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 June 28, 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 July 25, 1997
---------------------------- ----------------------------
Common Stock, $.10 par value 36,701,779
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS INC.
Consolidated Balance Sheet
(Unaudited)
Assets
June 28, December 28,
(In thousands) 1997 1996
-----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $168,344 $ 82,800
Short-term available-for-sale
investments, at quoted market value
(amortized cost of $57,391 and $64,950;
includes $1,847 and $1,937 of related-
party investments) 57,576 65,054
Accounts receivable, less allowances of
$4,851 and $4,641 60,575 62,783
Inventories:
Raw materials and supplies 24,485 28,210
Work in process 18,508 10,719
Finished goods 16,912 15,301
Prepaid income taxes and expenses 15,176 14,713
-------- --------
361,576 279,580
-------- --------
Property, Plant, and Equipment, at Cost 52,220 48,892
Less: Accumulated depreciation and
amortization 30,643 27,342
-------- --------
21,577 21,550
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $25,782 and $33,929) 25,796 33,920
-------- --------
Other Assets 10,065 7,885
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 114,889 113,764
-------- --------
$533,903 $456,699
======== ========
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THERMEDICS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 28, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 5,956 $ 9,017
Accounts payable 18,940 19,615
Accrued payroll and employee benefits 10,285 11,951
Deferred revenue 2,070 1,397
Accrued income taxes 8,438 5,438
Payable for repurchase of subsidiary common
stock 7,835 -
Accrued warranty costs 3,857 3,971
Other accrued expenses 18,519 18,421
Due to parent company and affiliated companies 3,111 1,600
-------- --------
79,011 71,410
-------- --------
Deferred Income Taxes and Other Deferred Items 1,418 1,382
-------- --------
Long-term Obligations:
Subordinated convertible obligations (Note 4) 143,450 74,345
Other 14 14
-------- --------
143,464 74,359
-------- --------
Minority Interest 94,240 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 116,026 138,433
Retained earnings 102,014 74,542
Treasury stock at cost, 145,346 and 166,144
shares (4,033) (4,729)
Cumulative translation adjustment (2,049) (409)
Net unrealized gain on available-for-sale
investments 127 61
-------- --------
215,770 211,582
-------- --------
$533,903 $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
-----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $75,996 $71,094
------- -------
Costs and Operating Expenses:
Cost of revenues 38,140 36,973
Selling, general, and administrative expenses 21,552 21,454
Research and development expenses 6,227 5,388
Nonrecurring costs - 12,728
------- -------
65,919 76,543
------- -------
Operating Income (Loss) 10,077 (5,449)
Interest Income 3,305 2,855
Interest Expense (714) (1,259)
Gain on Issuance of Stock by Subsidiaries - 17,969
------- -------
Income Before Provision for Income Taxes and
Minority Interest 12,668 14,116
Provision for Income Taxes 5,174 1,728
Minority Interest Expense 1,988 2,634
------- -------
Net Income $ 5,506 $ 9,754
======= =======
Earnings per Share $ .14 $ .26
======= =======
Weighted Average Shares 38,884 38,166
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMEDICS INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $148,053 $140,088
-------- --------
Costs and Operating Expenses:
Cost of revenues 75,101 72,782
Selling, general, and administrative expenses 43,516 42,418
Research and development expenses 11,811 10,362
Nonrecurring costs - 12,728
-------- --------
130,428 138,290
-------- --------
Operating Income 17,625 1,798
Interest Income 5,942 4,961
Interest Expense (983) (2,537)
Gain on Issuance of Stock by Subsidiaries (Note 3) 17,075 20,485
Gain on Sale of Investments - 68
-------- --------
Income Before Provision for Income Taxes and
Minority Interest 39,659 24,775
Provision for Income Taxes 8,938 5,060
Minority Interest Expense 3,249 4,704
-------- --------
Net Income $ 27,472 $ 15,011
======== ========
Earnings per Share $ .71 $ .41
======== ========
Weighted Average Shares 38,920 36,177
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMEDICS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 27,472 $ 15,011
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,411 6,415
Provision for losses on accounts receivable 285 606
Nonrecurring costs - 12,728
Gain on issuance of stock by subsidiaries
(Note 3) (17,075) (20,485)
