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 July 1, 2000
[ ] 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
(State or other jurisdiction of 06-1439626
incorporation or organization) (I.R.S. Employer Identification No.)
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 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 Common Stock, $.01 par value
---------------------------- ----------------------------
Outstanding at July 28, 2000 31,948,597
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
TREX MEDICAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
July 1, October 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- -------- ----------
Current Assets:
Cash and cash equivalents $ 6,818 $ 8,075
Advance to affiliate 9,623 8,801
Accounts receivable, less allowances of $4,355 and $3,538 41,641 49,137
Inventories (Note 7):
Raw materials and supplies 18,475 27,312
Work in process 4,981 15,070
Finished goods 8,287 15,730
Deferred tax asset and refundable income taxes (Note 7) 4,761 19,685
Other current assets 1,477 2,357
-------- --------
96,063 146,167
-------- --------
Property, Plant, and Equipment, at Cost (Note 7) 23,359 29,154
Less: Accumulated depreciation and amortization 14,299 13,262
-------- --------
9,060 15,892
-------- --------
Other Assets 575 702
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 7) 42,006 114,266
-------- --------
$147,704 $277,027
======== ========
2
TREX MEDICAL CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 1, October 2,
(In thousands except share amounts) 2000 1999
- ---------------------------------------------------------------------------------- -------- ----------
Current Liabilities:
Accounts payable $ 18,962 $ 15,065
4.2% subordinated convertible note, due to parent company 8,000 8,000
Short-term obligations and current maturities of long-term obligations 76 377
Accrued payroll and employee benefits 4,487 6,487
Accrued warranty costs 5,555 7,696
Customer deposits 2,658 5,231
Accrued commissions 4,218 5,055
Accrued restructuring costs (Note 7) 3,429 3,702
Other accrued expenses (Note 6) 12,230 18,113
Due to affiliated companies 1,834 2,163
-------- --------
61,449 71,889
-------- --------
Deferred Income Taxes - 964
-------- --------
Long-term Obligations 159 177
-------- --------
Minority Interest 451 216
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized;
34,144,056 and 34,139,967 shares issued 341 341
Capital in excess of par value 212,971 213,022
Retained earnings (deficit) (99,693) 14,153
Treasury stock at cost, 2,195,459 and 2,136,725 shares (21,880) (21,634)
Deferred compensation (215) (579)
Accumulated other comprehensive items (Note 4) (5,879) (1,522)
-------- --------
85,645 203,781
-------- --------
$147,704 $277,027
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
3
TREX MEDICAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
--------------------
July 1, July 3,
(In thousands except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------- --------- ---------
Revenues (includes $57 and $952 to affiliated companies; Note 2) $ 44,953 $ 63,138
--------- ---------
Costs and Operating Expenses:
Cost of revenues (includes $36 and $759 for revenues to affiliated
companies; Notes 2 and 7) 51,156 54,862
Selling, general, and administrative expenses 14,156 17,506
Research and development expenses 3,488 4,796
Restructuring costs and unusual items (Note 7) 69,169 6,075
--------- ---------
137,969 83,239
--------- ---------
Operating Loss (93,016) (20,101)
Interest Income 109 37
Interest Expense (includes $84 to related party) (84) (151)
Other Income 141 -
--------- ---------
Loss Before Income Taxes and Minority Interest (92,850) (20,215)
Income Tax (Provision) Benefit (Note 7) (7,513) 5,914
Minority Interest Income (Expense) 35 (1)
--------- ---------
Net Loss $(100,328) $ (14,302)
========= =========
Basic and Diluted Loss per Share (Note 3) $ (3.14) $ (.45)
========= =========
Basic and Diluted Weighted Average Shares (Note 3) 31,962 31,919
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
4
TREX MEDICAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
--------------------
July 1, July 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- --------- ---------
Revenues (includes $822 and $2,616 to affiliated companies; Note 2) $ 130,258 $ 188,253
--------- ---------
