<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
--------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-9983
OEC MEDICAL SYSTEMS, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2538512
384 Wright Brothers Drive, Salt Lake City, Utah 84116
(Address of Principal Executive Offices)
Telephone: (801) 328-9300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
Yes X No
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As of July 29, 1994, there were 12,479,500 shares of Common Stock ($.01 par
value) outstanding.
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PART I. Financial Information
ITEM 1. Financial Statements
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Six Months
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales
Product $16,200 $19,937 $36,593 $40,260
Service 3,184 2,540 6,051 4,975
------ ------ ------ ------
Total net sales 19,384 22,477 42,644 45,235
------ ------ ------ ------
Cost of sales
Product 10,350 11,812 22,027 22,759
Service 1,909 1,736 3,933 3,814
------ ------ ------ ------
Total cost of sales 12,259 13,548 25,960 26,573
------ ------ ------ ------
Gross margin 7,125 8,929 16,684 18,662
------ ------ ------ ------
Operating Expenses
Research and development 2,088 2,096 4,500 4,188
Marketing and sales 3,775 4,005 8,061 7,808
Administrative, general and other 937 2,759 2,289 4,425
------ ------ ------ ------
Total operating expenses 6,800 8,860 14,850 16,421
------ ------ ------ ------
Operating income 325 69 1,834 2,241
Interest income 96 133 183 271
Interest expense (77) -- (222) --
------ ------ ------ ------
Income before income taxes 344 202 1,795 2,512
Income tax benefit -- -- 826 --
------ ------ ------ ------
Income from continuing operations 344 202 2,621 2,512
Loss from operation of discontinued operations
(net of income tax expense (benefit) of $(23) and $153,
respectively, for the three and six months ended
June 30, 1993) -- (5,279) -- (9,543)
------ ------ ------ ------
Net income (loss) $ 344 $ (5,077) $2,621 $(7,031)
------ ------ ------ ------
------ ------ ------ ------
Income (loss) per common and
common equivalent share:
Continuing operations $ 0.03 $ 0.02 $0.21 $0.21
Discontinued operations -- (0.43) -- (0.78)
------ ------ ------ ------
Net income (loss) $ 0.03 $ (0.41) $0.21 $(0.57)
------ ------ ------ ------
------ ------ ------ ------
Common and common equivalent shares 12,461 12,495 12,540 12,494
</TABLE>
See accompanying notes
Page 2 of 9
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OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 6,324 $ 5,383
Accounts and notes receivable, net of
allowances of $319 and $2,024, respectively 20,164 25,184
Inventories 22,154 19,120
Prepaid expenses and other current assets 1,073 1,098
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Total current assets 49,715 50,785
Long-term receivables 1,116 1,361
Property and equipment, net 11,458 10,698
Cost in excess of net assets acquired, net of
accumulated amortization of $6,581 and $6,260, respectively 11,815 12,136
Deferred income taxes 3,803 2,000
Patents, licenses, purchased technologies and other assets,
net of accumulated amortization of $913 and $836, respectively 77 154
------ ------
$ 77,984 $ 77,134
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,584 $ 4,242
Note payable to related party 9,168 9,700
Accrued salaries and benefits 2,379 2,341
Accrued warranty and installation costs 683 1,363
Deferred income and customer deposits 5,195 4,816
Income taxes payable 85 816
Accrued legal fees and litigation settlements 4,173 4,075
Accrued restructuring costs 1,979 3,259
Accrued distributor commissions 1,606 2,422
Other accrued liabilities 1,221 802
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Total current liabilities 31,073 33,836
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Stockholders' equity:
Preferred stock, $.01 par value
Authorized--2,000 shares, including 1,100 shares
of convertible preferred stock, none outstanding
Common stock, $.01 par value
Authorized--30,000 shares
Outstanding--12,430 and 12,411 shares,
respectively 124 124
Capital in excess of par value 67,874 66,858
Accumulated deficit (21,046) (23,667)
Foreign currency translation adjustment (41) (17)
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Total stockholders' equity 46,911 43,298
------ ------
$ 77,984 $ 77,134
------ ------
------ ------
</TABLE>
See accompanying notes
Page 3 of 9
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OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(In thousands)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ 2,621 $2,512
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization 1,558 1,353
Bad debt expense 60 1,060
Deferred income tax benefit (884) --
Changes in current assets and liabilities:
Accounts and notes receivable 4,960 4,697
Inventories (3,034) (6,262)
