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 29, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-10791
THERMOTREX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-1711436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10455 Pacific Center Court
San Diego, California 92121-4339
(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 26, 1996
---------------------------- ----------------------------
Common Stock, $.01 par value 19,105,284
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOTREX CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 29, September 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 20,800 $ 21,512
Available-for-sale investments, at quoted
market value (amortized cost of $59,661
and $65,659) 59,503 65,633
Accounts receivable, less allowances of
$1,356 and $1,141 27,601 27,910
Unbilled contract costs and fees 3,535 3,164
Inventories:
Raw materials and supplies 18,559 12,348
Work in process 8,031 5,927
Finished goods 5,409 4,042
Prepaid expenses 1,638 513
Prepaid income taxes 6,024 1,761
-------- --------
151,100 142,810
-------- --------
Property, Plant and Equipment, at Cost 29,302 19,507
Less: Accumulated depreciation and amortization 7,673 7,171
-------- --------
21,629 12,336
-------- --------
Note Receivable from Related Party (Note 4) 3,300 2,000
-------- --------
Other Assets 4,690 340
-------- --------
Cost in Excess of Net Assets of Acquired Companies 85,185 73,295
-------- --------
$265,904 $230,781
======== ========
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THERMOTREX CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, September 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Note payable to parent company $ 8,000 $ 8,000
Accounts payable 13,193 13,203
Accrued payroll and employee benefits 4,882 3,930
Accrued warranty costs 4,957 2,990
Accrued income taxes 3,117 477
Customer deposits 3,779 921
Other accrued expenses 15,839 7,508
Due to parent company and affiliates 556 2,484
-------- --------
54,323 39,513
-------- --------
Minority Interest 34,073 28,880
-------- --------
Shareholders' Investment:
Common stock, $.01 par value,
50,000,000 shares authorized;
19,113,607 and 19,074,854
shares issued 191 191
Capital in excess of par value 114,105 116,837
Retained earnings 63,927 46,581
Treasury stock at cost, 14,453
and 62,711 shares (614) (1,206)
Net unrealized loss on
available-for-sale investments (101) (15)
-------- --------
177,508 162,388
-------- --------
$265,904 $230,781
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMOTREX CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues:
Product $39,985 $22,839
Contract 2,787 5,245
------- -------
42,772 28,084
------- -------
Costs and Operating Expenses:
Cost of product revenues 23,678 12,151
Cost of contract revenues 2,053 4,194
Selling, general and administrative expenses 10,274 6,953
Research and development expenses 5,612 3,758
Costs associated with divisional restructuring - 115
------- -------
41,617 27,171
------- -------
Operating Income 1,155 913
Interest Income 1,372 933
Interest Expense, Related Party (112) -
Gain on Issuance of Stock by Subsidiary - 1,661
Gain on Sale of Investments 115 -
------- -------
Income Before Provision for Income Taxes
and Minority Interest 2,530 3,507
Provision for Income Taxes 1,284 1,138
Minority Interest (Income) Expense 175 (155)
------- -------
Net Income $ 1,071 $ 2,524
======= =======
Earnings per Share $ .05 $ .13
======= =======
Weighted Average Shares 19,720 18,939
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMOTREX CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
----------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues:
Product $118,995 $ 66,067
Contract 9,571 13,373
-------- --------
128,566 79,440
-------- --------
Costs and Operating Expenses:
Cost of product revenues 69,672 35,112
Cost of contract revenues 7,550 10,347
Selling, general and administrative expenses 30,896 20,381
Research and development expenses 15,913 11,701
Costs associated with divisional restructuring - 115
-------- --------
124,031 77,656
-------- --------
Operating Income 4,535 1,784
Interest Income 4,277 2,938
Interest Expense, Related Party (351) -
Gain on Issuance of Stock by Subsidiary (Note 2) 13,504 1,661
Gain (Loss) on Sale of Investments 115 (41)
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 22,080 6,342
Provision for Income Taxes 4,366 2,687
Minority Interest (Income) Expense 368 (169)
-------- --------
Net Income $ 17,346 $ 3,824
======== ========
Earnings per Share $ .88 $ .20
======== ========
Weighted Average Shares 19,682 18,883
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMOTREX CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 17,346 $ 3,824
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 3,426 2,153
Provision for losses on accounts receivable 175 110
Gain on issuance of stock by
subsidiary (Note 2) (13,504) (1,661)
(Gain) loss on sale of investments (115) 41
