UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-28946
Vivid Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3054475
(State of incorporation) (I.R.S. Employer Identification No.)
10E Commerce Way, Woburn, Massachusetts 01801
(Address of principal executive offices) (Zip Code)
(781) 938-7800
(Registrant's telephone number, including area code)
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 ___
As of July 31, 1999, 9,935,516 shares of the registrant's Common
Stock, $.01 par value, were outstanding.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
June 30, 1999 and September 30, 1998 3
Consolidated Condensed Statements of Operations
Three and Nine Months Ended June 30, 1999
and 1998 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended June 30, 1999
and 1998 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION 14
SIGNATURES 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(unaudited) (audited)
June 30, September 30,
1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 7,749,052 $15,555,189
Short-term investments 8,307,367 10,407,209
Accounts receivable 7,507,773 7,316,863
Inventories 10,884,583 7,874,036
Deferred tax asset 606,790 606,790
Other current assets 3,031,249 1,593,021
Total current assets 38,086,814 43,353,108
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,619,821 2,546,476
Leasehold improvements 243,396 228,374
Furniture and fixtures 117,326 129,479
2,980,543 2,904,329
Less - Accumulated depreciation
and amortization 1,769,406 1,488,893
1,211,137 1,415,436
Long-term investments 1,069,161 --
Other assets, net 211,552 1,155,945
$40,578,664 $45,924,489
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
1999 1998
CURRENT LIABILITIES:
Accounts payable 795,087 846,457
Accrued expenses 2,937,837 2,766,268
Customer deposits 3,309,589 3,411,864
Total current liabilities 7,042,513 7,024,589
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized - 1,000,000 shares -- --
Common stock, $.01 par value -
Authorized - 30,000,000 shares
Issued - 9,972,316 and
9,904,666 shares, respectively
Outstanding - 9,877,316 and
9,904,666 shares, respectively 99,723 99,047
Capital in excess of par value 26,766,638 26,745,142
Treasury stock (346,562) --
Retained earnings 7,016,352 12,055,711
Total stockholders' equity 33,536,151 38,899,900
$40,578,664 $45,924,489
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues $ 6,678,580 $10,707,283 $14,138,047 $29,853,534
Cost of revenues 3,720,013 4,636,171 9,562,778 12,523,992
Gross margin 2,958,567 6,071,112 4,575,269 17,329,542
Operating expenses:
Research and development 1,373,413 1,363,042 5,309,747 4,170,473
Restructuring and asset
write down -- -- 1,207,686 --
Selling and marketing 863,247 983,536 3,061,031 3,337,709
General and administrative 869,892 938,646 2,972,346 3,105,323
Total operating
expenses 3,106,552 3,285,224 12,550,810 10,613,505
Income (loss) from
operations (147,985) 2,785,888 (7,975,541) 6,716,037
Other income, net 264,098 365,147 829,949 1,041,446
Income (loss) before
provision (benefit) for
income taxes 116,113 3,151,035 (7,145,592) 7,757,483
Provision (benefit) for
income taxes 22,457 945,310 (2,106,233) 2,325,033
Net income (loss) $ 93,656 $ 2,205,725 $(5,039,359) $ 5,432,450
NET INCOME (LOSS) PER SHARE
Basic $ .01 $ .23 $ (.51) $ .57
Diluted $ .01 $ .22 $ (.51) $ .53
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic 9,878,468 9,688,197 9,901,186 9,614,952
Diluted 10,110,974 10,132,223 9,901,186 10,251,710
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(5,039,359) $5,432,450
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities-
Depreciation and amortization 462,769 546,520
Gain on disposal of fixed assets 8,965 --
Write down of assets related to
restructuring 1,080,050 --
Changes in assets and liabilities-
Accounts receivable (190,910) 2,953,963
Inventories (3,086,480) (2,231,483)
Other current assets (1,477,117) (527,363)
Accounts payable (51,370) 49,913
Accrued expenses 171,569 262,310
Customer deposits (102,275) 1,370,377
Net cash provided by (used in)
operating activities (8,224,158) 7,856,687
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (294,221) (643,395)
Purchases of investments (18,669,319) (18,738,537)
Maturity of investments 19,700,000 9,629,000
Increase in other assets 5,951 (1,298,336)
Net cash provided by (used in) in
investing activities 742,411 (11,051,268)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock purchase warrants -- 84,756
Proceeds from exercise of stock options 22,172 214,364
Purchase of treasury stock (346,562) --
Net cash provided by (used in)
financing activities (324,390) 299,120
NET DECREASE IN CASH AND
CASH EQUIVALENTS (7,806,137) (2,895,461)
CASH AND CASH EQUIVALENTS, beginning of period 15,555,189 11,571,630
CASH AND CASH EQUIVALENTS, end of period $ 7,749,052 $ 8,676,169
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Income tax $ 6,200 $ 1,764,584
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements of Vivid Technologies, Inc.