Prepaid expenses and other current assets 25 (351)
Accounts payable 342 (48)
Note payable to related party (532) --
Accrued salaries and benefits 38 251
Accrued warranty and installation costs (680) 197
Deferred income and customer deposits 379 910
Income taxes payable (731) (424)
Accrued legal fees and litigation settlements 98 (1,581)
Accrued restructuring costs (1,280) --
Accrued distributor commissions (816) (364)
Other accrued liabilities 419 1,016
Other -- (23)
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Net cash provided by continuing operations 2,543 2,943
Net cash used by discontinued operations -- (6,105)
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Net cash provided (used) by operating activities 2,543 (3,162)
------ ------
INVESTING ACTIVITIES:
Reduction in long-term receivables 245 --
Additions to property and equipment, net (1,920) (809)
Change in net long-term assets of discontinued
operations -- 3,347
Other (24) (186)
------ ------
Net cash provided (used) by investing activities (1,699) 2,352
FINANCING ACTIVITIES--
Sales of common stock, net 97 396
------ ------
Net increase (decrease) in cash and temporary
cash investments 941 (414)
Cash and temporary cash investments at beginning
of period 5,383 1,924
------ ------
Cash and temporary cash investments at end of
period $ 6,324 $ 1,510
------ ------
------ ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (for continuing operations only):
Cash paid during the period for interest 4 --
Cash paid during the period for income taxes $268 --
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1994, the Company increased its net
deferred income tax asset by $1,803 as a result of reducing the valuation
allowance on the deferred tax assets. Of the total $1,803 of valuation
allowance reallocation, $919 was credited directly to stockholders' equity and
$884 was recorded as a deferred tax benefit.
See accompanying notes
Page 4 of 9
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OEC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1994
1. Interim information is unaudited but, in the opinion of Company management,
all adjustments necessary for a fair presentation of interim results have
been included. The results for the six months ended June 30, 1994 are not
necessarily indicative of the results to be expected for the entire year.
These financial statements and notes should be read in conjunction with the
Company's financial statements for the year ended December 31, 1993, filed
on Form 10-K.
2. Inventories are stated at the lower of cost, utilizing the first-in/
first-out method, or market. Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
(In thousands)
<S> <C> <C>
Purchased parts and
completed subassemblies $ 9,472 $ 7,819
Work-in-process 4,635 4,145
Finished goods 5,929 6,800
Service and repair parts 4,706 3,389
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24,742 22,153
Less: reserves (2,588) (3,033)
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$ 22,154 $ 19,120
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</TABLE>
3. The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," effective January 1, 1993. This
statement superseded SFAS No. 96, "Accounting for Income Taxes," which was
adopted by the Company in 1987. As a result of the Restructuring/
Distribution and subsequent earnings history, some of the uncertainties
regarding the Company's potential for utilization of its net operating loss
carryforwards and tax credits have been reduced, and certain of the
reserves against its deferred tax asset were determined to no longer be
required. As a result, reserves totaling $1,803,000 were reversed in the
first quarter of 1994. Of this amount, $919,000 related to tax benefits
arising out of the exercise of stock options in prior years and, as a
result, were recognized in paid in capital and did not impact the
consolidated statement of operations. No adjustments were made in the
second quarter of 1994.
4. Revenues from the discontinued operations for the quarter and six months
ended June 30, 1993 were $46.7 million and $92.9 million, respectively.
See accompanying notes
Page 5 of 9
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OEC MEDICAL SYSTEMS, INC
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the second quarter and six months ended June 30, 1994, OEC Medical Systems,
Inc. had net income of $.3 million and $2.6 million, respectively, compared with
income from continuing operations of $.2 million and $2.5 million, respectively
for the same periods last year. The results of the six month period ended June
30, 1994 include a tax benefit of $.8 million or $.06 per share, from the first
quarter reversal of certain reserves against deferred tax assets which were
established upon the adoption of Statement of Financial Accounting Standard
No. 109 last year.
