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, 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 April 15, 1996, there were 12,887,862 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 MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands, except per share amounts)
1996 1995
---- ----
Net sales
Product $22,198 $19,033
Service 3,985 3,769
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Total net sales 26,183 22,802
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Cost of sales
Product 13,202 11,406
Service 2,443 2,175
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Total cost of sales 15,645 13,581
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Gross margin 10,538 9,221
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Operating Expenses
Research and development 2,105 1,923
Marketing and sales 4,515 4,062
Administrative, general and other 1,365 1,349
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Total operating expenses 7,985 7,334
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Operating income 2,553 1,887
Interest income 188 133
Interest expense (2) (2)
----- --------
Income before income taxes 2,739 2,018
Income tax benefit -- 474
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Net income 2,739 2,492
===== ======
Net income per common and
common equivalent share: $ 0.22 $ 0.20
====== ======
Common and
common equivalent shares 12,523 12,574
<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(In thousands)
ASSETS
1996 1995
---- ----
(Unaudited)
Current Assets:
Cash and temporary cash investments $15,203 $16,584
Accounts and notes receivable, net of
allowances of $623 and $577, respectively 26,870 24,982
Inventories 19,739 18,031
Prepaid expenses and other current assets 949 885
Deferred income taxes 5,810 5,810
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Total current assets 68,571 66,292
Long-term receivables 1,635 1,002
Property and equipment, net 10,712 9,868
Cost in excess of net assets acquired, net of
accumulated amortization of $7,702 and
$7,542, respectively 10,694 10,854
Deferred income taxes 2,898 2,898
Other assets, net 736 548
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$95,246 $91,462
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $6,141 $ 4,673
Accrued salaries and benefits 2,136 2,920
Accrued warranty and installation costs 1,242 1,259
Deferred income and customer deposits 6,409 5,511
Income taxes payable 216 412
Accrued legal fees and litigation settlements 3,659 3,793
Accrued distributor commissions 2,051 1,892
Other accrued liabilities 2,462 1,932
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Total current liabilities 24,316 22,392
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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--12,886 and 12,789 shares,
respectively 129 128
Capital in excess of par value 76,908 76,344
Stock subscription receivable (210) (210)
Accumulated deficit (387) (3,126)
Treasury stock, 690 and 560 shares at
cost, respectively (5,375) (4,056)
Foreign currency translation adjustment (135) (10)
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Total stockholders' equity 70,930 69,070
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$95,246 $ 91,462
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<PAGE>
OEC MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands)
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $2,739 $ 2,492
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 699 818
Bad debt expense (20) 30
Deferred income tax benefit -- (604)
Changes in current assets and liabilities:
Accounts and notes receivable (1,868) 3,390
Inventories (1,708) (1,712)
Prepaid expenses and other current assets (64) (154)
Other assets (188) (236)
Accounts payable 1,468 254
Accrued salaries and benefits (784) (40)
Accrued warranty and installation costs (17) 40
Deferred income and customer deposits 898 (69)
Income taxes payable (196) 2
Accrued legal fees and litigation settlements (134) (280)
Accrued distributor commissions 159 (284)
Other accrued liabilities 530 193
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Net cash provided by operating activities 1,514 3,840
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INVESTING ACTIVITIES:
Increase in long-term receivables (633) (205)
Additions to property and equipment, net (1,383) (317)
Other (125) (81)
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Net cash used by investing activities (2,141) (603)
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FINANCING ACTIVITIES:
Sales of common stock, net 565 383
Purchase of treasury stock (1,319) (345)
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Net cash provided (used) by financing activities (754) 38
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Net increase (decrease) in cash and temporary
cash investments (1,381) 3,275
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 $15,203 $ 10,883
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2 2
Cash paid during the period for income taxes $196 $159
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1995, the Company increased its net
deferred income tax asset by $712, as a result of reducing the valuation
allowance on the deferred tax assets. Of the total $712 of valuation allowance
reallocation, $108 was credited directly to stockholders' equity and $ 604 was
recorded as a deferred tax benefit.
