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 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 06-1439626
(State or other jurisdiction of
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 Outstanding at April 28, 2000
Common Stock, $.01 par value 31,976,531
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TREX MEDICAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 1, October 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents $ 4,934 $ 8,075
Advance to affiliate - 8,801
Accounts receivable, less allowances of $3,619 and $3,538 47,434 49,137
Inventories:
Raw materials and supplies 36,678 27,312
Work in process 7,689 15,070
Finished goods 10,373 15,730
Deferred tax asset and refundable income taxes 24,019 19,685
Other current assets 1,690 2,357
-------- --------
132,817 146,167
-------- --------
Property, Plant, and Equipment, at Cost (Note 7) 26,353 29,154
Less: Accumulated depreciation and amortization 13,413 13,262
-------- --------
12,940 15,892
-------- --------
Other Assets 607 702
-------- --------
Cost in Excess of Net Assets of Acquired Companies 107,872 114,266
-------- --------
$254,236 $277,027
======== ========
2
TREX MEDICAL CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 1, October 2,
(In thousands except share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Accounts payable $ 18,361 $ 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 574 377
(includes advance from affiliate of $497 in fiscal 2000)
Accrued payroll and employee benefits 4,894 6,487
Accrued warranty costs 6,146 7,696
Customer deposits 4,579 5,231
Accrued commissions 4,916 5,055
Accrued restructuring costs (Note 7) 2,767 3,702
Other accrued expenses (Note 6) 14,137 18,113
Due to affiliated companies 1,371 2,163
-------- --------
65,745 71,889
-------- --------
Deferred Income Taxes 964 964
-------- --------
Long-term Obligations 159 177
-------- --------
Minority Interest 491 216
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 341 341
34,144,056 and 34,139,967 shares issued
Capital in excess of par value 213,032 213,022
Retained earnings 635 14,153
Treasury stock at cost, 2,167,525 and 2,136,725 shares (21,808) (21,634)
Deferred compensation (331) (579)
Accumulated other comprehensive items (Note 4) (4,992) (1,522)
-------- --------
186,877 203,781
-------- --------
$254,236 $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
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues (includes $19 and $1,030 to affiliated companies; Note 2) $41,445 $60,186
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $16 and $760 for revenues to 28,892 43,213
affiliated companies; Note 2)
Selling, general, and administrative expenses 14,279 17,355
Research and development expenses 3,762 5,544
Restructuring costs (Note 7) 938 575
------- -------
47,871 66,687
------- -------
Operating Loss (6,426) (6,501)
Interest Income 67 64
Interest Expense (includes $84 and $85 to related party in 2000 and (97) (85)
1999, respectively)
Other Income (Expense) (61) 52
------- -------
Loss Before Income Taxes and Minority Interest (6,517) (6,470)
Income Tax Benefit 47 2,241
Minority Interest Income (Expense) (106) 25
------- -------
Net Loss $(6,576) $(4,204)
======= =======
Basic and Diluted Loss per Share (Note 3) $ (.21) $ (.13)
======= =======
Basic and Diluted Weighted Average Shares (Note 3) 31,977 32,027
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
TREX MEDICAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues (includes $765 and $1,664 to affiliated companies; Note 2) $ 85,305 $125,115
--------- --------
Costs and Operating Expenses:
Cost of revenues (includes $466 and $1,229 for revenues to 63,425 85,769
affiliated companies; Note 2)
Selling, general, and administrative expenses 28,441 37,667
Research and development expenses 7,717 10,628
Restructuring costs and unusual item, net (Note 7) 1,971 575
--------- ---------
101,554 134,639
--------- ---------
Operating Loss (16,249) (9,524)
Interest Income 225 438
Interest Expense (includes $168 and $169 to related party in 2000 and (198) (169)
1999, respectively)
Other Expense (119) -
--------- ---------
Loss Before Income Taxes and Minority Interest (16,341) (9,255)
Income Tax Benefit 3,123 3,535
Minority Interest Income (Expense) (300) 25
--------- ---------
Net Loss $ (13,518) $ (5,695)
========= =========
Basic and Diluted Loss per Share (Note 3) $ (.42) $ (.17)
========= =========
Basic and Diluted Weighted Average Shares (Note 3) 31,977 32,670