Minority interest (income) expense 368 (169)
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable 3,476 (4,165)
Inventories and unbilled contract
costs and fees (1,171) (7,158)
Other current assets (786) 194
Accounts payable (2,542) 2,571
Other current liabilities 3,836 189
-------- --------
Net cash provided by (used in)
operating activities 10,509 (4,071)
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 3) (18,817) (197)
Investment in other assets (4,400) -
Payment to dissenting shareholders in connection
with Lorad acquisition - (2,300)
Purchases of available-for-sale investments (52,000) (268)
Proceeds from sale and maturities of available-
for-sale investments 57,230 33,374
Purchases of property, plant and equipment (8,891) (3,302)
Issuance of note receivable to related
party (Note 4) (1,300) (1,000)
Other 943 1,186
-------- --------
Net cash provided by (used in)
investing activities $(27,235) $ 27,493
-------- --------
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THERMOTREX CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-------------------
June 29, July 1,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company
and subsidiary common stock (Note 2) $ 21,774 $ 3,058
Purchases of Company and subsidiary common
stock (5,760) -
-------- --------
Net cash provided by financing
activities 16,014 3,058
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (712) 26,480
Cash and Cash Equivalents at Beginning of Period 21,512 22,573
-------- --------
Cash and Cash Equivalents at End of Period $ 20,800 $ 49,053
======== ========
Noncash Activities:
Fair value of assets of acquired company $ 28,956 $ -
Cash paid for acquired company (18,878) -
-------- --------
Liabilities assumed of acquired company $ 10,078 $ -
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMOTREX CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoTrex Corporation (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the financial position at June 29, 1996,
the results of operations for the three- and nine-month periods ended June
29, 1996, and July 1, 1995, and the cash flows for the nine-month periods
ended June 29, 1996, and July 1, 1995. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of September 30, 1995, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Transition Report on Form
10-K for the nine months ended September 30, 1995, filed with the
Securities and Exchange Commission.
2. Issuance of Stock by Subsidiary
In November 1995 and January 1996, the Company's Trex Medical
Corporation (Trex Medical) subsidiary issued 1,862,000 shares and 100,000
shares of its common stock at $10.25 and $10.75 per share, respectively, in
private placements for net proceeds of $18.7 million, resulting in a gain
of $13.5 million. At June 29, 1996, the Company owned 91% of the
outstanding common stock of Trex Medical.
In July 1996, Trex Medical sold 2,875,000 shares of its common stock
in an initial public offering and 871,832 shares of its common stock in a
concurrent rights offering at $14.00 per share for net proceeds of
approximately $49.1 million. Subsequent to the offerings, the Company owned
80% of the outstanding common stock of Trex Medical.
3. Acquisition and Proposed Acquisition
In May 1996, Trex Medical acquired XRE Corporation (XRE), a
Massachusetts-based company that designs, manufactures, and markets X-ray
imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions, for $17.1 million in cash and the
repayment of $1.8 million of indebtedness. This acquisition has been
accounted for using the purchase method of accounting and XRE's results of
operations have been included in the accompanying financial statements from
the date of acquisition. The aggregate cost of this acquisition exceeded
the estimated fair value of the acquired net assets by $13.6 million, which
is being amortized over 40 years.
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THERMOTREX CORPORATION
3. Acquisition and Proposed Acquisition (continued)
In April 1996, Trex Medical signed a letter of intent to acquire the
assets of Continental X-Ray Corporation and affiliates (Continental) for
approximately $18.2 million in cash, including the repayment of $5.7
million of indebtedness. Continental is an Illinois-based corporation that
designs, manufactures, and markets general-purpose, radiographic/
fluoroscopic and electrophysiology X-ray systems. The completion of this
acquisition is subject to the satisfaction of certain closing conditions,
including negotiation of definitive agreements; receipt of regulatory
approvals, including clearance from the Federal Trade Commission; due
diligence; and approval of the boards of directors of the Company, Trex
Medical, and Continental. This acquisition will be accounted for using the
purchase method of accounting.
The purchase price for both XRE and Continental will be subject to
post-closing adjustments based on the net asset value of the respective
companies as of the closing dates.