Costs and Operating Expenses:
Cost of revenues (includes $502 and $1,988 for revenues to affiliated
companies; Notes 2 and 7) 114,581 140,631
Selling, general, and administrative expenses 42,597 55,173
Research and development expenses 11,205 15,424
Restructuring costs and unusual items, net (Note 7) 71,140 6,650
--------- ---------
239,523 217,878
--------- ---------
Operating Loss (109,265) (29,625)
Interest Income 334 475
Interest Expense (includes $252 to related party) (282) (320)
Other Income, Net 22 -
--------- ---------
Loss Before Income Taxes and Minority Interest (109,191) (29,470)
Income Tax (Provision) Benefit (Note 7) (4,390) 9,449
Minority Interest Income (Expense) (265) 24
--------- ---------
Net Loss $(113,846) $ (19,997)
========= =========
Basic and Diluted Loss per Share (Note 3) $ (3.56) $ (.62)
========= =========
Basic and Diluted Weighted Average Shares (Note 3) 31,972 32,420
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
5
TREX MEDICAL CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
--------------------
July 1, July 3,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- --------- ---------
Operating Activities:
Net loss $(113,846) $ (19,997)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 5,606 6,433
Provision for losses on accounts receivable 1,614 1,326
Minority interest expense (income) 265 (24)
Gain on sale of property, plant, and equipment (Note 7) (941) -
Noncash restructuring costs (Note 7) 91,897 1,953
Other noncash items 57 10,782
Changes in current accounts:
Accounts receivable 4,700 10,659
Inventories 5,217 (4,736)
Due from affiliated companies (329) (1,194)
Other current assets 10,531 (9,505)
Accounts payable 4,459 (2,477)
Other current liabilities (10,060) (1,602)
Other - (24)
--------- ---------
Net cash used in operating activities (830) (8,406)
--------- ---------
Investing Activities:
Advances to affiliate, net (822) (3,013)
Purchases of property, plant, and equipment (2,101) (2,827)
Proceeds from sale of property, plant, and equipment (Note 7) 3,347 225
--------- ---------
Net cash provided by (used in) investing activities 424 (5,615)
--------- ---------
Financing Activities:
Net proceeds from issuance of Company common stock 10 -
Purchases of Company common stock - (22,647)
Repayment of short-term borrowings and capital lease obligations (278) (397)
--------- ---------
Net cash used in financing activities (268) (23,044)
--------- ---------
Exchange Rate Effect on Cash (583) 237
--------- ---------
Decrease in Cash and Cash Equivalents (1,257) (36,828)
Cash and Cash Equivalents at Beginning of Period 8,075 42,709
--------- ---------
Cash and Cash Equivalents at End of Period $ 6,818 $ 5,881
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
6
TREX MEDICAL CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Trex Medical Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at July 1, 2000, the results of
operations for the three- and nine-month periods ended July 1, 2000, and July 3,
1999, and the cash flows for the nine-month periods ended July 1, 2000, and July
3, 1999. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of October 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. Certain amounts in fiscal 1999 have
been reclassified to conform to the presentation in the fiscal 2000 financial
statements. The consolidated financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K, for the fiscal year ended October 2, 1999, filed with the Securities and
Exchange Commission.
2. Transactions with Affiliated Companies
Revenues from affiliated companies in the accompanying statement of
operations includes $712,000 and $2,616,000 during the nine-month periods ended
July 1, 2000, and July 3, 1999, 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. As a
result of ThermoLase exiting this business, the Company does not expect such
sales to occur in the future.
During the three- and nine-month periods ended July 1, 2000, the Company
purchased high-transmission cellular (HTC) grids valued at $258,000 and
$720,000, respectively, from the Tecomet division of Thermo Electron
Corporation, the majority owner of ThermoTrex, under a design and production
arrangement. During the three- and nine-month periods ended July 3, 1999, the
Company purchased HTC grids valued at $415,000 and $1,153,000, respectively.
