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 October 2, 1999
[ ] 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
incorporation or organization) (I.R.S. Employer 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: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 29, 1999
Common Stock, $.10 par value 41,938,150
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS INC.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
Assets
October 2, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (includes $73,377 under repurchase $ 36,849 $142,108
agreement with parent company in 1998)
Advance to affiliate (Note 9) 70,479 -
Short-term available-for-sale investments, at quoted market value 79,632 43,310
(amortized cost of $79,752 and $43,155)
Accounts receivable, less allowances of $6,255 and $4,498 72,260 63,438
Inventories (Note 8):
Raw materials and supplies 24,246 25,275
Work in process 20,568 15,918
Finished goods 23,357 21,590
Prepaid income taxes and expenses 15,988 14,572
-------- --------
343,379 326,211
-------- --------
Property, Plant, and Equipment, at Cost 64,068 60,687
Less: Accumulated depreciation and amortization 41,445 38,780
-------- --------
22,623 21,907
-------- --------
Long-term Available-for-sale Investments, at Quoted Market Value 33,215 47,259
(amortized cost of $33,504 and $47,226)
-------- --------
Other Assets 14,668 12,723
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Notes 5, 6, and 8) 151,117 145,518
-------- --------
$565,002 $553,618
======== ========
2
<PAGE>
THERMEDICS INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 2, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Note payable to parent company $ 12,000 $ 19,000
Short-term obligations and current maturity of long-term 41,710 6,312
obligations (includes advance from affiliate of $27,597 in 1999;
Note 5)
Accounts payable 22,357 20,695
Accrued payroll and employee benefits 14,766 12,830
Accrued income taxes 4,786 8,159
Accrued installation and warranty expenses 4,317 4,483
Other accrued expenses 27,840 20,344
Due to parent company and affiliated companies (Note 5) 7,138 2,096
-------- --------
134,914 93,919
-------- --------
Deferred Income Taxes and Other Deferred Items 419 191
-------- --------
Long-term Obligations (Note 5):
Subordinated convertible obligations 117,424 122,674
Other 3,506 128
-------- --------
120,930 122,802
-------- --------
Minority Interest 81,707 88,730
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 100,000,000 shares authorized; 4,199 4,174
41,989,053 and 41,739,308 shares issued
Capital in excess of par value 108,590 106,846
Retained earnings 119,543 139,644
Treasury stock at cost, 50,903 and 47,348 shares (695) (1,026)
Deferred compensation (1,681) -
Accumulated other comprehensive items (Note 2) (2,924) (1,662)
-------- --------
227,032 247,976
-------- --------
$565,002 $553,618
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMEDICS INC.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $82,860 $81,515
------- -------
Costs and Operating Expenses:
Cost of revenues (Note 8) 45,367 44,061
Selling, general, and administrative expenses 25,537 23,189
Research and development expenses 8,183 6,768
Nonrecurring costs (Notes 7 and 8) 155 -
------- -------
79,242 74,018
------- -------
Operating Income 3,618 7,497
Interest Income 2,764 3,099
Interest Expense (includes $235 and $304 to related parties) (1,722) (1,628)
------- -------
Income Before Provision for Income Taxes and Minority Interest 4,660 8,968
Provision for Income Taxes 446 3,504
Minority Interest Expense 1,600 1,186
------- -------
Net Income $ 2,614 $ 4,278
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .06 $ .10
======= =======
Weighted Average Shares (Note 3):
Basic 41,937 41,675
======= =======
Diluted 42,937 43,764
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMEDICS INC.
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $ 238,628 $233,887
--------- --------
Costs and Operating Expenses:
Cost of revenues (Note 8) 127,097 121,594
Selling, general, and administrative expenses 71,019 66,671
Research and development expenses 22,684 19,543
Restructuring and other nonrecurring costs (Notes 7 and 8) 32,038 -
--------- --------
252,838 207,808
--------- --------
Operating Income (Loss) (14,210) 26,079
Interest Income 8,248 10,045
Interest Expense (includes $718 and $384 to related parties) (4,668) (4,067)
Gain on Sale of Investments, Net - 31
--------- --------
Income (Loss) Before Provision for Income Taxes, Minority Interest, and (10,630) 32,088
Extraordinary Item
Provision for Income Taxes (Note 8) 5,973 12,604
Minority Interest Expense 3,498 4,564
--------- --------
Income (Loss) Before Extraordinary Item (20,101) 14,920
Extraordinary Item, Net of Provision of Income Taxes of $3,092 (Note 3) - 4,638
--------- --------
Net Income (Loss) $ (20,101) $ 19,558
========= ========
Earnings (Loss) per Share (Note 3):
Basic $ (.48) $ .48
======== ========
Diluted $ (.48) $ .46
======== ========
Weighted Average Shares (Note 3):
Basic 41,800 41,065
========= ========
Diluted 41,800 43,061
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMEDICS INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income (loss) $ (20,101) $ 19,558
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Noncash restructuring costs (Note 8) 30,105 -
Depreciation and amortization 9,399 8,810
Minority interest expense 3,498 4,564
Gain on repurchase and exchange of subordinated convertible debentures - (7,730)
Gain on sale of investments, net - (31)
Provision for losses on accounts receivable 1,168 569
Other noncash expenses 3,161 383
