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 October 2, 1999
[ ] 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 its charter)
Delaware 06-1439626
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer 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:
Title of each class Name of exchange on which registered
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 29, 1999, was approximately $20,006,000.
As of October 29, 1999, the Registrant had 32,003,242 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended October 2, 1999, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on March 10, 2000, are incorporated by reference
into Part III.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
Trex Medical Corporation, which we also refer to as "the company" or "the
registrant," designs, manufactures, and markets mammography equipment and
minimally invasive digital breast-biopsy systems, general-purpose and
specialized medical X-ray equipment, and dental X-ray systems. The company
operates in two segments: Medical Imaging and Dental Imaging.
Trex Medical is the world's largest manufacturer of mammography systems
and also manufactures minimally invasive digital breast-biopsy systems, which
provide a low-cost, less-invasive alternative to open surgery for the biopsy of
suspicious breast lesions. All of the company's general-purpose X-ray systems as
well as its digital radiographic/fluoroscopic (R/F) system, which is used to
diagnose gastrointestinal disorders and other problems, are now part of the Trex
Heritage Series line of products. The company also manufactures and markets
specialized X-ray imaging systems called cardiac catheterization laboratories
(cath labs) that are used during diagnostic and interventional vascular and
cardiac procedures, such as balloon angioplasty. In addition, Trex Medical
manufactures electrophysiology products that aid doctors in diagnosing and
treating cardiac arrhythmia. And through its Trophy Radiologie subsidiary,
acquired in fiscal 1998*, the company sells a limited number of medical imaging
systems in markets outside the U.S.
Through Trophy Radiologie, which is based just outside Paris, Trex Medical
manufacturers digital and conventional dental X-ray systems. Trophy's dental
imaging systems are sold in the U.S. through Trex Medical's TREXTrophy Dental
division.
All of the company's imaging products use X-rays. Most of its products are
conventional X-ray systems, but some of the newer products are based on digital
X-ray technology. Like the conventional systems, the digital systems use X-rays
as the energy source, but instead of being captured on film, the image is stored
in a digital format, which enables the radiologist to use a computer screen to
view it. Radiologists and dentists are the company's primary customers, but
interventional cardiologists, surgeons, veterinarians, and chiropractors also
use Trex Medical equipment. The company sells its products through dealers and
direct sales.
Trex Medical has developed a full-field digital mammography system, called
the TDMS(TM) Trex Digital Mammography System. In August 1999, we received a
letter from the United States Food and Drug Administration (FDA) notifying us
that, after considering additional information we had provided in a 510(k)
pre-market notification submission, the agency determined that our full-field
digital mammography system is not substantially equivalent to analog (also
called film screen) mammography. In September 1999, the company received a
letter from the FDA indicating that the FDA believes that a pre-market approval
(PMA) application, followed by significant post-approval screening trials, may
be a more viable option for obtaining market clearance for digital mammography
systems. We are reevaluating our strategy based on new information from the FDA.
For example, the company may incorporate the data that formed the basis of its
510(k) application into a PMA submission. After submission, the company may
implement various design and engineering changes that may require additional
preapproval clinical trials.
Restructuring Actions
During fiscal 1999, Trex Medical recorded pretax restructuring and related
charges totaling $23.8 million. The majority of these charges, $18.1 million,
were recorded in the third fiscal quarter, which ended July 3, 1999. The charges
consisted of inventory and warranty provisions of $13.9 million and
restructuring costs of $9.9 million. Most of these charges were incurred as a
result of the company's decision to close two of its four domestic manufacturing
- --------------------
* References to fiscal 1999, 1998, and 1997 herein are for the years ended
October 2, 1999, October 3, 1998, and September 27, 1997, respectively.
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facilities after relocating these operations. We ended fiscal 1999 with 20%
fewer personnel than fiscal year-end 1998. Trex Medical is still manufacturing
its complete product line, but, by streamlining our operations, we expect
overhead costs to be significantly reduced. We estimate that we will achieve
operating savings of approximately $9-$10 million in fiscal 2000.
Trex Medical is a public subsidiary of ThermoTrex Corporation. In May
1999, ThermoTrex announced that its parent company, Thermo Electron Corporation,
had proposed the merger of ThermoTrex and its ThermoLase Corporation subsidiary
into Thermo Electron. The public shareholders of ThermoTrex and of ThermoLase
would receive Thermo Electron common stock in exchange for their ThermoTrex and
ThermoLase shares, and both companies would become private subsidiaries of
Thermo Electron. Trex Medical would remain public and would become a direct
subsidiary of Thermo Electron.
The proposals are subject to numerous conditions, including establishment
of a price and exchange ratio, confirmation of anticipated tax consequences,
negotiation and execution of definitive merger agreements, approval by both
companies' board of directors (including their independent directors), receipt
of fairness opinions from investment banking firms, and Securities and Exchange
Commission review of filings regarding the proposed transactions.
Stock Ownership
Trex Medical was incorporated in September 1995 as a subsidiary of
ThermoTrex. On October 2, 1999, ThermoTrex owned 22,879,568 shares of our common
stock. This represented 71% of Trex Medical's outstanding shares on that date.
ThermoTrex is a majority-owned public subsidiary of Thermo Electron. In addition
to the products marketed by Trex Medical, ThermoTrex, through its majority-owned
and wholly owned subsidiaries, offers personal-care products and services and
conducts advanced-technology research in avionics, X-ray detection, signal
processing, and lasers. On October 2, 1999, Thermo Electron owned 2,242,121
shares of Trex Medical's common stock, representing 7% of the company's common
stock. During fiscal 1999, Thermo Electron purchased 2,241,800 shares of the
company's common stock on the open market for $19.7 million. Thermo Electron is
a world leader in many of the markets it serves. Thermo Electron is a leading
provider of analytical and monitoring instruments, used in everything from life
sciences research to food and beverage production, and a recognized leader in
biomedical products including heart-assist devices, respiratory-care equipment,
neurodiagnostics, and mammography systems. In addition, Thermo Electron develops
and operates power plants, offers a range of environmental consulting and
resource management services, is a major producer of paper-recycling equipment,
provides water-clarification and fiber-recovery products and services, and
conducts a broad range of advanced technology R&D.
Forward-Looking Statements
We make forward-looking statements throughout this document. We typically
use the words, "believe," "anticipate," "plan," "expect," "seek," "estimate,"
and similar expressions to identify forward-looking statements. Unless a passage
describes an historical event, you should consider it to be a forward-looking
statement. As you make decisions about your investments in Trex Medical, we
caution you, in keeping with the "Safe Harbor" provision of the Private
Securities Litigation Reform Act of 1995, that forward-looking statements
regarding the company's future expectations and projections are not guarantees
of future performance. They involve risks, uncertainties, and assumptions, and
many of the factors that will determine the company's future results are beyond
our ability to control or predict. Therefore, our actual results may differ
significantly from those suggested by forward-looking statements. You can find
these risk factors detailed under the heading "Forward-looking Statements"
immediately following the Management's Discussion and Analysis of Financial
Condition and Results of Operations in our Fiscal 1999 Annual Report to
Shareholders, which is incorporated in this document by reference.
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(b) Financial Information About Segments
Financial information concerning the company's segments is summarized in
Note 10 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders. This information is incorporated in this document
by reference.
(c) Description of Business
(i) Principal Products and Services
Medical Imaging
Breast Cancer Detection
Mammography Systems. Trex Medical offers two high-end systems, the Lorad
M-IV and the Contour 2000, and two mid-tier systems, the Lorad Elite and the
Profile 2000.
Trex Medical has developed a full-field digital mammography system, called
the TDMS(TM) Trex Digital Mammography System, and a 510(k) application seeking
clearance to market this system was submitted to the FDA in December 1997. In
August 1999, we received a letter from the FDA notifying us that, after
considering additional information we had provided, the agency determined that
our full-field digital mammography system is not substantially equivalent to
analog (also called film screen) mammography. Since we started the clinical
trial that formed the basis of our 510(k) application, the FDA has reassessed
its original guidelines for evaluating this new technology. In September 1999,
Trex Medical and other companies developing full-field digital mammography
systems received a letter from the director of the FDA's Office of Device
Evaluation. In this communication, the agency indicated that it now believes
that a pre-market approval (PMA) application may be the most viable option;
however, the FDA has not mandated this approach. The standard of review under a
PMA is whether a device is safe and effective, and is generally more burdensome
than a 510(k), because it applies to devices considered to be of higher risk.
Due to the inherent limitations of the clinical trials conducted under its
previous guidelines, the FDA was unable to make a substantial equivalence
determination, but the FDA has indicated that it may be able to approve digital
mammography under a PMA application.
We plan to incorporate design and engineering changes into our system, and
it may be necessary to collect more clinical data. However, the data that formed
the basis for our 510(k) application could be incorporated into a PMA
application, which would then need to be followed up with significant
post-approval clinical studies. We are reevaluating our strategy based on this
latest information from the FDA and may initiate a new clinical trial as we
continue to pursue clearance from the FDA to market a full-field digital
mammography system.
We believe 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 U.S.
will grow as more countries adopt mammography quality standards similar to those
adopted in the U.S.
Minimally Invasive Breast-Biopsy Systems. The company offers three
minimally invasive breast-biopsy systems. These systems provide an alternative
to open surgical biopsy, which is generally performed under general anesthesia.
Minimally invasive biopsies are typically done on an out-patient basis under
local anesthesia and are less expensive than open surgery.
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Trex Medical offers two upright systems, which are used in conjunction
with the company's mammography systems. In addition, for physicians that perform
a significant number of biopsies, Trex Medical sells a dedicated, prone biopsy
system called the Lorad MultiCare(TM) Breast Biopsy System (formerly called the
StereoGuide(R)). This system is used with the company's digital "spot"
mammography system, which enables the doctor to position the sampling device at
the site of the suspicious lesion. When performing a biopsy with any Trex
Medical system, the doctor has a choice of tissue-sampling devices, which are
not manufactured by the company.
The company's prone biopsy system is the subject of two lawsuits alleging
infringement of two Fischer Imaging Corporation patents. See "Item 3 - Legal
Proceedings."
Sales of breast-imaging products accounted for 38%, 45%, and 48% of the
company's total revenue in fiscal 1999, 1998, and 1997, respectively.
General and Specialized Radiology
General-Purpose X-Ray. Trex Medical addresses the general-purpose X-ray
market through its Trex Heritage Series line of products. Previously, the
company had sold this equipment under the Continental and Bennett brand names.
The Heritage Series includes basic X-ray systems that are generally used in
outpatient facilities as well as more sophisticated and expensive X-ray systems
typically used in hospitals and clinics. For example, the Trex ER system is
designed to meet the heavy-duty demands of a hospital emergency room, while the
Trex General Radiographic System is appropriate for any setting. The Heritage
Series also includes the Trex 2200i digital radiographic/fluoroscopic (R/F)
system, which provides real-time image capture. R/F systems are often used for
diagnostic gastrointestinal procedures to image the progress of a radiopaque
solution (typically barium) as it travels through the digestive tract.
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 believes digital imaging will have significant application in
the general-purpose and specialized X-ray markets and is developing flat-panel
digital technology for these applications. In general-purpose X-ray
applications, the company believes digital imaging has the potential to produce
better quality images and reduce operating costs by reducing 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. Trex Medical
designs, manufactures, and markets cardiac catheterization laboratories (cath
labs) and positioners for cardiovascular imaging systems. Our 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.
These 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, a
procedure in which a segment of a narrowed coronary artery is stretched by the
inflation of a balloon introduced into the affected artery.
Our products include the Unicath SP(TM) 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, which are implanted in a blood vessel in
order to keep the restricted vessel open once it has been expanded by balloon
angioplasty.
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To complement its Unicath SP labs, Trex Medical offers
digital-image-processing systems, workstations, and archive alternatives. For
example, the 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. Our TREXnet(TM) digital data-management system integrates
digital X-ray images, blood pressure and other physiological data, doctors'
notes from the procedure, and patient demographic information into a single
database.
In addition, the company 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.
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 more recent development
involves the permanent implantation of a stent. The company believes
interventional cardiologists 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
equipment we manufacture.
Other Products. The company uses its technological and manufacturing
expertise to produce a number of other products, including the lasers used in
ThermoLase's hair-removal process. Sales of these lasers totaled $3.4 million in
1999, $2.9 million in fiscal 1998, and $11.4 million in fiscal 1997. As a result
of the ThermoLase exiting the hair-removal business, the company does not expect
future sales to ThermoLase.
Sales of general and specialized radiology equipment accounted for 34%,
46%, and 52% of the company's total revenue in fiscal 1999, 1998, and 1997,
respectively.
Dental Imaging
In April 1998, the company acquired Trophy Radiologie, one of the world's
largest manufacturers of dental X-ray systems. Through this division, the
company designs, manufactures, and markets a variety of conventional and digital
dental X-ray systems. In 1987, Trophy introduced the first digital X-ray system
for dentists. In fiscal 1999, Trophy introduced the RVGui system. The ui stands
for ultimate imaging, and a recent study has demonstrated that the RVGui's solid
state intraoral sensor produces extremely sharp images that rival or exceed film
in all respects. Other benefits include a significant reduction in X-ray
exposure compared to conventional film-based systems and a detailed zoom mode.
Sales by the Dental Imaging segment accounted for 28% and 9% of the
company's total revenues in fiscal 1999 and 1998, respectively.
Sales, Service, and Distribution
We sell our products through a worldwide network of more than 100
independent dealers and, to a lesser extent, on a direct basis. Trex Medical
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.
In addition to manufacturing and marketing its own systems, the company
manufactures systems and system components as an OEM for other medical equipment
companies.
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Government Regulation
Trex Medical's products as well as 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, which
are set forth in the Quality System Regulation (QSR) during such inspections.
