SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended April 3, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-11827
TREX MEDICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1439626
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
37 Apple Ridge Road
Danbury, Connecticut 06810
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
Common Stock, $.01 par value 31,893,842
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TREX MEDICAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<S> <C> <C>
April 3, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents (includes $2,126 and $34,054 under $ 8,629 $42,709
repurchase agreement with affiliated company)
Accounts receivable, less allowances of $2,993 and $2,667 53,983 72,622
Inventories:
Raw materials and supplies 37,549 34,316
Work in process 20,225 18,195
Finished goods 24,998 23,757
Prepaid and refundable income taxes 12,017 6,479
Prepaid expenses 2,456 3,154
-------- --------
159,857 201,232
-------- --------
Property, Plant, and Equipment, at Cost 31,443 29,409
Less: Accumulated depreciation and amortization 12,583 10,310
-------- --------
18,860 19,099
-------- --------
Deferred Charges and Other Assets 748 938
-------- --------
Cost in Excess of Net Assets of Acquired Companies 116,794 121,252
-------- --------
$296,259 $342,521
======== ========
2
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TREX MEDICAL CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 3, October 3,
(In thousands except share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Accounts payable $ 20,953 $23,809
Current maturities of long-term obligations 393 435
Accrued payroll and employee benefits 6,592 8,606
Accrued warranty costs 7,788 9,004
Accrued commissions 5,889 7,383
Accrued income taxes 1,196 4,647
Customer deposits 1,837 3,126
Other accrued expenses 15,843 17,170
Due to affiliated companies 1,012 1,112
-------- --------
61,503 75,292
-------- --------
Deferred Income Taxes 435 435
-------- --------
Long-term Obligations:
4.2% Subordinated convertible note, due to parent company 8,000 8,000
Other 514 631
-------- --------
8,514 8,631
-------- --------
Minority Interest 84 117
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 341 341
34,139,967 shares issued
Capital in excess of par value 213,513 213,513
Retained earnings 36,527 42,222
Treasury stock at cost, 2,246,125 and 5,625 shares (22,742) (94)
Accumulated other comprehensive items (Note 4) (1,916) 2,064
-------- --------
225,723 258,046
-------- --------
$296,259 $342,521
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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TREX MEDICAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues (includes $1,030 and $1,364 to affiliated companies; Note 2) $60,186 $67,347
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $56 and $662 for revenues to 40,149 39,464
affiliated companies; Note 2)
Selling, general, and administrative expenses 17,355 12,034
Research and development expenses (Note 2) 8,608 7,542
Restructuring costs (Note 5) 575 -
------- -------
66,687 59,040
------- -------
Operating Income (Loss) (6,501) 8,307
Interest Income 64 785
Interest Expense, Related Party (85) (84)
Other Income 52 -
------- -------
Income (Loss) Before Income Taxes and Minority Interest (6,470) 9,008
Income Tax Provision (Benefit) (2,241) 3,783
Minority Interest Income (25) -
------- -------
Net Income (Loss) $(4,204) $5,225
======= ======
Basic and Diluted Earnings (Loss) per Share (Note 3) $ (.13) $ .16
======== ======
Weighted Average Shares (Note 3):
Basic 32,027 31,771
======= ======
Diluted 32,027 32,679
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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TREX MEDICAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues (includes $1,664 and $1,853 to affiliated companies; Note 2) $125,115 $131,468
-------- --------
Costs and Operating Expenses:
Cost of revenues (includes $125 and $881 for revenues to 79,542 76,574
affiliated companies; Note 2)
Selling, general, and administrative expenses 37,667 24,384
Research and development expenses (Note 2) 16,855 15,045
