-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMQzNmJe2hoz70LixVuhbZtSud+J7QyyYXuS+yawduWKJ0FVG1Gt/TAk/1lrqLQd 5LNf20HmKrziFq/c4SdVgw== 0000914233-96-000152.txt : 19961118 0000914233-96-000152.hdr.sgml : 19961118 ACCESSION NUMBER: 0000914233-96-000152 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OEC MEDICAL SYSTEMS INC CENTRAL INDEX KEY: 0000317814 STANDARD INDUSTRIAL CLASSIFICATION: X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS [3844] IRS NUMBER: 942538512 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09983 FILM NUMBER: 96665661 BUSINESS ADDRESS: STREET 1: 384 WRIGHT BROTHERS DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84116 BUSINESS PHONE: 8013289300 FORMER COMPANY: FORMER CONFORMED NAME: DIASONICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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 October 31, 1996, there were 13,119,049 shares of Common Stock ($.01 par value) outstanding. Part I. Financial Information Item 1. Financial Statements OEC MEDICAL SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE & NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (In thousands, except per share amounts) (unaudited) Quarter Ended Nine Months September 30, Ended September 30, 1995 1996 1995 1996 Net sales Product $29,948 $21,571 $78,611 $63,048 Service 4,079 3,899 12,193 11,353 ------- ------- ------- ------- Total net sales 34,027 25,470 90,804 74,401 ------- ------- ------- ------- Cost of sales Product 17,477 12,685 46,170 37,464 Service 2,927 2,359 8,228 6,595 ------- ------- ------- ------- Total cost of sales 20,404 15,044 54,398 44,059 ------- ------- ------- ------- Gross margin 13,623 10,426 36,406 30,342 ------- ------- ------- ------- Operating Expenses Research and development 2,229 1,942 6,447 5,821 Marketing and sales 5,577 4,391 15,357 13,128 Administrative, general and other 2,116 1,315 5,210 4,344 ------- ------- ------- -------- Total operating expenses 9,922 7,648 27,014 23,293 ------- ------- ------- -------- Operating income 3,701 2,778 9,392 7,049 Interest income 179 198 566 500 Interest expense (5) (5) (8) (9) ------- ------- ------- ------- Income before income taxes 3,875 2,971 9,950 7,540 Income tax benefit -- 170 -- 855 ------- ------- ------- ------- Net income $3,875 $3,141 $9,950 $8,395 ======= ======= ======= ======= Net income per common and common equivalent share: $ 0.30 $ 0.25 $ 0.78 $ 0.67 ======= ======= ======= ======= Common and common equivalent shares 12,777 12,584 12,815 12,558 OEC MEDICAL SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (In thousands) ASSETS 1996 1995 (Unaudited) Current Assets: Cash and temporary cash investments $13,889 $16,584 Accounts and notes receivable, net of allowances of $854 and $577, respectively 32,134 24,982 Inventories 23,870 18,031 Prepaid expenses and other current assets 1,433 885 Deferred income taxes 7,967 5,810 ------- ------- Total current assets 79,293 66,292 Long-term receivables 1,607 1,002 Property and equipment, net 11,385 9,868 Cost in excess of net assets acquired, net of accumulated amortization of $8,023 and $7,542, respectively 10,373 10,854 Deferred income taxes 3,125 2,898 Other assets, net 718 548 ------- ------- $106,501 $91,462 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $7,454 $ 4,673 Accrued salaries and benefits 3,666 2,920 Accrued warranty and installation costs 1,747 1,259 Deferred income and customer deposits 6,045 5,511 Income taxes payable 58 412 Accrued legal fees and litigation settlements 3,929 3,793 Accrued distributor commissions 2,760 1,892 Other accrued liabilities 2,945 1,932 ------ ------ Total current liabilities 28,604 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--12,919 and 12,789 shares, respectively 129 128 Capital in excess of par value 77,168 76,344 Stock subscription receivable (210) (210) Retained earnings/(Accumulated deficit) 6,824 (3,126) Treasury stock, 729 and 560 shares at cost, respectively (5,842) (4,056) Foreign currency translation adjustment (172) (10) -------- ------- Total stockholders' equity 77,897 69,070 -------- ------- $106,501 $91,462 ======== ======= OEC MEDICAL SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (In thousands) (unaudited) 1996 1995 OPERATING ACTIVITIES: Net income $ 9,950 $ 8,395 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,191 2,444 