4. Related Party Note Receivable
In April 1996, the Company advanced an additional $1,300,000 to
Dolphin Acquisition Corporation (Dolphin) increasing the principal balance
of notes receivable from Dolphin to $3,300,000. Borrowings bear interest at
an annual rate of 6.0% and are due in June 2000. The president of
ThermoLase is a shareholder and former officer of Dolphin.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
Description of Business
The Company's Trex Medical Corporation (Trex Medical) subsidiary
manufactures and markets mammography equipment and minimally invasive
stereotactic needle-biopsy systems used for the detection of breast cancer,
general radiography (X-ray) equipment, and X-ray imaging systems used for
cardiac catheterization and angiographs. The Company owned 80% of Trex
Medical's outstanding common stock subsequent to its initial public
offering (Note 2). Through its 64%-owned ThermoLase Corporation
(ThermoLase) subsidiary, the Company has developed a laser-based system
called SoftLight(SM) for the removal of unwanted hair. Through ThermoLase's
wholly owned CBI Laboratories, Inc. (CBI) subsidiary, the Company
manufactures and markets skin-care, bath, and body products.
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THERMOTREX CORPORATION
Description of Business (continued)
The Company also conducts advanced-technology research and product
development in telecommunications, avionics, X-ray detection, signal
processing, materials technology, and lasers. The Company has developed its
expertise in these core technologies in connection with government-
sponsored research and development.
Results of Operations
In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Three Months Ended June 29, 1996, Compared With Three Months Ended
July 1, 1995
Total revenues increased 52% to $42.8 million in the three months
ended June 29, 1996, from $28.1 million in the three months ended July 1,
1995. Revenues at Trex Medical, excluding intercompany sales, increased 96%
to $33.7 million in the three months ended June 29, 1996, compared with
$17.2 million in the three months ended July 1, 1995, primarily due to the
inclusion of $10.6 million in revenues from Trex Medical's Bennett X-Ray
Corporation (Bennett) subsidiary, which was acquired in September 1995, and
the inclusion of $1.8 million in revenues from Trex Medical's XRE
Corporation (XRE) subsidiary, which was acquired in May 1996. In addition,
revenues from Trex Medical's Lorad division, excluding intercompany sales,
increased 24% to $21.2 million in the three months ended June 29, 1996 from
$17.2 million in the three months ended July 1, 1995, due to increased
demand. Revenues at ThermoLase increased 12% to $6.3 million in the three
months ended June 29, 1996, from $5.6 million in the three months ended
July 1, 1995. The increase in revenues at ThermoLase resulted primarily
from the inclusion of $0.8 million of revenues from hair-removal services
at the Company's first two Spa Thira salons and $0.7 million in SoftLight
licensing fees from a Japanese joint venture established in January 1996,
offset in part by a decrease in revenues of $0.8 million at CBI. In October
1995, and June 1996, ThermoLase opened its first two Spa Thira salons in La
Jolla, California, and Dallas, Texas, respectively. During the three months
ended June 29, 1996, ThermoLase collected $1.0 million from Spa Thira
clients and recognized $0.8 million in revenue. Under the current pricing
structure, the majority of spa clients pay a fixed fee in advance to
receive a series of treatments, as necessary. Consequently, ThermoLase
defers revenue related to such payments, which is recognized over the
anticipated treatment period. As ThermoLase collects further data
concerning the number of treatments required and duration of the treatment
period, the period of revenue recognition may be affected.
In January 1996, ThermoLase entered into a joint venture agreement,
which is subject to certain conditions, to market its SoftLight system in
Japan. ThermoLase currently holds a 50% stake in the joint venture with an
option to increase its ownership to 51%. The agreement calls for ThermoLase
to receive additional minimum guaranteed payments of $0.7 million during
the remainder of fiscal 1996 and $1.0 million in fiscal 1997, subject to
certain conditions.
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THERMOTREX CORPORATION
Three Months Ended June 29, 1996, Compared With Three Months Ended
July 1, 1995 (continued)
Advanced Technology Research revenues declined to $2.8 million in the
three months ended June 29, 1996, from $5.2 million in the three months
ended July 1, 1995, primarily due to the sale of the Company's
thermoelectrics and thermionics businesses to two subsidiaries of Thermo
Electron Corporation (Thermo Electron) and lower funding levels for the
Company's government sponsored research and development contracts. The
Company estimates that revenues from Advanced Technology Research will
continue to decline as a percentage of total revenues.
