SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended June 29, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-11827
TREX MEDICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1439626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
36 Apple Ridge Road
Danbury, Connecticut 06810
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
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 filing
requirements for the past 90 days. Yes [ ] No [ X ]
The Registrant became subject to the filing requirements of the
Securities Exchange Act of 1934 on June 25, 1996, the date its
Registration Statement on Form S-1 became effective, and has
filed all such reports required to be filed thereunder since such
date.
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at July 26, 1996
---------------------------- ----------------------------
Common Stock, $.01 par value 28,592,630
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TREX MEDICAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 29, September 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 2,379 $ 202
Accounts receivable, less allowances of
$1,073 and $870 21,405 14,937
Inventories:
Raw materials and supplies 16,712 9,414
Work in process 7,484 5,195
Finished goods 3,872 2,058
Prepaid expenses 1,078 113
Prepaid income taxes 3,754 3,474
Due from affiliated companies 2,602 -
-------- --------
59,286 35,393
-------- --------
Property, Plant and Equipment, at Cost 14,678 9,939
Less: Accumulated depreciation and amortization 3,108 2,128
-------- --------
11,570 7,811
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 72,190 59,170
-------- --------
$143,046 $102,374
======== ========
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TREX MEDICAL CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, September 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 9,475 $ 7,381
Accrued payroll and employee benefits 3,459 2,338
Accrued warranty costs 4,913 2,991
Customer deposits 3,633 771
Accrued income taxes 4,255 -
Other accrued expenses 12,438 8,245
Due to Thermo Electron Corporation and
affiliated companies - 496
-------- --------
38,173 22,222
-------- --------
Deferred Income Taxes 143 142
-------- --------
Long-term Obligations:
4.2% Subordinated convertible note, due to
parent company (Note 4) 39,000 -
Other 129 -
-------- --------
39,129 -
-------- --------
Shareholders' Investment (Note 4):
Net parent company investment - 80,010
Common stock, $.01 par value, 50,000,000
shares authorized; 22,216,452 shares
issued and outstanding in 1996 222 -
Capital in excess of par value 59,476 -
Retained earnings 5,903 -
-------- --------
65,601 80,010
-------- --------
$143,046 $102,374
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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TREX MEDICAL CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues (includes $3,100 to affiliated companies
in 1996) (Note 2) $36,681 $17,197
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $1,506 for affiliated
companies revenues in 1996) 20,720 8,622
Selling, general and administrative expenses 6,835 3,938
Research and development expenses 4,775 2,215
------- -------
32,330 14,775
------- -------
Operating Income 4,351 2,422
Interest Income 176 -
Interest Expense, Related Party (412) -
Other Income (Expense), Net (28) 25
------- -------
Income Before Provision for Income Taxes 4,087 2,447
Provision for Income Taxes 1,918 1,103
------- -------
Net Income $ 2,169 $ 1,344
======= =======
Earnings per Share:
Primary $ .10 $ .07
======= =======
Fully diluted $ .09 $ .07
======= =======
Weighted Average Shares:
Primary 22,386 20,151
======= =======
Fully diluted 25,694 20,151
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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TREX MEDICAL CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
---------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues (includes $5,612 to affiliated companies
in 1996) (Note 2) $103,510 $ 48,512
-------- --------
Costs and Operating Expenses:
Cost of revenues (includes $2,688 for affiliated
companies revenues in 1996) 58,312 24,747
Selling, general and administrative expenses 20,530 11,055
Research and development expenses 12,945 8,485
-------- --------
91,787 44,287
-------- --------
Operating Income 11,723 4,225
Interest Income 616 -
Interest Expense, Related Party (1,284) -
Other Income, Net 7 23
-------- --------
Income Before Provision for Income Taxes 11,062 4,248
Provision for Income Taxes 5,159 1,938
-------- --------
Net Income $ 5,903 $ 2,310
======== ========
Earnings per Share:
Primary $ .27 $ .11
======== ========
Fully diluted $ .26 $ .11
======== ========
Weighted Average Shares:
Primary 21,839 20,151
======== ========
Fully diluted 25,310 20,151
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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TREX MEDICAL CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 5,903 $ 2,310
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,302 1,225
Provision for losses on accounts receivable 88 50
Other noncash items (85) 17
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable (2,964) (444)
Inventories (2,518) (1,552)