Enforcement of QSRs has increased significantly in the last several years. If
Trex Medical or any of its facilities was determined to be in noncompliance, and
it was not possible to convince the FDA of the adequacy of its compliance, the
FDA could impose penalties or other remedies, including a recall or temporary
suspension of product shipments or withholding of marketing clearances or
approvals until compliance was achieved. These 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.
Trex Medical 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 refining and conducting continuing research on the full-field
digital mammography system that it has developed, the enhancement of existing
mammography products, and the introduction of a flat-panel digital detector for
use in its general-purpose and specialized X-ray systems.
The company has arrangements with ThermoTrex under which the company funds
certain research and development efforts related to digital imaging technology.
In fiscal 1999, 1998, and 1997, the company paid $0.5 million, $2.2 million, and
$2.0 million to ThermoTrex under such arrangements.
Trex Medical's research and development expenses were $32.4 million in
fiscal 1999 and 1998, and $24.7 million in fiscal 1997.
(iii)Raw Materials
The raw materials, components, and supplies we purchase are available from
a number of different suppliers. If necessary, we believe we could develop
alternative sources without a material adverse effect on our results. To date,
we have not experienced any difficulty in obtaining raw materials, components,
or supplies. Certain raw materials and components require significant order lead
time. This may require the company to hold inventory levels in excess of current
operating requirements.
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(iv) Patents, Licenses, and Trademarks
Trex Medical protects its intellectual property rights and applies for
patent protection when the company believes it is appropriate. The company
currently holds numerous issued U.S. patents expiring at various dates ranging
from 2000 to 2017. The company also has applications pending for additional U.S.
patents and a number of foreign counterparts for its patents and patent
applications in various foreign countries. Although patent protection may
provide the company with competitive advantages with respect to certain systems,
the company believes that technical know-how and trade secrets are more
important to its business than patent protection.
Competitors 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. Trex Medical is a defendant in two patent infringement lawsuits and
a lawsuit alleging it misappropriated certain other technology owned by a third
party. See information under the heading "Risks Associated With Patent and Other
Litigation" under the caption "Forward-looking Statements" in the Registrant's
Fiscal 1999 Annual Report to Shareholders (these statements are incorporated in
this document by reference), and "Item 3 - Legal Proceedings."
(v) Seasonal Influences
There are no significant seasonal influences on our 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 our working capital.
(vii)Dependency on a Single Customer
Sales to Diagnostic Imaging, Inc. accounted for 14% of the company's total
revenues in fiscal 1999.
(viii)Backlog
The company's backlog of firm orders at fiscal year-end 1999 and 1998 was:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ------------------------------------------------------------------------------ ------------- -------------
Medical Imaging $40,456 $ 55,936
Dental Imaging 5,174 6,779
------- --------
$45,630 $ 62,715
======= ========
</TABLE>
The backlog decreased primarily due to a decline in orders at the Medical
Imaging segment, as well as ThermoLase's decision to exit the hair-removal
business. As a result of the decline in backlog and based on the volume of
bookings in October and November 1999, the company expects to report lower
comparative sales and operating results in the first quarter of fiscal 2000. The
company believes that this decline in business is due in part to the
consolidation of facilities and a reorganization of its distribution system;
however, there can be no assurance that this trend will not continue.
Certain of these orders are cancellable by the customer upon payment of a
cancellation charge. We believe that substantially all of the backlog as of
October 2, 1999, will be shipped or completed during fiscal 2000.
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(ix) Government Contracts
Less than 1% of Trex Medical's total revenues in fiscal 1999 were derived
from contracts or subcontracts with the federal government, which are subject to
renegotiation of profits or termination. We do not have knowledge of threatened
or pending renegotiation or termination of any material government contract or
subcontract.
(x) Competition
The healthcare industry in general, and the market for imaging products in
particular, is highly competitive. The Medical Imaging segment competes with a
number of companies, many of which have substantially greater financial,
marketing, and other resources. In most diagnostic imaging modalities, including
X-ray imaging, the company's competitors include large companies such as GE
Medical Systems, the Philips Medical Systems subsidiary of Philips N.V., Siemens
AG, Toshiba, and Shimadzu Corporation. The company's three minimally invasive
breast-biopsy systems compete with products offered by GE, Fischer Imaging
Corporation, and Philips, and with conventional surgical biopsy procedures.
The Dental Imaging segment competes outside the U.S. with Planmeca OY,
Sirona Dental Systems, and the Soredex division of Orion Corporation. In the
U.S., the Dental Imaging segment's competitors include Schick Technologies,
Inc., Dexis, the Gendex and New Image divisions of DENTSPLY International, Inc.,
Sygnus Imaging, and the Dent-X subsidiary of AFP Imaging Corporation.
The company competes primarily on the basis of product features, product
performance, and reputation as well as price and service. Trex Medical 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
We believe that compliance with federal, state, and local environmental
regulations will not have a material adverse effect on our capital expenditures,
earnings, or competitive position.
(xiii)Number of Employees
As of October 2, 1999, Trex Medical employed approximately 1,150 people.
(d) Financial Information about Geographic Areas
We summarize financial information about geographic areas in Note 10 to
Consolidated Financial Statements in Trex Medical's Fiscal 1999 Annual Report to
Shareholders, which is incorporated in this document by reference.
(e) Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Present Title (Fiscal Year First Became Executive
Officer)
------------------ ------ -----------------------------------------------------
William J. Webb 57 President and Chief Executive Officer (1999)
Ira S. Miller 54 Senior Vice President, Sales and Marketing (1999)
Gerald R. Roda 56 Senior Vice President, Finance (1999)
Theo 40 Chief Financial Officer (1999)
Melas-Kyriazi
Paul F. Kelleher 57 Chief Accounting Officer (1995)
</TABLE>
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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. Mr. Webb has been president and chief executive officer of the company
since January 1999. Prior to joining Trex Medical, Mr. Webb was employed by
Picker International, Inc. for 16 years. In his last position with that company,
he served as an executive vice president and was responsible for global sales
and service for that company's diagnostic imaging product line for eight years.
Mr. Miller has been senior vice president, marketing and sales, of the company
since March 1999. Prior to joining Trex Medical, Mr. Miller was employed by
Picker International, Inc. for seven years. In his last position, he served as
vice president, multi-hospital systems business group, for three years. Mr. Roda
has been senior vice president, finance, of the company since March 1999. Prior
to joining Trex Medical, Mr. Roda was employed by Picker International, Inc. for
14 years, where he served as Group Controller, Sales and Service since 1994. Mr.
Melas-Kyriazi was appointed Chief Financial Officer of the company and Thermo
Electron on January 1, 1999. He joined Thermo Electron in 1986 as Assistant
Treasurer, and became Treasurer in 1988. He was named President and Chief
Executive Officer of ThermoSpectra Corporation, a public subsidiary of Thermo
Instrument Systems Inc., in 1994, a position he held until becoming Vice
President of Corporate Strategy for Thermo Electron in 1998. Mr. Kelleher has
held comparable positions for at least five years with Trex Medical or Thermo
Electron. Mr. Melas-Kyriazi and Mr. Kelleher are full-time employees of Thermo
Electron, but they devote as much time to the affairs of the company as is
reasonably required. Mr. Melas-Kyriazi remains a Vice President of Thermo
Electron.
Item 2. Properties
The location and general character of the company's principal properties
by business segment as of October 2, 1999, are:
Medical Imaging
The Medical Imaging segment owns a 62,500-square-foot office and
manufacturing facility in Danbury, Connecticut, and leases a 120,000-square-foot
office and manufacturing facility in Copiague, New York, under a lease expiring
in fiscal 2005; a 156,000-square-foot office and manufacturing facility in
Littleton, Massachusetts, under a lease expiring in fiscal 2012; and a
60,000-square-foot office and manufacturing facility in Danbury, Connecticut,
under a lease expiring in fiscal 2007.
Dental Imaging
The Dental Imaging segment owns two office and manufacturing facilities: a
12,900-square-foot office and manufacturing facility in Bolu, Turkey, and a
7,500-square-foot office and manufacturing facility in Jakarta, Indonesia. This
segment leases a 120,000-square-foot office, manufacturing, and lab facility
near Paris, France, under a lease expiring in fiscal 2002 and a
10,750-square-foot office and manufacturing facility in Saint Eitenne, France,
under a lease expiring in fiscal 2005. This segment also leases facilities in
Germany, the United Kingdom, Italy, Spain, Japan, and Belgium.
We believe these facilities are in good condition and are suitable to meet
our current needs.
Item 3. Legal Proceedings
On April 2, 1992, Fischer Imaging Corporation filed a lawsuit in the
United States District Court, District of Colorado, against Trex Medical's Lorad
division, alleging that Lorad's prone breast-biopsy system infringes a Fischer
patent on a precision mammographic needle-biopsy system. As of October 2, 1999,
Trex Medical had recorded revenues of approximately $157.5 million from the sale
of these systems; $34.4 million of the total was from sales that were recorded
before October 16, 1995, which is the date that Lorad was transferred from
ThermoTrex to Trex Medical. On April 7, 1998, Fischer filed a second lawsuit in
the United States District Court, District of Colorado, against Trex Medical's
Lorad division, alleging that Lorad's manufacture of breast-imaging equipment
and breast-biopsy system infringes on a second Fischer patent which was issued
April 7, 1998. These two lawsuits have been consolidated into a single lawsuit.
10
<PAGE>
Fischer is seeking 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. If a license were required, there is no
assurance that the company will be able to obtain one on commercially reasonable
terms, or on any terms. In addition, the company may be subject to damages for
past infringement.
When Trex Medical was incorporated, ThermoTrex agreed to indemnify Trex
Medical for any and all cash damages related to sales of the prone breast-biopsy
system prior to October 16, 1995, the date that Lorad was transferred to Trex
Medical. As of October 2, 1999, Trex Medical had approximately $1.1 million
accrued for costs associated with this litigation. Any indemnification payment
that Trex Medical would receive from ThermoTrex would be treated as a
contribution to shareholders' investment.
Trophy Radiologie is party to a lawsuit filed March 21, 1996, in the
United States District Court for the Eastern District of New York against Schick
Technologies, Inc., alleging infringement of a Trophy patent relating to dental
X-ray apparatus. Schick has filed a counterclaim against Trophy alleging
infringement of a Schick patent that also relates to dental X-ray apparatus.
Each of the parties is seeking a declaration that the opposing party's patent is
invalid, a permanent injunction, treble damages, and attorneys' fees and
expenses.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
11
<PAGE>
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 1999 Annual Report to Shareholders and is incorporated in
this document 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 1999 Annual Report to Shareholders and is incorporated in
this document 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 1999 Annual Report to Shareholders and is
incorporated in this document by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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 1999 Annual Report to Shareholders and is
incorporated in this document 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 1999 Annual Report to Shareholders and
are incorporated in this document by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
12
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated in this document 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 in this document
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 in this document
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 in this document
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.
13
<PAGE>
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 Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and 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.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized.
Date: December 9, 1999 TREX MEDICAL CORPORATION
By: /s/ William J. Webb
William J. Webb
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 9, 1999.
Signature Title
By: /s/ William J. Webb President, Chief Executive
William J. Webb Officer, and Director
By: /s/ Theo Melas-Kyriazi Chief Financial Officer
Theo Melas-Kyriazi
By: /s/ Paul F. Kelleher Chief Accounting Officer
Paul F. Kelleher
By: /s/ John T. Keiser Chairman of the Board and
John T. Keiser Director
By: /s/ Dr. Elias P. Gyftopoulos Director
Dr. Elias P. Gyftopoulos
By: /s/ Hal Kirshner Director
Hal Kirshner
By: /s/ Dr. James W. May, Jr. Director
Dr. James W. May, Jr.
By: /s/ Hutham S. Olayan Director
Hutham S. Olayan
By: /s/ Firooz Rufeh Director
Firooz Rufeh
15
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Trex Medical Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Trex Medical Corporation's
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
we have issued our report thereon dated November 8, 1999. 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 14 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 8, 1999
16
<PAGE>
SCHEDULE II
TREX MEDICAL CORPORATION
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Description Balance at Provision Accounts Other (a) Balance
Beginning Charged to Written at End
of Year Expense Off of Year
- ------------------------------------- ------------- ------------- ------------- ------------- ------------
Allowance for Doubtful Accounts
Year Ended October 2, 1999 $ 2,667 $ 2,220 $ (874) $ (475) $ 3,538
Year Ended October 3, 1998 $ 1,298 $ 697 $ (542) $ 1,214 $ 2,667
Year Ended September 27, 1997 $ 1,264 $ 170 $ (136) $ - $ 1,298
Description Balance at Established Activity Currency Balance
Beginning as Cost of Charged to Translation at End
of Year Acquisitions Reserve of Year
- ------------------------------------- ------------- ------------- ------------- ------------- ------------
Accrued Acquisition Expenses (b)
Year Ended October 2, 1999 $ 1,293 $ 1,724 $ (948) $ (235) $ 1,834
Year Ended October 3, 1998 $ 289 $ 1,635 $ (718) $ 87 $ 1,293
Year Ended September 27, 1997 $ 579 $ - $ (290) $ - $ 289
Description Balance at Provision Cash Balance
Beginning Charged to Payments Currency at End
of Year Expense (d) Translation of Year
- ------------------------------------- ------------- ------------- ------------- ------------- ------------
Accrued Restructuring Costs (c)
Year Ended October 2, 1999 $ - $ 7,555 $(3,831) $ (22) $ 3,702
(a) Includes allowances of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders and the effect of foreign currency
translation.
(b) The nature of activity in this account is described in Note 2 to
Consolidated Financial Statements in the Registrant's Fiscal 1999 Annual
Report to Shareholders.
(c) The nature of activity in this account is described in Note 9 to
Consolidated Financial Statements in the Registrant's Fiscal 1999 Annual
Report to Shareholders.
(d) Excludes inventory and warranty provisions of $13.9 million and an asset
write-down of $2.0 million.
