Quebec, Canada. As part of its reorganization, the Company closed during fiscal 1996, extending to the first quarter of fiscal 1997, the Plano, Texas, warehouse facility and three domestic sales and service offices.
The following table sets forth certain information concerning the principal manufacturing and engineering facilities of the Company and its subsidiaries. The table excludes the leased corporate facility in Durham, North Carolina, and leased sales and service offices and warehouse facilities in the United States and Canada and in Athens, Greece and Hong Kong, totaling approximately 30,000 square feet.
(a) Consists of four leased facilities. The leases pertaining to three of the facilities (comprising approximately 121,000 square feet) expire in December 1996, but include up to four annual renewal options in favor of the Company. The lease pertaining to the fourth facility (comprising 11,400 square feet) expires in December 1996.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of investigation, removal or remediation of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow money using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of a release of such substances at a disposal treatment facility, whether or not such facility is owned or operated by such person. In connection with the ownership, leasing or operation of real properties, and the conduct of manufacturing activities thereon, the Company may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and costs associated with injuries to persons and property.
In connection with Getinge's investigation of the Company (see Item 1, "Business -- Recent Company Events"), the conduct of environmental tests revealed previously undiscovered soil and groundwater contamination by industrial solvents at the Company's manufacturing facility in Henrietta, New York and by industrial solvents and petroleum constituents at the Company's manufacturing facility in North Charleston, South Carolina. Some of the contaminants in the groundwater may have migrated to the facilities from an offsite source. The costs of remediating such contamination is currently estimated to range from $1,350,000 to $2,700,000, and a reserve of $1,350,000 was established in the fourth quarter of fiscal year 1996 to meet anticipated remediation obligations. The ultimate cost, however, will depend on the extent of the contamination found as the remediation project progresses and the cleanup standards that the Company is required to meet.
Item 3.
Item 3. Legal Proceedings
In addition to the legal proceedings described or referenced in this Annual Report under the caption "Business -- Product Liability and Litigation," the Company is a defendant in various other legal proceedings arising in the ordinary course of business. In the opinion of management, the outcome of such other legal proceedings will not have a material adverse impact on the consolidated financial position of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None. PART II
Item 5.
Item 5. Market For The Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded in the NASDAQ National Market System under the Symbol MDTC. The following table sets forth, for the periods indicated, the range of high and low prices for the Common Stock for each fiscal quarter since April 1, 1995, as reported by the NASDAQ National Market System.
The last sale price on June 14, 1996, as reported by the NASDAQ National Market System, was 4 13/16 per share. On June 14, 1996 there were 475 holders of record of the Common Stock of MDT. The Company has never paid cash or other dividends and the Board of Directors does not anticipate paying any dividends in the foreseeable future. In addition, under the terms of the Company's credit agreement with Wells Fargo Bank, National Association, and Chase Bank, National Association, the Company has covenanted that, without the prior written consent of the banks, the Company will not pay dividends to its stockholders for as long as any loans under the amended credit agreement are outstanding.
Item 6.
Item 6. Selected Financial Data
The following tables set forth selected consolidated financial data for the Company for each of the five fiscal years ended March 31, 1996. This information should be read in conjunction with the more detailed consolidated financial statements and notes thereto included in Item 8 of this Annual Report.
The income statement data for each of the five fiscal years ended March 31, 1996 and the balance sheet data as of those dates have been derived from the Company's consolidated financial statements, which statements have been audited by KPMG Peat Marwick LLP, independent Certified Public Accountants.
Income Statement Data (In thousands, except per share data)
_________________
(a) Reorganization costs, reflecting employee severance payments, lease termination costs and recruitment and relocation costs which were $2,035 in fiscal 1996 and $1,235 in fiscal 1995.
(b) Cumulative effect of change in accounting method at April 1, 1993 to reflect the change in applying overhead costs to inventory.
Balance Sheet Data (In thousands, except per share data)
Financial Ratios
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
The following table presents for the fiscal years ended March 31, 1996, 1995, and 1994, the Company's Consolidated Statements of Income expressed as a percent of sales and the period-to-period percent changes in the dollar amounts of the respective line items.
The following table summarizes the sales contribution of each product group for the fiscal years ended March 31, 1996, 1995 and 1994.
Fiscal year ended March 31, 1996, as compared to fiscal year ended March 31, 1995.
Sales for the fiscal year ended March 31, 1996, of $131,188,000 were $4,274,000 below sales for fiscal year 1995, a decrease of 3.2%. Sales of parts, service and consumables by MDT Technionic were up 0.9% for the year compared to the prior year, while sales of sterility equipment by MDT Biologic were down 6.2% and sales of examining and operatory equipment by MDT Diagnostic were down 4.9% compared to the prior year. Good overall performance in international markets was offset by lower domestic equipment sales resulting in part from continuing buyer uncertainty in domestic healthcare markets related to healthcare reform and industry consolidation and retrenchment. Slightly higher sales by MDT Technionic reflect customer resolve to extend the utilization of existing equipment in the current environment.
Incoming orders of $127,919,000 for the recent fiscal year were $6,615,000, or 4.9%, lower when compared to incoming orders of $134,534,000 in the prior fiscal year. Stronger orders in the international and service markets were offset by weaker orders in the domestic healthcare markets. Backlog was $23,840,000 at March 31, 1996, compared to a backlog of $27,145,000 a year earlier.
Gross profit of $36,739,000 was $6,159,000, or 14.4%, lower in fiscal 1996 compared to fiscal 1995, while gross profit as a percentage of sales was 28.0% in the current fiscal year versus 31.7% in the prior fiscal year. Current year gross profit and gross profit margin were reduced by fourth quarter adjustments which included inventory adjustments totaling $2,425,000, including a write-down of approximately $489,000 in connection with inventory purchased from a supplier who failed to maintain necessary compliance with FDA manufacturing standards; a write-off of approximately $1,082,000 relating to products whose sales are being discontinued by the Company; additional reserves for excess and obsolete inventory of approximately $855,000, relating primarily to the identification of slower-moving products and parts inventories; and higher LIFO reserves of approximately $133,000. Gross margins were also decreased by $562,000 for increased warranty reserves of $260,000 and increased reserves for projected workers compensation expense of $302,000. The decrease in gross profit and gross margin from the prior year (excluding the aforementioned) was also impacted by the additional combined effects of lower domestic sales, higher manufacturing costs resulting from reduced production levels, lower pricing and a relatively higher mix of international sales yielding generally lower margins. These negative factors were partially offset by cost reductions implemented during the current and prior fiscal year.
Operating expenses of $38,343,000 increased $988,000, or 2.6%, in fiscal 1996 compared to fiscal 1995. The increase in operating expenses reflects an increase of $424,000 for costs associated with patent litigation defense fees, approximately $179,000 to amortize assets relating to the Company's
plasma sterilizer program and an increase of approximately $120,000 in expenditures to market to national accounts and group purchasing organizations combined with related higher administrative fees. Overall, operating expenses as a percentage of sales increased to 29.2% in fiscal 1996 from 27.6% in fiscal 1995.
Reorganization costs, reflecting employee severance payments and relocation costs related to the reorganization of the Company into three business units (including the relocation of the corporate office from Torrance, California, to Durham, North Carolina), totaling $2,035,000 were recorded in fiscal 1996. These costs are associated with the Company's efforts to lower its break-even point in the face of lower sales while at the same time improve the effectiveness of its operations, organization and structure. At March 31, 1996, the balance of reorganization costs accrued but not yet paid was $830,000. Further measures to reduce costs are being implemented by the Company. A reserve of approximately $315,000 to reflect costs incurred to effect such reductions, principally severance costs, is expected to be recorded in the first quarter of fiscal 1997. Further, the Company has under consideration the sale or discontinuance of certain product lines and related assets and the contraction or closure of certain distribution channels, which could result in further reserves and cost for inventory, severance and asset impairments. See Item 1 -- "Business -- Recent Company Events -- First Quarter Operating Results."
The operating loss of $3,639,000 in fiscal 1996 was $7,947,000, or 184.5%, below the operating income of $4,308,000 in fiscal 1995, reflecting lower gross profit, higher operating expenses and higher reorganization costs.
Interest expense decreased $71,000 in fiscal 1996 to $3,443,000. The decrease was due primarily to lower average borrowings.
Other expenses increased $1,596,000 to $1,709,000. The increase includes a reserve for environmental remediation costs of $1,350,000 related to soil and ground water contamination at two of the Company's manufacturing facilities, approximately $410,000 for costs incurred in connection with the Getinge transaction and costs incurred in connection with the negotiation and amendment of the Company's bank credit agreement and a write-off of land improvement cost of $349,000 related to abandoned plans to construct a new manufacturing facility in South Carolina. These costs were offset by a pre- tax gain of $518,000 from the sale of the Bovie product line of electrosurgical products.
Income tax (benefit) is based upon an estimated rate of 31% for fiscal year 1996. The tax rate used for the prior fiscal year was 59%.
Net loss of $6,066,000, or $.90 per share, for fiscal 1996 compares to a net income of $276,000, or $.04 per share, for the same period in 1995, reflecting the above noted factors.
Fiscal year ended March 31, 1995, as compared to fiscal year ended March 31, 1994.
Sales for the fiscal year ended March 31, 1995, of $135,462,000 were $1,013,000 below sales for fiscal year 1994, a decrease of 0.7%. Sales of parts, service and consumables were up 10.8% for the year compared to the prior year while sales of sterility equipment were down 5.9% and sales of examining and operatory equipment were down 6.9% compared to the prior year. Lower equipment sales resulted from continuing buyer uncertainty in the domestic healthcare markets related to healthcare reform and from continuing industry consolidation and retrenchment. Higher sales of parts, service and consumables reflect customer resolve to extend the life of existing equipment in the current environment.
Incoming orders of $134,535,000 were essentially the same when compared to incoming orders of $134,403,000 in the prior year. Stronger orders in the international, scientific and service markets were offset by weaker orders in the domestic healthcare markets. Backlog was $27,145,000 at March 31, 1995, compared to $28,072,000 a year earlier.
Gross profit of $42,898,000 was $849,000, or 1.9%, lower in fiscal 1995 compared to fiscal 1994, while gross profit as a percentage of sales was 31.7% in fiscal 1995 versus 32.1% in the prior year. Fiscal 1995 gross profit and gross profit margin were reduced by $371,000 as the result of a strike at the Company's Henrietta, New York, plant in April 1994. The decrease from the prior year (excluding
the effect of the strike) was primarily due to the combined effects of lower sales, higher manufacturing costs resulting from reduced production levels, somewhat lower pricing overall, manufacturing inefficiencies associated with the consolidation in December 1994 of the former Elkhorn, Wisconsin, operation with the North Charleston, South Carolina, operation and the comparative impact of implementing the LIFO method for costing substantially all inventories in fiscal 1995. These negative impacts were partially offset by cost reductions implemented during fiscal 1995, the favorable gross profit impact of which was first realized during the fourth quarter of fiscal 1995.
Effective April 1, 1994, the Company implemented the LIFO method for costing substantially all of its inventories. In fiscal 1994, approximately 44% of the Company's consolidated inventories was valued using the LIFO method, with the balance valued using the FIFO method. During fiscal year 1995, the Company recorded incremental LIFO reserves of $656,000 as a result of this change.
