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 27, 1997.
[ ] 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 September 27, 1997
---------------------------- ---------------------------------
Common Stock, $.10 par value 36,711,806
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 27, December 28,
(In thousands) 1997 1996
-----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $165,419 $ 82,800
Short-term available-for-sale investments,
at quoted market value (amortized cost of
$60,291 and $64,950; includes $1,937 of
related-party investments in 1996) 60,404 65,054
Accounts receivable, less allowances of
$4,151 and $4,641 62,651 62,783
Inventories:
Raw materials and supplies 25,116 28,210
Work in process 19,282 10,719
Finished goods 17,107 15,301
Prepaid income taxes and expenses 15,329 14,713
-------- --------
365,308 279,580
-------- --------
Property, Plant, and Equipment, at Cost 53,917 48,892
Less: Accumulated depreciation and
amortization 32,385 27,342
-------- --------
21,532 21,550
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $23,392 and $33,929) 23,444 33,920
-------- --------
Other Assets 9,992 7,885
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 115,325 113,764
-------- --------
$535,601 $456,699
======== ========
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THERMEDICS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 27, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 7,491 $ 9,017
Accounts payable 18,738 19,615
Accrued payroll and employee benefits 11,232 11,951
Deferred revenue 2,243 1,397
Accrued income taxes 10,881 5,438
Accrued warranty costs 3,843 3,971
Other accrued expenses 18,894 18,421
Due to parent company and affiliated companies 2,661 1,600
-------- --------
75,983 71,410
-------- --------
Deferred Income Taxes and Other Deferred Items 1,251 1,382
-------- --------
Long-term Obligations:
Subordinated convertible obligations (Note 4) 143,450 74,345
Other 14 14
-------- --------
143,464 74,359
-------- --------
Minority Interest 94,307 97,966
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 100,000,000
shares authorized; 36,846,175 and
36,842,500 shares issued 3,685 3,684
Capital in excess of par value 114,264 138,433
Retained earnings 108,678 74,542
Treasury stock at cost, 134,369 and 166,144
shares (3,728) (4,729)
Cumulative translation adjustment (2,409) (409)
Net unrealized gain on available-for-sale
investments 106 61
-------- --------
220,596 211,582
-------- --------
$535,601 $456,699
======== ========
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 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $76,217 $74,202
------- -------
Costs and Operating Expenses:
Cost of revenues 38,433 36,534
Selling, general, and administrative expenses 20,335 20,290
Research and development expenses 5,941 5,464
------- -------
64,709 62,288
------- -------
Operating Income 11,508 11,914
Interest Income 3,531 3,201
Interest Expense (1,202) (993)
Gain on Sale of Investments 427 685
------- -------
Income Before Provision for Income Taxes and
Minority Interest 14,264 14,807
Provision for Income Taxes 5,453 5,569
Minority Interest Expense 2,147 2,879
------- -------
Net Income $ 6,664 $ 6,359
======= =======
Earnings per Share $ .17 $ .16
======= =======
Weighted Average Shares 38,898 39,072
======= =======
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 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $224,270 $214,290
-------- --------
Costs and Operating Expenses:
Cost of revenues 113,534 109,316
Selling, general, and administrative expenses 63,851 62,708
Research and development expenses 17,752 15,826
Nonrecurring costs - 12,728
-------- --------
195,137 200,578
-------- --------
Operating Income 29,133 13,712
Interest Income 9,473 8,162
Interest Expense (2,185) (3,530)
Gain on Issuance of Stock by Subsidiaries
(Note 3) 17,075 20,485
Gain on Sale of Investments 427 753
-------- --------
Income Before Provision for Income Taxes and
Minority Interest 53,923 39,582
Provision for Income Taxes 14,391 10,629
Minority Interest Expense 5,396 7,583
-------- --------
Net Income $ 34,136 $ 21,370
======== ========
Earnings per Share $ .88 $ .57
======== ========
Weighted Average Shares 38,913 37,773
======== ========
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 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $34,136 $21,370
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,287 8,349
Provision for losses on accounts
receivable 486 883
Nonrecurring costs - 12,728
Gain on issuance of stock by
subsidiaries (Note 3) (17,075) (20,485)
Gain on sale of investments (427) (753)
Minority interest expense 5,396 7,583
Other noncash expenses 698 505
