<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 March 31, 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 April 14, 1995, there were 12,566,896 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
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Net sales
Product $19,033 $20,393
Service 3,769 2,867
------- -------
Total net sales 22,802 23,260
------- -------
Cost of sales
Product 11,406 11,677
Service 2,175 2,024
Total cost of sales 13,581 13,701
------- -------
Gross margin 9,221 9,559
------- -------
Operating Expenses
Research and development 1,923 2,412
Marketing and sales 3,645 4,286
Administrative, general and other 1,766 1,352
------- -------
Total operating expenses 7,334 8,050
------- -------
Operating income 1,887 1,509
Interest income 133 87
Interest expense (2) (145)
------- -------
Income before income taxes 2,018 1,451
Income tax benefit 474 826
------- -------
Net income 2,492 2,277
======= =======
Net income per common and common equivalent share $ 0.20 $ 0.18
======= =======
Common and common equivalent shares 12,574 12,564
</TABLE>
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(In thousands)
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 10,883 $ 7,608
Accounts and notes receivable, net of
allowances of $789 and $725, respectively 20,869 24,289
Inventories 20,175 18,463
Prepaid expenses and other current assets 989 835
Deferred income taxes 2,646 2,646
-------- --------
Total current assets 55,562 53,841
Long-term receivables 1,108 903
Property and equipment, net 11,047 11,388
Cost in excess of net assets acquired, net of
accumulated amortization of $7,061 and $6,901, respectively 11,335 11,495
Deferred income taxes 4,388 3,676
Other assets, net 488 252
-------- --------
$ 83,928 $ 81,555
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,412 $ 5,158
Accrued salaries and benefits 2,480 2,520
Accrued warranty and installation costs 1,155 1,115
Deferred income and customer deposits 5,159 5,228
Income taxes payable 417 415
Accrued legal fees and litigation settlements 4,039 4,319
Accrued distributor commissions 1,976 2,260
Other accrued liabilities 1,820 1,627
-------- --------
Total current liabilities 22,458 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--12,567 and 12,482 shares, respectively 126 125
Capital in excess of par value 74,273 73,783
Accumulated deficit (12,467) (14,959)
Treasury stock, 60 shares at cost (345) --
Foreign currency translation adjustment (117) (36)
-------- --------
Total stockholders' equity 61,470 58,913
-------- --------
$ 83,928 $ 81,555
======== ========
</TABLE>
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,492 $ 2,277
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 818 776
Bad debt expense 30 30
Deferred income tax benefit (604) (884)
Changes in current assets and liabilities:
Accounts and notes receivable 3,390 5,103
Inventories (1,712) (1,424)
Prepaid expenses and other current assets (154) 63
Other assets (236) --
Accounts payable 254 (560)
Note payable to related party -- 146
Accrued salaries and benefits (40) (88)
Accrued warranty and installation costs 40 (528)
Deferred income and customer deposits (69) 104
Income taxes payable 2 (812)
Accrued legal fees and litigation settlements (280) 118
Accrued restructuring costs -- (1,328)
Accrued distributor commissions (284) (826)
Other accrued liabilities 193 776
------- -------
Net cash provided by operating activities 3,840 2,943
------- -------
INVESTING ACTIVITIES:
Reduction (increase) in long-term receivables (205) 111
Additions to property and equipment, net (317) (1,020)
Other (81) (1)
------- -------
Net cash used by investing activities (603) (910)
------- -------
FINANCING ACTIVITIES:
Sales of common stock, net 383 96
Purchase of treasury stock (345) --
------- -------
Net cash provided by financing activities 38 96
------- -------
Net increase in cash and temporary cash investments 3,275 2,129
Cash and temporary cash investments at beginning of period 7,608 5,383
------- -------
Cash and temporary cash investments at end of period $10,883 $ 7,512
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2 --
Cash paid during the period for income taxes $159 $146
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1995 and 1994, the Company
increased its net deferred income tax asset by $712 and $1,803, respectively,
as a result of reducing the valuation allowance on the deferred tax assets.
Of the total $712 and $1,803 of valuation allowance reallocation, $108 and
$884 was credited directly to stockholders' equity and $604 and $919 was
recorded as a deferred tax benefit, respectively.