Operating expenses of $37,355,000 decreased $1,276,000, or 3.3%, in fiscal 1995 compared to fiscal 1994. The reduction in operating expenses reflects the implementation of cost reductions during the fiscal year, offset in part by patent litigation costs and new product introduction costs. Overall, operating expenses as a percentage of sales decreased to 27.6% in fiscal 1995 from 28.3% in fiscal 1994.
Reorganization costs, reflecting employee severance payments, lease termination costs and recruitment and relocation costs, totaling $1,235,000 were recorded in fiscal 1995. These costs were associated with the Company's efforts to lower its break-even point in the face of market uncertainties while at the same time improve the effectiveness of its operations, organization and structure. The fiscal 1995 cost associated with each of the measures is: elimination of jobs and other costs and expenses, $733,000; consolidation of sales and service offices including centralization of service dispatch and parts and service order entry, $215,000; and reorganization of the Company into three business units, including the relocation of the corporate office from Torrance, California, to Durham, North Carolina, $287,000.
Operating income of $4,308,000 was $808,000, or 15.8%, lower in fiscal 1995 than in fiscal 1994, reflecting lower gross profit and reorganization costs partially offset by lower operating expenses.
Interest expense increased $711,000 in fiscal 1995 to $3,514,000. The increase was due primarily to increases in the prime rate, to which most of the Company's debt was related.
The effective income tax rate increased to approximately 59% in fiscal 1995 compared to 42% in fiscal 1994. The increase in the effective tax rate reflects primarily the impact on the percentage rate calculation of permanent book-to-tax differences stemming from the 50% limitation on the deductibility of travel related expenses applied to reduced taxable income after reorganization costs.
Income before cumulative effect of change in accounting method of $276,000, or $.04 per share, in the current year, compares to $1,243,000, or $.18 per share, in the prior year, a decrease of $967,000, or 77.8%, reflecting the factors previously discussed.
During fiscal year 1994, the Company recorded the effect of a change in accounting method for applying overhead costs to inventory, which resulted in a cumulative write-up of inventories of $699,000, net of tax, or $.11 per share (See Note 2 to the Notes to Consolidated Financial Statements.)
Net income of $276,000, or $.04 per share, for fiscal 1995, compared to $1,942,000, or $.29 per share, for fiscal 1994, a decrease of 85.8%. Reorganization costs of $1,235,000, costs related to a strike in April 1994 of $371,000, and incremental LIFO reserves of $656,000, taken together with the tax effect discussed above, reduced net income by $1,312,000, or $.19 per share, in fiscal 1995.
Liquidity and Capital Resources
During fiscal 1996, net cash provided by operating activities of $419,000 was combined with proceeds from the sale of the Bovie product line of $2,631,000 to finance capital expenditures of $2,292,000 and net payments on borrowings of $730,000.
At March 31, 1996, the Company's current ratio was 1.2 to 1 and working capital was $13,466,000. This compares to a current ratio of 1.5 to 1 and working capital of $23,427,000 at March 31, 1995. The decrease in working capital reflects the reclassification of bank term debt from long-term to current based on the Company's default under certain financial covenants contained in its amended bank credit agreement with Well Fargo Bank, National Association and Chase Bank, National Association, discussed below; adjustments to reduce the values of inventories; and increases in accrued liabilities discussed above in Results of Operations. At March 31, 1996, Stockholders' Equity per share was $5.82 compared to $6.72 at March 31, 1995.
On June 9, 1995, the Company's wholly owned subsidiary, MDT Diagnostic Company, sold to Maxxim Medical, Inc. certain inventories, fixed assets and intangible assets relating to the Bovie line of electrosurgical products, which resulted in a pre-tax gain of $518,000.
The Company is directing a significant portion of its research and development efforts to the development of technology utilizing plasma generated neutral species in a sterilizer intended to replace ethylene oxide gas sterilizers and other low temperature alternatives to autoclaves. A significant portion of the technology is embedded in patents which MDT has an option to purchase from the inventor and his controlled corporation (jointly referred to as Exitron). Development costs are expensed as incurred. The Company has capitalized $911,000 related to the purchase of the technology from Exitron together with related patent and other asset costs. MDT has filed lawsuits against AbTox, Inc., Mundelein, Illinois, in both the United States and Canada seeking to prove infringement of the patents, obtain monetary damages and restrain AbTox from the sale of a product which MDT believes infringes the patents. AbTox has filed counter claims against MDT and Exitron. In fiscal 1996, MDT spent $893,000 on legal and professional fees related to this matter. MDT expects to expend further amounts in fiscal 1997 to commercialize the technology and to protect its patent position.
Reorganization costs, reflecting employee severance payments and relocation costs related to the reorganization of the Company into three business units (including the relocation of the corporate office from Torrance, California, to Durham, North Carolina), totaling $2,035,000 were recorded in fiscal 1996. These costs are associated with the Company's efforts to lower its break-even point in the face of lower sales while at the same time improve the effectiveness of its operations, organization and structure. At March 31, 1996, the balance of reorganization costs accrued but not yet paid was $830,000. Further measures to reduce costs are being implemented by the Company. A reserve of approximately $315,000 to reflect costs incurred to effect such reductions, principally severance costs, is expected to be recorded in the first quarter of fiscal 1997. Further, the Company has under consideration the sale or discontinuance of certain product lines and related assets and the contraction or closure of certain distribution channels, which could result in reserves for inventory and costs for severance and asset impairment.
The Company made capital expenditures of $2,292,000 in fiscal 1996 compared to $3,067,000 in fiscal 1995. Capital expenditures are anticipated to total approximately $2,000,000 in fiscal 1997, for production machinery and equipment, tooling and molds. Total committed capital expenditures were approximately $568,000 as of March 31, 1996. The Company owns 15 acres of land in Summerville, South Carolina (adjacent to North Charleston), on which it intended to construct and occupy a new manufacturing and engineering facility. Due to the present business climate and financial results, the Company has listed the real property for sale.
On May 12, 1996, the Company announced that it had entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which it is proposed to be acquired by Getinge Industrier AB, a Swedish manufacturer of hospital and scientific equipment . On May 17, 1996, Getinge commenced a tender offer for all outstanding shares of the Company's common stock for a cash price of $4.50 per share. On July 12, 1996, Getinge announced an extension of its tender offer until 5:00 p.m. EDT on July 25, 1996 and an increase in the offer price to $5.50 per share. Consummation of the tender offer is subject to certain terms and conditions set forth in the Merger Agreement, including the approval of the holders of two-thirds of the shares to be acquired and certain regulatory approvals. If the tender offer is consummated, those shares not acquired in the tender offer will be converted into $5.50 per share in cash pursuant to a merger to be effected following completion of the tender offer.
The Company's operating results for the quarter and year ended March 31, 1996 have caused the Company to be in default under certain financial covenants contained in its amended bank credit agreement with Wells Fargo Bank, National Association, and Chase Bank, National Association. The Company and the banks are negotiating a forbearance agreement pursuant to which the banks would agree to refrain for a limited period of time from exercising their remedies with respect to the covenant defaults. If entered into beween the Company and the banks, the forbearance agreement would also provide that, effective May 12, 1996, the interest rate charged to the Company on all loans outstanding under the amended credit agreement would be increased from the prime rate plus 0.5% on the line of credit and the prime rate plus 0.75% on ---- the term loan to the prime rate plus 2% on both loans. No assurance can be ---- given, however, that a forbearance agreement will be obtained.
In connection with the Getinge transaction, the Company is advised that Getinge has received a commitment from its lenders sufficient to retire the loans outstanding under the amended bank credit agreement, although Getinge may also attempt to reach mutually agreeable terms with the Company's existing bank lenders. If the Getinge transaction is not consummated, the Company has received a proposal from Congress Financial Corporation to refinance the Company's existing bank credit facility. The proposal, which has been approved by Congress Financial's credit committee, is subject to legal documentation and other requirements and is for a three-year, secured line of credit up to $37,500,000. Availability under the proposed line would be determined from time to time on the basis of various lending formulae tied to the Company's accounts receivable and inventories. Loans under the proposed line would bear interest at one percent (1%) per annum above the prime rate charged by CoreStates Bank, N.A., or, at the Company's option, 3.25% above the adjusted Eurodollar rate. Proceeds from the proposed facility would be used to repay the Company's existing loans with Wells Fargo Bank and Chase Bank. No assurance can be given, however, that alternative financing will be obtained.
In connection with Getinge's investigation of the Company, environmental tests revealed previously undiscovered soil and groundwater contamination at two of the Company's manufacturing facilities. See Item 2 - "Properties." The costs of remediating such contamination are currently estimated to range from $1,350,000 to $2,700,000 extended over three to five years. A reserve of $1,350,000 was established to meet anticipated remediation obligations.
The Company expects to receive income tax refunds of approximately $1,300,000 as recovery of fiscal year 1996 estimated payments and as a carryback of net operating losses to prior years. Appropriate filings have or are in the process of being made.
The Company finances its working capital and capital expenditure needs from cash provided by operating activities and borrowings under the Company's bank credit agreement. The line of credit portion of the bank credit agreement totalling $22,700,000 at June 30, 1996, matures and is to be repaid in full with all accrued interest on August 1, 1996. Further, as discussed above, the Company is in default under certain financial covenants contained in its bank credit agreement. At June 30, 1996, the total outstanding balance of the bank credit agreement was $32,700,000. Going forward, the Company intends to finance its working capital and capital expenditure needs from cash provided by operating activities and from financing provided by Getinge (should the merger be consummated) or from new financing the Company is seeking from Congress Financial Corporation to replace its existing bank credit facility. No assurance can be given that the merger with Getinge will be consummated or that alternative financing will be obtained.
Healthcare reform, both in the public and private sectors, has resulted in customer uncertainty, lower sales and pricing pressures. Independent of healthcare reform proposals, healthcare consolidations, alliances and buying groups are expected to increase industry efficiencies and strengthen the bargaining position of large providers of healthcare services. Activities intended to contain the rise in healthcare costs have had a negative impact on the Company. However, management anticipates that ultimately certain other longer-term trends in the healthcare industry will contribute to recovery in demand for the Company's products and services. These trends include increasing awareness and concern regarding the transmission of infectious diseases, an aging United States population requiring increased levels of healthcare, expanded use of certain treatments requiring stricter aseptic practices, an increasing number and variety of surgical procedures and greater use of reusable, rather than disposable, surgical articles to support healthcare cost containment.
Item 8.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors MDT Corporation:
We have audited the accompanying consolidated balance sheets of MDT Corporation and subsidiaries as of March 31, 1996 and 1995 and the related consolidated statements of income (loss), stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MDT Corporation and subsidiaries as of March 31, 1996 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss of $6,066,000 in fiscal 1996 and therefore was not in compliance with certain covenants contained in its bank credit agreement. Accordingly, borrowings under the Company's credit facilities are reflected as current liabilities in the accompanying consolidated balance sheet. As more fully described in note 17, the Company has agreed to be acquired by Getinge Industrier AB ("Getinge") pursuant to a tender offer of $5.50 per share which expires on July 25, 1996, and which indicates that Getinge is considering the repayment of such borrowings for which a funding commitment has been obtained, subject to certain terms and conditions. Additionally, as more fully described in note 9, the Company has received a proposal from a new lender for the repayment in full of such borrowings and for supplemental financing for the Company. There can be no assurance that either of these transactions will be consummated. The status of the existing credit facilities and the need for borrowing capacity during fiscal 1997 raise substantial doubt about the Company's ability to continue as a going concern. These matters and management's plans are discussed further in notes 9 and 17. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Raleigh, North Carolina May 17, 1996, except as to the third paragraph of note 9 and the second paragraph of note 17, which are as of July 12, 1996
MDT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS March 31, 1996 and 1995
See accompanying notes to consolidated financial statements.