Decrease in deferred income taxes - (32)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (478) (8,677)
Inventories (7,490) (1,241)
Prepaid income taxes and expenses (713) (234)
Accounts payable (952) (495)
Other current liabilities 4,577 1,584
------- --------
Net cash provided by operating activities 26,445 21,085
------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (5,658) (32,594)
Acquisition of product line - (4,437)
Proceeds from sale and maturities of
available-for-sale investments 86,884 95,318
Purchases of available-for-sale investments (71,900) (74,353)
Purchases of property, plant, and equipment (5,015) (5,834)
Other 117 (69)
------- --------
Net cash provided by (used in) investing
activities $ 4,428 $(21,969)
------- --------
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THERMEDICS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
----------------------------
September 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company and
subsidiary common stock (Note 3) $28,929 $ 46,923
Net proceeds from issuance of subordinated
convertible debentures (Note 4) 68,030 63,205
Purchases of Company and subsidiaries'
common stock (49,055) (9,695)
International Technidyne transfer (to) from
parent company 350 (5,101)
Proceeds from issuance of note payable to
parent company - 15,000
Repayment of notes payable to parent company - (53,000)
Repayment and repurchase of long-term
obligations - (2,432)
Net increase (decrease) in short-term
borrowings 2,705 (1,944)
-------- --------
Net cash provided by financing activities 50,959 52,956
-------- --------
Exchange Rate Effect on Cash 787 (296)
-------- --------
Increase in Cash and Cash Equivalents 82,619 51,776
Cash and Cash Equivalents at Beginning of
Period 82,800 37,413
-------- --------
Cash and Cash Equivalents at End of Period $165,419 $ 89,189
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ 9,306 $ 39,279
Cash paid for acquired companies (6,268) (33,562)
-------- --------
Liabilities assumed of acquired companies $ 3,038 $ 5,717
======== ========
Conversions of the Company's and subsidiaries'
subordinated convertible obligations $ 4,650 $ 27,415
======== ========
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 27, 1997, the results of operations for the three- and
nine-month periods ended September 27, 1997, and September 28, 1996, and
the cash flows for the nine-month periods ended September 27, 1997, and
September 28, 1996. Interim results are not necessarily indicative of
results for a full year.
Historical financial results have been restated to include
International Technidyne Corporation (International Technidyne), which
was acquired by the Company's majority-owned Thermo Cardiosystems Inc.
(Thermo Cardiosystems) subsidiary, in a transaction accounted for in a
manner similar to a pooling of interests (Note 2). The consolidated
financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 28,
1996, filed with the Securities and Exchange Commission.
2. Acquisitions
In March 1997, Thermo Cardiosystems announced its intention to
acquire International Technidyne from Thermo Electron Corporation (Thermo
Electron), the Company's parent company, in a merger in which
approximately 3,356,000 shares of Thermo Cardiosystems' common stock
would be issued in exchange for all of the outstanding shares of
International Technidyne. On May 2, 1997, the transaction was completed,
subject to Thermo Cardiosystems' shareholder approval of the issuance of
the 3,355,705 Thermo Cardiosystems' shares to Thermo Electron in the
merger. International Technidyne is a leading manufacturer of
near-patient, whole-blood, coagulation-testing equipment and related
disposables, and also manufactures premium-quality, single-use,
skin-incision devices. In 1996, International Technidyne's revenues and
net income were $34.0 million and $4.7 million, respectively.
Because Thermo Cardiosystems and International Technidyne were deemed
for accounting purposes to be under control of their common majority
owner, Thermo Electron, the transaction has been accounted for at
historical cost in a manner similar to a pooling of interests.
Accordingly, all historical financial information presented has been
restated to reflect the acquisition of International Technidyne. The
3,355,705 shares of Thermo Cardiosystems' common stock issuable in
exchange for International Technidyne will not be issued until the
listing of such shares for trading upon the American Stock Exchange has
been approved by Thermo Cardiosystems' shareholders. Because the Company
is the majority shareholder and intends to vote its shares in favor of
such listing, the approval is assured and, therefore, the acquisition is
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THERMEDICS INC.
