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 September 28, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-9567
THERMEDICS INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2788806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
470 Wildwood Street, P.O. Box 2999
Woburn, Massachusetts 01888-1799
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest
practicable date.
Class Outstanding at October 25, 1996
---------------------------- -------------------------------
Common Stock, $.10 par value 36,662,376
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 28, December 30,
(In thousands) 1996 1995
-----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 89,046 $ 37,370
Short-term available-for-sale
investments, at quoted market
value (amortized cost of $67,143 and
$76,682) (includes $1,944 and $2,052
of related party investments) 67,262 77,916
Accounts receivable, less allowances
of $4,384 and $3,982 54,173 41,327
Unbilled contract costs and fees 1,126 1,582
Inventories:
Raw materials and supplies 26,267 21,517
Work in process and finished goods 23,760 21,162
Prepaid income taxes and expenses 8,864 8,645
-------- --------
270,498 209,519
-------- --------
Property, Plant and Equipment, at Cost 34,877 30,302
Less: Accumulated depreciation and
amortization 21,606 17,369
-------- --------
13,271 12,933
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $29,124 and $39,795) 29,020 39,953
-------- --------
Other Assets 5,957 4,171
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 4 and 7) 116,101 101,574
-------- --------
$434,847 $368,150
======== ========
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THERMEDICS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, December 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities
of long-term obligations (includes
$38,000 due to parent company
in 1995) (Notes 4 and 6) $ 5,374 $ 47,420
Accounts payable 16,526 16,336
Accrued payroll and employee benefits 8,879 8,893
Deferred revenue 1,870 1,705
Customer deposits 2,087 2,162
Accrued income taxes 4,978 2,340
Accrued warranty costs 3,792 3,637
Other accrued expenses 14,699 15,307
Due to parent company and affiliates 3,847 1,606
-------- --------
62,052 99,406
-------- --------
Deferred Income Taxes and Other Deferred Items 2,123 2,173
-------- --------
Long-term Obligations:
Subordinated convertible
obligations (Notes 3 and 6) 82,247 44,919
Other 296 282
-------- --------
82,543 45,201
-------- --------
Minority Interest 90,576 54,360
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.10 par value, 100,000,000
shares authorized; 36,817,297 and
33,986,050 shares issued 3,682 3,399
Capital in excess of par value 137,058 120,665
Retained earnings 61,881 42,187
Treasury stock at cost, 173,816 and 2,146
shares (4,954) (42)
Cumulative translation adjustment (124) (88)
Net unrealized gain on available-for-sale
investments 10 889
-------- --------
197,553 167,010
-------- --------
$434,847 $368,150
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMEDICS INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
---------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $65,712 $41,224
------- -------
Costs and Operating Expenses:
Cost of revenues 32,827 23,629
Selling, general and administrative expenses 18,373 10,963
Expenses for research and development 4,546 2,592
------- -------
55,746 37,184
------- -------
Operating Income 9,966 4,040
Interest Income 3,201 2,240
Interest Expense (includes $730 to parent
company in 1996) (993) (768)
Gain on Issuance of Stock by Subsidiaries (Note 5) - 1,838
Gain on Sale of Investments 685 37
------- -------
Income Before Provision for Income Taxes
and Minority Interest 12,859 7,387
Provision for Income Taxes 4,821 2,139
Minority Interest Expense 2,271 1,231
------- -------
Net Income $ 5,767 $ 4,017
======= =======
Earnings per Share $ .15 $ .12
======= =======
Weighted Average Shares 39,072 33,770
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMEDICS INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
---------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $188,624 $128,350
-------- --------
Costs and Operating Expenses:
Cost of revenues 97,523 71,630
Selling, general and administrative expenses 57,162 34,680
Expenses for research and development 13,010 7,822
Nonrecurring costs (Note 7) 12,728 -
-------- --------
180,423 114,132
-------- --------
Operating Income 8,201 14,218
Interest Income 8,162 6,670
Interest Expense (includes $2,142 to parent
company in 1996) (3,530) (2,629)
Gain on Issuance of Stock by Subsidiaries (Note 5) 20,485 2,293
Gain on Sale of Investments 753 37
Other Income - 14
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 34,071 20,603
Provision for Income Taxes 8,512 6,720
Minority Interest Expense 5,865 2,938
-------- --------
Net Income $ 19,694 $ 10,945
======== ========
Earnings per Share $ .52 $ .33
======== ========
Weighted Average Shares 37,773 33,564
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMEDICS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
---------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income $ 19,694 $ 10,945
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,297 4,066
Provision for losses on accounts receivable 883 557
Nonrecurring costs (Note 7) 12,728 -
Gain on issuance of stock by subsidiaries
(Note 5) (20,485) (2,293)
Gain on sale of investments (753) (37)
Minority interest expense 5,865 2,938
Other noncash expenses 379 839
Decrease in deferred income taxes (32) (45)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (9,124) (1,740)
Inventories and unbilled contract
costs and fees (1,612) (9,590)
Prepaid income taxes and expenses (184) (553)
Accounts payable (786) 2,630
Other current liabilities 648 (1,338)
-------- --------
Net cash provided by operating
activities 14,518 6,379
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 4) (32,594) (4,127)
Acquisition of product line (4,437) -
Proceeds from sale and maturities of
available-for-sale investments 95,318 72,121
Purchases of available-for-sale investments (74,353) (72,675)
Purchases of property, plant and equipment (4,540) (3,339)
Other 3 (3)
-------- --------
Net cash used in investing
activities $(20,603) $ (8,023)
-------- --------
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THERMEDICS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
---------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company
and subsidiary common stock (Note 5) $ 46,923 $ 1,249
Proceeds from issuance of note payable
to parent company (Note 4) 15,000 -
Repayment of notes payable to parent
company (Notes 4 and 6) (53,000) -
Net proceeds from issuance of subordinated
convertible debentures (Note 6) 63,205 -
Purchases of Company and subsidiary
common stock (9,695) (179)
Repayment and repurchase of long-term
obligations (2,432) (132)
Net decrease in short-term borrowings (1,944) (1,961)
-------- --------
Net cash provided by (used in)
financing activities 58,057 (1,023)
-------- --------
Exchange Rate Effect on Cash (296) (172)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 51,676 (2,839)
Cash and Cash Equivalents at Beginning of Period 37,370 37,043
-------- --------
Cash and Cash Equivalents at End of Period $ 89,046 $ 34,204
======== ========
Noncash Activities (Note 4):
Fair value of assets of acquired companies $ 39,279 $ 5,228
Cash paid for acquired companies (33,562) (4,157)
-------- --------
Liabilities assumed of acquired companies $ 5,717 $ 1,071
======== ========
Conversions of the Company's and subsidiaries'
subordinated convertible obligations $ 27,415 $ 21,571
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMEDICS INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermedics Inc. (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
September 28, 1996, the results of operations for the three- and
nine-month periods ended September 28, 1996 and September 30, 1995, and
the cash flows for the nine-month periods ended September 28, 1996 and
September 30, 1995. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 30, 1995,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995, filed
with the Securities and Exchange Commission.