Change in current accounts, excluding the effect of acquisitions:
Accounts receivable 114 5,464
Inventories (1,479) 545
Prepaid income taxes and expenses (52) (681)
Accounts payable (621) (2,358)
Other current liabilities (2,924) 1,045
Other 151 (332)
--------- ---------
Net cash provided by operating activities 22,419 29,806
--------- --------
Investing Activities:
Advances to affiliate, net (Note 9) (70,479) -
Acquisition of Thermo Voltek common stock (Note 6) (20,482) -
Acquisitions, net of cash acquired (Note 5) (28,395) (44,196)
Purchases of available-for-sale investments (150,325) (169,235)
Proceeds from sale and maturities of available-for-sale investments 127,433 127,560
Purchases of property, plant, and equipment (5,083) (5,525)
Other 2,022 (653)
--------- --------
Net cash used in investing activities (145,309) (92,049)
--------- --------
Financing Activities:
Proceeds from issuance of short-term obligations to affiliated 30,479 -
companies (Note 5)
Repayment of subordinated convertible debentures (Note 6) (5,080) -
Repayment of short-term obligation to parent company (7,000) -
Net decrease in short-term borrowings (444) (1,000)
Proceeds from issuance of short-term obligation to parent company - 21,000
Purchases of Company and subsidiary common stock (926) (14,744)
Purchase of subordinated convertible debentures - (11,384)
Net proceeds from issuance of Company and subsidiary common stock 565 438
--------- --------
Net cash provided by (used in) financing activities $ 17,594 $ (5,690)
--------- --------
6
<PAGE>
THERMEDICS INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Exchange Rate Effect on Cash $ 37 $ 464
--------- --------
Decrease in Cash and Cash Equivalents (105,259) (67,469)
Cash and Cash Equivalents at Beginning of Period 142,108 187,012
--------- --------
Cash and Cash Equivalents at End of Period $ 36,849 $119,543
========= ========
Noncash Activities:
Fair value of assets of acquired companies $ 57,722 $ 56,433
Cash paid for acquired companies (30,479) (44,196)
--------- --------
Liabilities assumed of acquired companies $ 27,243 $ 12,237
========= ========
Issuance of subordinated convertible debentures in connection with $ - $ 15,859
exchange offer
========= ========
Issuance of Company common stock to parent company in exchange for $ - $ 8,080
common stock of subsidiaries
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
7
<PAGE>
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 October 2, 1999, the results of
operations for the three- and nine-month periods ended October 2, 1999, and
October 3, 1998, and the cash flows for the nine-month periods ended October 2,
1999, and October 3, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of January 2, 1999, 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 January 2, 1999,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses from
available-for-sale investments. During the third quarter of 1999 and 1998, the
Company had comprehensive income of $4,533,000 and $5,288,000, respectively. The
Company had a comprehensive loss of $21,016,000 in the first nine months of 1999
and comprehensive income of $20,615,000 in the first nine months of 1998.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Basic
Net Income (Loss) $ 2,614 $ 4,278 $(20,101) $ 19,558
------- -------- -------- --------
Weighted Average Shares 41,937 41,675 41,800 41,065
------- -------- -------- --------
Basic Earnings (Loss) per Share $ .06 $ .10 $ (.48) $ .48
======= ======== ======== ========
Diluted
Net Income (Loss) $ 2,614 $ 4,278 $(20,101) $ 19,558
Effect of:
Convertible obligations - 68 - 70
Majority-owned subsidiaries' dilutive securities (12) (6) (20) (24)
------- -------- -------- -------
Income (Loss) Available to Common Shareholders, as 2,602 4,340 (20,121) 19,604
------- -------- -------- -------
Adjusted
Adjusted
Weighted Average Shares 41,937 41,675 41,800 41,065
Effect of:
Convertible obligations 966 2,028 - 1,894
Stock options 34 61 - 102
------- -------- -------- -------
Weighted Average Shares, as Adjusted 42,937 43,764 41,800 43,061
------- -------- -------- -------
Diluted Earnings (Loss) per Share $ .06 $ .10 $ (.48) $ .46
======= ======== ======== =======
8
<PAGE>
3. Earnings (Loss) per Share (continued)
The computation of diluted loss per share for the first nine months of
1999 excludes the effect of assuming the conversion of convertible obligations
and the exercise of outstanding stock options because the effect would be
antidilutive due to the Company's net loss. The computation of diluted loss per
share for the first nine months of 1999 excluded $15,859,000 principal amount of
2.875% subordinated convertible debentures, convertible at $14.928 per share,
and $31,565,000 principal amount of noninterest bearing subordinated convertible
debentures, convertible at $32.68 per share. In addition, the computation of
diluted earnings per share for the third quarter of 1999 excludes the effect of
assuming the conversion of the Company's 2.875% subordinated convertible
debentures because the effect would be antidilutive.
The computation of diluted earnings per share for all periods excludes the
effect of assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of October 2, 1999, there were 1,516,000 of
such options outstanding, with exercise prices ranging from $7.89 to $29.08 per
share.
During the first nine months of 1998, the Company recorded an
extraordinary gain in connection with the repurchase and exchange of subsidiary
subordinated convertible debentures, which increased basic and diluted earnings
per share by $.11 in the first nine months of 1998.