Gain on sale of investments - (68)
Minority interest expense 3,249 4,704
Other noncash expenses 738 523
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable 1,293 (6,252)
Inventories (5,897) (2,453)
Prepaid income taxes and expenses (568) (67)
Accounts payable (518) 321
Other current liabilities 2,098 (5,220)
-------- --------
Net cash provided by operating activities 16,488 5,763
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (3,880) (26,432)
Acquisition of product line - (2,621)
Proceeds from sale and maturities of
available-for-sale investments 66,920 64,595
Purchases of available-for-sale investments (51,900) (62,300)
Purchases of property, plant, and equipment (3,573) (3,915)
Other 97 (109)
-------- --------
Net cash provided by (used in) investing
activities $ 7,664 $(30,782)
-------- --------
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THERMEDICS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company and
subsidiary common stock (Note 3) $ 28,674 $ 46,793
Net proceeds from issuance of subordinated
convertible debentures (Note 4) 68,139 63,250
Purchases of Company and subsidiaries'
common stock (37,429) (2,648)
International Technidyne transfer (to) from
parent company 350 (3,012)
Proceeds from issuance of note payable to
parent company - 15,000
Repayment and repurchase of long-term
obligations - (257)
Net increase in short-term borrowings 853 -
-------- --------
Net cash provided by financing activities 60,587 119,126
-------- --------
Exchange Rate Effect on Cash 805 (104)
-------- --------
Increase in Cash and Cash Equivalents 85,544 94,003
Cash and Cash Equivalents at Beginning of Period 82,800 37,413
-------- --------
Cash and Cash Equivalents at End of Period $168,344 $131,416
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ 6,240 $ 31,546
Cash paid for acquired companies (4,307) (27,215)
-------- --------
Liabilities assumed of acquired companies $ 1,933 $ 4,331
======== ========
Conversions of the Company's and subsidiaries'
subordinated convertible obligations $ 895 $ 21,920
======== ========
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 June
28, 1997, the results of operations for the three- and six-month periods
ended June 28, 1997, and June 29, 1996, and the cash flows for the
six-month periods ended June 28, 1997, and June 29, 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 subsidiary, Thermo
Cardiosystems Inc. (Thermo Cardiosystems), 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 issued 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 single-use, 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
considered to be complete as of January 1, 1996. Revenues and net
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THERMEDICS INC.
2. Acquisitions (continued)
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 Six Months Ended
(In thousands) June 29, 1996 June 29, 1996
----------------------------------------------------------------------
Revenues:
Historical $ 62,630 $122,912
International Technidyne 8,464 17,176
-------- --------
$ 71,094 $140,088
======== ========
Net Income:
Historical $ 9,174 $ 13,927
International Technidyne 1,174 2,194
Minority interest expense (594) (1,110)
-------- --------
$ 9,754 $ 15,011
======== ========
During the first six months of 1997, two of the Company's
majority-owned subsidiaries made other acquisitions for an aggregate cost
of approximately $4.3 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 $3.4 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 $68.1 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 compositions 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) testing 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 has been 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 in clinical studies. 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
also manufactures single-use, premium-quality, single-use, skin-incision
10PAGE
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THERMEDICS INC.
Overview (continued)
devices. The Company also 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 are 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
Second Quarter 1997 Compared With Second Quarter 1996
Total revenues in the second quarter of 1997 were $76.0 million,
compared with $71.1 million in the second quarter of 1996. Instruments
and Other Equipment segment revenues increased to $56.0 million in 1997
from $51.6 million in 1996, primarily due to an increase in revenues of
$2.3 million, $1.2 million, and $1.0 million at Thermedics Detection,
Thermo Sentron, and Orion, respectively.
