SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended December 28, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-11827
TREX MEDICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1439626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
36 Apple Ridge Road
Danbury, Connecticut 06810
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest
practicable date.
Class Outstanding at January 24, 1997
---------------------------- -------------------------------
Common Stock, $.01 par value 28,892,630
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TREX MEDICAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
December 28, September 28,
(In thousands) 1996 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 38,179 $ 33,966
Accounts receivable, less allowances
of $1,281 and $1,264 30,284 29,104
Inventories:
Raw materials and supplies 23,880 20,513
Work in process 11,493 9,218
Finished goods 3,404 3,279
Prepaid expenses 1,062 1,316
Prepaid income taxes 5,712 5,712
-------- --------
114,014 103,108
-------- --------
Property, Plant and Equipment, at Cost 18,587 17,259
Less: Accumulated depreciation and
amortization 3,993 3,489
-------- --------
14,594 13,770
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 83,430 83,972
-------- --------
$212,038 $200,850
======== ========
2PAGE
<PAGE>
TREX MEDICAL CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
December 28, September 28,
(In thousands except share amounts) 1996 1996
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 13,980 $ 12,598
Accrued payroll and employee benefits 3,380 4,616
Accrued warranty costs 5,567 5,344
Accrued income taxes 5,400 2,010
Customer deposits 3,750 3,414
Accrued commissions 2,756 1,938
Other accrued expenses 9,762 10,265
Due to affiliated companies 2,472 3,089
-------- --------
47,067 43,274
-------- --------
Deferred Income Taxes 170 170
-------- --------
Long-term Obligations:
4.2% Subordinated convertible note, due to
parent company 8,000 8,000
Other 99 109
-------- --------
8,099 8,109
-------- --------
Shareholders' Investment (Note 3):
Common stock, $.01 par value, 50,000,000
shares authorized; 28,892,630 and
28,592,630 shares issued and outstanding 289 286
Capital in excess of par value 143,783 139,667
Retained earnings 12,630 9,344
-------- --------
156,702 149,297
-------- --------
$212,038 $200,850
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
<PAGE>
TREX MEDICAL CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
December 28, December 30,
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues (includes $3,880 and $550 to
affiliated companies; Note 2) $54,915 $32,509
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $2,426 and
$263 for affiliated companies
revenues; Note 2) 33,450 18,248
Selling, general and administrative expenses 9,615 6,868
Research and development expenses (Note 2) 6,206 4,098
------- -------
49,271 29,214
------- -------
Operating Income 5,644 3,295
Interest Income 486 125
Interest Expense, Related Party (84) (431)
Other Income, Net 78 39
------- -------
Income Before Provision for Income Taxes 6,124 3,028
Provision for Income Taxes 2,838 1,402
------- -------
Net Income $ 3,286 $ 1,626
======= =======
Earnings per Share $ .11 $ .08
======= =======
Weighted Average Shares 28,626 20,995
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
TREX MEDICAL CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
----------------------------
December 28, December 30,
(In thousands) 1996 1995
-----------------------------------------------------------------------
Operating Activities:
Net income $ 3,286 $ 1,626
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,146 716
Provision for losses on accounts
receivable 96 29
Other noncash items 6 (82)
Changes in current accounts:
Accounts receivable (1,276) (2,398)
Inventories (5,767) (100)
Other current assets 251 (1,177)
Accounts payable 1,382 (377)
Other current liabilities 2,411 5,932
-------- --------
Net cash provided by operating activities 1,535 4,169
-------- --------
Investing Activities:
Purchases of property, plant and equipment (1,431) (695)
Proceeds from sale of property, plant and
equipment - 30
-------- --------
Net cash used in investing activities (1,431) (665)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 3) 4,119 17,619
Other (10) -
-------- --------
Net cash provided by financing activities 4,109 17,619
-------- --------
Increase in Cash and Cash Equivalents 4,213 21,123
Cash and Cash Equivalents at Beginning of
Period 33,966 202
-------- --------
Cash and Cash Equivalents at End of Period $ 38,179 $ 21,325
======== ========
Noncash Activities:
Issuance of subordinated convertible note
to parent company $ - $ 42,000
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
<PAGE>
TREX MEDICAL CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Trex Medical Corporation (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at
December 28, 1996, the results of operations for the three-month periods
ended December 28, 1996 and December 30, 1995, and the cash flows for the
three-month periods ended December 28, 1996 and December 30, 1995.
Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of September 28, 1996,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 1996, filed
with the Securities and Exchange Commission.
2. Related Party Transactions
During the three months ended December 28, 1996 and December 30,
1995, the Company sold laser systems to ThermoLase Corporation, a
majority-owned subsidiary of ThermoTrex Corporation (ThermoTrex), for
aggregate revenues of $3,880,000 and $350,000, respectively.
The Company was charged $500,000 and $450,000 by ThermoTrex in the
three months ended December 28, 1996 and December 30, 1995, respectively,
for research and development services provided under a license agreement.
During the three months ended December 28, 1996, the Company
purchased high-transmission cellular grids valued at $243,000 from Thermo
Electron Corporation's Tecomet division under a design and production
arrangement. No such purchases were made during the three months ended
December 30, 1995.
3. Sale of Common Stock
In December 1996, the Company issued 300,000 shares of its common
stock in a private placement at $14.50 per share, for net proceeds of
approximately $4,119,000. Following the private placement, ThermoTrex
owned 79% of the Company's outstanding common stock.
6PAGE
<PAGE>
TREX MEDICAL CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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 caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 28, 1996, filed with the Securities and Exchange
Commission.
Overview
The Company designs, manufactures, and markets mammography equipment
and minimally invasive stereotactic breast-biopsy systems, general
radiography (X-ray) equipment, and X-ray imaging systems used for cardiac
catheterization and angiography, as well as radiographic/fluoroscopic
procedures. The Company sells its systems worldwide principally through a
network of independent dealers. In addition, the Company manufactures
mammography and radiography systems as an original equipment manufacturer
(OEM) for other medical equipment companies such as United States
Surgical Corporation (U.S. Surgical), General Electric Company, Inc.
(GE), and the Philips Medical Systems North America Company subsidiary of
Philips N.V. (Philips). The Company has four operating units: Lorad, a
manufacturer of mammography and stereotactic breast-biopsy systems;
Bennett X-Ray Corporation (Bennett), a manufacturer of general X-ray and
mammography equipment; XRE Corporation (XRE), a manufacturer of X-ray
imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions; and Continental X-Ray Corporation
(Continental), a manufacturer of general-purpose and specialized X-ray
systems.
The Company conducts all of its manufacturing operations in the
United States and sells its products on a worldwide basis. The Company
anticipates that an increasing percentage of its revenues will be from
export sales. The Company's export sales are denominated in U.S. dollars;
therefore, neither its revenue nor its earnings are significantly
affected by exchange rate fluctuations.
Results of Operations
First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996
Revenues increased 69% to $54.9 million in the first quarter of
fiscal 1997 from $32.5 million in the first quarter of fiscal 1996,
primarily due to the inclusion of $16.5 million in revenues from
Continental, acquired in September 1996, and XRE, acquired in May 1996.
Revenues at Lorad increased 27% to $27.0 million in the first quarter
7PAGE
<PAGE>
TREX MEDICAL CORPORATION
First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996
(continued)
of fiscal 1997 from $21.3 million in the first quarter of fiscal 1996 as
a result of increased demand for mammography systems, biopsy systems, and
lasers sold to ThermoLase Corporation, a majority-owned subsidiary of
ThermoTrex Corporation (ThermoTrex). Under an OEM agreement with U.S.
Surgical, Lorad has agreed to manufacture biopsy systems that are
marketed and sold by U.S. Surgical as the ABBI (Advanced Breast-biopsy
Instrument) System. Sales to U.S. Surgical totaled $10.1 million in the
first quarter of fiscal 1997, compared with $1.1 million in the first
quarter of fiscal 1996.