MDT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
Years ended March 31, 1996, 1995 and 1994
See accompanying notes to consolidated financial statements.
MDT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended March 31, 1996, 1995 and 1994
See accompanying notes to consolidated financial statements.
MDT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1996, 1995 and 1994
See accompanying notes to consolidated financial statements.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(1) Business and Summary of Significant Accounting Policies
Business
The Company develops, manufactures, markets and services sterility assurance systems, examining and operatory equipment and associated accessories and consumables. These products and services are marketed both domestically and internationally to hospitals, medical and dental practitioners, and governmental, institutional and scientific organizations. The Company has organized its marketing and sales resources to serve these markets.
Principles of Consolidation
The consolidated financial statements include the accounts of MDT Corporation and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market (see note 2). The cost of substantially all of the Company's inventories is determined using the last-in, first-out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to expense and renewals and improvements are capitalized.
Other Assets
Other assets, consisting primarily of patents, trademarks, noncompete agreements, consulting and licensing agreements and goodwill, are being amortized using the straight-line method over the shorter of their legal or estimated useful lives. Periodically, the Company assesses the recoverability of intangible assets and adjusts those assets based on the estimated future financial benefits.
Product Warranties
The Company sells its products generally with warranties ranging from one to two years. The estimated cost of repairs under existing warranties has been provided for in the consolidated financial statements.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Revenue Recognition
Product sales are recognized when title passes, generally at the time products are shipped. Service sales are recognized ratably over the relevant contractual period or as the service is performed, as appropriate. Service fees received but unearned are included in the consolidated balance sheets as deferred income.
The allowance for doubtful accounts is determined through analysis of various factors including the age of receivables and past write-offs.
Earnings per Share
Earnings per share are based upon weighted average common and common equivalent shares outstanding, amounting to 6,769,000, 6,775,000, and 6,781,000 shares for each of the three years ended March 31, 1996, 1995 and 1994, respectively. Fully diluted earnings per share is not shown since the calculation is antidilutive.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109). Statement 109 requires a change from the deferred method of accounting for income taxes under APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period which includes the enactment date.
The Company adopted Statement 109 in the fiscal year ended March 31, 1994 and as allowed in Statement 109 has applied the provisions of Statement 109 retroactively to April 1, 1988.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about the Fair Value of Financial Instruments" (Statement 107) requires the disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate the value. In cases where quoted market prices are not readily available, fair values are based on quoted market prices of comparable instruments. The carrying amount of cash and equivalents, accounts receivable and payable, accrued expenses and deferred income approximates fair value because of the short maturity of those instruments. The carrying amount of the long-term debt is considered to be representative of the fair value as the interest rates are based on market rates.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(2) Accounting Change
Effective April 1, 1993, the Company changed its method of applying overhead costs to inventory. Overhead costs attributable to the handling and storage of inventory are based upon the material component of inventory while other overhead costs are applied based upon direct labor dollars. Previously, all overhead costs were allocated to inventory based upon labor dollars. The Company believes that this change is preferable because it more accurately matches costs with related revenues. The cumulative effect of this change on prior years, reported as an increase in net earnings for the year ended March 31, 1994, was $699,000 (net of $507,000 of income taxes) or $.11 a share. The effect of the change on fiscal 1994 earnings was to decrease income before cumulative effect of change in accounting principles by $81,000 ($.01 per share).
(3) Reorganization Costs
During fiscal 1996 and 1995, plans were developed with the intention of significantly reducing the Company's cost structure and improving the effectiveness of its operations, organization and structure.
The 1996 restructuring program involves the reduction of 53 employees and consolidations of offices (including the relocation of the Corporate office from Torrance, California to Durham, North Carolina) and the reorganization of the Company into three business units. The March 31, 1996 consolidated statement of income (loss) includes $2,035,000 of pre- tax charges related to the aforementioned employee terminations, office closures and relocations of which $854,000 had been accrued during fiscal year 1996. At March 31, 1996, $830,000, relating to severance and lease termination costs, remained in accrued liabilities for the 1996 and 1995 restructuring programs. During 1996, $264,000 related to employee severance and facility closures for the 1996 and 1995 restructuring programs were paid and charged to accrued liabilities.
The 1995 restructuring program involved the reduction of 70 employees and consolidations of offices and facilities. The March 31, 1995 consolidated statement of income includes $1,235,000 of pre-tax charges related to the aforementioned employee terminations and facility closures. At March 31, 1995, $240,000 of this amount, relating to severance and lease termination costs, remained in accrued liabilities.
(4) Acquisitions
In fiscal year 1992, the Company acquired certain assets (principally inventories and specified fixed assets) from the equipment division of Smith & Nephew, Inc., a manufacturer of operating room tables and other hospital equipment, for certain consideration including a convertible note payable to the seller of $3,000,000. The acquisition was accounted for as a purchase. During fiscal year 1994, Smith & Nephew, Inc. converted the $3,000,000 note to 442,477 shares of common stock at $6.78 per share.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In connection with the conversion, the tax basis of the Company's investment in the underlying assets was increased, resulting in additional deductible amounts for Federal and state tax purposes. In fiscal year 1994, approximately $476,000 was deductible for Federal and state tax purposes. The tax effect of this basis difference was reflected as an addition to additional paid-in capital in the consolidated statements of stockholders' equity.
(5) Inventories
Prior year inventory amounts have been reclassified to conform with 1996 year end reporting. Certain inventories are valued using the LIFO method and comprise approximately 97% of consolidated inventories. Incremental LIFO reserves of $1,052,000 were recorded in fiscal 1996. Inventories valued using the LIFO method would be $3,847,000 and $2,795,000 greater at March 31, 1996 and 1995, respectively, using the FIFO method. The book value of LIFO inventories differs from the underlying tax basis due to an acquisition made by the Company in July 1987. At March 31, 1996 and 1995, LIFO inventories for book purposes exceeded those for tax purposes by $8,055,000 and $8,170,000, respectively.
Because of the rapidly changing health care market, some portions of the Company's inventory of certain products may exceed near term demand. Management is continuing to refine the Company's methodology for assessing these circumstances. No estimate can be made of a range of amounts of loss that are reasonably possible should supply exceed near term demand for certain products.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Property, Plant and Equipment
Property, plant and equipment at March 31, 1996 and 1995 consist of the following:
(7) Other Assets Other assets at March 31, 1996 and 1995 consist of the following:
(8) Notes Payable
The Company has a secured line of credit as part of a credit agreement with two commercial banks. The secured line of credit provides for advances up to 80% of eligible accounts receivable and 35% of eligible inventory not to exceed $25,800,000 at .5% above the banks' prime rate of interest (aggregate of 8.75% at March 31, 1996). In addition, the Company pays a quarterly commitment fee of .25% per annum on the average unused amount. The Company is not in compliance with certain financial covenants contained in the credit agreement (see note 9). The line is to be repaid in full, with all accrued interest, on August 1, 1996 unless renewed or extended. The line is secured by inventories, accounts receivable, equipment and intangible assets.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Long-Term Debt
Long-term debt at March 31, 1996 and 1995 is summarized as follows:
The secured term-loan and credit line (note 8) agreements contain certain restrictions on purchases of fixed assets and payment of dividends and various covenants regarding financial ratios. The Company is not in compliance with certain financial covenants contained in the credit agreement. The Company is negotiating a forbearance agreement with the banks related to this non-compliance that would be in effect until the proposed transaction with Getinge Industrier AB ("Getinge") is closed (see note 17). The Company is advised that
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Getinge has received a commitment from its lenders sufficient to retire the loans outstanding under the credit agreement, although Getinge may also attempt to reach mutually agreeable terms with the Company's existing bank lenders. Should the proposed transaction not be concluded, the Company would seek to negotiate a new credit agreement with Congress Financial Corporation from whom the Company has received a proposal to refinance the Company's existing bank credit agreement. The term-loan agreement is secured by inventories, accounts receivable, equipment and intangible assets.
Given the debt covenant violations related to the secured term-loan payable and the fact that a waiver for the next fiscal year has not been obtained, the $10,600,000 due under this loan has been classified as due in fiscal 1997. Based on this classification, the aggregate maturities of long-term debt for fiscal years subsequent to March 31, 1996 are as follows:
(10) Commitments and Contingent Liabilities
Litigation
The Company is involved in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, based upon the advice of counsel, the ultimate disposition of these matters will not have a material adverse effect on the financial position or results of operations of the Company.
Operating Leases
The Company occupies manufacturing, warehousing and office facilities under terms of operating leases which expire at various dates through July 2001. The annual minimum lease payments thereunder for the years subsequent to March 31, 1996 are as follows: 1997, $572,000; 1998, $155,000; 1999, $140,000; 2000, $117,000; 2001, $106,000 and thereafter, $51,000. Lease expense totaled $1,106,000, $1,076,000, and $942,000 for each of the three years ended March 31, 1996, 1995 and 1994, respectively.
Royalties
The Company has purchased product rights, assembly blueprints and related documentation for certain products under arrangements calling for licensing royalties over periods up to 12 years. Royalty fees generally range from 4% to 10% of specified product sales. Total royalty payments made under these arrangements approximated $117,000, $144,000, and $185,000 in 1996, 1995 and 1994, respectively.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Product Liability
The Company is a party to various claims and legal actions arising during the ordinary course of business. With respect to product liability claims, the Company's costs and any potential judgments resulting from such claims would be covered by the Company's product liability insurance, except for policy limits and self-insured retentions. The Company intends to defend such claims in cooperation with its insurers. It is management's opinion that any eventual outcome will not have a material adverse effect on the Company's financial position or results of operations.
Environmental Liability
The Company is subject to laws and regulations relating to the protection of the environment. Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.
During 1996, in connection with the proposed acquisition by Getinge (see note 17), Getinge engaged environmental consultants. The conduct of environmental tests revealed previously undiscovered soil and ground water contamination at two of the Company's facilities. Based on cost estimates provided by the consultants, the Company believes remediation costs will range from $1,350,000 to $2,700,000 and at March 31, 1996, the Company accrued $1,350,000. The ultimate cost, however, will depend on the extent of contamination found as the remediation project progresses. The Company expects remediation to be substantially complete within five years.
(11) Common Stock Purchase Rights
The Company has a common stock purchase rights plan under which it has issued one common stock purchase right (Right) for each outstanding share of common stock. Each Right entitles the holder to purchase one-fourth share of common stock at a price of $8, subject to adjustment.
The Rights become exercisable ten days after any public announcement that a person or group has acquired beneficial ownership of 20% or more of the Company's common stock, or announces a tender offer or exchange offer for 20% of the stock, without the prior approval of the Board of Directors.
If a person or group acquires beneficial ownership of 20% or more of the Company, then each holder of a Right, other than the acquiring person or group, may thereafter receive upon exercise of four times the exercise price, that number of shares of the Company's common stock or equivalents having a market value of eight times the exercise price.