Restructuring costs (Note 5) 575 -
-------- --------
134,639 116,003
-------- --------
Operating Income (Loss) (9,524) 15,465
Interest Income 438 1,231
Interest Expense, Related Party (169) (168)
-------- --------
Income (Loss) Before Income Taxes and Minority Interest (9,255) 16,528
Income Tax Provision (Benefit) (3,535) 6,942
Minority Interest Income (25) -
-------- --------
Net Income (Loss) $ (5,695) $ 9,586
======== =======
Earnings (Loss) per Share (Note 3):
Basic $ (.17) $ .32
======== =======
Diluted $ (.17) $ .31
======== =======
Weighted Average Shares (Note 3):
Basic 32,670 30,333
======== =======
Diluted 32,670 31,210
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
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TREX MEDICAL CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income (loss) $ (5,695) $ 9,586
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 4,375 3,043
Provision for losses on accounts receivable 533 373
Minority interest income (25) -
Other noncash items 2,435 -
Changes in current accounts, excluding the effects of acquisition:
Accounts receivable 16,973 (12,395)
Inventories (9,961) (4,230)
Other current assets (4,941) (995)
Accounts payable (2,196) 1,794
Other current liabilities (9,699) (519)
Other (24) -
-------- -------
Net cash used in operating activities (8,225) (3,343)
-------- -------
Investing Activities:
Acquisition, net of cash acquired - (7,174)
Purchases of property, plant, and equipment (2,351) (1,957)
Other 4 -
-------- -------
Net cash used in investing activities (2,347) (9,131)
-------- -------
Financing Activities:
Net proceeds from issuance of Company common stock - 67,032
Purchases of Company common stock (22,647) -
Repayment of short-term borrowings and capital lease obligations (55) (37)
-------- -------
Net cash provided by (used in) financing activities (22,702) 66,995
-------- -------
Exchange Rate Effect on Cash (806) -
Increase (Decrease) in Cash and Cash Equivalents (34,080) 54,521
Cash and Cash Equivalents at Beginning of Period 42,709 36,490
-------- -------
Cash and Cash Equivalents at End of Period $ 8,629 $91,011
======== =======
Noncash Activities:
Fair value of assets of acquired company $ - $ 7,787
Cash paid for acquired company - (7,176)
-------- -------
Liabilities assumed of acquired company $ - $ 611
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
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6
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Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Trex Medical Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at April 3, 1999, the results of
operations for the three- and six-month periods ended April 3, 1999, and April
4, 1998, and the cash flows for the six-month periods ended April 3, 1999, and
April 4, 1998. The Company's results of operations for the six-month periods
ended April 3, 1999, and April 4, 1998, include 26 weeks and 27 weeks,
respectively. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of October 3, 1998, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K, as amended, for the fiscal year ended
October 3, 1998, filed with the Securities and Exchange Commission.
2. Transactions with Affiliated Companies
Revenues from affiliated companies in the accompanying statement of
operations includes $1,022,000 and $1,655,000 during the three- and six-month
periods ended April 3, 1999, respectively, and $1,227,000 and $1,668,000 during
the three- and six-month periods ended April 4, 1998, respectively, for the sale
of laser systems, components, and related services to ThermoLase Corporation, a
majority-owned subsidiary of ThermoTrex Corporation, the majority owner of the
Company.
During the three- and six-month periods ended April 3, 1999, the Company
purchased high-transmission cellular (HTC) grids valued at $398,000 and
$738,000, respectively, from the Tecomet division of Thermo Electron
Corporation, the majority owner of ThermoTrex, under a design and production
arrangement. During the three- and six-month periods ended April 4, 1998, the
Company purchased HTC grids valued at $43,000 and $162,000, respectively.