The gross profit margin declined to 39% in the first quarter of
fiscal 1997 from 44% in the first quarter of fiscal 1996 due to the
inclusion of lower-margin revenues at Continental and the mix of products
sold at Lorad.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 18% in the first quarter of fiscal 1997 from 21% in
the first quarter of fiscal 1996, due primarily to increased revenues at
Lorad and, to a lesser extent, lower advertising and other selling
expenses at Bennett during the quarter. Research and development expenses
increased to $6.2 million in the first quarter of fiscal 1997 from $4.1
million in the first quarter of fiscal 1996, due primarily to the
inclusion of $1.7 million of expense at XRE and Continental and the
Company's continued efforts to develop and commercialize new products,
including the Company's full-breast digital mammography system and
direct-detection X-ray sensor, as well as enhancements of existing
systems.
Interest income in the first quarter of fiscal 1997 represents
interest earned on the invested proceeds from the Company's initial
public offering of common stock in July 1996, net of cash paid for the
September 1996 acquisition of Continental. Interest expense, related
party, represents interest associated with the $42.0 million principal
amount 4.2% subordinated convertible note issued to ThermoTrex. Interest
expense decreased in the first quarter of fiscal 1997, compared with the
first quarter of fiscal 1996, as a result of the conversion by ThermoTrex
of $34.0 million principal amount in fiscal 1996.
The effective tax rate was 46% in the first quarter of both fiscal
1997 and fiscal 1996. The effective tax rate exceeds the statutory
federal income tax rate due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies.
Liquidity and Capital Resources
Consolidated working capital was $66.9 million at December 28, 1996,
compared with $59.8 million at September 28, 1996. Included in working
capital are cash and cash equivalents of $38.2 million at December 28,
1996, compared with $34.0 million at September 28, 1996. Net cash
provided by operating activities was $1.5 million in the first quarter of
8PAGE
<PAGE>
TREX MEDICAL CORPORATION
Liquidity and Capital Resources (continued)
fiscal 1997. During this period, $5.8 million of cash was used to fund an
increase in inventories. The increase primarily represents materials
requirements for commitments under an OEM agreement, to be shipped during
the remainder of fiscal 1997, and higher inventory levels in support of
the Company's increase in sales.
The Company expended $1.4 million for property, plant, and equipment
in the first quarter of fiscal 1997 and expects to make capital
expenditures of approximately $4.5 million during the remainder of the
fiscal year.
In December 1996, the Company issued 300,000 shares of its common
stock in a private placement for net proceeds of approximately $4.1
million.
Although the Company expects to have positive cash flow from its
existing operations, the Company anticipates it 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
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.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities
(c) Recent Sales of Unregistered Securities
On December 19, 1996, the Company sold an aggregate of 300,000 shares
of its common stock to a group of accredited investors in a private
placement pursuant to Regulation D of the Securities and Exchange
Commission, promulgated under the Securities Act of 1933, at an aggregate
offering price of $4,350,000.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
9PAGE
<PAGE>
TREX MEDICAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 3rd day of February
1997.
TREX MEDICAL CORPORATION
Paul F. Kelleher
------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
------------------------
John N. Hatsopoulos
Vice President and
Chief Financial Officer
10PAGE
<PAGE>
TREX MEDICAL CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-----------------------------------------------------------------------
10.1* Letter Agreement dated January 13, 1997 between the Company
and Philips Medical Systems.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
* Confidential treatment requested as to certain portions of the
document, which portions have been omitted and filed separately with
the Securities and Exchange Commission.
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT 10.1
------------
TREX MEDICAL CORPORATION
36 Apple Ridge Road Phone 203-790-1188
Danbury, CT 06810 Fax 203-792-8220
Hal Kirshner
President and Chief Executive Officer
January 13, 1997
Mr. Michael P. Moakley
President and CEO
Philips Medical Systems
710 Bridgeport Avenue
Shelton, CT 06484
Dear Mike:
This letter is based on the discussions between you and John Brenna on
December 19, 1996, and will serve as an amendment to both the OEM
Agreement (the "Mobile Contract") dated November 2, 1993 between Philips
Medical Systems and LORAD Corporation regarding Mobile Radiographic X-Ray
Systems ("Mobile Systems") and the OEM Agreement (the "Mammography
Contract") dated November 17, 1993 between Philips and LORAD regarding
Mammography Systems (Mammography Systems). LORAD and Philips hereby agree
as follows:
1. LORAD agrees to waive the remaining minimum requirements for
Mammography Systems under Section 4.1 of the Mammography
Contract.