2. Transfer of Common Stock
In January 1996, the Company issued 1,688,161 shares of its common
stock to Thermo Electron Corporation (Thermo Electron) in exchange for
472,799 shares of common stock of the Company's Thermo Voltek Corp.
(Thermo Voltek) subsidiary and 794,947 shares of common stock of the
Company's Thermo Cardiosystems Inc. (Thermo Cardiosystems) subsidiary.
In April 1996, the Company issued 299,112 shares of its common
stock to Thermo Electron in exchange for 161,250 shares of Thermo Voltek
common stock and 135,000 shares of Thermo Cardiosystems common stock.
The shares of common stock were exchanged at their respective fair
market values on the dates of the transactions. Share information for
Thermo Cardiosystems and Thermo Voltek has been restated to reflect
three-for-two stock splits effected in the form of 50% stock dividends,
distributed in May 1996 and August 1996, respectively.
3. Redemption of Convertible Debentures
In February 1996, the Company called for redemption on March 11,
1996, all of the outstanding principal amount of its 6 1/2% subordinated
convertible debentures due 1998. During the three months ended March 30,
1996, approximately $7,780,000 of the outstanding principal amount of the
debentures was converted into shares of the Company's common stock.
4. Acquisitions
In January 1996, the Company's Thermedics Detection Inc.
(Thermedics Detection) subsidiary acquired the assets of Moisture Systems
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THERMEDICS INC.
4. Acquisitions (continued)
Corporation, based in Hopkinton, Massachusetts, and certain affiliated
companies (collectively, Moisture Systems), and the stock of
Netherlands-based Rutter & Co. (Rutter) for a total purchase price of
$22.8 million in cash, which included the repayment of $1.8 million of
debt. Moisture Systems and Rutter design, manufacture, and sell
instruments that use infrared X-ray imaging techniques to measure
moisture in the manufacturing process for the food, forest, paper,
pharmaceutical, and chemical industries. In connection with these
acquisitions, the Company borrowed $15.0 million from Thermo Electron
pursuant to a promissory note due February 1997, and bearing interest at
the 90-day Commercial Paper Composite Rate plus 25 basis points, set at
the beginning of each quarter. In September 1996, the Company repaid the
promissory note with proceeds from the sale of subordinated convertible
debentures (Note 6).
During the first nine months of 1996, the Company made other
acquisitions for approximately $10.8 million in cash.
These acquisitions have been accounted for using the purchase
method of accounting and their results of operations have been included
in the accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the
estimated fair value of the acquired net assets by $27.7 million, which
is being amortized over 40 years. Allocation of the purchase price for
these acquisitions was based on estimates of the fair value of the net
assets acquired and is subject to adjustment upon finalization of the
purchase price allocation. Pro forma data is not presented since these
acquisitions were not material to the Company's results of operations and
financial position.
5. Issuance of Stock by Subsidiaries
In March 1996, Thermedics Detection issued 300,000 shares of its
common stock in a private placement at $10.00 per share, for net proceeds
of $3.0 million, resulting in a gain of $2.5 million. Following the
private placement, the Company owned 97% of Thermedics Detection's
outstanding common stock.
In April 1996, the Company's Thermo Sentron Inc. (Thermo Sentron)
subsidiary issued 2,875,000 shares of its common stock in an initial
public offering at $16.00 per share, for net proceeds of approximately
$42.3 million, resulting in a gain of $18.0 million. Following the
initial public offering, the Company owned 71% of Thermo Sentron's
outstanding common stock.
6. Subordinated Convertible Debentures
In May 1996, the Company issued and sold $65 million principal
amount of noninterest-bearing subordinated convertible debentures due
2003, for net proceeds of $63.2 million. The debentures are convertible
into shares of the Company's common stock at a price of $32.68 per share.
In September 1996, the Company repaid its $15.0 million and $38.0 million
promissory notes to Thermo Electron with proceeds from the offering.
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THERMEDICS INC.
7. Nonrecurring Costs
The primary growth focus of the Company has become technology for
improved product quality and implantable left ventricular-assist systems.
The Company no longer expects to reinvest in its enteral nutrition-
delivery business. The Company's analysis indicates that the expected
future undiscounted cash flow from this business will be insufficient to
recover the Company's investment. Accordingly, in the second quarter of
1996, the Company recorded nonrecurring expenses of $12.7 million for the
write-off of cost in excess of net assets of acquired company and certain
other intangible assets associated with its Corpak subsidiary.
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. These statements involve a number of risks and
uncertainties, including those detailed in Item 5 of this Quarterly
Report on Form 10-Q.
Overview
The Company's business can be divided into two segments:
Instruments and Other Equipment, and Biomedical Products. The Instruments
and Other Equipment segment includes Thermo Sentron Inc. (Thermo
Sentron), which designs, develops, manufactures, and sells high-speed
precision-weighing and inspection equipment for industrial production and
packaging lines. The Instruments and Other Equipment segment also
includes the former Orion laboratory products division (Orion) of
Analytical Technology, Inc., which was acquired in December 1995. Orion
is a manufacturer of electrochemistry, microweighing, process, and other
instruments used to analyze the chemical compositions of foods,
beverages, and pharmaceuticals and to detect contaminants in
environmental and high-purity water samples. The Instruments and Other
Equipment segment, through the Company's Thermedics Detection Inc.