</TABLE>
17
<PAGE>
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 Corporation (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 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 (filed as 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] and incorporated herein by
reference).
10.3 Amended and Restated Master Guarantee Reimbursement and Loan
Agreement dated as of December 12, 1997, between ThermoTrex and
the Registrant (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended January 3,
1998 [File No. 1-11827] and incorporated herein by reference).
10.4 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).
10.5 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).
10.6 Distributorship Agreement between ThermoTrex and U.S. Surgical
Corporation dated as of 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).
10.7 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).
10.8 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).
10.9 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).
18
<PAGE>
Exhibit
Number Description of Exhibit
10.10 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).
10.11 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).
10.12 Amended and Restated Stock Holding Assistance Plan and Form of
Promissory Note (filed as Exhibit 10.18 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September
27, 1997 [File No. 1-11827] and incorporated herein by
reference).
10.13 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).
10.14 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).
10.15 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 [File No. 1-11827] and incorporated herein by
reference).
10.16 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).
*10.17 Amendment to Distributorship Agreement, dated March 26, 1998,
amending Distributorship Agreement dated October 20, 1995,
between the Registrant and U.S. Surgical Corporation (filed as
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 3, 1998, and incorporated herein by
reference).
*10.18 Amended Agreement, dated July 2, 1998, amending Distributorship
Agreement dated October 20, 1995, between the Registrant and U.S.
Surgical Corporation (filed as Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended October 3,
1998, and incorporated herein by reference).
*10.19 Letter Agreement, dated August 20, 1998, amending Distributorship
Agreement dated October 20, 1995, between the Registrant and U.S.
Surgical Corporation (filed as Exhibit 10.25 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended October 3,
1998, and incorporated herein by reference).
*10.20 Letter dated January 4, 1999, by and between the Registrant and
United States Surgical Corporation, division of Tyco Ltd. (filed
as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended January 2, 1999 [File No. 1-11827] and
incorporated herein by reference).
19
<PAGE>
Exhibit
Number Description of Exhibit
10.21 Agreement by and between the Registrant and William J. Webb dated
as of January 4, 1999 (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended January 2,
1999 [File No. 1-11827] and incorporated herein by reference).
10.22 Agreement by and between the Registrant and Hal Kirshner dated
as of February 2, 1999 (filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended January 2, 1999 [File No. 1-11827] and incorporated herein
by reference).
10.23 Master Cash Management, Guarantee Reimbursement and Loan
Agreement dated as of June 1, 1999, between the Registrant and
Thermo Electron Corporation (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 [File No. 1-11827] and incorporated herein by
reference).
10.24 Amended and Restated Equity Incentive Plan of the Registrant
(filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999 [File No. 1-11827]
and incorporated herein by reference). (Maximum number of shares
issuable in the aggregate under this plan is 2,200,000 shares,
after adjustment to reflect a share increase approval in 1999.)
10.25 Amended and Restated Deferred Compensation Plan for Directors of
the Registrant (filed as Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July
3, 1999 [File No. 1-11827] and incorporated herein by reference).
10.26 Amended and Restated Directors Stock Option Plan of the
Registrant (filed as Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1999
[File No. 1-11827] 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.
The terms of such plans are substantially the same as those of
the Registrant's Equity Incentive Plan.
*10.27 Purchase Agreement dated as of May 14, 1999, among the
Registrant, United States Surgical Corporation, and Tyco
Healthcare Group, LP (filed as Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No. 1-11827] and incorporated herein by reference).
13 Annual Report to Shareholders for the fiscal year ended October
2, 1999 (only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
* Confidential treatment as to certain portions are omitted and filed
separately with the Securities and Exchange Commission.
Exhibit 13
Trex Medical Corporation
Consolidated Financial Statements
Fiscal Year 1999
<PAGE>
<TABLE>
<CAPTION>
Trex Medical Corporation 1999 Financial Statements
Consolidated Statement of Operations
<S> <C> <C> <C>
Year Ended
-----------------------------------------
(In thousands except per share amounts) October 2, October 3, September 27,
1999 1998 1997
- ----------------------------------------------------------- --------------- --------------- --------------
Revenues (includes $3,497, $3,308, and $11,427 to $241,604 $266,964 $229,294
affiliated companies; Notes 8 and 10) -------- -------- --------
Costs and Operating Expenses:
Cost of revenues (includes $2,126, $1,377, and 169,852 151,970 139,062
$7,238 for revenues to affiliated companies; Notes
8 and 9)
Selling, general, and administrative expenses 69,162 55,006 40,181
(Note 8)
Research and development expenses (Note 8) 32,391 32,417 24,705
Restructuring costs (Note 9) 9,890 - -
-------- -------- --------
281,295 239,393 203,948
-------- -------- --------
Operating Income (Loss) (39,691) 27,571 25,346
Interest Income 562 2,590 1,895
Interest Expense (includes $336 to related party in (549) (336) (336)
each year; Note 6)
Other Income (Expense), Net (231) 15 559
-------- -------- --------
Income (Loss) Before Income Taxes and Minority Interest (39,909) 29,840 27,464
Income Tax (Provision) Benefit (Note 5) 11,978 (11,636) (12,790)
Minority Interest Expense (138) - -
-------- -------- --------
Net Income (Loss) $(28,069) $ 18,204 $ 14,674
======== ======== ========
Earnings (Loss) per Share (Note 12)
Basic $ (.87) $ .57 $ .51
======== ======== ========
Diluted $ (.87) $ .56 $ .50
======== ======== ========
Weighted Average Shares (Note 12)
Basic 32,316 32,213 28,826
======== ======== ========
Diluted 32,316 33,132 29,685
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Trex Medical Corporation 1999 Financial Statements
Consolidated Balance Sheet
<S> <C> <C>
(In thousands) October 2, October 3,
1999 1998
- ------------------------------------------------------------------------------ ------------- -------------
Assets
Current Assets:
Cash and cash equivalents (includes $34,054 under repurchase $ 8,075 $ 42,709
agreement with affiliated company in fiscal 1998)
Advance to affiliate 8,801 -
Accounts receivable, less allowances of $3,538 and $2,667 49,137 72,622
Inventories (Note 9) 58,112 76,268
Prepaid and refundable income taxes (Note 5) 19,685 6,479
Other current assets 2,357 3,154
-------- ---------
146,167 201,232
-------- ---------
Property, Plant, and Equipment, at Cost, Net (Note 9) 15,892 19,099
-------- ---------
Other Assets 702 938
-------- ---------
Cost in Excess of Net Assets of Acquired Companies (Note 2) 114,266 121,252
-------- ---------
$277,027 $ 342,521
======== =========
3
<PAGE>
Trex Medical Corporation 1999 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) October 2, October 3,
1999 1998
- ------------------------------------------------------------------------------ ------------- --------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 15,065 $ 23,809
4.2% subordinated convertible note, due to parent company (Note 6) 8,000 -
Current maturities of long-term obligations (Note 6) 377 435
Accrued payroll and employee benefits 6,487 8,606
Accrued warranty costs 7,696 9,004
Customer deposits 5,231 3,126
Accrued commissions 5,055 7,383
Accrued restructuring costs (Note 9) 3,702 -
Accrued income taxes (includes $3,998 due to parent company in 614 4,647
fiscal 1998; Note 9)
Other accrued expenses (Note 2) 17,499 17,170
Due to affiliated companies 2,163 1,112
-------- ---------
71,889 75,292
-------- ---------
Deferred Income Taxes (Note 5) 964 435
-------- ---------
Long-term Obligations (Note 6):
4.2% Subordinated convertible note, due to parent company - 8,000
Other 177 631
-------- ---------
177 8,631
-------- ---------
Minority Interest 216 117
-------- ---------
Commitments and Contingencies (Notes 2, 7, and 8)
Shareholders' Investment (Notes 3 and 4):
Common stock, $.01 par value, 50,000,000 shares 341 341
authorized; 34,139,967 shares issued
Capital in excess of par value 213,022 213,513
Retained earnings 14,153 42,222
Treasury stock at cost, 2,136,725 and 5,625 shares (21,634) (94)
Deferred compensation (579) -
Accumulated other comprehensive items (1,522) 2,064
-------- ---------
203,781 258,046
-------- ---------
$277,027 $ 342,521
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Trex Medical Corporation 1999 Financial Statements
Consolidated Statement of Cash Flows
Year Ended
----------------------------------------
<S> <C> <C> <C>
(In thousands) October 2, October 3, September 27,
1999 1998 1997
- ------------------------------------------------------------ -------------- --------------- --------------
Operating Activities
Net income (loss) $(28,069) $ 18,204 $ 14,674
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,649 7,381 4,996
Provision for losses on accounts receivable 2,220 697 170
Minority interest expense 138 - -
Increase in deferred income taxes 529 213 52
Noncash restructuring costs (Note 9) 2,335 - -
Other noncash items (Note 9) 10,256 (375) (67)
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable 20,183 (12,783) (15,840)
Inventories 6,354 (21,014) (10,331)
Other current assets (12,583) (1,314) 470
Accounts payable (8,157) (1,157) 1,302
Other current liabilities (1,021) (9,039) 8,480
-------- -------- --------
Net cash provided by (used in) operating 834 (19,187) 3,906
activities
-------- -------- --------
Investing Activities
Acquisitions, net of cash acquired (Note 2) - (37,446) -
Advances to affiliate, net (8,801) - -
Purchases of property, plant, and equipment (4,074) (4,503) (5,461)
Proceeds from sale of property, plant, and 343 610 -
equipment
-------- -------- --------
Net cash used in investing activities (12,532) (41,339) (5,461)
-------- -------- --------
Financing Activities
Net proceeds from issuance of Company common stock - 68,684 4,141
(Note 3)
Purchases of Company common stock (22,647) - -
Repayment of short-term borrowings and capital lease (414) (1,323) (62)
obligations
-------- -------- --------
Net cash provided by (used in) financing $(23,061) $ 67,361 $ 4,079
activities
-------- -------- --------
5
<PAGE>
Trex Medical Corporation 1999 Financial Statements
Consolidated Statement of Cash Flows (continued)
Year Ended
----------------------------------------
(In thousands) October 2, October 3, September 27,
1999 1998 1997
- ------------------------------------------------------------ -------------- --------------- --------------
Exchange Rate Effect on Cash $ 125 $ (616) $ -
------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents (34,634) 6,219 2,524
Cash and Cash Equivalents at Beginning of Year 42,709 36,490 33,966
------- -------- --------
Cash and Cash Equivalents at End of Year $ 8,075 $ 42,709 $ 36,490
======= ======== ========
Cash Paid For
Interest $ 529 $ 336 $ 182
Income taxes $ 5,615 $ 17,635 $ 8,304
Noncash Activities
Fair value of assets of acquired companies $ - $ 73,821 $ -
Cash paid for acquired companies - (39,862) -
------- -------- --------
Liabilities assumed of acquired companies $ - $ 33,959 $ -
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Trex Medical Corporation 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
Year Ended
-----------------------------------------
(In thousands) October 2, October 3, September 27,
1999 1998 1997
- ----------------------------------------------------------- --------------- --------------- --------------
Comprehensive Income
Net Income (Loss) $(28,069) $ 18,204 $ 14,674
-------- -------- --------
Other Comprehensive Items:
Foreign currency translation adjustment (3,586) 2,064 -
-------- -------- --------
$(31,655) $ 20,268 $ 14,674
======== ======== ========
Shareholders' Investment
Common Stock, $.01 Par Value:
Balance at beginning of year $ 341 $ 289 $ 286
Net proceeds from issuance of Company common stock (Note 3) - 52 3
-------- -------- --------
Balance at end of year 341 341 289
-------- -------- --------
Capital in Excess of Par Value:
Balance at beginning of year 213,513 144,787 139,667
Net proceeds from issuance of Company common stock (Note 3) - 66,892 4,116
Activity under employees' and directors' stock plans (491) 834 22
Tax benefit related to employees' and directors' - 1,000 982
stock plans
-------- -------- --------
Balance at end of year 213,022 213,513 144,787
-------- -------- --------
Retained Earnings:
Balance at beginning of year 42,222 24,018 9,344
Net income (loss) (28,069) 18,204 14,674
-------- -------- --------
Balance at end of year 14,153 42,222 24,018
-------- -------- --------
Treasury Stock:
Balance at beginning of year (94) - -
Activity under employees' and directors' stock plans 1,107 (94) -
Purchases of Company common stock (22,647) - -
-------- -------- --------
Balance at end of year (21,634) (94) -
-------- -------- --------
Deferred Compensation (Note 4):
Balance at beginning of year - - -
Issuance of restricted stock under employees' stock (615) - -
plans, net of forfeitures
Amortization of deferred compensation 36 - -
-------- -------- --------
Balance at end of year $ (579) $ - $ -
-------- -------- --------
7
<PAGE>
Trex Medical Corporation 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued)
Year Ended
-----------------------------------------
(In thousands) October 2, October 3, September 27,
1999 1998 1997
- ----------------------------------------------------------- --------------- --------------- --------------
Accumulated Other Comprehensive Items:
Balance at beginning of year $ 2,064 $ - $ -
Other comprehensive items (3,586) 2,064 -
-------- -------- --------
Balance at end of year (1,522) 2,064 -
-------- -------- --------
$203,781 $258,046 $169,094
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
Trex Medical Corporation 1999 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) operates in two segments: Medical
Imaging and Dental Imaging. The Medical Imaging segment designs, manufactures,
and markets mammography equipment, minimally invasive digital breast-biopsy
systems, and general-purpose and specialized medical X-ray equipment. The Dental
Imaging segment designs, manufactures, and markets dental X-ray systems.
Relationship with ThermoTrex Corporation and Thermo Electron Corporation
The Company was incorporated in September 1995 as a wholly owned
subsidiary of ThermoTrex Corporation. As of October 2, 1999, ThermoTrex owned
22,879,568 shares of the Company's common stock, representing 71% of such stock
outstanding. ThermoTrex is an 80%-owned subsidiary of Thermo Electron
Corporation. As of October 2, 1999, Thermo Electron owned 2,242,121 shares of
the Company's common stock, representing 7% of such stock outstanding.
