SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 28, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
Commission file number 1-11827
TREX MEDICAL CORPORATION
(Exact name of Registrant as specified in this 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to
the filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference into Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of November 22, 1996, was approximately $91,459,000.
As of November 22, 1996, the Registrant had 28,592,630 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended September 28, 1996, are incorporated by reference into Parts I
and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on March 12, 1997, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
Trex Medical Corporation (the Company or the Registrant) designs,
manufactures, and markets mammography equipment and minimally invasive
stereotactic breast-biopsy systems used for the detection of breast
cancer, as well as general radiography (X-ray) equipment. In addition,
the Company manufactures specialized X-ray equipment, including imaging
systems used in the diagnosis and treatment of coronary artery disease
and other vascular conditions, and radiographic fluoroscopy (R/F) systems
used to diagnose gastrointestinal (GI) disorders and other conditions.
The Company, incorporated in September 1995 as a wholly owned
subsidiary of ThermoTrex Corporation (ThermoTrex), consists of four
operating units: Lorad, Bennett X-Ray Corporation (Bennett), XRE
Corporation (XRE), and Continental X-Ray Corporation (Continental). In
October 1995, the Company acquired all of the outstanding shares of
capital stock of Bennett from ThermoTrex in exchange for a $42.0 million
principal amount 4.2% subordinated convertible note (of which $8.0
million remains outstanding). Also in October 1995, ThermoTrex
contributed all of the assets and liabilities relating to its Lorad
division and the development of its Sonic CT(TM) (Computed Tomography)
system to the Company in exchange for 20,000,000 shares of the Company's
common stock. In May 1996, the Company acquired substantially all of the
assets and liabilities of XRE for approximately $18.5 million in cash,
net of cash acquired and including the repayment of debt. In September
1996, the Company acquired substantially all of the assets and
liabilities of Continental for approximately $18.4 million in cash, net
of cash acquired and including the repayment of debt.
Each unit specializes in manufacturing a particular type of imaging
equipment for different market segments. Through its Lorad division, the
Company manufactures and markets mammography and minimally invasive
stereotactic breast-biopsy systems, which provide a cost-effective,
less-invasive alternative to open surgery for the biopsy of suspicious
breast lesions. Bennett's primary product line consists of
general-purpose X-ray equipment, but Bennett also manufactures
mammography systems, a stereotactic breast-biopsy system, and X-ray units
used by chiropractors and veterinarians. XRE manufactures and markets
X-ray imaging systems used by interventional cardiologists in the
diagnosis and treatment of blockages in coronary arteries and other
vessels. XRE also manufactures electrophysiology products that aid
doctors in diagnosing and treating cardiac arrhythmia. Continental
manufactures and markets a broad line of general-purpose and specialty
X-ray systems, including R/F systems used to diagnose GI disorders. In
addition, Continental manufactures electrophysiology products and
mammography systems.
The Company also manufactures the specialized hair-removal lasers
purchased by its sister company, ThermoLase Corporation, another
majority-owned subsidiary of ThermoTrex, and nondestructive testing
systems, which are used by the military to test aircraft for stress
fractures and other defects.
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The Company is currently developing a full-breast digital
mammography system that is intended to be capable of higher image
quality. The system is designed to enhance the X-ray image through
software and to allow near-real-time analysis. The Company expects that
it will be possible to electronically transmit these images to allow
off-site analysis by another radiologist. The Company believes this
technology may also provide better images of dense breast tissue, which
is often found in younger women. The Company is currently collecting
clinical data to be submitted with the Company's 510(k) application to
the U.S. Food and Drug Administration (FDA), which must grant market
clearance before this system can be sold commercially. The Company has
designed its new, high-end conventional mammography systems so that
radiologists can upgrade to digital technology when it becomes available.
The Company believes that the digital imaging technology being developed
for this system may be adaptable to its general and specialized
radiography systems, and the Company will seek to develop applications in
these markets. The Company is also working on a more advanced version of
its digital technology, which incorporates a flat-panel, direct-digital
detector and could provide still more information for earlier diagnoses.
As of September 28, 1996, ThermoTrex owned 22,883,798 shares of the
common stock of the Company, representing 80% of such stock outstanding.
A publicly traded subsidiary of Thermo Electron Corporation (Thermo
Electron), ThermoTrex, in addition to providing the Company's medical
imaging products, supplies laser-based hair-removal services and
personal-care products through its ThermoLase subsidiary and conducts
advanced technology research. ThermoTrex is currently developing a laser
communication system and products for the avionics market, and is
pursuing industrial applications for its advanced-materials technology.
Thermo Electron is a world leader in environmental monitoring and
analysis instruments, biomedical products such as heart-assist devices,
paper-recycling and papermaking equipment, biomass electric power
generation, and other specialized products and technologies. Thermo
Electron also provides a range of services related to environmental
quality.
Forward-looking Statements
Forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report
on Form 10-K. These statements involve a number of risks and
uncertainties, including those detailed under the caption "Forward-
looking Statements" in the Registrant's Fiscal 1996 Annual Report to
Shareholders incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company conducts its business in one industry segment.
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(c) Description of Business
(i) Principal Services and Products
Breast Cancer Detection
Mammography Systems. Most experts agree that mammography, the X-ray
imaging of breast tissue, is the best method for detecting breast cancer.
The Company designs, manufactures, and markets mammography systems that
are generally differentiated on the basis of price and performance. The
Company's high-end models are the recently introduced Lorad M-IV and the
Bennett Contour. Many of the Lorad M-IV's features were developed in
response to user demands, including the ability to be upgraded. The
Bennett Contour offers a patented tilt C-arm that permits the system to
tilt toward or away from the patient to aid in imaging breast tissue. The
Company's lower-priced models are the Lorad M-III and the Bennett MF-150,
which do not offer all of the features of the high-end models and are
marketed to more cost-conscious customers. In addition, the Company
offers the Lorad T-350 and the Bennett MD-5 mobile mammography systems.
Successful imaging of dense breast tissue requires high-contrast
images. The Company recently introduced a new proprietary High-
Transmission Cellular (HTC)(TM) grid that, compared with existing grids,
reduces X-ray scattering while blocking fewer primary X-rays, resulting
in higher-contrast images with lower radiation doses. The HTC grid is
currently available on the Lorad M-IV and will be available on the
Bennett Contour.
The Company currently has prototype full-breast digital mammography
systems in operation at Good Samaritan Hospital in New York and at the
University of Virginia Medical Center. The Company expects to submit data
collected using this prototype to the FDA for clearance, which is
required before the Company can commercially market its full-breast
digital imaging system.
The Company is currently developing a next-generation full-breast
digital mammography system, which would replace the film with a
solid-state detector capable of directly recording the X-ray image in an
electronic format. The system is designed to substantially increase image
contrast without a significant decrease in image resolution.
The Company believes that demand in the market for mammography
systems is driven primarily by technological innovation that results in
better image quality. Although growth of the installed base has slowed,
demand for new systems continues as older models are replaced with those
offering technological innovations. In addition, the Company believes
that the market outside the United States will grow as more countries
adopt mammography quality standards similar to those recently adopted in
the United States.
Minimally Invasive Stereotactic Breast-biopsy Systems. Mammography
is only one of the first steps in the diagnosis of breast cancer. If a
mammogram reveals a suspicious lesion that cannot be identified as benign
or malignant, the next step typically is to perform a biopsy to remove
cells from the suspicious lesion to determine whether or not they are
cancerous.
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Traditionally, biopsies have been performed in open surgery under
general anesthetic. Surgical biopsies can be painful procedures, and
surgeons generally remove a large area of breast tissue, about the size
of a golf ball, to ensure the collection of tissue from the suspicious
lesion. These surgeries can leave visible scarring on the breast and scar
tissue in the breast that can make detecting cancers in future mammograms
more difficult.
The Company offers a variety of minimally invasive stereotactic
breast-biopsy systems that provide an alternative to surgical biopsy.
These stereotactic breast-biopsy systems were introduced to address the
disadvantages of open surgical biopsy and can be performed on an
outpatient basis under local anesthetic. These procedures generally
remove only a small tissue sample, resulting in minimal scarring both on
and in the breast.
The Company offers a dedicated prone table, the StereoGuide(R), for
customers that perform a significant number of biopsy procedures. With
the dedicated prone table, the patient lies down with her breast
suspended through an aperture in the table. X-ray imaging equipment and a
needle-gun attachment (not manufactured by the Company) are mounted below
the table. Patients on the prone table are more comfortable, increasing
the likelihood they will remain still during the procedure, and cannot
see the needle being inserted in the breast, reducing the chance of
fainting. Recent studies indicate that stereotactic needle biopsy is
equally effective compared with surgical biopsy in determining whether a
suspicious lesion is malignant. The typical cost of a stereotactic needle
biopsy procedure is approximately one third of the price for an open
surgical biopsy. The Company's StereoGuide system is the subject of a
lawsuit alleging infringement of a Fischer Imaging Corporation (Fischer)
patent. See "Item 3 - Legal Proceedings."
The Company also offers upright, add-on systems, the StereoLoc II
and the Cytoguide, that can be attached to most of its mammography
systems. Add-on systems principally consist of a needle-gun attachment
that fits onto the mammography system in place of the breast-compression
paddle. The stereotactic images required to plot the location of the
lesion are taken by the mammography system. These systems enhance the
functionality of a mammography system and are beneficial to customers who
have only periodic demand for stereotactic needle-biopsy procedures.
The Company offers a digital spot imaging option with all of its
stereotactic breast-biopsy systems. Although not capable of imaging the
entire breast, digital spot imagers are capable of capturing an area
large enough to cover a suspicious lesion. The Company's digital spot
imaging systems can record and display an X-ray image in approximately 10
seconds. Since the image is recorded in electronic format, a computer can
quickly plot the location of the lesion and aim the needle gun once the
lesion has been located with a cursor on the computer screen. A
stereotactic breast-biopsy procedure using digital spot imaging can be
performed in as short a time as 10 minutes, compared with a typical time
of 45 minutes using a film-based system.
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The Company believes that the stereotactic breast-biopsy system
market will grow as the procedure becomes more widely accepted by the
medical community and as pressures to contain healthcare costs increase.
General Radiography
The Company addresses the general radiography (X-ray) market
through its Bennett and Continental subsidiaries. Bennett designs,
manufactures, and markets office-based X-ray systems, which are basic
systems generally used in medical outpatient facilities, such as doctors'
offices and surgi-care centers. Bennett has focused on this segment of
the market by providing low-cost, reliable systems. Bennett and
Continental also design, manufacture, and market the more sophisticated
and expensive radiographic systems typically used in hospitals and
clinics. In addition, Bennett manufactures and markets imaging systems
designed specifically for chiropractors and veterinarians.
The U.S. market for general X-ray systems is stable, and consists
primarily of replacement sales as customers upgrade older equipment. The
Company believes that the international market is substantially larger
than the U.S. market and that the installed base of systems is still
growing, particularly in developing countries. The Company has recently
expanded its international sales efforts.
The Company's radiographic systems typically include a generator, a
tube stand, and a table or bucky structure to hold the film. For each of
these components the Company offers a variety of options and features
that can be configured to create systems with different price and
performance characteristics. A high-end, hospital-based system may
consist of a 60-kilowatt, high-frequency generator; a ceiling-mounted
overhead tube crane; a four-way floating, elevating table; and an upright
bucky stand. An office-based system may consist of a 25-kilowatt,
high-frequency generator; a floor-mounted, free-standing tube stand; and
an upright bucky stand. The Company's general radiography product line
features high-frequency generators with anatomical programming and other
operator-selected features.
The Company offers two linear tomography systems: the Bennett
BT-300 and the Continental Precision Movement Tomography (PMT)
radiographic/tomographic system. In a linear tomography procedure, the
X-ray tube sweeps over the patient in one direction with the film tray
sweeping under the patient in the opposite direction. The resulting image
provides an unobstructed view at a desired plane within the patient's
body, of the kidneys, for example. The Continental PMT system uses a
patented robotic positioning system to rapidly position the equipment and
the patient for either tomographic or general radiography procedures. The
Company believes that for a number of applications its tomography systems
may be a cost-effective alternative to computed tomography scanners.
