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 27, 1997.
[ ] 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: (781) 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 October 31, 1997, was approximately $74,638,000.
As of October 31, 1997, the Registrant had 28,894,630 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended September 27, 1997, 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 February 27, 1998, 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
digital breast-biopsy systems used for the detection of breast cancer, as
well as general-purpose X-ray equipment. In addition, the Company
manufactures specialized X-ray equipment, including imaging systems used
during diagnostic and interventional vascular and cardiac procedures such
as balloon angioplasty, and radiographic/fluoroscopic (R/F) systems used
to diagnose gastrointestinal (GI) disorders and other conditions.
The Company, incorporated in September 1995 as a 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). Through its Lorad division,
the Company manufactures and markets mammography and minimally invasive
digital 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 digital 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. In October
1997, XRE acquired substantially all of the assets, subject to certain
liabilities, of Digitec Corporation, a manufacturer of
physiological-monitoring equipment and digital-image archiving and
networking systems used in cardiac catheterization procedures.
Continental manufactures and markets a broad line of high-end
general-purpose X-ray systems, as well as specialized units, including
R/F systems used to diagnose GI disorders. In addition, Continental
manufactures electrophysiology products that aid doctors in diagnosing
and treating cardiac arrhythmia.
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.
The Company is currently developing a full-field 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 has collected clinical data that was submitted
in December 1997 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,
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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-purpose and specialized X-ray
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 27, 1997, ThermoTrex, a publicly traded subsidiary of
Thermo Electron Corporation (Thermo Electron), owned 22,883,798 shares of
the common stock of the Company, representing 79% of such stock
outstanding. In addition to the Company's products, ThermoTrex supplies
laser-based hair-removal services and personal-care products through its
ThermoLase subsidiary. Thermo Trex also conducts advanced technology
research in the areas of communications, avionics, X-ray detection, and
lasers. Thermo Electron is a world leader in environmental-monitoring and
analysis instruments, papermaking and recycling equipment, biomedical
products such as heart-assist devices, biomass electric power generation,
and other specialized products and technologies. Thermo Electron also
provides a range of services related to environmental quality.
ThermoTrex intends, for the foreseeable future, to maintain at least
50% ownership of the Company. This may require ThermoTrex to purchase
additional shares of the Company's common stock from time to time, as the
number of the Company's outstanding shares increases. These or any other
purchases may be made either in the open market or directly from the
Company. See Notes 4 and 7 to Consolidated Financial Statements in the
Registrant's Fiscal 1997 Annual Report to Shareholders for a description
of outstanding stock options and convertible note.
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. For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the results of the
Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in the Registrant's Fiscal 1997 Annual Report to
Shareholders, which statements are 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. Through Lorad and Bennett, 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 Lorad M-IV and the Bennett Contour Plus. Many of
the Lorad M-IV's features were developed in response to user demands,
including the ability to be upgraded to accept the full-field
digital-imaging technology being developed by the Company, when
available. The Bennett Contour Plus is also upgradable for digital
imaging and 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 also offers two lower-priced models and two mobile mammography
systems.
The Company has collected clinical data using its prototype
full-field digital mammography system. In December 1997, the Company
submitted data collected using its prototypes to the FDA, which must
grant market clearance before the Company can commercially market its
full-field digital-imaging system.
The Company is currently developing a next-generation full-field
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 adopted in the
United States.
Minimally Invasive Digital Breast-biopsy Systems. The Company offers
a variety of minimally invasive digital breast-biopsy systems,
manufactured by Lorad and Bennett, that provide an alternative to
surgical biopsy. These digital breast-biopsy systems were introduced to
address the disadvantages of open surgical biopsy and can be performed on
an outpatient basis under local anesthetic.
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
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see the needle being inserted in the breast, reducing the chance of
fainting. The typical cost of a minimally invasive breast-biopsy
procedure is approximately one-third that of 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."
Since October 1995, when the Lorad division signed a multiyear,
exclusive agreement with United States Surgical Corporation (U.S.
Surgical), the Company has manufactured a modified version of the
StereoGuide that is compatible with U.S. Surgical's Advanced
Breast-biopsy Instrument (ABBI (TM)), a disposable component. U.S.
Surgical markets this product as the ABBI system, which consists of the
Company's digital guidance system and a specialized table that has been
modified to accept the ABBI device. See "Dependency on a Single
Customer."
The Company also offers upright, add-on systems 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. These systems enhance the functionality of
a mammography system and are beneficial to customers who have only
periodic demand for minimally invasive needle-biopsy procedures.
The Company believes that the minimally invasive digital
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-purpose Radiography
The Company addresses the general-purpose X-ray market through its
Bennett and Continental subsidiaries. Bennett designs, manufactures, and
markets basic X-ray 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. Continental (and, to a lesser extent, Bennett) markets the more
sophisticated and expensive X-ray systems typically used in hospitals and
clinics. These include the two linear tomography systems marketed by the
Company. The Company believes that for a number of applications its
linear tomography systems may be a cost-effective alternative to computed
tomography (CT) systems. In addition, Bennett manufactures and markets
imaging systems designed specifically for chiropractors and
veterinarians.
The U.S. market for general-purpose 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 believes digital imaging will have significant
application in the general-purpose and specialized X-ray markets and that
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the technology it develops for its full-field digital imaging system may
be adaptable to these applications. In general-purpose X-ray
applications, the Company believes digital imaging will produce better
quality images and reduce operating costs by eliminating the need for
film, processing 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
The Company's XRE subsidiary designs, manufactures, and markets
cardiac catheterization laboratories (also called cath labs) and
positioners for cardiovascular imaging systems. XRE's imaging equipment
is used in cath labs where angiography (the examination of blood vessels
using X-rays following the injection of a radiopaque contrast medium) is
performed by an interventional cardiologist. XRE systems are designed to
provide real-time images of peripheral blood vessels and of the heart and
coronary arteries for physicians performing diagnostic and interventional
procedures, such as balloon angioplasty.
In recent years, significant advances have been made in the treatment
of atherosclerosis, which can lead to a narrowing of the arteries, and
other coronary artery diseases without extensive surgery. A common
alternative treatment to open-heart bypass surgery 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.
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.
XRE's products include the Unicath C cardiovascular imaging system,
the Unicath LP biplane cardiovascular imaging system, and 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 improve the visualization 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.
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. In October 1997, XRE acquired
substantially all of the assets, subject to certain liabilities, of
Digitec Corporation, a North Carolina-based manufacturer of
physiological-monitoring equipment and digital-image archiving and
networking systems used in cardiac catheterization procedures. The
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digital-image management system integrates physiological data, acquired
images, and other data to create a single source of patient information.
In addition, the Company's Continental subsidiary designs,
manufactures, and sells 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.
Radiographic/Fluoroscopic Systems
Through its Continental subsidiary, the Company designs,
manufactures, and markets radiographic/fluoroscopic (R/F) 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 radiopaque 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
DigiSpot (TM) 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 to film-based systems.
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, based on the Company's
medical imaging technology, 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 the lasers used in ThermoLase Corporation's
hair-removal process. ThermoLase is a publicly traded, majority-owned
subsidiary of ThermoTrex. During fiscal 1997*, 1996, and 1995, sales of
these lasers totaled $11,390,000, $8,549,000, and $350,000, respectively.
The Company has committed to deliver additional laser systems and
components to ThermoLase under this arrangement for approximately
$6.0 million.
* 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 1997, fiscal 1996, and fiscal 1995 herein are for
the years ended September 27, 1997, and September 28, 1996, and the
nine months ended September 30, 1995, respectively.
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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 U.S. Surgical and the GE Medical
Systems division of General Electric Company (GE). 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
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, which
audits the Company's compliance with current good manufacturing practices
as set forth in the quality system regulation (QSR) during such
inspections. Enforcement of QSR regulations has increased significantly
in the last several years. 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, as well as annual
reports and reports of accidental radiation occurrences.