(Thermedics Detection) subsidiary, also develops, manufactures, and
markets high-speed detection instruments, including the Alexus (R)
system, a process-detection instrument used in product quality assurance
applications in the beverage industry, and the EGIS (R) system, a
security instrument used to detect explosives at airports and other
locations. As a result of the January 1996 acquisition of Moisture
Systems Corporation and certain affiliated companies (collectively,
Moisture Systems) and Rutter & Co. (Rutter) by Thermedics Detection, the
Company now offers a full range of infrared moisture analyzers for the
food, forest, paper, pharmaceutical, and chemical industries. Through the
Company's Thermo Voltek Corp. (Thermo Voltek) subsidiary, the Instruments
and Other Equipment segment also includes a line of electronic-test
instruments and high-voltage power conversion systems.
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THERMEDICS INC.
Overview (continued)
As part of its Biomedical Products segment, the Company's Thermo
Cardiosystems Inc. (Thermo Cardiosystems) subsidiary has developed two
versions of its implantable left ventricular-assist system (LVAS), a
pneumatic, or air-driven, system and an electric unit. In October 1994,
the Company announced that the U.S. Food and Drug Administration (FDA)
granted approval for the commercial sale in the U.S. of the air-driven
LVAS for use as a bridge to heart transplant. With this approval, the
air-driven system is available for sale to cardiac centers throughout the
U.S. The electric version of the LVAS, which is currently being used in
clinical trials in the U.S. for patients awaiting heart transplants,
received the European Conformity Mark (CE Mark) in August 1995, allowing
commercial sale in all European Community countries. The air-driven LVAS
was granted the CE Mark in early 1994. In late 1995, the FDA approved the
protocol for conducting clinical trials of the electric LVAS as an
alternative to conventional medical therapy in the U.S. In April 1996,
the first implant under this clinical trial was performed using the LVAS
as an alternative for nontransplant candidates. Until the Company's
electric LVAS receives FDA commercial approval, sales of the electric
LVAS will fluctuate depending upon the number of implants performed in
ongoing studies at approved clinical sites and the number of
implementation programs sold. The Company also develops, manufactures,
and markets enteral nutrition-delivery systems and a line of polymers
used in medical disposables and for nonmedical, industrial applications,
including safety glass and automotive coatings.
Results of Operations
Third Quarter 1996 Compared With Third Quarter 1995
Total revenues in the third quarter of 1996 were $65.7 million,
compared with $41.2 million in the third quarter of 1995. Instruments and
Other Equipment segment revenues increased to $54.4 million in 1996 from
$32.9 million in 1995, primarily due to the inclusion of $17.8 million in
revenues from acquired businesses, principally Orion, which was acquired
in December 1995, and Moisture Systems and Rutter, which were acquired in
January 1996. Thermedics Detection sales of process-detection instruments
to the beverage industry increased slightly to $4.1 million in 1996 from
$3.9 million in 1995. Revenues from Thermo Voltek increased $3.4 million
due to the inclusion of $1.5 million in revenues from an acquired
business and an increase in revenues at its Comtest subsidiary from sales
of electrostatic-discharge test equipment and its introduction of a new
product line in 1995. In addition, Thermo Voltek experienced increased
demand for electromagnetic compatibility test equipment at its Keytek
subsidiary and increased shipments during the quarter at its Kalmus
subsidiary.
Biomedical Products segment revenues increased to $11.3 million in
the third quarter of 1996 from $8.3 million in the third quarter of 1995,
primarily due to an increase in revenues of $2.5 million in 1996 from
Thermo Cardiosystems as a result of a 108% increase in the number of
air-driven and electric LVAS units shipped for subsequent implant and, to
a lesser extent, an 11% increase in the number of LVAS implementation
programs sold during the third quarter of 1996.
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THERMEDICS INC.
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
The gross profit margin was 50% in the third quarter of 1996,
compared with 43% in the third quarter of 1995. The gross profit margin
for the Instruments and Other Equipment segment increased to 48% in 1996
from 40% in 1995, primarily due to the inclusion of higher-margin
revenues at Orion, Moisture Systems, and Rutter.
The gross profit margin for the Biomedical Products segment
increased to 58% in the third quarter 1996 from 52% in the third quarter
of 1995, primarily due to an increase in sales volume at Thermo
Cardiosystems.
Selling, general and administrative expenses as a percentage of
revenues increased to 28% in the third quarter of 1996 from 27% in the
third quarter of 1995, primarily due to a result of higher expenses as a
percentage of revenues at the newly acquired Orion, Moisture Systems, and
Rutter subsidiaries and, to a lesser extent, Thermo Sentron's increased
selling and marketing expenses for newly introduced products. Research
and development expenses as a percentage of revenues increased to 6.9% in
the third quarter of 1996 from 6.3% in the third quarter of 1995,
primarily due to increased research and development expenses at
Thermedics Detection.
Thermo Cardiosystems has signed a letter of intent to acquire a
company principally engaged in research and development for a purchase
price of $5.0 million. Should Thermo Cardiosystems complete the
acquisition, it expects that a substantial portion of the purchase price
would represent acquired technology under development and, accordingly,
would be recorded as an expense in the period in which the acquisition
occurs.
Interest income increased to $3.2 million in the third quarter of
1996 from $2.2 million in the third quarter of 1995, primarily due to
higher invested balances following the Company's May 1996 issuance of
noninterest-bearing subordinated convertible debentures (Note 6) and
Thermo Sentron's April 1996 initial public offering of common stock
(Note 5). Interest expense increased to $1.0 million in 1996 from $0.8
million in 1995 as a result of additional borrowings by the Company to
fund acquisitions, offset in part by a decrease in interest expense due
to conversions of subordinated convertible obligations.
The effective tax rate in the third quarter of 1996 exceeded the
federal income tax rate primarily due to the impact of state income taxes
and nondeductible amortization of cost in excess of net assets of
acquired companies. The effective tax rate in the third quarter of 1995
was below the statutory federal income tax rate primarily due to the
nontaxable gain on the issuance of stock by subsidiary.