<PAGE>
OEC MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 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 three months ended March 31, 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:
March 31, December 31,
1996 1995
---- ----
(In thousands)
Purchased parts and
completed subassemblies $7,889 $ 8,190
Work-in-process 3,763 3,216
Finished goods 6,933 5,147
Service and repair parts 3,778 4,171
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Total 22,363 20,724
Less: reserves (2,624) (2,693)
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Net $ 19,739 $ 18,031
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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 first quarter ended March 31, 1996, OEC Medical Systems, Inc. had net
income of $2.7 million, compared with net income of $2.5 million, for the same
period last year. The results for the three month period ended March 31, 1996
does not include any tax benefit compared with $.5 million of tax benefit from
the reversal of certain reserves against deferred tax assets or $.04 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:
Three Months Ended 1996 1995
------------------- ---- ----
Net sales
Product 84.78% 83.47%
Service 15.22% 16.53%
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Total net sales 100.00% 100.00%
Cost of sales
Product 50.43% 50.02%
Service 9.33% 9.54%
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Total cost of sales 59.76% 59.56%
Gross margin 40.24% 40.44%
Operating expenses:
Research and development 8.04% 8.43%
Marketing and sales 17.24% 17.81%
Administrative, general and other 5.21% 5.92%
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Total operating expenses 30.50% 32.16%
Operating income 9.75% 8.28%
Net income 10.46% 10.93%
Sales and Markets
- -----------------
Net product sales for the three months ended March 31, 1996, were $22.2 million,
compared to net product sales of $19.0 million, for the comparable period of
1995.
OEC's domestic C-Arm market increased over the same quarter last year, however,
competitive pressures remain high. International orders continued to expand
ahead of last year based on positive acceptance of the Series 9600 Digital
Mobile Imaging System. The introduction of the Series 2600 Uroview in the first
quarter of 1995 and its associated marketing programs continued to produce
further improvements in the Company's urology business for the first three
months of 1996. Increased pricing pressures and competition in all product
categories are expected to continue worldwide for the forseeable future.
Service revenue for the first quarter and three months ended March 31, 1996 was
$4.0 million, up from the previous year's $3.8 million.
Margin Analysis
- ---------------
OEC's gross margin expressed as a percentage of net sales decreased .2% for the
first quarter compared with the same period in 1995. This decrease was the
result of continuing pricing pressures worldwide along with a larger percentage
of international sales which have a higher discount rate compared to domestic.
With the continuing growth in international business and ongoing pricing
pressures domestically, the Company does not expect to see any improvements in
gross margin during 1996.
Service expenses for the quarter against last year were up $.3 million for the
three months. The increase is in line with the increase in service revenues.
Operating Expenses
- ------------------
Operating expenses were up $.7 million for the first quarter of 1996. Sales and
marketing expense increased $.5 million for the quarter. This was due to
increases in international sales coverage, mainly in Europe, as well as
additional resources needed in the U.S. for demonstrations and marketing
programs. Investments in R & D were up $.2 million, but the increase as a
percent of net sales was down .4%. This is in line with the Company's strategy
of reinvesting in the business.
Income Taxes
- ------------
OEC did not book any tax benefit in the first quarter of 1996 compared with $.5
million booked in 1995 from the reversal of certain reserves against deferred
tax assets.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operations for the three months of 1996 was $1.5 million,
compared with $3.8 million provided by operations in the first three months of
1995.
The Company's cash position was reduced by $1.4 million over the prior quarter
due to investments in property and equipment, long-term receivables and further
stock repurchase which offset the cash provided by operations. At March 31,
1996, OEC had cash and temporary cash investments of $15.2 million.
Additions to property and equipment in the first three months amounted to $1.4
million. The primary addition was a new computer system to accomodate the
Company's future requirements in line with growth expectations, as well as
investments in manufacturing equipment. Part of the computer purchase price was
deferred, resulting in an increase of accounts payable by $1 million.
The Company continued its stock repurchase program in the first quarter with
purchases of 130,000 shares at a cost of $1.3 million.
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 10-K 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: May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1996, AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<OTHER-SE> 70,801
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