2. Acquisitions (continued)
considered to have been completed as of January 1, 1996. Revenues and net
income as previously reported for the separate entities prior to the
acquisition and as restated for the combined company are as follows:
Three Months Ended Nine Months Ended
(In thousands) September 28, 1996 September 28, 1996
------------------------------------------------------------------------
Revenues:
Historical $ 65,712 $188,624
International Technidyne 8,490 25,666
-------- --------
$ 74,202 $214,290
======== ========
Net Income:
Historical $ 5,767 $ 19,694
International Technidyne 1,200 3,394
Minority interest expense (608) (1,718)
-------- --------
$ 6,359 $ 21,370
======== ========
During the first nine months of 1997, two of the Company's
majority-owned subsidiaries made other acquisitions for an aggregate cost
of approximately $6.3 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 $4.8 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.
3. Issuance of Stock by Subsidiary
In March 1997, the Company's Thermedics Detection Inc. (Thermedics
Detection) subsidiary issued 2,671,292 shares of its common stock in an
initial public offering at $11.50 per share, for net proceeds of
approximately $28.1 million, resulting in a gain of $17.1 million.
Following the initial public offering, the Company owned 75% of
Thermedics Detection's outstanding common stock.
4. Subsidiary Subordinated Convertible Debenture Offering
In May 1997, Thermo Cardiosystems issued and sold at par $70.0
million principal amount of 4 3/4% subordinated convertible debentures
due 2004 for net proceeds of $68.0 million. The debentures are
convertible into shares of Thermo Cardiosystems common stock at a
conversion price of $31.415 per share and are guaranteed on a
subordinated basis by Thermo Electron. The Company has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to
make a payment under the guarantee.
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THERMEDICS INC.
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 caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K, as amended,
for the fiscal year ended December 28, 1996, filed with the Securities
and Exchange Commission.
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 the Company's Thermo Sentron Inc. (Thermo
Sentron) subsidiary, which designs, develops, manufactures, and sells
high-speed precision-weighing and inspection equipment for industrial
production and packaging lines; its Orion laboratory products division
(Orion), which manufactures electrochemistry, microweighing, process, and
other instruments used to analyze the chemical composition of foods,
beverages, and pharmaceuticals, and to detect contaminants in high-purity
water; its Thermedics Detection Inc. (Thermedics Detection) subsidiary,
which develops, manufactures, and markets high-speed detection
instruments used in on-line industrial process applications, explosives
detection, and laboratory analysis; and its Thermo Voltek Corp. (Thermo
Voltek) subsidiary, which manufactures electromagnetic compatibility
(EMC) test instruments, high-voltage power-conversion systems,
programmable power amplifiers, and radio frequency power amplifiers.
As part of its Biomedical Products segment, the Company's Thermo
Cardiosystems Inc. (Thermo Cardiosystems) subsidiary manufactures
implantable left ventricular-assist systems (LVAS). Thermo Cardiosystems'
electric LVAS is being used in Europe as a bridge to transplant and as an
alternative to medical therapy. According to terms set by the U.S. Food
and Drug Administration (FDA), no profit can be earned from the sale of
an LVAS in the U.S. until the FDA has approved the device for commercial
sale. With the FDA's approval, the Company began earning a profit on the
sale of its air-driven LVAS in the fourth quarter of 1994. Until FDA
approval is obtained, the Company may not earn a profit on the sale in
the U.S. of other products, such as the electric LVAS, which is currently
being used for clinical studies in the U.S. Thermo Cardiosystems'
International Technidyne Corporation (International Technidyne)
subsidiary (Note 2) is a leading manufacturer of near-patient,
whole-blood, coagulation-testing equipment and related disposables and
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THERMEDICS INC.
Overview (continued)
also manufactures premium-quality, single-use, skin-incision devices. In
addition, the Company develops and manufactures enteral nutrition-
delivery systems and a line of medical-grade polymers used in medical
disposables and nonmedical, industrial applications, including safety
glass and automotive coatings.