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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,
the manufacturer must repair, replace, or refund the cost of any product
that is not in compliance with the relevant performance standard.
(ii) and (xi) New Products; 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-field digital
mammography system, X-ray sensors for flat-panel direct-detection
digital-imaging technology, the enhancement of existing mammography
products, and the introduction of an interventional radiology product.
The Company believes that the digital-imaging technology developed for
this system also may be adaptable to general-purpose and specialized
X-ray systems.
The Company is developing products based on flat-panel direct-
detection digital-imaging technology being 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
$6.0 million of the research and development in the fields of R/F, 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 27, 1997, the Company had cumulatively funded $3.8 million
under the agreement.
Research and development expenses of the Company were $24.7 million,
$18.9 million, and $8.6 million for fiscal 1997, fiscal 1996, and the
nine months ended September 30, 1995.
(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
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. 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.
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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 1997 Annual Report to
Shareholders, which statements are 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
17% of the Company's total revenues in fiscal 1997.
(viii) Backlog
The backlog of firm orders was $54.3 million as of September 27,
1997, compared with $71.7 million as of September 28, 1996. The backlog
at September 28, 1996, was affected by a build-up of new orders for the
Company's M-IV mammography system, which the Company began shipping in
late fiscal 1996, and the timing of certain orders received in late
fiscal 1996. Accordingly, the Company does not believe that the decline
in backlog is indicative of a trend. The Company anticipates that
substantially all of the backlog at September 27, 1997, will be shipped
during fiscal 1998.
(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, the Philips Medical
Systems North America Company subsidiary of Philips N.V. (Philips), the
Siemens Corporation subsidiary of Siemens AG (Siemens), Toshiba American
Medical Systems, Inc., Toshiba America MRI, Inc., Shimadzu, and Picker
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International, Inc., 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 and GE through OEM arrangements. The
products sold through such OEM agreements compete with those offered by
the Company directly and through its independent dealers. The Company's
StereoLoc II, Cytoguide, and StereoGuide breast-biopsy systems compete
with products offered by GE, Fischer Imaging Corporation, and Philips,
and with conventional surgical biopsy procedures. The Company competes
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.
(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.
(xiii) Number of Employees
As of September 27, 1997, the Company employed 1,041 persons.
(d) Financial Information about Exports by Domestic Operations
Financial information about exports by domestic operations is
summarized in Note 8 to Consolidated Financial Statements in the
Registrant's Fiscal 1997 Annual Report to Shareholders, which information
is incorporated herein by reference.
(e) Executive Officers of the Registrant
Present Title (Fiscal Year First Became
Name Age Executive Officer)
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Hal Kirshner 56 Chief Executive Officer, President,
and Director (1995)
John N. Hatsopoulos 63 Chief Financial Officer and Vice
President (1995)
John Brenna 51 Vice President (1997)
Paul F. Kelleher 55 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 was President of Lorad from February 1991
to April 1997. Mr. Brenna has been a Vice President since joining the
Company in March 1996. Prior to joining the Company, Mr. Brenna was
Director of Marketing, North America, for Philips Medical Systems, a
position he held for seven years. 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.
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Item 2. Properties
The Company owns two office and manufacturing facilities: a 62,500-
square-foot facility in Danbury, Connecticut, and a 143,000-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, a 156,000-square-foot office and manufacturing facility
in Littleton, Massachusetts, under a lease expiring in 2012, and a
60,000-square-foot office and manufacturing facility in Danbury,
Connecticut, under a lease expiring in 2007.
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,
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 27, 1997, the Company had
recognized aggregate revenues of approximately $107.1 million from the
sale of such systems, of which $34.4 million represents sales prior to
October 16, 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 prone breast-biopsy 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 16, 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 27, 1997),
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.
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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 1997 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 1997 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 1997 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 1997 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.
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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.
14PAGE
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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.
15PAGE
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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 4, 1997 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 4, 1997.
Signature Title
--------- -----
By: Hal Kirshner President, Chief Executive Officer,
---------------------------- and Director
Hal Kirshner
By: John N. Hatsopoulos Vice President and Chief Financial
---------------------------- Officer
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: John T. Keiser Director
----------------------------
John T. Keiser
By: Dr. James W. May, Jr. Director
----------------------------
Dr. James W. May, Jr.
By: Hutham S. Olayan Director
----------------------------
Hutham S. Olayan
By: Director
----------------------------
Firooz Rufeh
16PAGE
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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 3,
1997. 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 15 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 3, 1997
17PAGE
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SCHEDULE II
TREX MEDICAL CORPORATION
Valuation And Qualifying Accounts
(In thousands)
Balance Provision
at Charged Accounts Balance
Beginning to Written at End
Description of Period Expense Off Other (a) of Period
--------------------- --------- --------- -------- --------- ---------
Allowance for
Doubtful Accounts
Year Ended
September 27, 1997 $1,264 $ 170 $ (136) $ - $1,298
Year Ended
September 28, 1996 $ 870 $ 273 $ (151) $ 272 $1,264
Nine Months Ended
September 30, 1995 $ 525 $ 25 $ - $ 320 $ 870
(a)Allowances of businesses acquired during the year as described in Note 2
to Consolidated Financial Statements in the Registrant's Fiscal 1997
Annual Report to Shareholders.
18PAGE
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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.
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).
10.6 Master Guarantee Reimbursement and Loan 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).
19PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-------------------------------------------------------------------------
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
20PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-------------------------------------------------------------------------
10.15 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).
10.16 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 and ThermoTrex
for services rendered to the Registrant or such
affiliated corporations. Such plans were filed as
Exhibits 10.21 through 10.45 to the Annual Report on
Form 10-K of Thermo Electron for the fiscal year ended
December 28, 1996 (File No. 1-8002) and as Exhibits
10.14 through 10.18 to the Annual Report on Form 10-K
of ThermoTrex for the fiscal year ended September 27,
1997 (File No. 1-10791) and are incorporated herein by
reference.
10.17 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).
10.18 Amended and Restated Stock Holding Assistance Plan and
Form of Promissory Note.
10.19 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).
10.20 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).
21PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-------------------------------------------------------------------------
10.21 Letter Agreement dated January 13, 1997, between the
Registrant and Philips Medical Systems (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 28, 1996, and
incorporated herein by reference).
10.22 Form of Purchase Order and Terms and Conditions for
Purchases of Lasers by ThermoLase Corporation from the
Registrant (filed as Exhibit 10.30 to ThermoLase's
Annual Report on Form 10-K for the fiscal year ended
September 27, 1997 [File No. 1-13104] and incorporated
herein by reference).
11 Statement re: Computation of Earnings per Share.
13 Annual Report to Shareholders for the fiscal year ended
September 27, 1997 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
EXHIBIT 10.4
MASTER REPURCHASE AGREEMENT
AGREEMENT dated as of the 27th day of September, 1995
between Thermo Electron Corporation, a Delaware corporation
("Seller"), and Trex Medical Corporation, a Delaware corporation
(the "Buyer").