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
5
TREX MEDICAL CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net loss $(13,518) $(5,695)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,830 4,375
Provision for losses on accounts receivable 707 533
Minority interest expense (income) 300 (25)
Gain on sale of property, plant, and equipment (Note 7) (941) -
Other noncash items 74 2,435
Changes in current accounts:
Accounts receivable (222) 16,973
Inventories 2,209 (9,961)
Other current assets (3,816) (4,941)
Accounts payable 3,896 (2,196)
Other current liabilities (6,817) (9,699)
Other - (24)
-------- -------
Net cash used in operating activities (14,298) (8,225)
-------- -------
Investing Activities:
Advances from affiliate, net 9,298 -
Purchases of property, plant, and equipment (1,638) (2,351)
Proceeds from sale of property, plant, and equipment (Note 7) 3,347 -
Other - 4
-------- -------
Net cash provided by (used in) investing activities 11,007 (2,347)
-------- -------
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 (276) (55)
-------- -------
Net cash used in financing activities (266) (22,702)
-------- -------
Exchange Rate Effect on Cash 416 (806)
-------- -------
Decrease in Cash and Cash Equivalents (3,141) (34,080)
Cash and Cash Equivalents at Beginning of Period 8,075 42,709
-------- -------
Cash and Cash Equivalents at End of Period $ 4,934 $ 8,629
======== =======
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 April 1, 2000, the results of
operations for the three- and six-month periods ended April 1, 2000, and April
3, 1999, and the cash flows for the six-month periods ended April 1, 2000, and
April 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 $717,000 and $1,655,000 during the six-month periods ended
April 1, 2000, and April 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's intention to exit this business, the Company does not
expect such sales to occur in the future.
During the three- and six-month periods ended April 1, 2000, the Company
purchased high-transmission cellular (HTC) grids valued at $259,000 and
$462,000, 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 3, 1999, the
Company purchased HTC grids valued at $398,000 and $738,000, respectively.
3. Loss per Share
Basic and diluted loss per share were calculated as follows:
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
(In thousands except per share amounts) 2000 1999 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Net Loss $(6,576) $ (4,204) $(13,518) $ (5,695)
------- -------- -------- --------
Weighted Average Shares 31,977 32,027 31,977 32,670
------- -------- -------- --------
Basic and Diluted Loss per Share $ (.21) $ (.13) $ (.42) $ (.17)
======= ======== ======== ========
Options to purchase 2,025,000 and 1,928,000 shares of common stock for the
second quarter of fiscal 2000 and 1999, respectively, and 2,108,000 and
1,928,000 shares of common stock for the first six 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 due to the Company's
net loss position.
7
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 second quarter of fiscal 2000 and 1999, the Company had comprehensive losses
of $8,426,000 and $8,516,000, respectively. During the first six months of 2000
and 1999, the Company had comprehensive losses of $16,988,000 and $9,675,000,
respectively.
5. Business Segment Information
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
(In thousands) 2000 1999 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Medical Imaging $ 28,935 $ 44,541 $ 56,830 $ 84,449
Dental Imaging 12,510 15,645 28,475 40,666
-------- -------- -------- --------
$ 41,445 $ 60,186 $ 85,305 $125,115
======== ======== ======== ========
Loss Before Income Taxes and Minority Interest:
Medical Imaging (a) $ (4,934) $ (3,447) $(13,435) $ (5,941)
Dental Imaging (b) 79 (1,336) (3) (85)
Corporate (c) (1,571) (1,718) (2,811) (3,498)
-------- -------- -------- ---------
Total operating loss (6,426) (6,501) (16,249) (9,524)
Interest and other income (expense), net (91) 31 (92) 269
-------- -------- -------- ---------
$ (6,517) $ (6,470) $(16,341) $ (9,255)
======== ======== ======== =========
(a) Reflects restructuring costs and unusual item, net, of $0.9 million and $0.6
million in the three months ended April 1, 2000, and April 3, 1999,
respectively, and $1.8 million and $0.6 million in the six months ended
April 1, 2000, and April 3, 1999, respectively.