4. Business Segment Information
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Quality Assurance and Security Products $ 17,558 $ 23,569 $ 56,157 $ 71,234
Precision Weighing and Inspection Equipment 27,154 29,102 81,816 69,660
Heart Assist and Blood Testing Devices 19,738 15,798 59,414 48,416
Power Electronics and Test Equipment 7,450 8,671 20,241 30,836
Respiratory-care Products (a) 6,546 - 6,546 -
Other 4,414 4,375 14,454 13,741
-------- -------- -------- --------
$ 82,860 $ 81,515 $238,628 $233,887
======== ========= ======== ========
Income (Loss) Before Provision for Income Taxes,
Minority Interest, and Extraordinary Item:
Quality Assurance and Security Products (b) $ (1,291) $ 4,086 $ 3,437 $ 10,589
Precision Weighing and Inspection Equipment 3,137 2,231 8,250 6,576
Heart Assist and Blood Testing Devices 1,841 1,344 6,338 6,026
Power Electronics and Test Equipment (c) 7 (604) (32,012) 1,103
Respiratory-care Products (347) - (347) -
Other 800 870 2,939 2,937
Corporate (d) (529) (430) (2,815) (1,152)
-------- --------- -------- --------
Total operating income (loss) 3,618 7,497 (14,210) 26,079
Interest and other income, net 1,042 1,471 3,580 6,009
-------- --------- -------- --------
$ 4,660 $ 8,968 $(10,630) $ 32,088
======== ========= ======== ========
(a) In July 1999, the Company acquired Erich Jaeger, GmbH, which comprises the
Respiratory-care Products segment. This business had assets of $57.7 million
as of the date of acquisition (Note 5).
(b) Includes $1.9 million of inventory provisions in the third quarter and first
nine months of 1999.
(c) Includes $30.2 million of restructuring and nonrecurring costs in the
first nine months of 1999.
(d) Primarily general and administrative expenses and nonrecurring costs.
Includes $0.2 million and $1.8 million of nonrecurring costs in the third
quarter and first nine months of 1999, respectively.
9
<PAGE>
5. Acquisition
In July 1999, the Company acquired Erich Jaeger, GmbH, a medical products
company based in Germany, for $30,479,000, in cash, including the repayment of
certain of Jaeger's indebtedness, and the assumption of $13,127,000 of Jaeger's
indebtedness. Jaeger develops and manufactures equipment for lung-function,
cardio-respiratory, and sleep-disorder diagnosis and monitoring. The Company
financed this acquisition with $30,479,000 of short-term borrowings from a
wholly owned subsidiary of Thermo Electron. Of this amount, $26,370,000 is due
on demand and bears interest at prevailing German market rates, set at the
beginning of each month, and $4,109,000 is due on demand and included in due to
parent company and affiliated companies in the accompanying balance sheet. Of
the $13,127,000 in indebtedness assumed, the Company has repaid $2,305,000,
expects to refinance $7,489,000 with additional borrowings from the wholly owned
subsidiary of Thermo Electron, and expects to repay $3,333,000 upon maturity in
May 2000.
This acquisition has been accounted for using the purchase method of
accounting, and the results of operations of Jaeger have been included in the
accompanying financial statements from the date of acquisition. The cost of the
acquisition exceeded the estimated fair value of the acquired net assets by
$29.8 million, which is being amortized over 40 years. Allocation of the
purchase price was based on an estimate of the fair value of the net assets
acquired and is subject to adjustment upon finalization of the purchase price
allocation. The Company has gathered no information that indicates the final
allocation will differ materially from the preliminary estimate. Pro forma data
has not been presented, as the results of the acquired business were not
material to the Company's results of operations.
The Company has undertaken restructuring activities at certain acquired
businesses. The Company's restructuring activities, which were accounted for in
accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily
have included reductions in staffing levels and the abandonment of excess
facilities. In connection with these restructuring activities, as part of the
cost of acquisitions, the Company established reserves, primarily for severance
and excess facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Unresolved matters at October 2, 1999, included completion of
planned severances and abandonment of excess facilities for an acquisition
completed during the last 12 months. A summary of the changes in accrued
acquisition expenses, included in other accrued expenses in the accompanying
balance sheet, is as follows:
Abandonment
of Excess
(In thousands) Severance Facilities Other Total
- ----------------------------------------------- -------------- -------------- -------------- -------------
Balance at January 2, 1999 $ 177 $ 788 $ - $ 965
Reserves established 478 1,151 62 1,691
Usage (435) (550) (22) (1,007)
Decrease due to finalization of (175) (211) - (386)
restructuring plans, recorded as a
decrease to cost in excess of net assets
of acquired companies
Currency translation 8 39 - 47
------ ------ ------ ------
Balance at October 2, 1999 $ 53 $1,217 $ 40 $1,310
====== ====== ====== ======
</TABLE>
10
<PAGE>
6. Merger with Thermo Voltek Corp.
In March 1999, the Company acquired, through a merger, all of the
outstanding shares of Thermo Voltek Corp., a majority-owned subsidiary of the
Company, that it did not previously own, other than the shares owned by Thermo
Electron. The total cost of the acquisition is expected to be $25,732,000,
including related expenses and the repayment of Thermo Voltek's $5,250,000
principal amount of 3 3/4% subordinated convertible debentures, which became due
and payable at the election of the holder following the merger, and Thermo
Voltek's outstanding stock options. To date, the Company has repaid $5,080,000
principal amount of Thermo Voltek's debentures. The Thermo Voltek stock options
were converted into stock options that are exercisable into 619,819 shares of
Company common stock at a weighted average price of $6.33 per share, with an
aggregate value of $703,000 as of the date of the acquisition. Subsequent to
this transaction, the Company and Thermo Electron owned approximately 97% and
3%, respectively, of the outstanding common stock of Thermo Voltek. The cost of
the acquisition exceeded the estimated fair value of the incremental net assets
by $10,050,000. Pro forma data is not presented since the acquisition of the
minority interest of Thermo Voltek was not material to the Company's results of
operations.