Bad debt expense 115 -- Deferred income tax benefit (2,384) (1,306) Changes in current assets and liabilities: Accounts and notes receivable (7,267) 3,146 Inventories (5,839) (893) Prepaid expenses and other current assets (548) (359) Other assets (170) (296) Accounts payable 2,781 (1,440) Accrued salaries and benefits 746 210 Accrued warranty and installation costs 488 167 Deferred income and customer deposits 534 66 Income taxes payable (354) 51 Accrued legal fees and litigation settlements 136 (204) Accrued distributor commissions 868 (566) Other accrued liabilities 1,013 253 ------ ------ Net cash provided by operating activities 2,260 9,668 ------ ------ INVESTING ACTIVITIES: Increases in long-term receivables (605) (520) Additions to property and equipment, net (3,227) (688) Other (162) 29 ------ ------ Net cash used by investing activities (3,994) (1,179) ------ ------ FINANCING ACTIVITIES: Sales of common stock, net 825 1,685 Purchases of treasury stock (1,786) (2,891) ------ ------ Net cash used by financing activities (961) (1,206) ------ ------ Net increase (decrease) in cash and temporary cash investments (2,695) 7,283 Cash and temporary cash investments at beginning of period 16,584 7,608 ------- ------- Cash and temporary cash investments at end of period $13,889 $14,891 ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $8 $9 Cash paid during the period for income taxes $2,738 $554 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the nine months ended September 30, 1995, the Company increased its net deferred income tax asset by $1,414, as a result of reducing the valuation allowance on the deferred tax assets. Of the total $1,414 of valuation allowance reallocation, $108 was credited directly to stockholders' equity and $1,306 was recorded as a deferred tax benefit. OEC MEDICAL SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (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, 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: September 30, December 31, 1996 1995 (In thousands) Purchased parts and completed subassemblies $9,256 $ 8,190 Work-in-process 3,718 3,216 Finished goods 11,034 5,147 Service and repair parts 3,896 4,171 ------- -------- Total 27,904 20,724 Less: reserves (4,034) (2,693) ------- -------- Net $ 23,870 $ 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 third quarter and nine months ended September 30, 1996, OEC Medical Systems, Inc. had net income of $3.9 million and $9.9 million, respectively, compared with net income of $3.1 million and $8.4 million, respectively, for the same periods last year. The results for the nine month period ended September 30, 1996 has no tax expense or benefit compared to 1995 which had a $0.9 million benefit, or $.07 per share resulting primarily from the reversal of certain reserves against deferred tax assets. These reserves were established upon the adoption of Statement of Financial Accounting Standard No. 109 in the first quarter of 1993. As of September 30, 1996, the company has fully reversed its deferred tax reserve. Going forward, the company expects to accrue taxes at a 34% tax rate. The following table sets forth OEC's operating results as a percent of net sales: Three Months Nine Months 1996 1995 1996 1995 Net sales Product 88.01% 84.69% 86.57% 84.74% Service 11.99% 15.31% 13.43% 15.26% ------ ------ ------ ----- Total net sales 100.00% 100.00% 100.00% 100.00% Cost of sales Product 51.36% 49.81% 50.85% 50.36% Service 8.60% 9.26% 9.06% 8.86% ------ ------ ------ ------ Total cost of sales 59.96% 59.07% 59.91% 59.22% Gross margin 40.04% 40.93% 40.09% 40.78% Operating expenses: Research and development 6.55% 7.62% 7.10% 7.82% Marketing and sales 16.39% 17.24% 16.91% 17.65% Administrative, general and other 6.22% 5.16% 5.74% 5.84% ------ ------ ------ ------ Total operating expenses 29.16% 30.02% 29.75% 31.31% ------ ------ ------ ------ Operating income 10.88% 10.91% 10.34% 9.47% Net income 11.39% 12.33% 10.96% 11.28% Sales and Markets Net product sales for the quarter and nine months ended September 30, 1996, were $29.9 million and $78.6 million, respectively, compared to net product sales of $21.6 million and $63.0 million respectively, for the comparable periods of 1995. This reflects 39% and 25% increases, respectively. The order rate for the company's core product, the Series 