Revenues at Thermedics Detection increased to $12.4 million in 1997
from $10.1 million in 1996. Revenues from Thermedics Detection's process
detection instruments and related services increased to $4.9 million in
1997 from $3.7 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. Revenues from the mandated product-line upgrade are expected to
continue through the third quarter of 1997. These increases were offset
in part by a decrease in international plant expansions and, in turn,
demand for the Alexus line of products by customers other than The
Coca-Cola Company. Revenues from Thermedics Detection's EGIS(R)
explosives-detection systems and related services increased to $3.1
million in 1997 from $1.4 million in 1996, primarily due to continued
international shipments of the EGIS systems. In May 1997, Thermedics
Detection was awarded a $5.8 million contract for its EGIS systems from
the Federal Aviation Administration (FAA). No revenues were recognized
under this contract during the second quarter of 1997. 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 $18.5
million in 1997 from $17.3 million in 1996, primarily due to increased
demand for its bulk-materials product line in Europe and Canada and, to a
lesser extent, increased demand for its packaged goods product line in
the U.S. In addition, revenues increased due to the inclusion of $0.4
million of revenues from RCC Industrial Pty. Limited, acquired in
February 1997. These increases were offset in part by the impact of a
stronger U.S. dollar relative to foreign currencies in which Thermo
Sentron operates. Revenues from Thermo Voltek remained unchanged at $11.9
11PAGE
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THERMEDICS INC.
Second Quarter 1997 Compared With Second Quarter 1996 (continued)
million in 1997 and 1996. Revenues in 1997 reflect the inclusion of $2.4
million from Pacific Power Source Corporation (Pacific Power), acquired
in July 1996, and Milmega Ltd. (Milmega), acquired in April 1997, offset
by lower demand for EMC test products at Comtest, Kalmus and, to a lesser
extent, KeyTek.
Biomedical Products segment revenues increased slightly to $20.0
million in the second quarter of 1997 from $19.5 million in the second
quarter of 1996. Revenues from Thermo Cardiosystems remained unchanged at
$15.9 million in 1997 and 1996, primarily due to a $1.2 million increase
in revenues from its electric LVAS, offset in part by a $1.0 million
decrease in revenues from its air-driven LVAS. The Company expects that
revenues from Thermo Cardiosystems' LVAS will stabilize at 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. The increase in
revenues in 1997 was also due to the inclusion of $0.5 million in
revenues from Nimbus Medical Inc. (Nimbus), acquired in December 1996,
offset in part by a $0.4 million decrease in revenues from International
Technidyne. In addition, revenues from the Company's Polymer Products
division increased $0.4 million due to an increase in demand.
The gross profit margin was 50% in the second quarter of 1997,
compared with 48% in the second quarter of 1996. The gross profit margin
for the Instruments and Other Equipment segment increased to 49% in 1997
from 46% in 1996, primarily due to an increase in the gross profit margin
at Thermedics Detection as a result of a charge for inventory
obsolescence in the 1996 period due to planned product changes, and, to a
lesser extent, field service efficiencies, and a change in product mix to
higher-margin revenues at Moisture Systems. 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 products
at Comtest, offset in part by the inclusion of higher-margin revenues at
Pacific Power.
The gross profit margin for the Biomedical Products segment decreased
to 52% in the second quarter of 1997 from 53% in the second quarter of
1996. This decrease was primarily due to a decline in the gross profit
margin at Thermo Cardiosystems as a result of increased revenues from
lower-margin electric LVAS systems and, to a lesser extent, the inclusion
of low-margin revenues from Nimbus. 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.
This decrease was offset in part by improved gross profit margins at the
Company's Polymer Products division due in part to the effect of
establishing certain inventory and related reserves in the 1996 period.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 28% in the second quarter of 1997 from 30% in the
second quarter of 1996. Higher marketing expenses as a result of an
increase in the sales force at Thermo Cardiosystems and, to a lesser
extent, increased expenses as a percentage of revenues at Thermo Voltek
due to severance and related costs associated with reductions in
12PAGE
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THERMEDICS INC.
Second Quarter 1997 Compared With Second Quarter 1996 (continued)
personnel, were more than offset by lower general and administrative
expenses at Thermedics Detection as a result of certain charges in the
1996 period and an increase in revenues in 1997. The charges in 1996
related to a reduction in personnel, leased space, and other adjustments.
Research and development expenses as a percentage of revenues increased
to 8.2% in the second quarter of 1997 from 7.6% in the second quarter of
1996, primarily due to increased expenses at Orion.