Subsequent to such stock acquisition, if the Company is acquired in a merger or other business combination, or 50% of the Company's assets or earning power is sold or transferred, each holder of a Right, other than the acquiring person or group, may thereafter receive, upon the exercise and payment of four times the exercise price, that number of shares of common stock of the acquiring company having a market value of eight times the exercise price at the time of such transaction.
With certain restrictions, the Board of Directors may redeem the Rights or exchange them for shares of common stock. The Rights will expire on February 27, 2000, unless extended or unless earlier redeemed or exchanged by the Company. At March 31, 1996, the Company has 1,692,358 shares of common stock reserved for the Rights.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Stock Options
The Company has a stock option plan which provides for the granting to directors and employees of the Company options to purchase up to 1,200,000 shares of the Company's common stock. The options may be granted for terms up to ten years, and the exercise price must be at least equal to the fair market value of the common stock on the date of grant. Options are exercisable one year after the date of grant. If an option is granted to any person owning more than 10% of the voting power of all classes of the Company's capital stock, the exercise price of the option must be at least 110% of the fair market value of the common stock on the date of grant. At March 31, 1996, options for 768,266 shares were outstanding, of which 693,266 shares were exercisable. At that date, 178,770 shares remained available for future grant under the plan. The aggregate option price for outstanding options at March 31, 1996, 1995 and 1994 was $4,517,000, $4,268,000, and $4,882,000, respectively.
Transactions and other information relating to stock options for each of the three years ended March 31, 1996 are summarized as follows:
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Income Taxes
The domestic and foreign components of income (loss) before income taxes and accounting changes are as follows:
Actual income tax expense differs from the "expected" tax expense computed by applying the United States corporate tax rate of 34% to income before income taxes and accounting changes as follows:
Components of income tax expense (benefit) are as follows:
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The "other" component of income tax expense represents the tax effect of deferred tax charges (principally reserves not yet deductible for Federal and state income tax purposes), stock option benefits and purchase accounting liability payments.
As discussed in note 1, the Company adopted Statement 109 in its fiscal year ended March 31, 1994, and as allowed in Statement 109, elected to apply the provisions of Statement 109 retroactively to April 1, 1988. The cumulative effect of the change in the method of accounting for income taxes as of April 1, 1988 was a charge to retained earnings and stockholders' equity of approximately $3.1 million. This cumulative effect adjustment principally reflects financial statement and tax basis differences in the value of inventory and buildings resulting from the Castle Company acquisition as reported in the fiscal year ended March 31, 1988. In addition to the cumulative effect adjustment, a separate adjustment was required under Statement 109 to restate any assets or liabilities previously recorded net-of-tax under Opinion 11 to their pretax (gross) amounts. The pretax (gross) amount is the amount of asset or liability which would have been recorded if net-of-tax accounting had not been used in the acquisition. The effect of this adjustment on the Company was to eliminate the remaining balance in the deferred tax asset account relating to the previously recorded net-of-tax adjustments and to increase the building asset account by approximately $2.1 million. For all periods ending subsequent to April 1, 1988, and throughout the life of the building, the annual financial statement impact (i.e., depreciation expense less deferred tax impact) associated with this step-up in the building asset will be a reduction of net income of $51,000. The financial statements for the years ending subsequent to April 1, 1988 have been restated to comply with the provisions of Statement 109.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at March 31, 1996 and 1995 are presented below:
A valuation allowance was deemed unnecessary at March 31, 1996, 1995 and 1994. It is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Employee Retirement and Benefit Plans
Defined Benefit Pension Plan
The Company provides a defined benefit pension plan covering certain employees. The plan provides benefits of stated amounts for each year of service. The Company's funding policy for the plan is to make at least the minimum annual contributions required by applicable law.
The components of the net periodic pension cost for each of the years ended March 31, 1996, 1995 and 1994 are as follows:
For determining net periodic pension cost, the expected long-term rate of return on assets is 8% for all years presented.
The following table summarizes the funded status of the plan and the amounts recognized in the Company's consolidated balance sheets at March 31, 1996 and 1995:
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The weighted average discount rate used in determining the projected benefit obligation was 7.85% and 8.5% in 1996 and 1995, respectively.
Retirement Plan
The Company provides a defined contribution retirement plan covering certain employees of the Company with at least one year of service. The plan provides for contributions of 3% of salaries and wages, exclusive of bonuses, plus 3% of each participant's compensation in excess of the Social Security earnings base. Amounts allocated to a participant's account are subject to a vesting schedule under which a participant would be 20% vested after one year of service and 20% vested for each year of service thereafter. Contributions to the plan totaled $967,000, $1,049,000, and $1,069,000 for the years ended March 31, 1996, 1995 and 1994, respectively.
Savings and Thrift Plans
The Company provides savings and thrift plans in which all employees are eligible to participate. Participants may contribute up to 6% of their compensation while receiving up to 50% matching contributions from the Company. The Company's contributions become vested at a rate of 20% after the first year of service and 20% for each year of service thereafter. The Company's contributions under the plan totaled $732,000, $708,000, and $704,000 for the years ended March 31, 1996, 1995 and 1994, respectively.
Supplemental Executive Retirement Plan
The Company has a Supplemental Executive Retirement Plan (SERP) for officers of the Company. The SERP supplements retirement benefits payable to officers under the Retirement Plan and the Savings and Thrift Plan. Contributions to the SERP began in 1992 and were $129,000, $106,000, and $87,000 for the years ended March 31, 1996, 1995 and 1994, respectively. The contributions are actuarially determined based on age, service time and salary levels of participants.
Postretirement Medical Benefits
The Company sponsors a defined medical benefit plan for retired employees. Under the plan, benefits are payable to three separate employee groups. The Company is committed to pay a fixed dollar contribution towards retiree medical benefits for two of the component groups. The third group, consisting of employees who retire between the ages of 62 and 65 (with a service requirement of 25 years), is covered for medical benefits under the same plan as active employees, with such benefits being discontinued when the participant turns 65. The Company does not fund benefits in advance of payment thereof.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table sets forth the plan's funded status reconciled with the amount shown in the Company's consolidated balance sheets at March 31, 1996 and 1995:
Net periodic postretirement benefit cost for the years ended March 31, 1996, 1995 and 1994 is as follows:
For measurement purposes, a 10.0% annual rate of increase in the per capita cost of covered health care benefits (nonfixed portion) was assumed for 1996; the rate was assumed to decrease gradually to 5.0% for 2005 and remain at that level thereafter. The health care cost trend rate assumption only affects retirees ages 62-65, as all other contributions are fixed. The effect of a 1.0% increase in the assumed health care cost trend to each year would increase the accumulated postretirement benefit obligation as of March 31, 1996 by $47,000 and the aggregate net periodic postretirement benefit cost for the year ended March 31, 1996 would remain approximately equal. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.85%, 8.5% and 8.0% in 1996, 1995 and 1994, respectively.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Business Segment and Foreign Export Sales
The Company operates in one business segment, the manufacture and service of devices and consumables for the health care professions.
Revenues by geographic area for the years ended March 31, 1996, 1995 and 1994 are as follows (in thousands):
(16) Quarterly Financial Information (Unaudited)
The following table summarizes financial information by quarter for the two years ended March 31, 1996 and 1995 (in thousands, except per share data):
Fourth quarter results were impacted by adjustments as follows: inventory adjustments totaling $2,425,000, including a write-down of approximately $489,000 in connection with inventory purchased from a supplier who failed to maintain necessary compliance with FDA manufacturing standards; a write-off of approximately $1,082,000 relating to products whose sales are being discontinued by the Company, including approximately $724,000 attributable to nutrition and ice stations and $358,000 attributable to certain tabletop sterilizers; additional reserves for excess and obsolete inventory of approximately $855,000, relating primarily to the identification of slower-moving products and parts inventories; higher LIFO reserves of approximately $133,000; increased warranty reserves of $260,000; and increased reserves for projected workers compensation expense of $302,000.
MDT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Certain reclassifications have been made to the previously released 1995 quarterly information to conform with the year-end reporting.
(17) Pending Acquisition
On May 12, 1996, MDT agreed to be acquired by Getinge Industrier AB ("Getinge"), a Swedish manufacturer of hospital and scientific equipment. A definitive merger agreement was signed pursuant to which Getinge will acquire all outstanding shares of MDT common stock by commencing a tender offer for such shares at a cash price of $4.50 per share. If certain conditions are met those shares not acquired in the tender offer will be converted into $4.50 in cash pursuant to a merger to be effected following completion of the tender offer. Consummation of the tender offer and the merger is subject to certain terms and conditions, including approval of the holders of two-thirds of the shares to be acquired and regulatory approvals.
The tender offer was initially scheduled to expire on June 28, 1996, but has since been extended by Getinge until 5 p.m. EDT on July 12, 1996. On July 12, 1996, Getinge announced the extension of its tender offer at a price of $5.50 per share, a $1.00 increase over the previous tender offer price of $4.50 per share. The tender offer will now expire at 5 p.m. EDT on July 25, 1996. Other terms and conditions of the original tender offer remain intact, except that, if certain conditions are met those shares not acquired in the tender offer will be converted into $5.50 in cash pursuant to a merger to be effected following completion of the tender offer.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None. PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Board of Directors
The following listing provides certain information concerning the directors of the Company and their principal occupations:
J. Miles Branagan, age 63, has been a director since 1971 and is a co- founder of the Company. He has served as Chairman of the Board of Directors since 1983, President since 1971, and as Chief Executive Officer since 1978. In addition, he served as Co-Executive Officer from 1971 to 1978, Chief Financial Officer from 1971 to 1988, and Chief Operating Officer from 1988 to 1995. Prior to joining the Company, Mr. Branagan was a partner in a national public accounting firm. Mr. Branagan also serves on the Board of Trustees of the Van Kampen American Capital Group of Open-End Mutual Funds.
LaMoyne H. Fleming, D.D.S., age 68, has been a director since 1986. From 1952 to 1985, Dr. Fleming served as a Dental Officer in the United States Air Force. From 1982 to his retirement with the rank of Colonel in 1985, he served as Special Assistant for Dental Affairs, Office of the Secretary of Defense, representing the Army, Navy and Air Force. Dr. Fleming is retired.
Charles A. French, age 53, has been a director since February 1995. From 1986 to 1989, Mr. French served as Chief Operating Officer and as a director of Spectramed, Inc., a manufacturer of medical devices based in Newport Beach, California. Prior to joining Spectramed, Mr. French held various senior management positions with other companies in the health care industry. He has been an investor in and consultant to various health care companies since 1989. Mr. French is also a director of Qualmart Corporation.
John S. Gilbertson, age 52, has been a director since February 1995. From 1992 to the present, Mr. Gilbertson has served as Executive Vice President, and from 1994 to the present he has served as Chief Operating Officer of AVX Corporation, an international electronics manufacturing concern headquartered in Myrtle Beach, South Carolina. He is also a director of AVX Corporation and Kyocera Corporation. Prior to joining AVX, Mr. Gilbertson held various positions with Corning Glass Company and served as an officer in the United States Air Force.
Charles E. Johnson, age 60, has been a director since 1993. Mr. Johnson is Chief of Staff of the Governor's Office for the State of Utah. Prior to being named Chief of Staff, Mr. Johnson served as Director of the Office of Planning and Budget for the State of Utah from July 1991 to December 1992. Mr. Johnson is a Certified Public Accountant and spent 31 years in the practice of public accounting, most recently as the Managing Partner of the Salt Lake City office of KPMG Peat Marwick LLP from 1987
to 1991. While with KPMG Peat Marwick LLP, Mr. Johnson served on that firm's board of directors and in various other capacities.