1. Applicability
From time to time Buyer and Seller may enter into
transactions in which Seller agrees to transfer to Buyer certain
securities and/or financial instruments ("Securities") against
the transfer of funds by Buyer, with a simultaneous agreement by
Buyer to transfer to Seller such Securities on demand, against
the transfer of funds by Seller. Each such transaction shall be
referred to herein as a "Transaction" and shall be governed by
this Agreement, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to either party (i)
the commencement by such party as debtor of any case or
proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar
official for such party or any substantial part of its property;
or (ii) the commencement of any such case or proceeding against
such party, or another seeking such an appointment, which (A) is
consented to or not timely contested by such party, (B) results
in the entry of an order for relief, such an appointment or the
entry of an order having a similar effect, or (C) is not
dismissed within 15 days; or (iii) the making by a party of a
general assignment for the benefit of creditors; or (iv) the
admission in writing by a party of such party's inability to pay
such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided
by Seller to Buyer pursuant to Paragraph 4(a) hereof;
(c) "Income", with respect to any Security at any time, any
principal thereof then payable and all interest, dividends or
other distributions thereon;
(d) "Market Value", with respect to any Securities as of
any date, the price for such Securities on such date obtained
from a generally recognized source agreed to by the parties or
the most recent closing bid quotation from such a source, plus
accrued Income to the extent not included therein (other than any
Income transferred to Seller pursuant to Paragraph 6 hereof) as
of such date (unless contrary to market practice for such
Securities);
PAGE
<PAGE>
(e) "Other Buyers", third parties that have entered into an
agreement with Seller that is substantially similar to this
Agreement;
(f) "Pricing Rate", a rate equal to the Commercial Paper
Composite rate for 90-day maturities provided by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (or, if such rate is not
available, a substantially equivalent rate agreed to by Buyer and
Seller) plus 25 basis points, which rate shall be adjusted on
the first business day of each fiscal quarter and shall be in
effect for the entirety such fiscal quarter;
(g) "Purchase Price", the price at which Purchased
Securities are transferred by Seller to Buyer;
(h) "Purchased Securities", the Securities transferred by
Seller to Buyer in a Transaction hereunder, and any Securities
substituted therefor in accordance with Paragraph 9 hereof. The
term "Purchased Securities" with respect to any Transaction at
any time also shall include Additional Purchase Securities
transferred pursuant to Paragraph 4(a) and shall exclude
Securities returned pursuant to Paragraph 4(b);
(i) "Repurchase Collateral Account", a book account
maintained by Seller containing, among other Securities, the
Purchased Securities; and
(j) "Repurchase Price", for any Purchased Security, an
amount equal to the Purchase Price paid by Buyer to Seller for
such Purchased Security.
3. Transactions
(a) A Transaction may be initiated by Buyer upon the
transfer of the Purchase Price to Seller's account. Upon such
transfer, Seller shall transfer to Buyer Purchased Securities
having a Market Value equal to 103% of the Purchase Price.
(b) Purchased Securities shall be held in custody for Buyer
by Seller in the Repurchase Collateral Account. Seller shall
indicate on its books for such account Buyer's ownership of the
Purchased Securities. Upon reasonable request from Buyer, Seller
shall provide Buyer with a complete list of Purchased Securities
owned by Buyer.
(c) Upon demand by Buyer or Seller, Seller shall repurchase
from Buyer, and Buyer shall sell to Seller, for the Repurchase
Price all or any part of the Purchased Securities then owned by
Buyer.
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4. Margin Maintenance
(a) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer is less than 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller shall transfer to Buyer additional Securities ("Additional
Purchased Securities"), so that the aggregate Market Value of
such Purchased Securities, including any such Additional
Purchased Securities, will thereupon equal or exceed 103% of
such aggregate Repurchase Price.
(b) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer exceeds 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller may transfer Purchased Securities to Seller, so that the
aggregate Market Value of such Purchased Securities will
thereupon not exceed 103% of such aggregate Repurchase Price.
5. Interest Payments
If during any fiscal month Buyer owned Purchased Securities,
then on the first day of the next following fiscal month Seller
shall pay to Buyer an amount equal to the sum of the aggregate
Repurchase Prices of the Purchased Securities owned by Buyer at
the close of each day during the preceding fiscal month divided
by the number of days in such month and the product multiplied by
the Pricing Rate times the number of days in such month divided
by 360.
6. Income Payments and Voting Rights
Where a particular Transaction's term extends over an Income
payment date on the Purchased Securities subject to that
Transaction, Buyer shall, on the date such Income is payable,
transfer to Seller an amount equal to such Income payment or
payments with respect to any Purchased Securities subject to such
Transaction. Seller shall retain all voting rights with respect
to Purchased Securities sold to Buyer under this Agreement.
7. Security Interest
Although the parties intend that all Transactions hereunder
be sales and purchases and not loans, in the event any such
Transactions are deemed to be loans, Seller shall be deemed to
have pledged to Buyer as security for the performance by Seller
of its obligations under each such Transaction and this
Agreement, and shall be deemed to have granted to Buyer a
security interest in, all of the Purchased Securities with
respect to all Transactions hereunder and all proceeds thereof.
3PAGE
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8. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds
hereunder shall be in immediately available funds. As used
herein with respect to Securities, "transfer" is intended to have
the same meaning as when used in Section 8-313 of the
Massachusetts Uniform Commercial Code or, where applicable, in
any federal regulation governing transfers of the Securities.
9. Substitution
Buyer hereby grants Seller the authority to manage, in
Seller's sole discretion, the Purchased Securities held in
custody for Buyer by Seller in the Repurchase Collateral Account.
Buyer expressly agrees that Seller may (i) substitute other
Securities for any Purchased Securities and (ii) commingle
Purchased Securities with other Securities held in the Repurchase
Collateral Account. Substitutions shall be made by transfer to
Buyer of such other Securities and transfer to Seller of the
Purchased Securities for which substitution is being made. After
substitution, the substituted Securities shall be deemed to be
Purchased Securities. Securities which are substituted for
Purchased Securities shall have a Market Value at the time of
substitution equal to or greater than the Market Value of the
Purchase Securities for which such Securities were substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the
other that (i) it is duly authorized to execute and deliver this
Agreement, to enter into the Transactions contemplated hereunder
and to perform its obligations hereunder and has taken all
necessary action to authorize such execution, delivery and
performance, (ii) the person signing this Agreement on its behalf
is duly authorized to do so on its behalf, (iii) it has obtained
all authorizations of any governmental body required in
connection with this Agreement and the Transactions hereunder and
such authorizations are in full force and effect and (iv) the
execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance,
charter, by-law or rule applicable to it or any agreement by
which it is bound or by which any of its assets are affected. On
the date for any Transaction Buyer and Seller shall each be
deemed to repeat all the foregoing representations made by it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer
fails to transfer Purchased Securities upon demand for repurchase
from either Buyer or Seller, (ii) Seller or Buyer fails, after
one business day's notice, to comply with Paragraph 4 hereof,
(iii) Buyer fails to make payment to Seller pursuant to
Paragraph 6 hereof, (iv) Seller fails to comply with Paragraph 5
hereof, (v) an Act of Insolvency occurs with respect to Seller
4PAGE
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or Buyer, (vi) any representation made by Seller or Buyer shall
have been incorrect or untrue in any material respect when made
or repeated or deemed to have been made or repeated, or (vii)
Seller or Buyer shall admit to the other its inability to, or its
intention not to, perform any of its obligations hereunder (each
an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by
written notice to the defaulting party (which option shall be
deemed to have been exercised, even if no notice is given,
immediately upon the occurrence of any Act of Insolvency), Seller
shall become obligated to repurchase, and Buyer shall become
obligated to sell, all Purchased Securities then owned by Buyer
for the Repurchase Price of such Purchased Securities.
(b) If Seller is the defaulting party and Buyer exercises
or is deemed to have exercised the option referred to in
subparagraph (a) of this Paragraph, (i) the Seller's obligations
hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable,
(ii) all Income paid after such exercise or deemed exercise shall
be retained by Buyer and applied to the aggregate unpaid
Repurchase Prices owed by Seller, and (iii) Seller shall
immediately deliver to Buyer any Purchased Securities subject to
such Transactions then in Seller's possession.
(c) In all Transactions in which Buyer is the defaulting
party, upon tender by Seller of payment of the aggregate
Repurchase Prices for all such Transactions, Buyer's right, title
and interest in all Purchased Securities subject to such
Transactions shall be deemed transferred to Seller, and Buyer
shall deliver all such Purchased Securities to Seller.