Other current assets (4,006) (789)
Accounts payable (438) 1,460
Accrued income taxes 4,255 -
Other current liabilities 2,243 270
-------- --------
Net cash provided by operating
activities 4,780 2,547
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 3) (18,817) -
Purchases of property, plant and equipment (2,515) (1,134)
Proceeds from sale of property, plant and
equipment 46 45
-------- --------
Net cash used in investing activities $(21,286) $ (1,089)
-------- --------
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TREX MEDICAL CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-------------------
June 29, July 1,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Financing Activities:
Net proceeds from private placements of
Company common stock $ 18,688 $ -
Net transfers to parent company - (1,458)
Other (5) -
-------- --------
Net cash provided by (used in)
financing activities 18,683 (1,458)
-------- --------
Increase in Cash and Cash Equivalents 2,177 -
Cash and Cash Equivalents at Beginning of Period 202 -
-------- --------
Cash and Cash Equivalents at End of Period $ 2,379 $ -
======== ========
Noncash Activities:
Fair value of assets of acquired company $ 28,956 $ -
Cash paid for acquired company (18,878) -
-------- --------
Liabilities assumed of acquired company $ 10,078 $ -
======== ========
Issuance of subordinated convertible note to
parent company $ 42,000 $ -
Conversion of subordinated convertible note
by parent company $ 3,000 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
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TREX MEDICAL CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Trex Medical Corporation (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at June 29,
1996, the results of operations for the three- and nine-month periods ended
June 29, 1996 and July 1, 1995, and the cash flows for the nine-month
periods ended June 29, 1996 and July 1, 1995. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of September 30, 1995, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Registration Statement on
Form S-1 (Registration No. 333-2926), filed with the Securities and
Exchange Commission.
2. Related Party Transactions
During the three and nine months ended June 29, 1996, the Company sold
laser systems to ThermoLase Corporation, a majority-owned subsidiary of
ThermoTrex Corporation, for aggregate revenues of $3,010,000 and
$5,250,000, respectively. In addition, the Company sold equipment to other
affiliated companies for $90,000 and $362,000 during the three and nine
months ended June 29, 1996, respectively.
3. Acquisition and Proposed Acquisition
In May 1996, the Company acquired the assets of XRE Corporation (XRE),
a Massachusetts-based company that designs, manufactures, and markets X-ray
imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions, for $17.1 million in cash and the
repayment of $1.8 million of indebtedness. The purchase price for XRE is
subject to a post-closing adjustment based on the net asset value of XRE as
of the closing date. This acquisition has been accounted for using the
purchase method of accounting and XRE's results of operations have been
included in the accompanying financial statements from the date of
acquisition. The aggregate cost of this acquisition exceeded the estimated
fair value of the acquired net assets by $13.6 million, which is being
amortized over 40 years.
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TREX MEDICAL CORPORATION
3. Acquisition and Proposed Acquisition (continued)
Based on unaudited data, the following table presents selected
financial information for the Company and XRE on a pro forma basis,
assuming the companies had been combined since the beginning of fiscal
1995.
Three Months Ended Nine Months Ended
-------------------- -------------------
(In thousands except June 29, July 1, June 29, July 1,
per share amounts) 1996 1995 1996 1995
--------------------------------------------------------------------------
Revenues $ 41,901 $ 23,380 $121,730 $ 70,293
Net income 2,071 1,237 4,660 1,958
Earnings per Share:
Primary .09 .06 .21 .10
Fully diluted .09 .06 .21 .10
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition been made at the beginning of fiscal 1995.
In April 1996, the Company signed a letter of intent to acquire the
assets of Continental X-Ray Corporation and affiliates (Continental) for
approximately $18.2 million in cash, including the repayment of $5.7
million of indebtedness. Continental is an Illinois-based corporation that
designs, manufactures, and markets general-purpose, radiographic/
fluoroscopic, and electrophysiology X-ray systems. The completion of this
acquisition is subject to the satisfaction of certain closing conditions,
including negotiation of definitive agreements; receipt of regulatory
approvals, including clearance from the Federal Trade Commission; due
diligence; and approval of the boards of directors of the Company,
ThermoTrex Corporation (ThermoTrex), and Continental. This acquisition will
be accounted for using the purchase method of accounting. The purchase
price for Continental will be subject to a post-closing adjustment based on
the net asset value of Continental as of the closing date.