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
The Company has adopted a fiscal year ending the Saturday nearest
September 30. References to fiscal 1999, 1998, and 1997 are for the years ended
October 2, 1999, October 3, 1998, and September 27, 1997, respectively. Fiscal
1999 and 1997 each included 52 weeks; 1998 included 53 weeks.
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 shareholders' investment.
Income Taxes
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 (Loss) per Share
Basic earnings (loss) per share have been computed by dividing net income
(loss) by the weighted average number of shares outstanding during the period.
Diluted earnings per share for fiscal 1998 and 1997 have been computed assuming
the conversion of the Company's convertible note and the elimination of the
related interest expense, and the exercise of stock options, as well as their
related income tax effects.
9
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
At fiscal year-end 1998, $34,054,000 of the Company's cash equivalents
were invested in a repurchase agreement with Thermo Electron. Under this
agreement, the Company in effect lent excess cash to Thermo Electron, which
Thermo Electron collateralized with investments principally consisting of
corporate notes, U.S. government-agency securities, 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 were
readily convertible into cash by the Company. The repurchase agreement earned a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points,
set at the beginning of each quarter. Effective June 1999, the Company adopted a
new cash management arrangement with Thermo Electron, described below, that
replaces the repurchase agreement. At fiscal year-end 1999 and 1998, the
Company's cash and equivalents also include cash held in accounts in the United
States and foreign countries.
Advance to Affiliate
Effective June 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
In addition, under this arrangement, amounts borrowed from Thermo Electron
for domestic cash management purposes bear interest at the 30-day Dealer
Commercial Paper Rate plus 150 basis points, set at the beginning of each month.
The Company has no borrowings under this arrangement at October 2, 1999.
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- --------------------------------------------------------------------------------------- --------- --------
Raw Materials and Supplies $27,312 $34,316
Work in Process 15,070 18,195
Finished Goods 15,730 23,757
------- -------
$58,112 $76,268
======= =======
The Company periodically reviews the quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization principally using the straight-line method over
the estimated useful lives of the property as follows: buildings, 31.5 years;
machinery and equipment, 3 to 8 years; and leasehold improvements, the shorter
of the term of the lease or the life of the asset. Property, plant, and
equipment consists of the following:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------------- --------- --------
Land $ 1,299 $ 1,299
Buildings 4,631 4,213
Leasehold Improvements 1,630 3,421
Machinery and Equipment 21,594 20,476
------- -------
29,154 29,409
Less: Accumulated Depreciation and Amortization 13,262 10,310
------- -------
$15,892 $19,099
======= =======
Other Assets
Other assets in the accompanying balance sheet includes the cost of
specifically identifiable intangible assets. The intangible assets are amortized
using the straight-line method over their estimated useful lives, which range
from one to five years. At fiscal year-end 1999 and 1998, these assets were
$702,000 and $938,000, respectively, net of accumulated amortization of $694,000
and $277,000, respectively.
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 periods of 15 to 40 years.
Accumulated amortization was $12,310,000 and $8,817,000 at fiscal year-end 1999
and 1998, 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.
Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement sets forth requirements for
disclosure of the Company's comprehensive income and accumulated other
comprehensive items. In general, comprehensive income combines net income and
"other comprehensive items," which represents foreign currency translation
adjustments, reported as a component of shareholders' investment in the
accompanying balance sheet.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of operations and are not material for the three years presented.
11
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
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 1998 and 1997 have been reclassified to conform
to the presentation in the fiscal 1999 financial statements.
2. Acquisitions
In April 1998, the Company acquired the outstanding stock of Trophy
Radiologie S.A., a French manufacturer of dental and medical X-ray systems
specializing in digital dental technology. The purchase price consisted of
$23,979,000 in cash and the repayment of $8,707,000 of debt. The cost of this
acquisition exceeded the estimated fair value of the acquired net assets by
$33,044,000, which is being amortized over 40 years.
In October 1997, the Company's XRE Corporation subsidiary acquired
substantially all of the assets of Digitec Corporation for $7,176,000 in cash,
subject to certain liabilities. The cost of this acquisition exceeded the
estimated fair value of the acquired net assets by $7,531,000, which is being
amortized over 15 years. Digitec is a manufacturer of physiological-monitoring
equipment and digital-image archiving and networking systems used in cardiac
catheterization procedures.
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.
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 Trophy on a pro forma basis, assuming that the
businesses had been combined since the beginning of fiscal 1997. The effect of
the acquisition of Digitec is not included in the pro forma results as it was
not material to the Company's results of operations.
(In thousands except per share amounts) 1998 1997
- ---------------------------------------------------------------------------- --------- ---------- ---------
Revenues $ 305,078 $ 305,329
Net Income 16,025 12,426
Earnings per Share:
Basic .50 .43
Diluted .49 .43
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition of Trophy
been made at the beginning of fiscal 1997.
In connection with acquisitions, the Company has undertaken a
restructuring of the acquired businesses. In connection with these restructuring
activities, which are accounted for in accordance with the requirements of
Emerging Issues Task Force Pronouncement (EITF) No. 95-3, as part of the cost of
the acquisitions, the Company established reserves as detailed below. In
accordance with the requirements of EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the date of acquisition.
12
<PAGE>
2. Acquisitions (continued)
</TABLE>
Accrued acquisition expenses are included in other accrued expenses in the
accompanying balance sheet. A summary of the changes in accrued acquisition
expenses follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Severance
Excess
Facilities
(In thousands) Medical Dental Dental Total
Imaging- Imaging- Imaging-
Bennett Trophy Trophy
- --------------------------------------------------------- ------------ ----------- ----------- -----------
Balance at September 28, 1996 $ 579 $ - $ - $ 579
Usage (290) - - (290)
------- ------ ------ -------
Balance at September 27, 1997 289 - - 289
Reserves established - 1,014 621 1,635
Usage (289) (429) - (718)
Currency translation - 42 45 87
------- ------ ------ -------
Balance at October 3, 1998 - 627 666 1,293
Reserves established - 1,352 372 1,724
Usage - (375) (573) (948)
Currency translation - (174) (61) (235)
------- ------ ------ -------
Balance at October 2, 1999 $ - $1,430 $ 404 $ 1,834
======= ====== ====== =======
The reserves established in fiscal 1998 and 1999 primarily related to
severance across all functions at Trophy's operations in France and the U.S.,
abandonment of sales offices in the U.S., Japan, and Europe, and abandonment of
manufacturing facilities in Europe. The Company expects to pay the severance
costs during the first half of fiscal 2000 and the abandoned-facility costs over
the term of facility leases, which expire primarily though fiscal 2001.
As part of the cost of ThermoTrex's 1992 acquisition of Lorad, a reserve
was established for legal fees and other costs associated with a patent
infringement suit that existed prior to the acquisition. The balance of this
reserve was approximately $1,100,000 at fiscal year-end 1999 and 1998, and is
included in other accrued expenses in the accompanying balance sheet. This suit
was brought by Fischer Imaging Corporation, 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. A second patent infringement lawsuit with respect to
Lorad's breast-biopsy system was filed by Fischer in April 1998. These lawsuits
have been consolidated into a single lawsuit. An unsuccessful resolution of this
matter could have a material adverse effect on the Company's future results of
operations and financial position.
13
<PAGE>
3. Common Stock
Sale of Common Stock
In February 1998, the Company sold 5,175,000 shares of its common stock in
a public offering at $13.75 per share, for net proceeds of $66,944,000.
Reserved Shares
As of October 2, 1999, the Company had reserved 3,718,000 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
The Company has 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. 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 one- to ten-year period, depending on the term of
the option, which generally ranges from five to twelve years. Nonqualified stock
options may be granted at any price determined by the Board Committee, although
incentive stock options must be granted at not less than the fair market value
of the Company's common stock on the date of grant. To date, all options have
been granted at fair market value. The Company also has a directors' stock
option plan 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.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 206,000 shares at a weighted average exercise price of $16.96 per share
elected to participate in this exchange and, as a result, received options to
purchase 103,000 shares of Company common stock at $10.98 per share, which are
included in the fiscal 1999 grants in the table below. The other terms of the
new options are the same as the exchanged options except that the holders may
not sell shares purchased pursuant to such new options for six months from the
exchange date. The options exchanged were canceled by the Company.
In June 1999, the Company awarded 112,900 shares of restricted Company
common stock to certain key employees. The shares had an aggregate value of
$635,000 and vest three years from the date of award, assuming continued
employment, with certain exceptions. The Company has recorded the fair value of
the restricted stock as deferred compensation in the accompanying balance sheet
and is amortizing such amount over the vesting period. At fiscal year-end 1999,
3,500 of these shares have been forfeited.
14
<PAGE>
</TABLE>
4. Employee Benefit Plans (continued)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
------------------ ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Number Number Number
of of of
(Shares in thousands) Shares Shares Shares
- ---------------------------------------------- -------- ---------- -------- ---------- --------- ---------
Options Outstanding, Beginning of Year 2,042 $12.55 $12.24 1,381 $11.14
1,760
Granted 1,140 7.47 427 13.79 512 15.82
Exercised - - (70) 11.57 (2) 11.00
Forfeited (563) 12.06 (75) 13.32 (131) 14.58
Canceled due to exchange (206) 16.96 - - - -
----- ----- -----
Options Outstanding, End of Year 2,413 $ 9.89 2,042 $12.55 1,760 $12.24
===== ====== ===== ====== ===== ======
Options Exercisable 2,413 $ 9.89 2,042 $12.55 1,760 $12.24
===== ====== ===== ====== ===== ======
Options Available for Grant 501 286 238
===== ===== =====
</TABLE>
A summary of the status of the Company's stock options at October 2, 1999,
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options Outstanding and Exercisable
-----------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- ---------------------------------------------- ------------------- ------------------- -------------------
$ 4.06 - $ 7.40 398 6.7 years $ 5.59
7.41 - 10.73 655 6.1 years 8.30
10.74 - 14.07 1,200 7.7 years 11.48
14.08 - 17.40 160 7.4 years 15.14
-----
$ 4.06 - $17.40 2,413 7.1 years $ 9.89
=====
Employee Stock Purchase Program
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. Prior to November 1, 1997, the program was sponsored by
ThermoTrex and Thermo Electron. Under this program, shares of the Company's and
Thermo Electron's common stock may be purchased at 85% of the lower of the fair
market value at the beginning or end of the plan year, and the shares purchased
are subject to a one-year resale restriction. Prior to November 1, 1998, the
applicable shares of common stock could 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 were subject to a six-month resale restriction. Shares are
purchased through payroll deductions of up to 10% of each participating
employee's gross wages.
15
<PAGE>
4. Employee Benefit Plans (continued)
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 granted
after fiscal 1995 under the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
set forth under SFAS No. 123, the effect on the Company's net income (loss) and
earnings (loss) per share would have been as follows:
(In thousands except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Net Income (Loss):
As reported $(28,069) $ 18,204 $ 14,674
Pro forma (29,219) 17,200 14,071
Basic Earnings (Loss) per Share:
As reported (.87) .57 .51
Pro forma (.90) .53 .49
Diluted Earnings (Loss) per Share:
As reported (.87) .56 .50
Pro forma (.90) .53 .48
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.
Pro forma 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 weighted average fair value per share of options granted was $2.80,
$4.96, and $7.88 in fiscal 1999, 1998, and 1997, respectively. 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:
1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Volatility 30% 28% 26%
Risk-free Interest Rate 5.4% 5.5% 6.5%
Expected Life of Options 5.1 years 5.1 years 8.5 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that 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.
16
<PAGE>
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 this plan $1,469,000, $1,340,000, and
$1,080,000 in fiscal 1999, 1998, and 1997, respectively.
5. Income Taxes
The components of income (loss) before income taxes and minority interest
are as follows:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ---------- ---------- ----------
Domestic $(40,089) $29,873 $ 27,464
Foreign 180 (33) -
------- ------- --------
$(39,909) $29,840 $ 27,464
======== ======= ========
The components of the income tax (provision) benefit are as follows:
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ---------- ---------- ----------
Currently Refundable (Payable):
Federal $ 7,504 $ (9,035) $ (9,913)
State (303) (2,588) (2,677)
Foreign (681) (132) -
------- -------- --------
6,520 (11,755) (12,590)
------- -------- --------
Net Prepaid (Deferred):
Federal 5,111 92 (172)
State 347 27 (28)
------- -------- --------
5,458 119 (200)
------- -------- --------
$11,978 $(11,636) $(12,790)
======= ======== ========
The Company receives a tax deduction upon exercise of nonqualified stock
options by its employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $1,000,000
and $982,000 of such benefits that have been allocated to capital in excess of
par value in fiscal 1998 and 1997, respectively.
17
<PAGE>
5. Income Taxes (continued)
The income tax (provision) benefit in the accompanying statement of
operations differs from the (provision) benefit calculated by applying the
statutory federal income tax rate of 35% to income (loss) before income taxes
and minority interest due to the following:
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Income Tax (Provision) Benefit at Statutory Rate $ 13,968 $(10,444) $ (9,612)
Increases (Decreases) Resulting From:
State income taxes, net of federal tax 1,802 (1,665) (1,758)
Amortization of cost in excess of net assets of acquired (558) (566) (541)
companies
Research and development tax credits 750 972 -
Increase in valuation allowance (4,042) - -
Foreign tax rate differential (113) - -
Other, net 171 67 (879)
-------- -------- --------
$ 11,978 $(11,636) $(12,790)
======== ======== ========
</TABLE>
Prepaid and deferred income taxes in the accompanying balance sheet
consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Prepaid Income Taxes:
Inventory basis difference $ 6,194 $ 2,215
Reserves and accruals 5,793 3,991
Net operating loss carryforward 5,726 1,684
Accrued compensation 480 273
------- -------
18,193 8,163
Less: Valuation allowance 5,308 1,266
------- -------
$12,885 $ 6,897
======= =======
Deferred Income Taxes:
Depreciation and amortization $ 1,382 $ 853
======= =======
Included in deferred income taxes in the accompanying fiscal year-end 1999
and 1998 balance sheet is $418,000 of long-term prepaid income taxes related to
net operating losses carryforwards, net of valuation allowance.