3. Loss per Share
Basic and diluted loss per share were calculated as follows:
Three Months Ended Nine Months Ended
--------------------- ---------------------
July 1, July 3, July 1, July 3,
(In thousands except per share amounts) 2000 1999 2000 1999
- --------------------------------------------------------- --------- --------- -------- ---------
Net Loss $(100,328) $ (14,302) $(113,846) $ (19,997)
--------- --------- --------- ---------
Weighted Average Shares 31,962 31,919 31,972 32,420
--------- --------- --------- ---------
Basic and Diluted Loss per Share $ (3.14) $ (.45) $ (3.56) $ (.62)
========= ========= ======== ========
7
TREX MEDICAL CORPORATION
3. Loss per Share (continued)
Options to purchase 1,762,000 and 2,425,000 shares of common stock for the
third quarter of fiscal 2000 and 1999, respectively, and 1,993,000 and 2,054,000
shares of common stock for the first nine months of fiscal 2000 and 1999,
respectively, were not included in the computation of diluted loss per share
because their effect would have been antidilutive due to the Company's net loss
position. In addition, the computation of diluted loss per share for each period
excludes the effect of assuming the conversion of the Company's $8,000,000
principal amount 4.2% subordinated convertible note, convertible at $11.79 per
share, because the effect would be antidilutive.
4. Comprehensive Income
Comprehensive income combines net loss and "other comprehensive items,"
which represents foreign currency translation adjustments, reported as a
component of shareholders' investment in the accompanying balance sheet. During
the third quarter of fiscal 2000 and 1999, the Company had comprehensive losses
of $101,215,000 and $14,950,000, respectively. During the first nine months of
2000 and 1999, the Company had comprehensive losses of $118,203,000 and
$24,625,000, respectively.
5. Business Segment Information
Three Months Ended Nine Months Ended
--------------------- ---------------------
July 1, July 3, July 1, July 3,
(In thousands) 2000 1999 2000 1999
- --------------------------------------------------------- ----------- --------- --------- ---------
Revenues:
Medical Imaging $ 30,252 $ 48,948 $ 87,082 $ 133,397
Dental Imaging 14,701 14,190 43,176 54,856
--------- --------- --------- ---------
$ 44,953 $ 63,138 $ 130,258 $ 188,253
========= ========= ========= =========
Loss Before Income Taxes and Minority Interest:
Medical Imaging (a) $ (77,849) $ (17,499) $ (91,284) $ (23,440)
Dental Imaging (b) (13,894) (459) (13,897) (544)
Corporate (c) (1,273) (2,143) (4,084) (5,641)
--------- --------- --------- ---------
Total operating loss (93,016) (20,101) (109,265) (29,625)
Interest and other income (expense), net 166 (114) 74 155
--------- --------- --------- ---------
$ (92,850) $ (20,215) $(109,191) $ (29,470)
========= ========= ========= =========
(a) Reflects restructuring costs and other unusual charges, net, of $74.2 million and $18.1 million in the
three months ended July 1, 2000, and July 3, 1999, respectively, and $76.0 million and $18.7 million in
the nine months ended July 1, 2000, and July 3, 1999, respectively.
(b) Reflects restructuring costs of $15.0 million and $15.1 million in the three- and nine-month periods ended
July 1, 2000, respectively.
(c) Primarily general and administrative expenses.
8
TREX MEDICAL CORPORATION
6. Accrued Acquisition Expenses
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with the requirements of Emerging Issues Task Force Pronouncement
(EITF) No. 95-3, primarily have included reductions in staffing levels and the
abandonment of excess facilities. In connection with these restructuring
activities, as part of the cost of the acquisitions, the Company established
reserves, primarily for severance and excess facilities. 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.
Accrued acquisition expenses relate to the fiscal 1998 acquisition of
Trophy Radiologie and are included in other accrued expenses in the accompanying
balance sheet. A summary of the changes in accrued acquisition expenses is as
follows:
Excess
(In thousands) Severance Facilities Total
- --------------------------------------------------------- --------- ---------- -------
Balance at October 2, 1999 $ 1,430 $ 404 $ 1,834
Usage (1,284) (104) (1,388)
Currency translation (146) 47 (99)
------- ------- -------
Balance at July 1, 2000 $ - $ 347 $ 347
======= ======= =======
The Company expects to pay the excess-facility costs over the term of
facility leases, which expire primarily through fiscal 2001.
7. Restructuring Costs and Unusual Items, Net
On January 31, 2000, the Company announced that a buyer was being sought
for the Company. The Company believes that its continuing operating losses and
declining revenues have resulted, at least in part, from the announced sale of
the Company and resulting uncertainty among customers and dealers.