(b) Reflects restructuring costs of $0.1 million in the six months ended April 1, 2000.
(c) Primarily general and administrative expenses.
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.
8
6. Accrued Acquisition Expenses (continued)
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:
(In thousands) Severance Excess Total
Facilities
- --------------------------------------------------------- ----------- ------------ ----------- -----------
Balance at October 2, 1999 $ 1,430 $ 404 $ 1,834
Usage (1,252) - (1,252)
Currency translation (122) (42) (164)
------- ------ -------
Balance at April 1, 2000 $ 56 $ 362 $ 418
======= ====== =======
The Company expects to pay the severance costs during the third quarter of
fiscal 2000 and the excess-facility costs over the term of facility leases,
which expire primarily through fiscal 2001.
7. Restructuring Costs and Unusual Item
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 six months of fiscal 2000, the Company recorded
restructuring charges of $2,912,000 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.
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.
The Company expects to record approximately $2,300,000 of additional
restructuring and unusual costs, including $1,500,000 during the remainder of
fiscal 2000 and $800,000 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 (Note 9).
9
7. Restructuring Costs and Unusual Item (continued)
A summary of the changes in accrued restructuring costs is as follows:
Facility- Other (b) Total
(In thousands) Severance closing
Costs
- ------------------------------------------------------------ ------------ ---------- ----------- ---------
Balance at October 2, 1999 $ 973 $ 2,250 $ 479 $ 3,702
Provision charged to expense (a) 237 - 2,675 2,912
Usage (765) (212) (2,827) (3,804)
Currency translation (43) - - (43)
------- ------- -------- -------
Balance at April 1, 2000 $ 402 $ 2,038 $ 327 $ 2,767
======= ======= ======== =======
(a) Reflects restructuring costs of $2.8 million and $0.1 million recorded by
the Medical Imaging and Dental Imaging segments, respectively.
(b) Includes provisions in fiscal 2000 of $1.6 million for
facility-consolidation costs incurred during the period and $1.1 million for
retention bonuses.
The aggregate future cash expenditures for restructuring will include
amounts accrued at April 1, 2000, as well as the $2,300,000 of future costs that
are expected to be incurred over the next twelve months. These amounts total
$5.1 million, of which the Company expects to pay $1.2 million during the
remainder of fiscal 2000, $3.2 million during fiscal 2001, and the balance
primarily over the term of facility leases expiring through 2005.
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.
9. Proposed Sale of Company and Related Uncertainties
On January 31, 2000, Thermo Electron announced that it plans to sell the
Company. This action is part of a major reorganization plan under which Thermo
Electron will spin in, spin off, and sell various businesses to focus solely on
its core measurement and detection instruments business. 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. Were this trend to continue, certain of the
Company's assets may become impaired, including primarily inventories, deferred
tax asset, and cost in excess of net assets of acquired companies. It is
reasonably possible that future results could be adversely affected by any
charges necessary to reflect such impairment.
10
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 OEM customer, lower demand for its products resulting from a
decline in the radiographic market, and a decline in sales of cardiac
catheterization systems. In response, the Company initiated certain
restructuring activities in fiscal 1999, including consolidation of
manufacturing facilities and headcount reductions to achieve material cost
improvements and focus on cost efficiencies. The Company substantially completed
implementation of its restructuring plans during the second quarter of fiscal
2000. The Company estimates that it will achieve pretax operating savings of
approximately $18 to $20 million in fiscal 2000 as a result of the cost
reductions. 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, Thermo Electron Corporation announced that it plans
to sell the Company as part of a major reorganization plan (Note 9). 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 $2.3 million of additional costs as they are incurred over the
next twelve months for certain employee retention agreements.