The valuation allowance at fiscal year-end 1999 and 1998 relates to net
operating loss carryforwards. The utilization of such losses is subject to
various limitations. The valuation allowance increased primarily due to losses
in fiscal 1999 that were not benefited. As of October 2, 1999, the Company had
approximately $8,600,000 of federal loss carryforwards that expire from 2005
through 2019 and $35,000,000 of state loss carryforwards. Any tax benefit
resulting from the use of $5,000,000 of the federal loss carryforwards will
first be used to reduce cost in excess of net assets of acquired companies.
18
<PAGE>
6. Long-term Obligations
The Company has outstanding an $8,000,000 principal amount 4.2%
subordinated convertible note, due to parent company on September 30, 2000,
convertible into shares of the Company's common stock at $11.79 per share. In
addition, at fiscal year-end 1999 and 1998, the Company had other borrowings and
capital lease obligations outstanding of $554,000 and $1,066,000, respectively.
The annual requirements for these long-term obligations as of October 2,
1999, are $8,377,000 in fiscal 2000; $23,000 in fiscal 2001; $24,000 in fiscal
2002; $26,000 in fiscal 2003; $28,000 in fiscal 2004; and $76,000 in fiscal 2005
and thereafter. Total requirements of long-term obligations are $8,554,000.
7. Commitments and Contingencies
Commitments
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of operations
includes expenses from operating leases of $3,385,000, $3,507,000, $2,894,000 in
fiscal 1999, 1998, and 1997, respectively. Future minimum payments due under
noncancelable operating leases at October 2, 1999, are $2,385,000 in fiscal
2000; $2,370,000 in fiscal 2001; $2,377,000 in fiscal 2002; $2,314,000 in fiscal
2003; $1,784,000 in fiscal 2004; and $8,886,000 in fiscal 2005 and thereafter.
Total future minimum lease payments are $20,116,000.
During fiscal 1999, the Company entered into certain purchase commitments
aggregating $5,535,000, of which $820,000 is payable in calendar 1999,
$3,080,000 in calendar 2000, and $1,635,000 in calendar 2001.
Contingencies
In October 1998, a former employee filed a lawsuit against the Company
alleging theft of trade secrets related to the high-transmission cellular
(HTC)(TM) grid, a component for some of the Company's mammography systems.
Trophy has filed a lawsuit against Schick Technologies, Inc. alleging
infringement of a Trophy patent relating to dental X-ray apparatus. Schick has
filed a counterclaim against Trophy alleging infringement of a Schick patent
that also relates to dental X-ray apparatus. Each of the parties is seeking a
declaration that the opposing party's patent is invalid, a permanent injunction,
treble damages, and attorneys' fees and expenses.
See Note 2 for a discussion of certain other litigation.
The Company intends to vigorously defend itself against these lawsuits and
counterclaims. However, given the inherent uncertainties of dispute resolutions,
management cannot predict the outcome of these matters. An unfavorable outcome
of one or more of these matters could have a material adverse effect on the
Company's future results of operations and financial condition.
8. 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 currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In calendar 1997 and 1996, the Company paid an amount
equal to 1.0% of the Company's revenues. For these services, the Company was
charged $1,933,000, $2,264,000, and $2,293,000 in fiscal 1999, 1998, and 1997,
respectively. The fee is reviewed and adjusted annually by mutual agreement of
the parties. 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
19
<PAGE>
8. Related-party Transactions (continued)
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, a majority-owned subsidiary of ThermoTrex, engaged
the Company to design and manufacture the laser used in ThermoLase's laser-based
hair-removal system. During fiscal 1999, 1998, and 1997, the Company recorded
$3,414,000, $2,902,000, and $11,390,000, respectively, of revenue under this
arrangement. As a result of ThermoLase exiting the hair-removal business, the
Company does not expect future sales to ThermoLase.
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 1999,
1998, and 1997, the Company recorded $43,000, $406,000, and $37,000,
respectively, of revenues under this arrangement.
Vendor Agreement
During 1995, the Company placed an order with Thermo Electron's wholly
owned Tecomet division for $2,500,000 for the design and production of
high-transmission cellular grids, which were received through fiscal 1999.
During fiscal 1999, 1998, and 1997, the Company purchased high-transmission
cellular grids valued at $1,352,000, $486,000, and $678,000, respectively, from
Tecomet under this arrangement. During fiscal 1998, the Company purchased
additional grids from Tecomet for $311,000 under other arrangements.
Research and Development Agreement
In October 1995, the Company and ThermoTrex entered into a license
agreement under which the Company undertook 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. In fiscal 1998 and
1997, the Company recorded $2,200,000 and $2,000,000, respectively, of expense
under this agreement, which concluded in fiscal 1998. In fiscal 1999, the
Company paid $500,000 to ThermoTrex for certain research and development efforts
related to digital mammography technology.
Subordinated Convertible Note
The Company issued a subordinated convertible note to ThermoTrex as
discussed in Note 6.
Cash Management
The Company invests excess cash in arrangements with Thermo Electron as
discussed in Note 1.
9. Restructuring and Related Costs
During fiscal 1999, the Company's Medical Imaging segment experienced a
decline in business due to the loss of an OEM customer, lower demand for its
products resulting from a decline in the radiographic market, and a decline in
sales of cardiac catheterization systems. In response, the Company initiated
certain restructuring activities in fiscal 1999, including consolidation of
manufacturing facilities and headcount reductions to achieve material cost
improvements and focus on cost efficiencies, as described below. Certain of
these actions commenced in February 1999, while most commenced in May 1999. In
addition, during the fourth quarter of fiscal 1999, the Dental Imaging segment
initiated similar restructuring actions. The Company intends to complete
implementation of its restructuring plans in the first half of fiscal 2000.
20
<PAGE>
9. Restructuring and Related Costs (continued)
During fiscal 1999, the Company recorded $23,795,000 of restructuring and
related costs, including restructuring costs of $9,890,000 and inventory and
warranty provisions of $13,905,000. The restructuring costs are primarily in
connection with the consolidation of the Company's Bennett X-Ray Corporation and
Continental X-Ray Corporation facilities into the Company's Danbury,
Connecticut, and Littleton, Massachusetts, sites and, to a lesser extent,
actions to reduce costs in other operations. Restructuring costs in the Medical
Imaging segment were $9,292,000 and include $2,250,000 for facility-closing
costs, net of assumed sublease income; $2,002,000 to write off leasehold
improvements at facilities to be closed and to write down fixed assets to their
estimated disposal value; $2,349,000 for severance for 308 employees across all
functions, 162 of whom were terminated in fiscal 1999; $1,299,000 of costs that
related to the consolidation and relocation of facilities, which were recorded
in the period in which they were incurred; $1,059,000 for retention bonuses that
were earned; and $333,000 for the loss on the sale of a business. Restructuring
costs of $598,000 in the Dental Imaging segment represent severance for 40
employees across all functions, 7 of whom were terminated in fiscal 1999.
In connection with these actions, the Company expects to record
approximately $2,200,000 of additional costs as they are incurred over the first
half of fiscal 2000 for costs not permitted as charges currently, pursuant to
EITF 94-3. These additional costs primarily represent costs for certain employee
and business relocation and related costs in the Medical Imaging segment and
severance in the Dental Imaging segment.
The inventory and warranty charge of $13,905,000, which is included in
cost of revenues in the accompanying statement of operations, includes
$10,222,000 to establish inventory provisions and $1,057,000 to terminate
purchase commitments for products that have become obsolete due to planned
product changes or excess as a result of the recent decline in demand. The
largest component of the inventory charge was recorded as a result of the August
1999 decision by the United States Food and Drug Administration (FDA) to deny
the Company's 510(k) filing for its digital mammography system and resulting
design changes expected to be made to the system. Provisions resulting from
other planned product and technology changes, as well as decreased sales of
certain products at the Company's Lorad division, are also principal components
of the inventory charge. The warranty charge of $2,626,000 represents estimated
costs to address certain product warranty issues including costs associated with
corrective actions to be taken with respect to certain previously sold
mammography products.
</TABLE>
A summary of the changes in accrued restructuring costs is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Facility- Other (b) Total
(In thousands) Severance closing
Costs
- ------------------------------------------------------------ ------------ ---------- ----------- ----------
Balance at October 3, 1998 $ - $ - $ - $ -
Provision charged to expense (a) 2,947 2,250 2,358 7,555
Usage (1,952) - (1,879) (3,831)
Currency translation (22) - (22)
------- ------- -------- -------
-
Balance at October 2, 1999 $ 973 $ 2,250 $ 479 $ 3,702
======= ======= ======== =======
(a) Reflects restructuring costs of $7.0 million and $0.6 million recorded by
the Medical Imaging and Dental Imaging segments, respectively. Excludes
Medical Imaging segment charges of $2.6 million for warranty provisions,
$1.1 million for termination of purchase commitments, and $10.2 million for
noncash inventory provisions, all of which were included in cost of
revenues; and other noncash charges of $2.0 million for an asset write-down
and $0.3 million for the loss on the sale of a business.
(b) Includes provisions in fiscal 1999 of $1.3 million for
facilities-consolidation costs incurred during the period and $1.1 million
for retention bonuses.
21
<PAGE>
9. Restructuring and Related Costs (continued)
The aggregate future cash expenditures for restructuring will include
amounts accrued at October 2, 1999, as well as future costs that will be
incurred in fiscal 2000. These amounts total $5.9 million, of which $4.4 million
will be paid during fiscal 2000 and the balance will be paid over the term of
facility leases expiring through 2005.
10. Significant Customers, Business Segments, and Geographical Information
Sales of Medical Imaging products to one customer accounted for 14% of the
Company's total revenues in fiscal 1999. Sales of Medical Imaging products to
another customer accounted for 14% and 17% of the Company's total revenues in
fiscal 1998 and 1997, respectively. This customer was acquired by another
corporation in September 1998 and, in the fourth quarter of fiscal 1998, agreed
to pay the Company a one-time fee of $4.7 million in lieu of purchasing products
for which it was contractually obligated, which was recorded as revenue in the
accompanying fiscal 1998 statement of operations. The Company did not have sales
to the customer after fiscal 1998.
The Company's businesses operate in two segments: Medical Imaging and
Dental Imaging. The Medical Imaging segment designs, manufactures, and markets
mammography equipment, minimally invasive digital breast-biopsy systems, and
general-purpose and specialized medical X-ray equipment. The Dental Imaging
segment designs, manufactures, and markets dental X-ray systems.
In fiscal 1999, 1998, and 1997, respectively, the Company's Medical
Imaging segment derived revenues from sales of breast-imaging products of
$92,541,000, $120,609,000, and $108,980,000 and from general and specialized
radiology products of $81,197,000, $121,586,000, and $120,314,000.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- --------- ---------- ---------
Business Segment Information
Revenues:
Medical Imaging $173,738 $242,195 $ 229,294
Dental Imaging 67,866 24,769 -
-------- -------- ---------
$241,604 $266,964 $ 229,294
======== ======== =========
Income (Loss) Before Income Taxes and Minority Interest:
Medical Imaging (a) $(35,219) $ 31,288 $ 28,098
Dental Imaging (b) (1,824) (1,181) -
Corporate (c) (2,648) (2,536) (2,752)
-------- -------- ---------
Total operating income (loss) (39,691) 27,571 25,346
Interest and other income (expense), net (218) 2,269 2,118
-------- -------- ---------
$(39,909) $ 29,840 $ 27,464
======== ======== =========
Total Assets:
Medical Imaging $199,403 $239,210 $ 194,975
Dental Imaging 63,972 68,932 -
Corporate (d) 13,652 34,379 34,462
-------- -------- ---------
$277,027 $342,521 $ 229,437
======== ======== =========
22
<PAGE>
10. Significant Customers, Business Segments, and Geographical Information (continued)
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- ---------- --------- ---------
Depreciation and Amortization:
Medical Imaging $ 6,382 $ 6,281 $ 4,996
Dental Imaging 2,267 1,100 -
-------- ------- ---------
$ 8,649 $ 7,381 $ 4,996
======== ======= =========
Capital Expenditures:
Medical Imaging $ 2,796 $ 4,049 $ 5,461
Dental Imaging 1,278 454 -
-------- ------- ---------
$ 4,074 $ 4,503 $ 5,461
======== ======= =========
Geographical Information
Revenues (e):
United States $ 178,455 $244,790 $ 229,294
France 36,294 19,163 -
Other 26,855 3,011 -
--------- -------- ---------
$ 241,604 $266,964 $ 229,294
========= ======== =========
Long-lived Assets (f):
United States $ 13,468 $ 16,591 $ 16,415
France 1,650 1,821 -
Other 774 687 -
--------- -------- ---------
$ 15,892 $ 19,099 $ 16,415
========= ======== =========
Export Revenues Included in United States Revenues Above (g): $ 27,997 $ 46,168 $ 39,035
========= ======== =========
(a) Reflects restructuring and related costs of $23.2 million in fiscal 1999.
(b) Reflects restructuring costs of $0.6 million in fiscal 1999.
(c) Primarily general and administrative expenses.
(d) Primarily cash and cash equivalents.
(e) Revenues are attributed to countries based on selling location.
(f) Includes property, plant, and equipment, net, and other long-term tangible assets.
(g) In general, export revenues are denominated in U.S. dollars.
11. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, current maturities of
long-term obligations, amounts due to affiliated companies, and its 4.2%
subordinated convertible note. The carrying amounts of these financial
instruments, excluding its 4.2% subordinated convertible note, 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 6), determined based
on quoted market prices, was $7,740,000 and $9,290,000 at fiscal year-end 1999
and 1998, respectively, and differed from the carrying amount primarily due to
the market interest rates exceeding the coupon rate of the convertible note at
fiscal year-end 1999 and the market price of the Company's common stock
exceeding the conversion price of the convertible note at fiscal year end 1998.
23
<PAGE>
12. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------- ---------- ----------- ---------
Basic
Net Income (Loss) $(28,069) $ 18,204 $14,674
-------- -------- -------
Weighted Average Shares 32,316 32,213 28,826
-------- -------- -------
Basic Earnings (Loss) per Share $ (.87) $ .57 $ .51
======== ======== =======
Diluted
Net Income (Loss) $(28,069) $ 18,204 $14,674
Effect of Convertible Note - 202 202
-------- -------- -------
Income (Loss) Available to Common Shareholders, $(28,069) $ 18,406 $14,876
as Adjusted
-------- -------- -------
Weighted Average Shares 32,316 32,213 28,826
Effect of:
Convertible note - 679 679
Stock options - 240 180
-------- -------- -------
Weighted Average Shares, as Adjusted 32,316 33,132 29,685
-------- -------- -------
Diluted Earnings (Loss) per Share $ (.87) $ .56 $ .50
======== ======== =======
Options to purchase 2,413,000, 252,000, and 316,000 shares of common stock
were not included in the computation of diluted earnings per share for fiscal
1999, 1998, and 1997, respectively, because their effect would have been
antidilutive due to the options' exercise prices exceeding the average market
price for the common stock and, in fiscal 1999, due to the Company's net loss
position.
In addition, the computation of diluted loss per share for fiscal 1999
excludes the effect of assuming the conversion of the Company's $8,000,000
principal amount of 4.2% subordinated convertible debentures, convertible at
$11.79 per share, because the effect would be antidilutive due to the Company's
net loss position.
</TABLE>
24
<PAGE>
13. Unaudited Quarterly Information
(In thousands except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 First Second (a) Third (b) Fourth (c)
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues $64,929 $ 60,186 $63,138 $ 53,351
Gross Profit 25,536 20,037 11,410 14,769
Net Loss (1,491) (4,204) (14,302) (8,072)
Basic and Diluted Loss per Share (.04) (.13) (.45) (.25)
1998 First (d) Second Third (e) Fourth
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues $64,121 $ 67,347 $72,100 $ 63,396
Gross Profit 27,011 27,883 30,939 29,161
Net Income 4,361 5,225 5,628 2,990
Earnings per Share:
Basic .15 .16 .17 .09
Diluted .15 .16 .16 .09
(a) Reflects restructuring costs of $0.6 million.
(b) Reflects restructuring and related costs of $18.1 million.
(c) Reflects restructuring and related costs of $5.1 million.
(d) Reflects the October 1997 acquisition of Digitec.
(e) Reflects the April 1998 acquisition of Trophy.
25
<PAGE>
Trex Medical Corporation 1999 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 71%-owned subsidiary of
ThermoTrex Corporation) and subsidiaries as of October 2, 1999, and October 3,
1998, the related consolidated statements of operations, cash flows, and
comprehensive income and shareholders' investment for each of the three years in
the period ended October 2, 1999. 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 October 2, 1999, and October 3, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended October 2, 1999, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 8, 1999
26
<PAGE>
Trex Medical Corporation 1999 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 Operations under
the heading "Forward-looking Statements."
Overview
The Company operates in two segments: Medical Imaging and Dental Imaging.
The Medical Imaging segment designs, manufactures, and markets mammography
equipment, minimally invasive digital breast-biopsy systems, and general-purpose
and specialized medical X-ray equipment. The Company sells its products
principally through dealers and direct sales. The Company is the world's largest
manufacturer of mammography systems and also manufactures minimally invasive
digital breast-biopsy systems, which provide a low-cost, less-invasive
alternative to open surgery for the biopsy of suspicious breast lesions. All of
the Company's general-purpose X-ray systems as well as its digital
radiographic/fluoroscopic (R/F) system, which is used to diagnose
gastrointestinal disorders and other problems, are now part of the Trex Heritage
Series line of products. The Company also manufactures and markets specialized
X-ray imaging systems called cardiac catheterization laboratories (cath labs)
that are used during diagnostic and interventional vascular and cardiac
procedures, such as balloon angioplasty. In addition, the Company manufactures
electrophysiology products that aid doctors in diagnosing and treating cardiac
arrhythmia.
Through Trophy Radiologie, which was acquired in fiscal 1998 and
represents the Company's Dental Imaging segment, the Company manufactures
digital and conventional dental X-ray systems. Trophy is based just outside
Paris and sells its dental imaging systems in the U.S. through the Company's
TREXTrophy Dental division.
The Company conducts all of its manufacturing operations, other than those
of Trophy, in the United States and sells its products worldwide. Although the
Company seeks to charge its customers in the same currency as its operating
costs, 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. The Company may use forward
contracts to reduce its exposure to currency fluctuations.
During fiscal 1999, the Company experienced a decline in business due to
the loss of an OEM customer, lower demand for its products resulting from a
decline in the radiographic market, and a decline in sales of cardiac
catheterization systems. In response, the Company initiated certain
restructuring activities in fiscal 1999, including consolidation of
manufacturing facilities and headcount reductions to achieve material cost
improvements and focus on cost efficiencies (Note 9). In connection with these
actions, the Company expects to record approximately $2.2 million of additional
costs as they are incurred over the first half of fiscal 2000 for costs not
permitted as charges currently, pursuant to the requirements of Emerging Issues
Task Force Pronouncement No. 94-3. These additional costs primarily include
costs for certain employee and business relocation and related costs in the
Medical Imaging segment and severance in the Dental Imaging segment. The Company
plans to complete implementation of its restructuring plans in the first half of
fiscal 2000. The Company estimates that it will achieve operating savings of
approximately $9-$10 million in fiscal 2000 as a result of the cost reductions.
In addition to undertaking restructuring actions, the Company is in the process
of reorganizing its product distribution channels by consolidating and
reassigning certain dealer relationships.
27
<PAGE>
Overview (continued)
In August 1999, the Company received notification from the United States
Food and Drug Administration (FDA) denying its 510(k) filing for its digital
mammography system. In September, the Company received a letter from the FDA
indicating that the FDA believes that a pre-market approval (PMA) application,
followed by significant post-approval screening trials, may be the more viable
option for obtaining market clearance for digital mammography systems. A PMA is
generally more burdensome than a 510(k), because it applies to devices
considered to be of higher risk. In light of the FDA's letter, the Company
continues to evaluate its options relating to marketing authorization. For
example, the Company may incorporate the data that formed the basis of its
510(k) application into a PMA application for submission to the FDA. After such
submission, the Company may implement various design and engineering changes
that may require additional preapproval clinical trials, but there can be no
assurance regarding the timing or results of the submission of a new filing to
the FDA or such clinical trials.
Results of Operations
Fiscal 1999 Compared with Fiscal 1998
Revenues decreased to $241.6 million in fiscal 1999 from $267.0 million in
fiscal 1998. Revenues increased $44.8 million as a result of the inclusion for
the full fiscal 1999 year of revenues from Trophy, which was acquired in April
1998 and represents the Dental Imaging segment. Revenues in the Medical Imaging
segment decreased $68.5 million to $173.7 million. Revenues decreased at Lorad
by $29.8 million, due to the termination of an OEM contract with U.S. Surgical,
which accounted for $38.0 million of revenues in fiscal 1998. This decrease was
offset in part by higher demand for mammography systems and mammography system
upgrade components. Revenues decreased at XRE by $21.4 million, primarily due to
lower demand and the inclusion in fiscal 1998 of a $9.0 million cardiac
catheterization system sale to a Russian customer. Revenues decreased at Bennett
and Continental, primarily due to lower demand in both businesses for
general-purpose X-ray systems and lower demand at Continental for
radiographic/fluoroscopic systems. The Company's backlog at October 2, 1999,
decreased to $45.6 million from $62.7 million at October 3, 1998, primarily due
to a decline in orders in the Medical Imaging segment, as well as ThermoLase's
decision to exit the hair-removal business. As a result of the decline in
backlog and based on the volume of bookings in October and November 1999, the
Company expects to report lower comparative sales and operating results in the
first quarter of fiscal 2000. The Company believes that this decline in business
is due in part to the consolidation of facilities and a reorganization of its
distribution system; however, there can be no assurance that this trend will not
continue.
The gross profit margin decreased to 30% in fiscal 1999 from 43% in fiscal
1998. Excluding fiscal 1999 inventory and warranty provisions of $13.9 million
(Note 9), the gross profit margin was 35% in fiscal 1999. The gross profit
margin decreased primarily due to a lower contribution toward fixed costs as a
result of lower sales at each of the Medical Imaging segment's operating units.
Selling, general, and administrative expenses as a percentage of revenues
increased to 29% in fiscal 1999 from 21% in fiscal 1998, primarily due to a
decrease in revenues in the Medical Imaging segment and due to the inclusion of
expenses of the Dental Imaging segment, which has higher costs as a percentage
of revenues, for the full fiscal 1999 year. The Dental Imaging segment's
selling, general, and administrative expenses as a percentage of revenues were
37% in fiscal 1999. Selling, general, and administrative expenses were $69.2
million in fiscal 1999, compared with $55.0 million in fiscal 1998, and
increased $15.6 million due to the inclusion for the full fiscal 1999 year of
costs in the Dental Imaging segment.
28
<PAGE>
Fiscal 1999 Compared with Fiscal 1998 (continued)
Research and development expenses were unchanged at $32.4 million in
fiscal 1999 and 1998. An increase of $4.6 million due to the inclusion for the
full fiscal 1999 year of expenses in the Dental Imaging segment was offset by
reduced spending in the Medical Imaging segment, primarily for costs associated
with full-field digital mammography while the Company evaluated the FDA's latest
guidelines for product approval.
The Company recorded restructuring costs of $9.9 million in fiscal 1999,
primarily in connection with the consolidation of certain of its facilities and,
to a lesser extent, actions to reduce costs in other operations. Of the total
restructuring costs, $9.3 million was recorded by the Medical Imaging segment
and $0.6 million was recorded by the Dental Imaging segment The Company expects
to record an additional $2.2 million of costs, primarily for certain employee
and business relocation and related costs in the Medical Imaging segment and
severance in the Dental Imaging segment, and intends to complete
implementation of its restructuring plans in the first half of fiscal 2000
(Note 9).
Interest income decreased to $0.6 million in fiscal 1999 from $2.6 million
in fiscal 1998, due to lower average invested balances due in part to
repurchases of Company common stock in fiscal 1999. Interest expense includes
interest associated with the 4.2% subordinated convertible note issued to
ThermoTrex and short-term borrowings in the Dental Imaging segment.
The effective tax rate in fiscal 1999 was a benefit of 30%, compared with
an effective rate of 39% in fiscal 1998. The effective tax rates varied from the
statutory federal income tax rate primarily due to foreign tax losses not
benefited in the Dental Imaging segment, state tax losses not benefited in the
Medical Imaging segment, and nondeductible amortization of cost in excess of net
assets of acquired companies in fiscal 1999; and the impact of state income
taxes and nondeductible amortization in fiscal 1998.
Minority interest expense in fiscal 1999 represents earnings allocable to
minority investors in Trophy's joint ventures.
The Company is a defendant in two patent infringement lawsuits (Note 2)
and a lawsuit alleging the Company misappropriated certain other technology
owned by a third party (Note 7). An unsuccessful resolution of one or more of
these matters could have a material adverse effect on the Company's future
results of operations and financial position.
Fiscal 1998 Compared With Fiscal 1997
Revenues increased 16% to $267.0 million in fiscal 1998 from $229.3
million in fiscal 1997, primarily due to the inclusion of $24.8 million of
revenues from Trophy, which was acquired in April 1998 (Note 2) and represents
the Digital Imaging segment. Revenues in the Medical Imaging segment increased
$3.5 million due to the inclusion of revenues from Digitec, which was acquired
in October 1997 (Note 2). Excluding the impact of revenues from Digitec,
revenues in the Medical Imaging segment increased 4% in fiscal 1998. Revenues
increased $5.6 million at XRE due to a $9.0 million shipment to a customer in
Russia and, to a lesser extent, an increase in direct and dealer sales of
cardiac catheterization laboratories due to higher demand. These increases were
offset in part by a decrease in international sales of cardiac catheterization
laboratories to OEM customers due to XRE shifting from OEM to direct and dealer
sales. Revenues at Lorad increased as a result of $9.0 million of higher demand
for mammography systems and mammography system upgrade components and, to a
lesser extent, increased sales of mobile X-ray systems. These increases at Lorad
were offset in part by a decline in sales of its laser systems and components to
ThermoLase, a majority-owned subsidiary of ThermoTrex (Note 8). Revenues at
Bennett increased primarily due to higher demand for mammography systems. These
increases at Bennett were offset in part by a decline in sales of
general-purpose X-ray systems to international customers, due in part to the
strengthening of the U.S. dollar relative to foreign currencies in countries in
which the Company operates and the economic crisis in the Far East. The increase
in revenues at each of the Company's divisions discussed above was offset in
part by a decrease in revenues at Continental, primarily due to a decrease in
sales of electrophysiology equipment.
29
<PAGE>
Fiscal 1998 Compared With Fiscal 1997 (continued)
The gross profit margin increased to 43% in fiscal 1998 from 39% in fiscal
1997, primarily due to increased sales of higher-margin products at a majority
of the Medical Imaging segment's operations as well as the effect on gross
profit of $4.7 million due from an OEM customer in lieu of purchasing products
for which it had been contractually obligated (Note 10). To a lesser extent, the
gross profit margin increased due to manufacturing efficiencies, primarily at
Bennett.