The gross profit margin was 40% in the three months ended June 29,
1996, compared with 42% in the three months ended July 1, 1995. The gross
profit margin at Trex Medical, excluding intercompany sales, declined to
43% in the three months ended June 29, 1996, from 50% in the three months
ended July 1, 1995, primarily due to the inclusion of lower-margin revenues
at Bennett and XRE. The gross profit margin at ThermoLase in the three
months ended June 29, 1996, was 29%, compared with 37% in the three months
ended July 1, 1995. The decline in the gross profit margin at ThermoLase is
primarily due to lower margins on the sale of skin-care and other
personal-care products at CBI due to a decrease in revenues. In addition,
the decline in the gross profit margin resulted from the early operations
of the Spa Thira business, as the Company develops a client base and
continues refining its operating procedures, offset in part by the effect
of revenues from the Japanese joint venture. As the Company opens
additional Spa Thira locations in fiscal 1996 and fiscal 1997, preopening
costs will have a negative impact on the gross profit margin.
Selling, general and administrative expenses as a percentage of
revenues decreased to 24% in the three months ended June 29, 1996, from 25%
in the three months ended July 1, 1995, due to increased revenues at Trex
Medical's Lorad division. Research and development expenses increased to
$5.6 million in the three months ended June 29, 1996, from $3.8 million in
the three months ended July 1, 1995, reflecting the Company's continued
efforts to commercialize new products including the Company's M-IV
mammography system, full-breast digital mammography system, and
direct-detection X-ray sensor, as well as enhancements of existing systems.
Research and development expenses also increased due to the inclusion of
$0.7 million of expense at Bennett and XRE.
Interest income increased to $1.4 million in the three months ended
June 29, 1996, from $0.9 million in the three months ended July 1, 1995,
primarily as a result of interest income earned on invested proceeds from
the August 1995 public offering of ThermoLase common stock and the November
1995 and January 1996 private placements of Trex Medical common stock.
During the three months ended July 1, 1995, the Company recorded a
gain on issuance of stock by subsidiary of $1.7 million in connection with
the June 1995 private placement of ThermoLase common stock.
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THERMOTREX CORPORATION
Three Months Ended June 29, 1996, Compared With Three Months Ended
July 1, 1995 (continued)
The effective tax rates in both periods differ from the statutory
federal income tax rate due to nondeductible amortization of cost in excess
of net assets of acquired companies and the impact of state income taxes,
offset in fiscal 1995 by the nontaxable gain on issuance of stock by
subsidiary.
Nine Months Ended June 29, 1996, Compared With Nine Months Ended
July 1, 1995
Total revenues increased 62% to $128.6 million in the nine months
ended June 29, 1996, from $79.4 million in the nine months ended July 1,
1995. Revenues at Trex Medical, excluding intercompany sales, increased
103% to $98.3 million in the nine months ended June 29, 1996, compared with
$48.5 million in the nine months ended July 1, 1995, primarily due to the
inclusion of $33.8 million in revenues from Bennett, which was acquired in
September 1995, and an increase in revenues at Lorad, excluding
intercompany sales, to $62.6 million in the nine months ended June 29,
1996, from $48.5 million in the nine months ended July 1, 1995. Revenues at
ThermoLase increased 18% to $20.7 million in the nine months ended June 29,
1996, from $17.6 million in the nine months ended July 1, 1995, primarily
due to the inclusion of $1.3 million in SoftLight licensing fees from the
Japanese joint venture and $1.2 million of revenues from the Company's
first two Spa Thira salons. Advanced Technology Research revenues declined
to $9.6 million in the nine months ended June 29, 1996, from $13.4 million
in the nine months ended July 1, 1995, primarily due to the reasons
discussed in the results of operations for the three months ended June 29,
1996.
The gross profit margin declined to 40% in the nine months ended June
29, 1996, compared with 43% in the nine months ended July 1, 1995, due to
the reasons discussed in the results of operations for the three months
ended June 29, 1996.
Selling, general and administrative expenses as a percentage of
revenues declined to 24% in the nine months ended June 29, 1996, from 26%
in the nine months ended July 1, 1995, primarily due to increased revenues
at Lorad and lower expenses as a percentage of revenues at CBI, offset in
part by increased expenses at Spa Thira. Research and development expenses
increased to $15.9 million in the nine months ended June 29, 1996, from
$11.7 million in the nine months ended July 1, 1995, due to the inclusion
of $2.3 million of expense at Bennett and XRE and the Company's continued
efforts to develop and commercialize new products as discussed in the
results of operations for the three months ended June 29, 1996.