3. Earnings (Loss) per Share
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Basic and diluted earnings (loss) per share were calculated as follows:
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
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Net Income (Loss) $(4,204) $ 5,225 $ (5,695) $ 9,586
------ ------ ------- -------
Weighted Average Shares 32,027 31,771 32,670 30,333
------ ------ ------- -------
Basic Earnings (Loss) per Share $ (.13) $ .16 $ (.17) $ .32
====== ====== ======= =======
7
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3. Earnings (Loss) per Share (continued)
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Diluted
Net Income (Loss) $(4,204) $ 5,225 $ (5,695) $ 9,586
Effect of Convertible Note - 50 - 101
------ ------ ------- -------
Income (Loss) Available to Common Shareholders, as Adjusted $(4,204) $ 5,275 $ (5,695) $ 9,687
------ ------ ------- -------
Weighted Average Shares 32,027 31,771 32,670 30,333
Effect of:
Convertible note - 679 - 679
Stock options - 229 - 198
------ ------ ------- -------
Weighted Average Shares, as Adjusted 32,027 32,679 32,670 31,210
------ ------ ------- -------
Diluted Earnings (Loss) per Share $ (.13) $ .16 $ (.17) $ .31
====== ====== ======= =======
The computation of diluted loss per share as of April 3, 1999, excludes
the effect of assuming the conversion of the Company's $8,000,000 principal
amount of 4.2% subordinated convertible note, convertible at $11.79 per share,
and the effect of assuming the exercise of outstanding stock options, because
the effect would be antidilutive. At April 3, 1999, there were outstanding
options to purchase 2,459,400 shares of Company common stock at prices ranging
from $7.71 to $17.40 per share.
4. Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards 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. During the second
quarter of fiscal 1999 and 1998, the Company had a comprehensive loss of
$8,516,000 and comprehensive income of $5,225,000, respectively. During the
first six months of fiscal 1999 and 1998, the Company had a comprehensive loss
of $9,675,000 and comprehensive income of $9,586,000, respectively.
5. Restructuring Costs
During the second quarter of fiscal 1999, the Company recorded
restructuring costs of $575,000. Restructuring costs, which were accounted for
in accordance with Emerging Issues Task Force Pronouncement 94-3, related to
severance costs for 71 employees across all functions at the Company's XRE
Corporation and Continental X-Ray Corporation subsidiaries, all of whom were
terminated in the second quarter of fiscal 1999. As of April 3, 1999, the
Company had expended $326,000 of the established reserve for severance. The
remaining liability for severance of $249,000 is included in other accrued
expenses in the accompanying balance sheet as of April 3, 1999, and is expected
to be paid during the remainder of fiscal 1999.
In May 1999, the Company announced that it plans to incur additional
restructuring and related costs of approximately $11 million, primarily for
consolidation of manufacturing facilities and severance. The Company expects to
incur approximately $6 - $7 million of such costs in the third fiscal quarter
and the remainder as the related costs are incurred over the following several
quarters.
8
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, as
amended, for the fiscal year ended October 3, 1998, filed with the Securities
and Exchange Commission.
Overview
The Company designs, manufactures, and markets mammography equipment and
minimally invasive digital breast-biopsy systems; general-purpose and
specialized X-ray equipment, including imaging systems used during cardiac
procedures such as balloon angioplasty; and dental X-ray systems. The Company
sells its products principally through dealers and direct sales. In addition,
the Company manufactures systems and system components as an original equipment
manufacturer (OEM) for the General Electric Medical Systems division of the
General Electric Company. The Company has five operating units: Lorad, a
manufacturer of mammography and digital breast-biopsy systems; Bennett X-Ray
Corporation, a manufacturer of general-purpose X-ray, mammography, and
breast-biopsy equipment; XRE Corporation, a manufacturer of X-ray imaging
systems used in the diagnosis and treatment of coronary artery disease and other
vascular conditions and a manufacturer of physiological monitoring equipment and
digital-image archiving and networking systems used in cardiac catheterization
procedures; Continental X-Ray Corporation, a manufacturer of general-purpose and
specialized X-ray systems; and Trophy Radiologie S.A., a French manufacturer of
dental and medical X-ray systems specializing in digital dental technology.
The Company conducts all of its manufacturing operations, other than those
of Trophy, in the United States and sells its products worldwide. The Company
anticipates that an increasing amount of its revenues will be from sales to
customers outside the United States. 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 and lower demand for its products resulting from a
decline in the domestic and international radiographic market and a decline in
international sales of cardiac catheterization systems. In response, the Company
initiated small-scale restructuring activities in the second quarter of fiscal
1999 and followed these actions with a larger restructuring plan in the third
quarter of fiscal 1999. The restructuring activities announced in the third
quarter include consolidation of manufacturing facilities and headcount
reductions to achieve product material cost improvements and focus on cost
efficiencies. The Company expects to record restructuring and other charges of
approximately $11 million relating to these actions, of which approximately $6 -
$7 million will be recorded in the third fiscal quarter and the remainder will
be recorded as the related costs are incurred over the following several
quarters.