The Company believes digital imaging will have significant
application in the general and specialized radiographic markets and that
the technology it develops for its full-breast digital imaging system may
be adaptable to these applications. In general X-ray applications, the
Company believes digital imaging will produce better quality images and
reduce operating costs by eliminating the need for film, processing
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equipment, and chemicals. In addition, digital imaging will permit the
electronic storage of images on magnetic or optical media, as well as the
transmission of images to multiple locations. Furthermore, the Company
believes digital imaging could make the image intensifiers, which are
large and expensive components in certain imaging systems, obsolete.
Cardiac Catheterization, Angiography, and Electrophysiology
In May 1996, the Company acquired XRE, a designer, manufacturer, and
marketer of complete cardiac catheterization laboratories (also called
cath labs) and positioners for cardiovascular imaging systems. XRE's
imaging equipment is used in cath labs where angiography (examination of
the blood vessels using X-rays following the injection of a radio-opaque
contrast medium) is performed by an interventional cardiologist. XRE
systems consist of a mechanical positioner, which is used to position an
X-ray source and an image intensifier around a patient who lies prone on
an angiographic table. The entire system is designed to provide real-time
images of the heart and coronary arteries for physicians performing
interventional procedures, such as a diagnostic angiogram or balloon
angioplasty.
Coronary artery disease is the leading cause of death in the United
States and represents an increasing health risk throughout the world. One
of the most common forms of cardiovascular disease is atherosclerosis,
which can lead to atheroma, or a narrowing of the arteries. In addition
to the coronary arteries, atherosclerosis can effect blood vessels in the
brain, legs, and arteries throughout the body.
Traditionally, angiography has been the tool of choice for
diagnosing atherosclerosis and certain other cardiovascular diseases
because it provides the clearest and most accurate depiction of the
coronary arteries. Cardiac angiography is performed in a cardiac
catheterization laboratory and involves X-ray imaging of the heart and
large blood vessels following the injection of a radio-opaque solution
into the patient.
Historically, the primary form of treatment for coronary artery
disease has been open-heart bypass surgery. However, in recent years
significant advances have been made in the treatment of atherosclerosis
and other coronary artery diseases without extensive surgery. A common
alternative treatment is balloon angioplasty, a procedure in which a
segment of a narrowed coronary artery is stretched by the inflation of a
balloon introduced into the affected artery. A more recent development
involves the permanent implantation of a device called a stent into the
blood vessel in order to keep the restricted vessel open once it has been
expanded by balloon angioplasty.
Angioplasty and stent placement are less invasive than surgery and
generally do not require lengthy hospitalization (typically no more than
two days). The Company believes vascular and cardiovascular surgeons will
increasingly use balloon angioplasty and these other less-invasive
techniques to treat vascular diseases. These procedures are performed
under the guidance of X-ray imaging such as that provided by the
Company's equipment.
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XRE's products include the Unicath C cardiovascular imaging system
and the Unicath LP biplane cardiovascular imaging system. XRE recently
introduced the Unicath SP, its newest single-plane cardiovascular imaging
system, with enhanced features such as a larger X-ray tube and advanced
image intensifier with Full-Frame(TM) Zoom to further enhance the imaging
of interventional devices such as stents.
To complement its Unicath SP labs, XRE has developed a line of
digital image processing systems, workstations, and archive alternatives.
Each of these products uses an "open architecture" to facilitate
connectivity with industry-standard networks and storage devices. XRE's
new DVFX digital video filter system acquires, enhances, and displays
high-resolution images at 30 frames per second to clearly image and
freeze the motion of the heart. The Unicath SP also has XRE's exclusive
Full-Frame Zoom feature, which further improves visualization of
interventional devices by enlarging the presentation on TV image
monitors.
Many of XRE's X-ray positioners are based on its parallelogram
design. This design permits multi-angular views of the heart and coronary
arteries while the patient remains stationary on the table.
Both XRE and Continental design, manufacture, and sell
electrophysiology systems that are used in the diagnosis and treatment of
cardiac arrhythmia, which is characterized by the sudden, erratic beating
of the heart and can result in cardiac arrest. Both the Continental EP
2000 system and XRE's Unicath EP consist of a C-arm positioner, an
elevating/tilting table, and a high-frequency X-ray generator. XRE's
Unicath EP includes a parallelogram positioner, a similar
elevating/tilting table, and a constant-potential generator. In addition,
XRE offers a biplane version of Unicath EP, which provides X-ray views
from two different angles simultaneously, thereby shortening lengthy
electrophysiology procedures by at least half. Both XRE systems feature
variable-rate pulsed fluoroscopy with high-performance digital imaging.
Radiographic Fluoroscopy Systems
Through its Continental subsidiary, acquired in September 1996, the
Company designs, manufactures, and markets radiographic fluoroscopy
products. An R/F system is able to record dynamic events by capturing a
series of images in a short period of time. For example, R/F systems are
used for various gastrointestinal procedures to image in real-time the
progress of a radio-opaque ingested solution (typically barium) through
the digestive tract.
Continental produces R/F systems using advanced high-frequency
generators that provide pulsed power, resulting in substantially reduced
radiation exposure to the patient. Continental's R/F products include the
new DigiSpot 2000, a high-speed digital imaging system that records the
image in an electronic format, permitting the electronic storage of
images on magnetic or optical media, and the transmission of images to
multiple locations with image quality comparable with film-based systems.
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Other Products
The Company uses its technological and manufacturing expertise to
produce a number of other products.
The Company's LPX-160 portable imaging system is based on the
Company's medical imaging technology. This system is designed to produce
high-resolution images of metals, composites, and plastics. Customers for
this system have included the United States Air Force, several commercial
airlines, and Canadian and American utilities.
The Company manufactures an X-ray source that is used as a component
to a fill-measuring device sold by Thermedics Inc., a publicly traded,
majority-owned subsidiary of Thermo Electron. During fiscal 1996*, sales
of such devices under this arrangement totaled $361,000.
The Company also manufactures the lasers used in ThermoLase
Corporation's hair-removal process. ThermoLase is a publicly traded,
majority-owned subsidiary of ThermoTrex. During fiscal 1996, sales of
these lasers totaled $8,549,000. The Company has committed to deliver
additional lasers to ThermoLase under this arrangement for approximately
$6.4 million. The Company anticipates that these lasers will be delivered
in fiscal 1997.
Sales and Distribution
The Company sells its products through a worldwide network of more
than 100 independent dealers and, to a lesser extent, on a direct basis.
Each of the Company's operating units employs regional sales managers who
oversee the performance of the independent dealers on a domestic and
international basis and, in certain instances, support direct sales
efforts. The Company and its independent dealers maintain a staff of
factory-trained service technicians to support its systems on a worldwide
basis.
OEM Agreements
In addition to manufacturing and marketing its own systems, the
Company manufactures systems and system components as an OEM for other
medical equipment companies such as United States Surgical Corporation
(U.S. Surgical), the GE Medical Systems division of General Electric
Company, Inc. (GE), the Philip's Medical Systems North America Company
subsidiary of Philips N.V. (Philips), and the Picker International, Inc.
subsidiary of GEC, Inc. (Picker International). See "Dependency on a
Single Customer."
Government Regulation
The Company's products and its research, development, and
manufacturing activities are subject to regulation by numerous
* In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
References to "fiscal 1996," "fiscal 1995," and "1994" herein are for
the year ended September 28, 1996, the nine months ended September 30,
1995, and the year ended December 31, 1994, respectively.
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governmental authorities in the United States and other countries. In the
United States, medical devices are subject to rigorous FDA review. The
federal Food, Drug and Cosmetic Act, the Public Health Services Act, and
other federal statutes and regulations govern or influence the testing,
manufacture, safety, labeling, storage, record keeping, reporting,
approval, advertising, and promotion of products such as those offered by
the Company. Noncompliance with applicable requirements can result in
fines, recalls, or seizures of products, total or partial suspension of
production, and criminal prosecution.
The Company is also subject to periodic inspections by the FDA,
whose primary purpose is to audit the Company's compliance with Good
Manufacturing Practices (GMP). Enforcement of GMP regulations has
increased significantly in the last several years, and the FDA has
publicly stated that compliance will be more strictly scrutinized. In the
event that the Company or any of its facilities was determined to be in
noncompliance, and to the extent that the Company or such facility was
unable to convince the FDA of the adequacy of its compliance, the FDA has
the power to assert penalties or remedies, including a recall or
temporary suspension of product shipments until compliance is achieved.
Such penalties or remedies could have a material adverse effect on the
Company's business and results of operations.
The Company is also regulated by the FDA under the Radiation
Control for Health and Safety Act of 1968 (Public Law 90-602), which
specifically addresses radiation-emitting products. Under this law, the
Company is responsible for submitting initial reports on all new X-ray
systems that require certification to FDA performance standards. The
Company must also submit a quality assurance and test program for FDA
review to ensure continued compliance with X-ray performance standards.
Historically, the Company has been subject to recalls of certain of
its products from time to time under Public Law 90-602. Under this law,
any product that is not in compliance with the relevant performance
standard must be repaired, refurbished, or returned at the manufacturer's
expense.
(ii) New Products
The Company's business includes research and development of new
products. (See "Principal Products and Services.")
(iii) Raw Materials
Raw materials, components, and supplies purchased by the Company
are either available from a number of different suppliers or from
alternative sources that could be developed without a material adverse
effect on the Company. To date, the Company has experienced no
difficulties in obtaining these materials.
(iv) Patents, Licenses, and Trademarks
The Company's policy is to protect its intellectual property rights
and to apply for patent protection when appropriate. The Company
currently holds numerous issued United States patents expiring at various
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dates ranging from 2003 to 2014. The Company also has more than 10
applications pending for additional United States patents and a number of
foreign counterparts for its patents in various foreign countries. In
addition, the Company has registered for other trademarks. Patent
protection provides the Company with competitive advantages with respect
to certain systems. The Company believes, however, that technical
know-how and trade secrets are more important to its business than patent
protection.
Competitors of the Company and other third parties hold issued
patents and pending patent applications relating to imaging and other
related technologies, and it is uncertain whether these patents and
patent applications will require the Company to alter its products or
processes, pay licensing fees, or cease certain activities. See
information under the heading "Risks Associated With Pending and
Threatened Patent Litigation" under the caption "Forward-looking
Statements" in the Registrant's Fiscal 1996 Annual Report to Shareholders
incorporated herein by reference and "Item 3 - Legal Proceedings."
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales
of products and services.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms
extended to customers that would have a material adverse effect on the
Company's working capital.
(vii) Dependency on a Single Customer
Revenues from OEM sales of a modified design of the Company's
stereotactic prone breast-biopsy system to U.S. Surgical accounted for
11% of the Company's total revenues in fiscal 1996.
(viii) Backlog
The backlog of firm orders was $71.7 million as of September 28,
1996, compared with $45.4 million as of September 30, 1995. The Company
anticipates that substantially all of the backlog at September 28, 1996,
will be shipped during fiscal 1997.
(ix) Government Contracts
Not applicable.
(x) Competition
The healthcare industry in general, and the market for imaging
products in particular, is highly competitive. The Company competes with
a number of companies, many of which have substantially greater
financial, marketing, and other resources than the Company. The Company's
competitors include large companies such as GE, Philips, the Siemens
Corporation subsidiary of Siemens AG (Siemens), Toshiba American Medical
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Systems, Inc. and Toshiba America MRI, Inc. (collectively, Toshiba),
Shimadzu, and Picker International, which compete in most diagnostic
imaging modalities, including X-ray imaging. In addition, a significant
portion of the Company's sales are to U.S. Surgical, GE and Philips
through OEM arrangements. The products sold through such OEM agreements
compete with those offered by the Company and its independent dealers.
The Company's StereoLoc II, Cytoguide, and StereoGuide stereotactic
breast-biopsy systems compete with products offered by GE, Fischer
Imaging Corporation, and Philips, and with conventional surgical biopsy
procedures. The Company competes in these markets primarily on the basis
of product features, product performance, and reputation as well as price
and service. The Company believes that competition is likely to increase
as a result of healthcare cost-containment pressures and the development
of alternative diagnostic and interventional technologies.
