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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 15, 1996, there were 12,916,743 shares of Common Stock ($.01 par
value) outstanding.
PART I. Financial Information
ITEM 1. Financial Statements
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
FOR THE QUARTER & SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands, except per share amounts)
Quarter Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
Net sales
Product $26,465 $22,444 48,663 $41,477
Service 4,129 3,685 8,114 7,454
------ ------ ------ -------
Total net sales 30,594 26,129 56,777 48,931
------ ------ ------ -------
Cost of sales
Product 15,491 13,373 28,693 24,779
Service 2,858 2,061 5,301 4,236
------ ------ ------ -------
Total cost of sales 18,349 15,434 33,994 29,015
------ ------ ------ -------
Gross margin 12,245 10,695 22,783 19,916
------ ------ ------ -------
Operating Expenses
Research and development 2,113 1,956 4,218 3,879
Marketing and sales 5,265 4,675 9,780 8,737
Administrative, general
and other 1,729 1,680 3,094 3,029
------ ------ ------ -------
Total operating expenses 9,107 8,311 17,092 15,645
------ ------ ------ -------
Operating Income 3,138 2,384 5,691 4,271
Interest income 199 169 387 302
Interest expense (1) (2) (3) (4)
------ ------ ------- -------
Income before
income taxes 3,336 2,551 6,075 4,569
Income tax benefit -- 211 -- 685
------ ------ ------- -------
Net income $3,336 $2,762 $6,075 $5,254
------ ------ ------- -------
Net income per common and
common equivalent share $ 0.26 $ 0.22 $ 0.48 $ 0.42
------ ------ ------- -------
Common and common
equivalent shares 12,795 12,511 12,783 12,542
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(In thousands)
ASSETS
1996 1995
(unaudited)
Current Assets:
Cash and temporary cash investments $12,600 $16,584
Accounts and notes receivable, net of
allowances of $671 and $577, respectively 31,233 24,982
Inventories 21,477 18,031
Prepaid expenses and other current assets 1,377 885
Deferred income taxes 6,996 5,810
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Total current assets 73,683 66,292
Long-term receivables 1,573 1,002
Property and equipment, net 11,017 9,868
Cost in excess of net assets acquired,
net of accumulated amortization of
$7,863 and $7,542, respectively 10,533 10,854
Deferred income taxes 2,599 2,898
Other assets, net 719 548
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$100,124 $91,462
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,639 $ 4,673
Accrued salaries and benefits 2,786 2,920
Accrued warranty and installation costs 1,268 1,259
Deferred income and customer deposits 5,888 5,511
Income taxes payable 258 412
Accrued legal fees and litigation settlements 3,794 3,793
Accrued distributor commissions 2,379 1,892
Other accrued liabilities 2,870 1,932
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Total current liabilities 25,882 22,392
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--12,889 and 12,789 shares,
respectively 129 128
Capital in excess of par value 76,921 76,344
Stock subscription receivable (210) (210)
Retained earnings/(Accumulated deficit) 2,949 (3,126)
Treasury stock, 690 and 560 shares at cost,
respectively (5,375) (4,056)
Foreign currency translation adjustment (172) (10)
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Total stockholders' equity 74,242 69,070
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$100,124 $91,462
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OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands)
1996 1995
OPERATING ACTIVITIES:
Net income $ 6,075 $ 5,254
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,420 1,691
Bad debt expense (45) 60
Deferred income tax benefit (887) (976)
Changes in current assets and liabilities:
Accounts and notes receivable (6,206) 2,840
Inventories (3,446) (960)
Prepaid expenses and other current assets (492) (134)
Other assets (171) (288)
Accounts payable 1,966 (957)
Accrued salaries and benefits (134) 6
Accrued warranty and installation costs 9 116
Deferred income and customer deposits 377 136
Income taxes payable (154) 5
Accrued legal fees and litigation settlements 1 (257)
Accrued distributor commissions 487 (77)
Other accrued liabilities 938 313
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Net cash provided (used) by operating activities (262) 6,772
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INVESTING ACTIVITIES:
Increase in long-term receivables (571) (377)
Additions to property and equipment, net (2,248) (460)
Other (162) (81)
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Net cash used by investing activities (2,918) (918)
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FINANCING ACTIVITIES:
Sales of common stock, net 578 900
Purchase of treasury stock (1,319) (2,834)
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Net cash used by financing activities (741) (1,934)
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Net increase (decrease) in cash and
temporary cash investments (3,984) 3,920
Cash and temporary cash investments at
beginning of period 16,584 7,608
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Cash and temporary cash investments at
end of period $12,600 $11,528
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3 $ 4
Cash paid during the period for
income taxes 403 303
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1996 and 1995, the Company increased its
net deferred income tax asset by $887 and $1,084, respectively, as a result of
reducing the valuation allowance on the deferred tax assets. Of the total $887
and $1,084 of valuation allowance reallocation, $-0- and $108 was credited
directly to stockholders' equity and $887 and $976 was recorded as a deferred
tax benefit, respectively.