Results of Operations
Second Quarter Fiscal 1999 Compared With Second Quarter Fiscal 1998
Revenues decreased to $60.2 million in the second quarter of fiscal 1999
from $67.3 million in the second quarter of fiscal 1998. Revenues increased
$15.6 million as a result of the acquisition of Trophy in April 1998. Excluding
Trophy, revenues decreased $22.7 million. Revenues decreased at XRE by $9.6
million, primarily due to the inclusion in fiscal 1998 of a $6.7 million cardiac
catheterization system sale to a Russian customer and, to a lesser extent, lower
demand. Revenues decreased at Lorad by $8.1 million, primarily due to the
termination of an OEM
9
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Second Quarter Fiscal 1999 Compared With Second Quarter Fiscal 1998 (continued)
contract with United States Surgical Corporation (U.S. Surgical), which
accounted for $11.3 million of revenues in the fiscal 1998 period. This decrease
was offset in part by higher demand for mammography systems and mammography
system upgrade components. Revenues decreased at Bennett and Continental
primarily due to lower demand in both businesses for general-purpose X-ray
systems and, at Continental, for radiographic/fluoroscopic systems.
The gross profit margin decreased to 33% in the second quarter of fiscal
1999 from 41% in the second quarter of fiscal 1998, primarily due to lower sales
of higher-margin products at a majority of the Company's operating units and
inventory provisions of $2.4 million.
Selling, general, and administrative expenses as a percentage of revenues
increased to 29% in the second quarter of fiscal 1999 from 18% in the second
quarter of fiscal 1998, primarily due to a decrease in revenues at all of the
Company's operating units, excluding Trophy. To a lesser extent, selling,
general, and administrative expenses as a percentage of revenues increased due
to the inclusion of Trophy, which has higher costs as a percentage of revenues.
Research and development expenses increased to $8.6 million in the second
quarter of fiscal 1999 from $7.5 million in the second quarter of fiscal 1998,
due to the inclusion of $1.9 million of expenses at Trophy. This increase was
offset in part by the Company's decision to defer funding a license agreement
with ThermoTrex relating to flat-panel direct-detection technology.
Restructuring costs of $0.6 million in the second quarter of fiscal 1999
represents severance costs for the termination of certain employees, all of whom
had been terminated as of April 3, 1999 (Note 5).
Interest income decreased to $0.1 million in the second quarter of fiscal
1999 from $0.8 million in the second quarter of fiscal 1998, primarily as a
result of lower average invested balances due to the acquisition of Trophy in
April 1998 and repurchases of Company common stock in fiscal 1999. Interest
expense, related party, represents interest associated with the 4.2%
subordinated convertible note issued to ThermoTrex.
The effective tax rate was a benefit of 35% in the second quarter of
fiscal 1999 compared with an effective rate of 42% in the second quarter of
fiscal 1998. The effective tax rate in fiscal 1998 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.
Minority interest income in fiscal 1999 represents losses allocable to
minority investors in Trophy's joint ventures.
First Six Months Fiscal 1999 Compared With First Six Months Fiscal 1998
Revenues decreased to $125.1 million in the first six months of fiscal
1999 from $131.5 million in the first six months of fiscal 1998. Revenues
increased $40.7 million as a result of the acquisition of Trophy in April 1998.
Excluding Trophy, revenues decreased $47.1 million. Revenues decreased at Lorad
by $21.2 million, primarily due to the loss of an OEM contract with U.S.
Surgical, which accounted for $22.8 million of revenues in the fiscal 1998
period. This decrease was offset in part by higher demand for mammography
systems and mammography system upgrade components. Revenues decreased at XRE,
Bennett, and Continental primarily due to the reasons discussed in the results
of operations for the second quarter.