Restructuring Costs - Operational
During fiscal 1999 and 2000, the Company recorded restructuring costs,
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 included severance for 308 employees across all
functions, 162 of whom were terminated in fiscal 1999 and 146 of whom were
terminated in fiscal 2000. Restructuring costs in the Dental Imaging segment
included severance for 40 employees across all functions, 7 of whom were
terminated in fiscal 1999 and 33 of whom were terminated in fiscal 2000.
During the first nine months of fiscal 2000, the Company recorded
restructuring charges of $4,080,000 for costs related to the consolidation and
relocation of facilities and retention bonuses. Costs related to the
consolidation and relocation of facilities are recorded as incurred. Retention
costs are recorded ratably over the period through which employees must work to
qualify for a payment.
The Company expects to record approximately $1,590,000 of additional
restructuring and unusual items, including $750,000 during the remainder of
fiscal 2000 and $840,000 during the first half of fiscal 2001. These charges
represent estimated costs for certain employee retention agreements related to
the proposed sale of the Company.
9
TREX MEDICAL CORPORATION
7. Restructuring Costs and Unusual Items, Net (continued)
A summary of the changes in accrued restructuring costs is as follows:
Facility-
closing
(In thousands) Severance Costs Other (b) Total
- ------------------------------------------------------------ --------- --------- --------- -------
Balance at October 2, 1999 $ 973 $ 2,250 $ 479 $ 3,702
Provision charged to expense (a) 239 411 3,430 4,080
Usage (1,045) (361) (2,909) (4,315)
Currency translation (38) - - (38)
------- ------- ------- -------
Balance at July 1, 2000 $ 129 $ 2,300 $ 1,000 $ 3,429
======= ======= ======= =======
(a) Reflects restructuring costs of $4.0 million and $0.1 million recorded by the Medical Imaging and Dental
Imaging segments, respectively. Excludes noncash restructuring charges of $68.0 million to write down
the carrying amount of assets to their estimated disposal value, and a gain of $0.9 million from the sale
of an operating facility.
(b) Includes provisions in fiscal 2000 of $1.7 million for facility-consolidation costs incurred during the
period and $1.7 million for retention bonuses.
The aggregate future cash expenditures for restructuring will include
amounts accrued at July 1, 2000, as well as the $1,590,000 of future costs that
are expected to be incurred over the next twelve months. These amounts total
$5.0 million, of which the Company expects to pay $0.4 million during the
remainder of fiscal 2000, $3.0 million during fiscal 2001, and the balance
primarily over the term of facility leases expiring through 2005.
Restructuring Costs - Planned Divestitures
In connection with the plan to sell the Company, the Company currently
expects to sell its three principal operating units individually, due to the
absence of a prospective buyer for the Company in its entirety. As a result,
during the third quarter of fiscal 2000, the Company recorded a charge of $95.1
million to write down the carrying amounts of the businesses to their estimated
disposal value. The charge includes four components: cost in excess of net
assets of acquired companies of $65.0 million; inventory provisions of $20.0
million; a deferred tax asset of $7.1 million; and property, plant, and
equipment of $3.0 million. The inventory provisions were recorded as a component
of cost of revenues, and the establishment of a valuation allowance for the
deferred tax asset was recorded as a component of income tax provision. The
remaining charges were recorded as restructuring costs. Of the pretax charges,
$73.0 million related to the Medical Imaging segment and $15.0 million related
to the Dental Imaging segment. These write downs are based on management's
estimate of the disposal value of the individual businesses. It is reasonably
possible that the actual amounts realized from the sale of these businesses
could differ materially from the amounts estimated in the accompanying financial
statements. The amount that will be realized from the sale of the businesses
will depend on the terms of any final agreements. Any changes in the estimates
used as the basis for determining the charges recorded in the third quarter of
fiscal 2000 would result in additional charges or credits in future periods.
Other
In November 1999, the Company sold the operating facility of its
Continental X-Ray subsidiary for $3,119,000 in cash, resulting in a gain of
$941,000, which is included in restructuring costs and unusual item, net, in the
accompanying statement of operations.
10
TREX MEDICAL CORPORATION
8. Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur at completion of installation and/or upon
customer acceptance. SAB 101 requires that the Company conform its revenue
recognition practices to the requirements therein in the first quarter of fiscal
2001 through recording a cumulative net of tax effect of the change in
accounting. The Company has not completed the analysis to determine the effect
that SAB 101 will have on its financial statements.