Interest income increased to $3.3 million in the second quarter of
1997 from $2.9 million in the second quarter of 1996, primarily due to
higher average invested balances, primarily at Thermedics Detection as a
result of its March 1997 initial public offering of common stock.
Interest expense decreased to $0.7 million in the second quarter of 1997
from $1.3 million in the second quarter of 1996, as a result of the
repayment of $53.0 million of notes payable to Thermo Electron
Corporation (Thermo Electron) in September 1996, conversions of
subordinated convertible obligations, and a reduction in short-term
borrowings at Thermo Sentron. These decreases were offset in part by
Thermo Cardiosystems' issuance of 4 3/4% subordinated convertible
debentures in May 1997 (Note 4).
The effective tax rate in the second quarter of 1997 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. The effective tax rate in the second
quarter of 1996 was below the statutory federal income tax rate primarily
due to nontaxable gains on issuance of stock by subsidiaries, offset in
part by a nondeductible write-off of intangible assets, the impact of
state income taxes, and nondeductible amortization of cost in excess of
net assets of acquired companies.
Minority interest expense decreased to $2.0 million in the second
quarter of 1997 from $2.6 million in the second 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 Six Months 1997 Compared With First Six Months 1996
Total revenues in the first six months of 1997 were $148.1 million,
compared with $140.1 million in the first six months of 1996. Instruments
and Other Equipment segment revenues increased to $109.2 million in 1997
from $101.4 million in 1996, primarily due to an increase in revenues of
$5.4 million, $2.4 million, and $1.2 million at Thermedics Detection,
Thermo Sentron, and Orion, respectively, offset in part by a $0.9 million
decline in revenues at Thermo Voltek.
Revenues at Thermedics Detection increased to $24.8 million in 1997
from $19.4 million in 1996. Revenues from Thermedics Detection's process
detection instruments and related services increased to $11.5 million in
1997 from $6.7 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
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THERMEDICS INC.
First Six Months 1997 Compared With First Six Months 1996 (continued)
Thermedics Detection's EGIS explosives-detection systems and related
services were relatively unchanged at $4.2 million in 1997 and $4.4
million in 1996. Revenues from Thermo Sentron increased 7% to $36.5
million in 1997, primarily due to the reasons discussed in the results of
operations for the second quarter, including $1.4 million from
acquisitions. Revenues from Thermo Voltek decreased to $21.6 million in
1997 from $22.5 million in 1996, primarily due to a decline in revenues
at Comtest and Keytek, offset in part by the inclusion of $4.2 million in
revenues from Pacific Power Source and Milmega, acquired in July 1996 and
April 1997, respectively. The decline in revenues at Comtest and Keytek
resulted primarily from lower demand for EMC test products and, to a
lesser extent, a decline in the component-reliability market for
electrostatic discharge test equipment caused by a slowdown in capital
expenditures by the semiconductor industry.
Biomedical Products segment revenues remained relatively unchanged at
$38.8 million in the first six months of 1997 and $38.7 million in the
first six months of 1996. Revenues from Thermo Cardiosystems decreased to
$30.8 million in 1997 from $31.3 million in 1996, primarily due to a $2.7
million decrease in revenues from its air-driven LVAS, offset in part by
a $1.8 million increase in revenues from its electric LVAS. The decrease
in revenues in 1997 was also offset in part by the inclusion of $1.1
million in revenues from Nimbus, acquired in December 1996. In addition,
other revenues at Thermo Cardiosystems, including revenues from
International Technidyne, decreased during the first six months of 1997.
Revenues from the Company's Polymer Products division increased $0.6
million due to an increase in demand.
The gross profit margin was 49% in the first six months of 1997,
compared with 48% in the first six months of 1996. The gross profit
margin for the Instruments and Other Equipment segment increased to 48%
in 1997 from 46% in 1996, as a result of improvements at Thermedics
Detection due to the reasons discussed in the results of operations for
the second quarter and, to a lesser extent, improved gross profit margins
at Orion. These increases were offset in part by a decrease in the gross
profit margin at Thermo Voltek, primarily due to the sale of lower-margin
products at Comtest, offset in part by the inclusion of higher-margin
revenues at Pacific Power.