In late March and early April 1998, four putative class actions were filed
in the Court of Chancery of the State of Delaware in and for New Castle County
by shareholders of Thermo Voltek, which were consolidated under the caption In
re Thermo Voltek Corp. Shareholders Litigation, Consolidated C.A. 16287 (the
Action) in October 1998. The complaint in the Action names the Company, Thermo
Voltek, Thermo Electron, and directors of Thermo Voltek as defendants and
alleges, among other things, that Thermo Voltek's directors violated the
fiduciary duties of loyalty, good faith, and fair dealing that they owed to all
shareholders of Thermo Voltek other than the named defendants and the affiliates
of the named defendants because the proposed price of $7.00 per share to be paid
to Thermo Voltek's shareholders under the terms of the proposed Merger Agreement
was allegedly unfair and grossly inadequate. The complaints further allege that
the Company, Thermo Voltek, and Thermo Electron have violated their alleged
fiduciary duty of fair dealing by proposing the merger transaction at the time.
The parties are currently conducting discovery. Due to the inherent uncertainty
of litigation, the outcome of this matter cannot be estimated. The Company
expects, however, that any resolution will not materially affect its future
results of operations or financial position.
7. Proposed Reorganization and Related Costs
During 1998, Thermo Electron announced a proposed reorganization involving
certain of Thermo Electron's subsidiaries, including the Company. Under this
plan, the Company would acquire Thermo Electron's wholly owned biomedical group
for shares of Company common stock. In addition, the Company's equity interests
in its Thermo Sentron Inc., Thermedics Detection Inc., and Thermo Voltek
subsidiaries would be transferred to Thermo Electron for shares of common stock
of the Company. Thermo Electron would take Thermo Sentron and Thermedics
Detection private; shareholders of these subsidiaries would receive cash in
exchange for their shares of common stock. The proposed transactions are subject
to a number of conditions, including the establishment of prices and exchange
ratios; confirmation of anticipated tax consequences; the approval by the Board
of Directors of the Company, Thermo Sentron, and Thermedics Detection (including
their respective independent directors); negotiation and execution of definitive
agreements; clearance by the Securities and Exchange Commission of any necessary
documents in connection with the proposed transactions; approval by the Board of
Directors of Thermo Electron; and receipt of fairness opinions from investment
banking firms on certain financial aspects of the transactions.
In connection with this transaction, the Company recorded $1,815,000 of
nonrecurring costs in the first nine months of 1999, as discussed in Note 8.
11
<PAGE>
8. Restructuring and Related Costs
During the third quarter of 1999, Thermedics Detection recorded provisions
of $1,860,000 for inventories deemed excess based on recent demand. The
provision was recorded as a charge to cost of revenues. Nonrecurring costs of
$155,000 in the third quarter of 1999 represents costs incurred in connection
with the Company's proposed reorganization (Note 7), primarily legal fees.
During the second quarter of 1999, the Company recorded restructuring and
related costs of $32,813,000, including restructuring costs of $30,105,000,
nonrecurring costs of $383,000, a tax asset write-off of $1,409,000, and an
inventory provision of $916,000. The tax asset write-off is included in the
provision for income taxes and the inventory provision is included in cost of
revenues in the accompanying statement of operations. Restructuring costs of
$30,105,000 are related to the Company's decision to sell its power electronics
and test equipment business and includes $28,542,000 to write off related cost
in excess of net assets of acquired companies to reduce the carrying value of
the business to the estimated proceeds from its sale. In addition, restructuring
costs include a charge of $1,563,000 recorded by the Company to write off the
Company's remaining net investment in a subsidiary of this business, which the
Company intends to transfer to a buyer in consideration for a release from
certain contractual obligations, primarily ongoing lease obligations. The tax
write-off represents a deferred tax asset that will not be realized as a result
of exiting this business. The inventory provision results from exiting and
reengineering certain product lines. Unaudited revenues and operating losses
before restructuring and related costs of the power electronics and test
equipment business were $20,241,000 and $991,000, respectively, for the first
nine months of 1999 and $37,940,000 and $173,000, respectively, for 1998.
Nonrecurring costs of $383,000 includes $265,000 related to the Company's
proposed reorganization, and $118,000 to write off a receivable as a result of
an unfavorable resolution of a post-closing adjustment in connection with the
sale of a business in 1998.
During the first quarter of 1999, the Company recorded $1,395,000 of costs
incurred in connection with the Company's proposed reorganization, primarily
investment banking fees.
9. Cash Management Arrangements
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice.
Effective August 1999, the Company's Germany-based subsidiaries commenced
use of a new cash management arrangement with a wholly owned subsidiary of
Thermo Electron. Under the new arrangement, amounts advanced to the subsidiary
of Thermo Electron bear interest at prevailing German market rates, set at the
beginning of each month. Thermo Electron's subsidiary maintains cash, cash
equivalents, and/or immediately available bank lines of credit equal to at least
100% of all funds invested under this cash management arrangement by all Thermo
Electron subsidiaries. The Company can withdraw its funds invested in this
arrangement with no prior notice.
Amounts invested in these arrangements are included in "advance to
affiliate" in the accompanying balance sheet.
12
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999, filed with the Securities and Exchange
Commission.