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, for the
fiscal year ended October 2, 1999, filed with the Securities and Exchange
Commission.
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 manufactures
mammography systems and 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
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 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 original equipment manufacturer (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
11
TREX MEDICAL CORPORATION
Overview (continued)
improvements and focus on cost efficiencies. The Company substantially completed
implementation of its restructuring plans during the second quarter of fiscal
2000. In addition to undertaking restructuring actions, the Company has
reorganized its product distribution channels by consolidating and reassigning
certain dealer relationships.
On January 31, 2000, the Company announced that a buyer was being sought
for the Company (Note 7). As discussed below, the Company believes that the
announcement of its proposed sale has adversely affected its operating results.
The Company expects to record approximately $1.6 million of additional costs as
they are incurred over the next 12 months for certain employee retention
agreements.
Results of Operations
Third Quarter Fiscal 2000 Compared With Third Quarter Fiscal 1999
- -----------------------------------------------------------------
Revenues decreased to $45.0 million in the third quarter of fiscal 2000
from $63.1 million in the third quarter of fiscal 1999. Revenues in the Medical
Imaging segment decreased $18.7 million to $30.3 million as a result of lower
demand. Sales of breast-imaging products and cardiac catheterization systems
decreased $10.4 million and $7.8 million, respectively. A decrease in
breast-imaging sales resulted partially from industry uncertainty associated
with the announced sale of the Company as well as higher prior year sales as
various hospitals and clinics upgraded mammography systems to become compliant
with the year 2000 guidelines established by the Mammography Quality Standards
Act. Sales of cardiac catheterization systems decreased due to lower demand.
Revenues in the Dental Imaging segment were $14.7 million in fiscal 2000,
compared with $14.2 million in fiscal 1999. Revenues in this segment increased
$0.5 million due to higher sales of digital dental X-ray equipment.
The gross profit margin in the current quarter reflects a $20.0 million
charge to reduce the carrying value of Medical Imaging inventories to estimated
disposal value (Note 7). Excluding this provision and prior year inventory and
warranty provisions of $12.0 million, the gross profit margin for the third
quarter of fiscal 2000 was 31%, compared with 32% in the third quarter of fiscal
1999. Lower margins in the Medical Imaging segment, primarily due to a lower
contribution toward fixed costs as a result of a decline in revenues and a less
favorable product mix, were offset in part by higher-margin sales in the Dental
Imaging segment resulting from increased sales of digital dental X-ray
equipment.
Selling, general, and administrative expenses as a percentage of revenues
was 31% in the third quarter of fiscal 2000, compared with 28% in the third
quarter of fiscal 1999. Selling, general and administrative expenses as a
percentage of revenues increased in the Medical Imaging segment due to a decline
in revenues. As a result of cost-reduction efforts across the Company, selling,
general, and administrative expenses decreased to $14.2 million in fiscal 2000
from $17.5 million in fiscal 1999. The decrease consisted primarily of a $1.3
million reduction in sales and marketing costs and a $2.0 million decrease in
administrative costs.
Research and development expenses decreased to $3.5 million in the third
quarter of fiscal 2000 from $4.8 million in the third quarter of fiscal 1999.
The Medical Imaging segment reduced spending by $1.3 million, primarily due to
cost reduction efforts associated with the Company's restructuring plan.
The Company recorded restructuring costs and unusual items of $69.2
million in the third quarter of fiscal 2000 (Note 7), consisting of $54.2
million in the Medical Imaging segment and $15.0 million in the Dental Imaging
segment. Over the next 12 months, the Company expects to record an additional
$1.6 million of costs for certain employee retention agreements.
Interest income increased to $109,000 in the third quarter of fiscal 2000,
from $37,000 in the third quarter of 1999. Interest expense includes interest
associated with the Company's $8.0 million principal amount 4.2% subordinated
convertible note issued to ThermoTrex Corporation and, in fiscal 1999,
short-term borrowings in the Dental Imaging segment.