Interest income increased to $4.3 million in the nine months ended
June 29, 1996, from $2.9 million in the nine months ended July 1, 1995,
primarily as a result of interest income earned on invested proceeds from
the August 1995 public offering of ThermoLase common stock and the November
1995 and January 1996 private placements of Trex Medical common stock.
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THERMOTREX CORPORATION
Nine Months Ended June 29, 1996, Compared With Nine Months Ended
July 1, 1995 (continued)
During the nine months ended June 29, 1996, the Company recorded a
gain on issuance of stock by subsidiary of $13.5 million in connection with
the November 1995 and January 1996 private placements of Trex Medical
common stock (Note 2).
The effective tax rates in both periods differ from the statutory
income tax rate due to nondeductible amortization of cost in excess of net
assets of acquired companies and the impact of state income taxes, offset
by the nontaxable gains on issuance of stock by subsidiaries.
Liquidity and Capital Resources
Consolidated working capital was $96.8 million at June 29, 1996,
compared with $103.3 million at September 30, 1995. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$80.3 million at June 29, 1996, compared with $87.1 million at September
30, 1995. Of the $80.3 million balance at June 29, 1996, $60.6 million was
held by ThermoLase, $2.4 million was held by Trex Medical, and the
remainder was held by the Company and its wholly owned subsidiaries. Net
cash provided by operating activities during the nine months ended June 29,
1996 was $4.7 million. During this period, the Company expended $8.9
million for property, plant and equipment and $4.4 million for other
assets. During the nine months ended June 29, 1996, the Company raised
$21.8 million from the issuance of Company and subsidiary common stock.
In May 1996, Trex Medical acquired XRE for $17.1 million in cash and
the repayment of $1.8 million of indebtedness (Note 3).
Trex Medical has an outstanding letter of intent to acquire
Continental X-Ray Corporation and affiliates for approximately $18.2
million in cash, including the repayment of $5.7 million of indebtedness
(Note 3). There can be no assurance that this acquisition will be
completed.
ThermoLase has signed leases in Beverly Hills, Denver, Detroit,
Houston, and Boca Raton, where it plans to open additional Spa Thira
salons. ThermoLase plans to open additional spas in various parts of the
United States during the remainder of calendar 1996 and thereafter.
Depending on the size of the salon, each facility will require
approximately $1.5 million to $2.5 million for such items as leasehold
improvements and laser systems.
In July 1996, Trex Medical sold 2,875,000 shares of its common stock
in an initial public offering, and 871,832 shares of its common stock in a
concurrent rights offering, at $14.00 per share for net proceeds of
approximately $49.1 million (Note 2). Trex Medical plans to use the
proceeds for acquisitions, to fund research and development and for working
capital and other general corporate purposes.
The Company believes it has adequate resources to meet its financial
needs for the foreseeable future.
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THERMOTREX CORPORATION
Liquidity and Capital Resources (continued)
During the nine months ended June 29, 1996, the Company sold its
thermoelectrics and thermionics businesses to two subsidiaries of Thermo
Electron. The purchase price for these transactions is the net book value
of the assets transferred, currently estimated to be an aggregate of
approximately $1.1 million. These businesses were not material to the
Company's results of operations or financial position.
PART II - OTHER INFORMATION
Item 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual results
and could cause its actual results in fiscal 1996 and beyond to differ
materially from those expressed in any forward-looking statements made by
or on behalf of the Company.
No Assurance of Development and Commercialization of Products Under
Development. The Company has several lines of existing products and a
number of commercial products under development. Product development
involves a high degree of risk, and returns to investors are dependent upon
successful development and commercialization of the Company's proposed
products. Proposed products based on the Company's technologies will
require significant research and development. There can be no assurance
that any products developed by the Company will be commercialized or that
development will be completed in any particular time frame. In addition,
there can be no assurance that the Company will be able to build
manufacturing, marketing, and distribution organizations that will be
necessary for the successful commercialization of its commercial products
under development.