The gross profit margin for the Biomedical Products segment remained
unchanged at 53% in the first six months of 1997 and 1996. A decline in
the gross profit margin at Thermo Cardiosystems due to the reasons
discussed in the results of operations for the second quarter and
increased warranty costs due to a company-initiated modification of
certain of its systems, completed in the first quarter of 1997, were
offset by an increase in the gross profit margin at the Company's Polymer
Products division due to the reason discussed in the results of
operations for the second quarter.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 29% in the first six months of 1997 from 30% in the
first six months of 1996, primarily due to the reasons discussed in the
results of operations for the second quarter. Research and development
14PAGE
<PAGE>
THERMEDICS INC.
First Six Months 1997 Compared With First Six Months 1996 (continued)
expenses as a percentage of revenues increased to 8.0% in the first six
months of 1997 from 7.4% in the first six months of 1996, primarily due
to increased research and development expenses at Orion, Thermo
Cardiosystems and, to a lesser extent, at Thermo Voltek due to the
inclusion of expenses at Pacific Power and Milmega.
Interest income increased to $5.9 million in the first six months of
1997 from $5.0 million in the first six months of 1996, due to higher
average invested balances, primarily at Thermedics Detection and Thermo
Sentron as a result of their initial public offerings of common stock in
March 1997 and April 1996, respectively. Interest expense decreased to
$1.0 million in the first six months of 1997 from $2.5 million in the
first six months of 1996, due to the reasons discussed in the results of
operations for the second quarter.
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 six 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,
there can be no assurance that the Company will be able to realize gains
from such transactions in the future.
The effective tax rates in the first six months of 1997 and 1996 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 $3.2 million in the first six
months of 1997 from $4.7 million in the first six months of 1996,
primarily due to lower profits at Thermo Cardiosystems and a net loss at
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 $282.6 million at June 28, 1997,
compared with $208.2 million at December 28, 1996. Cash, cash
equivalents, and short- and long-term available-for-sale investments were
$251.7 million at June 28, 1997, compared with $181.8 million at December
28, 1996. Of the $251.7 million balance at June 28, 1997, $128.4 million
was held by Thermo Cardiosystems, $45.7 million by Thermedics Detection,
$34.8 million by Thermo Sentron, $20.1 million by Thermo Voltek, and the
remainder by the Company and its wholly owned subsidiaries.
15PAGE
<PAGE>
THERMEDICS INC.
Liquidity and Capital Resources (continued)
During the first six months of 1997, $16.5 million of cash was
provided by operating activities. Cash of $3.4 million, provided by a
decrease in accounts receivable and an increase in other current
liabilities, was more than offset by cash of $5.9 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.
Excluding purchases, sales, and maturities of available-for-sale
investments, the Company's primary investing activities during the first
six months of 1997 included $3.9 million for acquisitions (Note 2) and
$3.6 million of expenditures for purchases of property, plant, and
equipment. During the remainder of 1997, the Company expects to make
capital expenditures of approximately $4.4 million.
During the first six months of 1997, the Company's financing
activities provided $60.6 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 $68.1 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
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 increase, 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
the open market, directly from Thermo Electron, or the relevant
subsidiary, or, in the case of Thermo Voltek, pursuant to the conversion
of all or part of its subordinated convertible notes held by the Company.
The Company's Board of Directors authorized the repurchase, through June
1, 1997, of up to $10.0 million of its own securities. The Company's
authorization also includes the purchase of securities of Thermo
Cardiosystems, Thermo Voltek, and Thermo Sentron. In addition, the
Company's Board of Directors authorized the purchase, through January 28,
1998, of up to an additional $5.0 million of securities of Thermo Voltek.
Through June 28, 1997, the Company had fully expended the amount of
authorized repurchases, including $5.0 million expended in 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 June 28, 1997, Thermo
Cardiosystems had committed $37.4 million under these authorizations. Of
this amount, $23.9 million was paid during the first six months of 1997,
and $7.8 million was payable on June 28, 1997, in settlement of trades
16PAGE
<PAGE>
THERMEDICS INC.