Minority interest expense increased to $2.3 million in the third
quarter of 1996 from $1.2 million in the third quarter of 1995 due to
higher profits at the Company's 54%-owned Thermo Cardiosystems subsidiary
and 52%-owned Thermo Voltek subsidiary and, to a lesser extent, the
minority interest associated with the Company's newly public 71%-owned
Thermo Sentron subsidiary.
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THERMEDICS INC.
First Nine Months 1996 Compared With First Nine Months 1995
Total revenues in the first nine months of 1996 were $188.6
million, compared with $128.4 million in the first nine months of 1995.
Instruments and Other Equipment segment revenues increased to $155.9
million in 1996 from $98.5 million in 1995, primarily due to the
inclusion of $50.6 million in revenues from acquired businesses,
principally Orion, which was acquired in December 1995, and Moisture
Systems and Rutter, which were acquired in January 1996. Thermedics
Detection process-detection instrument sales to the beverage industry
declined to $10.7 million in 1996 from $14.6 million in 1995, primarily
due to a decrease in demand from Thermedics Detection's principal
customer, which has substantially completed its deployment of Alexus
product quality assurance systems. Revenues from Thermo Voltek increased
$10.0 million due to the reasons discussed in the results of operations
for the third quarter and $1.1 million due to the inclusion of revenues
from its Kalmus division, which was acquired in March 1995, for the full
nine months.
Biomedical Products segment revenues increased to $32.8 million in
the first nine months of 1996 from $29.8 million in the first nine months
of 1995. Revenues from Thermo Cardiosystems increased $6.7 million,
primarily due to a 56% increase in the number of air-driven and electric
LVAS units shipped for subsequent implant and a 38% increase in the
number of LVAS implementation programs sold during the first nine months
of 1996. This increase was offset in part by a decline of $4.3 million in
revenues from Scent Seal fragrance samplers. In June 1995, the Company
entered into an agreement with a third party granting an exclusive
license to all of its patents and know-how relating to the Scent Seal
fragrance samplers. The Company recorded royalty income of $308,000 in
the first nine months of 1996 related to this agreement.
The gross profit margin was 48% in the first nine months of 1996,
compared with 44% in the first nine months of 1995. The gross profit
margin for the Instruments and Other Equipment segment increased to 47%
in 1996 from 43% in 1995, primarily due to the inclusion of higher-margin
revenues at Orion, Moisture Systems, and Rutter.
The gross profit margin for the Biomedical Products segment
increased to 55% in the first nine months of 1996 from 49% in the first
nine months of 1995, primarily due to an increase in revenues at Thermo
Cardiosystems from higher-margin implementation programs, an increase in
sales volume and, to a lesser extent, improvements in manufacturing
efficiencies. These increases were offset in part by inventory write-offs
at the Company's Corpak subsidiary associated with discontinued product
lines. In addition, the first nine months of 1995 included lower-margin
revenues from Scent Seal fragrance samplers.
Selling, general and administrative expenses as a percentage of
revenues increased to 30% in the first nine months of 1996 from 27% in
the first nine months of 1995, primarily due to higher expenses as a
percentage of revenues at the newly acquired Orion, Moisture Systems, and
Rutter subsidiaries and, to a lesser extent, at Thermedics Detection.
Thermedics Detection incurred costs related to a reduction in personnel
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THERMEDICS INC.
First Nine Months 1996 Compared With First Nine Months 1995 (continued)
and a reduction in leased space in response to the lower sales volume of
process-detection instruments to the beverage industry. Research and
development expenses as a percentage of revenues increased to 6.9% in the
first nine months of 1996 from 6.1% in the first nine months of 1995,
primarily due to increased research and development expenses at
Thermedics Detection.
The primary growth focus of the Company has become technology for
improved product quality and implantable left ventricular-assist systems.
The Company no longer expects to reinvest in its enteral nutrition-
delivery business. The Company's analysis indicates that the expected
future undiscounted cash flow from this business will be insufficient to
recover the Company's investment. Accordingly, in the second quarter of
1996, the Company recorded nonrecurring expenses of $12.7 million for the
write-off of cost in excess of net assets of acquired company and certain
other intangible assets associated with its Corpak subsidiary.
Interest income increased to $8.2 million in the first nine months
of 1996 from $6.7 million in the first nine months of 1995. Interest
expense increased to $3.5 million in 1996 from $2.6 million in 1995.
These increases are primarily due to the reasons discussed in the results
of operations for the third quarter.
Gain on issuance of stock by subsidiaries of $20.5 million in the
first nine months of 1996 resulted primarily from Thermo Sentron's April
1996 initial public offering of shares of its common stock and, to a
lesser extent, Thermedics Detection's March 1996 private placement of
shares of its common stock (Note 5).
The effective tax rate in the first nine months of 1996 was below
the statutory federal income tax rate primarily due to the nontaxable
gain on the issuance of stock by subsidiaries, offset in part by the
nondeductible write-off of intangible assets at the Company's Corpak
subsidiary (Note 7), as well as the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies. The effective tax rate in the first nine months of 1995 was
below the statutory federal income tax rate primarily due to nontaxable
gains on the issuance of stock by subsidiary.
Minority interest expense increased to $5.9 million in the first
nine months of 1996 from $2.9 million in the first nine months of 1995
due to the reasons discussed in the results of operations for the third
quarter.
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THERMEDICS INC.
Liquidity and Capital Resources
Consolidated working capital was $208.4 million at September
28, 1996, compared with $110.1 million at December 30, 1995. Cash, cash
equivalents, and short- and long-term available-for-sale investments were
$185.3 million at September 28, 1996, compared with $155.2 million at
December 30, 1995. Of the $185.3 million balance at September 28, 1996,
$91.0 million was held by Thermo Cardiosystems, $33.2 million by Thermo
Sentron, $28.4 million by Thermo Voltek, $8.1 million by Thermedics
Detection, and the remainder by the Company and its wholly owned
subsidiaries.
During the first nine months of 1996, $14.5 million of cash was
provided by operating activities. The Company used cash of $9.1 million
to fund an increase in accounts receivable primarily due to increased
sales at Thermo Voltek and Thermo Cardiosystems.