4. Subsequent Events
Initial Public Offering
In July 1996, the Company sold 2,875,000 shares of its common stock in
an initial public offering, and 871,832 shares of its common stock in a
concurrent rights offering, at $14.00 per share, for net proceeds of
approximately $49.1 million.
Conversion of Subordinated Convertible Note
In July 1996, ThermoTrex converted $31.0 million principal amount of
the Company's subordinated convertible note into 2,629,346 shares of the
Company's common stock.
Following the initial public offering, the rights offering, and the
conversion of the subordinated convertible note, ThermoTrex owned 80% of
the Company's outstanding common stock.
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TREX MEDICAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
Description of Business
The Company designs, manufactures, and markets mammography equipment
and minimally invasive stereotactic needle-biopsy systems used for the
detection of breast cancer, general radiography (X-ray) equipment, and
X-ray imaging systems used for cardiac catheterization and angiographs. The
Company sells its systems worldwide principally through a network of
independent dealers. In addition, the Company manufactures mammography and
radiography systems as an original equipment manufacturer (OEM) for other
medical equipment companies such as United States Surgical Corporation
(U.S. Surgical), General Electric Company, Inc. (G.E.), and the Philips
Medical Systems North America Company subsidiary of Philips N.V. (Philips).
The Company has three operating units: Lorad, a manufacturer of mammography
and stereotactic biopsy systems; Bennett X-Ray Corporation (Bennett), a
manufacturer of general radiography and mammography equipment; and XRE, a
manufacturer of X-ray imaging systems used in the diagnosis and treatment
of coronary artery disease and other vascular conditions.
The Company conducts all of its manufacturing operations in the United
States and sells its products on a worldwide basis. The Company anticipates
that an increasing percentage of its revenues will be from export sales.
The Company's export sales are denominated in U.S. dollars; therefore,
neither its revenue nor earnings are significantly affected by exchange
rate fluctuations.
Results of Operations
In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Three Months Ended June 29, 1996 Compared With Three Months Ended
July 1, 1995
Revenues increased 113% to $36.7 million in the three months ended
June 29, 1996, from $17.2 million in the three months ended July 1, 1995,
primarily due to the inclusion of $10.6 million in revenues from Bennett,
which was acquired in September 1995, and the inclusion of $1.8 million in
revenues from XRE, which was acquired in May 1996. Revenues at Lorad
increased 41% to $24.3 million in the three months ended June 29, 1996 from
$17.2 million in the three months ended July 1, 1995, as a result of
increased demand for biopsy systems, nondestructive testing (NDT) systems,
and lasers sold to ThermoLase Corporation, a majority-owned subsidiary of
ThermoTrex Corporation (ThermoTrex). Export sales accounted for 20% of the
Company's revenues in the three months ended June 29, 1996, compared with
12% in the three months ended July 1, 1995.
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TREX MEDICAL CORPORATION
Three Months Ended June 29, 1996 Compared With Three Months Ended
July 1, 1995 (continued)
The gross profit margin declined to 44% in the three months ended June
29, 1996 from 50% in the three months ended July 1, 1995 due to the
inclusion of lower-margin revenues at Bennett and XRE and, to a lesser
extent, a nonrecurring adjustment to expense of $0.2 million for inventory
revalued at the time of the XRE acquisition.
Selling, general and administrative expenses as a percentage of
revenues decreased to 19% in the three months ended June 29, 1996 from 23%
in the three months ended July 1, 1995 due to increased revenues at Lorad.
Research and development expenses increased to $4.8 million in the three
months ended June 29, 1996 from $2.2 million in the three months ended July
1, 1995 due to the Company's continued efforts to develop and commercialize
new products including the Company's M-IV mammography system, full-breast
digital mammography system, and direct-detection X-ray sensor, as well as
enhancements of existing systems. Research and development expenses also
increased due to the inclusion of $.7 million of expense at Bennett and
XRE.
Interest income in the three months ended June 29, 1996, primarily
represents interest income earned on the invested proceeds from the
Company's private placement of common stock in November 1995. Interest
expense, related party, in the three months ended June 29, 1996, represents
interest associated with the $42.0 million principal amount 4.2%
subordinated convertible note issued to ThermoTrex in October 1995 in
connection with the acquisition of Bennett. As of July 2, 1996, ThermoTrex
had converted $34.0 million principal amount of this note.