9600 Digital Mobile Imaging System, is ahead of last year both domestically and internationally. The increase is a result of increased coverage and acceptance of the product in all regions. Growth in the sales of the Uroview 2600 contributed significantly to the overall revenue increase again this quarter and put that segment significantly ahead of prior years. Revenue from the newly introduced MINI 6600 and COMPACT 7600 C-arms also contributed to the overall revenue growth. The 6600 is gaining market acceptance in line with the company's expectations. However, the 7600 market penetration and acceptance has not yet met the company's plan. Although product sales have been improving, continued competitive pricing pressures in all product categories are expected to remain worldwide for the foreseeable future. Service revenue for the quarter and nine months ended September 30, 1996 was $4.1 million and $12.2 million, respectively, up from the previous year's $3.9 million and $11.4 million. Revenue growth in service has slowed somewhat from prior years. The main reason is that independent service organizations and the consolidation of hospitals have taken away some of the service revenue opportunities. Margin Analysis OEC's gross margin expressed as a percentage of net sales decreased 0.9% for the third quarter and 0.7% for the nine months when compared with the same periods in 1995. Ongoing improvements in manufacturing efficiency did not fully offset the impact of continuing increased competition and pricing pressures. Service expenses for the quarter and nine months were up against last year $0.6 million and $1.6 million, respectively. These increases are attributed to higher labor costs and lower warranty utilization due to increasing system reliability. Operating Expenses Research and development costs are up $0.3 and $0.6 million, for the three and nine month periods, respectively. This reflects our continuing investment in product development and improvements. Marketing and sales are up $1.2 million and $2.2 million, respectively, for the three and nine month periods. This increase is due primarily to greater commissions because of higher sales, and increased costs associated with more coverage, both domestically and internationally, to obtain the higher revenue. Expressed as a percentage of total revenue, the marketing and sales expense is down 0.8% and 0.7%, respectively. Administrative expenses are up $0.8 million and $0.9 million, for the three and nine months, respectively. The main reason for the increase in the third quarter was the cost associated with the implementation of the new computer system and the associated training costs. This will continue into the first quarter of 1997 but at lower levels. Income Taxes During 1996, the company has reversed the remaining balance of the valuation allowance for the deferred tax assets. The company believes that it will generate enough taxable income to fully utilize the deferred tax assets, primarily made up of tax credits, prior to their expiration. This reversal of the valuation allowance has offset the tax provisions required for federal and state income taxes. Going forward, the company expects to accrue tax expense at an estimated 34% tax rate. Liquidity and Capital Resources Cash provided by operations for the first nine months of 1996 was $2.3 million, compared to $9.7 million for the first nine months of 1995. The primary operational cash uses were increases in accounts receivable due to increased revenues and extended payment arrangements, inventory increases to support increased production and provide additional demonstration units and federal and state income taxes paid after net operating losses were fully utilized. 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) The following exhibit (numbered in accordance with Item 601 of SEC Regulations S-K) is filed as part of this report: None (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: November 12, 1996 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF SEPTEMBER 30, 1996, AND STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 13,889 0 32,988 854 23,870 79,293 24,431 13,046 106,501 28,604 0 129 0 0 77,768 106,501 78,611 90,804 46,170 54,398 27,014 0 8 9,950 0 9,950 0 0 0 9,950 (.78) (.78)
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