(d) After one business day's notice to the defaulting party
(which notice need not be given if an Act of Insolvency shall
have occurred, and which may be the notice given under
subparagraph (a) of this Paragraph or the notice referred to in
clause (ii) of the first sentence of this Paragraph), the
nondefaulting party may:
(i) as to Transactions in which Seller is the
defaulting party, (A) immediately sell, in a recognized market at
such price or prices as Buyer may reasonably deem satisfactory,
any or all Purchased Securities subject to such Transactions and
apply the proceeds thereof to the aggregate unpaid Repurchase
Prices and any other amounts owing by Seller hereunder or (B) in
its sole discretion elect, in lieu of selling all or a portion of
such Purchased Securities, to give Seller credit for such
Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the
most recent closing bid quotation from such a source, against the
aggregate unpaid Repurchase Prices and any other amounts owing by
Seller hereunder; and
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(ii) as to Transactions in which Buyer is the
defaulting party, (A) purchase securities ("Replacement
Securities") of the same class and amount as any Purchased
Securities that are not delivered by Buyer to Seller as required
hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Securities, to be deemed to have purchased
Replacement Securities at the price therefor on such date,
obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
(e) As to Transactions in which Buyer is the defaulting
party , Buyer shall be liable to Seller (i) with respect to
Purchased Securities (other than Additional Purchased
Securities), for any excess of the price paid (or deemed paid) by
Seller for Replacement Securities therefor over the Repurchase
Price for such Purchased Securities and (ii) with respect to
Additional Purchased Securities, for the price paid (or deemed
paid) by Seller for the Replacement Securities therefor.
(f) The defaulting party shall be liable to the
nondefaulting party for the amount of all reasonable legal or
other expenses incurred by the nondefaulting party in connection
with or as a consequence of an Event of Default.
(g) The nondefaulting party shall have, in addition to its
rights hereunder, any rights otherwise available to it under any
other agreement or applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto
and will enter into each Transaction hereunder in consideration
of and in reliance upon the fact that, all Transactions hereunder
constitute a single business and contractual relationship and
have been made in consideration of each other. Accordingly, each
of Buyer and Seller agrees (i) to perform all of its obligations
in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that
each of them shall be entitled to set off claims and apply
property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers
made by either of them in respect of any Transaction shall be
deemed to have been made in consideration of payments, deliveries
and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments,
deliveries and other transfers may be applied against each other
and netted.
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13. Entire Agreement; Severability
This Agreement shall supersede any existing agreements
between the parties containing general terms and conditions for
repurchase transactions. Each provision and agreement and
agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be
enforceable notwithstanding the unenforceability of any such
other provision or agreement.
14. Non-assignability; Termination
The rights and obligations of the parties under this
Agreement and under any Transactions shall not be assigned by
either party without the prior written consent of the other
party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit
of the parties and their respective successors and assigns. This
Agreement may be canceled by either party upon giving written
notice to the other, except that this Agreement shall,
notwithstanding such notice, remain applicable to any
Transactions then outstanding.
15. Governing Law
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts without giving effect to the
conflict of law principles thereof.
16. No Waivers, Etc.
No express or implied waiver of any Event of Default by
either party shall constitute a waiver of any other Event of
Default and no exercise of any remedy hereunder by any party
shall constitute a wavier of its right to exercise any other
remedy hereunder. No modification or waiver of any provision of
this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in
writing and duly executed by both of the parties hereto.
19. Intent
(a) The parties recognize that each Transaction is a
"repurchase agreement" as that term is defined in Section 101 of
Title 11 of the United States Code, as amended (except insofar as
the type of Securities subject to such Transaction or the term of
such Transaction would render such definition inapplicable), and
a "securities contract" as that term is defined in Section 741 of
Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate
Securities delivered to it in connection with Transactions
hereunder or to exercise any other remedies pursuant to Paragraph
11 hereof, is a contractual right to liquidate such Transaction
7PAGE
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as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THERMO ELECTRON CORPORATION TREX MEDICAL CORPORATION
By: /s/ Melissa F. Riordan By: /s/ Hal Kirshner
Melissa F. Riordan Hal Kirshner
Treasurer President
EXHIBIT 10.18
TREX MEDICAL CORPORATION
RESTATED STOCK HOLDING ASSISTANCE PLAN
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
interpretations and decisions with regard to the Plan and the
PAGE
<PAGE>
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 in
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 on the fifth anniversary of the date of
the Loan, provided that the Committee may, in its sole and
PAGE
<PAGE>
absolute discretion, authorize such other maturity and repayment
schedule as the Committee may determine. 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.
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
PAGE
<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 to the Company
from the Employee's annual cash incentive compensation (referred
to as bonus), 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 occurring prior to the Maturity Date, such
amount as may be designated by the Company but which shall not
exceed 20% of the Employee's bonus payment. 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;
PAGE
<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
Exhibit 11
TREX MEDICAL CORPORATION
Computation of Earnings per Share
Nine Months
Year Ended Ended
------------------------------------- -----------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
1997 1996 1995 1995
--------------------------------------------------------------------------
(Unaudited)
Computation of Primary
Earnings per Share:
Net Income (a) $14,674,000 $ 9,344,000 $ 3,592,000 $ 3,483,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 28,826,093 23,365,220 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
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 28,826,093 23,483,281 20,151,414 20,151,414
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .51 $ .40 $ .18 $ .17
=========== =========== =========== ===========
PAGE
<PAGE>
Exhibit 11
TREX MEDICAL CORPORATION
Computation of Earnings per Share (continued)
Nine Months
Year Ended Ended
-------------------------------------- ------------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
1997 1996 1995 1995
--------------------------------------------------------------------------
(Unaudited)
Computation of Fully
Diluted Earnings
per Share:
Income:
Net Income $14,674,000 $ 9,344,000 $ 3,592,000 $ 3,483,000
----------- ----------- ----------- -----------
Add: Convertible
note interest,
net of tax - 828,138 - -
----------- ----------- ----------- -----------
Income applicable to
common stock
assuming full
dilution (a) $14,674,000 $10,172,138 $ 3,592,000 $ 3,483,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 28,826,093 23,365,220 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
Shares issuable
from assumed
conversion of
subordinated
convertible
note - 2,787,331 - -
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 28,826,093 26,550,109 20,151,414 20,151,414
----------- ----------- ----------- -----------
Fully Diluted
Earnings per
Share (a) / (b) $ .51 $ .38 $ .18 $ .17
=========== =========== =========== ===========
Exhibit 13
Trex Medical Corporation
Consolidated Financial Statements
Fiscal Year 1997
PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Consolidated Statement of Income
Nine Months
Year Ended Ended
---------------------------------- -----------
(In thousands except Sept. 27, Sept. 28, Sept. 30, Sept. 30,
per share amounts) 1997 1996 1995 1995
------------------------------------------------------------------------
(Unaudited)
Revenues (includes $11,427,
$8,910, $470, and $470
to affiliated companies;
Notes 7 and 8) $229,294 $150,195 $ 70,505 $ 55,291
-------- -------- -------- --------
Costs and Operating
Expenses:
Cost of revenues
(includes $7,238,
$4,698, $223, and
$223 for affiliated
companies revenues;
Note 7) 139,062 86,642 36,320 28,180
Selling, general, and
administrative
expenses (Note 7) 40,181 27,156 15,652 12,174