The effective tax rate was 47% in the three months ended June 29,
1996, compared with 45% in the three months ended July 1, 1995. The
effective tax rates exceed the statutory federal income tax rate due to the
impact of state income taxes and nondeductible amortization of cost in
excess of net assets of acquired companies. The effective tax rate
increased in 1996 due to higher nondeductible amortization of cost in
excess of net assets of acquired companies.
Nine Months Ended June 29, 1996 Compared With Nine Months Ended
July 1, 1995
Revenues increased 113% to $103.5 million in the nine months ended
June 29, 1996 from $48.5 million in the nine months ended July 1, 1995,
primarily due to the inclusion of $33.8 million in revenues from Bennett,
which was acquired in September 1995, and the inclusion of $1.8 million in
revenues from XRE, which was acquired in May 1996. Revenues at Lorad
increased 40% to $67.9 million in the nine months ended June 29, 1996 from
$48.5 million in the nine months ended July 1, 1995 due to the reasons
discussed in the results of operations for the three months ended June 29,
1996. Export sales accounted for 25% of the Company's revenues in the nine
months ended June 29, 1996, compared with 21% in the nine months ended July
1, 1995.
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TREX MEDICAL CORPORATION
Nine Months Ended June 29, 1996 Compared With Nine Months Ended
July 1, 1995 (continued)
The gross profit margin declined to 44% in the nine months ended June
29, 1996 from 49% in the nine months ended July 1, 1995, due to
lower-margin revenues at Bennett and XRE and, to a lesser extent,
nonrecurring adjustments to expense of $0.7 million for inventory revalued
at the time of the Bennett and XRE acquisitions.
Selling, general and administrative expenses as a percentage of
revenues decreased to 20% in the nine months ended June 29, 1996 from 23%
in the nine months ended July 1, 1995, due to increased revenues at Lorad.
Research and development expenses increased to $12.9 million in the nine
months ended June 29, 1996 from $8.5 million in the nine months ended July
1, 1995, due to the inclusion of $2.3 million of expense at Bennett and XRE
and the Company's continued efforts to develop and commercialize new
products as discussed in the results of operations for the three months
ended June 29, 1996.
Interest income in the nine months ended June 29, 1996, primarily
represents interest on the proceeds of the Company's private placement of
common stock in November 1995. Interest expense in the nine months ended
June 29, 1996, represents interest associated with the $42.0 million
principal amount 4.2% subordinated convertible note issued to ThermoTrex in
October 1995 in connection with the Bennett acquisition. As of July 2,
1996, ThermoTrex had converted $34.0 million principal amount of this note.
The effective tax rate was 47% in the nine months ended June 29, 1996,
compared with 46% in the nine months ended July 1, 1995. The effective tax
rates exceed the statutory federal income tax rate due to the impact of
state income taxes and nondeductible amortization of cost in excess of net
assets of acquired companies.
Liquidity and Capital Resources
Consolidated working capital was $21.1 million at June 29, 1996,
compared with $13.2 million at September 30, 1995. Included in working
capital are cash and cash equivalents of $2.4 million at June 29, 1996 and
$0.2 million at September 30, 1995. Net cash provided by operating
activities was $4.8 million in the nine months ended June 29, 1996. During
this period, the Company expended $2.5 million on property, plant and
equipment and raised $18.7 million from the private placements of common
stock.
In May 1996, the Company acquired XRE for $17.1 million in cash and
the repayment of $1.8 million of indebtedness (Note 3).
The Company has an outstanding letter of intent to acquire Continental
X-Ray Corporation and affiliates for approximately $18.2 million in cash,
including the repayment of $5.7 million of indebtedness (Note 3). There can
be no assurance that this acquisition will be completed.
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TREX MEDICAL CORPORATION
Liquidity and Capital Resources (continued)
In connection with the September 1995 acquisition of Bennett, the
Company issued to ThermoTrex a $42.0 million principal amount 4.2%
subordinated convertible note. In March 1996, ThermoTrex converted $3.0
million principal amount into 254,452 shares of the Company's common stock.