A significant amount of the Company's revenues is derived from sales
of products outside of the U.S. through export sales and sales by the
Company's foreign subsidiaries. The Company expects an increase in the
percentage of revenues derived from international operations. 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 between
the U.S. dollar and foreign currencies. Where appropriate, the Company
uses forward contracts to reduce its exposure to currency fluctuations.
Results of Operations
Third Quarter 1997 Compared With Third Quarter 1996
Total revenues in the third quarter of 1997 were $76.2 million,
compared with $74.2 million in the third quarter of 1996. Instruments and
Other Equipment segment revenues increased to $56.9 million in 1997 from
$54.4 million in 1996, primarily due to increases in revenues of $1.5
million, $2.0 million, and $0.6 million at Thermedics Detection, Thermo
Sentron, and Orion, respectively, offset in part by a $1.7 million
decrease in revenues at Thermo Voltek.
Revenues at Thermedics Detection increased to $12.6 million in 1997
from $11.1 million in 1996. Revenues from Thermedics Detection's process
detection instruments and related services increased to $5.0 million in
1997 from $4.1 million in 1996, primarily as a result of Alexus revenues
from the continued fulfillment of a mandated product-line upgrade from
The Coca-Cola Company to its existing installed base and, to a lesser
extent, increased shipments of its InScan systems, introduced in early
1996. This increase was offset in part by a decrease in demand from The
Coca-Cola Company for new Alexus installations in 1997. Revenues from the
mandated product-line upgrade are expected to continue through the fourth
quarter of 1997. Revenues from Thermedics Detection's EGIS(R)
explosives-detection systems and related services increased to $2.8
million in 1997 from $1.7 million in 1996, primarily due to $1.5 million
of shipments under a $5.8 million contract with the U.S. Federal Aviation
Administration (FAA), which was awarded to Thermedics Detection in May
1997, offset in part by a decrease in overseas demand in 1997. Product
shipments from this contract are expected to continue through the first
quarter of 1998. Revenues from Thermedics Detection's Moisture Systems
subsidiary, acquired in the first quarter of 1996, decreased $0.8
million, primarily due to a slowdown in product demand in Europe.
Revenues from Thermo Sentron increased to $19.5 million in 1997 from
$17.5 million in 1996, primarily due to an increase of $1.7 million
related to an increase in product demand. In addition, revenues increased
$1.2 million due to acquisitions. These increases were offset in part by
a decrease of $0.9 million due to the impact of a stronger U.S. dollar
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THERMEDICS INC.
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
relative to foreign currencies in which Thermo Sentron operates. Revenues
from Thermo Voltek decreased to $11.1 million in 1997 from $12.8 million
in 1996, primarily due to lower demand for EMC test products, offset in
part by an increase in revenues of $0.7 million due to acquisitions.
Biomedical Products segment revenues decreased slightly to $19.4
million in the third quarter of 1997 from $19.8 million in the third
quarter of 1996. Revenues from Thermo Cardiosystems decreased to $14.7
million in 1997 from $16.1 million in 1996, primarily due to decreases of
$2.0 million and $0.6 million in revenues from its air-driven and
electric LVAS, respectively. The Company expects that sales from Thermo
Cardiosystems' LVAS will stabilize at approximately current levels until
the electric system is approved in the U.S. for commercial sale. The
Company believes that this approval could occur during 1997; however,
there can be no assurance that Thermo Cardiosystems will receive this
approval within the expected time period, or at all. This decrease in
revenues was offset in part by an increase of $0.6 million in revenues
from International Technidyne, as well as the inclusion of $0.4 million
in revenues from an acquisition. In addition, revenues from the Company's
Polymer Products division increased $0.8 million due to an increase in
demand for its polymer film product line.
The gross profit margin was 50% in the third quarter of 1997,
compared with 51% in the third quarter of 1996. The gross profit margin
for the Instruments and Other Equipment segment remained unchanged at 48%
in 1997 and 1996. The gross profit margin decreased at Thermo Voltek,
primarily due to lower sales of certain higher-margin EMC test products,
as well as the effect of the decline in Thermo Voltek's total revenues,
offset in part by a nonrecurring expense adjustment of $0.1 million in
1996, for inventory revalued at the time of certain acquisitions. The
decrease at Thermo Voltek was also offset in part by higher gross profit
margins at Orion.