(xi) Research and Development
The Company maintains active programs for the development of new
mammography and X-ray imaging systems. The Company's current development
efforts are focused on the development of a full-breast digital
mammography system, X-ray sensors for direct-detection digital imaging
technology, and the enhancement of existing mammography products. The
Company believes that the digital imaging technology developed for this
system also will be readily adaptable to general radiographic and
diagnostic cardiac imaging systems.
One of the Company's long-term research and development programs is
the development of a Sonic CT system that uses acoustic waves to form
high-resolution images of breast tissue. The Company has deferred
spending additional resources on Sonic CT at the present time, so that it
may concentrate its resources more directly on its digital imaging
research and development.
The Company is developing products based on digital imaging
technology developed by scientists at ThermoTrex. ThermoTrex has granted
the Company a fully paid, exclusive, worldwide, perpetual license to use
such technology in the fields of mammography and general radiography.
Under the terms of the license agreement with ThermoTrex, if the Company
elects to fund approximately $6 million of the research and development
in the fields of radiographic fluoroscopy, mobile C-arm fluoroscopy, and
cardiography/angiography over a three-year period, the Company's license
will be extended to cover such fields. As of September 28, 1996, the
Company had cumulatively funded $1.8 million under the agreement.
Research and development expenses of the Company were $18.9
million, $8.6 million, and $10.7 million for fiscal 1996, the nine months
ended September 30, 1995, and 1994, respectively.
(xii) Environmental Protection Regulations
The Company believes that compliance with federal, state, and local
environmental regulations will not have a material adverse effect on its
capital expenditures, earnings, or competitive position.
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(xiii) Number of Employees
As of September 28, 1996, the Company employed 992 persons.
(d) Financial Information about Exports by Domestic Operations
Financial information about exports by domestic operations is
summarized in Note 10 to Consolidated Financial Statements in the
Registrant's Fiscal 1996 Annual Report to Shareholders and is
incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Fiscal Year First Became
Name Age Executive Officer)
------------------------------------------------------------------------
Hal Kirshner 55 Chief Executive Officer, President,
and Director (1995)
John N. Hatsopoulos 62 Vice President, Chief Financial
Officer, and Director (1995)
Paul F. Kelleher 54 Chief Accounting Officer (1995)
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified, or until earlier
resignation, death, or removal. Messrs. Hatsopoulos and Kelleher have
held comparable positions for at least five years with the Company or
Thermo Electron. Mr. Kirshner has been President of Lorad since February
1991. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo
Electron, but devote such time to the affairs of the Company as the
Company's needs reasonably require.
Item 2. Properties
The Company owns two office and manufacturing facilities: a 63,500
square-foot facility in Danbury, Connecticut, and a 163,000 square-foot
facility in Broadview, Illinois. The Company leases a 120,000 square-foot
office and manufacturing facility in Copiague, New York, under a lease
expiring in 2005, and a 156,000 square-foot office and manufacturing
facility in Littleton, Massachusetts, under a lease expiring in 2012. The
Company has entered into a lease for a new 60,000 square-foot building to
be constructed adjacent to its existing facility in Danbury, Connecticut.
The lease will commence upon completion of the building, which is
expected to occur in December 1996, and has a term of 10 years.
The Company believes that its facilities are in good condition and
are suitable and adequate to meet current needs.
Item 3. Legal Proceedings
In April 1992, Fischer Imaging Corporation (Fischer) commenced a
lawsuit in the United States District Court, District of Colorado,
13PAGE
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against the Company's Lorad division, alleging that Lorad's prone breast-
biopsy system infringes a Fischer patent on a precision mammographic
needle-biopsy system. As of September 28, 1996, the Company had
recognized aggregate revenues of approximately $63.1 million from the
sale of such systems, of which $34.4 million represents sales prior to
October 1, 1995. 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 the amount that the Company may eventually
be required to pay in expenses or in such damages.
In connection with the organization of the Company, ThermoTrex
agreed to indemnify the Company for any and all cash damages in
connection with the Fischer lawsuit with respect to sales of the
Company's products occurring prior to October 1995, when Lorad was
transferred to the Company. Notwithstanding this indemnification, the
Company would be required to report as an expense in its results of
operations the full amount, including any reimbursable amount, of any
damages in excess of the amount accrued (approximately $2 million as of
September 28, 1996), with any indemnification payment it receives from
ThermoTrex being treated as a contribution to shareholders' investment.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
14PAGE
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.01 par value, and dividend policy is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's Fiscal 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's Fiscal 1996 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's Fiscal 1996 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements and
Supplementary Data are included in the Registrant's Fiscal 1996 Annual
Report to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
15PAGE
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
16PAGE
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1) The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2) The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
17PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed by the undersigned, thereunto duly authorized.
Date: December 5, 1996 TREX MEDICAL CORPORATION
By: Hal Kirshner
-------------------
Hal Kirshner
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated, as of December
5, 1996.
Signature Title
By: Hal Kirshner President, Chief Executive Officer,
------------------------ and Director
Hal Kirshner
By: John N. Hatsopoulos Vice President, Chief Financial
------------------------ Officer, and Director
John N. Hatsopoulos
By: Paul F. Kelleher Chief Accounting Officer
------------------------
Paul F. Kelleher
By: Gary S. Weinstein Chairman of the Board and Director
------------------------
Gary S. Weinstein
By: Dr. Elias P. Gyftopoulos Director
------------------------
Dr. Elias P. Gyftopoulos
By: Robert C. Howard Director
------------------------
Robert C. Howard
By: Earl R. Lewis Director
------------------------
Earl R. Lewis
By: Dr. James W. May, Jr. Director
------------------------
Dr. James W. May, Jr.
By: Hutham S. Olayan Director
------------------------
Hutham S. Olayan
By: Anthony J. Pellegrino Director
------------------------
Anthony J. Pellegrino
By: Firooz Rufeh Director
------------------------
Firooz Rufeh
By: Kenneth Y. Tang Director
------------------------
Kenneth Y. Tang
18PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Trex Medical Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Trex Medical
Corporation's Annual Report to Shareholders incorporated by reference in
this Form 10-K, and we have issued our report thereon dated November 1,
1996. Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedule
listed in Item 14 on page 17 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
November 1, 1996
19PAGE
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Schedule II
TREX MEDICAL CORPORATION
Valuation And Qualifying Accounts
(In thousands)
Balance Provision Balance
at Charged Accounts at
Beginning to Written End of
Description of Period Expense Off Other (a) Period
----------------------------------------------------------------------------
Year Ended
September 28, 1996
Allowance for
Doubtful Accounts $ 870 $ 273 $ (151) $ 272 $1,264
Nine Months Ended
September 30, 1995
Allowance for
Doubtful Accounts $ 525 $ 25 $ - $ 320 $ 870
Year Ended
December 31, 1994
Allowance for
Doubtful Accounts $ 350 $ 175 $ - $ - $ 525
(a)Allowances of businesses acquired during the year as described in Note 3
to Consolidated Financial Statements in the Registrant's Fiscal 1996
Annual Report to Shareholders.
20PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.1 Certificate of Incorporation, as amended, of the
Registrant (filed as Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-2926]
and incorporated herein by reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 [Reg.
No. 333-2926] and incorporated herein by reference).
4.1 $42,000,000 Subordinated Convertible Note due 2000 of
the Registrant issued to ThermoTrex (filed as Exhibit
4.2 to the Registrant's Registration Statement on Form
S-1 [Reg. No. 333-2926] and incorporated herein by
reference).
10.1 Corporate Services Agreement dated as of September 27,
1995 between Thermo Electron Corporation (Thermo
Electron) and the Registrant (filed as Exhibit 10.1 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 333-2926] and incorporated herein by
reference).
10.2 Thermo Electron Corporate Charter, as amended and
restated effective January 3, 1993 (incorporated by
reference herein from Exhibit 10.1 to Thermo Electron's
Annual Report on Form 10-K for the fiscal year ended
January 2, 1993 (File No. 1-8002)).
10.3 Tax Allocation Agreement dated as of September 27, 1995
between Thermo Electron and the Registrant (filed as
Exhibit 10.3 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 333-2926] and incorporated herein
by reference).
10.4 Master Repurchase Agreement dated as of September 27,
1995 between Thermo Electron and the Registrant (filed
as Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-2926] and
incorporated herein by reference).
10.5 Master Guarantee Reimbursement Agreement dated as of
September 27, 1995 between Thermo Electron and the
Registrant (filed as Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-2926]
and incorporated herein by reference).
21PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.6 Master Guarantee Reimbursement Agreement dated as of
September 27, 1995 between ThermoTrex and the
Registrant (filed as Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-2926]
and incorporated herein by reference).
10.7 OEM Agreement between Philips Medical Systems North
American Company and Lorad dated as of November 2, 1993
(filed as Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-2926] and
incorporated herein by reference).
10.8 OEM Agreement between Philips Medical Systems North
American Company and Lorad dated November 17, 1993
(filed as Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-2926] and
incorporated herein by reference).
10.9 Purchase Agreement between General Electric Company and
Bennett dated November 17, 1994 (filed as Exhibit 10.9
to the Registrant's Registration Statement on Form S-1
[Reg. No. 333-2926] and incorporated herein by
reference).
10.10 Agreement between Philips Medizin Systeme
Unternehmensbereich der Philips GmbH and Bennett dated
February 12, 1992 (filed as Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1 [Reg.
No. 333-2926] and incorporated herein by reference).
10.11 Distributor Agreement between ThermoTrex and U.S.
Surgical Corporation dated October 20, 1995, as amended
(filed as Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-2926]
and incorporated herein by reference).
10.12 Note Purchase and Sale Agreement dated as of October 2,
1995 between ThermoTrex and the Registrant (filed as
Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-2926] and
incorporated herein by reference).
10.13 Lease dated as of September 15, 1995, by and among
ThermoTrex and BK Realty Associates, L.P. and Calrob
Realty Associates (filed as Exhibit 10.26 to
ThermoTrex's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 [File No. 1-10791] and
incorporated herein by reference).
22PAGE
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.14 Lease dated as of December 20, 1995, between Melvyn J.
Powers and Mary P. Powers D/B/A M&M Realty and Lorad,
as amended (filed as Exhibit 10.14 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-2926]
and incorporated herein by reference).
10.15 Equity Incentive Plan of the Registrant (filed as
Exhibit 10.15 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-2926] and
incorporated herein by reference).
10.16 Deferred Compensation Plan for Directors of the
Registrant (filed as Exhibit 10.16 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-2926]
and incorporated herein by reference).
10.17 Directors Stock Option Plan of the Registrant (filed as
Exhibit 10.17 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 333-2926] and
incorporated herein by reference).
10.18 Form of Indemnification Agreement for Officers and
Directors (filed as Exhibit 10.18 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 333-2926]
and incorporated herein by reference).
In addition to the stock-based compensation plans of
the Registrant, the executive officers of the
Registrant may be granted awards under stock-based
compensation plans of Thermo Electron Corporation and
ThermoTrex Corporation for services rendered to the
Registrant or such affiliated corporations. Such plans
were either filed as Exhibits 10.21 through 10.44 and
10.73 through 10.76 to the Annual Report on Form 10-K
of Thermo Electron for the fiscal year ended December
30, 1995 [File No. 1-8002] and are incorporated herein
by reference or are filed herewith as Exhibit 10.19
below.
10.19 Thermo Electron Corporation - Thermo Fibergen Inc.
Nonqualified Stock Option Plan.
10.20 License Agreement between the Registrant and ThermoTrex
dated as of October 16, 1995 (filed as Exhibit 10.88 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 333-2926] and incorporated herein by
reference).
10.21 Stock Holding Assistance Plan and Form of Promissory
Note.
23PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.22 Lease dated May 29, 1996 between John K. Grady, Trustee
of Concord Associates Foster Street Trust and XRE
Acquisition Corp. (filed as Exhibit 10.89 to the
Registrant's Registration Statement on Form S-1 [Reg.
No. 333-2926] and incorporated herein by reference).