OEC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
JUNE 30, 1996 AND 1995
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, 1996 and 1995,
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,
1995, filed on Form 10-K on April 1, 1996.
2. Inventories are stated at the lower of cost, utilizing the first-in/first-
out method, or market. Inventories consist of the following:
June 30, December 31,
1996 1995
(In thousands)
Purchased parts and
completed subassemblies $ 8,720 $ 8,190
Work-in-process 3,724 3,216
Finished goods 8,528 5,147
Service and repair parts 3,460 4,171
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Total 24,432 20,724
Less: reserves (2,955) (2,693)
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Net $ 21,477 $ 18,031
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, 1996, OEC Medical Systems,
Inc. had net income of $3.3 million and $6.1 million, respectively, compared
with net income of $2.8 million and $5.3 million, respectively, for the same
periods last year. The results for the six month period ended June 30, 1996
does not include any tax benefit compared with $.7 million, or $.05 per share
from the reversal of certain reserves against deferred tax assets 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:
Three Months Six Months
1996 1995 1996 1995
Net sales
Product 86.5% 85.9% 85.7% 84.8%
Service 13.5% 14.1% 14.3% 15.2%
------ ------ ------ ------
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales
Product 50.6% 51.2% 50.6% 50.6%
Service 9.4% 7.9% 9.3% 8.7%
------ ------ ------ ------
Total cost of sales 60.0% 59.1% 59.9% 59.3%
Gross margin 40.0% 40.9% 40.1% 40.7%
------ ------ ------ -----
Operating expenses:
Research and development 6.9% 7.5% 7.4% 7.9%
Marketing and sales 17.2% 17.9% 17.2% 17.9%
Administrative, general
and other 5.7% 6.4% 5.5% 6.2%
Total operating expenses 29.8% 31.8% 30.1% 32.0%
------ ------ ------ ------
Operating income 10.2% 9.1% 10.0% 8.7%
Net income 10.9% 10.6% 10.7% 10.7%
Sales and Markets
Net product sales for the quarter and six months ended June 30, 1996, were $26.5
million and $48.7 million, respectively, compared to net product sales of $22.4
million and $41.5 million respectively, for the comparable periods of 1995.
This reflects 18% and 19% increases, respectively, from the comparable periods
of the prior year.
OEC's domestic product sales growth is attributed to the newly introduced
products, the MINI 6600 and COMPACT 7600 C-arms. The 6600 is gaining market
acceptance according to our expectations. The 7600 market penetration and
acceptance is slightly below our plan. Continued increases in urology sales
also contributed to the overall revenue performance. International product sales
are ahead of last year by 22%. Although product sales have been steadily
improving, continued competitive and pricing pressures in all product categories
are expected to remain worldwide for the forseeable future.
Service revenue for the quarter and six months ended June 30, 1996 was $4.1
million and $8.1 million, respectively, up from the previous year's $3.7 million
and $7.5 million.
Margin Analysis
OEC's gross margin expressed as a percentage of net sales decreased .9% for the
second quarter and .6% for the six months when compared with the same periods in
1995. Ongoing improvement in manufacturing efficiency did not fully offset the
impact of continuing increased competition and pricing pressures worldwide.
Service expenses for the quarter and six months were up $.9 million and $1.1
million, respectively, against last year. This increase is attributed to higher
labor costs and less warranty credits due to increasing system reliability.
Operating Expenses
Research and development costs are up $.2 million and $.3 million, for the three
and six months, respectively. This reflects our continuing investment in product
improvements and development.
Marketing and sales are up $.6 million and $.1 million, respectively, for the
three and six month periods. This increase is due primarily to increased
commissions because of higher sales. Expressed as a percent of total sales the
marketing and sales expense is down .5% for both periods.
Administration expense is basically flat for both periods.
Income Taxes
OEC did not book any tax benefit in the first half of 1996 compared with $.7
million booked in 1995 from the reversal of certain reserves against deferred
tax assets.
Liquidity and Capital Resources
Cash used by operations for the six months of 1996 was $.3 million, compared
with $6.8 million provided by operations in the first six months of 1995. The
primary operational cash uses were increases in accounts receivable due to
increased revenues, extended lease arrangements and increases in inventory to
support increased production and provide additional demonstration units.
The Company's cash position was reduced by $4.0 million since December 31, 1995
due to investments in property and equipment, increase in receivables and
ongoing stock repurchases. At June 30, 1996, OEC had cash and temporary cash
investments of $12.6 million.
Additions to property and equipment in the first six months amounted to $2.2
million. The primary addition was a new computer system to accommodate the
Company's future requirements in line with growth expectations, as well as
investments in manufacturing equipment.
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 1995 or Form 10K filed with the
Securities & Exchange Commission on April 1, 1996.
ITEM 6. Exhibits
(a) 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
Chief Financial Officer
(Principal Accounting Officer)
Date: July 29, 1996
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1996, AND STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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