The gross profit margin for the Biomedical Products segment decreased
to 54% in the third quarter of 1997 from 57% in the third quarter of
1996. This decrease was primarily due to a decline in the gross profit
margin at Thermo Cardiosystems as a result of a shift in the sales mix to
lower-margin electric LVAS systems and, to a lesser extent, the inclusion
of low-margin revenues from an acquisition, offset in part by improved
gross profit margins at International Technidyne due to manufacturing
efficiencies. In addition, the gross profit margin decreased at the
Company's Polymer Products division due to start-up cost associated with
its polymer film product line.
Selling, general, and administrative expenses as a percentage of
revenues remained unchanged at 27% in the third quarter of 1997 and 1996.
Thermo Cardiosystems' selling, general, and administrative expenses as a
percentage of revenues increased due to an increase in its LVAS sales
force, as well as an increase in sales personnel and promotional expenses
at International Technidyne. Selling, general, and administrative
expenses as a percentage of revenues at Thermo Voltek increased primarily
due to lower revenues. These increases were offset primarily by the
effect of increased revenues at Thermedics Detection and Orion.
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THERMEDICS INC.
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
Research and development expenses as a percentage of revenues
increased to 7.8% in the third quarter of 1997 from 7.4% in the third
quarter of 1996, primarily due to increased expenses at Orion and Thermo
Cardiosystems.
Interest income increased to $3.5 million in the third quarter of
1997 from $3.2 million in the third quarter of 1996, primarily due to
higher average invested balances at Thermo Cardiosystems as a result of
its May 1997 issuance of 4 3/4% subordinated convertible debentures (Note
4), and Thermedics Detection as a result of its March 1997 initial public
offering of common stock (Note 3). Interest expense increased to $1.2
million in the third quarter of 1997 from $1.0 million in the third
quarter of 1996, as a result of Thermo Cardiosystems' issuance of
debentures, offset in part by the repayment of $53.0 million of notes
payable to Thermo Electron Corporation (Thermo Electron) in September
1996 and conversions of subordinated convertible obligations.
The effective tax rates were 38% in the third quarter of 1997 and
1996. The effective tax rates exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies.
Minority interest expense decreased to $2.1 million in the third
quarter of 1997 from $2.9 million in the third quarter of 1996, primarily
due to lower profits at Thermo Cardiosystems and Thermo Voltek, offset in
part by the minority interest expense associated with Thermedics
Detection (Note 3).
First Nine Months 1997 Compared With First Nine Months 1996
Total revenues in the first nine months of 1997 were $224.3 million,
compared with $214.3 million in the first nine months of 1996.
Instruments and Other Equipment segment revenues increased to $166.1
million in 1997 from $155.9 million in 1996, primarily due to increases
in revenues of $6.9 million, $4.4 million, and $1.8 million at Thermedics
Detection, Thermo Sentron, and Orion, respectively, offset in part by a
$2.6 million decrease in revenues at Thermo Voltek.
Revenues at Thermedics Detection increased to $37.5 million in 1997
from $30.6 million in 1996. Revenues from Thermedics Detection's process
detection instruments and related services increased to $16.5 million in
1997 from $10.7 million in 1996, primarily as a result of the continued
fulfillment of a mandated product-line upgrade from The Coca-Cola Company
to its existing installed base and, to a lesser extent, increased
shipments of its InScan systems, introduced in early 1996. Revenues from
Thermedics Detection's EGIS explosives-detection systems and related
services increased to $7.0 million in 1997 from $6.0 million in 1996,
primarily due to $1.5 million of shipments under the contract with the
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THERMEDICS INC.