11
Results of Operations
Second Quarter Fiscal 2000 Compared With Second Quarter Fiscal 1999
Revenues decreased to $41.4 million in the second quarter of fiscal 2000
from $60.2 million in the second quarter of fiscal 1999. Revenues in the Medical
Imaging segment decreased $15.6 million to $28.9 million as a result of lower
demand. Sales of breast-imaging products, general-purpose X-ray systems, and
cardiac catheterization systems decreased $10.4 million, $3.6 million, and $1.6
million, respectively. Reduced 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 general-purpose X-ray systems and
cardiac catheterization systems decreased due to lower demand. Revenues in the
Dental Imaging segment were $12.5 million in fiscal 2000, compared with $15.6
million in fiscal 1999. Revenues in this segment decreased $3.1 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 Company operates.
The gross profit margin increased to 30% in the second quarter of fiscal
2000 from 28% in the second quarter of fiscal 1999. The gross profit margin
increased primarily due to lower inventory provisions in the fiscal 2000 period,
cost-reduction efforts across the Company, and the facility consolidation in the
Medical Imaging segment.
Selling, general, and administrative expenses as a percentage of revenues
was 34% in the second quarter of fiscal 2000, compared with 29% in the second
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 $14.3 million in
fiscal 2000 from $17.4 million in fiscal 1999. The decrease consisted primarily
of a $2.1 million reduction in sales and marketing costs and a $1.0 million
decrease in administrative costs.
Research and development expenses decreased to $3.8 million in the second
quarter of fiscal 2000 from $5.5 million in the second quarter of fiscal 1999.
The Medical Imaging segment reduced spending by $1.5 million, primarily due to
cost reduction efforts associated with the Company's restructuring plan.
The Company recorded restructuring costs of $0.9 million in the second
quarter of fiscal 2000 (Note 7), primarily in the Medical Imaging segment. Over
the next twelve months, the Company expects to record an additional $2.3 million
of costs for certain employee retention agreements.
Interest income was unchanged at $0.1 million in the second quarter of
fiscal 2000 and 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 short-term borrowings in the Dental Imaging
segment.
The effective tax rate for the second quarter of fiscal 2000 reflects the
establishment of a valuation allowance against the tax benefit associated with
losses arising during the quarter. Management believes that sufficient
uncertainty exists regarding the realizability of the tax benefit for losses
arising during the quarter that a valuation allowance is required.
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.
12
Second Quarter Fiscal 2000 Compared With Second Quarter Fiscal 1999 (continued)
The Company's backlog decreased to $37.9 million at April 1, 2000, from
$45.6 million at October 2, 1999, including a $6.7 million decline in the
Medical Imaging Segment and a $1.0 million decline in the Dental Imaging
Segment. The Company believes that the decline in the Medical Imaging segment
backlog reflects the impact of market uncertainty associated with the sale of
the Company. This uncertainty is particularly evident in the reduced order rate
of high-end cardiac and radiographic/fluoroscopic equipment. Reduced backlog in
the Dental Imaging segment primarily reflects the timing of various
international orders. 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. Were this
trend to continue, certain of the Company's assets may become impaired,
including primarily inventories, deferred tax asset, and cost in excess of net
assets of acquired companies. It is reasonably possible that future results
could be adversely affected by any charges necessary to reflect such impairment.
First Six Months 2000 Compared With First Six Months 1999
Revenues decreased to $85.3 million in the first six months of fiscal 2000
from $125.1 million in the first six months of fiscal 1999. Revenues in the
Medical Imaging segment decreased $27.6 million to $56.8 million as a result of
lower demand. Sales of breast-imaging products, general-purpose X-ray systems,
and cardiac catheterization systems decreased $14.9 million, $9.5 million, and
$3.2 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 facility
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 $28.5 million in fiscal
2000, compared with $40.7 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 and other one-time shipments
totaling $2.2 million. In addition, revenues in this segment decreased $5.2
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 Company operates.
The gross profit margin decreased to 26% in the first six months of fiscal
2000 from 31% in the first six months of 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, a less favorable mix of products sold in the
Medical Imaging segment, and operating inefficiencies associated with the
facility consolidation in the Medical Imaging segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 33% in the first six months of fiscal 2000 from 30% in the first
six 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 $28.4 million in fiscal 2000
from $37.7 million in fiscal 1999. The decrease consisted primarily of a $6.5
million reduction in sales and marketing costs and a $2.8 million decrease in
administrative costs.