Research and development
expenses (Note 7) 24,705 18,862 11,937 8,595
-------- -------- -------- --------
203,948 132,660 63,909 48,949
-------- -------- -------- --------
Operating Income 25,346 17,535 6,596 6,342
Interest Income 1,895 1,290 - -
Interest Expense, Related
Party (Note 7) (336) (1,373) - -
Other Income, Net 559 60 11 22
-------- -------- -------- --------
Income Before Provision
for Income Taxes 27,464 17,512 6,607 6,364
Provision for Income
Taxes (Note 5) 12,790 8,168 3,015 2,881
-------- -------- -------- --------
Net Income $ 14,674 $ 9,344 $ 3,592 $ 3,483
======== ======== ======== ========
Earnings per Share:
Primary $ .51 $ .40 $ .18 $ .17
======== ======== ======== ========
Fully diluted $ .51 $ .38 $ .18 $ .17
======== ======== ======== ========
Weighted Average Shares:
Primary 28,826 23,483 20,151 20,151
======== ======== ======== ========
Fully diluted 28,826 26,550 20,151 20,151
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Consolidated Balance Sheet
Sept. 27, Sept. 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 36,490 $ 33,966
Accounts receivable, less allowances of $1,298
and $1,264 44,774 29,104
Inventories 43,341 33,010
Prepaid expenses 971 1,316
Prepaid income taxes (Note 5) 6,147 5,712
Due from affiliated companies - 3,211
-------- --------
131,723 106,319
-------- --------
Property, Plant, and Equipment, at Cost, Net 16,415 13,770
-------- --------
Cost in Excess of Net Assets of Acquired Companies
(Note 2) 81,299 83,972
-------- --------
$229,437 $204,061
======== ========
3PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Consolidated Balance Sheet (continued)
Sept. 27, Sept. 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 13,900 $ 12,598
Accrued payroll and employee benefits 4,494 4,616
Accrued warranty costs 5,740 5,344
Accrued commissions 3,721 1,938
Customer deposits 3,074 3,414
Accrued income taxes (includes $7,458 and $6,300
due to parent company) 10,835 8,310
Other accrued expenses (Note 2) 8,998 10,265
Due to affiliated companies 1,312 -
-------- --------
52,074 46,485
-------- --------
Deferred Income Taxes (Note 5) 222 170
-------- --------
Long-term Obligations:
4.2% Subordinated convertible note, due to parent
company (Note 7) 8,000 8,000
Other 47 109
-------- --------
8,047 8,109
-------- --------
Commitments and Contingencies (Notes 2, 6, 7, and 9)
Shareholders' Investment (Notes 3 and 4):
Common stock, $.01 par value, 50,000,000 shares
authorized; 28,894,630 and 28,592,630 shares
issued and outstanding 289 286
Capital in excess of par value 144,787 139,667
Retained earnings 24,018 9,344
-------- --------
169,094 149,297
-------- --------
$229,437 $204,061
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows
Nine Months
Year Ended Ended
--------------------------------- ----------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
(In thousands) 1997 1996 1995 1995
----------------------------------------------------------------------
(Unaudited)
Operating Activities:
Net income $14,674 $ 9,344 $ 3,592 $ 3,483
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 4,996 3,195 1,702 1,315
Provision for losses
on accounts
receivable 170 273 75 25
Increase (decrease)
in deferred income
taxes 52 (26) 61 29
Changes in current
accounts, excluding
the effects of
acquisitions:
Accounts
receivable (15,840) (7,681) (1,305) (693)
Inventories (10,331) (2,105) (533) (1,476)
Other current
assets 470 (1,835) (6) (82)
Accounts payable 1,302 106 2,342 621
Other current
liabilities 8,480 4,711 (1,139) 444
Other (67) (32) (15) (15)
------- -------- -------- --------
Net cash provided by
operating activities 3,906 5,950 4,774 3,651
------- -------- -------- --------
Investing Activities:
Acquisitions, net of cash
acquired (Note 2) - (36,888) - -
Purchases of property,
plant, and equipment (5,461) (3,071) (1,533) (957)
Other, net - 16 14 14
------- -------- -------- --------
Net cash used in
investing activities $(5,461) $(39,943) $ (1,519) $ (943)
------- -------- -------- --------
5PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended
----------------------------------- -----------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
(In thousands) 1997 1996 1995 1995
------------------------------------------------------------------------
(Unaudited)
Financing Activities:
Net proceeds from
issuance of Company
common stock (Note 3) $ 4,141 $ 67,757 $ - $ -
Net transfers to parent
company - - (3,053) (2,506)
Other (62) - - -
-------- -------- -------- --------
Net cash provided by
(used in) financing
activities 4,079 67,757 (3,053) (2,506)
-------- -------- -------- --------
Increase in Cash and Cash
Equivalents 2,524 33,764 202 202
Cash and Cash Equivalents
at Beginning of Period 33,966 202 - -
-------- -------- -------- --------
Cash and Cash Equivalents
at End of Period $ 36,490 $ 33,966 $ 202 $ 202
======== ======== ======== ========
Cash Paid For:
Interest $ 182 $ 1,373 $ - $ -
Income taxes $ 8,304 $ 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
subordinated
convertible note by
parent company $ - $ 34,000 $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
Nine Months
Year Ended Ended
---------------------- -----------
Sept. 27, Sept. 28, Sept. 30,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of period $ 286 $ - $ -
Net proceeds from issuance of Company
common stock (Note 3) 3 57 -
Capitalization of Company - 200 -
Conversions of subordinated
convertible note by parent company - 29 -
-------- -------- --------
Balance at end of period 289 286 -
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of period 139,667 - -
Net proceeds from issuance of Company
common stock (Note 3) 4,116 67,700 -
Issuance of stock under employees'
and directors' stock plans 22 - -
Tax benefit related to employees'
and directors' stock plans 982 186 -
Issuance of subordinated convertible
note to parent company (Note 7) - (42,000) -
Capitalization of Company - 79,810 -
Conversions of subordinated
convertible note by parent company - 33,971 -
-------- -------- --------
Balance at end of period 144,787 139,667 -
-------- -------- --------
Retained Earnings
Balance at beginning of period 9,344 - -
Net income 14,674 9,344 -
-------- -------- --------
Balance at end of period 24,018 9,344 -
-------- -------- --------
Net Parent Company Investment
Balance at beginning of period - 80,010 37,033
Net income - - 3,483
Net transfers to parent company - - (2,506)
Transfer of acquired business from
parent company, net of cash
(Note 2) - - 42,000
Capitalization of Company - (80,010) -
-------- -------- --------
Balance at end of period - - 80,010
-------- -------- --------
Total Shareholders' Investment $169,094 $149,297 $ 80,010
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
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 digital breast-
biopsy systems used for the detection of breast cancer. The Company also
designs and manufactures general-purpose X-ray equipment and specialized
X-ray equipment, including imaging systems used during diagnostic and
interventional vascular and cardiac procedures such as balloon
angioplasty. The Company's mammography and digital breast-biopsy systems
are used by radiologists and physicians in offices, hospitals, and
dedicated breast-care centers, and its general-purpose 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 7). As of September 27, 1997, 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 27, 1997, ThermoTrex owned 22,883,798 shares of the
Company's common stock, representing 79% of such stock outstanding.
ThermoTrex is a 53%-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 1997 and fiscal
1996 are for the years ended September 27, 1997, and September 28, 1996,
respectively. Fiscal 1997 and fiscal 1996 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.
8PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
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.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly,
no accounting recognition is given to stock options granted at fair
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity.
Income Taxes
The Company and ThermoTrex entered into a tax allocation agreement
under which the Company was included in the consolidated income tax
returns filed by ThermoTrex. The agreement provided that in years in
which the Company had taxable income, it would pay to ThermoTrex amounts
comparable to the taxes the Company would have paid if it had filed
separate tax returns. Subsequent to the Company's sale of common stock in
December 1996 (Note 3), ThermoTrex's ownership of the Company was reduced
below 80% and, as a result, the Company is required to 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 has been computed based on the weighted average
number of shares outstanding during the period. Weighted average shares
for fiscal 1996 and 1995 include 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 the assumed exercise of stock
options 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 in fiscal 1996 include the
effect of the assumed exercise of stock options and the effect of the
assumed conversion of the Company's 4.2% subordinated convertible note,
due to parent company.
9PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
As of September 27, 1997, $34,587,000 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 U.S. government-agency securities, corporate
notes, commercial paper, money market funds, 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.