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
FAA, offset in part by a decrease in overseas demand in 1997. Revenues
from Thermo Sentron increased to $56.0 million in 1997 from $51.5 million
in 1996, primarily due to an increase of $3.5 million related to an
increase in product demand. Thermo Sentron's revenues also increased by
$2.6 million due to acquisitions. These increases were offset in part by
a decrease of $1.6 million due to the impact of a stronger U.S. dollar
relative to currencies in foreign countries in which Thermo Sentron
operates. Revenues from Thermo Voltek decreased to $32.7 million in 1997
from $35.3 million in 1996, primarily due to a lower demand for EMC test
products, including a decline in the component-reliability market for
electrostatic discharge test equipment caused by a slowdown in capital
expenditures by the semiconductor industry. These decreases in revenues
at Thermo Voltek were offset in part by an increase in revenues of $4.8
million due to acquisitions.
Biomedical Products segment revenues decreased slightly to $58.2
million in the first nine months of 1997 from $58.4 million in the first
nine months of 1996. Revenues from Thermo Cardiosystems decreased to
$45.6 million in 1997 from $47.4 million in 1996, primarily due to a $4.7
million decrease in revenues from its air-driven LVAS, offset in part by
a $1.2 million increase in revenues from its electric LVAS. The decrease
in revenues in 1997 was also offset in part by the inclusion of $1.6
million in revenues from an acquisition. In addition, revenues from
International Technidyne increased $0.5 million during the first nine
months of 1997. Revenues from the Company's Polymer Products division
also increased $1.4 million due to an increase in demand.
The gross profit margin was 49% in the first nine months of 1997 and
1996. The gross profit margin for the Instruments and Other Equipment
segment increased to 48% in 1997 from 47% in 1996, due to improvements at
Thermedics Detection as a result of a charge for inventory obsolescence
in the 1996 period in connection with planned product changes, and, to a
lesser extent, field service efficiencies, and a change in sales mix to
higher-margin revenues at Moisture Systems. In addition, the gross profit
margin improved at Orion in 1997. These increases were offset in part by
a decrease in the gross profit margin at Thermo Voltek, primarily due to
a decrease in the sale of certain higher-margin EMC test products, as
well as the effect of a decrease in total revenues, offset in part by the
inclusion of higher-margin revenues from an acquisition.
The gross profit margin for the Biomedical Products segment decreased
to 53% in the first nine months of 1997 from 55% in the first nine months
of 1996. The gross profit margin at Thermo Cardiosystems decreased due to
the reasons discussed in the results of operations for the third quarter
and, to a lesser extent, increased warranty costs due to a
company-initiated modification of certain of its systems, completed in
the first quarter of 1997. Thermo Cardiosystems announced an overall
price increase of approximately 10% in the electric LVAS product line
effective June 28, 1997, to help offset increased production costs. These
decreases were offset in part by an increase in the gross profit margin
at International Technidyne due to the reason discussed in the results of
operations for the third quarter, and at the Company's Polymer Products
division due in part to the effect of establishing certain inventory and
related reserves in the 1996 period.
14PAGE
<PAGE>
THERMEDICS INC.
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
Selling, general, and administrative expenses as a percentage of
revenues decreased to 28% in the first nine months of 1997 from 29% in
the first nine months of 1996. Selling, general, and administrative
expenses as a percentage of revenues decreased at Thermedics Detection
due to nonrecurring costs in the 1996 period, offset in part by increased
selling expenses as Thermedics Detection develops a sales force for its
InScan and Flash-GC systems. Selling, general, and administrative
expenses as a percentage of revenues increased at Thermo Cardiosystems
due to the reasons discussed in the results of operations for the third
quarter. Selling, general, and administrative expenses as a percentage of
revenues also increased at Thermo Voltek due to the effect of a decrease
in revenues and severance and related costs incurred as part of a
continuing evaluation of its lines of business, with the goal of
improving profitability. These increases were offset in part by the
effect of two acquisitions at Thermo Voltek, which have lower costs as a
percentage of revenues.
Research and development expenses as a percentage of revenues
increased to 7.9% in the first nine months of 1997 from 7.4% in the first
nine months of 1996, primarily due to increased research and development
expenses at Orion and Thermo Cardiosystems.