(the Company) presented herein have been prepared pursuant to the
rules of the Securities and Exchange Commission for quarterly reports
on Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended September
30, 1998, included in the Company's Form 10-K as filed with the
Securities and Exchange Commission.
The consolidated balance sheet as of June 30, 1999, the
consolidated statements of operations for the three months and nine
months ended June 30, 1999 and 1998, and the consolidated statements
of cash flows for the nine months ended June 30, 1999 and 1998, are
unaudited but, in the opinion of management, include all adjustments
(consisting of normal, recurring adjustments) necessary for a fair
presentation of results for these interim periods.
The results of operations for the nine months ended June 30, 1999
are not necessarily indicative of the results to be expected for the
entire fiscal year ending September 30, 1999.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of the following:
June 30, September 30,
1999 1998
Raw materials $5,016,907 $4,061,775
Work-in-process 2,137,468 1,440,435
Finished goods 3,730,208 2,371,826
$10,884,583 $7,874,036
Finished goods consist of material, labor and manufacturing
overhead.
(3) Significant Customer and Concentration of Credit Risk
In the nine months ended June 30, 1999, the Company had two
customers who comprised 22% and 16% of revenues, respectively. These
customers had amounts due to the Company of approximately $1,694,000
and $458,000, respectively, at June 30, 1999. Through July 30, 1999,
the Company received payments of $472,000 against these receivable
balances. In the nine months ended June 30, 1998, the Company had
three customers who comprised 43%, 19% and 15% of revenues,
respectively.
As of June 30, 1999, the Company had approximately $1,433,000 of
receivables denominated in foreign currencies. There are no
outstanding forward foreign exchange contracts. The Company may be
affected, for the foreseeable future, by economic conditions and
currency volatility in the regions of the world where it does
business. As a result, there are uncertainties that may affect future
operations, including the recoverability of receivables. It is not
possible to determine the future effect adverse economic conditions
may have on the Company's liquidity and earnings. Related effects
will be reported in the financial statements as they become known and
estimable.
(4) Earnings Per Share
A reconciliation of basic and diluted weighted average shares
outstanding is as follows:
Three Months Ended
June 30, June 30,
1999 1998
Basic weighted average shares outstanding 9,878,468 9,688,197
Weighted average common equivalent shares 232,506 444,026
Diluted weighted average shares outstanding 10,110,974 10,132,223
Nine Months Ended
June 30, June 30,
1999 1998
Basic weighted average shares outstanding 9,901,186 9,614,952
Weighted average common equivalent shares -- 636,758
Diluted weighted average shares outstanding 9,901,186 10,251,710
Common equivalent securities of approximately 901,000 and
1,199,000 for the three and nine months ended June 30, 1999,
respectively, have been excluded from the weighted average number of
common and dilutive potential common shares outstanding. Common
equivalent securities of approximately 407,000 and 248,000 for the
three and nine months ended June 30, 1998, respectively, have been
excluded from the weighted average number of common and dilutive
potential common shares outstanding.