Liquidity and Capital Resources (continued)
executed prior to that date. 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.
Through June 28, 1997, Thermo Voltek had expended $8.5 million under its
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 4 - Submission of Matters to a Vote of Security Holders
On June 2, 1997, at the Annual Meeting of Shareholders, the
shareholders reelected eight incumbent directors to a one-year term
expiring in 1998. The directors elected at the meeting were: Peter O.
Crisp, Paul F. Ferrari, Dr. George N. Hatsopoulos, John N. Hatsopoulos,
Robert C. Howard, John T. Keiser, John W. Wood Jr., and Dr. Nicholas T.
Zervas. Mr. Crisp received 33,896,141 shares voted in favor of election
and 93,458 shares voted against; Mr. Ferrari and Mr. Howard received
33,892,941 shares voted in favor of election and 96,658 shares voted
against; Dr. Hatsopoulos received 33,894,641 shares voted in favor of
election and 94,958 shares voted against; and Mr. J. Hatsopoulos, Mr.
Keiser, Mr. Wood, and Dr. Zervas each received 33,894,841 shares in favor
of election and 94,758 shares voted against. No abstentions or broker
nonvotes were recorded on the election of directors.
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 5th day of August
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
------------------------------------------------------------------------
4.0 Fiscal Agency Agreement dated as of May 14, 1997, among
Thermo Cardiosystems Inc., Thermo Electron Corporation, and
Bankers Trust Company as fiscal agent relating to $70
million principal amount of 4 3/4% Convertible Subordinated
Debentures due 2004 (filed as Exhibit 4 to Thermo
Cardiosystems Inc. Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997 [File No. 1-10114] and
incorporated herein by reference).
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.
Exhibit 11
THERMEDICS INC.
Computation of Earnings per Share
Three Months Ended
--------------------------
June 28, June 29,
1997 1996
--------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 5,506,000 $ 9,754,000
----------- -----------
Shares:
Weighted average shares outstanding 36,697,375 36,757,308
Add: Shares issuable from assumed exercise of
options (as determined by the
application of the treasury stock method) 198,069 491,069
Shares issuable from assumed conversion
of subordinated convertible debentures 1,988,984 917,993
----------- -----------
Weighted average shares outstanding, as
adjusted (b) 38,884,428 38,166,370
----------- -----------
Primary Earnings per Share (a) / (b) $ .14 $ .26
=========== ===========
PAGE
<PAGE>
Exhibit 11
THERMEDICS INC.
Computation of Earnings per Share
Six Months Ended
--------------------------
June 28, June 29,
1997 1996
--------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $27,472,000 $15,011,000
----------- -----------
Shares:
Weighted average shares outstanding 36,690,365 36,177,374
Add: Shares issuable from assumed exercise of
options (as determined by the
application of the treasury stock method) 241,047 -
Shares issuable from assumed conversion
of subordinated convertible debentures 1,988,984 -
----------- -----------
Weighted average shares outstanding, as
adjusted (b) 38,920,396 36,177,374
----------- -----------
Primary Earnings per Share (a) / (b) $ .71 $ .41
=========== ===========
<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 JUNE 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 168,344
<SECURITIES> 57,576
<RECEIVABLES> 65,426
<ALLOWANCES> 4,851
<INVENTORY> 59,905
<CURRENT-ASSETS> 361,576
<PP&E> 52,220
<DEPRECIATION> 30,643
<TOTAL-ASSETS> 533,903
<CURRENT-LIABILITIES> 79,011
<BONDS> 143,464
0
0
<COMMON> 3,685
<OTHER-SE> 212,085
<TOTAL-LIABILITY-AND-EQUITY> 533,903
<SALES> 148,053
<TOTAL-REVENUES> 148,053
<CGS> 75,101
<TOTAL-COSTS> 75,101
<OTHER-EXPENSES> 11,811
<LOSS-PROVISION> 285
<INTEREST-EXPENSE> 983
<INCOME-PRETAX> 39,659
<INCOME-TAX> 8,938
<INCOME-CONTINUING> 27,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 27,472
<EPS-PRIMARY> .71
<EPS-DILUTED> 0
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