12
TREX MEDICAL CORPORATION
Third Quarter Fiscal 2000 Compared With Third Quarter Fiscal 1999 (continued)
- -----------------------------------------------------------------
The provision for income taxes during the third quarter of fiscal 2000
primarily reflects the establishment of a valuation allowance for $7.1 million
of deferred tax assets. As a result of continuing losses and the planned sale of
the Company's principal operating units, the Company believes that it is more
likely than not that certain tax loss carryforwards and temporary differences
will not be realized within the carryforward period.
Minority interest income (expense) represents earnings and losses
allocable to minority investors in Trophy's joint ventures.
The Company is a defendant in two patent infringement lawsuits and a
lawsuit alleging the Company misappropriated certain other technology owned by a
third party. 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.
The Company's backlog decreased to $43.9 million at July 1, 2000, from
$45.6 million at October 2, 1999, reflecting a $4.6 million decline in the
Medical Imaging Segment, offset in part by a $2.9 million increase in the Dental
Imaging Segment. The Company believes that the decline in the Medical Imaging
segment backlog, as well as continued operating losses and revenue decline,
reflect the impact of market uncertainty associated with the sale of the
Company's principal operating units and resulting uncertainty among customers
and dealers. This uncertainty is particularly evident in the reduced order rate
of high-end cardiac and radiographic/fluoroscopic equipment. The estimates of
disposal value for the Company's principal operating units may differ materially
from the actual proceeds. Any differences will affect the carrying values of the
Company's assets and could result in additional charges or credits in future
periods.
First Nine Months 2000 Compared With First Nine Months 1999
- -----------------------------------------------------------
Revenues decreased to $130.3 million in the first nine months of fiscal
2000 from $188.3 million in the first nine months of fiscal 1999. Revenues in
the Medical Imaging segment decreased $46.3 million to $87.1 million as a result
of lower demand. Sales of breast-imaging products, general-purpose X-ray
systems, and cardiac catheterization systems decreased $25.5 million, $9.0
million, and $11.8 million, respectively. These declines primarily reflect lower
demand across most product lines, market uncertainty associated with the
announced sale of the Company, production and sales shortfalls associated with
the Company's facilities consolidation, and higher prior year mammography sales
as various hospitals and clinics upgraded mammography systems to become
compliant with the year 2000 guidelines established by the Mammography Quality
Standards Act. In addition, a reorganization of the Company's distribution
channels resulted in lower dealer demand. Revenues in the Dental Imaging segment
were $43.2 million in fiscal 2000, compared with $54.9 million in fiscal 1999.
The decline resulted primarily from lower demand in fiscal 2000, compared with
fiscal 1999, which included a $4.1 million sale to a customer in the
Philippines. In addition, revenues in this segment decreased $5.4 million due to
the unfavorable effects of currency translation as a result of the strengthening
in value of the U.S. dollar relative to foreign currencies in countries in which
the segment operates.
Excluding the $20.0 million inventory provision recorded during the third
quarter of fiscal 2000 (Note 7) and $12.0 million of inventory and warranty
provisions recorded during the third quarter of fiscal 1999, the gross profit
margin for the first nine months of fiscal 2000 was 27%, compared with 32%
during fiscal 1999. The gross profit margin decreased primarily due to a lower
contribution toward fixed costs as a result of lower revenues in each segment,
and a less favorable mix of products sold in the Medical Imaging segment.
Selling, general, and administrative expenses as a percentage of revenues
was 33% in the first nine months of fiscal 2000, compared with 29% in the first
nine months of fiscal 1999. Selling, general and administrative expenses as a
percentage of revenues increased in the Medical Imaging segment due to a decline
in revenues. As a result of cost-reduction efforts across the Company, selling,
general, and administrative expenses decreased to $42.6 million in fiscal 2000
from $55.2 million in fiscal 1999. The decrease consisted primarily of a $7.8
million reduction in sales and marketing costs and a $4.8 million decrease in
administrative costs.
13
TREX MEDICAL CORPORATION
First Nine Months 2000 Compared With First Nine Months 1999 (continued)
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Research and development expenses decreased to $11.2 million in the first
nine months of fiscal 2000 from $15.4 million in the first nine months of fiscal
1999. The Medical Imaging segment reduced spending by $3.5 million, primarily
due to cost reduction efforts associated with the Company's restructuring plan.