Clark D. Jones, age 61, has been a director since 1986. Mr. Jones currently serves as a Commissioner with the Utah Public Service Commission. In addition, he has served as Chairman of the Board of Summit Family Restaurants, Inc. (formerly known as JB's Restaurants, Inc.) since 1987. Mr. Jones served as Chief Executive Officer from 1981 to 1991 and President from 1981 to 1987 and was employed by that company in various other positions from 1970 to 1980.
James B.D. Mark, M.D., age 66, has been a director since July, 1995. From 1972 to the present, Dr. Mark has been head of the Division of Thoracic Surgery and, from 1978 to the present, has been the Johnson and Johnson Professor of Surgery at Stanford University Medical Center in Stanford, California. During the past 30 years, Dr. Mark has served in a variety of positions within the Stanford University Medical Center, including, most recently, as Chief of Staff, Stanford University Hospital (1988-1992); Associate Dean for Clinical Affairs (1988-1992); and as Acting Chairman, Department of Surgery (1974-1977).
Katherine A. Schipper, Ph.D., age 46, has been a director since February 1995. From 1993 to the present, Dr. Schipper has been the Eli B. and Harriet B. Williams Professor of Accounting and KPMG Peat Marwick Faculty Research Scholar and, from 1991 to the present, Director of the Institute of Professional Accounting at the Graduate School of Business of the University of Chicago. From 1993 to the present, Dr. Schipper has served as a director of Hong Kong Card Funding Corporation, a wholly-owned subsidiary of Manhattan Card Co. Ltd., a credit card issuer based in Hong Kong.
John C Shamy, age 68, has been a director since 1971. He has served as Secretary of the Company since 1985, as Treasurer from 1985 to 1988, and as Assistant Treasurer since 1988. Prior to his retirement on December 31, 1995, he had been President and director of Fund Management and Research Corporation, an investment advisory firm, since 1963; of Foundation Growth Stock Fund, Inc., an open-end mutual fund, since 1964; and of Continental Mutual Investment Fund, Inc., an open-end mutual fund, since 1969.
There are no family relationships between any directors or executive officers of the Company.
Executive Officers
The following table sets forth certain information regarding the executive officers of the Company:
Biographical information concerning Messrs. Branagan and Shamy is given under the caption "Board of Directors" above.
Thomas M. Hein, C.P.A., age 48, has served as Vice President, Finance, Chief Financial Officer, Treasurer and Assistant Secretary since 1988. From 1983 to 1988, he was Vice President, Finance and Administration, and Chief Financial Officer of Metheus Corporation, a manufacturer of computer graphics equipment. From 1977 to 1983, Mr. Hein was employed by Memorex Corporation, where he held several finance positions, most recently as Director of Finance for the Communications Group.
William T. Hilvert, age 59, was named Vice President, Human Resources, in July 1987, and Assistant Secretary in April 1995. Mr. Hilvert was Vice President, Human Resources, at Castle Company from 1985 until Castle was acquired by the Company in 1987. Prior to joining Castle Company, Mr. Hilvert was employed for seven years by Patterson Dental Company, a national distributor of dental equipment and consumables, most recently as Vice President, Division General Manager, and previously as Vice President, Personnel. He has also been employed by divisions of American Hospital Supply Corporation and General Motors Corporation in the areas of personnel and administration.
Richard G. Kinsey, age 53, joined the Company in January 1995 and was named President, MDT Technionic Company, and Vice President, Product Support Group, effective in April 1995. Previously, Mr. Kinsey was employed by Ohmeda Company, a division of BOC Corporation, as Director of Ohmeda's Customer Support Center from 1993 to 1994, and as Vice President, North American Field Operations from 1988 to 1992. Prior to joining Ohmeda, Mr. Kinsey held various management positions with American Hospital Supply Corporation and Baxter International.
Melvin K. Nerby, age 58, was named President, MDT Biologic Company, and Vice President, Sterility Assurance Systems Group, in April 1995. Previously, he was employed by the Company as Vice President, Product Support, from 1987 to 1995. He joined Castle Company in 1986 as the North American Service Manager. Prior to 1986, he had been employed by the Midwest Division of Sybron Corporation for 31 years, holding a variety of positions including Manufacturing Engineering Manager,
Plant Manager and Vice President, Dental Operations, for U.S. and European facilities, Manufacturing Manager, Operations Manager and Vice President of Regulatory Affairs and Quality Assurance.
Charles B. Swenson, age 55, was named President, MDT Diagnostic Company, and Vice President, Examining and Operatory Equipment Group, in April 1995. Mr. Swenson had been employed by the Company since 1983 as Vice President, Marketing and Sales. Prior to joining the Company he was employed for 19 years by Patterson Dental Company, a national distributor of dental equipment and consumables, most recently as that company's Vice President of Marketing and Sales.
Creighton A. White, age 39, was named Vice President, Marketing and Sales, in April 1996. Mr. White joined the Company in January 1995 and was named Vice President, Corporate, Governmental and International Group effective in April 1995. Previously, Mr. White was employed by AMSCO International, Inc. as Vice President/Managing Director, Sterility Assurance and Surgical Products during 1994 and as Vice President, General Manager, Sterility Assurance Products, from 1992 to 1993. He was employed by AMSCO Scientific as Vice President of Marketing from 1991 to 1992 and Director of Marketing from 1989 to 1991. Prior to joining AMSCO, Mr. White held various management positions with American Hospital Supply Corporation and Baxter International.
Section 16 Compliance
Based solely upon its review of Forms 3, 4 and 5 and any amendments thereto furnished to the Company, or written representations from certain reporting persons that no other reports were required, the Company does not know of any person who failed to file on a timely basis any reports required under Section 16(a) of the Securities Exchange Act of 1934, as amended, except for the inadvertent failure of Mr. Gilbertson to timely report on Form 4 the purchase of 15,000 shares of the Company's common stock. The Company expects that Mr. Gilbertson's purchase will be reported on a Form 4 to be filed shortly with the Securities and Exchange Commission.
Item 11.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth information regarding compensation from the Company for each of the fiscal years ended March 31, 1996, 1995 and 1994 as to the Chief Executive Officer and each of the next five most highly compensated executive officers of the Company during the last completed fiscal year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
- - ---------------- (A) Amounts shown reflect cash and non-cash compensation earned by the Named Executive Officers.
(B) Amounts shown represent expenses paid or reimbursed by the Company in connection with the relocation of the Named Executive Officer to Durham, North Carolina (in the case of Messrs. Branagan and Hein), Henrietta, New York (in the case of Mr. Kinsey) and Charleston, South Carolina (in the case of Mr. Swenson) during the 1996 fiscal year.
(C) Amounts shown reflect five-year stock options granted to the Named Executive Officers under the Company's 1987 Amended and Restated Stock Option Plan.
(D) The amounts shown for the 1996 fiscal year were derived from the following items: J. M. Branagan: $4,000--Company Savings Plan match; $8,052--Company payment to Retirement Plan; $61,452--Company payment to SERP; $2,171-- Imputed Value-Life Insurance. T. M. Hein: $2,780--Company Savings Plan match; $6,574--Company payment to Retirement Plan; $968--Company payment to SERP; $175--Imputed Value-Life Insurance; $25,000--Forgiveness of indebtedness owed to the Company (see "Certain Transactions"). M. K. Nerby: $3,456--Company Savings Plan match; $6,804--Company payment to Retirement Plan; $18,548--Company payment to SERP; $438--Imputed Value-Life Insurance. C. B. Swenson: $2,552--Company Savings Plan match; $6,804-Company payment to Retirement Plan; $8,324--Company payment to SERP; $461-Imputed Value- Life Insurance. C.A. White: $2,105--Company Savings Plan match; $8,052-- Company payment to Retirement Plan. R.G. Kinsey $3,180--Company Savings Plan match;
$6,114--Company payment to Retirement Plan; $10,440--Company payment to SERP; $428--Imputed Value-Life Insurance. Effective as of July 1, 1996, the Retirement Plan was merged with two other Company employee benefit plans, with the assets and administration of the Retirement Plan with respect to salaried employees transferred to the Retirement Savings Plan for Salaried Employees and that plan re-named the Retirement Savings Plan for Salaried Employees. See "Employee Benefits -- Retirement Plan".
(E) Mr. Kinsey joined the Company in January, 1995 and became an executive officer effective April 1, 1995.
(F) Mr. White joined the Company in January, 1995 and became an executive officer effective April 1, 1995. The amount of bonus compensation shown Mr. White during the 1996 fiscal year represents a signing bonus of $20,000 and a guaranteed bonus of $19,800 under the Company's Management Incentive Compensation Plan ("MICP"). The Board of Directors of the Company terminated the MICP effective April 1, 1996.
Employment Agreements
The Company has entered into separate employment agreements with Messrs. Branagan, Hein and White which respectively provide for annual salaries of not less than $270,599, $140,160 and $132,000 for such individuals or, in each case, such larger amount as the Board of Directors in its discretion determines. In addition, MDT Biologic has entered into an employment agreement with Mr. Nerby, MDT Diagnostic Company has entered into an employment agreement with Mr. Swenson, and MDT Technionic Company has entered into an employment agreement with Mr. Kinsey, which agreements respectively provide for annual salaries of not less than $144,000, $144,000 and $132,500 for such individuals or, in each case, such larger amount as the Board of Directors in its discretion determines. All such agreements require the Company to provide the executive officer with various health, disability and life insurance benefits and the opportunity for incentive compensation based on the criteria set forth in the Company's MICP. (The Board of Directors of the Company terminated the MICP effective April 1, 1996.) All such agreements are effective as of April 1, 1995 and in each case supersede and replace any and all earlier employment agreements with such individuals.
The agreements with Messrs. Branagan, Kinsey and White respectively provide that each executive officer will serve in his respective position for a three-year period. Each of the agreements with Messrs. Hein, Nerby and Swenson respectively provides that each executive officer will serve in his respective position for a four-year period. Each of the agreements with Messrs. Hein, Kinsey, Nerby, Swenson and White provides that, on the second anniversary of such agreement, the term of such agreement automatically will be extended for an additional year (or, in the case of Mr. Kinsey and Mr. White, an additional two years), and, thereafter, when only two years of such term as extended remain, the term of such agreement will again be extended for an additional year, such extensions continuing from year to year in the same manner, subject to the discretion of the Board of Directors not to so extend the term of any such agreement by prior written notice to the executive officer to which any such non-extended agreement pertains.
Upon the occurrence of a change in control of the Company, the term of the agreements with each of Messrs. Hein, Nerby and Swenson is automatically reinstated to the four-year period provided for in each such agreement (and in the case of Mr. Kinsey and Mr. White, an additional four-year period), commencing upon the date of the change in control. Except for the agreement with Mr. Branagan, each of the agreements also provides for lump-sum, undiscounted cash payments and the continuation of certain other benefits following termination of the executive officer covered thereby without cause in connection with a change in control, which payments and benefits are to be equal to the then current rate of compensation and benefits provided for in any such agreement so terminated for the remaining term of any such agreement.