Uncertain Market Acceptance. The success of the Company's products
depends on obtaining favorable perceptions of the Company's products by
markets and opinion leaders. ThermoLase's SoftLight process for laser
hair-removal is significantly different from current commercially available
hair-removal technologies. With any new cosmetic technology, there is
substantial risk that the marketplace may not accept or be receptive to the
potential benefits of such technology. Market acceptance of the SoftLight
process will depend, in large part, upon the ability of ThermoLase to
demonstrate to consumers the safety and effectiveness of the SoftLight
process and its advantages over other types of hair-removal treatment.
There can be no assurance that the SoftLight process will be accepted by
the public. The Company's passive microwave camera, Thermo Lase's
skin-rejuvenation system, and Trex Medical's full-breast digital imaging
system are also significantly different from current technologies and, if
successfully developed, will be subject to similar market acceptance risks.
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THERMOTREX CORPORATION
Item 5 - Other Information
Government Regulation; No Assurance of Regulatory Approvals. Certain
of the Company's products are subject to pre-marketing clearance or
approval by the U.S. Food and Drug Administration (the "FDA") and similar
agencies in foreign countries. The use or sale of certain of the Company's
commercial products under development will require approvals by other
government agencies, such as the Federal Aviation Administration. Trex
Medical's full-breast digital imaging system and ThermoLase's
skin-rejuvenation system require the completion of human clinical trials
prior to submissions for FDA approval. Clinical trials of the digital
imaging system and the skin-rejuvenation system are currently under way. At
the conclusion of the trials, the Company expects its subsidiaries to
submit 510(k) applications for FDA approval, but there can be no assurance
that there will be favorable clinical results, which are necessary for such
submissions. The process of obtaining FDA approvals is time consuming and
expensive. There can be no assurance that the FDA will accept any of such
510(k) applications, and may require additional data or alternative and
more time-consuming approval procedures. Furthermore, there can be no
assurance that the necessary approvals for any of the products will be
obtained on a timely basis, or at all.
FDA regulations also require continuing compliance with specific
standards in conjunction with the maintenance and marketing of products and
services that have been approved. If such regulations are not complied with
on an ongoing basis, the FDA can enjoin production, seize products, and
levy fines.
Due to the recent development of the SoftLight process, no state has
addressed the issue of how to license the use of a laser for hair removal.
Although no final determination has been made and no ruling from regulatory
authorities has been obtained, the Company recognizes for purposes of
commercializing the ThermoLase centers that the operation of the SoftLight
process may constitute the practice of medicine. If operation of the
SoftLight process is determined to involve the practice of medicine, the
degree of physician involvement required in delivering the process is
unclear. There can be no assurance that review of the Company's business by
courts or health care, tax, labor, and other regulatory authorities that
have jurisdiction over matters including, without limitation, the corporate
practice of medicine, licensure of facilities, practitioners and equipment
and franchising will not result in determinations that could adversely
affect the operations of the Company or that the healthcare regulatory
environment will not change in a manner that would restrict the Company's
proposed operations or limit the expansion of the Company's business or
otherwise adversely affect the Company.
Healthcare Reform; Uncertainty of Patient Reimbursement. The federal
government has in the past and may in the future consider, and certain
state and local as well as a number of foreign governments are considering
or have adopted, healthcare policies intended to curb rising healthcare
costs. Such policies include rationing of government-funded reimbursement
for healthcare services and imposing price controls upon providers of
medical products and services. The Company cannot predict what healthcare
reform legislation or regulation, if any, will be enacted in the United
States or elsewhere. Significant changes in the healthcare systems in the
15
PAGE
<PAGE>
THERMOTREX CORPORATION
Item 5 - Other Information (continued)
United States or elsewhere are likely to have a significant impact over
time on the manner in which Trex Medical conducts its business. In
addition, the federal government regulates reimbursement of fees for
certain diagnostic examinations and capital equipment acquisition costs
connected with services to Medicare beneficiaries. Recent legislation has
limited Medicare reimbursement for diagnostic examinations. These policies
may have the effect of limiting the availability or reimbursement for
certain procedures, and as a result may inhibit or reduce demand by
healthcare providers for products in the markets in which Trex Medical
competes. While the Company cannot predict what effect the policies of
government entities and other third party payors will have on future sales
of Trex Medical's products, there can be no assurance that such policies
would not have an adverse impact on the operations of the Company.