Selling, general, and administrative expenses as a percentage of revenues
increased to 21% in fiscal 1998 from 18% in fiscal 1997, primarily due to the
inclusion of expenses of the Dental Imaging segment, which has higher costs as a
percentage of revenues.
Research and development expenses increased to $32.4 million in fiscal
1998 from $24.7 million in fiscal 1997, primarily due to $3.9 million of
increased spending in the Medical Imaging segment's XRE and Lorad units, as a
result of the Company's continuing efforts to develop and commercialize new
products, including the full-field digital mammography system and
direct-detection X-ray sensor, as well as enhancing existing systems. To a
lesser extent, research and development expenses increased due to the inclusion
of expenses of the Dental Imaging segment.
Interest income increased to $2.6 million in fiscal 1998 from $1.9 million
in fiscal 1997, primarily due to interest income earned on the invested proceeds
from the Company's sale of common stock in February 1998 (Note 3). Interest
expense, related party, was $0.3 million in both periods.
The effective tax rates were 39% and 47% in fiscal 1998 and 1997,
respectively. The effective tax rate decreased in fiscal 1998 primarily due to
research and development tax credits and the resolution of certain tax
contingencies. The effective tax rates exceeded 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 $74.3 million at October 2, 1999,
compared with $125.9 million at October 3, 1998. Included in working capital are
cash and cash equivalents of $8.1 million at October 2, 1999, compared with
$42.7 million at October 3, 1998. In addition, as of October 2, 1999, the
Company had $8.8 million invested in an advance to affiliate. Prior to the use
of a new domestic cash management arrangement between the Company and Thermo
Electron Corporation, which became effective June 1999, amounts invested with
Thermo Electron were included in cash and cash equivalents.
Operating activities provided $0.8 million of cash in fiscal 1999. A
decrease in accounts receivable provided $20.2 million of cash during the year,
due to lower revenues at a majority of the Company's subsidiaries. A decrease in
inventories provided $6.4 million of cash, primarily due to lower inventory
levels in response to current sales trends and the effect of facilities
consolidation. A tax refund of $7.2 million resulting from the tax benefit for
the year and an increase in prepaid taxes contributed to a $12.6 million
increase in other current assets. Accounts payable decreased $8.2 million,
primarily as the result of lower inventory levels. A decrease in other accrued
liabilities, primarily as a result of federal and state income tax payments, was
offset in part by a net increase in accrued restructuring charges of $3.7
million, recorded in connection with the restructuring actions commenced in the
third quarter of fiscal 1999. The Company expects to expend approximately $5.9
million in cash for these and additional restructuring costs that will be
incurred in fiscal 2000, of which $4.4 million will be paid during fiscal 2000
and the balance will be paid over the term of facility leases expiring through
2005. The Company expects to spend $1.8 million in the future for accrued
acquisition expenses, including $1.4 million in the first half of fiscal 2000
and the remainder over the term of leases expiring primarily though fiscal 2001.
In connection with the acquisition of U.S. Surgical by Tyco International,
Ltd., and U.S. Surgical's decision to focus on other areas of its business, the
Company has committed to purchase inventories that had been sold to U.S.
Surgical in prior periods. Estimated payments under the purchase obligation,
which aggregates approximately $5.5 million, are as follows: $0.8 million in
calendar 1999, $3.1 million in calendar 2000, and $1.6 million in calendar 2001.
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Liquidity and Capital Resources (continued)
Excluding the advance to affiliate activity, the Company's investing
activities during the year primarily consisted of $4.1 million expended for
purchases of property, plant, and equipment. The Company expects to make capital
expenditures of approximately $3.6 million during fiscal 2000.
In November 1999, the Company's Continental subsidiary sold a building for
$3.3 million in cash and a small operating division for $0.4 million in cash.
The Company's Board of Directors has authorized the repurchase by the
Company, through various dates ending on December 22, 1999, of up to $25.0
million of its common stock in the open market, or in negotiated transactions.
As of October 2, 1999, the Company had repurchased $22.6 million of its common
stock pursuant to such authorizations, using available working capital to fund
the purchases.
The maturity of the Company's $8.0 million convertible note to ThermoTrex
will adversely affect the Company's liquidity in the fourth quarter of fiscal
2000. Excluding the debt to ThermoTrex, the Company believes its existing
resources are sufficient to meet the capital requirements of its existing
operations for the foreseeable future, however, Thermo Electron has expressed
its willingness to lend the Company up to $10 million for short-term liquidity
should the need arise.
Market Risk
The Company is exposed to market risk from changes in equity prices,
interest rates, and foreign currency exchange rates, which could affect its
future results of operations and financial condition. The Company manages its
exposure to these risks through its regular operating and financing activities.
Equity Prices
The Company's convertible obligation is sensitive to fluctuations in the
price of the Company's common stock into which the obligation is convertible.
Changes in equity prices would result in changes in the fair value of the
Company's convertible obligation due to the difference between the current
market price and the market price at the date of issuance of the financial
instrument. Because the fiscal year-end 1999 market equity price of the
Company's common stock of $3.813 per share was significantly below the
convertible price of $11.79 per share, a 10% change in the market equity price
would not materially affect the net fair value of the Company's convertible
obligation. A 10% increase in the fiscal year-end 1998 market equity prices
would have resulted in a negative impact of $0.5 million on the net fair value
of the Company's convertible obligation.
Interest Rates
The Company's cash, cash equivalents, and advance to affiliate are
sensitive to changes in interest rates. Interest rate changes would result in a
change in the interest income due to the difference between the current interest
rates on cash, cash equivalents, and advance to affiliate and the rate that
these financial instruments may adjust to in the future. A 10% decrease in
fiscal year-end 1999 and 1998 market interest rates would result in a negative
impact of $0.1 million on the Company's net income.
In addition, the Company's convertible obligation is sensitive to changes
in interest rates. Interest rate changes would result in a change in the fair
value of this financial instrument due to the difference between the market
interest rate and the rate at the date of issuance of the financial instrument.
A 10% decrease in fiscal year-end 1999 and 1998 market interest rates would
result in a negative impact of $0.1 million on the net fair value of the
Company's convertible obligation.
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Market Risk (continued)
Foreign Currency Exchange Rates
The Company views its investment in its foreign subsidiaries as long-term.
The Company's investment in its foreign subsidiaries is sensitive to
fluctuations in foreign currency exchange rates. The functional currencies of
the Company's foreign subsidiaries are principally denominated in French francs.
The effect of a change in foreign exchange rates on the Company's net investment
in its foreign subsidiaries is recorded as a separate component of shareholders'
investment. A 10% depreciation in fiscal year-end 1999 and 1998 functional
currencies, relative to the U.S. dollar, would result in a reduction of the
Company's shareholders' investment of $3.4 million and $4.2 million,
respectively.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors; and (iv) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year 2000 compliance, has been
substantially completed. During phase one, the Company tested and evaluated its
significant computer systems, software applications, and related equipment for
year 2000 compliance. The Company also evaluated the potential year 2000 impact
on its critical non-information technology systems, which efforts included
testing the year 2000 readiness of its manufacturing, utility, and
telecommunications systems at its critical facilities. During phase two of its
program, the Company remediated any material noncompliant systems or
non-information technology systems identified during phase one. The Company has
upgraded or replaced its material noncompliant information technology systems.
In many cases, such upgrades or replacements were made in the ordinary course of
business, without accelerating previously scheduled upgrades or replacements.
There can be no assurance that the Company has identified all of the year 2000
problems with its critical information technology systems and non-information
technology systems.
The Company has also tested and evaluated the year 2000 readiness of the
material products that it currently manufactures and sells. The Company believes
that all of such material products are year 2000 compliant or not date
sensitive. However, as many of the Company's products are complex, interact with
or incorporate third-party products, and operate on computer systems that are
not under the Company's control, there can be no assurance that the Company has
identified all of the year 2000 problems with its current products. Certain of
the Company's older products, which it no longer manufactures or sells, may not
be year 2000 compliant nor capable of being upgraded to make them year 2000
compliant. The Company has made upgrades and/or has potential solutions for all
currently supplied products available to customers or dealers.
The Company has assessed the year 2000 readiness of key suppliers and
vendors that are believed to be significant to the Company's business
operations. As part of this effort, the Company developed and distributed
questionnaires relating to year 2000 compliance to its significant suppliers and
vendors. No significant supplier or vendor has indicated that it believes its
business operations will be materially disrupted by the year 2000 issue.
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Year 2000 (continued)
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
The plan identifies and secures alternate suppliers. As the Company continues to
evaluate the year 2000 readiness of its business systems and facilities,
products and significant suppliers, and vendors, it will modify and adjust its
contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not
been material. Year 2000 costs relating to products and facilities were funded
from working capital. All internal costs and related external costs other than
capital additions related to year 2000 remediation have been expensed as
incurred. The Company does not track internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. Despite its efforts to ensure that its
material current products are year 2000 compliant, the Company may see an
increase in warranty and other claims, especially those related to Company
products that incorporate, or operate using, third-party software or hardware.
In addition, certain of the Company's older products, which it no longer
manufactures or sells, may not be year 2000 compliant, which may expose the
Company to claims. As discussed above, if any of the Company's material
suppliers or vendors experience business disruptions due to year 2000 issues,
the Company might also be materially adversely affected. There is expected to be
a significant amount of litigation relating to the year 2000 issue, and there
can be no assurance that the Company will not incur material costs in defending
or bringing lawsuits. In addition, if any year 2000 issues are identified, there
can be no assurance that the Company will be able to retain qualified personnel
to remedy such issues. Any unexpected costs or delays arising from the year 2000
issue could have a material adverse impact on the Company's business,
operations, and financial condition in amounts that cannot be reasonably
estimated at this time.
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Trex Medical Corporation 1999 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 risk 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 2000 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company.
Dependence on Capital Spending Policies. The Company's customers include
large institutions such as hospitals and medical research centers. The capital
spending policies of these customers can have a significant effect on the demand
for the Company's products and the timing of the Company's sales. Such policies
are based on a wide variety of factors, including the resources available to
make such purchases, the spending priorities assigned to various types of
medical equipment or techniques, and policies regarding capital expenditures.
Any decrease in capital spending by these customers could have a material
adverse effect on the Company's business and results of operations. In addition,
sales are dependent in part on completion of construction and upgrade projects
undertaken at healthcare facilities in preparation for delivery of the Company's
products. A delay in construction could cause a delay in delivery and the timing
of sales, which can lead to volatility in the Company's earnings.
Technological Change and New Products. The market for the Company's
products is characterized by rapid and significant technological change,
evolving industry standards, and newer 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 investments by the Company. The high cost of technological
innovation is matched by: the rapid and significant change in the technologies
used in competitive products, by industry standards that may change on short
notice, and the introduction of new products and technologies such as magnetic
resonance imaging and ultrasound, which may cause existing products and
technologies to become uncompetitive or obsolete. There can be no assurance that
the Company's products or proprietary technologies will not become uncompetitive
or obsolete.
Risks Associated with Acquisition Strategy. The Company's strategy has
included 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, a manufacturer of general-purpose X-ray
and mammography equipment; 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; in October 1997, the Company acquired
substantially all of the assets, subject to certain liabilities, of Digitec, a
manufacturer of physiological-monitoring equipment and digital-image archiving
and networking systems used in cardiac catheterization procedures; and, in April
1998, the Company acquired the outstanding stock of Trophy, a French
manufacturer of dental and medical X-ray systems, specializing in digital dental
technology. There can be no assurance that the Company will be able to
successfully integrate any acquired businesses.
Intense Competition. The Company encounters and expects to continue to
encounter intense competition. The Company believes that its products compete on
the basis of product features, product performance and reputation, price, and
service. The Company's competitors include large multinational corporations and
their operating units, including GE Medical Systems, the Philips Medical Systems
subsidiary of Philips N.V., Siemens AG, Toshiba, and Shimadzu Corporation. These
companies and certain of the Company's other competitors have substantially
greater financial, marketing, and other resources than the Company. As a result,
they may be able to adapt more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
promotion and sale of their products than the Company. In addition, the
Company's Dental Imaging segment competes outside the U.S. with Planmeca OY,
Sirona Dental Systems, and the Soredex division of Orion Corporation. In the
U.S., the Dental Imaging segment's competitors include Schick Technologies,
Inc., Dexis, the Gendex and New Image divisions of DENTSPLY International, Inc.,
Sygnus Imaging, and the Dent-X subsidiary of AFP Imaging Corporation.
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Risks Associated With Patent and Other Litigation. In April 1992, Fischer
Imaging Corporation 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. In April 1998, Fischer filed a second lawsuit
in the same court against Lorad, alleging that its manufacture of breast-imaging
equipment and breast-biopsy systems incorporating a digital-imaging system,
which includes Lorad's prone breast-biopsy system, infringes a second Fischer
patent on a motorized mammographic biopsy apparatus, which was issued April 7,
1998. Each of these suits requests a permanent injunction, treble damages, and
attorneys' fees and expenses. These two lawsuits have been consolidated into a
single lawsuit. If the Company is unsuccessful in defending this lawsuit, it may
be enjoined from manufacturing and selling its Trex Universal Breast Biopsy
System (formerly called the StereoGuide) 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 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 April 1992 Fischer lawsuit with respect
to sales of the Company's products occurring prior to October 16, 1995, when
Lorad was transferred to the Company. As of October 2, 1999, the Company had
recognized aggregate revenues of approximately $157.5 million from sales of such
systems, of which $34.4 million represents sales prior to October 16, 1995.
Notwithstanding this indemnification, the Company would be required to report as
an expense the full amount, including any reimbursable amount, of any damages,
with any indemnification payment it receives from ThermoTrex being treated as a
contribution to shareholders' investment.
On October 20, 1998, a former employee filed a lawsuit in Danbury,
Connecticut, Superior Court against the Company alleging theft of trade secrets
related to the high-transmission cellular (HTC)(TM) grid, a component for some
of the Company's mammography systems.
