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<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, 1995
------------------------------------
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
------ ------
As of July 27, 1995, there were 12,597,799 shares of Common Stock ($.01 par
value) outstanding.
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
----------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net sales
Product $22,444 $16,200 $41,477 $36,593
Service 3,685 3,184 7,454 6,051
------ ------ ----- -----
Total net sales 26,129 19,384 48,931 42,644
------ ------ ------ ------
Cost of sales
Product 13,373 10,350 24,779 22,027
Service 2,061 1,909 4,236 3,933
------ ------ ------ ------
Total cost of sales 15,434 12,259 29,015 25,960
------ ------ ------ ------
Gross margin 10,695 7,125 19,916 16,684
------ ------ ------ ------
Operating expenses
Research and development 1,956 2,088 3,879 4,500
Marketing and sales 4,675 3,775 8,737 8,061
Administrative, general and other 1,680 937 3,029 2,289
----- ----- ----- ------
Total operating expenses 8,311 6,800 15,645 14,850
----- ----- ------ ------
Operating income 2,384 325 4,271 1,834
Interest income 169 96 302 183
Interest expense (2) (77) (4) (222)
----- ----- ----- ------
Income before income taxes 2,551 344 4,569 1,795
Income tax benefit 211 -- 685 826
----- --- --- ----
Net income $2,762 $ 344 $5,254 $2,621
----- ---- ----- -----
----- ---- ----- -----
Net income per common and
common equivalent share $ 0.22 $ 0.03 $ 0.42 $0.21
------ ------ ------ -----
------ ------ ------ -----
Common and
common equivalent shares 12,511 12,461 12,542 12,540
</TABLE>
See Accompanying Notes
2
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(In thousands)
<TABLE>
<CAPTION>
ASSETS
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $11,528 $ 7,608
Accounts and notes receivable, net of
allowances of $615 and $725, respectively 21,389 24,289
Inventories 19,423 18,463
Prepaid expenses and other current assets 969 835
Deferred income taxes 2,646 2,646
----- -----
Total current assets 55,955 53,841
Long-term receivables 1,280 903
Property and equipment, net 10,478 11,388
Cost in excess of net assets acquired, net of
accumulated amortization of $7,222 and $6,901, respectively 11,174 11,495
Deferred income taxes 4,760 3,676
Other assets, net 540 252
--- ---
$ 84,187 $ 81,555
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,201 $ 5,158
Accrued salaries and benefits 2,526 2,520
Accrued warranty and installation costs 1,231 1,115
Deferred income and customer deposits 5,364 5,228
Income taxes payable 420 415
Accrued legal fees and litigation settlements 4,062 4,319
Accrued distributor commissions 2,183 2,260
Other accrued liabilities 1,941 1,627
----- -----
Total current liabilities 21,928 22,642
------ ------
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--12,566 and 12,482 shares, respectively 126 125
Capital in excess of par value 74,275 73,783
Accumulated deficit (9,706) (14,959)
Treasury stock, 366 shares at cost (2,318) --
Foreign currency translation adjustment (118) (36)
----- -----
Total stockholders' equity 62,259 58,913
------ ------
$ 84,187 $ 81,555
------ ------
------ ------
</TABLE>
See Accompanying Notes
3
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,254 $ 2,621
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,691 1,558
Bad debt expense 60 60
Deferred income tax benefit (976) (884)
Changes in current assets and liabilities:
Accounts and notes receivable 2,840 4,960
Inventories (960) (3,034)
Prepaid expenses and other current assets (134) 25
Other assets (288) --
Accounts payable (957) 342
Note payable to related party -- (532)
Accrued salaries and benefits 6 38
Accrued warranty and installation costs 116 (680)
Deferred income and customer deposits 136 379
Income taxes payable 5 (731)
Accrued legal fees and litigation settlements (257) 98
Accrued restructuring costs -- (1,280)
Accrued distributor commissions (77) (816)
Other accrued liabilities 313 419
----- -----