Technological Developments and Intense Competition. The Company's
products do, and will, compete in fields characterized by rapid
technological progress and intense competition. New developments in
technology may have a material adverse effect on the development or sale of
some or all of the Company's products or render such products
noncompetitive or obsolete. Other companies, many of which have
substantially greater capital resources, marketing experience, research and
development staffs and facilities than the Company, are currently engaged
in the sale and development of products and technologies that are similar
to, and may be competitive with, certain of the Company's products and
technologies. There can be no assurance that the Company's current
products, products under development, or ability to discover new
technologies will be sufficient to enable it to compete effectively with
its competitors.
Although ThermoLase received FDA clearance in April 1995 to
commercially market the SoftLight process, ThermoLase is continuing its
development of the process. The clinical trials performed during the second
half of 1994 to collect the data necessary to support ThermoLase's
application to the FDA demonstrated that the SoftLight process is effective
at removing hair; however, these trials included a limited number of
subjects. ThermoLase is continuing to study the SoftLight process to better
understand the effects of the system and to optimize treatment parameters.
These studies will also be used to further clarify the duration for which
hair will be removed, the number of treatments required to effectively
remove hair from a given area, and the effectiveness of the process across
a broad range of skin types and anatomical sites. In addition, although
ThermoLase has not observed any significant side effects to date, it is
continuing to monitor subjects and customers for the development of
possible side effects. Failure to further improve the SoftLight process may
limit ThermoLase's ability to successfully commercialize the SoftLight
process.
Need to Manage Growth; Ability to Attract Qualified Personnel.
ThermoLase is experiencing a period of rapid growth as it comme
commercial operations of its SoftLight process. ThermoLase presently
intends to commercialize the SoftLight process primarily through
ThermoLase-owned-and-operated spas and a network of physicians using the
16PAGE
<PAGE>
THERMOTREX CORPORATION
Item 5 - Other Information (continued)
process as part of their practices. ThermoLase will be required to recruit
and train a large number of personnel for its spas, including medical staff
such as physicians, registered nurses, physician assistants, and other
personnel. There may be only a limited number of such persons with the
requisite skills, and it may become increasingly difficult for ThermoLase
to hire such personnel over time. ThermoLase will also be required to
recruit qualified physicians for its network of physician practices that
offer the SoftLight process. Such qualified physicians may not be available
or interested in offering the SoftLight process in their private practices.
ThermoLase's commercialization strategy may also significantly strain
operational, management, financial, sales and marketing, and other
resources. To manage growth effectively, ThermoLase must continue to
enhance its systems and controls and successfully expand, train, and manage
its employee base and physician network. There can be no assurance that
ThermoLase will be able to manage this expansion effectively.
Intellectual Property Rights Uncertainties and Litigation. The Company
places considerable importance on obtaining patent and trade secret
protection for significant new technologies, products and processes because
of the length of time and expense associated with bringing new products
through development and the regulatory approval process to the marketplace.
Proprietary rights relating to the Company's products will be protected
from unauthorized use by third parties only to the extent that they are
covered by enforceable patents or are maintained in confidence as trade
secrets. Certain technology that may be used in the Company's products is
not covered by any patent or patent application and therefore may be the
subject of ownership disputes. The Company generally relies on trade
secrecy agreements to protect such technology, but there can be no
assurance that such agreements will provide meaningful protection or that
others will not independently develop substantially equivalent technology.
There can be no assurance that patent applications covering the Company's
products will be successfully filed or that patents will ultimately issue.
Further, even if patents are issued, the protection afforded by such
patents and the Company's existing patents will depend upon their scope and
validity. In addition, there can be no assurance that the Company's patents
will not be challenged. There may be patents or other intellectual property
rights owned by others, which if infringed by the Company would permit the
owner to prevent the Company from making, selling, or using the affected
product or process without a license and to be entitled to damages for past
infringement. ThermoLase has from time to time received allegations that
the SoftLight process infringes the intellectual property rights of others
and may continue to receive such allegations in the future. Protection and
defense of intellectual property rights may involve the commitment of large
amounts of time and financial resources. Furthermore, the government
retains a non-exclusive, royalty-free license to use technology developed
under government contracts for government purposes. If the Company decides
not to pursue further development of government-sponsored technology, the
government could, in certain circumstances, transfer that technology to a
third party.