For purposes of the agreements, a "change in control" is defined to mean (i) without prior approval of the Board of Directors of the Company, a single entity or group of affiliated entities acquires more than 50% of the voting stock of the Company issued and outstanding immediately prior to such
acquisition; (ii) the Board of Directors of the Company approves an unsolicited bid by a single entity or group of affiliated entities to acquire more than 50% of the voting stock of the Company issued and outstanding immediately prior to the approval of such acquisition, and such acquisition is consummated; (iii) the stockholders of the Company approve the consummation of any merger of the Company or any sale or other disposition of all or substantially all of its assets, if the stockholders of the Company immediately before such transaction own, immediately after consummation of such transaction, equity securities (other than options and other rights to acquire equity securities) possessing less than 50% of the voting power of the surviving or acquiring corporation; or (iv) a change in the majority of the Board of Directors of the Company during any 24-month period without the approval of a majority of directors in office at the beginning of such period.
In connection with the Getinge transaction, the Board of Directors of the Company has determined that the consummation of the tender offer would constitute a change in control for purposes of the employment agreements with the Company's executive officers. The cash amounts and other benefits payable by the Company to such officers following any termination of employment in connection with the change in control may not be fully deductible to the Company to the extent such payments and benefits exceed the limitations contained in Section 280G of the Internal Revenue Code. Each of the employment agreements was recently amended to permit the executive officer to refuse all or any portion of such payments and benefits to the extent that receipt of such amounts may result in adverse tax consequences to the executive officer. Under such amendments, the Company is relieved of the obligation to pay any amount which the executive officer so refuses in writing.
Employee Benefit Plans
The material which follows in this section describes certain provisions made by the Company pursuant to certain stock option, employee savings and retirement plans, now in effect, that provide for severance, termination or change in control benefits to employees, including the Named Executive Officers, other than group life and accident insurance, group hospitalization and similar group payments and benefits.
Stock Option Plan. Members of the Board of Directors, officers and other key employees of the Company are eligible to receive options to purchase up to an aggregate of 1,200,000 shares of the Company's Common Stock under the MDT Corporation Amended and Restated 1987 Stock Option Plan (the "Stock Option Plan"), which is administered by the Compensation Committee of the Board of Directors. The exercise price of each option granted must be at least the fair market value of the Common Stock at the date of grant (except that, with respect to 10% stockholders, the exercise price must be at least 110% of the fair market value), and no option may be exercised earlier than one year from the date of grant. Under the Stock Option Plan, in the event that a change in control occurs or, with respect to options awarded to officers and employees of the Company (other than Mr. Shamy), the Board of Directors determines in good faith that a change in control is about to occur, all outstanding options will be immediately exercisable by the option holder for the total remaining number of shares covered by options.
For purposes of the Stock Option Plan, a "change in control" is defined to mean (i) without prior approval of the Board of Directors of the Company, a single entity or group of affiliated entities acquires more than 50% of the stock of the Company issued and outstanding immediately prior to such acquisition; (ii) the stockholders of the Company approve the consummation of any merger of the Company or any sale or other disposition of all or substantially all of its assets, if the stockholders of the Company immediately before such transaction own, immediately after consummation of such transaction, equity securities (other than options and other rights to acquire equity securities) possessing less than 50% of the voting power of the surviving or acquiring corporation; or (iii) a change in the majority of the Board of Directors of the Company during any 24-month period without the approval of a majority of directors in office at the beginning of such period.
In connection with the Getinge transaction, the Board of Directors determined that, for purposes of the Stock Option Plan, a change in control was about to occur and, consequently, all options outstanding under the Stock Option Plan thereupon became immediately exercisable by the option holder. Any options remaining unexercised at the expiration of the tender offer period (currently scheduled for 5:00 p.m. EDT on July 25, 1996) shall terminate unless the tender offer is not successfully consummated (in which case such unexercised options will be treated as if no change in control occurred and will be governed by their original terms). Pursuant to the Merger Agreement, the Stock Option Plan will terminate at the effective time of the merger with Getinge.
Supplemental Executive Retirement Plan. Certain officers of the Company (except Mr. Shamy) and its subsidiaries also participate in the Company's Supplemental Executive Retirement Plan (the "SERP"). Except as provided below, the SERP provides a lump sum benefit at age 65 equal to the present value of annual payments for life equal to a "replacement percentage" of the participant's final base salary. Participants may also elect installment payments. The replacement percentage equals 50% (reduced for individuals who became officers on or after age 50) plus one-half of 1% for each year of service as an officer in excess of ten. This amount is reduced by the present value of the participant's social security benefit and the benefits payable from the Retirement Plan and the Savings and Thrift Plan. This resulting amount is then multiplied by the participant's vested percentage; a participant vests at the rate of 20% for each year of service as an officer after his second year of service as an officer. The SERP benefits are also payable after age 55 if the participant is vested (with a 5% reduction for each year that retirement precedes age 65). The Company has established a trust as a source of benefits to participants. The SERP states that the Company shall contribute no more than 20% of the participant's annual base salary on behalf of the participant plus the additional amounts that would have been contributed to the Retirement Plan and/or the Savings and Thrift Plan (described below) if the $150,000 compensation limit were not applicable. The Company's contributions to the SERP are voluntary. The participant's retirement benefit shall equal the amount contributed on behalf of the participant plus or minus any earnings or losses. Such contributions are shown in the Summary Compensation Table in this Annual Report.
Subject to the foregoing trust provisions, unless the Board of Directors of the Company otherwise determines, SERP benefits are also paid if there is a change in control and, within two years, the participant is involuntarily terminated, suffers a significant diminution of duties and responsibilities, has a downward change of title or is forced to relocate thereby resulting in his resignation. In this case, the participant is 100% vested and there is no early retirement reduction. For this purpose, a "change in control" is defined to mean (i) without prior approval of the Board of Directors of the Company, a single entity or group of affiliated entities acquires more than 50% of the stock of the Company issued and outstanding immediately prior to such acquisition; (ii) the Board of Directors of the Company approves an unsolicited bid by a single entity or group of affiliated entities to acquire more than 50% of the stock of the Company issued and outstanding immediately prior to the approval of such acquisition, and such acquisition is consummated; (iii) the stockholders of the Company approve the consummation of any merger of the Company or any sale or other disposition of all or substantially all of its assets, of the stockholders of the Company immediately before such transaction own, immediately after consummation of such transaction, equity securities (other than options and other rights to acquire equity securities) possessing less than 50% of the voting power of the surviving or acquiring corporation; or (iv) a change in the majority of the Board of Directors of the Company during any 24-month period without the approval of a majority of directors in office at the beginning of such period. The Board of Directors has determined, and the SERP has been amended to provide, that these additional SERP benefits shall not be paid as a result of any transactions involving Getinge (including any change in a majority of the Board of Directors of the Company).
Retirement Plan. The MDT Corporation Retirement Plan (the "Retirement Plan") is a profit sharing plan that covers all United States nonunion employees of the Company and its domestic subsidiaries. The Company's contributions to the Retirement Plan amount to three percent of each participant's compensation plus three percent of each participant's compensation in excess of the Social Security wage base. Compensation for this purpose is limited to $150,000. Amounts allocated to a participant's
account are subject to a vesting schedule under which a participant would be 20% vested after one year of service and 20% vested for each year of service thereafter, with 100% vesting after five years. Bankers Trust Company acts as trustee for the Retirement Plan. Vested amounts allocated to their accounts will be payable at retirement or other termination of service. The Company has no mandatory retirement age. Effective as of July 1, 1996, the Retirement Plan was terminated, with the assets and administration of such plan with respect to hourly employees transferred to the MDT Corporation Savings and Thrift Plan for Hourly Employees (and that plan re-named the Retirement Savings Plan for Hourly Employees) and the assets and administration with respect to salaried employees transferred to the MDT Corporation Savings and Thrift Plan for Salaried Employees (and that plan re-named the Retirement Savings Plan for Salaried Employees). The contributions, terms and conditions applicable under the former Retirement Plan (as described in this paragraph) will continue to apply under the Retirement Savings Plan for Hourly Employees and the Retirement Savings Plan for Salaried Employees, except that plan participants will now be able to direct the investment of these retirement funds.
Retirement Savings Plan. Salaried employees of the Company, including officers, are eligible to participate in the MDT Corporation Savings and Thrift Plan for Salaried Employees (which has as of July 1, 1996, been renamed the Retirement Savings Plan for Salaried Employees). Participants may contribute up to 6% of their compensation on a before-tax and/or after-tax basis. Compensation for this purpose is limited to $150,000. A participant will receive matching contributions from the Company of up to 50% of these contributions. Subject to certain limitations, participants may make additional contributions, which are not matched by the Company, equal to 10% of compensation on an after-tax basis or 12% of compensation on a before-tax basis. Contributions may be invested, at the election of the participant, in a guaranteed income fund, a balanced asset fund, a diversified equity fund, a bond fund or the Company's Common Stock. Company contributions vest at the rate of 20% after the first year of service and 20% for each subsequent year of service with 100% vesting at the end of five years. Company contributions are automatically vested upon the participant's death, total and permanent disability or attainment of age 65. Benefits under the Retirement Savings Plan for Salaried Employees become distributable to a participant or his beneficiary (in the case of death) upon termination of employment by reason of resignation, discharge, retirement, disability or death.
Stock Options
The Company did not grant stock options or SARs to any of the Named Executive Officers during the fiscal year ended March 31, 1996, nor did any of the Named Executive Officers exercise any stock options during such fiscal year or hold any "in-the-money" options as of the end of such fiscal year.
The following table sets forth information concerning the number of unexercised options held by each of the Named Executive Officers on March 31, 1996.
FISCAL YEAR-END OPTION HOLDINGS
In connection with the Getinge transaction, all outstanding options became immediately exercisable and will remain so until the expiration of the tender offer period. See "Employee Benefit Plans -- Stock Option Plan".
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, the Compensation Committee consisted of Messrs. Jones, Gilbertson and Shamy. Mr. Shamy is Secretary of the Company and its subsidiaries. Mr. Shamy is paid a fee of $1,000 per month for his services as Secretary. He was not eligible to receive bonus compensation under the MICP (which was terminated by the Board of Directors effective on April 1, 1996).
Directors Compensation
Each of the directors, other than Mr. Branagan, receives a retainer fee of $1,500 per month and fees of $1,000 for each meeting of the Board of Directors and (except as set forth below with respect to meetings of, among other committees, the Negotiating Committee) $500 for each meeting of a committee of the Board of Directors that the director attends. Each director who chairs a committee of the Board of Directors receives an additional fee of $250 for each meeting of the committee which the director attends and chairs. Directors are reimbursed for travel and other expenses related to attendance at Board and committee meetings. In connection with the Getinge Transaction and the negotiation of the Merger Agreement, the Board of Directors appointed a special Negotiating Committee consisting of Messrs. Branagan, Johnson and French. Messrs. Johnson and French may receive additional compensation for their service on such committee in an amount to be determined by the Board of Directors. Such compensation is expected to be paid at a rate of $250 per hour ($1,000 per day maximum) for participation in any meeting which has as its subject the business of the Negotiating Committee.