10.23 Asset Purchase Agreement dated September 4, 1996 by and
among CXR Acquisition Corp., the Registrant,
Continental X-Ray Corporation, Alphatek Corporation,
Broadview Manufacturing Corporation, Haymarket Square
Associates, Advanced Medical Imaging, Inc.,
Trans-Continental X-ray Corporation and the
Stockholders and Partners thereof (filed as Exhibit
10.21 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 333-15381] and incorporated herein
by reference).
11 Statement re: Computation of Earnings per Share.
13 Annual Report to Shareholders for the fiscal year ended
September 28, 1996 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant (filed as Exhibit 21 to
the Registrant's Registration Statement on Form S-1
[Reg. No. 333-15381] and incorporated herein by
reference).
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Exhibit 10.19
THERMO ELECTRON CORPORATION
THERMO FIBERGEN NONQUALIFIED STOCK OPTION PLAN
1. Purpose
This Nonqualified Stock Option Plan (the "Plan") is intended
to encourage ownership of Common Stock, $0.01 par value (the
"Common Stock"), of Thermo Fibergen Inc. ("Subsidiary"), a
subsidiary of Thermo Electron Corporation (the "Company"), by
persons selected by the Board of Directors (or a committee
thereof) in its sole discretion, including directors, executive
officers, key employees and consultants of the Company and its
subsidiaries, and to provide additional incentive for them to
promote the success of the business of the Company and
Subsidiary. The Plan is intended to be a nonstatutory stock
option plan.
2. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of
Directors of the Company.
3. Stock Subject to Plan
At no time shall the number of shares of the Common Stock
then outstanding which are attributable to the exercise of
options granted under the Plan plus the number of shares then
issuable upon the exercise of outstanding options granted under
the Plan exceed 1 50,000 shares, subject
provisions of paragraph 11 of the Plan. Shares to be issued upon
the exercise of options granted under the Plan shall be shares of
Subsidiary beneficially owned by the Company. If any option
expires or terminates for any reason without having been
exercised in full, the unpurchased shares subject thereto shall
again be available for options thereafter to be granted.
4. Administration
The Plan shall be administered by a committee (the
"Committee") composed of the members of the Board of Directors of
the Company, no member of which shall act upon any matter
exclusively affecting any option granted or to be granted to
himself or herself under the Plan. Subject to the provisions of
the Plan, the Committee shall have complete authority, in its
discretion, to make the following determinations with respect to
each option to be granted by the Company: (a) the person to
receive the option (the "Optionee"); (b) the time of granting the
option; (c) the number of shares subject thereto; (d) the option
price; (e) the option period; and (f) the terms of the option and
form of option agreement (which need not be identical, but which
shall conform to the applicable terms and conditions of the Plan
and contain such other provisions as the Board of Directors deems
PAGE
<PAGE>
advisable and not inconsistent with the Plan). In making such
determinations, the Committee may take into account the nature of
the services rendered by the Optionees, their present and
potential contributions to the success of the Company and/or one
or more of its subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to it, to determine the terms and
provisions of the respective option agreements (which need not be
identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's
determinations on the matters referred to in this paragraph 4
shall be conclusive.
5. Eligibility
An option may be granted to any person selected by the
Committee in its sole discretion.
6. Time of Granting Options
The granting of an option shall take place at the time
specified by the Committee. Only if expressly so provided by the
Committee shall the granting of an option be regarded as taking
place at the time when a written option agreement shall have been
duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement
shall provide, among other things, that it does not confer upon
an Optionee any right to continue in the employ of the Company
and/or one or more of its subsidiaries or to continue as a
director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such
subsidiary to terminate the employment of the Optionee at any
time if the Optionee is an employee, to remove the Optionee as a
director of the Company if the Optionee is a director, or to
terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
An option may become exercisable immediately or in such
installments, cumulative or noncumulative, as the Committee may
determine.
8. Exercise of Option
An option may be exercised in accordance with its terms by
written notice of intent to exercise the option, specifying the
number of shares of stock with respect to which the option is
then being exercised. The notice shall be accompanied by payment
in the form of cash or shares of Subsidiary Common Stock (the
"Tendered Shares") with a then current market value equal to the
option price of the shares to be purchased; provided, however,
PAGE
<PAGE>
that such Tendered Shares shall have been acquired by the
Optionee more than six months prior to the date of exercise,
unless such requirement is waived in writing by the Company.
Against such payment the Company shall deliver or cause to be
delivered to the Optionee a certificate for the number of shares
then being purchased, registered in the name of the Optionee or
other person exercising the option. If any law or applicable
regulation of the Securities and Exchange Commission or other
body having jurisdiction in the premises shall require the
Company, Subsidiary or the Optionee to take any action in
connection with shares being purchased upon exercise of the
option, exercise of the option and delivery of the certificate or
certificates for such shares shall be postponed until completion
of the necessary action, which shall be taken at the Company's
expense.
9. Transferability
Options shall not be transferable, otherwise than by will or
the laws of descent and distribution, except as may be authorized
by the Committee, in its sole discretion. T he Committee may, in
its discretion, determine the extent to which options granted to
an Optionee shall be transferable, and such provisions permitting
transfer shall be set forth in the written option agreement
executed and delivered by or on behalf of the Company and the
Optionee.
10. Vesting, Restrictions and Termination of Options
The Committee, in its sole discretion, may determine the
manner in which options shall vest, the rights of the Company to
repurchase the shares issued upon the exercise of any option and
the manner in which such rights shall lapse, and the terms upon
which any option granted shall terminate. The Board of Directors
shall have the right to accelerate the date of exercise of any
installment or to accelerate the lapse of the Company's
repurchase rights. All of such terms shall be specified in a
written option agreement executed and delivered by or on behalf
of the Company and the Optionee to whom such option shall be
granted.
11. Adjustment of Number of Shares
Each stock option agreement shall provide that in the event
of any stock dividend payable in the Common Stock or any split-up
or contraction in the number of shares of the Common Stock
occurring after the date of the agreement and prior to the
exercise in full of the option, the number of shares for which
the option may thereafter be exercised shall be proportionately
adjusted and the price to be paid for each share subject to the
option shall be proportionately adjusted. Each such agreement
shall also provide that in case of any reclassification or change
of outstanding shares of the Common Stock or in case of any
consolidation or merger of Subsidiary with or into another
PAGE
<PAGE>
company or in case of any sale or conveyance to another company
or entity of the property of Subsidiary as a whole or
substantially as a whole, the Optionee shall, upon exercise of
the option, be entitled to receive shares of stock or other
securities in its place equivalent in kind and value to those
shares which he would have received if he had exercised the
option in full immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and had
continued to hold the shares subject to the option (together with
all other shares, stock and securities thereafter issued in
respect thereof) to the time of the exercise of the option;
provided, that if any recapitalization is to be effected through
an increase in the par value of the Common Stock without an
increase in the number of authorized shares and such new par
value will exceed the option price under such agreement, the
Company shall notify the Optionee of such proposed
recapitalization, and the Optionee shall then have the right,
exercisable at any time prior to such recapitalization becoming
effective, to purchase all of the shares subject to the option
which he has not theretofore purchased (anything in such
agreement to the contrary notwithstanding), but if the Optionee
fails to exercise such right before such recapitalization becomes
effective, the option price under such agreement shall be
appropriately adjusted. Each such agreement shall further
provide that upon dissolution or liquidation of Subsidiary, the
option shall terminate, but the Optionee (if at the time an
employee or director of the Company and/or any one or more of its
subsidiaries) shall have the right, immediately prior to such
dissolution or liquidation, to exercise the option to the full
extent not theretofore exercised; that no adjustment provided for
above shall apply to any share with respect to which the option
has been exercised prior to the effective date of such
adjustment; and that no fraction of a share or fractional shares
shall be purchasable or deliverable under such agreement, but in
the event any adjustment thereunder of the number of shares
covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the
nearest smaller whole number of shares. In the event of changes
in the outstanding Common Stock by reason of any stock dividend,
split-up, contraction, reclassification, or change of outstanding
shares of the Common Stock of the nature contemplated by this
paragraph 11, the number of shares of Common Stock available for
the purpose of the Plan as stated in paragraph 3 hereof shall be
correspondingly adjusted by the Committee.
12. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in
respect of shares as to which their options shall not have been
exercised, certificates issued and delivered and payment as
herein provided made in full, and shall have no rights with
respect to such shares not expressly conferred by this Plan.
13. Stock Reserved
PAGE
<PAGE>
The Company shall at all times during the term of the
options reserve and keep available such number of shares of the
Common Stock as will be sufficient to satisfy the requirements of
this Plan and shall pay all other fees and expenses necessarily
incurred by the Company in connection therewith.
14. Securities Laws Restrictions
Each Optionee exercising an option, at the request of the
Company, will be required to give a representation in form
satisfactory to counsel for the Company that he will not
transfer, sell or otherwise dispose of the shares received upon
exercise of the option at any time purchased by him, upon
exercise of any portion of the option, in a manner which would
violate the Securities Act of 1933, as amended, and the
regulations of the Securities and Exchange Commission thereunder
and the Company may, if required or at its discretion, make a
notation on any certificates issued upon exercise of options to
the effect that such certificate may not be transferred except
after receipt by the Company of an opinion of counsel
satisfactory to it to the effect that such transfer will not
violate such Act and such regulations.
15. Tax Withholding
The Company shall have the right to deduct from payments of
any kind otherwise due to an Optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to
any shares issued upon exercise of options under the Plan (the
"withholding requirements"). The Committee will have the right
to require that the Optionee or other appropriate person remit to
the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery
of any Common Stock pursuant to exercise of an option. If and to
the extent that such withholding is required, the Committee may
permit the Optionee or such other person to elect at such time
and in such manner as the Committee provides to have the Company
hold back from the shares to be delivered, or to deliver to the
Company, Common Stock having a value calculated to satisfy the
withholding requirements.
16. Termination and Amendment of Plan
The Board of Directors may at any time, and from time to
time, modify or amend the Plan in any respect.
Notwithstanding any other provisions hereof, the Plan shall
terminate on December 31, 2006 and no options shall be granted
hereunder thereafter.
EXHIBIT 10.21
TREX MEDICAL CORPORATION
STOCK HOLDING ASSISTANCE PLAN
(As adopted on July 19, 1996)
SECTION 1. Purpose.
The purpose of this Plan is to benefit Trex Medical
Corporation (the "Company") and its stockholders by encouraging
Key Employees to acquire and maintain share ownership in the
Company, by increasing such employees' proprietary interest in
promoting the growth and performance of the Company and its
subsidiaries and by providing for the implementation of the Stock
Holding Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Trex Medical Corporation, a Delaware corporation.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The Trex Medical Corporation Stock Holding
Assistance Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy and, subject to their
provisions, to prescribe, amend and rescind any rules and
regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's
PAGE
<PAGE>
interpretations and decisions with regard to the Plan and the
Stock Holding Policy and such rules and regulations as may be
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made
in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Stock Holding Policy is, in
the judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Stock Holding Policy.