In July 1996, ThermoTrex converted an additional $31.0 million principal
amount of this note into 2,629,346 shares of the Company's common stock.
In July 1996, the Company sold 2,875,000 shares of its common stock in
an initial public offering, and 871,832 shares of its common stock in a
concurrent rights offering, at $14.00 per share for net proceeds of
approximately $49.1 million. The Company plans to use the proceeds for
acquisitions, to fund research and development and for working capital, and
other general corporate purposes.
Although the Company expects to have positive cash flow from its
existing operations, the Company anticipates it will require significant
amounts of cash to pursue the acquisition of complementary businesses and
technologies. The Company expects that it will finance these acquisitions
through a combination of internal funds, the net proceeds of its initial
public offering and rights offering (Note 4), additional debt or equity
financing and/or short-term borrowings from ThermoTrex or Thermo Electron
Corporation, although it has no agreement with these companies to ensure
that funds will be available on acceptable terms or at all. The Company
believes that its existing resources are sufficient to meet the capital
requirements of its existing businesses for the foreseeable future.
PART II - OTHER INFORMATION
Item 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual results
and could cause its actual results in 1996 and beyond to differ materially
from those expressed in any forward-looking statements made by, or on
behalf of, the Company.
Technological Change and New Products. The market for the Company's
products is characterized by rapid and significant technological change,
evolving industry standards and new product introductions. Many of the
Company's products are technologically innovative, and require significant
planning, design, development, and testing at the technological, product,
and manufacturing process levels. These activities require significant
capital commitments and investment by the Company. The high cost of
technological innovation is matched by the rapid and significant change in
the technologies governing the products that are competitive in the
Company's market, by industry standards that may change on short notice and
by the introduction of new products and technologies such as magnetic
resonance imaging and ultrasound that may render existing products and
technologies uncompetitive or obsolete. There can be no assurance that the
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TREX MEDICAL CORPORATION
Item 5 - Other Information (continued)
Company's products or proprietary technologies will not become
uncompetitive or obsolete.
Dependence on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products, and processes because of the length
of time and expense associated with bringing new products through the
development and regulatory approval process and to the marketplace. The
Company's success depends in part on whether it can develop patentable
products and obtain and enforce patent protection for its products both in
the United States and in other countries. The Company has filed, and
intends to file, applications as appropriate for patents covering both its
products and manufacturing processes. No assurance can be given that
patents will issue from any pending or future patent applications owned by,
or licensed to, the Company or that the claims allowed under any issued
patents will be sufficiently broad to protect the Company's technology. In
addition, no assurance can be given that any issued patents owned by, or
licensed to, the Company will not be challenged, invalidated, or
circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The Company could incur substantial
costs in defending itself in suits brought against it or in suits in which
the Company may assert its patent rights against others. If the outcome of
any such litigation is unfavorable to the Company, the Company's business
and results of operations could be materially adversely affected.
The Company relies on trade secrets and proprietary know-how that it
seeks to protect, in part, by confidentiality agreements with its
collaborators, employees, and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors.
Risks Associated With Pending and Threatened Patent Litigation. In
April 1992, Fischer Imaging Corporation (Fischer) commenced a lawsuit in
the United States District Court, District of Colorado, against the
Company's Lorad division, alleging that the Lorad StereoGuide prone breast
biopsy system infringes a Fischer patent on a precision mammographic
needle-biopsy system. As of June 29, 1996, the Company had sold 509
StereoGuide systems for aggregate revenues of approximately $44.3 million.
The suit requests a permanent injunction, treble damages, and attorneys'
fees and expenses. If the Company is unsuccessful in defending this
lawsuit, it may be enjoined from manufacturing and selling its StereoGuide
system without a license from Fischer. No assurance can be given that the
Company will be able to obtain such a license, if required, on commercially
reasonable terms, if at all. In addition, the Company may be subject to
damages for past infringement. No assurance can be given as to whether the
Company will be subject to such damages or, if so, the amount of damages
that the Company may be required to pay. The outcome of patent litigation,
particularly in jury trials, is inherently uncertain, and an unfavorable
outcome in the Fischer litigation could have a material adverse effect on
the Company's business and results of operations.