<PAGE>
OEC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 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 three months ended March
31, 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>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(In thousands)
<S> <C> <C>
Purchased parts and
completed subassemblies $ 9,059 $ 8,295
Work-in-process 3,369 3,281
Finished goods 6,436 5,661
Service and repair parts 4,730 4,715
------- -------
Total 23,594 21,952
Less: reserves (3,419) (3,489)
------- -------
Net $20,175 $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 asset are no longer required. As a
result, reserves totaling $712,000 were reversed in the first quarter 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.
<PAGE>
OEC MEDICAL SYSTEMS, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first quarter ended March 31, 1995, OEC Medical Systems, Inc. had net
income of $2.5 million compared with net income of $2.3 million reported in
the same period of 1994. The results for the first quarter of 1995 include a
tax benefit of $.5 million, or $.04 per share as compared to $.8 million, or
$.06 per share for the same period in 1994, from the reversal of certain
reserves against deferred tax assets which 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
--------------------
1995 1994
----- -----
<S> <C> <C>
Net sales
Product 83.5% 87.7%
Service 16.5% 12.3%
----- -----
Total net sales 100.0% 100.0%
Cost of sales
Product 50.0% 50.2%
Service 9.5% 8.7%
----- -----
Total cost of sales 59.6% 58.9%
Gross margin 40.4% 41.1%
----- -----
Operating expenses:
Research and development 8.4% 10.4%
Marketing and sales 16.0% 18.4%
Administrative, general and other 7.8% 5.8%
----- -----
Total operating expenses 32.2% 34.6%
Operating income 8.8% 6.5%
Net income 10.9% 9.8%
</TABLE>
SALES AND MARKETS
Net product sales for the quarter ended March 31, 1995, were $19.0 million
compared to net product sales of $20.4 million for the comparable period in
1994. Although revenue for C-Arms was on target, overall revenue was
<PAGE>
negatively impacted by the softness in the urology fixed room market, where
system prices tend to be higher and are therefore subject to greater
limitations on capital expenditures.
Service revenue increased 31% from $2.9 million to $3.8 million for the first
quarter of 1995, primarily due to a higher capture rate of service contracts
and more systems under service.
MARGIN ANALYSIS
OEC's gross margin expressed as a percentage of net sales was below the first
quarter of last year. Although it had improved from the prior three
quarters, the Company's gross margin is still below desired levels. The
Company looks forward to continued gross margin improvement throughout the
year as cost reduction efforts and efficiencies in manufacturing are realized.
OPERATING EXPENSES
Operating expenses were lower in the first quarter of 1995 at 32.2% of net
sales as compared to 34.6% of net sales for the same period of 1994. This
was a result of continuing efforts begun last year to reduce expenses.
Research and development expense was also lower given the completion and
introduction of the Uroview 2600. Sales and marketing expense was lower due
to reduced commission expense as a result of fewer urology product sales.
Administrative expense was higher for the quarter versus the same period last
year when an adjustment of excess restructuring reserves was taken.
INCOME TAXES
OEC has booked $.1 million provision for domestic income taxes in the first
quarter of 1995. In addition, OEC booked a tax benefit of $.6 million or
$.05 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 March 31, 1995, OEC had
cash and temporary cash investments of $10.9 million. There are no current
material commitments for capital expenditures.
Cash provided by operations for the first quarter of 1995 was $3.8 million,
compared with $2.9 million provided by operations in the comparable period of
1994. Capital expenditures for the first quarter of 1995 totalled $.3
million, which was lower than 1994's capital expenditures of $1.0 million,
which included additional tooling and fixtures associated with the new Series
9600 Mobile Digital Imaging System.
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.
<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
- ------- -----------
10.18 Termination Agreement between OEC Medical Systems, Inc. and
David Rose dated March 25, 1995.
(b) Reports on Form 8-K
Not applicable.
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: May 8, 1995
<PAGE>
EXHIBIT 10.18
MUTUAL AGREEMENT AND RELEASE
This Mutual Agreement and Release (the "Agreement") is made and entered
into effective this 21st day of March, 1995 by and between David Rose ("Rose")
and OEC Medical Systems, Inc. ("OEC").
WHEREAS, issues have arisen between Rose and OEC concerning Rose's
employment at OEC; and
WHEREAS, Rose and OEC wish to resolve these issues amicably by providing a
specified cash settlement in exchange for a release of any actual or potential
claims Rose has or may have against OEC or entities affiliated with OEC;
THE PARTIES AGREE AS FOLLOWS:
1. Resignation of Rose. Rose's resignation as an officer and director of
OEC is effective as of February 10, 1995.