The gross profit margin decreased to 36% in the first six months of fiscal
1999 from 42% in the first six months of fiscal 1998, primarily due to the
reasons discussed in the results of operations for the second quarter.
10
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First Six Months Fiscal 1999 Compared With First Six Months Fiscal 1998 (continued)
Selling, general, and administrative expenses as a percentage of revenues
increased to 30% in the first six months of fiscal 1999 from 19% in the first
six months of fiscal 1998, primarily due to a decrease in revenues at all of the
Company's operating units, excluding Trophy, and due to the inclusion of Trophy,
which has higher costs as a percentage of revenues.
Research and development expenses increased to $16.9 million in the first
six months of fiscal 1999 from $15.0 million in the first six months of fiscal
1998, due to the inclusion of $3.9 million of expenses at Trophy, which was
offset in part by the Company's decision to defer funding a license agreement
with ThermoTrex as discussed in the results of operations for the second
quarter.
Restructuring costs of $0.6 million in the first six months of fiscal 1999
represents severance costs for the termination of certain employees (Note 5),
all of whom had been terminated as of April 3, 1999.
Interest income decreased to $0.4 million in the first six months of
fiscal 1999 from $1.2 million in the first six months of fiscal 1998, due to the
reasons discussed in the results of operations for the second quarter. Interest
expense, related party, represents interest associated with the 4.2%
subordinated convertible note issued to ThermoTrex.
The effective tax rate was a benefit of 38% in the first six months of
fiscal 1999, compared with an effective rate of 42% in the first six months of
fiscal 1998. The effective tax rates exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes in 1999 and 1998, and due
to the impact of nondeductible amortization of cost in excess of net assets of
acquired companies in 1998.
Liquidity and Capital Resources
Consolidated working capital was $98.4 million at April 3, 1999, compared
with $125.9 million at October 3, 1998. Included in working capital are cash and
cash equivalents of $8.6 million at April 3, 1999, compared with $42.7 million
at October 3, 1998. Operating activities used $8.2 million of cash in the first
six months of fiscal 1999. A decrease in accounts receivable provided $17.0
million of cash during the period, due to lower revenues at a majority of the
Company's subsidiaries and, to a lesser extent, improved collections. The
Company used $10.0 million of cash during the period to fund an increase in
inventories primarily due to lower than expected sales. The Company used $9.7
million during the period to reduce other current liabilities, primarily as a
result of federal and state income tax payments. In connection with the
restructuring actions commenced in the third quarter of fiscal 1999, the Company
expects to expend approximately $8 million in cash costs, primarily during the
remainder of calendar 1999.
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 totaling approximately $6.7 million, which will be
payable over the following several quarters.
The Company expended $2.4 million for purchases of property, plant, and
equipment in the first six months of fiscal 1999 and expects to make capital
expenditures of approximately $4.6 million during the remainder of the fiscal
year.
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 April 3, 1999, the Company had repurchased $22.6 million of its common
stock pursuant to such authorizations, which was funded from working capital.
11
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Liquidity and Capital Resources (continued)
The Company generally expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may consider acquiring one
or more complimentary businesses if they are presented to the Company on terms
the Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it would finance any such acquisitions
through a combination of internal funds and/or short-term borrowings from
ThermoTrex or Thermo Electron Corporation, although it has no agreement with
these companies to ensure funds for acquisitions will be available on acceptable
terms or at all. Accordingly, the Company believes its existing resources are
sufficient to meet the capital requirements of its existing operations for the
foreseeable future.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information 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 facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been 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 facilities. The Company's efforts included testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. The Company is currently in phase two of its
program, during which any material noncompliant systems or facilities identified
during phase one are prioritized and remediated. The Company is currently
upgrading or replacing its material noncompliant information technology systems
and this process was approximately 50% complete as of April 3, 1999. In many
cases, such upgrades or replacements are being made in the ordinary course of
business, without accelerating previously scheduled upgrades or replacements.