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TREX MEDICAL CORPORATION
Item 5 - Other Information (continued)
The Company also is aware of a U.S. patent held by Nicola E. Yanaki,
which has been asserted by him against certain automatic exposure control
features included in most of the Company's current mammography systems. The
Company has been informed by Mr. Yanaki that a competitor of the Company
has obtained a license for use of this patent. If Mr. Yanaki were
successful in enforcing such patent, the Company could be subject to
damages for past infringement and enjoined from manufacturing and selling
imaging equipment utilizing certain automatic exposure-control features,
which would have a material adverse effect on the Company's business and
results of operations.
The Company is also aware of an issued European patent with
counterparts in other non-U.S. countries applicable to imaging equipment
utilizing certain automatic exposure-control features. The European patent
is the subject of an opposition proceeding before the European Patent
Office. There can be no assurance as to the outcome of such opposition.
In connection with the organization of the Company, ThermoTrex
Corporation, the Company's parent, agreed to indemnify the Company for any
and all cash damages in connection with the Fischer lawsuit and any
potential claims by Mr. Yanaki with respect to sales of the Company's
products occurring prior to October 1995, when the businesses of Lorad and
Bennett were transferred to the Company. Notwithstanding this indemnifica-
tion, the Company would be required to report as an expense the full
amount, including any reimbursable amount, of any damages in excess of the
amount accrued ($2.3 million as of June 29, 1996), with any indemnification
payment it receives from ThermoTrex being treated as a contribution to
shareholders' investment. An unsuccessful outcome in any of these matters
may have a material adverse effect on the business of the Company and on
its results of operations for the period in which such outcome occurs.
The Company is aware of two U.S. patents owned by a former employee
that have been asserted against the Company relating to its
high-transmission cellular (HTC) grid to be used with the Company's
mammography systems. If the former employee were successful in enforcing
such patents, the Company could be subject to damages and enjoined from
manufacturing and selling the HTC grid.
The Company's competitors and other parties hold various patents and
patent applications in the fields in which the Company operates. There can
be no assurance that the Company will not be found to have infringed
third-party patents and, in the event of such infringement, the Company
could be required to alter its products or processes, pay licensing fees,
or cease making and selling any infringing products and pay damages for
past infringement.
No Assurance of Development and Commercialization of Products Under
Development. A number of the Company's potential products are currently
under development. There are a number of technological challenges that the
Company must successfully address to complete any of its development
efforts. Product development involves a high degree of risk, and returns to
investors are dependent upon successful development and commercialization
15PAGE
<PAGE>
TREX MEDICAL CORPORATION
Item 5 - Other Information (continued)
of such products. Proposed products based on the Company's technologies
will require significant additional research and development. There can be
no assurance that any of the products currently being developed by the
Company, or those to be developed in the future by the Company, will be
technologically feasible or accepted by the marketplace, or that any such
development will be completed in any particular time frame.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses and technologies that complement or
augment the Company's existing product lines. For example, in September
1995, the Company acquired its Bennett subsidiary, in May 1996, the Company
acquired substantially all of the assets of XRE, a manufacturer of X-ray
imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions, and in April 1996, the Company
signed a non-binding letter of intent to acquire Continental, a
manufacturer of radiographic/fluoroscopic products, general radiography
systems, electrophysiology products and dedicated mammography systems.
Promising acquisitions are difficult to identify and complete for a number
of reasons, including competition among prospective buyers and the need for
regulatory approvals, including antitrust approvals. There can be no
assurance that the Company will be able to complete future acquisitions or
that the Company will be able to successfully integrate any acquired
businesses. In order to finance such acquisitions, it may be necessary for
the Company to raise additional funds through public or private financings.
Any equity or debt financing, if available at all, may be on terms that are
not favorable to the Company and, in the case of equity financing, may
result in dilution to the Company's stockholders.
Intense Competition. The Company encounters and expects to continue to
encounter intense competition in the sale of its products. The Company
believes that the principal competitive factors affecting the market for
its products include product features, product performance and reputation,
price, and service. The Company's competitors include large multinational
corporations and their operating units, including GE, Philips, the Siemens
Corporation subsidiary of Siemens AG, Toshiba American Medical Systems,
Inc. and Toshiba America MRI, Inc., Shimadzu, and Picker International.
These companies and certain of the Company's other competitors have
substantially greater financial, marketing, and other resources than the
Company. As a result, they may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their products than the
Company. Moreover, a significant portion of the Company's sales are to U.S.