Non-employee directors of the Company (including, for these purposes, Mr. Shamy) are also automatically entitled to receive grants of nonqualified stock options under the Company's Stock Option Plan. Each non-employee who becomes a director after the 1993 Annual Meeting of Stockholders is automatically granted upon his or her initial election or appointment to the Board of Directors an option to purchase 5,000 shares of the Company's Common Stock. Following his election as a director in 1995, Dr. Mark received an option to purchase 5,000 shares of the Company's Common Stock at an exercise price of $6.625 per share. Annually, but subject to certain limitations described below, each non-employee director is also automatically granted an option to purchase the nearest number of whole shares of Common Stock (up to a maximum of 1,500 shares per director per year) determined by dividing the non-employee directors' average annual compensation (i.e., the average of the aggregate amount of fixed retainer and attendance fees that all nonemployee directors received for serving as directors of the Company in the immediately preceding year) by the fair market value per share of the Company's Common Stock on the grant date, which is the fifth business day following the date of the public release by the Company of its annual statement of sales and earnings. Notwithstanding the foregoing, (a) no annual grants of options shall be made to non-employee directors for any fiscal year unless the Company's earnings per share for such fiscal year are equal to or greater than the average of the Company's earnings per share for the immediately preceding three fiscal years, (b) the maximum number of shares which may be granted to any individual non- employee director under the Stock Option Plan shall not exceed 1% of the Company's total issued and outstanding Common Stock, and (c) the maximum number of shares which may be granted to all directors of the Company shall not exceed in the aggregate one-half of the total shares issuable under the Stock Option Plan. Annual option grants that would otherwise exceed the limits described in (b) and (c) above shall be prorated within such limitations. None of the directors received an option grant pursuant to this formula with respect to Fiscal Year 1994, Fiscal Year 1995 or Fiscal Year 1996.
The purchase price per share of Common Stock covered by any option granted to a non-employee director pursuant to the Stock Option Plan is payable in cash and/or shares and equals the fair market value per share of the Common Stock on the grant date. The options become exercisable 12 months after the grant date and, unless earlier terminated, terminate on the date which is the earlier of (i) five years from the grant date, or (ii) the date of adoption by the Board of Directors of a plan of complete liquidation of the Company's assets. The Board of Directors, subject to plan limits, retains discretion to modify the terms of outstanding options and to reprice the options.
In the event a non-employee director's services as a Board member are terminated for any reason other than fraud, dishonesty or death, then any options granted to the non-employee director pursuant to the Stock Option Plan, to the extent such options had become exercisable on the date of such termination, continue to be exercisable for a period of three months thereafter or the balance of the option term, whichever period is shorter. If the holder of the option dies while serving as a director of the Company, or within not more than three months after the termination of such status, then any such options, to the extent they had become exercisable on the date of death, continue to be exercisable by the director's descendants, heirs or personal representatives for a period of 12 months after the date of death or the balance of the option term, whichever period is shorter. In the event the option holder's directorship is terminated for fraud or dishonesty, all of the holder's unexercised options expire as of the date of termination.
The Stock Option Plan contains provisions relating to adjustments for changes in the Company's Common Stock upon certain specified events, including mergers, reorganizations, recapitalizations, stock splits, stock dividends and similar events. In addition, the Stock Option Plan provides that each option granted to a non-employee director will become immediately exercisable for a period of 30 days following any "change in control" of the Company as defined in the Stock Option Plan (see "Employee Benefit Plans -- Stock Option Plan"). In connection with the Getinge transaction and the proposed merger, the Board of Directors determined that, for purposes of the Stock Option Plan, a change in control was about to occur and, consequently, all options outstanding under the Stock Option Plan thereupon became immediately exercisable by the option holder. Each non-employee director has acknowledged to the Company that any options remaining unexercised at the expiration of the tender offer period (currently scheduled for 5:00 p.m. EDT on July 25, 1996) shall terminate unless the tender offer is not successfully consummated (in which case such unexercised options will be treated as if no change in control occurred and will be governed by their original terms). Pursuant to the Merger Agreement, the Stock Option Plan will terminate at the effective time of the merger with Getinge.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Beneficial Ownership of Common Stock
The following table sets forth certain information as of June 14, 1996 (except as otherwise noted) with respect to the beneficial ownership of the Company's Common Stock by (i) each person or entity known by the Company to be the beneficial owner of more than five percent of the Company's Common Stock, (ii) each director, (iii) each executive officer named in the Summary Compensation Table set forth under the caption "Executive Compensation" above, and (iv) all directors and officers as a group. Except as provided under state marital property laws and except as otherwise indicated, each person or entity listed below has sole voting and investment power with respect to the shares listed. Any reference to stock options held by any person or entity refers to stock options which are (by reason of the Getinge transaction or otherwise) currently exercisable or exercisable within 60 days of June 14, 1996.
* Pursuant to Rule 13d-3 (d) (1) under the Securities Exchange Act of 1934, as amended, any shares of Common Stock not outstanding which are subject to options or conversion rights held by a person named in the preceding table are deemed to be outstanding for the purpose of computing the percentage of outstanding shares of Common Stock owned by such person but are not deemed to be outstanding for the purpose of computing the percentage owned by any other person.
** Less than 1%
(a) According to the amended Schedule 13G filed with the Securities and Exchange Commission, dated June 5, 1996.
(b) According to the amended Schedule 13D filed with the Securities and Exchange Commission, dated May 24, 1996. Includes 5,100 shares as to which Andrew E. Shapiro, the sole director and officer of Lawndale Capital Management, Inc., exercises sole voting and dispositive power.
(c) According to the amended Schedule 13G filed with the Securities and Exchange Commission, dated February 12, 1996.
(d) Includes 265,092 shares held jointly with Mr. Branagan's spouse, 480 shares held jointly with Mr. Branagan's mother, 15,487 shares held by the Trustee of the MDT Corporation Savings and Thrift
Plan for Salaried Employees (re-named the Retirement Savings Plan for Salaried Employees -- see "Employee Benefit Plans -- Retirement Plan"), and 80,000 shares covered by options.
(e) Includes 6,000 shares covered by options.
(f) Represents 5,000 shares covered by options.
(g) Includes 5,000 shares covered by options.
(h) Includes 5,000 shares covered by options.
(i) Includes 1,500 shares covered by options.
(j) Includes 5,000 shares covered by options.
(k) Includes 6,000 shares covered by options.
(l) Represents 5,000 shares covered by options.
(m) Includes 2,191 shares held by the Trustee of the MDT Corporation Savings and Thrift Plan for Salaried Employees (re-named the Retirement Savings Plan for Salaried Employees -- see "Employee Benefits Plans -- Retirement Plan"), 971 shares held by Mr. Hein individually, and 40,000 shares covered by options.
(n) Represents 40,000 shares covered by options.
(o) Includes 1,867 shares held jointly with Mr. Nerby's spouse, 2,271 shares held by the Trustee of the MDT Corporation Savings and Thrift Plan for Salaried Employees (re-named the Retirement Savings Plan for Salaried Employees -- see "Employee Benefits Plans -- Retirement Plan"), and 50,000 shares covered by options.
(p) Includes 50,000 shares covered by options.
(q) Represents 30,000 shares covered by options.
(r) Includes 21,347 shares held by the Trustee of the MDT Corporation Savings and Thrift Plan for Salaried Employees (re-named the Retirement Savings Plan for Salaried Employees -- see "Employee Benefits Plans -- Retirement Plan") and 398,500 shares covered by options.
Changes of Control
On May 12, 1996, the Company announced that it had entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which it is proposed to be acquired by Getinge Industries AB, a Swedish manufacturer of hospital and scientific equipment. Getinge commenced a tender offer on May 17, 1996, for all outstanding shares of the Company Common Stock for a cash price of $4.50 per share. On July 12, 1996, Getinge announced an extension of its tender offer until July 25, 1996 and an increase in the offer price to $5.50 per share. Consummation of the tender offer and the merger is subject to certain terms and conditions set forth in the Merger Agreement, including approval of the holders of two-thirds of the shares to be acquired and regulatory approvals. If the tender offer is consummated, those shares not acquired in the tender offer will be converted into $5.50 in cash pursuant to a merger to be effected following completion of the tender offer.
Item 13.
Item 13. Certain Relationships and Related Transactions
Certain Transactions
Upon commencement of his employment by the Company on July 11, 1988, Mr. Hein, the Company's Vice President, Finance, Chief Financial Officer and Treasurer, received interest-free loans in the aggregate amount of $75,000 to assist him in purchasing a home in the Los Angeles area. In connection with Mr. Hein's relocation to Raleigh, North Carolina, the Compensation Committee agreed to forgive $25,000 of the balance on such loans on each of July 1, 1995, July 1, 1996 and July 1, 1997, subject to his being employed by the Company on such dates. As of July 1, 1996, Mr. Hein's outstanding balance owed on such loans was $25,000. Any outstanding loan is immediately due and payable upon termination of Mr. Hein's employment with the Company for any reason.
In connection with Mr. Swenson's relocation to Charleston, South Carolina, the Company provided Mr. Swenson with an interest-free loan in the amount of $100,000 to assist him in purchasing a home in the Charleston area. Such loan is immediately due and payable upon the first to occur of (i) the sale of Mr. Swenson's existing residence in Southern California, or (ii) the third anniversary of the date such loan is made. The loan is immediately due and payable upon termination of Mr. Swenson's employment with MDT Diagnostic Company for any reason.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Consolidated Financial Statements
The following consolidated financial statements of the registrant and its subsidiaries and report of independent auditors are included in Item 8 of this Annual Report:
Independent Auditors' Report.
Consolidated Balance Sheets - March 31, 1996 and 1995.
Consolidated Statements of Income (Loss) - Years ended March 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years ended March 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended March 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
As permitted by Rule 15d-21 promulgated under the Securities Exchange Act of 1934, as amended, the registrant hereby files the financial statements required by Form 11-K with respect to the MDT Corporation Savings and Thrift Plan for Salaried Employees, the MDT Corporation Savings and Thrift Plan for Hourly Employees and the MDT Biologic Company Union Thrift Plan. These financial statements and the report of independent auditors are attached hereto as Exhibit 99 and are incorporated in this Annual Report on Form 10-K by reference.
2. Consolidated Financial Statement Schedules
The following Schedule to Consolidated Financial Statements is included herein:
Schedule II Valuation and Qualifying Accounts, page 62, together with Independent Auditors' Report on Supporting Schedule, page 62.
3. Exhibits
The Exhibit Index set forth immediately after the Consolidated Financial Statement Schedules of this Annual Report is incorporated herein by this reference.
(b) Reports on Form 8-K
During the quarter ending March 31, 1996, the Company filed no Current Reports on Form 8-K.
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.
Dated: July 15, 1996 MDT Corporation
By: /s/ J. Miles Branagan ----------------------------------------- J. Miles Branagan Chairman of the Board of Directors, Chief Executive Officer and President
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 dates indicated.