2. Notwithstanding Section 1 above, Philips agrees to purchase **
MD-3000 Mammography Systems for delivery prior to
******************, under the Mammography Contract at
***********************. LORAD will assist Philips in developing
a one day training program to facilitate their sales and
marketing efforts.
3. In addition to currently open purchase orders, Philips agrees to
purchase *** Practix 2000 and/or PMX2000 Mobile Systems under
the Mobile Contract prior to ****************** and an
additional *** Practix 2000 and/or PMX2000 Mobile Systems under
the Mobile Contract prior to ****************** for a total ***
additional Mobile Systems. The unit pricing for these purchase
orders will be $******. It is agreed that LORAD and Philips will
meet at least monthly to review warranty costs and overall
system performance, including an executive level review during
the second quater of 1997. All existing issues on the Practix
2000 and PMX2000 Mobile systems as outlined in the December 16,
1996 Philips/LORAD meeting minutes ************************
*******************************************************.
PAGE
<PAGE>
4. Philips will provide LORAD a "make and take" five month lead time
rolling forecast as to their monthly requirements for both the
Mammography and Mobile Systems in place of the current forecast
and order requirements in both the Mammography and Mobile
Contracts. It is understood that approximately 30 days may be
required for the Philips European organization to modify their
existing order procurement and logistic procedures.
5. Philips waives all exclusivity rights and rights of first refusal
relating to Mammography Systems under the Mammography Contract.
6. Philips agrees that no issues exist regarding warranty variances.
Except to the extent expressly modified herein, the terms and conditions
of the Mammography Contract and the Mobile Contract are hereby confirmed
and shall continue in full force and effect.
Mike, I am pleased we have reached an agreement relating to the amendment
of each contract to satisfy both our needs. On a going forward basis, I
accept your offer to brainstorm other opportunities between our
respective companies now that Bennett, Continental, and XRE are part of
Trex Medical Corporation. We will make every effort to continue a
positive relationship with Philips and trust that this resolution will
serve as a foundation for the future.
Best personal regards,
Sincerely,
Trex Medical Corporation AGREED TO:
Philips Medical Systems
Hal Kirshner Michael P. Moakley
-------------------------- --------------------------
President and Chief President and CEO
Executive Officer
Date: January 13, 1997
CC: John Brenna
Dan Woloshen
Exhibit 11
TREX MEDICAL CORPORATION
Computation of Earnings per Share
Three Months Ended
-------------------------
December 28, December 30,
1996 1995
- -------------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 3,286,000 $ 1,626,000
----------- -----------
Shares:
Weighted average shares outstanding 28,625,597 20,843,327
Add: Shares issuable from assumed exercise of
options (as determined by the application
of the treasury stock method) - 151,414
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 28,625,597 20,994,741
----------- -----------
Primary Earnings per Share (a) / (b) $ .11 $ .08
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TREX MEDICAL
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 28,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> DEC-28-1996
<CASH> 38,179
<SECURITIES> 0
<RECEIVABLES> 31,565
<ALLOWANCES> 1,281
<INVENTORY> 38,777
<CURRENT-ASSETS> 114,014
<PP&E> 18,587
<DEPRECIATION> 3,993
<TOTAL-ASSETS> 212,038
<CURRENT-LIABILITIES> 47,067
<BONDS> 99
0
0
<COMMON> 289
<OTHER-SE> 156,413
<TOTAL-LIABILITY-AND-EQUITY> 212,038
<SALES> 54,915
<TOTAL-REVENUES> 54,915
<CGS> 33,450
<TOTAL-COSTS> 33,450
<OTHER-EXPENSES> 6,206
<LOSS-PROVISION> 96
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 6,124
<INCOME-TAX> 2,838
<INCOME-CONTINUING> 3,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,286
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
</TABLE>