(5) Restructuring and Asset Write Down
In the second quarter of fiscal 1999, the Company implemented a
restructuring that included the shut down of a development facility
and the abandonment of certain technology, resulting in a nonrecurring
charge of approximately $1.2 million. The restructuring included a
$1.1 million write-off of unamortized license fees and fixed assets
related to an abandoned technology, $76,000 of lease termination and
certain other contractual termination costs and $52,000 of severance
costs for terminated research and development personnel.
The total cash impact of the restructuring amounted to
approximately $128,000, of which $48,000 has been paid as of June 30,
1999. As of June 30, 1999, approximately $80,000 of accrued
restructuring costs remained, which is comprised of approximately
$19,000 of severance-related costs and $61,000 of contractual
termination costs. The accrued restructuring costs are expected to be
paid by the end of fiscal 1999.
During the second quarter of fiscal 1999, the Company also
implemented a cost cutting plan to reduce operating costs. The cost
cutting plan included a 10% workforce reduction, the cost of which has
not been included in the restructuring, described above. The costs
associated with the workforce reduction were paid by March 31, 1999
and are included in the accompanying statements of operations in cost
of revenues, research and development, selling and marketing, and
general and administrative expenses.
(6) Comprehensive Income
The Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), Reporting Comprehensive Income, effective
October 1, 1998. SFAS No. 130 defines comprehensive income as the
change in equity of a business enterprise from transactions and other
economic events during a period from non-owner sources. During the
three and nine month periods ended June 30, 1999 and 1998 there were
no such transactions or events that would require separate disclosure
in the Company's financial statements.
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
The Company's results of operations have and may continue to be
subject to significant quarterly fluctuation due to several factors,
known and unknown, including the overall demand for explosives
detection systems, market acceptance of the Company's products, timing
of the announcement, introduction, FAA certification or delivery of
new products and product enhancements by the Company and its
competitors, variations in component costs, timing of customer orders,
adjustments of delivery schedules to accommodate customers' programs,
economic conditions in the Company's targeted markets, the
availability of components from suppliers, the timing and level of
expenditures in anticipation of future sales, and pricing and other
competitive conditions. Customers may also cancel or reschedule
shipments and production difficulties could delay shipments.
Relatively few system sales to relatively few customers comprise a
significant portion of the Company's revenues in each quarter.
Therefore, small variations in the number of systems sold could have a
significant effect on the Company's results of operations. The
Company is developing a next generation system that is intended to
meet FAA certification standards. There can be no assurance that the
Company will be able to develop such a system on a timely basis, if at
all. In addition, even if the system is successfully developed, the
anticipation of the next generation system may have an adverse impact
on financial results during the transition period. Reference is made
to the "Risk Factors" section of the Company's report on Form 10-K for
the year ended September 30, 1998 for additional discussion of factors
which may affect the Company's results of operations.
Results of Operations
Revenues. Revenues for the third quarter of fiscal 1999
decreased 38% to $6,678,580 from $10,707,283 for the third quarter of
fiscal 1998. Revenues for the current nine month period decreased
53% to $14,138,047 from $29,853,534 for the first nine months of
fiscal 1998. This decrease in revenues was the result of a decrease
in product sales and a decrease in revenue from an FAA development
grant. The Company attributes the slowdown in product sales primarily
to the extension by the European Civil Aviation Conference from 2000
to 2002 for all member states to implement 100% screening of
international checked luggage and the lingering effects of the
economic troubles in Asia. In addition, the Company believes that it
will be difficult to complete significant sales of its checked baggage
screening systems in the United States until such time as the Company
has an FAA certified system. During the third quarter of fiscal 1999
the Company shipped 12 checked baggage systems and 44 APS hand baggage
units, compared to 23 checked baggage systems and 9 APS hand baggage
systems in the third quarter of fiscal 1998. Since inception the
Company has shipped 277 checked baggage systems for airport security
and 99 APS hand baggage systems for airport security and building
protection.
The increase in revenues for the quarter ended June 30,1999 as
compared to the quarter ended March 31, 1999 were a direct result of a
high level of proposal activity experienced earlier in the year. The
Company shipped checked baggage systems to various customers in
Europe, including the New Athens International Airport. Also
contributing to revenue during the quarter was the shipment of APS
systems for installation at airports and high-security facilities
worldwide.