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) 1997 1996
-----------------------------------------------------------------------
Raw materials and supplies $25,691 $20,513
Work in process 12,755 9,218
Finished goods 4,895 3,279
------- -------
$43,341 $33,010
======= =======
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 10
years; and leasehold improvements, the shorter of the term of the lease
or the life of the asset. Property, plant, and equipment consists of the
following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Land $ 1,299 $ 1,194
Buildings 3,715 3,788
Leasehold improvements 2,904 2,195
Machinery and equipment 14,769 10,082
------- ------
22,687 17,259
Less: Accumulated depreciation and amortization 6,272 3,489
------- ------
$16,415 $13,770
======= =======
10PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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 $5,807,000 and $3,621,000 as of September
27, 1997, and September 28, 1996, 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. If impairment
has occurred, any excess of carrying value over fair value is recorded as
a loss.
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.
Presentation
Certain amounts in fiscal 1996 have been reclassified to conform to
the presentation in the fiscal 1997 financial statements.
2. 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.
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 7).
11PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Acquisitions (continued)
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 $63.5 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.
Based on unaudited data, the following table presents selected
financial information for the Company and the businesses acquired on a
pro forma basis, assuming they had been combined since the beginning of
fiscal 1995.
Nine
(In thousands except Year Ended Months Ended
per share amounts) Sept. 28, 1996 Sept. 30, 1995
-----------------------------------------------------------------------
Revenues $191,351 $126,185
Net income 9,300 2,012
Earnings per share:
Primary .29 .07
Fully diluted .29 .07
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions been made at the beginning of 1995.
Other accrued expenses in the accompanying balance sheet includes
$2.5 million and $3.5 million as of September 27, 1997, and September 28,
1996, 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), alleging 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, management does not believe that it is reasonably likely that
any resolution would have a material adverse effect on the Company's
financial position.
12PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Common Stock
Sale of Common Stock
In December 1996, the Company sold 300,000 shares of its common stock
at $14.50 per share, for net proceeds of $4,119,000.
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
$49,068,000.
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
$17,619,000. 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 $1,070,000. 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 $34,000,000 principal amount
of the Company's 4.2% subordinated convertible note into 2,883,798 shares
of the Company's common stock.
Reserved Shares
As of September 27, 1997, the Company had reserved 2,801,542 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.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
In 1995 and 1997, the Company adopted stock-based compensation plans
for its key employees, directors, and others, which permit 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. To date, only nonqualified stock options
have been awarded under these plans. The option recipients and the terms
of options granted under these plans are determined by the Board
Committee. Generally, options granted to date are exercisable
immediately, but 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 a five- to ten-year
period, depending on the term of the option, which may range from seven
to twelve years. Nonqualified stock options may be granted at any price
13PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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 in 1995, that provides for the grant of stock options 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 plans 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 and ThermoTrex.
A summary of the Company's stock option information is as follows:
1997 1996
------------------ -----------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price
-----------------------------------------------------------------------
Options outstanding,
beginning of year 1,381 $11.14 - $ -
Granted 512 15.82 1,401 11.14
Exercised (2) 11.00 - -
Forfeited (131) 14.58 (20) 11.00
----- -----
Options outstanding, end of
year 1,760 $12.24 1,381 $11.14
===== ====== ===== ======
Options exercisable 1,760 $12.24 - -
===== ====== ===== ======
Options available for grant 238 519
===== =====
Weighted average fair value
per share of options
granted during year $ 7.88 $ 5.47
====== ======
14PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at September
27, 1997, is as follows:
Options Outstanding and Exercisable
-----------------------------------
Weighted
Average Weighted
Number Remaining Average
of Contractual Exercise
Range of Exercise Prices Shares Life Price
-----------------------------------------------------------------------
(Shares in thousands)
$10.25 - $12.04 1,331 9.6 years $11.14
12.05 - 13.82 168 11.7 years 13.48
13.83 - 15.61 29 11.3 years 15.33
15.62 - 17.40 232 11.2 years 17.27
-----
$10.25 - $17.40 1,760 10.0 years $12.24
=====
Employee Stock Purchase Program
-------------------------------
Effective November 1, 1997, substantially all of the Company's
full-time employees are eligible to participate in an employee stock
purchase program sponsored by the Company and Thermo Electron, under
which employees can purchase shares of the Company's and Thermo
Electron's common stock. Prior to November 1, 1997, the program was
sponsored by ThermoTrex and Thermo Electron. Under this program, the
applicable shares of common stock can be purchased at the end of a
12-month period at 95% of the fair market value at the beginning of the
period, 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 period, 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.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in fiscal 1997 and 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
15PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Net income:
As reported $14,674 $ 9,344
Pro forma 14,071 9,102
Primary earnings per share:
As reported .51 .40
Pro forma .49 .38
Fully diluted earnings per share:
As reported .51 .38
Pro forma .49 .37
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Compensation expense for options granted is
reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1997 1996
-----------------------------------------------------------------------
Volatility 26% 29%
Risk-free interest rate 6.5% 6.4%
Expected life of options 8.5 years 7.8 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
16PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
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
$1,080,000, $701,000, and $242,000 in fiscal 1997, 1996, and 1995,
respectively.
5. Income Taxes
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
----------------------------------------------------------------------
Currently payable:
Federal $ 9,913 $ 6,324 $ 2,474
State 2,677 1,866 808
------- ------- -------
12,590 8,190 3,282
------- ------- -------
Deferred (Prepaid):
Federal 172 (16) (228)
State 28 (6) (173)
------- ------- -------
200 (22) (401)
------- ------- -------
$12,790 $ 8,168 $ 2,881
======= ======= =======
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 $982,000 and $186,000 of such benefits that have been
allocated to capital in excess of par value for fiscal 1997 and 1996,
respectively.
17PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
The provision for income taxes in the accompanying statement of
income for fiscal 1997, 1996, and 1995 differs from the provision
calculated by applying the statutory federal income tax rate of 35% in
fiscal 1997 and 1996, and 34% in fiscal 1995 to income before provision
for income taxes due to the following:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Provision for income taxes
at statutory rate $ 9,612 $ 6,129 $ 2,164
Increases resulting from:
State income taxes, net of federal tax 1,758 1,209 419
Amortization of cost in excess of net
assets of acquired companies 541 541 197
Other, net 879 289 101
------- ------- -------
$12,790 $ 8,168 $ 2,881
======= ======= =======
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1997 1996
------------------------------------------------------------
Prepaid income taxes:
Reserves and accruals $ 3,416 $ 3,409
Accrued compensation 755 1,107
Allowance for doubtful accounts 503 430
Inventory basis difference 1,375 766
Other, net 98 -
------- -------
$ 6,147 $ 5,712
======= =======
Deferred income taxes:
Depreciation $ 222 $ 170
======= =======
6. Commitments
The Company leases portions of its office and operating facilities
under various noncancelable operating lease arrangements expiring between
fiscal 1998 and fiscal 2007. The accompanying statement of income
includes expenses from these operating leases of $1,408,000, $674,000,
and $44,000 in fiscal 1997, 1996, and 1995, respectively. Future minimum
payments due under these noncancelable operating leases at September 27,
1997, are $1,411,000 in fiscal 1998; $1,383,000 in fiscal 1999;
$1,374,000 in fiscal 2000; $1,372,000 in fiscal 2001; $1,402,000 in
fiscal 2002; and $5,007,000 in fiscal 2003 and thereafter. Total future
minimum lease payments are $11,949,000. The Company also has an operating
lease arrangement with a related party as discussed in Note 7.
18PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. 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% of the Company's revenues in calendar
year 1995. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. For these services, the Company was charged
$2,293,000, $1,567,000, and $663,000 in fiscal 1997, 1996, and 1995,
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 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
used in ThermoLase's laser-based hair-removal system. During fiscal 1997,
1996, and 1995, the Company recorded $11,390,000, $8,549,000, and
$350,000, respectively, of revenue under this arrangement.