Research and development expenditures decreased $0.7 million in the Dental
Imaging segment due to the inclusion in fiscal 1999 of development costs for the
RVGui system, which was introduced in fiscal 1999.
The Company recorded net restructuring costs and unusual items of $71.1
million in the first nine months of fiscal 2000 (Note 7). Restructuring charges
and unusual items of $56.9 million were recorded by the Medical Imaging segment
and $15.1 million recorded by the Dental Imaging segment. These charges were
offset in part by a $0.9 million gain from the November 1999 sale of a building
by the Medical Imaging segment. Over the next twelve months, the Company expects
to record an additional $1.6 million of costs for certain employee retention
agreements.
Interest income decreased to $0.3 million in the first nine months of
fiscal 2000 from $0.5 million in the first nine months of fiscal 1999, due to
lower average invested balances resulting from the funding of operating losses
and purchases of Company common stock in fiscal 1999. Interest expense includes
interest associated with the Company's $8.0 million principal amount 4.2%
subordinated convertible note issued to ThermoTrex and short-term borrowings in
the Dental Imaging segment.
The provision for income taxes in the first nine months of fiscal 2000
primarily reflects the establishment of a valuation allowance for deferred tax
assets (Note 7).
Liquidity and Capital Resources
Consolidated working capital was $34.6 million at July 1, 2000, compared
with $74.3 million at October 2, 1999. Included in working capital are cash and
cash equivalents of $6.8 million at July 1, 2000, compared with $8.1 million at
October 2, 1999. In addition, the Company had advances to affiliate of $9.6
million and $8.8 million at July 1, 2000, and October 2, 1999, respectively.
Operating activities used $0.8 million of cash in the first nine months of
fiscal 2000. In addition to funding an operating loss, the Company used $10.1
million to reduce other current liabilities, including acquisition and
restructuring reserves, accrued payroll and employee benefits, accrued warranty
costs, and due to affiliated companies. A decrease in other current assets
provided cash of $10.5 million, resulting primarily from an income tax refund of
$9.8 million. Decreases in inventories resulting from lower sales and the effect
of the facilities consolidation provided cash of $5.2 million. A decrease in
accounts receivable primarily resulting from lower sales provided cash of $4.7
million. An increase in accounts payable provided cash of $4.5 million. The
Company expects to spend an additional $5.0 million of cash for restructuring
costs, including $0.4 million during the remainder of fiscal 2000, $3.0 million
during fiscal 2001, and the balance primarily over the term of facility leases
expiring through 2005.
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 $4.1 million at July 1, 2000, include $2.1
million in calendar 2000 and $2.0 million in calendar 2001.
Excluding the advance to affiliate activity, the Company's investing
activities during fiscal 2000 has primarily consisted of $3.1 million of cash
received for the sale of a building (Note 7) and $2.1 million expended for
purchases of property, plant, and equipment. The Company expects to make capital
expenditures of approximately $0.5 million during the remainder of fiscal 2000.
14
TREX MEDICAL CORPORATION
Liquidity and Capital Resources (continued)
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. Thermo Electron has expressed its willingness to lend the Company up to
$10 million for short-term liquidity should the need arise. Excluding the debt
to ThermoTrex, the Company believes its existing resources and potential
borrowings from Thermo Electron are sufficient to meet the capital requirements
of its existing operations for the foreseeable future.
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 1999.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On May 11, 2000, at the Annual Meeting of Stockholders, the stockholders
elected seven incumbent directors to a one-year term expiring in 2001. 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, Mr.Firooz Rufeh,
and Mr. William J. Webb. Dr. Gyftopoulos, Mr. Keiser, Dr. May, Ms. Olayan,
Mr. Rufeh, and Mr. Webb each received 30,697,625 shares voted in favor of his or
her election and 176,046 shares voted against. Mr. Kirshner received 30,697,507
shares voted in favor of his election and 176,164 shares voted against. No
abstentions or broker nonvotes were recorded on the election of directors.
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
None.
15
TREX MEDICAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 11th day of August 2000.
TREX MEDICAL CORPORATION
/s/ Theo Melas-Kyriazi
--------------------------------------------
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
16
TREX MEDICAL CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule for the period ended July 1, 2000.
27.2 Restated Financial Data Schedule for the period ended July 3, 1999.