The following table sets forth OEC's operating results as a percent of net
sales:
<TABLE>
<CAPTION>
Three Months Six Months
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales
Product 83.6% 88.7% 85.8% 89.0%
Service 16.4% 11.3% 14.2% 11.0%
------ ------ ------ ------
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales
Product 53.3% 52.6% 51.7% 50.3%
Service 9.9% 7.7% 9.2% 8.4%
------ ------ ------ ------
Total cost of sales 63.2% 60.3% 60.9% 58.7%
Gross margin 36.8% 39.7% 39.1% 41.3%
------ ------ ------ ------
Operating expenses:
Research and development 10.8% 9.3% 10.5% 9.2%
Marketing and sales 19.5% 17.8% 18.9% 17.3%
Administrative, general and other 4.8% 12.3% 5.4% 9.8%
------ ------ ------ ------
Total operating expenses 35.1% 39.4% 34.8% 36.3%
Operating income 1.7% .3% 4.3% 5.0%
Income from continuing operations 1.8% .9% 6.1% 5.6%
Net income (loss) 1.8% (22.6%) 6.1% (15.5%)
</TABLE>
SALES AND MARKETS
Net product sales for the quarter and six months ended June 30, 1994, were
$16.2 million and $36.6 million, respectively, compared to net product sales of
$19.9 million and $40.3 million, respectively, for the comparable periods of
1993. Product sales were lower because of a delay in shipments of the new
Series 9600 Mobile Digital Imaging System, the result of some unanticipated
start-up problems in production. Because of production delays, demonstration
system shipments were delayed, also affecting product sales. These problems
were resolved during the quarter.
See accompanying notes
Page 6 of 9
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The continuing uncertainty surrounding the administration's healthcare program
remained a larger factor in the urology market where system prices tend to be
higher and therefore subject to greater limitations on capital expenditures.
Service revenue for the quarter and six months ended June 30, 1994 was $3.2
million and $6.1 million, respectively, up from the previous year's $2.5 million
and $5.0 million. Service revenue increased through improved contract capture
rates.
MARGIN ANALYSIS
OEC's gross margin expressed as a percentage of net sales declined 2.9% for the
second quarter and 2.2% for the six months when compared with the same periods
in 1993. This was due to less revenue during the periods as a result of
unanticipated production delays of the new Series 9600 as well as higher costs
associated with the new product.
Service expenses as a percentage of service revenue were down over last year
8.3% for the quarter and 11.7% for the six month period. The improved service
margins were due to increased contract revenue and stricter cost containment
efforts.
OPERATING EXPENSES
When compared to the previous year, operating expenses as a percentage of net
sales were 4.3% lower in the second quarter and 1.5% lower for the six months
ended June 30, 1994. Second quarter 1994 expenses include a credit of $750,000
which is the OEC portion of a litigation settlement paid by Acuson to Diasonics
Ultrasound, Inc. A portion of this credit was offset by reserves. The second
quarter of 1993 included an accrual of $1.0 million reserve against accounts
receivable from a former dealer.
INCOME TAXES
A provision for income taxes was not recorded in the second quarter of 1994, due
to operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1994, OEC had cash and temporary cash investments of $6.3 million.
There are no current material commitments for capital expenditures.
Cash provided by operations for the six months ended June 30, 1994 was
$2.5 million compared with $2.9 million in the comparable 1993 period.
Capital expenditures for the six months ended June 30, 1994 totalled
$1.9 million, which was higher than the same period in 1993. The increase was
primarily due to additional tooling and fixtures associated with the new Series
9600 plus an addition to the manufacturing facilities in Salt Lake City for
better production efficiencies.
OEC is required to make an installment payment of approximately $4.9 million to
Diasonics Ultrasound, Inc., payable within 45 days of June 30, 1994, in
connection with a note payable established at the time of the restructuring of
the Company in October 1993. The second installment of approximately $4.9
million, or 50% of the original note, is expected to be cancelled if the pending
acquisition of Diasonics Ultrasound, Inc., by Elbit, Ltd., is completed by
December 31, 1994. The cancellation of this note will result in an adjustment
to equity.
The Company believes that existing cash reserves and the unused $10 million line
of credit is sufficient to handle the liquidity requirement for the foreseeable
future.
See accompanying notes
Page 7 of 9
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PART II. Other information.
ITEM 1. Legal proceedings
There are no significant changes in legal proceedings from the previous stated
position in the Company's annual report for 1993 or Form 10K filed with the
Securities & Exchange Commission on March 30, 1994.
ITEM 6. Exhibits
Exhibit
Number Description
- ------ -----------
(b) Reports on Form 8-K
Not applicable.
See accompanying notes
Page 8 of 9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OEC MEDICAL SYSTEMS, INC.
(Registrant)
By /s/ Randy W. Zundel
---------------------------
Randy W. Zundel
Chief Financial Officer
(Principal Accounting Officer)
Date: August 11, 1994
See accompanying notes
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