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 $9.5 million in the first nine months of
1997 from $8.2 million in the first nine months of 1996, due to higher
average invested balances at Thermedics Detection and Thermo Sentron as a
result of their initial public offerings of common stock in March 1997
and April 1996, respectively, and at Thermo Cardiosystems as a result of
the issuance of the 4 3/4% subordinated convertible debentures in May
1997 (Note 4). Interest expense decreased to $2.2 million in the first
nine months of 1997 from $3.5 million in the first nine months of 1996,
primarily due to the repayment of $53.0 million of notes payable to
Thermo Electron in September 1996, conversions of subordinated
convertible obligations, and a reduction in short-term borrowings at
Thermo Sentron, offset in part by Thermo Cardiosystems' issuance of
debentures.
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. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiaries through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the
subsidiaries' growth. As a result of the sale of stock by subsidiaries,
the Company recorded gains of approximately $17.1 million and $20.5
million in the first nine months of 1997 and 1996, respectively (Note 3).
The size and timing of these transactions are dependent on market and
other conditions that are beyond the Company's control. Accordingly,
15PAGE
<PAGE>
THERMEDICS INC.
First Nine Months 1997 Compared With First Nine Months 1996 (continued)
there can be no assurance that the Company will be able to realize gains
from such transactions in the future.
The effective tax rates were 27% in the first nine months of 1997 and
1996. The effective tax rates were below the statutory federal income tax
rate primarily due to nontaxable gains on issuance of stock by
subsidiaries, offset in part by the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies.
Minority interest expense decreased to $5.4 million in the first nine
months of 1997 from $7.6 million in the first nine months of 1996,
primarily due to lower profits at Thermo Cardiosystems and Thermo Voltek,
offset in part by the minority interest associated with Thermedics
Detection (Note 3) and Thermo Sentron.
Liquidity and Capital Resources
Consolidated working capital was $289.3 million at September
27, 1997, compared with $208.2 million at December 28, 1996. Included in
working capital were cash, cash equivalents, and short- and long-term
available-for-sale investments of $249.3 million at September 27, 1997,
compared with $181.8 million at December 28, 1996. Of the $249.3 million
balance at September 27, 1997, $124.9 million was held by Thermo
Cardiosystems, $43.4 million by Thermedics Detection, $38.6 million by
Thermo Sentron, $18.7 million by Thermo Voltek, and the remainder by the
Company and its wholly owned subsidiaries.
During the first nine months of 1997, $26.4 million of cash was
provided by operating activities. Cash of $4.6 million, provided by an
increase in other current liabilities, was more than offset by cash of
$7.5 million used to fund an increase in inventories. The increase in
inventories occurred primarily due to expected future shipments for an
order received from the FAA at Thermedics Detection and an increase in
production of the electric LVAS at Thermo Cardiosystems.
Excluding purchases, sales, and maturities of available-for-sale
investments, the Company's primary investing activities during the first
nine months of 1997 included $5.7 million for acquisitions (Note 2) and
$5.0 million for purchases of property, plant, and equipment. During the
remainder of 1997, the Company expects to make capital expenditures of
approximately $2.0 million.
During the first nine months of 1997, the Company's financing
activities provided $51.0 million in cash. In March 1997, Thermedics
Detection issued shares of its common stock in an initial public offering
for net proceeds of approximately $28.1 million (Note 3). In addition, in
May 1997, Thermo Cardiosystems issued and sold $70.0 million principal
amount of 4 3/4% subordinated convertible debentures due 2004 for net
proceeds of $68.0 million (Note 4).
The Company intends, for the foreseeable future, to maintain at least
50% ownership of Thermo Cardiosystems, Thermo Voltek, Thermo Sentron, and
Thermedics Detection. This may require the Company to purchase additional
16PAGE
<PAGE>
THERMEDICS INC.
Liquidity and Capital Resources (continued)
shares of common stock or, if applicable, convertible debentures (which
are then converted) of these companies from time to time, as the number
of these 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 (i) in the
open market or in negotiated transactions, (ii) directly from Thermo
Electron or the relevant subsidiary, or (iii) in the case of Thermo
Voltek, pursuant to the conversion of all or part of its subordinated
convertible notes held by the Company. Through a series of actions
commencing in June 1996, the Company's Board of Directors has authorized
the repurchase, through various dates, of up to $15.0 million of
securities of the Company or its subsidiaries and up to an additional
$15.0 million of the securities of Thermo Voltek. Through September 27,
1997, the Company had expended $17.3 million under these authorizations,
including $7.3 million expended in the first nine months of 1997. Any
repurchases under the Company's authorizations are funded from working
capital.