In January 1996, the Company acquired the assets of Moisture
Systems and the stock of Rutter, for a total purchase price of $22.8
million in cash, which included the repayment of $1.8 million of debt. In
connection with these acquisitions, the Company borrowed $15.0 million
from Thermo Electron Corporation (Thermo Electron) pursuant to a
promissory note due February 1997 (Note 4). In September 1996, the
Company repaid the promissory note with proceeds from the sale of
subordinated convertible debentures (Note 6). During the first nine
months of 1996, the Company made other acquisitions for approximately
$10.8 million in cash.
In March 1996, Thermedics Detection issued shares of its common
stock in a private placement for net proceeds of $3.0 million (Note 5).
In April 1996, Thermo Sentron issued shares of its common stock in an
initial public offering for net proceeds of approximately $42.3 million.
Thermo Sentron used part of the proceeds from the offering to repay $12.6
million in short-term borrowings from Thermo Electron and third parties
(Note 5).
In May 1996, the Company issued and sold $65 million principal
amount of noninterest-bearing subordinated convertible debentures due
2003, for net proceeds of $63.2 million (Note 6). In September 1996, the
Company repaid its $15.0 million and $38.0 million promissory notes to
Thermo Electron with proceeds from the offering.
The Company intends, for the foreseeable future, to maintain at
least 50% ownership of Thermo Cardiosystems, Thermo Voltek, and Thermo
Sentron. This may require the purchase by the Company of additional
shares of common stock or, if applicable, convertible debentures (which
are then converted) of these companies from time to time, as the number
of the companies' outstanding shares increases, whether as a result of
conversion of convertible notes or exercise of stock options issued by
them, or otherwise. These or any other purchases may be made either in
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THERMEDICS INC.
Liquidity and Capital Resources (continued)
the open market or directly from Thermo Cardiosystems, Thermo Voltek,
Thermo Sentron, or Thermo Electron, or pursuant to the conversion of all
or part of Thermo Voltek's subordinated convertible notes held by the
Company. The Company's and Thermo Cardiosystem's Boards of Directors each
authorized the repurchase, through June 1, 1997 and August 12, 1997,
respectively, of up to $10.0 million of their own securities. The
Company's authorization also includes the repurchase of securities of
Thermo Cardiosystems, Thermo Voltek, and Thermo Sentron. Any such
purchases would be funded from working capital. Through September 28,
1996, the Company had expended $9.7 million under its authorization. As
of September 28, 1996, Thermo Cardiosystems had not expended any funds
under its authorization.
In January 1996, the Company issued 1,688,161 shares of its common
stock to Thermo Electron in exchange for 472,799 shares of Thermo Voltek
common stock and 794,947 shares of Thermo Cardiosystems common stock. In
April 1996, the Company issued 299,112 shares of its common stock to
Thermo Electron in exchange for 161,250 shares of Thermo Voltek common
stock and 135,000 shares of Thermo Cardiosystems common stock. The shares
of common stock were exchanged at their respective fair market values on
the dates of the transactions. Share information for Thermo Cardiosystems
and Thermo Voltek has been restated to reflect three-for-two stock splits
in the form of 50% stock dividends, distributed in May 1996 and August
1996, respectively.
During the first nine months of 1996, the Company expended
$4.5 million on purchases of property, plant and equipment. During the
remainder of 1996, the Company expects to make capital expenditures of
approximately $1.5 million. The Company expects to continue to pursue its
strategy of expanding its business both through the continued
development, manufacture, and sale of new products, and through the
possible acquisition of companies that will provide additional marketing
or manufacturing capabilities and new products. The Company expects that
it will finance these acquisitions through a combination of internal
funds, additional debt or equity financing from the capital markets, or
short-term borrowings from Thermo Electron. The Company believes its
existing resources are sufficient to meet the capital requirements of its
existing operations for the foreseeable future.
PART II - OTHER INFORMATION
Item 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in 1996 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
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THERMEDICS INC.
Item 5 - Other Information (continued)
Risks Associated With Acquisition Strategy. The Company's strategy
includes the acquisition of businesses and technologies that complement
or augment its existing product lines. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory
approval, including antitrust approvals. There can be no assurance that
the Company will be able to complete future acquisitions or that it will
be able to successfully integrate any acquired business. In order to
finance such acquisitions, it may be necessary for the Company to raise
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms which are not favorable
to the Company and, in the case of equity financing, may result in
dilution to the Company's stockholders.
Risks Associated with Spin-Out of Subsidiaries. The Company has
adopted a strategy of spinning out certain of its businesses into
separate subsidiaries and having these subsidiaries sell a minority
interest to outside investors. As a result of the sale of stock by
subsidiaries, the issuance of stock by subsidiaries upon conversion of
convertible debentures and similar transactions, the Company records
gains that represent the increase in the Company's net investment in the
subsidiaries. These gains have represented a substantial portion of the
net income reported by the Company in certain periods. The size and
timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to generate gains from such
transactions in the future.
In addition, in October 1995, the Financial Accounting Standards
Board (FASB) issued an exposure draft of a Proposed Statement of
Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (the "Proposed Statement"). The Proposed Statement
would establish new rules for how consolidated financial statements
should be prepared. If the Proposed Statement is adopted, there could be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
accounted for as a transaction in equity of the consolidated entity with
no gain or loss being recorded. The FASB expects to issue a final
statement or a revised exposure draft in the first quarter of calendar
1997.
International Operations. Sales outside the United States has
accounted for a significant percentage of the Company's total revenues.
The Company intends to continue to expand its presence in international
markets. International sales are subject to a number of risks, including
the following: agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign
customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign
income, impose tariffs or adopt other restrictions on foreign trade;
fluctuations in exchange rates may affect product demand and adversely
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THERMEDICS INC.
Item 5 - Other Information (continued)
affect the profitability in U.S. dollars of products and services
provided by the Company in foreign markets where payment for the
Company's products and services is made in the local currency; U.S.
export licenses may be difficult to obtain; and the protection of
intellectual property in foreign countries may be more difficult to
enforce. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business and results of
operations.