Net cash provided by operating activities 6,772 2,543
----- -----
INVESTING ACTIVITIES:
Reduction (increase) in long-term receivables (377) 245
Additions to property and equipment, net (460) (1,920)
Other (81) (24)
----- ----
Net cash used by investing activities (918) (1,699)
----- -------
----- -------
FINANCING ACTIVITIES:
Sales of common stock, net 900 97
Purchase of treasury stock (2,834) --
------- ------
Net cash provided (used) by financing activities (1,934) 97
------- ------
Net increase in cash and temporary cash investments 3,920 941
Cash and temporary cash investments at beginning of period 7,608 5,383
----- -----
Cash and temporary cash investments at end of period $11,528 $ 6,324
------ -----
------ -----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 4 4
Cash paid during the period for income taxes $303 $268
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1995 and 1994, the Company increased its net deferred income tax asset by $1,084 and $1,803,
respectively, as a result of reducing the valuation allowance on the deferred tax assets. Of the total $1,084 and $1,803 of
valuation allowance reallocation, $108 and $919 was credited directly to stockholders' equity and $976 and $884 was recorded as a
deferred tax benefit, respectively.
</TABLE>
See Accompanying Notes
4
<PAGE>
OEC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
JUNE 30, 1995 AND 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, 1995 and 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,
1994, filed on Form 10-K on March 28, 1995.
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,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Purchased parts and
completed subassemblies $ 7,853 $ 8,295
Work-in-process 3,869 3,281
Finished goods 6,545 5,661
Service and repair parts 4,959 4,715
------ ------
Total 23,226 21,952
Less: reserves (3,803) (3,489)
------ ------
Net $ 19,423 $ 18,463
------ ------
------ ------
</TABLE>
3. As uncertainties regarding the Company's potential for utilization of its
net operating loss carryforwards and tax credits are reduced, a portion of
the reserves against its deferred tax assets are no longer required. As a
result, reserves totaling $1,084,000 were reversed in the first half of
1995. Of this amount, $108,000 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.
5
<PAGE>
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, 1995, OEC Medical Systems,
Inc. had net income of $2.8 million and $5.3 million, respectively, compared
with net income of $.3 million and $2.6 million, respectively, for the same
periods last year. The results for the six month period ended June 30, 1995
include a tax benefit of $.7 million, or $.05 per share from the reversal of
certain reserves against deferred tax assets as compared to $.8 million or $.07
per share for the same period last year. These reserves were established upon
the adoption of Statement of Financial Accounting Standard No. 109 in the first
quarter of 1993.
The following table sets forth OEC's operating results as a percent of net
sales:
<TABLE>
<CAPTION>
Three Months Six Months
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales
Product 85.9% 83.6% 84.8% 85.8%
Service 14.1% 16.4% 15.2% 14.2%
----- ----- ----- -----
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales
Product 51.2% 53.3% 50.6% 51.7%
Service 7.9% 9.9% 8.7% 9.2%
----- ----- ----- -----
Total cost of sales 59.1% 63.2% 59.3% 60.9%
Gross margin 40.9% 36.8% 40.7% 39.1%
----- ----- ----- -----
Operating expenses:
Research and development 7.5% 10.8% 7.9% 10.5%
Marketing and sales 17.9% 19.5% 17.9% 18.9%
Administrative, general and other 6.4% 4.8% 6.2% 5.4%
----- ----- ----- -----
Total operating expenses 31.8% 35.1% 32.0% 34.8%
Operating income 9.1% 1.7% 8.7% 4.3%
Net income 10.6% 1.8% 10.7% 6.1%
</TABLE>
SALES AND MARKETS
Net product sales for the quarter and six months ended June 30, 1995, were $22.4
million and $41.5 million, respectively, compared to net product sales of $16.2
million and $36.6 million respectively, for the comparable periods of 1994.