The Company's Trophy division is party to a lawsuit in the United States
District Court for the Eastern District of New York against Schick Technologies,
Inc., alleging infringement of a Trophy patent relating to dental X-ray
apparatus. Schick has filed a counterclaim against Trophy alleging infringement
of a Schick patent that also relates to dental X-ray apparatus. Each of the
parties is seeking a declaration that the opposing party's patent is invalid, a
permanent injunction, treble damages, and attorneys' fees and expenses.
The unfavorable outcome of any one or more of the above described matters
could have a material adverse effect on the Company's business, results of
operations, and financial position. 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 may be required to alter its products or processes, pay licensing
fees, or cease making and selling any infringing products and pay damages for
past infringement.
No Assurance of Development and Commercialization of Products Under
Development. Several products are currently under development, including
full-field digital mammography systems. 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 that may be developed in the future by the Company, will be
technologically feasible, accepted by the marketplace, or that any such
development will be completed timely.
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Government Regulation, No Assurance of Regulatory Approval. The Company's
products are subject to regulation by the United States Food and Drug
Administration (FDA) regulations governing the use and marketing of medical
devices and equivalent regulations 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. Obtaining regulatory approvals is a
lengthy, expensive, and uncertain process. There can be no assurance that
foreign regulatory agencies will grant the necessary clearances or that the
process to obtain such clearances will not be excessively expensive or lengthy.
Most 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) pre-market notification process, which is generally shorter
than the more involved pre-market approval (PMA) process. The 510(k) pre-market
notification process analyzes whether a product is substantially equivalent to
(or as safe and effective as) a legally marketed device. The Company believes
that most of its currently anticipated future products and substantial
modifications to existing products will be eligible for the 510(k) pre-market
notification process. However, the FDA has not yet classified full-field digital
mammography systems such as the one being developed by the Company. In December
1997, the Company submitted a 510(k) application with clinical data for its
full-field digital mammography system. In August 1999, the Company received a
letter from the FDA notifying the Company that based on the data provided, the
Company's full-field digital mammography system was not substantially equivalent
to analog, or "film screen," mammography. In September, the Company received a
letter from the FDA indicating that the FDA believes that a PMA application,
followed by significant post-approval screening trials, may be a more viable
option for obtaining clearance to market a full-field digital mammography
system. The Company is reevaluating its strategy based on this new information
from the FDA. For example, the Company may incorporate the data that formed the
basis of its 510(k) submission into a PMA submission. After submission, the
Company may implement various design and engineering changes that may require
additional preapproval clinical trials. However, there can be no assurance that
the Company will be able to provide the FDA with the data it is seeking or that
such data will be sufficient to permit the FDA to clear the Company's full-field
digital mammography system for marketing. Regardless of whether a 510(k) or a
PMA is finally accepted by the FDA, there can be no assurance that the product
will ultimately receive FDA marketing clearance or approval. Further, there can
be no assurance that the necessary regulatory clearances for any of the
Company's other products currently under development or developed in the future
will be obtained on a timely basis, if at all.
In addition, full-field digital mammography systems will be subject to
alternative 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.
FDA regulations also require manufacturers of medical devices to adhere to
current good manufacturing practices as set forth in the Quality System
Regulation (QSR). These include testing, quality control, and documentation
procedures. Enforcement of QSRs has increased significantly in the last several
years and is generally stricter for facilities where PMA products are
manufactured. If the Company or any of its facilities was determined to be in
noncompliance, and it was not possible to convince the FDA of the adequacy of
compliance, the FDA could impose penalties or other remedies, including a recall
or temporary suspension of product shipments or withholding of marketing
clearances or approvals until compliance was achieved. These penalties or
remedies could have a material adverse effect on the Company's business and
results of operations. No assurances can be given that the FDA will not in the
future find the Company to be in violation of the QSRs or that equivalent
agencies in foreign countries will not in the future find the Company to be in
violation of such equivalent regulations.
The Company's manufacturing facilities are subject to periodic inspection
by the FDA. The FDA also imposes various requirements on manufacturers and
sellers of products under its jurisdiction, such as labeling, manufacturing
practices, record keeping, and reporting. The FDA may also require post-market
testing and surveillance programs of devices to monitor a product's effects.
Failure to comply with applicable regulatory requirements can result in, among
other things, civil and criminal fines, suspensions of approvals, recalls of
products, seizures, injunctions, and/or criminal prosecutions.
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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 U.S. 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 on Patents and Proprietary Rights. The Company places
considerable importance on obtaining patent and trade secret protection for
significant new technologies, products, and processes because of the length of
time and expense associated with bringing new products through the development
and regulatory approval process and to the marketplace. The Company's success
depends in part on whether it can develop patentable products and obtain and
enforce patent protection for its products both in the United States and in
other countries. The Company has filed, and intends to file, applications as
appropriate for patents covering both its products and manufacturing processes.
No assurance can be given that patents will issue from any pending or future
patent applications owned by, or licensed to, the Company, or that the claims
allowed under any issued patents will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any issued
patents owned by, or licensed to, the Company will not be challenged,
invalidated, or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The Company could incur substantial costs
in defending itself in suits brought against it or in suits in which the Company
may assert its patent rights against others. If the outcome of any such
litigation is unfavorable to the Company, the Company's business and results of
operations could be materially adversely affected.
The Company relies on trade secrets and proprietary know-how that it seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known or be
independently developed by competitors.
Potential Product Liability. The Company's business exposes it to
potential product liability claims, which are inherent in the manufacturing,
marketing, and sale of medical devices, and as such the Company may face
substantial liability to patients for damages resulting from the faulty design
or manufacture of products. The Company currently maintains product liability
insurance, but there can be no assurance that this insurance will provide
sufficient coverage in the event of a claim, that the Company will be able to
maintain such coverage on acceptable terms, if at all, or that a
product-liability claim would not materially adversely affect the business or
financial condition of the Company.
Risks Associated With International Operations. International sales
accounted for 38%, 26%, and 17% of the Company's revenues in fiscal 1999, 1998,
and 1997, 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; foreign customers may have longer payment
cycles; currency exchange rates may vary; 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 foreign intellectual property laws
offer varying levels of protection against competition, and those intellectual
property rights that do exist may be more difficult to enforce.
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Risks Associated with Cash Management Arrangement with Thermo Electron.
The Company participates in a cash management arrangement with Thermo Electron.
Under this cash management arrangement, the Company lends its excess cash to
Thermo Electron on an unsecured basis. The Company has the contractual right to
withdraw its funds invested in the cash management arrangement upon 30 days'
prior notice. Thermo Electron is contractually required to maintain cash, cash
equivalents and/or immediately available bank lines of credit equal to at least
50% of all funds invested under the cash management arrangement by all Thermo
Electron subsidiaries other than wholly owned subsidiaries. The funds are held
on an unsecured basis and therefore are subject to the credit risk of Thermo
Electron. The Company's ability to receive its cash upon notice of withdrawal
could be adversely affected if participants in the cash management arrangement
demand withdrawal of their funds in an aggregate amount in excess of the 50%
reserve required to be maintained by Thermo Electron. In the event of a
bankruptcy of Thermo Electron, the Company would be treated as an unsecured
creditor and its right to receive funds from the bankruptcy estate would be
subordinated to secured creditors and would be treated on a pari passu basis
with all other unsecured creditors. Further, all cash withdrawn by the Company
from the cash management arrangement within one year before the bankruptcy would
be subject to rescission. The inability of Thermo Electron to return the
Company's cash on a timely basis or at all could have a material adverse effect
on the Company's results of operations and financial position.
Potential Impact of Year 2000 on Processing of Date-sensitive Information.
While the Company is attempting to minimize any negative consequences arising
from the year 2000 issue, there can be no assurance that year 2000 issues will
not have a material adverse impact on the Company's business, operations, or
financial condition. Despite its efforts to ensure that its material current
products are year 2000 compliant, the Company may see an increase in warranty
and other claims, especially those related to Company products that incorporate,
or operate, using third-party software or hardware. In addition, certain of the
Company's older products, which it no longer manufactures or sells, may not be
year 2000 compliant, which may expose the Company to claims. If any of the
Company's material suppliers, vendors, or customers experience business
disruptions due to year 2000 issues, the Company might also be materially
adversely affected. The Company's research and development, production,
distribution, financial, administrative, and communications operations might be
disrupted. There is expected to be a significant amount of litigation relating
to the year 2000 issue, and there can be no assurance that the Company will not
incur material costs in defending or bringing lawsuits. Any unexpected costs or
delays arising from the year 2000 issue could have a significant adverse impact
on the Company's business, operations, and financial condition.
</TABLE>
38
<PAGE>
<TABLE>
Trex Medical Corporation 1999 Financial Statements
Selected Financial Information
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nine
Months
Year Ended Ended (e)
--------------------------------------------------------------
(In thousands except per share Oct. 2, Oct. 3, Sept. 27,Sept. 28, Sept. 30, Sept. 30,
amounts) 1999(a) 1998 (b) 1997 (c) 1996 (d) 1995 1995
- ------------------------------------------ ---------- ---------- --------- ---------- ---------- ---------
(Unaudited)
Statement of Operations Data
Revenues $241,604 $266,964 $229,294 $150,195 $ 70,505 $ 55,291
Net Income (Loss) (28,069) 18,204 14,674 9,344 3,592 3,483
Earnings (Loss) per Share:
Basic (.87) .57 .51 .40 .18 .17
Diluted (.87) .56 .50 .39 .18 .17
Balance Sheet Data
Working Capital $ 74,278 $125,940 $79,649 $ 59,834 $ 13,171
Total Assets 277,027 342,521 229,437 204,061 102,374
Long-term Obligations 177 8,631 8,047 8,109 -
Shareholders' Investment 203,781 258,046 169,094 149,297 80,010
(a) Reflects a $23.8 million pretax charge for restructuring and related costs.
(b) Reflects the October 1997 and April 1998 acquisitions of Digitec and Trophy,
respectively, and the Company's sale of its common stock in February 1998
for net proceeds of $66.9 million.
(c) Reflects the Company's sale of its common stock in December 1996 for net
proceeds of $4.1 million. (d) 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.
(e) 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.
39
<PAGE>
Trex Medical Corporation 1999 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol TXM. The following table sets forth the high and low sale prices of
the Company's common stock for 1999 and 1998, as reported in the consolidated
transaction reporting system.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal 1999 Fiscal 1998
Quarter High Low High Low
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
First $14 3/8 $ 5 1/2 $15 7/16 $12 1/16
Second 8 3/4 5 7/8 19 1/8 13 1/4
Third 6 1/2 4 1/4 19 11/16 16
Fourth 6 1/8 3 5/8 18 1/4 11 3/4
</TABLE>
As of October 29, 1999, the Company had 485 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 29, 1999, was $3 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 the Investor Relations Department, Trex Medical
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046,
(781) 622-1111. A mailing list is maintained to enable shareholders whose stock
is held in street name, and other interested individuals, to receive annual
reports and press releases as quickly as possible. All material is available at
http://www.thermo.com/subsid/txm1.html on Thermo Electron's Internet site.
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended October
2, 1999, as filed with the Securities and Exchange Commission, may be obtained
at no charge by writing to the Investor Relations Department, Trex Medical
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.
Annual Meeting
The annual meeting of shareholders will be held on Friday, March 10,
2000, at 9 a.m. at The Westin Hotel, 70 Third Avenue, Waltham, Massachusetts.
Exhibit 21
TREX MEDICAL CORPORATION
Subsidiaries of the Registrant
At November 17, 1999, the Registrant owned the following companies:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME STATE OR JURISDICTION PERCENT OF
OF INCORPORATION OWNERSHIP
- ----------------------------------------------------------------------------------------------------------
Trex Medical France S.A. France 100
Trophy Radiologie S.A. France 100
Stephan'X S.A. France 100
Trophy Benelux S.A. Belgium 100
Trophy Radiologie Italia S.R.L. Italy 100
Trophy Radiologie Japan KK Japan 100
Trophy Radiologie GmbH Germany 100
P.T. Trophy Rajawali Indonesia Indonesia 51*
Trophy Radiologia Espana SA Spain 100
Trophy Rontgen SAS Turkey 77*
Trophy Radiologie U.K. Ltd. England 100
SCI Boucher Debard Baudry Guillot France 100
Trex Medical Systems Corporation Delaware 100
Trex Trophy Dental Inc. Virginia 100
*Joint Venture/Partnership
</TABLE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated November 8, 1999, included in or incorporated
by reference into Trex Medical Corporation's Annual Report on Form 10-K for the
year ended October 2, 1999, into the Company's previously filed Registration
Statements as follows: Registration Statement No. 333-22351 on Form S-8 and
Registration Statement No. 333-71701 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
December 8, 1999
<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 OCTOBER 2, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> OCT-02-1999
<CASH> 8,075
<SECURITIES> 0
<RECEIVABLES> 52,675
<ALLOWANCES> 3,538
<INVENTORY> 58,112
<CURRENT-ASSETS> 146,167
<PP&E> 29,154
<DEPRECIATION> 13,262
<TOTAL-ASSETS> 277,027
<CURRENT-LIABILITIES> 71,889
<BONDS> 177
0
0
<COMMON> 341
<OTHER-SE> 203,440
<TOTAL-LIABILITY-AND-EQUITY> 277,027
<SALES> 241,604
<TOTAL-REVENUES> 241,604
<CGS> 169,852
<TOTAL-COSTS> 169,852
<OTHER-EXPENSES> 42,281
<LOSS-PROVISION> 2,220
<INTEREST-EXPENSE> 549
<INCOME-PRETAX> (39,909)
<INCOME-TAX> (11,978)
<INCOME-CONTINUING> (28,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,069)
<EPS-BASIC> (0.87)
<EPS-DILUTED> (0.87)
</TABLE>