2. Settlement. OEC and Rose agree as follows:
(a) OEC has paid to Rose the sum of $45,000;
(b) Rose will remain an executive employee of OEC until the earlier to
occur of (i) such time as Rose shall accept full or part time
employment by another entity, or (ii) 12 months from the effective
date of resignation ("Period of Salary Continuance"). During the
Period of Salary Continuance, Rose will be entitled to receive and
annual base compensation of $225,000 payable in bi-weekly
installments. Should Rose accept full or part time employment before
the expiration of said 12 months, OEC will pay to Rose the unpaid
portion of $225,000 in a lump sum. During the period of his
employment, Rose shall remain entitled to all medical, dental, vision
and insurance benefits currently in effect, provided that there shall
be no entitlement to any bonus or additional amount or type of
compensation or benefit, whether or not the same are made available to
officers or directors of OEC.
(c) Rose acknowledges that, as at the effective date of his resignation,
he has no remaining accrued vacation and/or sick pay, and further
acknowledges that no vacation and/or sick pay shall accrue during the
Period of Salary Continuance.
(d) Rose shall remain entitled to the use of his company vehicle, a lap
top computer and a laser printer through April 2, 1995.
(e) Regardless of the length of Rose's employment, OEC agrees to the
continued vesting of Rose's existing OEC stock options through August
10, 1995, at which time vesting shall cease; thereafter, all vested
options shall be exercised no later than November 10, 1995, after
which all unexercised options shall automatically terminate and
expire.
(f) OEC will withhold F.I.C.A., Federal and State Income Tax, all current
normal employee withholding amounts from all payments hereunder and
will reflect all such payment on Rose's Form W-2 and Tax Statement.
<PAGE>
(g) Should Rose not obtain re-employment within 12 months from the
effective date of resignation, (i) Rose may elect to convert the
medical coverages provided above under COBRA, which will provide
coverages for an additional 18 months, and (ii) Senior Life Insurance
shall continue for an additional period of 12 months.
(h) During the Period of Salary Continuance, Rose will remain available to
provide consulting Services to OEC as may be reasonably requested by
OEC, not to exceed 20 hours per week.
3. Release; Additional Releases.
(a) Release. In consideration of this settlement and the benefits
provided in this Agreement, OEC and Rose each releases, holds harmless
and forever discharges the other, and their respective successors,
assigns, transferees, officers, employees, directors, representative,
agents, attorneys, shareholders and parent, subsidiary or affiliated
companies, as applicable, of and from any and all actions, claims,
causes of action, suits, compensation, benefits, debts, contracts,
controversies, agreements, promises, rights, damage or demand which he
has, may have or ever will have, including but not limited to, any
claim under state or federal statutory or common law, any claim
arising out of or in connection with his employment or the termination
thereof, and any claim based on an express or implied contract.
(b) Additional Release. Rose further understands and agrees that in
consideration of the foregoing,he is waiving any rights he may have
had, or in the future may have, to pursue any and all remedies
available to him under any employment-related causes of action,
including, without limitation, claims of wrongful discharge, emotional
distress, defamation, invasion of privacy, breach of contract,
violation of the provisions of the Utah Anti-Discrimination Rights
Act, as amended, the Equal Pay Act of 1963, as amended, the Civil
Rights Act of 1964, as amended, and any other laws and regulations
relating to employment discrimination.
(c) Release of Unknown or Unsuspected Claims. OEC and Rose expressly
waives the benefits of any rule or common law that provides, in sum or
substance, that a release does not extend to claims which the party
does not know or suspect to exist in his favor at the time of
executing the release, which is known by him, would have materially
affected his settlement with the other party.
(d) Release of Age Discrimination Claims. Rose acknowledges and
understands that he is releasing any and all claims or causes of
action he had or may have under state and federal law concerning age
discrimination, including but not limited to, the Age Discrimination
in Employment Act of 1967, 29 U.S.C. Section 621 et seq. He further
acknowledges that he has been advised to seek the advice of his own
independent attorney, that he has been given 21 days in which to
review and consider this Agreement and that he has been advised that
he had an additional 7 days after he signs this Agreement to change
his mind and renounce it without any penalty to himself. This
Agreement will not become effective or enforceable until after this 7
day period has expired.