Signature Title Date --------- ----- ----
/s/ J. Miles Branagan _________________________ Chairman of the Board of July 15, 1996 J. Miles Branagan Directors and Chief Executive Officer and President (Principal Executive Officer)
/s/ LaMoyne H. Fleming _________________________ Director July 15, 1996 LaMoyne H. Fleming
/s/ Charles A. French _________________________ Director July 15, 1996 Charles A. French
/s/ John S. Gilbertson _________________________ Director July 15, 1996 John S. Gilbertson
/s/ Thomas M. Hein _________________________ Vice President, Finance, Chief July 15, 1996 Thomas M. Hein Financial Officer and Treasurer (Principal Financial and Accounting Officer)
/s/ Charles E. Johnson _________________________ Director July 15, 1996 Charles E. Johnson
/s/ Clark D. Jones _________________________ Director July 15, 1996 Clark D. Jones
/s/ James B.D. Mark _________________________ Director July 15, 1996 James B.D. Mark
/s/ Katherine A. Schipper _________________________ Director July 15, 1996 Katherine A. Schipper
/s/ John C. Shamy _________________________ Director July 15, 1996 John C Shamy
S-1
[Letterhead of KPMG PEAT MARWICK]
INDEPENDENT AUDITORS' REPORT ----------------------------
The Board of Directors and Stockholders MDT Corporation:
Under date of May 17, 1996, except as to the third paragraph of Note 9 and the second paragraph of Note 17, which are as of July 12, 1996, we reported on the consolidated balance sheets of MDT Corporation and subsidiaries as of March 31, 1996 and 1995, and the related consolidated statements of income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1996. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. Our report contains an explanatory paragraph that states that the status of the Company's existing credit facilities and the need for borrowing capacity during fiscal 1997 raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. In connection with our audits of the aforementioned consolidated financial statements, we have also audited the related financial statement schedule included herein. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP May 17, 1996
SCHEDULE II
MDT CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended March 31, 1996, 1995 and 1994
_____________________
(1) Bad debts written off net of recoveries.
EXHIBIT INDEX -------------
Sequentially Numbered Exhibit No. Description Page - - ----------- ------------------------------------------- ------------
2.1 Agreement and Plan of Merger, dated as of May 12, 1996, among Getinge Industries AB, Getinge Acquisition Corporation and MDT Corporation (incorporated by reference to Exhibit (c)(1) to the Solicitation/Recommendation Statement on Schedule 14D-9 filed by the Company with the Securities and Exchange Commission on or about May 17, 1996).*
2.2 Asset Purchase and Sale Agreement, dated as of November 19, 1993, by and between MDT Diagnostic Company and Mesa Industries, Inc. (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 (File No. 0-15308) (the "1994 Form 10-K")).*
2.3 Agreement of Purchase and Sale of Assets, dated as of June 4, 1995, by and among Maxim Medical, Inc., MDT Diagnostic Company and MDT Corporation (incorporated by reference to Exhibit 2.2 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 (File No. 0-15308) (the "1995 Form 10-K")).*
3.1 Certificate of Incorporation of MDT Corporation, as amended (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1 (Registration No. 33-28981) declared effective June 23, 1989).*
3.2 Bylaws of MDT Corporation, as amended (incorporated by reference to Exhibit 3.2 of the 1995 Form 10-K).*
4 The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and it subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries.
10.1.1 MDT Corporation Amended and Restated 1987 Stock Option Plan (the "1987 Stock Option Plan") (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993 (File No. O-15308) (the "1993 Form 10-K")).*
_______________
* Incorporated by reference.
Sequentially Numbered Exhibit No. Description Page - - ----------- ------------------------------------------- ------------
10.1.2 Acknowledgement of J. Miles Branagan, dated May 10, 1996, of certain modifications to his rights with respect to options awarded to Mr. Branagan under the 1987 Stock Option Plan.
10.1.3 List of omitted Acknowledgements of Directors of MDT Corporation respecting options awarded under the 1987 Stock Option Plan.
10.2.1 MDT Corporation Retirement Plan (as amended and restated through April 1, 1989) (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992 (File No. 0-15308) (the "1992 Form 10-K")).*
10.2.2 Amendment No. 1993-I to the MDT Corporation Retirement Plan (incorporated by reference to Exhibit 10.2.2 of the 1994 Form 10-K).*
10.2.3 Amendment No. 1994-I to the MDT Corporation Retirement Plan (incorporated by reference to Exhibit 10.2.3 of the 1994 Form 10-K).*
10.3.1 MDT Corporation Savings and Thrift Plan for Salaried Employees (amended and restated as of January 1, 1989) (incorporated by reference to Exhibit 10.4 of the 1992 Form 10-K).*
10.3.2 Amendment No. 1993-I to the MDT Corporation Savings and Thrift Plan for Salaried Employee (incorporated by reference to Exhibit 10.3.2 of the 1994 Form 10-K).*
10.3.3 Amendment No. 1994-I to the MDT Corporation Savings and Thrift Plan for Salaried Employees (incorporated by reference to Exhibit 10.3.3 of the 1994 Form 10-K).*
10.4.1 MDT Corporation Supplemental Executive Retirement Plan, as amended through April 1, 1996 (the "SERP") (incorporated by reference to Exhibit 10.4 of the 1994 Form 10-K).*
10.4.2 Amendment III to the SERP, dated May 12, 1996.
10.5.1 Employment Agreement between MDT Corporation and J. Miles Branagan, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.1 of the 1995 Form 10-K).*
_______________
* Incorporated by reference.
Sequentially Numbered Exhibit No. Description Page - - ----------- ------------------------------------------- ------------
10.5.2 Employment Agreement between MDT Corporation and Thomas M. Hein, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.2 of the 1995 Form 10-K).*
10.5.3 Employment Agreement between MDT Corporation and William T. Hilvert, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.3 of the 1995 Form 10-K).*
10.5.4 Employment Agreement between MDT Biologic Company and Melvin K. Nerby, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.4 of the 1995 Form 10-K).*
10.5.5 Employment Agreement between MDT Biologic Company and Michael L. Schneier, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.5 of the 1995 Form 10-K).*
10.5.6 Employment Agreement between MDT Diagnostic Company and Charles B. Swenson, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.6 of the 1995 Form 10-K).*
10.5.7 Employment Agreement between MDT Technionic Company and Richard G. Kinsey, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.7 of the 1995 Form 10-K).*
10.5.8 Employment Agreement between MDT Corporation and Creighton A. White, dated as of April 1, 1995 (incorporated by reference to Exhibit 10.6.8 of the 1995 Form 10-K).*
10.5.9 Amendment (the "Payment Refusal Amendment") to Employment Agreement, dated as of March 1, 1996, between MDT Corporation and William T. Hilvert.
10.5.10 List of omitted Payment Refusal Amendments to Employment Agreements with executive officers.
10.5.11 Amendment (the "MICP Amendment") to Employment Agreement, dated May 10, 1996, between MDT Corporation and William T. Hilvert.
10.5.12 List of Omitted MICP Amendment to Employment Agreements with certain executive officers.
10.6 Lease between MDT Corporation and Petula Associates, Ltd., dated February 17, 1995 (incorporated by reference to Exhibit 10.7 of the 1995 Form 10-K).*
_______________
* Incorporated by reference.
Sequentially Numbered Exhibit No. Description Page - - ----------- ------------------------------------------- ------------
10.7.1 Lease Agreement between MDT Diagnostic Company and Ashley Industrial Developers, dated August 9, 1994 (incorporated by reference to Exhibit 10.8.1 of the 1995 Form 10-K).*
10.7.2 Lease Agreement between MDT Diagnostic Company and Carolina Industrial Developers, dated August 9, 1994 (incorporated by reference to Exhibit 10.8.2 of the 1995 Form 10-K).*
10.7.3 Lease Agreement between MDT Diagnostic Company and Carolina Industrial Developers, dated August 9, 1994 (incorporated by reference to Exhibit 10.8.3 of the 1995 Form 10-K).*
10.7.4 Lease Agreement dated MDT, Inc. and D.E. Gresset, dated June 1, 1995 (incorporated by reference to Exhibit 10.8.4 of the 1995 Form 10-K).*
10.7.5 Lease Agreement between MDT Diagnostic Company and Ashley Industrial Developers, dated March 14, 1996.
10.7.6 Lease Agreement between MDT Diagnostic Company and Carolina Industrial Developers, dated March 14, 1996.
10.7.7 Lease Agreement between MDT Diagnostic Company and Carolina Industrial Developers, dated March 14, 1996.
10.7.8 Lease Agreement between MDT Biologic Company and YWCA of Annapolis and Anne Arundel County, Maryland, Inc., dated April 4, 1996.
10.8.1 Credit Agreement, dated August 20, 1993, among MDT Corporation, MDT Biologic Company, MDT Diagnostic Company, MDT Canada Limited and Wells Fargo Bank, National Association, as Agent (incorporated by reference to Exhibit 10.9 of the 1994 Form 10-K).*
10.8.2 Amendment to Credit Agreement, dated August 1, 1995, among MDT Corporation, MDT Biologic Company, MDT Diagnostic Company, MDT Technionic Company and Wells Fargo Bank, National Association, as Agent (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).*
_______________
* Incorporated by reference.
Sequentially Numbered Exhibit No. Description Page - - ----------- ------------------------------------------- ------------
10.8.3 Amendment to Credit Agreement (the "Credit Agreement Amendment"), dated February 15, 1996, among MDT Corporation, MDT Biologic Company, MDT Diagnostic Company, MDT Technionic Company and Wells Fargo Bank, National Association, as Agent.
10.8.4 Mortgage (Fee), dated as of February 15, 1996, executed by MDT Corporation in favor of Wells Fargo Bank, National Association, as Agent.
10.8.5 Deed of Trust, Assignment of Rents, and Fixture Filing, dated as of February 15, 1996, among MDT Corporation as Trustor, American Securities Company as Trustee, and Wells Fargo Bank, National Association, as Agent.
10.8.6 Stock Pledge Agreement, dated as of February 15, 1996, between MDT Corporation and Wells Fargo Bank, National Association, as Agent.
10.8.7 Patent Security Agreement, dated as of February 15, 1996, made by MDT Corporation, MDT Biologic Company, MDT Diagnostic Company, MDT Canada Limited, and MDT Technionic Company in favor of Wells Fargo Bank, National Association, as Agent.
10.8.8 Trademark Security Agreement, dated as of February 15, 1996, made by MDT Corporation, MDT Biologic Company, MDT Diagnostic Company, MDT Canada Limited, and MDT Technionic Company in favor of Wells Fargo Bank, National Association, as Agent.
10.9.1 Rights Agreement between MDT Corporation and Bank of America, NT & SA, as Rights Agent, dated as of February 12, 1990 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 8-A filed with the Securities and Exchange Commission on February 13, 1990).*
10.9.2 Agreement amending the Rights Agreement, dated as of August 1, 1992, between MDT Corporation and Chemical Trust Company of California (incorporated by reference to Exhibit 10.11.2 of the 1993 Form 10-K).*
10.9.3 Agreement amending the Rights Agreement, dated as of May 10, 1996, between MDT Corporation and Chemical Trust Company of California (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated May 10, 1996 (File No. 0-15308)).*
11 Statement regarding computation of per share earnings.
21 Subsidiaries of MDT Corporation.
23.1 Consent of KPMG Peat Marwick.
23.2 Consent of KPMG Peat Marwick with respect to financial statements contained in Exhibit 99.1 through 99.3.
27 Financial Data Schedule.
99.1 MDT Corporation Savings and Thrift Plan (Hourly Employees) Financial Statements and Schedules and Report of Independent Auditors for the Two Years Ended December 31, 1995.
_______________
* Incorporated by reference.
Sequentially Numbered Exhibit No. Description Page - - ----------- ------------------------------------------- ------------
99.2 MDT Corporation Savings and Thrift Plan (Salaried Employees) Financial Statements and Schedules and Report of Independent Auditors for the Two Years Ended December 31, 1995.
99.3 MDT Corporation Savings and Thrift Plan (Union Employees) Financial Statements and Schedules and Report of Independent Auditors for the Two Years Ended December 31, 1995.
_______________
* Incorporated by reference.