Overview
The Company's businesses operate in five reportable segments: Quality
Assurance and Security Products (Quality Assurance), Precision Weighing and
Inspection Equipment (Inspection Equipment), Heart Assist and Blood Testing
Devices (Heart Assist Devices), Power Electronics and Test Equipment (Power
Equipment), and Respiratory-care Products. Through the Company's Thermedics
Detection Inc. subsidiary, the Quality Assurance segment develops, manufactures,
and markets high-speed detection and measurement instruments used in a variety
of on-line industrial process applications, security applications, and
laboratory analyses. The Inspection Equipment segment includes the Company's
Thermo Sentron Inc. subsidiary, which develops, manufactures, and markets
high-speed precision-weighing and inspection equipment for industrial production
and packaging lines. In June 1998, Thermo Sentron acquired the three businesses
that constituted the product-monitoring group of Graseby Limited (the
product-monitoring businesses), a subsidiary of Smiths Industries plc. The Power
Equipment segment manufactures electronics-test instruments and a range of
products related to power amplification, conversion, and quality.
The Heart Assist Devices segment, consisting of the Company's Thermo
Cardiosystems Inc. subsidiary, manufactures two implantable left
ventricular-assist systems (LVAS): a pneumatic, or air-driven, system and an
electric version. The electric LVAS is being used in Europe as a bridge to
transplant and to provide long-term cardiac support for patients not eligible
for a heart transplant. In general, a profit cannot be earned from the sale of
an LVAS in the United States until approval of the device for commercial sale
has been received from the U.S. Food and Drug Administration (FDA). Both the
air-driven and electric LVAS have received FDA approval for use as a bridge to
transplant in the United States. As a result, the Company now earns a profit on
the sale of both devices. Until FDA approval has been obtained, the Company may
not earn a profit on the sale in the U.S. of products currently used in clinical
studies. Thermo Cardiosystems' International Technidyne Corporation subsidiary
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 July 1999, the Company acquired Erich Jaeger, GmbH (Note 5), which
comprises the Company's Respiratory-care Products segment. Jaeger, based in
Germany, develops and manufactures equipment for lung-function,
cardio-respiratory, and sleep disorder diagnosis and monitoring.
The Company also develops and manufactures enteral nutrition-delivery
systems and a line of medical-grade polymers used in medical disposables and in
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.
13
<PAGE>
Results of Operations
Third Quarter 1999 Compared With Third Quarter 1998
Total revenues were $82.9 million in the third quarter of 1999, compared
with $81.5 million in the third quarter of 1998. Revenues increased by $6.5
million due to the inclusion of revenues from Jaeger, acquired in July 1999. In
addition, revenues in the Heart Assist Devices segment increased by $3.9
million. These increases were substantially offset by lower revenues in the
Quality Assurance segment of $6.0 million, the Inspection Equipment segment of
$1.9 million, and the Power Equipment segment of $1.2 million.
Revenues from the Inspection Equipment segment decreased to $27.2 million
in the third quarter of 1999 from $29.1 million in the third quarter of 1998.
Excluding the effects of currency translation, revenues at Thermo Sentron
decreased by $1.5 million, primarily due to decreased demand in Europe, offset
in part by increased demand for packaged-goods products in the U.S. In addition,
Inspection Equipment revenues decreased by $0.4 million due to the unfavorable
effects of currency translation as a result of the strengthening in value of the
U.S. dollar relative to currencies in foreign countries in which Thermo Sentron
operates.
Heart Assist Devices segment revenues increased to $19.7 million in the
third quarter of 1999 from $15.8 million in the third quarter of 1998. Revenues
from Thermo Cardiosystems' LVAS increased to $10.0 million in 1999 from $6.8
million in 1998, primarily due to increased demand for the electric LVAS as a
result of FDA approval, which was granted in September 1998, and, to a lesser
extent, a 13% price increase of the electric LVAS, effective November 1998. In
addition, International Technidyne revenues increased $0.8 million, primarily
due to increased demand. These increases were offset in part by a decrease in
revenues from the air-driven LVAS and the expiration of several government
research and development contracts.
Revenues from the Quality Assurance segment decreased to $17.6 million in
the third quarter of 1999 from $23.6 million in the third quarter of 1998.
Thermedics Detection's industrial process instruments revenues decreased by $3.5
million, primarily due to lower revenues from ALEXUS(R) systems and
near-infrared analyzers and related contract revenues; revenues from EGIS(R)
explosives-detection systems and related services decreased by $1.4 million,
primarily due to lower shipments of security systems; and revenues from
Thermedics Detection's laboratory products decreased by $1.0 million, primarily
due to lower worldwide demand for its products and the expiration of two private
label agreements.
Revenues from the Power Equipment segment decreased to $7.5 million in the
third quarter of 1999 from $8.7 million in the third quarter of 1998, primarily
due to the sale of the segment's Universal Voltronics division in November 1998,
which contributed $1.5 million in revenues in the 1998 period.
The gross profit margin was 45% in the third quarter of 1999, compared
with 46% in the third quarter of 1998. The gross profit margin in the Quality
Assurance segment decreased to 40% in 1999 from 55% in 1998, primarily due to
provisions of $1.9 million for inventory deemed excess based on recent demand
(Note 8). To a lesser extent, the gross profit margin decreased due to a charge
to expense of $0.5 million related to the sale of inventory revalued at the time
of the acquisition of Jaeger. These decreases were offset in part by an increase
in the gross profit margin in the Inspection Equipment segment to 42% in 1999
from 36% in 1998, primarily due to manufacturing efficiencies achieved through
cost reduction measures at its product-monitoring businesses and, to a lesser
extent, improved margins from sales of Thermo Sentron's packaged-goods products
in North America.