Surgical, GE, and Philips through OEM arrangements. The products sold by
such OEMs compete with products offered by the Company and its independent
dealers. Competition could increase if new companies enter the market or if
existing competitors expand their product lines or intensify efforts within
existing product lines. There can be no assurance that the Company's
current products, products under development, or ability to discover new
technologies will be sufficient to enable it to compete effectively with
its competitors.
16PAGE
<PAGE>
TREX MEDICAL CORPORATION
Item 5 - Other Information (continued)
Government Regulation, No Assurance of Regulatory Approval. The
Company's products are subject to regulation by the U.S. Food and Drug
Administration (the FDA) and equivalent agencies in foreign countries.
Failure to comply with applicable regulatory requirements can result in,
among other things, civil and criminal fines, suspensions of approvals,
recalls of products, seizures, injunctions, and criminal prosecutions.
To date, all of the Company's products have been classified by the FDA
as Class II medical devices and have been eligible for FDA marketing
clearance pursuant to the FDA's 510(k) premarket notification process,
which is generally shorter than the more involved premarket approval (PMA)
process. The Company believes that most of its currently anticipated future
products and substantial modifications to existing products will be
eligible for the 510(k) premarket notification process. However, the FDA
has not yet classified full-breast digital imaging mammography systems such
as the one being developed by the Company. If such systems are classified
as Class III devices, the Company would be required to file for FDA
marketing clearance for its full-breast digital imaging mammography system
under the PMA process, which would require substantial additional clinical
trials and would take a number of years. While not classifying such
systems, the FDA recently issued a preliminary protocol for marketing
clearance of full-breast digital imaging mammography systems suggesting
that clearance may be obtained through an enhanced 510(k) application with
more extensive clinical trials. The preliminary protocol calls for clinical
trials on 400 subjects prior to applying to the FDA for clearance to
commercially market such a system and a multi-year, follow-up study that
would include comparative film and digital images on 12,000 subjects
following commercial introduction. If the preliminary protocol is adopted
as currently drafted, the Company believes this follow-up study will be
burdensome and may limit the commercialization of full-breast digital
imaging mammography systems. The period for submitting comments to the
preliminary protocol has expired, and the Company can make no prediction as
to when a final protocol will be issued or if one will be issued at all.
There can be no assurance that the necessary clearances for any of the
Company's products will be obtained on a timely basis, if at all.
FDA regulations also require manufacturers of medical devices to
adhere to certain "Good Manufacturing Practices" (GMP), which include
testing, quality control, and documentation procedures. The Company's
manufacturing facilities are subject to periodic inspection by the FDA. No
assurances can be given that the FDA will not in the future find the
Company to be in violation of one or more such regulations.
Healthcare Reform; Uncertainty of Patient Reimbursement. The Federal
government has in the past and may in the future consider, and certain
state and local as well as a number of foreign governments are considering
or have adopted, healthcare policies intended to curb rising healthcare
costs. Such policies include rationing of government-funded reimbursement
for healthcare services and imposing price controls upon providers of
medical products and services. The Company cannot predict what healthcare
reform legislation or regulation, if any, will be enacted in the United
States or elsewhere. Significant changes in the healthcare systems in the
17PAGE
<PAGE>
TREX MEDICAL CORPORATION
Item 5 - Other Information (continued)
United States or elsewhere are likely to have a significant impact over
time on the manner in which the Company conducts its business. In addition,
the Federal government regulates reimbursement of fees for certain
diagnostic examinations and capital equipment acquisition costs connected
with services to Medicare beneficiaries. Recent legislation has limited
Medicare reimbursement for diagnostic examinations. These policies may have
the effect of limiting the availability or reimbursement for certain
procedures, and as a result may inhibit or reduce demand by healthcare
providers for products in the markets in which the Company competes. While
the Company cannot predict what effect the policies of government entities
and other third party payors will have on future sales of the Company's
products, there can be no assurance that such policies would not have an
adverse impact on the operations of the Company.
Dependence Upon Significant OEM Relationships. A significant portion
of the Company's sales are to U.S. Surgical, GE, and Philips through OEM
arrangements. The Company's sales depend, in part, on the continuation of
these OEM arrangements and the level of end-user sales by such OEMs. There
can be no assurance that the Company will be able to maintain its existing,
or establish new, OEM relationships.