Such Loans may be used solely for the purpose of acquiring Common
Stock (other than upon the exercise of stock options or under
employee stock purchase plans) in open market transactions or
from the Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable in five equal annual installments from the
2PAGE
<PAGE>
payment of annual cash incentive compensation (referred to as
bonus) to the Key Employee by the Company, beginning with the
first such bonus payment to occur after the date of the Note
evidencing the Loan, and on each of the next four bonus payment
dates. Each Loan shall also become immediately due and payable
in full, without demand, upon the occurrence of any of the
events set forth in the Note; provided that the Committee may, in
its sole and absolute discretion, authorize an extension of the
time for repayment of a Loan upon such terms and conditions as
the Committee may determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
3PAGE
<PAGE>
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
4PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
TREX MEDICAL CORPORATION
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Trex Medical Corporation (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), or such part thereof as then remains unpaid,
without interest. Principal shall be payable in lawful money of
the United States of America, in immediately available funds, at
the principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company an
amount equal to 20% of the initial principal amount of the Note
from the payment of annual cash incentive compensation (referred
to as bonus) to the Employee by the Company, beginning with the
first such bonus payment to occur after the date of this Note,
and on each of the next four bonus payment dates. Any amount
remaining unpaid under this Note, if no demand has been made by
the Company, shall be due and payable on the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
5PAGE
<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of Delaware
and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
6
Exhibit 11
TREX MEDICAL CORPORATION
Computation of Earnings per Share
Nine Year
Year Ended Months Ended Ended
---------------------- ------------ -------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995 1994
--------------------------------------------------------------------------
(Unaudited)
Computation of
Primary Earnings
per Share:
Net Income (a) $ 9,344,000 $ 3,592,000 $ 3,483,000 $ 1,194,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 23,365,220 20,000,000 20,000,000 20,000,000
Add: Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 118,061 151,414 151,414 151,414
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 23,483,281 20,151,414 20,151,414 20,151,414
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .40 $ .18 $ .17 $ .06
=========== =========== =========== ===========
PAGE
<PAGE>
Exhibit 11
TREX MEDICAL CORPORATION
Computation of Earnings per Share (continued)
Nine Year
Year Ended Months Ended Ended
---------------------- ------------ -------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995 1994
--------------------------------------------------------------------------
(Unaudited)
Computation of Fully
Diluted Earnings
per Share:
Income:
Net Income $ 9,344,000 $ 3,592,000 $ 3,483,000 $ 1,194,000
----------- ----------- ----------- -----------
Add: Convertible
note interest,
net of tax 828,138 - - -
----------- ----------- ----------- -----------
Income applicable
to common stock
assuming full
dilution (a) $10,172,138 $ 3,592,000 $ 3,483,000 $ 1,194,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 23,365,220 20,000,000 20,000,000 20,000,000
Add: Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 397,558 151,414 151,414 151,414
Shares issuable
from assumed
conversion of
subordinated
convertible
note 2,787,331 - - -
----------- --------- ------------ -----------
Weighted average
shares outstanding,
as adjusted (b) 26,550,109 20,151,414 20,151,414 20,151,414
----------- ----------- ----------- -----------
Fully Diluted
Earnings per
Share (a) / (b) $ .38 $ .18 $ .17 $ .06
=========== =========== =========== ===========
Exhibit 13
Trex Medical Corporation
Consolidated Financial Statements
Fiscal Year 1996
PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement of Income
Nine Months
Year Ended Ended Year Ended
--------------------- ----------- ----------
(In thousands except) Sept. 28, Sept. 30, Sept. 30, Dec. 31,
per share amounts) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Revenues (includes $8,910,
$470, $470 and $0 to
affiliated companies)
(Notes 9 and 10) $150,195 $ 70,505 $ 55,291 $ 54,410
-------- -------- -------- --------
Costs and Operating
Expenses:
Cost of revenues
(includes $4,698, $223,
$223 and $0 for
affiliated companies
revenues) (Note 9) 86,642 36,320 28,180 27,794
Selling, general and
administrative
expenses (Note 9) 27,156 15,652 12,174 13,272
Research and development
expenses (Note 9) 18,862 11,937 8,595 10,662
-------- -------- -------- --------
132,660 63,909 48,949 51,728
-------- -------- -------- --------
Operating Income 17,535 6,596 6,342 2,682
Interest Income 1,290 - - -
Interest Expense, Related
Party (Note 9) (1,373) - - -
Other Income (Expense), Net 60 11 22 (22)
-------- -------- -------- --------
Income Before Provision for
Income Taxes 17,512 6,607 6,364 2,660
Provision for Income Taxes
(Note 7) 8,168 3,015 2,881 1,466
-------- -------- -------- --------
Net Income $ 9,344 $ 3,592 $ 3,483 $ 1,194
======== ======== ======== ========
Earnings per Share:
Primary $ .40 $ .18 $ .17 $ .06
======== ======== ======== ========
Fully diluted $ .38 $ .18 $ .17 $ .06
======== ======== ======== ========
Weighted Average Shares:
Primary 23,483 20,151 20,151 20,151
======== ======== ======== ========
Fully diluted 26,550 20,151 20,151 20,151
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
Trex Medical Corporation
Consolidated Balance Sheet
September 28, September 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 33,966 $ 202
Accounts receivable, less allowances
of $1,264 and $870 29,104 14,937
Inventories 33,010 16,667
Prepaid expenses 1,316 113
Prepaid income taxes (Note 7) 5,712 3,474
-------- --------
103,108 35,393
-------- --------
Property, Plant and Equipment, at Cost, Net 13,770 7,811
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 83,972 59,170
-------- --------
$200,850 $102,374
======== ========
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 12,598 $ 7,381
Accrued payroll and employee benefits 4,616 2,338
Accrued warranty costs 5,344 2,991
Customer deposits 3,414 771
Accrued income taxes 2,010 -
Other accrued expenses (Note 3) 12,203 8,245
Due to affiliated companies 3,089 496
-------- --------
43,274 22,222
-------- --------
Deferred Income Taxes (Note 7) 170 142
-------- --------
Long-term Obligations:
4.2% Subordinated convertible note, due
to parent company (Note 9) 8,000 -
Other 109 -
-------- --------
8,109 -
-------- --------
Commitments and Contingencies
(Notes 3, 8, 9 and 11)
Shareholders' Investment (Notes 4 and 5):
Common stock, $.01 par value, 50,000,000
shares authorized; 28,592,630 shares
issued and outstanding in 1996 286 -
Capital in excess of par value 139,667 -
Retained earnings 9,344 -
Net parent company investment - 80,010
-------- --------
149,297 80,010
-------- --------
$200,850 $102,374
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement Of Cash Flows
Nine Months
Year Ended Ended Year Ended
--------------------- ----------- ----------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
-----------------------------------------------------------------------
(Unaudited)
Operating Activities:
Net income $ 9,344 $ 3,592 $ 3,483 $ 1,194
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 3,195 1,702 1,315 1,491
Provision for losses
on accounts
receivable 273 75 25 175
Increase (decrease)
in deferred income
taxes (26) 61 29 32
Gain on sale of
property, plant
and equipment (32) (15) (15) -
Changes in current
accounts, exclud-
ing the effects
of acquisitions:
Accounts
receivable (7,681) (1,305) (693) (3,316)
Inventories (2,105) (533) (1,476) 153
Other current
assets (1,835) (6) (82) 125
Accounts payable 106 2,342 621 1,861
Other current
liabilities 4,711 (1,139) 444 411
-------- -------- -------- --------
Net cash provided by
operating activities 5,950 4,774 3,651 2,126
-------- -------- -------- --------
Investing Activities:
Acquisitions, net of cash
acquired (Note 3) (36,888) - - -
Purchases of property,
plant and equipment (3,071) (1,533) (957) (1,300)
Other, net 16 14 14 29
-------- -------- -------- --------
Net cash used in
investing activities $(39,943) $ (1,519) $ (943) $ (1,271)
-------- -------- -------- --------
4PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended Year Ended
---------------------- ----------- ----------
Sept. 28, Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1996 1995 1995 1994
------------------------------------------------------------------------
(Unaudited)
Financing Activities:
Net proceeds from
issuance of Company
common stock (Note 4) $ 67,757 $ - $ - $ -
Net transfers to parent
company - (3,053) (2,506) (855)
-------- -------- -------- --------
Net cash provided by
(used in) financing
activities 67,757 (3,053) (2,506) (855)
-------- -------- -------- --------
Increase in Cash and
Cash Equivalents 33,764 202 202 -
Cash and Cash Equivalents
at Beginning of Period 202 - - -
-------- -------- -------- --------
Cash and Cash Equivalents
at End of Period $ 33,966 $ 202 $ 202 $ -
======== ======== ======== ========
Cash Paid For:
Interest $ 1,373 $ - $ - $ -
Income taxes $ 1,294 $ - $ - $ -
Noncash Activities:
Fair value of assets of
acquired companies $ 53,519 $ - $ - $ -
Cash paid for acquired
companies (38,178) - - -
-------- -------- -------- --------
Liabilities assumed
of acquired
companies $ 15,341 $ - $ - $ -
======== ======== ======== ========
Transfer of acquired
business from
parent company, net
of cash $ - $ 42,000 $ 42,000 $ -
Issuance of subordinated
convertible note to
parent company $ 42,000 $ - $ - $ -
Conversions of subord-
inated convertible
note by parent
company $ 34,000 $ - $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
<PAGE>
Trex Medical Corporation
Consolidated Statement of Shareholders' Investment
Common Capital
Stock, in Excess Net Parent
$.01 Par of Par Retained Company
(In thousands) Value Value Earnings Investment
------------------------------------------------------------------------
Balance January 1, 1994 $ - $ - $ - $ 36,694
Net income - - - 1,194
Net transfers to parent
company - - - (855)
-------- -------- -------- --------
Balance December 31, 1994 - - - 37,033
Net income - - - 3,483
Net transfers to parent
company - - - (2,506)
Transfer of acquired
business from parent
company, net of cash
(Note 3) - - - 42,000
-------- -------- -------- --------
Balance September 30, 1995 - - - 80,010
Issuance of subordinated
convertible note to parent
company (Note 9) - (42,000) - -
Capitalization of Company 200 79,810 - (80,010)
Net income - - 9,344 -
Net proceeds from issuance
of Company common stock
(Note 4) 57 67,700 - -
Tax benefit related to
employees' and directors'
stock plans - 186 - -
Conversions of subordinated
convertible note by parent
company (Note 4) 29 33,971 - -
-------- -------- -------- --------
Balance September 28, 1996 $ 286 $139,667 $ 9,344 $ -
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Trex Medical Corporation (the Company) designs, manufactures, and
markets mammography equipment and minimally invasive stereotactic breast-
biopsy systems used for the detection of breast cancer. The Company also
designs and manufactures general radiography (X-ray) equipment and X-ray
imaging systems used for cardiac catheterization and angiography, as well
as radiographic fluoroscopy. The Company's mammography and stereotactic
breast-biopsy systems are used by radiologists and physicians in offices,
hospitals, and dedicated breast-care centers, and its general X-ray
systems are used by physicians and radiologists, both in office and
hospital settings, as well as by veterinarians and chiropractors.
Relationship with ThermoTrex Corporation and Thermo Electron Corporation
The Company was incorporated in September 1995 as a wholly owned
subsidiary of ThermoTrex Corporation (ThermoTrex). On October 2, 1995,
ThermoTrex transferred to the Company all of the outstanding shares of
capital stock of Bennett X-Ray Corporation (Bennett), in exchange for a
$42.0 million principal amount 4.2% subordinated convertible note
(Note 9). As of September 28, 1996, ThermoTrex had converted $34.0
million principal amount of this note. On October 16, 1995, ThermoTrex
transferred to the Company the assets, liabilities, and businesses of
ThermoTrex's Lorad division (Lorad) and ThermoTrex's research and
development activities pertaining to its Sonic CT(TM) system, in exchange
for 20,000,000 shares of the Company's common stock. ThermoTrex acquired
Lorad and Bennett in November 1992 and September 1995, respectively.
As of September 28, 1996, ThermoTrex owned 22,883,798 shares of the
Company's common stock, representing 80% of such stock outstanding.
ThermoTrex is a 51%-owned subsidiary of Thermo Electron Corporation
(Thermo Electron).
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Fiscal Year
In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's transition period, which ended on September
30, 1995, was the 39-week period from January 1, 1995 to September 30,
1995, referenced as "fiscal 1995." References to "fiscal 1996" and "1994"
are for the years ended September 28, 1996 and December 31, 1994,
respectively. Fiscal 1996 and 1994 each included 52 weeks. The unaudited
consolidated statements of income and cash flows for the 52-week period
ended September 30, 1995 are presented for comparative purposes only.
7PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Revenue Recognition
The Company recognizes revenues upon shipment of its products. The
Company provides a reserve for its estimate of warranty costs at the time
of shipment.
Concentration of Credit Risk
The Company sells its products primarily to customers in the
healthcare industry. The Company does not normally require collateral or
other security to support its accounts receivable. Management does not
believe that this concentration of credit risk has, or will have, a
significant negative impact on the Company.