(e) Waiver of Reinstatement or Future Employment. Rose waives any and all
rights to reinstatement and agrees not to seek employment with OEC or
any company affiliated with it.
4. No Admission of Liability. By entering into this Agreement, OEC and
Rose do not in any way admit or acknowledge liability for any allegation or
claim by the other and specifically deny any such liability. The parties agree
that nothing contained in this Agreement shall be treated or construed as an
admission of
<PAGE>
liability or wrongdoing of any kind by them, and their respective predecessors,
subsidiaries, affiliates, officers, directors, agents and employees.
5. Confidential, Non-competition, and Non-Assistance in Claims.
(a) Rose and OEC each agrees that they will keep the substance of the
negotiations, conditions and terms of this Agreement strictly
confidential, except to financial advisors, who will be advised of the
required confidentiality hereof and who shall agree expressly to be
bound thereby, and as required by law. They further agree that they
will be fully supportive of each other, both privately and publicly,
and that they shall refrain from making any oral or written statement
or comment disparaging or harmful to the other, and, in the case of
OEC, to its products, management, financial or operating prospects.
Rose and OEC further agree that they will not encourage, recommend,
participate in or voluntarily assist in any legal or administrative
claim against the other, its agents, officers, employees or affiliated
companies, without exception.
(b) Rose agrees that he will not accept employment or consultation in any
capacity, whether full time or part time, with any manufacturer
engaged in the medical c-arm x-ray and/or urology table business in
the United States or Europe during this Agreement and for a period of
one year following the termination of his employment with OEC.
6. Severability. In the event any part of this Agreement is determined to
be void or unenforceable, Rose and OEC agree that the remainder of the Agreement
may be enforced to the fullest extent permitted by law.
7. Disputes. In the event any dispute arises between the parties which in
any way relates to this Agreement or Rose's employment with OEC, and which
dispute cannot be resolve amicably, the parties agree that any litigation or
administrative action shall take place in Salt Lake City, Utah. Except as
expressly stated otherwise in this Agreement or required by law, each party
shall be responsible for its own attorney's fees and costs incurred in the event
of any such disputes. The law of Utah shall control.
8. Complete Agreement. This Agreement sets forth the terms and conditions
of an amicable settlement in full accord and satisfaction of all claims,
controversies, issues or matters between Rose and OEC. This Agreement is
executed in conjunction with a settlement of the above-referenced claims, but
the scope of this settlement and release is broader than such claims. This
Agreement sets forth the complete agreement between the parties. No other
covenants or representations have been made or relied on by the parties, and no
other consideration is due between the parties.
9. Acknowledgement. Rose acknowledges that he has read and understands
the foregoing provisions of this Agreement and that he is affixing his signature
to it voluntarily and without coercion. He further acknowledges that he was
given the opportunity by OEC to consult with counsel of his own choosing
concerning the waivers contained in the Agreement, that he has done so, and that
the waivers he has made are knowing, conscious and with full appreciation that
he is forever foreclosed from pursuing any of the rights so waived.
<PAGE>
WHEREFORE, by the signature below, the parties acknowledge that they have
read and understand the terms of this Agreement and are freely and voluntarily
entering into it.
OEC MEDICAL SYSTEMS, INC. DAVID ROSE
By /S/ Ruediger Naumann-Etienne By /S/ D.J. Rose
----------------------------- ----------------------------
Title Chairman Title
----------------------------- ----------------------------
Date 3/21/95 Date 3/21/95
----------------------------- ----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 1st QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,883
<SECURITIES> 0
<RECEIVABLES> 21,658
<ALLOWANCES> 789
<INVENTORY> 20,175
<CURRENT-ASSETS> 55,562
<PP&E> 20,993
<DEPRECIATION> 9,946
<TOTAL-ASSETS> 83,928
<CURRENT-LIABILITIES> 22,458
<BONDS> 0
<COMMON> 126
0
0
<OTHER-SE> 61,344
<TOTAL-LIABILITY-AND-EQUITY> 83,928
<SALES> 19,033
<TOTAL-REVENUES> 22,802
<CGS> 11,406
<TOTAL-COSTS> 13,581
<OTHER-EXPENSES> 7,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 2,018
<INCOME-TAX> (474)
<INCOME-CONTINUING> 2,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,492
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