Potential Product Liability. The Company's business exposes it to
potential product liability claims which are inherent in the manufacturing,
marketing, and sale of medical devices, and as such the Company may face
substantial liability to patients for damages resulting from the faulty
design or manufacture of products. The Company currently maintains product
liability insurance, but there can be no assurance that this insurance will
provide sufficient coverage in the event of a claim, that the Company will
be able to maintain such coverage on acceptable terms, if at all, or that a
product liability claim would not materially adversely affect the business
or financial condition of the Company.
Risks Associated With International Operations. International sales
accounted for 21% and 14% of the Company's revenues in fiscal 1995 and
1994, respectively. The Company intends to continue to expand its presence
in international markets. International revenues are subject to a number of
risks, including the following: agreements may be difficult to enforce and
receivables difficult to collect through a foreign country's legal system;
foreign customers may have longer payment cycles; foreign countries may
impose additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs or adopt other restrictions on foreign trade; U.S.
export licenses may be difficult to obtain; and the protection of
intellectual property in foreign countries may be more difficult to
enforce.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
18PAGE
<PAGE>
TREX MEDICAL CORPORATION
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 as of the 2nd day of August 1996.
TREX MEDICAL CORPORATION
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Chief Financial Officer
19PAGE
<PAGE>
TREX MEDICAL CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
---------------------------------------------------------------------------
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
TREX MEDICAL CORPORATION
Computation of Earnings per Share
Three Months Ended
------------------------
June 29, July 1,
1996 1995
- -------------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 2,169,000 $ 1,344,000
----------- -----------
Shares:
Weighted average shares outstanding 22,216,452 20,000,000
Add: Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) 169,414 151,414
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 22,385,866 20,151,414
----------- -----------
Primary Earnings per Share (a) / (b) $ .10 $ .07
=========== ===========
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $ 2,169,000 $ 1,344,000
Add: Convertible debt interest, net of tax 246,000 -
----------- -----------
Income applicable to common stock assuming
full dilution (a) 2,415,000 1,344,000
----------- -----------
Shares:
Weighted average shares outstanding 22,216,452 20,000,000
Add: Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) 169,414 151,414
Shares issuable from assumed conversion of
subordinated convertible note 3,307,888 -
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 25,693,754 20,151,414
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .09 $ .07
=========== ===========
PAGE
<PAGE>
Exhibit 11
TREX MEDICAL CORPORATION
Computation of Earnings per Share
Nine Months Ended
-------------------------
June 29, July 1,
1996 1995
- -------------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 5,903,000 $ 2,310,000
----------- -----------
Shares:
Weighted average shares outstanding 21,669,462 20,000,000
Add: Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) 169,414 151,414
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 21,838,876 20,151,414
----------- -----------
Primary Earnings per Share (a) / (b) $ .27 $ .11
=========== ===========
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $ 5,903,000 $ 2,310,000
Add: Convertible debt interest, net of tax 773,000 -
----------- -----------
Income applicable to common stock assuming
full dilution (a) $ 6,676,000 $ 2,310,000
----------- -----------
Shares:
Weighted average shares outstanding 21,669,462 20,000,000
Add: Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) 169,414 151,414
Shares issuable from assumed conversion
of subordinated convertible note 3,470,999 -
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 25,309,875 20,151,414
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .26 $ .11
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TREX MEDICAL
CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 2,379
<SECURITIES> 0
<RECEIVABLES> 22,478
<ALLOWANCES> 1,073
<INVENTORY> 28,068
<CURRENT-ASSETS> 59,286
<PP&E> 14,678
<DEPRECIATION> 3,108
<TOTAL-ASSETS> 143,046
<CURRENT-LIABILITIES> 38,173
<BONDS> 129
0
0
<COMMON> 222
<OTHER-SE> 65,379
<TOTAL-LIABILITY-AND-EQUITY> 143,046
<SALES> 103,510
<TOTAL-REVENUES> 103,510
<CGS> 58,312
<TOTAL-COSTS> 58,312
<OTHER-EXPENSES> 12,945
<LOSS-PROVISION> 88
<INTEREST-EXPENSE> 1,284
<INCOME-PRETAX> 11,062
<INCOME-TAX> 5,159
<INCOME-CONTINUING> 5,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,903
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
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