Income Taxes
The Company and ThermoTrex have a tax allocation agreement under
which the Company is included in the consolidated income tax returns
filed by ThermoTrex. The agreement provides that in years in which the
Company has taxable income, it will pay to ThermoTrex amounts comparable
to the taxes the Company would have paid upon filing separate tax
returns. If ThermoTrex's equity ownership of the Company were to decrease
below 80%, the Company would file its own income tax returns.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes
deferred income taxes based on the expected future tax consequences of
differences between the financial statement basis and the tax basis of
assets and liabilities, calculated using enacted tax rates in effect for
the year in which the differences are expected to be reflected in the tax
return.
Earnings per Share
Earnings per share have been computed based on the weighted average
number of shares outstanding during the period. Pursuant to Securities
and Exchange Commission requirements, earnings per share have been
presented for all periods. Weighted average shares for all periods
include the 20,000,000 shares issued to ThermoTrex in connection with the
initial capitalization of the Company and, for periods prior to the
Company's initial public offering, the effect of the assumed exercise of
stock options issued within one year prior to the Company's initial
public offering. Because the effect of common stock equivalents would be
immaterial, they have been excluded from the primary earnings per share
calculation subsequent to the Company's initial public offering. Fully
diluted earnings per share include the assumed exercise of stock options
and the assumed effect of the conversion of the Company's 4.2%
subordinated convertible note, due to parent company.
8PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
As of September 28, 1996, $32,696,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
Electron, which Thermo Electron collateralizes with investments
principally consisting of corporate notes, U.S. government agency
securities, money market funds, commercial paper, and other marketable
securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
Prior to its incorporation in September 1995, the Company's cash
receipts and disbursements were combined with other ThermoTrex corporate
cash transactions and balances.
Inventories
Inventories are stated at the lower of cost (on a first-in,
first-out basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are as follows:
(In thousands) 1996 1995
----------------------------------------------------------------------
Raw materials and supplies $20,513 $ 9,414
Work in process 9,218 5,195
Finished goods 3,279 2,058
------- -------
$33,010 $16,667
======= =======
9PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, Plant and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization principally using the
straight-line method over the estimated useful lives of the property as
follows: buildings, 29 to 31.5 years; machinery and equipment, 3 to 8
years; and leasehold improvements, the shorter of the term of the lease
or the life of the asset. Property, plant and equipment consist of the
following:
(In thousands) 1996 1995
----------------------------------------------------------------------
Land $ 1,194 $1,000
Buildings 3,788 2,728
Leasehold improvements 2,195 1,293
Machinery and equipment 10,082 4,918
------- ------
17,259 9,939
Less: Accumulated depreciation and amortization 3,489 2,128
------- ------
$13,770 $7,811
======= ======
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over 40 years.
Accumulated amortization was $3,621,000 and $1,935,000 as of September
28, 1996 and September 30, 1995, respectively. The Company assesses the
future useful life of this asset whenever events or changes in
circumstances indicate that the current useful life has diminished. The
Company considers the future undiscounted cash flows of the acquired
businesses in assessing the recoverability of this asset.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
10PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
2. Unaudited Comparative Results
The following unaudited financial information for the nine months
ended October 1, 1994 is presented to provide comparative results for
fiscal 1995, included in the accompanying statement of income.
Nine
Months Ended
October 1,
(In thousands except per share amounts) 1994
---------
Revenues $39,196
Costs and Operating Expenses:
Cost of revenues 19,654
Selling, general and administrative
expenses 9,794
Research and development expenses 7,320
-------
36,768
-------
Operating Income 2,428
Other Expense, Net (11)
-------
Income Before Provision for Income Taxes 2,417
Provision for Income Taxes 1,332
-------
Net Income $ 1,085
=======
Earnings per Share:
Primary $ .05
=======
Fully diluted $ .05
=======
Weighted Average Shares:
Primary 20,151
=======
Fully diluted 20,151
=======
3. Acquisitions
In September 1996, the Company acquired substantially all of the
assets and liabilities of Continental X-Ray Corporation and affiliates
(Continental), an Illinois-based company that designs, manufactures, and
markets general-purpose and specialized X-ray systems, for approximately
$18.4 million in cash, net of cash acquired and including the repayment
of debt.
11PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
In May 1996, the Company acquired substantially all of the assets
and liabilities 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 approximately $18.5 million in cash, net of cash acquired
and including the repayment of debt.
In September 1995, ThermoTrex acquired all of the outstanding
capital stock of Bennett, a New York-based manufacturer of high-frequency
specialty and general-purpose X-ray systems, for approximately $42.9
million in cash. On October 2, 1995, ThermoTrex transferred to the
Company all of the outstanding capital stock of Bennett, in exchange for
a $42.0 million principal amount 4.2% subordinated convertible note
(Note 9).
These acquisitions have been accounted for using the purchase
method of accounting, and their results of operations have been included
in the accompanying financial statements from their respective dates of
acquisition by the Company, or for Bennett, by ThermoTrex. The cost of
the acquisitions exceeded the estimated fair value of the acquired net
assets by $64.0 million, which is being amortized over 40 years.
Allocation of the purchase price for these acquisitions was based on
estimates of the fair value of the net assets acquired and, for XRE and
Continental, is subject to adjustment upon finalization of the purchase
price allocation. To date, no information has been gathered that would
cause the Company to believe that the final allocation of the purchase
price will be materially different from the preliminary estimate.
Based on unaudited data, the following table presents selected
financial information for the Company and the businesses acquired on a
pro forma basis, assuming Continental and XRE had been combined since the
beginning of 1995 and Bennett had been combined since the beginning of
1994.
Nine
Year Ended Months Ended Year Ended
(In thousands except September 28, September 30, December 31,
per share amounts) 1996 1995 1994
------------------------------------------------------------------------
Revenues $191,351 $126,185 $96,943
Net income (loss) 9,300 2,012 (1,258)
Earnings (loss) per share:
Primary .29 .07 (.06)
Fully diluted .29 .07 (.06)
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions of XRE and Continental been made at the beginning of fiscal
1995 and the acquisition of Bennett been made at the beginning of 1994.
In November 1992, ThermoTrex acquired Lorad for $5.3 million in
cash, assumption of $6.7 million of pre-existing debt of Lorad, and
shares of ThermoTrex common stock and stock options valued at $12.3
12PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
million. In addition, in March 1995, ThermoTrex made a cash payment of
$2.3 million to the holders of approximately 9.2% of Lorad's common stock
who had earlier voted against the acquisition, in exchange for their
interest in Lorad.
Other accrued expenses in the accompanying balance sheet include
$3.5 million and $4.0 million as of September 28, 1996 and September 30,
1995, respectively, for estimated reserves associated with acquisitions,
including a reserve of approximately $2 million for legal fees and other
costs associated with a patent infringement suit that existed prior to
ThermoTrex's acquisition of Lorad. This suit was brought by Fischer
Imaging Corporation (Fischer), which alleges that Lorad infringes a
Fischer patent on a precision mammographic needle-biopsy system. In
connection with the organization of the Company, ThermoTrex agreed to
indemnify the Company for any and all cash damages under this lawsuit,
with respect to sales occurring prior to October 16, 1995, the date Lorad
was transferred to the Company. Any payments received under such
indemnity would be treated as a contribution to shareholders' investment.
While the Company believes that it has meritorious legal defenses to the
allegation, due to the inherent uncertainties of litigation, the Company
is unable to predict the outcome of this matter. Although an unsuccessful
resolution could have a material adverse effect on the Company's results
of operations, in the opinion of management any resolution will not have
a material adverse effect on the Company's financial position.
4. Common Stock
Sale of 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
$49.1 million.
In November 1995, the Company issued 1,862,000 shares of its common
stock in a private placement at $10.25 per share for net proceeds of
$17.6 million. In January 1996, the Company issued 100,000 shares of its
common stock in a private placement at $10.75 per share for net proceeds
of $1.1 million. Certain officers and directors of the Company purchased
an aggregate of 143,300 shares of the Company's common stock issued in
these private placements. In addition, an entity indirectly related to a
director of the Company purchased 200,000 shares of the Company's common
stock issued in these private placements. This director, however,
disclaims beneficial ownership of such shares.
Conversion of Subordinated Convertible Note
During fiscal 1996, ThermoTrex converted $34.0 million principal
amount of the Company's 4.2% subordinated convertible note into 2,883,798
shares of the Company's common stock.
13PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
4. Common Stock (continued)
Reserved Shares
As of September 28, 1996, the Company had reserved 2,603,542
unissued shares of its common stock for possible issuance under
stock-based compensation plans and conversion of the Company's 4.2%
subordinated convertible note, due to parent company.
5. Stock-based Compensation Plans
On November 1, 1995, the Company adopted a stock-based compensation
plan for its key employees, directors, and others, which permits the
grant of a variety of stock and stock-based awards as determined by the
human resources committee of the Company's Board of Directors (the Board
Committee), including restricted stock, stock options, stock bonus shares
or performance-based shares. The option recipients and the terms of
options granted under this plan are determined by the Board Committee.
Options granted to date became exercisable on September 30, 1996, and are
subject to certain transfer restrictions and the right of the Company to
repurchase shares issued upon exercise of the options at the exercise
price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over periods ranging from five to ten years after
the first anniversary of the grant date, depending on the term of the
option, which may range from ten to twelve years. Nonqualified stock
options may be granted at any price determined by the Board Committee,
although incentive stock options must be granted at not less than the
fair market value of the Company's common stock on the date of grant. To
date, all options have been granted at fair market value. The Company
also has a directors' stock option plan, adopted on November 1, 1995,
that provides for the grant of stock options, at fair market value, to
outside directors pursuant to a formula approved by the Company's
shareholders. Options granted under this plan have the same general terms
as options granted under the stock-based compensation plan described
above, except that the restrictions and repurchase rights generally lapse
ratably over a four-year period and the option term is five years. In
addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based
compensation plans of Thermo Electron or its majority-owned subsidiaries.
14PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
5. Stock-based Compensation Plans (continued)
No accounting recognition is given to options granted at fair
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity. A summary of the
Company's stock option information for fiscal 1996 is as follows:
Range of
Option
Number Prices
of per
(In thousands except per share amounts) Shares Share
----------------------------------------------------------------------
Options outstanding, beginning of year - $ -
Granted 1,401 10.25-12.00
Exercised - -
Lapsed or cancelled (20) 11.00
----- -----------
Options outstanding, end of year 1,381 $10.25-12.00
=====
Options exercisable -
=====
Options available for grant 519
=====
6. Employee Benefit Plans
Employee Stock Purchase Plan
Substantially all of the Company's full-time employees are eligible
to participate in an employee stock purchase plan sponsored by
ThermoTrex. Under this plan, shares of ThermoTrex's and Thermo Electron's
common stock can be purchased at the end of a 12-month plan year at 95%
of the fair market value at the beginning of the plan year, and the
shares purchased are subject to a six-month resale restriction. Prior to
November 1, 1995, the applicable shares of common stock could be
purchased at 85% of the fair market value at the beginning of the plan
year, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages.
401(k) Savings Plan
The majority of the Company's full-time employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to
the 401(k) savings plan are made by both the employee and the Company.
Company contributions are based upon the level of employee contributions.
The Company contributed and charged to expense for these plans $701,000,
$242,000, and $313,000, in fiscal 1996, fiscal 1995, and 1994,
respectively.
15PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
7. Income Taxes
The components of the provision for income taxes for fiscal 1996,
fiscal 1995, and 1994 are as follows:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Currently payable:
Federal $6,324 $2,474 $1,119
State 1,866 808 547
------ ------ ------
8,190 3,282 1,666
------ ------ ------
Prepaid:
Federal (16) (228) (146)
State (6) (173) (54)
------ ------ ------
(22) (401) (200)
------ ------ ------
$8,168 $2,881 $1,466
====== ====== ======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's common stock on the date of
exercise. The provision for income taxes that is currently payable does
not reflect $186,000 of such benefits that have been allocated to capital
in excess of par value for fiscal 1996 resulting from employee exercises
of stock options in affiliated companies.