Gross Margin. Gross margin decreased as a percentage of sales to
44% in the current quarter from 57% in the third quarter of fiscal
1998. Gross margin for the nine months ended June 30, 1999 was 32%
compared to 58% in the corresponding period in fiscal 1998. The
decrease in gross margin as a percentage of sales is due to
significant fixed manufacturing labor and overhead costs applied to a
lower volume of shipments of the Company's checked baggage products.
Also impacting margin was product mix of shipments for the first nine
months of fiscal 1999 with the majority of sales coming from the Model
APS which has a lower average margin.
Research and Development Expenses. Research and development
expenses increased 1% to $1,373,413 in the current quarter from
$1,363,042 in the third quarter of fiscal 1998. For the current nine
month period, research and development expenses increased 27% to
$5,309,747 from $4,170,473 for the first nine months of fiscal 1998.
The overall increase in research and development expenses for the
first nine months of fiscal 1999 was primarily due to the addition of
engineering personnel and consultants working on the development of
new products, including the next generation system, and product
feature changes to the Model APS. The increase is also due to the
reduction in FAA grants for the next generation system that offset
costs in previous quarters. At the end of the second quarter of
fiscal 1999, the Company implemented a restructuring plan, including a
workforce reduction, which reduced research and development expenses
for the current fiscal quarter from approximately $2.0 million in the
second fiscal quarter. See Restructuring and Asset Write Down below.
Selling and Marketing Expenses. Selling and marketing expenses
decreased 12% to $863,247 in the current quarter from $983,536 in the
third quarter of fiscal 1998. For the current nine month period,
selling and marketing expenses decreased 8% to $3,061,031 from
$3,337,709 for the first nine months of fiscal 1998. The decrease in
selling and marketing expenses in fiscal 1999 was primarily due to the
decrease in commissions, public relations costs, trade show and travel
related costs, and advertising costs, slightly offset by an increase
in consulting and personnel related costs.
General and Administrative Expenses. General and administrative
expenses decreased 7% to $869,892 in the current quarter from
$938,646 in the third quarter of fiscal 1998. For the current nine
month period, general and administrative expenses decreased 4% to
$2,972,346 from $3,105,323 for the first nine months of fiscal 1998.
The decrease in general and administrative expenses in the third
quarter of fiscal 1999 was primarily attributable to a decrease in
personnel and related costs in connection with the restructuring,
license fees and patent amortization charges, slightly offset by an
increase in legal and administrative fees.
Restructuring and Asset Write Down. In the second quarter of
fiscal 1999, the Company implemented a restructuring that included the
shut down of a development facility and the abandonment of certain
technology, resulting in a nonrecurring charge of approximately $1.2
million. The restructuring included a $1.1 million write-off of
unamortized license fees and fixed assets related to an abandoned
technology, $76,000 of lease termination and certain other contractual
termination costs and $52,000 of severance costs for terminated
research and development personnel.
The total cash impact of the restructuring amounted to
approximately $128,000, of which $48,000 has been paid as of June 30,
1999. As of June 30, 1999, approximately $80,000 of accrued
restructuring costs remained, which is comprised of approximately
$19,000 of severance-related costs and $61,000 of contractual
termination costs. The accrued restructuring costs are expected to be
paid by the end of fiscal 1999.
During the second quarter of fiscal 1999, the Company also
implemented a cost cutting plan to reduce operating costs. The cost
cutting plan included a 10% workforce reduction, the cost of which has
not been included in the restructuring, described above. The costs
associated with the workforce reduction were paid by March 31, 1999
and are included in the accompanying statements of operations in cost
of revenues, research and development, selling and marketing, and
general and administrative expenses.
Other Income. The Company recognized net other income of
$264,098 in the current quarter compared to $365,147 in the third
quarter of fiscal 1998. Net other income decreased to $829,949 in the
current nine month period from $1,041,446 in the comparable period in
fiscal 1998. The decrease in fiscal 1999 was primarily attributable
to a decrease in interest income attributable to lower average cash
balances available for investments and a reduction in other income
including gains on foreign exchange.