Through a series of actions commencing in August 1996, Thermo
Cardiosystems' Board of Directors has authorized the repurchase, through
various dates, of up to $50.0 million of its own securities in the open
market, or in negotiated transactions. Through September 27, 1997, Thermo
Cardiosystems had expended $38.4 million under these authorizations. Of
this amount, $32.8 million was expended during the first nine months of
1997. Any repurchases under the Thermo Cardiosystems' authorizations are
funded from working capital.
Thermo Voltek's Board of Directors has authorized the repurchase,
through April 17, 1998, of up to $10.0 million of its own securities.
During the first nine months of 1997, Thermo Voltek had expended $9.0
million under this authorization. Any repurchases under Thermo Voltek's
authorization are funded from working capital.
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. While the Company currently has no agreements to make any
acquisitions, it expects that it would finance any acquisitions through a
combination of internal funds, additional debt or equity financing from
the capital markets, or short-term borrowings from Thermo Electron,
although its has no agreement with Thermo Electron that assures funds
will be available on acceptable terms or at all. 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 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
17PAGE
<PAGE>
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
1997.
THERMEDICS INC.
Paul F. Kelleher
------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
------------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
18PAGE
<PAGE>
THERMEDICS INC.
EXHIBIT INDEX
Exhibit
Number Document
------------------------------------------------------------------------
11 Statement re: Computation of Earnings per Share..
27 Financial Data Schedule.
Exhibit 11
THERMEDICS INC.
Computation of Earnings per Share
Three Months Ended
----------------------------
September 27, September 28,
1997 1996
--------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 6,664,000 $ 6,359,000
----------- -----------
Shares:
Weighted average shares outstanding 36,703,541 36,645,979
Add: Shares issuable from assumed exercise of
options (as determined by the
application of the treasury stock method) 205,186 437,281
Shares issuable from assumed conversion
of subordinated convertible debentures 1,988,984 1,988,984
----------- -----------
Weighted average shares outstanding, as
adjusted (b) 38,897,711 39,072,244
----------- -----------
Primary Earnings per Share (a) / (b) $ .17 $ .16
=========== ===========
PAGE
<PAGE>
Exhibit 11
THERMEDICS INC.
Computation of Earnings per Share
Nine Months Ended
----------------------------
September 27, September 28,
1997 1996
--------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $34,136,000 $21,370,000
----------- -----------
Shares:
Weighted average shares outstanding 36,694,755 36,333,577
Add: Shares issuable from assumed exercise of
options (as determined by the
application of the treasury stock method) 229,093 470,830
Shares issuable from assumed conversion
of subordinated convertible debentures 1,988,984 968,993
----------- -----------
Weighted average shares outstanding, as
adjusted (b) 38,912,832 37,773,400
----------- -----------
Primary Earnings per Share (a) / (b) $ .88 $ .57
=========== ===========
<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 27, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFEENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 165,419
<SECURITIES> 60,404
<RECEIVABLES> 66,802
<ALLOWANCES> 4,151
<INVENTORY> 61,505
<CURRENT-ASSETS> 365,308
<PP&E> 53,917
<DEPRECIATION> 32,385
<TOTAL-ASSETS> 535,601
<CURRENT-LIABILITIES> 75,983
<BONDS> 143,464
0
0
<COMMON> 3,685
<OTHER-SE> 216,911
<TOTAL-LIABILITY-AND-EQUITY> 535,601
<SALES> 224,270
<TOTAL-REVENUES> 224,270
<CGS> 113,534
<TOTAL-COSTS> 113,534
<OTHER-EXPENSES> 17,752
<LOSS-PROVISION> 486
<INTEREST-EXPENSE> 2,185
<INCOME-PRETAX> 53,923
<INCOME-TAX> 14,391
<INCOME-CONTINUING> 34,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,136
<EPS-PRIMARY> .88
<EPS-DILUTED> 0
</TABLE>