The provision for income taxes in the accompanying statement of
income for fiscal 1996, fiscal 1995, and 1994 differs from the provision
calculated by applying the statutory federal income tax rate of 35% in
fiscal 1996 and 34% in fiscal 1995 and 1994 to income before provision
for income taxes due to the following:
(In thousands) 1996 1995 1994
-----------------------------------------------------------------------
Provision for income taxes
at statutory rate $6,129 $2,164 $ 904
Increases resulting from:
State income taxes, net of federal tax 1,209 419 325
Amortization of cost in excess of net
assets of acquired companies 541 197 228
Other, net 289 101 9
------ ------ ------
$8,168 $2,881 $1,466
====== ====== ======
16PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
7. Income Taxes (continued)
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1996 1995
------------------------------------------------------------------------
Prepaid income taxes:
Reserves and accruals $3,409 $1,725
Accrued compensation 1,107 463
Allowance for doubtful accounts 430 348
Inventory basis difference 766 918
Other, net - 20
------ ------
$5,712 $3,474
====== ======
Deferred income taxes:
Depreciation $ 170 $ 142
====== ======
8. Commitments
The Company leases portions of its office and operating facilities
under various noncancelable operating lease arrangements expiring between
fiscal 1997 and fiscal 2006. The accompanying statement of income
includes expenses from these operating leases of $674,000, $44,000, and
$40,000 in fiscal 1996, fiscal 1995, and 1994, respectively. Future
minimum payments due under these noncancelable operating leases at
September 28, 1996, are $1,443,000 in fiscal 1997; $1,406,000 in fiscal
1998; $1,377,000 in fiscal 1999; $1,372,000 in fiscal 2000; $1,372,000 in
fiscal 2001; and $6,409,000 in fiscal 2002 and thereafter. Total future
minimum lease payments are $13,379,000. The Company also has an operating
lease arrangement with a related party as discussed in Note 9.
9. Related Party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
calendar year 1995 and 1994, respectively. The annual fee is reviewed and
adjusted annually by mutual agreement of the parties. For these services,
the Company was charged $1,567,000, $663,000, and $680,000 in fiscal
1996, fiscal 1995, and 1994, respectively. Management believes that the
service fee charged by Thermo Electron is reasonable and that such fees
are representative of the expenses the Company would have incurred on a
stand-alone basis. The corporate services agreement is renewed annually
17PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
9. Related Party Transactions (continued)
but can be terminated upon 30 days' prior notice by the Company or upon
the Company's withdrawal from the Thermo Electron Corporate Charter (the
Thermo Electron Corporate Charter defines the relationship among Thermo
Electron and its majority-owned subsidiaries). For additional items such
as employee benefit plans, insurance coverage, and other identifiable
costs, Thermo Electron charges the Company based upon costs attributable
to the Company.
Related Party Revenues
ThermoLase Corporation (ThermoLase), a majority-owned subsidiary of
ThermoTrex, has engaged the Company to design and manufacture the laser
to be used in ThermoLase's laser-based hair-removal system. During fiscal
1996 and fiscal 1995, the Company recorded $8,549,000 and $350,000,
respectively, of revenue under this agreement.
Under an arrangement with Thermedics Detection Inc., a
majority-owned subsidiary of Thermedics Inc., a majority-owned subsidiary
of Thermo Electron, the Company manufactures an X-ray source, pursuant to
written purchase orders, that is used as a component to a fill-measuring
device produced by Thermedics Detection Inc. During fiscal 1996 and
fiscal 1995, the Company recorded $361,000 and $120,000, respectively, of
revenue under this agreement.
Vendor Agreement
During fiscal 1995, the Company placed an order for $2,500,000 for
the design and production of high-transmission cellular grids from Thermo
Electron's Tecomet division (Tecomet), which will be received through
fiscal 1997. During fiscal 1996, the Company purchased grids valued at
$397,000 from Tecomet under this arrangement. In addition, the Company
recorded expense of $250,000 during each of fiscal 1996 and fiscal 1995
related to research and development funding provided to Tecomet in
connection with this project.
Research and Development Agreement
In October 1995, the Company and ThermoTrex entered into a license
agreement under which the Company may elect to fund approximately $6.0
million of ThermoTrex's research and development efforts related to
direct-detection digital imaging technology in certain medical imaging
fields. If the Company elects to fund such costs, it is required to pay
approximately $2.0 million in each of three years through fiscal 1998 and
its license will be extended to cover such fields. In fiscal 1996, the
Company recorded $1,800,000 of expense under this agreement. Prior to
this agreement, ThermoTrex provided certain research and development
contract services to the Company, which were charged to the Company based
on actual cost and usage. For these services, the Company was charged
$1,536,000, and $2,816,000 in fiscal 1995 and 1994, respectively.
18PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
9. Related Party Transactions (continued)
Operating Lease
The Company leases an office and operating facility from a realty
trust controlled by an employee under a noncancelable operating lease
arrangement expiring in fiscal 2012. The accompanying statement of income
includes expenses from this operating lease of $286,000 in fiscal 1996.
Future minimum payments due under this noncancelable operating lease at
September 28, 1996, are $858,000 per year in fiscal 1997, 1998, 1999, and
2000; $897,000 in fiscal 2001; and $11,102,000 in fiscal 2002 and
thereafter. Total future minimum lease payments are $15,431,000.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with
Thermo Electron as discussed in Note 1.
Subordinated Convertible Note
In September 1995, ThermoTrex acquired all of the outstanding
capital stock of Bennett for approximately $42.9 million in cash. On
October 2, 1995, ThermoTrex transferred to the Company all of the
outstanding capital stock of Bennett, in exchange for a $42.0 million
principal amount 4.2% subordinated convertible note, due 2000,
convertible into shares of the Company's common stock at $11.79 per
share. As of September 28, 1996, ThermoTrex had converted $34.0 million
principal amount of this note.
10. Significant Customers and Export Sales
Sales to one customer accounted for 11% of the Company's total
revenues in fiscal 1996, and sales to another customer accounted for 18%
and 11% of the Company's total revenues in fiscal 1995 and 1994,
respectively. Export sales to Germany accounted for 7%, 11%, and 3% of
the Company's total revenues in fiscal 1996, fiscal 1995, and 1994,
respectively. Other export sales accounted for 15%, 10%, and 11% of the
Company's total revenues in fiscal 1996, fiscal 1995, and 1994,
respectively. In general, export sales are denominated in U.S. dollars.
11. Contingencies
The owner of a U.S. patent related to automatic exposure control
has claimed that the Company's mammography systems infringe such patent.
The patent owner has offered a nonexclusive license under the patent on
terms not acceptable to the Company. Although the Company believes that
the validity of the patent may be questionable and subject to a
successful challenge, if the patent holder were successful in enforcing
such patent the Company could be enjoined from manufacturing and selling
mammography systems. The Company will be indemnified by ThermoTrex for
any cash damages relating to sales of such systems occurring prior to the
dates on which ThermoTrex transferred certain businesses to the Company,
although any payments under such indemnity would be treated as a
19PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
11. Contingencies (continued)
contribution to shareholders' investment. In addition, the Company is
aware of two U.S. patents owned by a former employee which have been
asserted against the Company relating to its High-Transmission Cellular
(HTC)(TM) grid to be used with the Company's mammography systems.
Although the Company believes that the HTC grid does not infringe either
of these patents, if the holder of the patents were successful in
enforcing such patents, the Company could be subject to damages and
enjoined from manufacturing and selling the HTC grid.
See Note 3 for a discussion of certain additional litigation.
Due to the inherent uncertainty of dispute resolution, management
cannot predict the outcome of these matters. While an unfavorable outcome
of one or more of these matters could have a material adverse effect on
the Company's results of operations, in the opinion of management any
resolution will not have a material effect on the Company's financial
position.
12. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, accounts receivable, accounts payable, due to
affiliated companies, and its 4.2% subordinated convertible note due to
parent company. The carrying amounts of the Company's cash and cash
equivalents, accounts receivable, accounts payable, and due to affiliated
companies approximate fair value due to their short-term nature. The fair
value of the Company's 4.2% subordinated convertible note (Note 9),
determined based on quoted market prices, was $13,740,000 at September
28, 1996, and exceeds the carrying amount due to the market price of the
Company's common stock exceeding the conversion price of the convertible
note at year end.
20PAGE
<PAGE>
Trex Medical Corporation
Notes to Consolidated Financial Statements
13. Unaudited Quarterly Information
(In thousands except per share amounts)
Three Months Ended
--------------------------------------------
Dec. 30, March 30, June 29, Sept. 28,
Fiscal 1996 1995 1996 1996(a) 1996(b)
------------------------------------------------------------------------
Revenues $32,509 $34,320 $36,681 $46,685
Gross profit 14,261 14,976 15,961 18,355
Net income 1,626 2,108 2,169 3,441
Earnings per share:
Primary .08 .10 .10 .12
Fully diluted .08 .09 .09 .12
April 1, July 1, Sept. 30,
Fiscal 1995 (c) 1995 1995 1995(d)
------------------------------------------------------------------------
Revenues $16,101 $17,197 $21,993
Gross profit 8,116 8,575 10,420
Net income 857 1,344 1,282
Earnings per share:
Primary .04 .07 .06
Fully diluted .04 .07 .06
(a) Reflects the May 1996 acquisition of XRE.
(b) Reflects the September 1996 acquisition of Continental.
(c) In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's 39-week transition period ended September
30, 1995 is presented.
(d) Includes the results of Bennett since its acquisition by ThermoTrex
in September 1995.
21PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Trex Medical Corporation:
We have audited the accompanying consolidated balance sheet of Trex
Medical Corporation (a Delaware corporation and 80%-owned subsidiary of
ThermoTrex Corporation) and subsidiaries as of September 28, 1996 and
September 30, 1995, and the related consolidated statements of income,
shareholders' investment and cash flows for the year ended September 28,
1996, the nine months ended September 30, 1995, and the year ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Trex Medical Corporation and subsidiaries as of September 28, 1996 and
September 30, 1995, and the results of their operations and their cash
flows for the year ended September 28, 1996, the nine months ended
September 30, 1995, and the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 1, 1996
22PAGE
<PAGE>
Trex Medical Corporation
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 immediately after this
Management's Discussion and Analysis of Financial Condition and Results
of Operations under the caption "Forward-looking Statements."
Overview
The Company designs, manufactures, and markets mammography
equipment and minimally invasive stereotactic breast-biopsy systems,
general radiography (X-ray) equipment, and X-ray imaging systems used for
cardiac catheterization and angiography, as well as radiographic
fluoroscopy. 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. (GE)
and the Philips Medical Systems North America Company subsidiary of
Philips N.V. (Philips). The Company has four operating units: Lorad, a
manufacturer of mammography and stereotactic breast-biopsy systems;
Bennett X-Ray Corporation (Bennett), a manufacturer of general X-ray and
mammography equipment; XRE Corporation (XRE), a manufacturer of X-ray
imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions; and Continental X-Ray Corporation
(Continental), a manufacturer of general-purpose and specialized X-ray
systems.
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 its 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.
Accordingly, the results of operations for 1996 compares the year ended
September 28, 1996 (fiscal 1996) with the unaudited year ended September
30, 1995 (1995). The results of operations for 1995 compares the nine
months ended September 30, 1995 (fiscal 1995) with the unaudited nine
months ended October 1, 1994 (fiscal 1994).
Fiscal 1996 Compared With 1995
Revenues increased 113% to $150.2 million in fiscal 1996 from $70.5
million in 1995. Revenues increased $56.2 million due to the acquisitions
of Bennett, XRE, and Continental.
23PAGE
<PAGE>
Trex Medical Corporation
Fiscal 1996 Compared With 1995 (continued)
Revenues at Lorad increased 35% in fiscal 1996 as a result of
increased demand for mammography, biopsy, and nondestructive testing
(NDT) systems, and lasers sold to ThermoLase Corporation, a
majority-owned subsidiary of ThermoTrex Corporation (ThermoTrex).
Under an OEM agreement with U.S. Surgical entered into in fiscal
1996, Lorad has agreed to manufacture biopsy systems for U.S. Surgical to
be marketed and sold under the U.S. Surgical product name of Advanced
Breast Biopsy Instrument (ABBI). In fiscal 1996, sales to U.S. Surgical
totaled $16.9 million.
The gross profit margin declined to 42% in fiscal 1996, from 48% in
1995, due primarily to the inclusion of lower-margin revenues at Bennett
and XRE.