Selling, general, and administrative expenses as a percentage of revenues
increased to 31% in the third quarter of 1999 from 28% in the third quarter of
1998, primarily due to decreased revenues at the Quality Assurance and
Inspection Equipment segments and, to a lesser extent, the inclusion of higher
selling, general, and administrative expenses as a percentage of revenues at
Jaeger. These increases were offset in part by a decrease in selling, general,
and administrative expenses as a percentage of revenues at the Power Equipment
segment, primarily due to a reduction in selling expenses in an effort to reduce
costs.
14
<PAGE>
Third Quarter 1999 Compared With Third Quarter 1998 (continued)
Research and development expenses increased to $8.2 million in the third
quarter of 1999 from $6.8 million in the third quarter of 1998. The increase
reflects increased expenses in the Heart Assist Devices segment related to a
clinical trial that is being conducted to evaluate the electric LVAS as an
alternative to medical therapy, as well as expenses associated with the
development of the HeartMate II system. In addition, research and development
expenses increased due to the inclusion of $0.8 million of expenses at Jaeger.
Interest income decreased to $2.8 million in the third quarter of 1999
from $3.1 million in the third quarter of 1998, primarily due to lower average
invested balances as a result of the repurchase of securities of the Company and
certain of its majority-owned subsidiaries, the repayment of short- and
long-term obligations, and a decrease in interest rates. Interest expense
increased to $1.7 million in the third quarter of 1999 from $1.6 million in the
third quarter of 1998, primarily as a result of interest expense on borrowings
used to finance the acquisition of Jaeger.
The effective tax rate decreased to 10% in the third quarter of 1999 from
39% in the third quarter of 1998. The tax provision for the 1999 period reflects
a favorable resolution of a Company claim for prior-year research and
development tax credits of $1.8 million. The effective tax rate in 1998 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 increased to $1.6 million in the third quarter
of 1999 from $1.2 million in the third quarter of 1998, primarily due to higher
earnings at Thermo Cardiosystems, offset in part by lower earnings at Thermedics
Detection.
First Nine Months 1999 Compared With First Nine Months 1998
Total revenues were $238.6 million in the first nine months of 1999,
compared with $233.9 million in the first nine months of 1998. Revenues
increased by $6.5 million due to the inclusion of revenues from Jaeger, acquired
in July 1999. In addition, revenues in the Inspection Equipment and Heart Assist
Devices segments increased by $12.1 million and $11.0 million, respectively.
These increases were partially offset by lower revenues in the Quality Assurance
segment of $15.1 million and the Power Equipment segment of $10.6 million.
Revenues from the Inspection Equipment segment increased to $81.8 million
in the first nine months of 1999 from $69.7 million in the first nine months of
1998. Revenues increased by $15.9 million as a result of the acquisition of the
product-monitoring businesses by Thermo Sentron in June 1998. This increase was
offset in part by decreases in revenues of $2.9 million from existing
businesses, primarily due to decreased demand in Europe, and $0.9 million due to
the unfavorable effects of currency translation as a result of the strengthening
in value of the U.S. dollar relative to currencies in foreign countries in which
Thermo Sentron operates.
Heart Assist Devices segment revenues increased to $59.4 million in the
first nine months of 1999 from $48.4 million in the first nine months of 1998.
Revenues from Thermo Cardiosystems' LVAS increased to $30.2 million in 1999 from
$21.0 million in 1998. In addition, International Technidyne revenues increased
by $1.8 million. These increases in revenues were primarily due to the reasons
discussed in the results of operations for the third quarter.
Revenues from the Quality Assurance segment decreased to $56.2 million in
the first nine months of 1999 from $71.2 million in the first nine months of
1998. Thermedics Detection's industrial process instruments revenues decreased
by $7.7 million, primarily due to lower revenues from ALEXUS systems and
near-infrared analyzers, offset in part by an increase in EZ Flash product
sales. Revenues from EGIS explosives-detection systems and related services
decreased $4.0 million, primarily due to lower shipments of security systems.
During the first quarter of 1998, Thermedics Detection completed shipments under
a contract to provide security systems to the Federal Aviation Administration.
Revenues under the contract totaled $1.1 million during the first nine months of
1998. In addition, revenues from Thermedics Detection's laboratory products
decreased $3.4 million, primarily due to the reasons discussed in the results of
operations for the third quarter.
15
<PAGE>
First Nine Months 1999 Compared With First Nine Months 1998 (continued)
Revenues from the Power Equipment segment decreased to $20.2 million in
the first nine months of 1999 from $30.8 million in the first nine months of
1998, primarily due to lower sales of electrostatic discharge test equipment to
the semiconductor industry and lower demand for certain lower-margin products in
Europe. The decrease in revenues was also due to the sale of the segment's
Universal Voltronics division in November 1998, which contributed $4.4 million
in revenues in the 1998 period.
The gross profit margin was 47% in the first nine months of 1999, compared
with 48% in the first nine months of 1998. The gross profit margin in the
Quality Assurance segment decreased to 51% in 1999 from 55% in 1998, primarily
due to the reason discussed in the results of operations for the third quarter.