Continuing competition and pressures associated with the ongoing healthcare
and Medicare debate have impacted OEC's domestic C-Arm market, where orders
were essentially flat. International orders continued to expand ahead of
last year's based on positive acceptance of the Series 9600 Digital Mobile
Imaging System. A renewed focus on the Series 2600 urology system resulted in
a modest improvement for the first six months of 1995. Market pressures and
competition are expected to continue domesticaly for the remainder of the
year.
6
<PAGE>
Service revenue for the quarter and six months ended June 30, 1995 was $3.7
million and $7.5 million, respectively, up from the previous year's $3.2 million
and $6.1 million. Although growth slowed as a percentage increase from the
previous quarter, service revenue remains on an upward trend.
MARGIN ANALYSIS
OEC's gross margin expressed as a percentage of net sales increased 4.1% for the
second quarter and 1.6% for the six months when compared with the same periods
in 1994. This increase was a result of continuing efforts to reduce product
costs and improve manufacturing efficiency in regards to the Series 9600 Digital
Mobile Imaging System.
Service expenses for the quarter against last year were up $.2 million but as a
percentage of service revenue were down 4.0%. Expenses for the six month period
were up $.3 million but as a percentage of service revenue were down 8.2% from
the same six month period last year. The improved service margins were due to
increased revenue and cost containment efforts.
OPERATING EXPENSES
Operating expenses were up $1.5 million for the second quarter and $.8 million
for the six months of 1995 but as a percentage of net sales were 31.8% and 32.0%
respectively, as compared to 35.1% and 34.8% for the same periods in 1994. The
largest increase was in marketing and sales expense due to more commissions on
higher sales. Expenses in the second quarter of 1994 included a credit of
$750,000 which is the OEC portion of a litigation settlement paid by Acuson to
Diasonics Ultrasound, Inc.
INCOME TAXES
OEC has booked $.2 million provision for domestic income taxes in the second
quarter of 1995. In addition, OEC booked a tax benefit of $.4 million or $.03
per share due to the reversal of certain reserves against deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position continues to improve. At June 30, 1995, OEC had
cash and temporary cash investments of $11.5 million, which is an increase of
$3.9 million from year-end. This increase is net of the $2.8 million spent for
the repurchase of 453,000 shares of its own stock.
Cash provided by operations for the six months of 1995 was $6.8 million,
compared with $2.5 million provided by operations in the first six months of
1994.
Capital expenditures for the first six months of 1995 totaled $.5 million versus
$1.9 million for the same period the previous year. The 1994 capital spending
consisted primarily of additional tooling and fixtures associated with the new
Series 9600 Mobile Digital Imaging System. There are no current material
commitments for capital expenditures.
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 1994 or Form 10K filed with the
Securities & Exchange Commission on March 28, 1995.
7
<PAGE>
ITEM 6. Exhibits
(a) The following exhibit (numbered in accordance with Item 601 of SEC
Regulations S-K) is filed as part of this report:
Exhibit
Number Description
- ------ -----------
(b) Reports on Form 8-K
Not applicable.
8
<PAGE>
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 7, 1995
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 2ND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,528
<SECURITIES> 0
<RECEIVABLES> 22,004
<ALLOWANCES> 615
<INVENTORY> 19,423
<CURRENT-ASSETS> 55,955
<PP&E> 21,136
<DEPRECIATION> 10,658
<TOTAL-ASSETS> 84,187
<CURRENT-LIABILITIES> 21,928
<BONDS> 0
<COMMON> 126
0
0
<OTHER-SE> 62,133
<TOTAL-LIABILITY-AND-EQUITY> 84,187
<SALES> 41,477
<TOTAL-REVENUES> 48,931
<CGS> 24,779
<TOTAL-COSTS> 29,015
<OTHER-EXPENSES> 15,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 4,569
<INCOME-TAX> (685)
<INCOME-CONTINUING> 5,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,254
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
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