Provision for Income Taxes. The Company's effective tax rate for
the three and nine months ended June 30, 1999 and 1998 was 30%.
During the third quarter of fiscal 1999 the Company had $22,457 of
income tax expense. For the nine months ended June 30, 1999, the
Company recognized a tax benefit of approximately $2,106,233, which
represented the Company's net operating loss carry backs. The Company
expects that its effective tax rate will continue to be slightly lower
than the statutory tax rates primarily due to the use of research and
development tax credits and the tax benefits associated with the
Company's foreign sales corporation.
Liquidity and Capital Resources
The Company has funded its operations and capital expenditures
primarily through internally generated cash flows, proceeds from the
sale of securities and the availability of a working capital line of
credit. At June 30, 1999, the Company had working capital of $31.0
million including $16.1 million in cash and cash equivalents and short-
term investments. The Company also had $1.1 million of long-term
investments. The Company also has an unsecured $5.0 million bank line
of credit which had an original expiration of February 28, 1999 and
has been extended through September 30, 1999. The Company is
currently in negotiations with the bank to renew the credit facility.
The Company's bank line of credit bears interest at the bank's prime
rate (7.75% as of June 30, 1999). At June 30, 1999, the Company had
no amounts outstanding under this line of credit.
During the first nine months of fiscal 1999, the Company's net
cash used in operating activities was approximately $8.2 million,
including, net income (loss) adjusted for non-cash expenses including
depreciation and amortization and write down of assets totaling $3.5
million, a $3.1 million increase of inventories and $1.5 million
increase in other current assets. The increase in inventories in the
first nine months of fiscal 1999 reflects increased inventory
purchases associated with the production of the next generation system
and the increased sales activity of the Model APS, and overall lower
product sales of checked baggage units. The increase in other current
assets relates to the Company's tax benefit.
The Company's capital expenditures for the first nine months of
fiscal 1999 were approximately $294,000. While the Company does not
have any significant commitments for capital expenditures for the
remainder of fiscal 1999, the Company anticipates that it will
continue to purchase equipment to support its anticipated growth.
During the first nine months of fiscal 1999, net cash provided by
investing activities was approximately $742,000. Net cash provided by
investing activities in the first nine months of fiscal 1999 was
primarily attributable to the net decrease in investment balances of
$1.0 million.
During the first nine months of fiscal 1999, net cash used in
financing activities was approximately $324,000. Net cash used in
financing activities in the first nine months of fiscal 1999 was
attributable to the purchase of treasury stock.
The Company may be affected, for the foreseeable future, by
economic conditions and currency volatility in the regions of the
world where it does business. As a result, there are uncertainties
that may affect future operations, including the recoverability of
receivables. It is not possible to determine the future effect
adverse economic conditions may have on the Company's liquidity and
earnings.
The Company believes that existing sources of liquidity, funds
expected to be generated from operations and its line of credit will
provide adequate cash needs through at least the next twelve months.
However, for a brief discussion of the factors that could adversely
affect the Company's financial position and results of operations, see
the opening paragraph of Item 2 above.
Year 2000 Readiness Disclosure
The year 2000 issue is the potential for system and processing
failure of date-related data and the result of computer-controlled
systems using two digits rather than four to define the applicable
year. For example, computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failure or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company may be affected by year 2000 issues related to non-
compliant information technology ("IT") systems or non-IT systems
operated or sold by the Company or by third parties. The Company has
substantially completed assessment of its internal IT systems and non-
IT systems. The Company has tested all products internally and has
adopted a Year 2000 Qualification Test Procedure to ensure that all
products operate properly through the year 2000 and beyond. In
addition to internal testing the Company has received compliance
certificates from the FAA and BAA confirming that the Company's
existing products are year 2000 compliant. The Company has also
submitted a survey to all vendors subject to year 2000 compliance. In
addition to the survey, the Company has internally tested components
supplied by outside vendors. The Company has also performed an
internal review of in-house computers, network, operating system and
financial reporting package confirming year 2000 compliance. At this
point in its assessment, the Company is not currently aware of any
year 2000 problems relating to systems operated or sold by the Company
that would have a material adverse effect on the Company's business,
results of operations or financial condition.