Fischer Imaging Corporation ("Fischer") sued Trex Medical's Lorad
division in April 1992, alleging that Lorad infringes a Fischer patent on a
precision mammographic needle-biopsy system. The product in question is
17
PAGE
<PAGE>
THERMOTREX CORPORATION
Item 5 - Other Information (continued)
Trex Medical's StereoGuide prone breast-biopsy system. As of June 29, 1996,
Trex Medical had sold 509 StereoGuide systems for aggregate revenues of
approximately $44.3 million. The suit requests a permanent injunction,
treble damages, and attorney's fees and expenses. The Company also is aware
of a U.S. patent held by a third party which has been asserted by him
against certain automatic exposure-control features included in most of
Trex Medical's current mammography systems. As of June 29, 1996, Trex
Medical had accrued a $2.3 million reserve in connection with these
matters, although given the inherent uncertainty of patent litigation and
disputes, no assurance can be given as to the amount which the Company may
eventually be required to pay in expenses, or in damages, if the Company is
unsuccessful in defending these matters.
Potential Product Liability. The administration of medical treatments
is subject to various risks of physical injury to the patient. The Company
maintains product liability insurance, but there is no assurance that this
insurance will provide sufficient coverage in the event of a claim.
Furthermore, there can be no assurance that the Company will be able to
maintain its insurance coverage or that insurance coverage will continue to
be available at economically feasible rates.
Dependence Upon Significant OEM Relationships. A significant portion
of Trex Medical's sales are through OEM arrangements with United States
Surgical Corporation, General Electric Company, Inc., and the Philips
Medical Systems North America Company subsidiary of Philips N.V. Trex
Medical's sales depend, in part, on the continuation of these OEM
arrangements and the level of end-user sales by such OEMs. There can be no
assurance that Trex Medical will be able to maintain its existing, or
establish new, OEM relationships.
Other Factors. Other factors that have affected, and in the future
could affect, the results of the Company's publicly held subsidiaries,
ThermoLase and Trex Medical, are described in Item 5 of those subsidiaries'
Quarterly Reports on Form 10-Q for the quarter ended June 29, 1996, File
No. 1-13104 for ThermoLase and File No. 1-11827 for Trex Medical, which
information is hereby incorporated by reference.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
18PAGE
<PAGE>
THERMOTREX CORPORATION
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 2nd day of August 1996.
THERMOTREX CORPORATION
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Chief Financial Officer
19PAGE
<PAGE>
THERMOTREX CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
------- ----------------------------------------------------- ----
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
THERMOTREX CORPORATION
Computation of Earnings per Share
Three Months Ended Nine Months Ended
---------------------- ---------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
---------------------------------------------------------------------------
Computation of Primary
Earnings per Share:
Net Income (a) $ 1,071,000 $ 2,524,000 $17,346,000 $3,824,000
----------- ----------- ----------- ----------
Shares:
Weighted average shares
outstanding 19,089,459 18,938,704 19,060,087 18,882,802
Shares issuable from
assumed exercise of
options (as determined
by the application of
the treasury stock
method) 630,765 - 621,998 -
----------- ----------- ----------- ----------
Weighted average shares
outstanding, as
adjusted (b) 19,720,224 18,938,704 19,682,085 18,882,802
----------- ----------- ----------- ----------
Primary Earnings per
Share (a) / (b) $ .05 $ .13 $ .88 $ .20
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOTREX
CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 20,800
<SECURITIES> 59,503
<RECEIVABLES> 28,957
<ALLOWANCES> 1,356
<INVENTORY> 31,999
<CURRENT-ASSETS> 151,100
<PP&E> 29,302
<DEPRECIATION> 7,673
<TOTAL-ASSETS> 265,904
<CURRENT-LIABILITIES> 54,323
<BONDS> 0
0
0
<COMMON> 191
<OTHER-SE> 177,317
<TOTAL-LIABILITY-AND-EQUITY> 265,904
<SALES> 128,566
<TOTAL-REVENUES> 128,566
<CGS> 77,222
<TOTAL-COSTS> 77,222
<OTHER-EXPENSES> 15,913
<LOSS-PROVISION> 285
<INTEREST-EXPENSE> 351
<INCOME-PRETAX> 22,080
<INCOME-TAX> 4,366
<INCOME-CONTINUING> 17,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,346
<EPS-PRIMARY> .88
<EPS-DILUTED> 0
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