Technological Change and Competition. The market for many of the
Company's products is characterized by changing technology, evolving
industry standards and new product introductions. The Company's future
success will depend in part upon its ability to enhance its existing
products and to develop and introduce new products and technologies to
meet changing customer requirements. The Company is currently devoting
significant resources toward the enhancement of its existing products and
the development of new products and technologies. There can be no
assurance that the Company will successfully complete the enhancement and
development of these products in a timely fashion or that these products
will compete successfully with those of the Company's competitors.
Certain of the Company's competitors have greater resources,
manufacturing and marketing capabilities, technical staff, and production
facilities than those of the Company. As a result, they may be able to
adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion
and sale of their products than can the Company. Competition could
increase if new companies enter the market or if existing competitors
expand their product lines.
Intellectual Property Rights. The Company relies upon trade secret
protection and patents to protect its proprietary rights. There can be no
assurance that patents will issue from any pending or future patent
applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect
the Company's technology and, in the absence of patent protection, the
Company may be vulnerable to competitors who attempt to copy the
Company's products or gain access to its trade secrets and know-how.
Proceedings initiated by the Company to protect its proprietary rights
could result in substantial costs to the Company. There can be no
assurance that competitors of the Company will not initiate litigation to
challenge the validity of the Company's patents, or that they will not
use their resources to design comparable products that do not infringe
the Company's patents. There may also be pending or issued patents held
by parties not affiliated with the Company that relate to the Company's
products or technologies. The Company may need to acquire licenses to, or
contest the validity of, any such patents. There can be no assurance that
any license required under any such patent would be made available on
acceptable terms or that the Company would prevail in any such contest.
The Company could incur substantial costs in defending itself in suits
brought against it or in suits in which the Company may assert its patent
rights against others. If the outcome of any such litigation is
unfavorable to the Company, the Company's business and results of
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THERMEDICS INC.
Item 5 - Other Information (continued)
operations could be materially adversely affected. In addition, the
Company relies on trade secrets and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its
collaborators, employees and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently developed by
competitors.
Uncertainty of Regulatory Approval for Biomedical Devices. The
Thermo Cardiosystems' LVAS are subject to approval by the FDA before they
may be sold for profit in the United States. Thermo Cardiosystems is also
subject to regulatory requirements in foreign countries in which Thermo
Cardiosystems markets its devices. The process of obtaining regulatory
approvals is lengthy, expensive, and inherently uncertain. Even after FDA
approval has been obtained, such approval can be suspended or revoked if
the FDA does not continue to be satisfied with the safety and efficacy of
a product. Failure to comply with applicable regulatory requirements can
result in, among other things, fines, suspensions of approvals, recalls
of products, operating restrictions, and criminal prosecutions.
In October 1994, Thermo Cardiosystems received FDA approval for the
commercial sale of its pneumatic LVAS. In April 1994, Thermo
Cardiosystems received the CE Mark for commercial sale of the pneumatic
LVAS in all European Union countries. Thermo Cardiosystems has developed
the HeartPak(TM), a lightweight, portable console that can be carried
over the shoulder and which can be used as an alternative to the larger
external console approved for use with the pneumatic LVAS. The HeartPak
received the CE mark in February 1995 and the HeartPak is currently in
Phase I clinical trials in the U.S. Thermo Cardiosystems' electric LVAS
is currently in use in clinical trials in the U.S. These trials are
testing the safety and efficacy of the device as both a bridge to
transplant and as an alternative to transplant. The electric LVAS
received the CE Mark in August 1995.
No assurance can be given that Thermo Cardiosystems will file a
supplement to its pre-market approval (PMA) application with the FDA with
respect to the electric LVAS on a timely basis, or at all, or that the
PMA supplement, if filed, will ultimately be approved by the FDA. In
addition, any design changes to Thermo Cardiosystems' LVAS, including use
of the portable console for the pneumatic LVAS, must be approved pursuant
to a supplement to an approved PMA application. Failure of Thermo
Cardiosystems to obtain FDA approval for the commercial sale of the
electric LVAS, either as a bridge to transplant or as an alternative to
transplant, would have a material adverse effect on Thermo Cardiosystems'
long-term growth prospects. In addition, failure of Thermo Cardiosystems
to obtain approval for the HeartPak portable console would require
patients supported by the pneumatic LVAS to remain hospitalized. This
could materially decrease the market for the pneumatic LVAS.
Uncertainty of Patient Reimbursement. The cost of implanting a
cardiac support system is substantial. Without the financial support of
the government or third party insurers, the market for Thermo
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THERMEDICS INC.
Item 5 - Other Information (continued)
Cardiosystems' devices will be limited. Medicare and Medicaid limit the
reimbursement that U.S. hospitals receive for treating certain medical
conditions by setting maximum fees that can be charged to their patients.
Under these systems, hospitals are paid a fixed amount for treating each
patient with a particular diagnosis. Private insurers also have initiated
reimbursement systems designed to slow the escalation of health care
costs. In addition, the federal government is considering, and certain
state governments are considering or have adopted, new health care
policies intended to curb rising health care costs. Such policies include
rationing of government-funded reimbursement for health care services and
imposing price controls upon providers of medical products and services.
These policies could have the effect of limiting the availability of
reimbursement for procedures, such as the implantation of an LVAS, that
involve prolonged treatment of critically ill patients.
In November 1995, the U.S. Health Care Finance Administration (HCFA)
issued a decision that extends Medicare coverage to Thermo Cardiosystems'
HeartMate pneumatic LVAS. Several major nongovernment insurers, including
Blue Cross/Blue Shield of Connecticut, Aetna Life & Casualty Company, and
the health maintenance organization (HMO) U.S. Healthcare, have already
agreed to offer coverage for the pneumatic LVAS. Even though
reimbursement has been established by HCFA and by certain nongovernment
insurers, the amount of available reimbursement may change, and
reimbursement may be denied by an insurer under certain circumstances,
including if it is determined that a procedure was not the most
cost-effective treatment method, was experimental, or was used for an
unapproved indication. No assurance can be given that additional
third-party reimbursement for the pneumatic LVAS will be granted within a
reasonable period of time, or at all. The unavailability of third-party
reimbursement for procedures involving Thermo Cardiosystems' systems
would have a material adverse effect on the Thermo Cardiosystems'
business.