Although the Company believes that its systems are year 2000
compliant, the Company utilizes third-party equipment and software
that may not be year 2000 compliant. In addition, the Company's
products and software are often sold to be integrated into or
interface with third party equipment or software. Failure of third-
party equipment or software to operate properly with regard to the
year 2000 and thereafter could require the Company to incur
unanticipated expenses to remedy any problems, which could have a
material adverse effect on the Company business, results of operations
and financial condition. The Company may also be vulnerable to any
failures by its major suppliers, service providers and customers to
remedy their own internal IT and non-IT system year 2000 issues which
could, among other things, have a material and adverse affect on the
Company's supplies and orders. The Company is unable to estimate the
nature or extent of any potential adverse impact resulting from the
failure of third parties, such as its suppliers, service providers and
customers, to achieve year 2000 compliance. Moreover, such third
parties, even if year 2000 compliant, could experience difficulties
resulting from year 2000 issues that may affect their suppliers,
service providers and customers. As a result, although the Company
does not currently anticipate that it will experience any material
shipment delays from their major product suppliers or any material
sales delays from its major customers due to year 2000 issues, these
third parties may experience year 2000 problems. Any such problems
could have a material adverse effect on the Company's business,
results of operations and financial condition.
Other than its activities described above, the Company does not
have and does not plan to develop a contingency plan to address year
2000 issues. Should any unanticipated significant year 2000 issues
arise, the Company's failure to implement such a contingency plan
could have a material adverse affect on its business, financial
condition and results of operations.
To the extent that the Company does not identify any material non-
compliant IT systems or non-IT systems operated by the Company or by
third parties, such as the Company's suppliers, service providers and
customers, the most reasonably likely worst case year 2000 scenario is
a systemic failure beyond the control of the Company, such as a
prolonged telecommunications or electrical failure, or a general
disruption in United States or global business activities that could
result in a significant economic downturn. The Company believes that
the primary business risks, in the event of such failure or other
disruption, would include but not be limited to, loss of customers or
orders, increased operating costs, inability to obtain inventory on a
timely basis, disruptions in product shipments, or other business
interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract, any of which
could have a material adverse effect on the Company's business,
results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Hedging. The accounts of the foreign
subsidiary, Vivid Technologies UK Ltd., are translated in accordance
with SFAS No. 52, Foreign Currency Translation. In translating the
accounts of the foreign subsidiary into U.S. dollars, assets and
liabilities are translated at the rate of exchange in effect at
quarter-end, while stockholders' equity is translated at historical
rates. Revenue and expense accounts are translated using the weighted
average exchange rate in effect during the year. Foreign currency
transaction gains or losses for Vivid Technologies UK Ltd. are
included in the accompanying consolidated statements of operations
since the functional currency for this subsidiary is the U.S. dollar.
During the first nine months of fiscal 1999, sales of
approximately $1,150,000 were denominated in foreign currencies. As
of June 30, 1999, the Company had approximately $1,433,000 in accounts
receivable denominated in foreign currencies which had been marked to
market. The net gain (loss) was not material.
Investment Portfolio. The Company does not use derivative
financial instruments that meet high credit quality standards, as
specified in the Company's investment policy guidelines; the policy
also limits the amount of credit exposure to any one issue, issuer,
and type of instrument.
PART II - OTHER INFORMATION
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material developments.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
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.
Vivid Technologies, Inc.
(Registrant)
August 9, 1999 /s/ S. David Ellenbogen
Date S. David Ellenbogen
Chief Executive Officer
August 9, 1999 /s/ William J. Frain
Date William J. Frain
Chief Financial Officer and Treasurer
(Principal Financial and Chief Accounting
Officer)
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