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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 SEPTEMBER 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
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As of October 30, 1995, there were 12,787,321 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
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1995 SEPT. 30, 1994 SEPT. 30, 1995 SEPT. 30, 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net sales
Product $21,571 $23,859 $63,048 $60,452
Service 3,899 3,444 11,353 9,495
------ ------ ------ ------
Total net sales 25,470 27,303 74,401 69,947
------ ------ ------ ------
Cost of sales
Product 12,685 15,172 37,464 37,199
Service 2,359 1,781 6,595 5,714
------ ------ ------ ------
Total cost of sales 15,044 16,953 44,059 42,913
------ ------ ------ ------
Gross margin 10,426 10,350 30,342 27,034
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Operating expenses
Research and development 1,942 1,888 5,821 6,388
Marketing and sales 4,391 4,133 13,128 12,194
Administrative, general and other 1,315 1,733 4,344 4,022
------ ------ ------ ------
Total operating expenses 7,648 7,754 23,293 22,604
------ ------ ------ ------
Operating income 2,778 2,596 7,049 4,430
Interest income 198 84 500 267
Interest expense (5) (30) (9) (253)
------ ------ ------ ------
Income before income taxes 2,971 2,650 7,540 4,444
Income tax benefit 170 293 855 1,119
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Net income $3,141 $2,943 $8,395 $5,563
------ ------ ------ ------
------ ------ ------ ------
Net income per common and
common equivalent share: $ 0.25 $ 0.23 $ 0.67 $ 0.44
------ ------ ------ ------
Common and common equivalent shares 12,584 12,591 12,558 12,539
See Accompanying Notes
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</TABLE>
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OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(In thousands)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $14,891 $ 7,608
Accounts and notes receivable, net of
allowances of $583 and $725, respectively 21,143 24,289
Inventories 19,356 18,463
Prepaid expenses and other current assets 1,194 835
Deferred income tax asset 2,646 2,646
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Total current assets 59,230 53,841
Long-term receivables 1,423 903
Property and equipment, net of accumulated
depreciation of $11,238 and $9,288, respectively 10,096 11,388
Cost in excess of net assets acquired, net of
accumulated amortization of $7,382 and $6,901,
respectively 11,014 11,495
Deferred income tax asset 5,090 3,676
Other assets 548 252
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$ 87,401 $ 81,555
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,718 $ 5,158
Accrued salaries and benefits 2,730 2,520
Accrued warranty and installation costs 1,282 1,115
Deferred income and customer deposits 5,294 5,228
Income taxes payable 466 415
Accrued legal fees and litigation settlements 4,115 4,319
Accrued distributor commissions 1,694 2,260
Other accrued liabilities 1,880 1,627
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Total current liabilities 21,179 22,642
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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, $.01 par value
Authorized--30,000 shares
Issued --12,714 and 12,482 shares,
respectively 127 125
Capital in excess of par value 75,059 73,783
Accumulated deficit (6,564) (14,959)
Treasury stock, 374 shares at cost (2,375) --
Foreign currency translation adjustment (25) (36)
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Total stockholders' equity 66,222 58,913
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$ 87,401 $ 81,555
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</TABLE>
See Accompanying Notes
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OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 8,395 $ 5,563
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,444 2,320
Bad debt expense -- 90
Legal settlement recorded as reduction
of note payable to related party -- (750)
Deferred income tax benefit (1,306) (1,365)
Changes in current assets and liabilities:
Accounts and notes receivable 3,146 3,696
Inventories (893) (1,126)
Prepaid expenses and other
current assets (359) (23)
Other assets (296) --
Accounts payable (1,440) 59
Accrued salaries and benefits 210 175
Accrued warranty and
installation costs 167 (579)
Deferred income and customer deposits 66 667
Income taxes payable 51 (556)
Accrued legal fees and litigation
settlements (204) 119
Accrued restructuring costs -- (1,578)
Accrued distributor commissions (566) (616)
Other accrued liabilities 253 535
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Net cash provided by operating activities 9,668 6,631
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INVESTING ACTIVITIES:
Reduction (increase) in long-term receivables (520) 340
Additions to property and equipment, net (688) (2,414)
Other 29 (60)
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Net cash used by investing activities (1,179) (2,134)
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FINANCING ACTIVITIES:
Sales of common stock, net 1,685 346
Purchases of treasury stock (2,891) --
Payment on note payable to related party -- (4,475)
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Net cash used by financing activities (1,206) (4,129)
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Net increase in cash and temporary
cash investments 7,283 368
Cash and temporary cash investments
at beginning of period 7,608 5,383
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Cash and temporary cash investments
at end of period $14,891 $ 5,751
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 9 $ 250
Cash paid during the period for income taxes $ 554 $ 312
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
During the nine months ended September 30, 1995 and 1994, the Company increased
its net deferred income tax asset by $1,414 and $2,971, respectively, as a
result of reducing the valuation allowance on the deferred tax assets. Of the
total $1,414 and $2,971 of valuation allowance reallocation, $108 and $1,606 was
credited directly to stockholders' equity and $1,306 and $1,365 was recorded as
a deferred tax benefit, respectively.