Selling, general and administrative expenses as a percentage of
revenues decreased to 18% in fiscal 1996 from 22% in 1995, due primarily
to increased revenues at Lorad and the inclusion of the operations of
Bennett and XRE, which incurred lower expenses as a percentage of
revenues. Research and development expenses increased to $18.9 million in
fiscal 1996 from $11.9 million in 1995, due to the inclusion of $4.2
million of expense at Bennett and XRE and the Company's continued efforts
to develop and commercialize new products including the Company's M-IV
mammography system (first shipped in the fourth quarter of fiscal 1996),
full-breast digital mammography system, and direct-detection X-ray
sensor, as well as enhancements of existing systems. Under a license
agreement between the Company and ThermoTrex, the Company may elect to
expend approximately $2.0 million each year during fiscal 1997 and 1998
for additional research and development and to expand the field of use in
which it is entitled to use ThermoTrex's direct-detection digital imaging
technology (Note 9).
Interest income in fiscal 1996 primarily represents interest income
earned on the invested proceeds from the Company's private placements of
common stock in November 1995 and January 1996, and initial public
offering in July 1996. Interest expense in fiscal 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 September 28, 1996, the
outstanding balance of this note was $8.0 million, due to the conversion
by ThermoTrex of $34.0 million principal amount.
The effective tax rate was 47% in fiscal 1996, compared with 46% in
1995. The effective tax rates exceed the statutory federal income tax
rate due primarily to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies.
The Company is a defendant in certain patent litigation and has
been notified that it allegedly infringes certain other technologies
owned by third parties (Notes 3 and 11). While an unfavorable outcome of
one or more of these matters could have a material adverse effect on the
Company's results of operations, the Company does not believe that it is
24PAGE
<PAGE>
Trex Medical Corporation
Fiscal 1996 Compared With 1995 (continued)
reasonably likely that any resolution would have a material effect on the
Company's financial position.
Fiscal 1995 Compared With Fiscal 1994
Revenues increased 41% to $55.3 million in fiscal 1995 from $39.2
million in fiscal 1994. The increase resulted from higher demand across
all product lines, with significant growth coming from international
sales through the Company's OEM agreement with Philips. Revenues from
Philips were $9.8 million in fiscal 1995, compared with $4.1 million in
fiscal 1994. Export sales accounted for 21% of the Company's revenues in
fiscal 1995, compared with 11% in fiscal 1994.
The gross profit margin declined to 49% in fiscal 1995 from 50% in
fiscal 1994, due to an adjustment to expense of $0.3 million for
inventory revalued at the time of Bennett's acquisition.
Selling, general and administrative expenses as a percentage of
revenues decreased to 22% in fiscal 1995 from 25% in fiscal 1994, due
primarily to increased revenues. Research and development expenses
increased to $8.6 million in fiscal 1995 from $7.3 million in fiscal
1994, reflecting the Company's continued efforts to develop and
commercialize the full-breast digital mammography system, as well as
enhancements of existing systems.
The effective tax rate was 45% in fiscal 1995, compared with 55% in
fiscal 1994. The effective tax rates exceed the statutory federal income
tax rate due primarily to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies. The decrease in the effective tax rate in 1995 resulted from
the lower relative impact of nondeductible amortization of cost in excess
of net assets of acquired companies and state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $59.8 million at September 28,
1996, compared with $13.2 million at September 30, 1995. Included in
working capital are cash and cash equivalents of $34.0 million at
September 28, 1996 and $0.2 million at September 30, 1995. Net cash
provided by operating activities was $6.0 million in fiscal 1996. In
fiscal 1996, the Company funded an increase in accounts receivable of
$7.7 million due primarily to September 1996 shipments of the Company's
new M-IV mammography system.
The Company expended $3.1 million on purchases of property, plant
and equipment during fiscal 1996. The Company expects to expend
approximately $6.0 million for purchases of property, plant and equipment
during fiscal 1997.
In connection with the October 1995 acquisition of Bennett, the
Company issued to ThermoTrex a $42.0 million principal amount 4.2%
subordinated convertible note. During fiscal 1996, ThermoTrex converted
25PAGE
<PAGE>
Trex Medical Corporation
Liquidity and Capital Resources (continued)
$34.0 million principal amount into 2,883,798 shares of the Company's
common stock.
In May 1996, the Company acquired substantially all of the assets
and liabilities of XRE for approximately $18.5 million in cash, net of
cash acquired and including the repayment of debt. In September 1996, the
Company acquired substantially all of the assets and liabilities of
Continental for approximately $18.4 million in cash, net of cash acquired
and including the repayment of debt.
In November 1995 and January 1996, the Company completed private
placements of 1,862,000 and 100,000 shares of its common stock for net
proceeds of $17.6 million and $1.1 million, respectively. 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, for net proceeds of $49.1 million.
Although the Company expects to have positive cash flow from its
existing operations, the Company may require significant amounts of cash
for any acquisition of a business or technology. The Company expects that
it will finance any such acquisitions through a combination of internal
funds, additional debt or equity financing, and/or short-term borrowings
from ThermoTrex or Thermo Electron, although it has no agreement with
these companies to ensure that funds will be available on acceptable
terms or at all. The Company believes its existing resources are
sufficient to meet the capital requirements of its existing operations
for the foreseeable future.
Forward-looking Statements
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 fiscal 1997 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, which may
render existing products and technologies uncompetitive or obsolete.
There can be no assurance that the Company's products or proprietary
technologies will not become uncompetitive or obsolete.
26PAGE
<PAGE>
Trex Medical Corporation
Forward-looking Statements (continued)
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 Lorad's prone breast-biopsy
system infringes a Fischer patent on a precision mammographic
needle-biopsy system. As of September 28, 1996, the Company had
recognized aggregate revenues of approximately $63.1 million from sales
of such systems, of which $34.4 million represents sales prior to October
1, 1995. 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 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.
27PAGE
<PAGE>
Trex Medical Corporation
Forward-looking Statements (continued)
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.
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
indemnification, 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 as of September 28, 1996 (approximately $2
million), with any indemnification payment it receives from ThermoTrex
being treated as a contribution to shareholders' investment.
The Company is also 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)(TM) grid to be used with its 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 unfavorable outcome of any one or more of the above described
matters could have a material adverse effect on the Company's business
and results of operations. The Company's competitors and other parties
hold other 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 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
28PAGE
<PAGE>
Trex Medical Corporation
Forward-looking Statements (continued)
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 October
1995, the Company acquired its Bennett subsidiary; in May 1996, the
Company acquired substantially all of the assets and liabilities 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 September 1996, the Company acquired substantially all of the assets
and liabilities of Continental, a manufacturer of radiographic
fluoroscopy 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 (Siemens),
Toshiba American Medical Systems, Inc. and Toshiba America MRI, Inc.
(collectively, Toshiba), Shimadzu, and the Picker International, Inc.
subsidiary of GEC, Inc. (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 OEM customers
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.
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.
29PAGE
<PAGE>
Trex Medical Corporation
Forward-looking Statements (continued)
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 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 mammography
system under the PMA process, which would require substantial additional
clinical trials and post-market follow-up for a number of years. While
not classifying such systems, the FDA recently issued a final guidance
document relating to the protocol for marketing clearance of full-breast
digital mammography systems. This document suggests that clearance may be
obtained through an enhanced 510(k) application with more extensive
clinical trials. The protocol set forth in the final guidance document
calls for clinical trials on 520 subjects prior to applying to the FDA
for clearance to commercially market such a system. In addition,
full-breast digital mammography systems will be subject to alternate
quality assurance standards under the Mammography Quality Standards Act.
These alternate standards will be submitted by the Company to the FDA for
review. The Company can make no prediction as to when the FDA will
approve such standards, if at all. There can be no assurance that
full-breast digital mammography systems will not be classified by the FDA
as Class III medical devices subject to the PMA process. In addition,
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 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
30PAGE
<PAGE>
Trex Medical Corporation
Forward-looking Statements (continued)
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 22%, 21%, and 14% of the Company's revenues in fiscal 1996,
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.
31PAGE
<PAGE>
Trex Medical Corporation
Selected Financial Information
Nine
Months
Year Ended Ended (a) Year Ended
--------------------- --------- ----------------------------
(In thousands
except per Sept. 28, Sept. 30, Sept. 30, Dec. 31, Jan. 1, Jan. 2,
share amounts) 1996 (b) 1995 1995 (c) 1994 1994 1993 (d)
------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Statement of
Income Data:
Revenues $150,195 $ 70,505 $ 55,291 $ 54,410 $ 37,519 $ 4,128
Net Income
(Loss) 9,344 3,592 3,483 1,194 827 (544)
Earnings (Loss)
per Share:
Primary .40 .18 .17 .06 .04 (.03)
Fully diluted .38 .18 .17 .06 .04 (.03)
Balance Sheet Data:
Working Capital $ 59,834 $ 13,171 $ 8,584 $ 6,148 $ 4,410
Total Assets 200,850 102,374 48,000 44,553 35,004
Long-term
Obligations 8,109 - - - -
Shareholders'
Investment 149,297 80,010 37,033 36,694 28,636
(a) In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's 39-week transition period ended September 30,
1995 is presented.
(b) Reflects the May 1996 and September 1996 acquisitions of XRE and
Continental, respectively, and the net proceeds of the Company's private
placements in November 1995 and January 1996 and initial public offering in
July 1996.
(c) Includes the results of Bennett since its acquisition by ThermoTrex in
September 1995.
(d) Includes the results of Lorad since its acquisition by ThermoTrex in
November 1992.
32PAGE
<PAGE>
Trex Medical Corporation
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sales prices on the American Stock Exchange
(symbol TXM) since June 27, 1996, the date the Company's common stock
began trading on that exchange.
Fiscal 1996
------------------
Quarter High Low
------------------------------------------------------------------------
Third (June 27, 1996 through June 28, 1996) $19 1/4 $15 3/8
Fourth 26 17 7/8
As of November 22, 1996, the Company had 798 holders of record of
its common stock. This does not include holdings in street or nominee
names. The closing market price on the American Stock Exchange for the
Company's common stock on November 22, 1996, was $17.00 per share.
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuances of stock certificates, changes of ownership, lost
stock certificates, and changes of address. For these and similar
matters, please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Shareholder Services
Shareholders of Trex Medical Corporation who desire information
about the Company are invited to contact John N. Hatsopoulos, Vice
President and Chief Financial Officer, Trex Medical Corporation, 81
Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617)
622-1111. A mailing list is maintained to enable shareholders whose
stock is held in street name, and other interested individuals, to
receive quarterly reports, annual reports, and press releases as quickly
as possible. Beginning with the 1997 fiscal year, quarterly distribution
will be limited to the second quarter report only. All quarterly reports
and press releases are also available through the Internet at the
Company's home page on the World Wide Web (http://www.thermo.com/
subsid/txm.html).
33PAGE
<PAGE>
Trex Medical Corporation
Dividend Policy
The Company has never paid cash dividends and does not expect to
pay cash dividends in the foreseeable future because its policy has been
to use earnings to finance expansion and growth. Payment of dividends
will rest within the discretion of the Board of Directors and will
depend upon, among other factors, the Company's earnings, capital
requirements, and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
September 28, 1996, as filed with the Securities and Exchange
Commission, may be obtained at no charge by writing to John N.
Hatsopoulos, Vice President and Chief Financial Officer, Trex Medical
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Wednesday, March
12, 1997, at 10:30 a.m. at the Westin Hotel, 70 Third Avenue, Waltham,
Massachusetts.
34PAGE
<PAGE>
Exhibit 23
TREX MEDICAL CORPORATION
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated
November 1, 1996.
Arthur Andersen LLP
Boston, Massachusetts
December 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TREX MEDICAL
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 33,966
<SECURITIES> 0
<RECEIVABLES> 30,368
<ALLOWANCES> 1,264
<INVENTORY> 33,010
<CURRENT-ASSETS> 103,108
<PP&E> 17,259
<DEPRECIATION> 3,489
<TOTAL-ASSETS> 200,850
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<COMMON> 286
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<SALES> 150,195
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<OTHER-EXPENSES> 18,862
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