Under an arrangement with Thermedics Detection 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 in a
fill-measuring device produced by Thermedics Detection. During fiscal
1997, 1996, and 1995, the Company recorded $37,000, $361,000, and
$120,000, respectively, of revenue under this arrangement.
Vendor Agreement
During 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 are expected to be received
through fiscal 1999. During fiscal 1997 and 1996, the Company purchased
grids valued at $678,000 and $397,000 from Tecomet under this
arrangement. In addition, the Company recorded expense of $250,000 during
fiscal 1995 related to research and development funding provided to
Tecomet in connection with this project.
19PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Related-party Transactions (continued)
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 $2,000,000 in each of three years through 1998 and its
license will be extended to cover such fields. In fiscal 1997 and 1996,
the Company recorded $2,000,000 and $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 in fiscal 1995.
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 $982,000 and $286,000 in
fiscal 1997 and 1996, respectively. Future minimum payments due under
this noncancelable operating lease at September 27, 1997, are $982,000
per year in fiscal 1998, 1999, 2000, 2001, and 2002, and $9,497,000 in
fiscal 2003 and thereafter. Total future minimum lease payments are
$14,407,000.
Additionally, the Company leases certain office space from ThermoTrex
on a month-to-month basis. The accompanying statement of income includes
expenses from this operating lease of $43,000, $7,000, and $5,000 in
fiscal 1997, 1996, and 1995, respectively.
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 $42,865,000 in cash. On October 2, 1995,
ThermoTrex transferred to the Company all of the outstanding capital
stock of Bennett in exchange for a $42,000,000 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 27, 1997,
ThermoTrex had converted $34,000,000 principal amount of this note.
20PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Significant Customers and Export Sales
Sales to one customer accounted for 17% and 11% of the Company's
total revenues in fiscal 1997 and 1996, respectively, and sales to
another customer accounted for 18% of the Company's total revenues in
fiscal 1995. Export sales to Germany accounted for 1%, 7%, and 11%, of
the Company's total revenues in fiscal 1997, 1996, and 1995,
respectively. Other export sales accounted for 16%, 15%, and 10% of the
Company's total revenues in fiscal 1997, 1996, and 1995, respectively. In
general, export sales are denominated in U.S. dollars.
9. Contingencies
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 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 2 for a discussion of certain litigation.
Due to the inherent uncertainty of dispute resolution, management
cannot predict the outcome of these matters. While an unfavorable outcome
of one or both of these matters could have a material adverse effect on
the Company's results of operations, management does not believe that it
is reasonably likely that any resolution would have a material adverse
effect on the Company's financial position.
10. 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 $8,000,000 principal amount 4.2% subordinated
convertible note (Note 7), determined based on quoted market prices, was
$11,605,000 at September 27, 1997, and exceeds the carrying amount
primarily due to the market price of the Company's common stock exceeding
the conversion price of the convertible note at year end.
21PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First Second Third Fourth
-----------------------------------------------------------------------
Revenues $54,915 $58,642 $58,103 $57,634
Gross profit 21,465 21,738 23,285 23,744
Net income 3,286 3,366 3,660 4,362
Earnings per share:
Primary .11 .12 .13 .15
Fully diluted .11 .12 .13 .15
1996 First Second Third(a) Fourth(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
(a) Reflects the May 1996 acquisition of XRE.
(b) Reflects the September 1996 acquisition of Continental.
22PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
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 79%-owned subsidiary of
ThermoTrex Corporation) and subsidiaries as of September 27, 1997, and
September 28, 1996, and the related consolidated statements of income,
shareholders' investment and cash flows for the years ended September 27,
1997, and September 28, 1996, and the nine months ended September 30,
1995. 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 27, 1997, and
September 28, 1996, and the results of their operations and their cash
flows for the years ended September 27, 1997, and September 28, 1996, and
the nine months ended September 30, 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 3, 1997
23PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
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.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operation under the
heading "Forward-looking Statements."
Overview
The Company designs, manufactures, and markets mammography equipment
and minimally invasive digital breast-biopsy systems, general-purpose
X-ray equipment, and specialized X-ray equipment, including imaging
systems used during diagnostic and interventional vascular and cardiac
procedures such as balloon angioplasty. The Company sells its systems
worldwide principally through a network of independent dealers. In
addition, the Company manufactures breast-biopsy and X-ray systems as an
original equipment manufacturer (OEM) for other medical equipment
companies such as United States Surgical Corporation (U.S. Surgical) and
General Electric Company (GE). The Company has four operating units:
Lorad, a manufacturer of mammography and digital breast-biopsy systems;
Bennett X-Ray Corporation (Bennett), a manufacturer of general-purpose
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 worldwide. 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; however, the
Company's financial performance and competitive position can be affected
by currency exchange rate fluctuations affecting the relationship between
the U.S. dollar and foreign currencies.
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).
24PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996
Revenues increased 53% to $229.3 million in fiscal 1997 from
$150.2 million in fiscal 1996. Revenues increased $56.2 million due to
the acquisitions of XRE in May 1996 and Continental in September 1996.
Revenues at Lorad increased 20% in fiscal 1997 from fiscal 1996 as a
result of increased sales of higher-priced mammography systems, increased
demand for biopsy systems, and increased sales of lasers to ThermoLase
Corporation (ThermoLase), a majority-owned subsidiary of ThermoTrex
Corporation (ThermoTrex), offset in part by a decline in demand for
nondestructive testing (NDT) systems.
The gross profit margin declined to 39% in fiscal 1997 from 42% in
fiscal 1996, primarily due to sales of certain recently introduced
products that incurred high start-up production costs, the inclusion of
lower-margin revenues at Continental, and the mix of products sold at
Bennett.
Excluding the cost of revenues, total operating expenses as a
percentage of revenues declined to 28% in fiscal 1997 from 31% in fiscal
1996. Selling, general, and administrative expenses as a percentage of
revenues were unchanged at 18% in fiscal 1997 and fiscal 1996. Research
and development expenses increased $5.8 million to $24.7 million in
fiscal 1997 from $18.9 million in fiscal 1996. Research and development
expenses increased $5.6 million due to the acquisitions of XRE and
Continental and also reflect the Company's continued efforts to develop
and commercialize new products including the full-field 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
$2.2 million during fiscal 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 7).
Interest income increased to $1.9 million in fiscal 1997 from
$1.3 million in fiscal 1996, primarily due to interest income earned on
the invested proceeds from the Company's initial public offering in
July 1996, net of cash paid for the September 1996 acquisition of
Continental. Interest expense, related party, decreased to $0.3 million
in fiscal 1997 from $1.4 million in fiscal 1996 as a result of the
conversion by ThermoTrex of $34.0 million principal amount of the
Company's 4.2% subordinated convertible note, primarily in the fourth
quarter of fiscal 1996.
The effective tax rate was 47% in fiscal 1997 and fiscal 1996. The
effective tax rates exceed the statutory federal income tax rate
primarily due 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 (Note 2) and
has been notified that it allegedly infringes certain other technology
owned by a third party (Note 9). Although an unsuccessful resolution of
one or both of these matters could have a material adverse effect on the
Company's results of operations, management does not believe that it is
reasonably likely that any resolution would have a material adverse
effect on the Company's financial position.
25PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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. Revenues at Lorad
increased 35% in fiscal 1996 as a result of increased demand for
mammography systems, NDT systems, and lasers sold to ThermoLase.
The gross profit margin declined to 42% in fiscal 1996 from 48% in
1995, primarily due to the inclusion of lower-margin revenues at Bennett
and XRE.
Excluding the cost of revenues, total operating expenses as a
percentage of revenues declined to 31% in fiscal 1996 from 39% in 1995.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 18% in fiscal 1996 from 22% in 1995, primarily due 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-field digital mammography system, and direct-detection X-ray
sensor, as well as enhancements of existing systems.
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, related party, in fiscal 1996
represents interest associated with the $42.0 million principal amount
4.2% subordinated convertible note issued to ThermoTrex.