The Company expects that all of its material information technology systems and
critical facilities will be year 2000 compliant by the end of September 1999.
There can be no assurance that the Company will be able to identify all of the
year 2000 problems with its critical information-technology systems and
facilities.
The Company has also implemented a compliance program to test and evaluate
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. 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. The Company
believes that certain of its 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 is continuing to test and evaluate such
products. The Company is focusing its efforts on products that are still under
warranty, early in their expected life and/or subject to FDA considerations
related to the year 2000. The Company is offering upgrades and/or identifying
potential solutions where reasonably practicable.
The Company is in the process of identifying and assessing 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 has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors.
12
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Year 2000 (continued)
To date, no significant supplier or vendor has indicated that it believes its
business operations will be materially disrupted by the year 2000 issue. The
Company has started to follow up with significant suppliers and vendors that
have not responded to the Company's questionnaires. The Company has not
completed the majority of its assessment of third-party risk, but expects to be
substantially completed by September 1999.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. 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. The Company does not expect total year 2000 remediation costs to
be material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. 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 and will continue to be 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 ready, 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. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
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.
13
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in equity prices,
interest rates, and foreign currency exchange rates has not changed materially
from its exposure at fiscal year-end 1998.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On March 11, 1999, at the Annual Meeting of Shareholders, the shareholders
elected six incumbent directors to a one-year term expiring in 2000. The
directors elected at the meeting were: Dr. Elias P. Gyftopoulos, Mr. Hal
Kirshner, Mr. John T. Keiser, Dr. James W. May, Jr., Ms. Hutham S. Olayan, and
Mr. Firooz Rufeh. Dr. Gyftopoulos, Mr. Keiser, Dr. May, Ms. Olayan, and Mr.
Rufeh each received 28,253,562 shares voted in favor of his or her election and
67,439 shares voted against. Mr. Kirshner received 28,253,214 shares voted in
favor of his election and 67,787 shares voted against. Mr. Gary S. Weinstein was
not reelected as a director and received 5,373,673 shares voted in favor of his
election and 22,947,328 shares voted against. No abstentions or broker nonvotes
were recorded on the election of directors.
At the Annual Meeting, the shareholders approved a proposal to amend the
Corporation's equity incentive plan to increase the shares available for
issuance thereunder by 500,000 shares as follows: 27,650,708 shares were voted
in favor of the proposal, 402,102 shares were voted against, 268,190 shares
abstained, and no broker nonvotes were recorded on the proposal.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On January 7, 1999, the Company filed a Current Report on Form 8-K with
respect to the Company appointing a new President and Chief Executive Officer.
On May 5, 1999, the Company filed a Current Report on Form 8-K dated May
3, 1999, with respect to restructuring and other charges totaling approximately
$11 million.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 7th day of May 1999.
TREX MEDICAL CORPORATION
/s/ Paul F. Kelleher
-------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
-------------------------
Theo Melas-Kyriazi
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX00
Exhibit
Number Description of Exhibit
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TREX MEDICAL
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 3, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> APR-03-1999
<CASH> 8,629
<SECURITIES> 0
<RECEIVABLES> 56,976
<ALLOWANCES> 2,993
<INVENTORY> 82,772
<CURRENT-ASSETS> 159,857
<PP&E> 31,443
<DEPRECIATION> 12,583
<TOTAL-ASSETS> 296,259
<CURRENT-LIABILITIES> 61,503
<BONDS> 514
0
0
<COMMON> 341
<OTHER-SE> 225,382
<TOTAL-LIABILITY-AND-EQUITY> 296,259
<SALES> 125,115
<TOTAL-REVENUES> 125,115
<CGS> 79,542
<TOTAL-COSTS> 79,542
<OTHER-EXPENSES> 17,430
<LOSS-PROVISION> 533
<INTEREST-EXPENSE> 169
<INCOME-PRETAX> (9,255)
<INCOME-TAX> (3,535)
<INCOME-CONTINUING> (5,695)
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<NET-INCOME> (5,695)
<EPS-PRIMARY> (0.17)
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