Uncertainty of Opinion Leader Acceptance and Support for LVAS. A
limited number of cardiac surgeons and cardiologists influences medical
device selection and purchase decisions for a large portion of the target
patient population. Thermo Cardiosystems will achieve its business
objectives only if its LVAS are recommended for use by such opinion
leaders. Thermo Cardiosystems has developed working relationships with a
number of leading medical centers, and its existing and proposed LVAS
have been well received by opinion leaders in cardiac surgery and
cardiology. Moreover, since the inception of its work on cardiac support
systems in 1966, Thermo Cardiosystems has relied upon surgical teams at
medical institutions to perform clinical trials that are necessary to
obtain FDA approvals. A continuing working relationship with those and
other institutions will be important to the success of Thermo
Cardiosystems. No assurance can be given that existing relationships and
arrangements can be maintained or that new relationships will be
established. Furthermore, economic, psychological, ethical, and other
concerns may limit acceptance of heart assist devices in general, and
there can be no assurance that markets of sufficient size will develop
for Thermo Cardiosystems' LVAS.
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THERMEDICS INC.
Item 5 - Other Information (continued)
Availability of Components and Raw Materials Used in LVAS. Thermo
Cardiosystems relies on a number of custom-designed components and
materials supplied by other companies to manufacture its LVAS, most of
which are available from a large number of suppliers. These suppliers, in
turn, rely on one or two basis raw materials. In 1992, two major
manufacturers decided to phase out or eliminate their supply of raw
materials for implantable medical devices, which affected the
availability of several components and materials Thermo Cardiosystems
uses in its products. Thermo Cardiosystems has developed and received FDA
approval for the use of several alternative materials, and is in the
process of qualifying certain other alternative materials or developing
alternative sources for the materials no longer supplied by these
manufacturers. While Thermo Cardiosystems believes that it has adequate
supplies of materials and components to meet demand for its products for
the foreseeable future, no assurance can be given that Thermo
Cardiosystems will not experience in the future shortages of certain
materials or components that could delay shipments of its products. The
cost to Thermo Cardiosystems to evaluate and test alternative materials
and components and the time necessary to obtain FDA approval for these
materials are inherently difficult to determine because both time and
cost are dependent on at least two factors: the similarity of the
alternative material or component to the original material or component,
and the amount of third-party testing that may have already been
completed on alternative materials or components. There can be no
assurance that the substitution of alternative materials or components
would not cause delays in Thermo Cardiosystems' LVAS development programs
or adversely affect Thermo Cardiosystems' ability to manufacture and ship
LVAS to meet demand.
Limited Manufacturing and Marketing Experience of Thermo
Cardiosystems. Prior to FDA approval of commercial sale of the pneumatic
LVAS, Thermo Cardiosystems was engaged only in the research and
development of its LVAS. Since that time, Thermo Cardiosystems has been
building its manufacturing, marketing and sales capabilities. While
Thermo Cardiosystems has not experienced difficulties in manufacturing
its LVAS at volumes, cost, and quality levels, sufficient to satisfy the
increased demand resulting from commercial approval, no assurance can be
given that Thermo Cardiosystems will not encounter difficulties as sales
volumes increase or new products or components are approved for
commercial sale. Thermo Cardiosystems does not have experience in the
large-scale commercialization of medical devices. While Thermo
Cardiosystems has added sales and marketing staff and is expanding its
distribution capabilities worldwide, no assurance can be given that
Thermo Cardiosystems will be able to market and sell its products
successfully in high volumes.
Product Liability. Thermo Cardiosystems faces an inherent business
risk of exposure to product liability claims relating to the use of its
products. Although Thermo Cardiosystems currently maintains product
liability insurance against this risk, there can be no assurance that it
will continue to be able to obtain such coverage at economically feasible
rates, if at all, or that such coverage will be adequate in terms and
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THERMEDICS INC.
Item 5 - Other Information (continued)
scope to completely protect Thermo Cardiosystems in the event of a
successful product liability claim.
Effect of Government Regulations and Approvals on Market for Thermo
Sentron's Products. The market for certain of Thermo Sentron's products,
both in the United States and abroad, is subject to or influenced by
various domestic and foreign clean air and consumer protection laws.
Thermo Sentron designs, develops, and markets its products to meet
customer needs created by existing and anticipated regulations, and any
changes in these regulations may adversely affect consumer demand for
Thermo Sentron's products. In addition, the marketing of certain of
Thermo Sentron's products is dependent upon the receipt of regulatory and
other approvals, including industry association approvals of the design,
construction and accuracy of Thermo Sentron's products. Delays in
obtaining, or the failure to obtain, any such approvals could have a
material adverse effect on Thermo Sentron's business and results of
operations.
Effect of Electrical Standards on Demand for Thermo Voltek's
Products. Demand for Thermo Voltek's EMC testing products and services is
driven to a large extent by mandatory government standards and voluntary
industry standards relating to electromagnetic compatibility. In
particular, demand for Thermo Voltek's products results from efforts by
manufacturers to comply with IEC 801, an EC directive that became
effective on January 1, 1996. Although many manufacturers have not yet
complied with IEC 801, as the number of non-complying manufacturers is
reduced over time, demand for Thermo Voltek's products could be adversely
affected. In addition, if new EMC standards requiring new testing
capabilities are enacted less frequently or if EMC standards become less
strict, demand for Thermo Voltek's products could be adversely affected.
Dependence of Thermedics Detection on a Single Customer. The
Company's sales of process- detection instruments for the beverage
industry declined from approximately $38.0 million in 1994 to
approximately $16.2 million in 1995. This decline was due to a decrease
in demand from the Company's principal customer, which has substantially
completed its deployment of Alexus quality assurance systems. In 1995 and
1994, 54% and 85%, respectively, of sales of these products were made to
this customer. The Company continues to provide new Alexus systems,
upgrades and support services to the installed base, has expanded its
customer base, and developed new applications for its process-detection
technology in the food and beverage market. However, no assurance can be
given that the Company will be able to broaden the market for these
products.