The gross profit margin at the Power Equipment segment decreased to 36% in 1999
from 44% in 1998, primarily due to inventory provisions of $0.9 million
associated with exiting and reengineering certain product lines and, to a lesser
extent, lower revenues. To a lesser extent, the gross profit margin decreased
due to a charge to expense of $0.5 million related to the sale of inventory
revalued at the time of the acquisition of Jaeger. These decreases were offset
in part by an increase in the gross profit margin in the Inspection Equipment to
40% in 1999 from 38% in 1998, primarily due to the reasons discussed in the
results of operations for the third quarter.
Selling, general, and administrative expenses as a percentage of revenues
increased to 30% in the first nine months of 1999 from 29% in the first nine
months of 1998, primarily due to decreased revenues at the Quality Assurance and
Power Equipment segments.
Research and development expenses increased to $22.7 million in the first
nine months of 1999 from $19.5 million in the first nine months of 1998,
primarily due to the reasons discussed in the results of operations for the
third quarter.
The Company recorded restructuring and other nonrecurring costs of $32.0
million in the first nine months of 1999 (Note 8). The Company recorded $30.1
million of restructuring costs, including $28.5 million to write off cost in
excess of net assets of acquired companies, and $1.6 million to write off its
investment in a subsidiary. These actions were associated with a plan to exit
the Power Equipment businesses and the costs represent noncash charges. The
Company also recorded $1.9 million of nonrecurring costs in the first nine
months of 1999, including $1.8 million of cash costs incurred in connection with
the Company's proposed reorganization (Note 7) and $0.1 million incurred as a
result of an unfavorable resolution of a post-closing adjustment in connection
with the sale of a business.
Interest income decreased to $8.2 million in the first nine months of 1999
from $10.0 million in the first nine months of 1998, primarily due to lower
average invested balances as a result of cash expended for the acquisition of
the product-monitoring business in June 1998, the repurchase of securities of
the Company and certain of its majority-owned subsidiaries, the repayment of
short- and long-term obligations, and a decrease in interest rates. Interest
expense increased to $4.7 million in the first nine months of 1999 from $4.1
million in the first nine months of 1998, primarily as a result of interest
expense on borrowings used to partially finance the acquisitions of the
product-monitoring businesses and Jaeger and, to a lesser extent, the Company's
issuance of $15.9 million principal amount of 2.875% subordinated convertible
debentures in exchange for $21.7 million principal amount of noninterest bearing
subordinated convertible debentures in July 1998.
The Company recorded income tax expense of $6.0 million in the first nine
months of 1999 on a pretax loss, primarily due to the effect of certain
nondeductible restructuring costs, as well as the write-off of a $1.4 million
tax asset (Note 8). In 1999, the Company recorded an income tax credit of $1.8
million as discussed in the results of operations for the third quarter. The
effective tax rate was 39% in the first nine months of 1998. This rate 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.
16
<PAGE>
First Nine Months 1999 Compared With First Nine Months 1998 (continued)
Minority interest expense decreased to $3.5 million in the first nine
months of 1999 from $4.6 million in the first nine months of 1998, primarily due
to losses incurred at Thermo Voltek and lower earnings at Thermedics Detection,
offset in part by higher earnings at Thermo Cardiosystems.
In the first nine months of 1998, the Company and a majority-owned
subsidiary recorded a gain of $4.6 million, net of related income taxes of $3.1
million, on the repurchase and exchange of subordinated convertible debentures.
Liquidity and Capital Resources
Consolidated working capital was $208.5 million at October 2, 1999,
compared with $232.3 million at January 2, 1999. Cash, cash equivalents, and
short- and long-term available-for-sale investments were $149.7 million at
October 2, 1999, compared with $232.7 million at January 2, 1999. Of the $149.7
million balance at October 2, 1999, $135.5 million was held by the Company's
majority-owned subsidiaries, and the remainder by the Company and its wholly
owned subsidiaries. Also, at October 2, 1999, the Company had $70.5 million
invested in an advance to affiliate. Of the $70.5 million balance at October 2,
1999, $68.0 million was advanced by the Company's majority-owned subsidiaries
and the remainder by the Company and its wholly owned subsidiaries. Prior to the
use of new cash management arrangements between the Company and Thermo Electron
Corporation (Note 9), which became effective in 1999, such amounts were included
in cash and cash equivalents.
During the first nine months of 1999, $22.4 million of cash was provided
by operating activities. Cash provided by the Company's operations was offset in
part by $2.9 million of cash used to fund a decrease in other current
liabilities, primarily accrued payroll and employee benefits and accrued
interest, and $1.5 million of cash used to fund an increase in inventories,
primarily in the Heart Assist Devices segment, due to higher production levels
in response to an increase in demand.
Excluding available-for-sale investments and advance to affiliate activity
(Note 9), the Company's primary investing activity in the first nine months of
1999 was the acquisition of Erich Jaeger, GmbH (Note 5) for $28.4 million in
cash, net of cash acquired, and the assumption of debt. In addition, the Company
acquired, through a merger, all of the outstanding shares of Thermo Voltek that
the Company did not previously own, other than the shares owned by Thermo
Electron, for approximately $20.5 million in cash. The Company also expended
$5.1 million for purchases of property, plant, and equipment during the first
nine months of 1999. During the remainder of 1999, the Company expects to make
capital expenditures of approximately $2.0 million.