</TABLE>
See Accompanying Notes
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OEC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(unaudited)
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 nine months ended September 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>
September 30, December 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Purchased parts and
completed subassemblies $ 8,294 $ 8,295
Work-in-process 3,957 3,281
Finished goods 6,519 5,661
Service and repair parts 4,469 4,715
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Total 23,239 21,952
Less: reserves (3,883) (3,489)
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Net $19,356 $18,463
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</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 $1,414,000 were reversed in the first nine months
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.
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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 third quarter and nine months ended September 30, 1995, OEC Medical
Systems, Inc. had net income of $3.1 million and $8.4 million, respectively,
compared with net income of $2.9 million and $5.6 million, respectively, for the
same periods last year. The results for the nine month period ended September
30, 1995 include a tax benefit of $.9 million, or $.07 per share from the
reversal of certain reserves against deferred tax assets as compared to $1.1
million or $.09 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 Nine Months
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales
Product 84.69% 87.39% 84.74% 86.43%
Service 15.31% 12.61% 15.26% 13.57%
------ ------ ------ ------
Total net sales 100.00% 100.00% 100.00% 100.00%
Cost of sales
Product 49.81% 55.57% 50.36% 53.18%
Service 9.26% 6.52% 8.86% 8.17%
------ ------ ------ -----
Total cost of sales 59.07% 62.09% 59.22% 61.35%
Gross margin 40.93% 37.91% 40.78% 38.65%
Operating expenses:
Research and development 7.62% 6.91% 7.83% 9.14%
Marketing and sales 17.24% 15.14% 17.64% 17.43%
Administrative, general and
other 5.16% 6.35% 5.84% 5.75%
------ ------ ------ -----
Total operating expenses 30.02% 28.40% 31.31% 32.32%
Operating income 10.91% 9.51% 9.47% 6.33%
Net income 12.33% 10.78% 11.28% 7.95%
</TABLE>
SALES AND MARKETS
Net product sales for the quarter and nine months ended September 30, 1995, were
$21.6 million and $63.0 million, respectively, compared to net product sales of
$23.9 million and $60.5 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
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last year 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 nine months of 1995. Increased market pressures and
competition are expected to continue domestically for the forseeable future.
Service revenue for the quarter and nine months ended September 30, 1995 was
$3.9 million and $11.4 million, respectively, up from the previous year's $3.4
million and $9.5 million.
MARGIN ANALYSIS
OEC's gross margin expressed as a percentage of net sales increased 3.0% for the
third quarter and 2.1% for the nine 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 $.6 million and $.9
million for the nine months. The majority of the increase was due to reserves
and write-offs of field service inventory to bring it in line with current
needs.
OPERATING EXPENSES
Operating expenses were slightly down for the third quarter and up $.7 million
for the nine months of 1995. Sales and marketing had the largest increase of
$0.3 million for the quarter and $0.9 million for the nine months. This was due
to increases in international sales coverage, mainly in Europe. Domestically,
more resources were needed in the sales effort for demonstrations and customer
training.
INCOME TAXES
OEC has booked $.2 million provision for domestic income taxes in the third
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 September 30, 1995, OEC
had cash and temporary cash investments of $14.9 million, which is an increase
of $7.3 million from year-end.
Cash provided by operations for the nine months of 1995 was $9.7 million,
compared with $6.6 million provided by operations in the first nine months of
1994.
Capital expenditures for the first nine months of 1995 totaled $.7 million
versus $2.4 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.
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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.
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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: November 6, 1995
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S 3RD QUARTER 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,891
<SECURITIES> 0
<RECEIVABLES> 21,726
<ALLOWANCES> 583
<INVENTORY> 19,356
<CURRENT-ASSETS> 59,230
<PP&E> 21,334
<DEPRECIATION> 11,238
<TOTAL-ASSETS> 87,401
<CURRENT-LIABILITIES> 21,179
<BONDS> 0
<COMMON> 127
0
0
<OTHER-SE> 66,095
<TOTAL-LIABILITY-AND-EQUITY> 87,401
<SALES> 63,048
<TOTAL-REVENUES> 74,401
<CGS> 37,464
<TOTAL-COSTS> 44,059
<OTHER-EXPENSES> 23,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 7,540
<INCOME-TAX> (855)
<INCOME-CONTINUING> 8,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,395
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
</TABLE>