Dependence of U.S. Explosives-Detection Market on FAA Regulations
and Airline Industry. The Company has sold a majority of its EGIS
explosives detection instruments for use in airports located outside of
the United States. Subsequent to the crash of TWA Flight 800, the Company
sold its first EGIS systems for use at U.S. airports. Although the U.S.
Federal Aviation Administration (FAA) has provided significant funding to
the Company in connection with the development of its explosives-
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THERMEDICS INC.
Item 5 - Other Information (continued)
detection technology, the FAA has not endorsed any particular product or
technology for use in the detection of explosives. The development of the
U.S. market for explosives-detection products is dependent upon the
identification of parties responsible for methods of purchase of and
sources of funding for explosives-detection equipment. While recent
public and governmental attention to explosives detection technology may
result in increased demand for security products, there can be no
assurance that the U.S. government will recommend or require airports or
airlines to install devices utilizing the technology of the kind used in
the EGIS system or that airlines operating in the U.S. will voluntarily
increase explosives-detection capability or choose the Company's products
in enhancing airport security.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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THERMEDICS INC.
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 4th day of
November 1996.
THERMEDICS INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and
Chief Financial Officer
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THERMEDICS INC.
EXHIBIT INDEX
Exhibit
Number Document Page
------- ------------------------------------------------- ----
10 Stock Holding Assistance Plan and Form of
Promissory Note.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
THERMEDICS INC.
STOCK HOLDINGS ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermedics Inc. (the
"Company") and its stockholders by encouraging Key Employees to
acquire and maintain share ownership in the Company, by
increasing such employees' proprietary interest in promoting the
growth and performance of the Company and its subsidiaries and by
providing for the implementation of the Guidelines.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Thermedics Inc., a Massachusetts corporation.
Guidelines: The Stock Holdings Guidelines for Key Employees
of the Company, as established by the Committee from time to
time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The Thermedics Inc. Stock Holdings Assistance Plan,
as amended from time to time.
SECTION 3. Administration.
The Plan and the Guidelines shall be administered by the
Committee, which shall have authority to interpret the Plan and
the Guidelines and, subject to their provisions, to prescribe,
amend and rescind any rules and regulations and to make all other
determinations necessary or desirable for the administration
thereof. The Committee's interpretations and decisions with
regard to the Plan and the Guidelines and such rules and
regulations as may be established thereunder shall be final and
conclusive. The Committee may correct any defect or supply any
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<PAGE>
omission or reconcile any inconsistency in the Plan or the
Guidelines, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Guidelines that is made in good
faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Guidelines is, in the
judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Guidelines. Such Loans
may be used solely for the purpose of acquiring Common Stock
(other than upon the exercise of stock options or under employee
stock purchase plans) in open market transactions or from the
Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Guidelines,
as the Committee shall determine in its sole and absolute
discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable in five equal annual installments
commencing on the first anniversary date of the making of such
Loan. Each Loan shall also become immediately due and payable in
full, without demand, upon the occurrence of any of the events
set forth in the Note; provided that the Committee may, in its
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<PAGE>
sole and absolute discretion, authorize an extension of the time
for repayment of a Loan upon such terms and conditions as the
Committee may determine.
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<PAGE>
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Guidelines in any respect, or terminate the Plan or the
Guidelines at any time. No such amendment or termination,
however, shall alter or otherwise affect the terms and conditions
of any Loan then outstanding to Key Employee without such Key
Employee's written consent, except as otherwise provided herein
or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Guidelines by the Company, the Board of Directors of the
Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Guidelines shall become effective upon
approval and adoption by the Committee.
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EXHIBIT A
THERMEDICS INC.
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermedics Inc. (the "Company"), or
assigns, ON DEMAND, but in any case on or before [insert date
which is the fifth anniversary of date of issuance] (the
"Maturity Date"), the principal sum of [loan amount in words]
($_______), or such part thereof as then remains unpaid, without
interest. Principal shall be payable in lawful money of the
United States of America, in immediately available funds, at the
principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company, on
each of the first four anniversary dates of the date hereof, an
amount equal to 20% of the initial principal amount of the Note.
Payment of the final 20% of the initial principal amount, if no
demand has been made by the Company, shall be due and payable on
the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holdings Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
5PAGE
<PAGE>
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holdings Assistance Plan and shall be governed by and construed
in accordance with, such Plan and the laws of the Commonwealth of
Massachusetts and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 11
THERMEDICS
Computation of Earnings per Share
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
-----------------------------------------------------------------------------
Computation of Primary
Earnings per Share:
Net Income (a) $ 5,767,000 $ 4,017,000 $19,694,000 $10,945,000
----------- ----------- ----------- -----------
Shares:
Weighted average shares
outstanding 36,645,979 33,770,265 36,333,577 33,564,187
Add: Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 437,281 - 470,830 -
Shares issuable
from assumed
conversion of
subordinated
convertible
debentures 1,988,984 - 968,993 -
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 39,072,244 33,770,265 37,773,400 33,564,187
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .15 $ .12 $ .52 $ .33
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 89,046
<SECURITIES> 67,262
<RECEIVABLES> 58,557
<ALLOWANCES> 4,384
<INVENTORY> 50,027
<CURRENT-ASSETS> 270,498
<PP&E> 34,877
<DEPRECIATION> 21,606
<TOTAL-ASSETS> 434,847
<CURRENT-LIABILITIES> 62,052
<BONDS> 82,543
0
0
<COMMON> 3,682
<OTHER-SE> 193,871
<TOTAL-LIABILITY-AND-EQUITY> 434,847
<SALES> 188,624
<TOTAL-REVENUES> 188,624
<CGS> 97,523
<TOTAL-COSTS> 97,523
<OTHER-EXPENSES> 25,738
<LOSS-PROVISION> 883
<INTEREST-EXPENSE> 3,530
<INCOME-PRETAX> 34,071
<INCOME-TAX> 8,512
<INCOME-CONTINUING> 19,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,694
<EPS-PRIMARY> .52
<EPS-DILUTED> 0
</TABLE>