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 primarily due to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies.
Liquidity and Capital Resources
Consolidated working capital was $79.6 million at September 27, 1997,
compared with $59.8 million at September 28, 1996. Included in working
capital are cash and cash equivalents of $36.5 million at September 27,
1997, and $34.0 million at September 28, 1996. Net cash provided by
operating activities was $3.9 million in 1997. The Company funded a
$15.8 million increase in accounts receivable, primarily due to increased
sales in fiscal 1997 compared with fiscal 1996 and, to a lesser extent,
due to longer customer payment patterns. The Company expects to improve
cash flow by increasing adherence to the Company's commercial terms in
fiscal 1998. The Company funded a $10.3 million increase in inventories
to support the Company's increased sales and new product introductions at
Lorad and Bennett.
26PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
The Company expended $5.5 million on purchases of property, plant,
and equipment during fiscal 1997. The Company expects to expend
approximately $7.0 million for purchases of property, plant, and
equipment during fiscal 1998.
In October 1997, the Company acquired substantially all of the
assets, subject to certain liabilities, of Digitec Corporation, a North
Carolina-based manufacturer of physiological-monitoring equipment and
digital-image archiving and networking systems used in cardiac
catheterization procedures, for approximately $7.2 million in cash,
subject to a post-closing adjustment.
In December 1996, the Company sold 300,000 shares of its common stock
for net proceeds of $4.1 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 Corporation, although it has no
agreement with these companies to ensure that funds will be available on
acceptable terms or at all. The Company believes its existing resources
are sufficient to meet the capital requirements of its existing
operations for the foreseeable future.
27PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
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 1998 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.
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
28PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Forward-looking Statements
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 27, 1997, the Company had
recognized aggregate revenues of approximately $107.1 million from sales
of such systems, of which $34.4 million represents sales prior to October
16, 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.
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 with
respect to sales of the Company's products occurring prior to October 16,
1995, when Lorad was 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 27, 1997 (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 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 both 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.
29PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Forward-looking Statements
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
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; in
September 1996, the Company acquired substantially all of the assets and
liabilities of Continental, a manufacturer of general-purpose and
specialized X-ray systems; and, in October 1997, the Company acquired
substantially all of the assets, subject to certain liabilities, of
Digitec Corporation, a manufacturer of physiological-monitoring equipment
and digital-image archiving and networking systems used in cardiac
catheterization procedures. 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, the
Philips Medical Systems North America Company subsidiary of Philips N.V.
(Philips), the Siemens Corporation subsidiary of Siemens AG (Siemens),
Toshiba American Medical Systems, Inc., Toshiba America MRI, Inc.,
Shimadzu, and Picker International, Inc. 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
30PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Forward-looking Statements
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 and GE through OEM
arrangements. The products sold by such OEM customers compete with
products offered by the Company directly and through 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.
Failure to comply with applicable regulatory requirements can result in,
among other things, civil and criminal fines, suspensions of approvals,
recalls or seizures of products, 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-field digital mammography
systems such as the one being developed by the Company. While not
classifying such systems, the FDA has issued a final guidance document
relating to the protocol for marketing clearance of full-field 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. Accordingly, in
December 1997, the Company submitted a 510(k) application with clinical
data for its full-field digital mammography system. There can be no
assurance that full-field digital mammography systems will not be
classified by the FDA as Class III medical devices subject to the PMA
process. If such systems are classified as Class III devices, the Company
would be required to file for FDA marketing approval for its full-field
digital mammography system under the PMA process or the Product
Development Protocol (PDP), which would likely require substantial
additional clinical trials before being accepted by the FDA, if at all.
Regardless of whether a 510(k), a PMA, or a PDP is finally accepted by
the FDA, there can be no assurance that the product will receive
marketing clearance or approval. In addition, full-field 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. In addition, there can be no assurance that the
31PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Forward-looking Statements
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 current good manufacturing practices as set forth in the
quality system regulation (QSR), 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 the QSRs.
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
of fees for certain diagnostic examinations and capital equipment
acquisition costs connected with services to Medicare beneficiaries.
Cost-containment policies may have the effect of reducing 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 and GE 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.
32PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Forward-looking Statements
Risks Associated With International Operations. International sales
accounted for 17%, 22%, and 21% of the Company's revenues in fiscal 1997,
1996, and 1995, 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.
33PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Selected Financial Information
Nine
Months
Year Ended Ended(a) Year Ended
(In thousands ------------------------------- ---------- ------------------
except per Sept. 27, Sept. 28, Sept. 30, Sept. 30, Dec. 31, Jan. 1,
share amounts) 1997(b) 1996(c) 1995 1995(d) 1994 1994
------------------------------------------------------------------------------
(Unaudited)
Statement of Income Data:
Revenues $229,294 $150,195 $ 70,505 $ 55,291 $ 54,410 $ 37,519
Net income 14,674 9,344 3,592 3,483 1,194 827
Earnings per
share:
Primary .51 .40 .18 .17 .06 .04
Fully diluted .51 .38 .18 .17 .06 .04
Balance Sheet Data:
Working capital $ 79,649 $ 59,834 $ 13,171 $ 8,584 $ 6,148
Total assets 229,437 204,061 102,374 48,000 44,553
Long-term
obligations 8,047 8,109 - - -
Shareholders'
investment 169,094 149,297 80,010 37,033 36,694
(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 Company's sale of its common stock in December 1996 for net
proceeds of $4.1 million.
(c) Reflects the May 1996 and September 1996 acquisitions of XRE and
Continental, respectively, and the Company's private placements of common
stock in November 1995 and January 1996 and initial public offering of
common stock in July 1996, for aggregate net proceeds of $67.7 million.
(d) Includes the results of Bennett since its acquisition by ThermoTrex in
September 1995.
34PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
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 1997 Fiscal 1996
----------------- -----------------
Quarter High Low High Low
---------------------------------------------------------------------
First $20 1/4 $12 1/2 $ - $ -
Second 17 11 1/8 - -
Third 14 9/16 11 19 1/4 15 3/8
Fourth 16 1/16 11 1/2 26 17 7/8
As of October 31, 1997, the Company had 681 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 October 31, 1997, was $12 7/8 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 issuance of stock certificates, change of ownership, lost
stock certificates, and change 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, Chief Financial
Officer and Vice President, Trex Medical Corporation, 81 Wyman Street,
P.O. Box 9046, Waltham, Massachusetts 02254-9046, (781) 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.
Quarterly distribution of printed reports will be limited to the second
quarter report only. All quarterly reports and press releases are
available through the Internet from Thermo Electron's home page
(http://www.thermo.com/subsid/txm.html).
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.
35PAGE
<PAGE>
Trex Medical Corporation 1997 Financial Statements
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
September 27, 1997, as filed with the Securities and Exchange
Commission, may be obtained at no charge by writing to John N.
Hatsopoulos, Chief Financial Officer and Vice President, 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 Friday, February
27, 1998, at 2:30 p.m. at Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts.
Exhibit 21
TREX MEDICAL CORPORATION
Subsidiaries of the Registrant
At October 31, 1997, Trex Medical Corporation owned the following
companies:
State of Registrant's
Jurisdiction or % of
Name Incorporation Ownership
----------------------------------------------------------------------
Bennett X-Ray Corporation New York 100
Bennett International Corporation U.S. Virgin Islands 100
Eagle X-Ray, Inc. New York 100
Island X-Ray Incorporated New York 100
Continental X-Ray Corporation Delaware 100
Thermo Lorad F.S.C. Inc. U.S. Virgin Islands 100
XRE Delaware 100
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 3, 1997.
Arthur Andersen LLP
Boston, Massachusetts
December 3, 1997
<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 27, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> SEP-27-1997
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<RECEIVABLES> 46,072
<ALLOWANCES> 1,298
<INVENTORY> 43,341
<CURRENT-ASSETS> 131,723
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