During the first nine months of 1999, the Company's financing activities
provided cash of $17.6 million. The Company borrowed $30.5 million from a wholly
owned subsidiary of Thermo Electron to finance the acquisition of Jaeger. Cash
of $7.0 million was used to partially repay a short-term obligation to Thermo
Electron. Cash of $5.1 million was used to repay subordinated convertible
debentures of Thermo Voltek. Thermo Cardiosystems expended $0.9 million to
repurchase its common stock pursuant to authorizations by its Board of
Directors. Thermo Cardiosystems' Board of Directors has authorized the
repurchase of up to an additional $25.0 million of its common stock through
October 28, 2000.
The wholly owned subsidiary of Thermo Electron has indicated its
willingness to require payment of the Company's $30.5 million of short-term
obligations only to the extent that the Company's cash flows permit. The Company
believes that its existing resources are sufficient to meet the capital
requirements of its existing operations for the foreseeable future.
17
<PAGE>
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of key suppliers
and vendors; and (iv) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year 2000 compliance, has largely been
completed. During phase one, the Company tested and evaluated its significant
computer systems, software applications, and related equipment for year 2000
compliance. The Company also evaluated the potential year 2000 impact on its
critical non-information technology systems, which efforts included testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. In phase two of its program, any material
noncompliant information technology systems or non-information technology
systems that were identified during phase one were prioritized and remediated.
Based on its evaluation, the Company does not believe that any material upgrades
to its critical non-information technology systems are required. The Company has
substantially completed upgrading or replacing such noncompliant information
technology systems. In many cases, such upgrades or replacements were made in
the ordinary course of business, without accelerating previously scheduled
upgrades or replacements. The Company believes that all of its material
information technology systems and critical non-information technology systems
are currently year 2000 compliant.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells or for which the Company continues to provide technical support. The
Company believes that all of such material products are year 2000 compliant.
However, as many of the Company's products are complex, interact with or
incorporate third-party products, and operate on computer systems that are not
under the Company's control, there can be no assurance that the Company has
identified all of the year 2000 problems with its current products. The Company
believes that certain of its older products, which it no longer manufactures or
sells, may not be year 2000 compliant. The Company is continuing to test and
evaluate such products. The Company is focusing its efforts on products that are
under warranty or early in their expected life and/or are subject to FDA
considerations due to safety risks. The Company is offering upgrades and/or
identifying potential solutions where reasonably practicable.
The Company developed and distributed questionnaires relating to year 2000
compliance to its significant suppliers and vendors. To date, no significant
supplier or vendor has indicated that it believes its business operations will
be materially disrupted by the year 2000 issue. The Company has substantially
completed its assessment of third-party risk.
Year 2000 Compliance Status
----------------------------------------------------------------------
Material Information
Technology Systems and Facilities Substantially completed
Material Current Products Substantially completed
Evaluation of Third-party Risk Substantially completed
18
<PAGE>
Year 2000 (continued)
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan includes identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, products, and significant suppliers and vendors, it will modify and
adjust its contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
The Company had incurred expenses to third parties (external costs)
related to year 2000 issues of approximately $1.6 million as of October 2, 1999,
and the total external costs of year 2000 remediation are expected to be
approximately $1.8 million. Year 2000 costs are funded from working capital. All
internal costs and related external costs other than capital additions related
to year 2000 remediation have been and will continue to be expensed as incurred.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
Reasonably Likely Worst Case Scenario
The Company is not currently able to determine the most reasonably likely
worst case scenario to result from the year 2000 issue. One possible worst case
scenario would be that certain of the Company's material suppliers or vendors
experience business disruptions due to the year 2000 issue and are unable to
provide materials and services to the Company on time. The Company's operations
could be delayed or temporarily shut down, and it could be unable to meet its
obligations to customers in a timely fashion. The Company's business,
operations, and financial condition could be adversely affected in amounts that
cannot be reasonably estimated at this time.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. Despite its efforts to ensure that its
material current products are year 2000 compliant, the Company may see an
increase in warranty and other claims, especially those related to Company
products that incorporate, or operate using, third-party software or hardware.
In addition, certain of the Company's older products, which it no longer
manufactures or sells, may not be year 2000 compliant, which may expose the
Company to claims. If any of the Company's material suppliers or vendors
experience business disruptions due to year 2000 issues, the Company might also
be materially adversely affected. There is expected to be a significant amount
of litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
significant adverse impact on the Company's business, operations, and financial
condition, in amounts that cannot be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates, interest rates, and equity prices has not changed materially
from its exposure at year-end 1998.
19
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
20
<PAGE>
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 8th day of November 1999.
THERMEDICS INC.
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------
27 Financial Data Schedule.
<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 PERIOD ENDED OCTOBER 2, 1999 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> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 36,849
<SECURITIES> 79,632
<RECEIVABLES> 78,515
<ALLOWANCES> 6,255
<INVENTORY> 68,171
<CURRENT-ASSETS> 343,379
<PP&E> 64,068
<DEPRECIATION> 41,445
<TOTAL-ASSETS> 565,002
<CURRENT-LIABILITIES> 134,914
<BONDS> 120,930
0
0
<COMMON> 4,199
<OTHER-SE> 222,833
<TOTAL-LIABILITY-AND-EQUITY> 565,002
<SALES> 238,628
<TOTAL-REVENUES> 238,628
<CGS> 127,097
<TOTAL-COSTS> 127,097
<OTHER-EXPENSES> 54,722
<LOSS-PROVISION> 1,168
<INTEREST-EXPENSE> 4,668
<INCOME-PRETAX> (10,630)
<INCOME-TAX> 5,973
<INCOME-CONTINUING> (20,101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,101)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