Research and development expenses decreased to $7.7 million in the first
six months of fiscal 2000 from $10.6 million in the first six months of fiscal
1999. The Medical Imaging segment reduced spending by $2.3 million, primarily
due to cost reduction efforts associated with the Company's restructuring plan.
Research and development expenditures decreased $0.6 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.
13
First Six Months 2000 Compared With First Six Months 1999 (continued)
The Company recorded net restructuring costs and unusual item of $2.0
million in the first six months of fiscal 2000 (Note 7). Restructuring charges
of $2.9 million represent $2.8 million recorded by the Medical Imaging segment
and $0.1 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 $2.3 million of costs for certain employee retention
agreements.
Interest income decreased to $0.2 million in the first six months of
fiscal 2000 from $0.4 million in the first six months of fiscal 1999, due to
lower average invested balances resulting from purchases of Company common stock
in fiscal 1999 and the funding of operating losses. Interest expense includes
interest associated with the Company's $8.0 million principal amount 4.2%
subordinated convertible note issued to ThermoTrex Corporation and short-term
borrowings in the Dental Imaging segment.
The effective tax rate for the first six months of fiscal 2000 reflects
the establishment of a valuation allowance against the tax benefit associated
with losses arising during the second quarter. Management believes that
sufficient uncertainty exists regarding the realizability of the tax benefit for
losses arising during the quarter that a valuation allowance is required.
Liquidity and Capital Resources
Consolidated working capital was $67.1 million at April 1, 2000, compared
with $74.3 million at October 2, 1999. Included in working capital are cash and
cash equivalents of $4.9 million at April 1, 2000, compared with $8.1 million at
October 2, 1999. In addition, the Company had advances to affiliate of $8.8
million at October 2, 1999. In May 2000, the Company received an income tax
refund of $9.8 million.
Operating activities used $14.3 million of cash in the first six months of
fiscal 2000. In addition to funding an operating loss, the Company used $6.8
million to reduce other current liabilities, including acquisition and
restructuring reserves, accrued payroll and employee benefits, accrued warranty
costs, and due to affiliated companies, and $4.4 million to fund an increase in
deferred tax asset. An increase in accounts payable provided cash of $3.9
million. Decreases in inventories resulting from lower sales and the effect of
the facilities consolidation provided cash of $2.2 million. The Company expects
to spend an additional $5.1 million of cash for restructuring costs, including
$1.2 million during the remainder of fiscal 2000, $3.2 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 $4.4 million at April 1, 2000, include $2.4
million in calendar 2000 and $2.0 million in calendar 2001.
Excluding the advance to affiliate activity, the Company's investing
activities during the quarter primarily consisted of $3.1 million of cash
received for the sale of a building (Note 7) and $1.6 million expended for
purchases of property, plant, and equipment. The Company expects to make capital
expenditures of approximately $1.0 million during the remainder of fiscal 2000.
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.
14
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 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 February 1, 2000, the Company filed a Current Report on Form 8-K dated
January 31, 2000, with respect to the proposed sale of the Company by its
ultimate parent company, Thermo Electron Corporation, as part of a major
reorganization plan.
15
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 15th day of May 2000.
TREX MEDICAL CORPORATION
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
16
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.1 Letter agreement between William Webb and Thermo Electron Corporation dated March 1,
2000, March 6, 2000, and March 13, 2000, relating to retention and transaction bonuses
and severance payments.
10.2 Letter agreement between Ira Miller and Thermo Electron
Corporation dated March 1, 2000, relating to retention and
transaction bonuses and severance payments.
10.3 Letter agreement between Jerry Roda and Thermo Electron Corporation dated March 1, 2000,
relating to retention bonuses and severance payments.
27.1 Financial Data Schedule for the period ended April 1, 2000.
27.2 Restated Financial Data Schedule for the period ended April 3, 1999.