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DIASONICS DIVISION INTO TWO SEPARATE BUSINESSES

This article was originally published in The Gray Sheet

Executive Summary

DIASONICS DIVISION INTO TWO SEPARATE BUSINESSES is expected to be completed in late July or early August, the company says. Under the proposed restructuring, which is subject to approval by stockholders at the annual meeting in mid-1993, the company would be split into two separate, publicly traded companies: one that would include the operations of OEC-Diasonics, the company's specialty x-ray and urology business, and one that would comprise Diasonics' worldwide ultrasound business. The company expects the division to be accomplished by means of a stock dividend to current shareholders. OEC-Diasonics, the smaller of the two businesses with roughly 500 employees and $94 mil. in 1992 revenues, "currently holds a leadership position in the mobile x-ray (C-arm) and urological x- ray markets in the United States," Diasonics says in a Feb. 10 release. Under the proposed split, David Rose, OEC-Diasonics' current president and general manager, would become president and chief executive officer of the company, which would remain headquartered in Salt Lake City, Utah. Slated to head the new ultrasound company, which would include Diasonics' Sonotron European distribution business, is Bruce Moore, who currently serves as president of the ultrasound division. Moore will assume the titles of president and CEO. The company will be headquartered in Milpitas, California and is expected to have approximately 1,000 employees worldwide. "Revenues for this entity totaled $205 mil. in 1992," Diasonics notes. Stewart Carrell, currently chairman of the board and chief executive officer of Diasonics, is expected to continue to be involved in one or both of the new companies, although his specific duties and title have yet to be determined. Diasonics says it currently is "exploring its options" with regard to FOCAL Surgery. The subsidiary was created in 1992 to "operate the therapeutic products division and to continue the development of its high intensity focused ultrasound ablation product." Initial product development efforts are focusing on use of the technology to treat benign prostatic hyperplasia. FOCAL Surgery could either be absorbed into the worldwide ultrasound company or could be established as a separate company, according to the firm. Diasonics will be assisted in all decisions concerning the restructuring by the investment banking firm of Morgan Stanley. Commenting on the proposed restructuring, Carrell says: "After careful study and evaluation, Diasonics' Board of Directors has determined that the division of the company into distinct operating businesses...better reflects the different developmental phases, reward/risk factors, management requirements, customers and markets served by the two companies . . . The primary benefit of such a structure is that it is designed to enable the management of each company to focus their attention and financial resources on their respective customers and markets." Diasonics took a $9 mil. charge against fourth quarter earnings for estimated costs associated with the restructuring. The charge resulted in a net loss of $8.8 mil. in the fourth quarter of 1992, compared to a net income of $5 mil. for the same period in 1991. Excluding the restructuring costs, net income would have been $237,000 for the quarter, down 95%. For the full year, the company reported a net loss of $19 mil., versus net income of $18.9 mil. in 1991. Besides the restructuring charge, the full year results include "a $3.1 mil. reserve for an unfavorable litigation judgment and non-recurring charges of $3.5 mil., primarily related to reductions in personnel and facilities in the U.S. and Europe, both of which occurred in the second quarter," Diasonics says. Revenues for the fourth quarter were $88.3 mil., up 10% from the same period last year. Revenues for the full year were $299.5 mil., an advance of 4.6% from 1991. In a recent 10-K filing with the Securities and Exchange Commission, Diasonics comments that while its worldwide ultrasound business operated at a loss in 1992, it "improved in the second half of the year" as a "result of increased revenues from the introduction of Spectra VST in March 1992, improved performance by the company's European distribution business, as well as the impact of cost reduction efforts implemented in the first half of the year." The firm notes that "this improvement was achieved despite a slow, very competitive worldwide ultrasound market which the company believes will continue into 1993." The proposed restructuring, the company continues, "should contribute to the worldwide ultrasound business' efforts to continue the improvement it demonstrated in the second half of 1992 as well as improve its ability to better meet the needs of its customers."
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