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 March 29, 1997.
[ ] 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 April 25, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 19,221,603
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOTREX CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 52,925 $ 43,940
Available-for-sale investments, at quoted
market value (amortized cost of $21,841
and $51,774) 21,816 51,701
Accounts receivable, less allowances of
$1,612 and $1,586 41,057 36,615
Unbilled contract costs and fees 5,306 2,933
Inventories:
Raw materials and supplies 26,858 22,046
Work in process 12,090 9,731
Finished goods 6,289 5,526
Prepaid expenses 1,760 2,157
Prepaid income taxes 12,508 9,685
-------- --------
180,609 184,334
-------- --------
Property, Plant, and Equipment, at Cost 58,312 40,535
Less: Accumulated depreciation and
amortization 11,743 9,031
-------- --------
46,569 31,504
-------- --------
Notes Receivable from Related Party 3,300 3,300
-------- --------
Other Assets 5,679 4,680
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 95,201 96,404
-------- --------
$331,358 $320,222
======== ========
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THERMOTREX CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, September 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Note payable to parent company $ 2,000 $ 2,000
Accounts payable 19,017 19,569
Accrued payroll and employee benefits 5,723 7,228
Accrued warranty costs 6,148 5,379
Accrued income taxes 5,778 2,239
Customer deposits 3,703 3,582
Other accrued expenses 18,569 15,205
Due to parent company and affiliated
companies 3,712 1,269
-------- --------
64,650 56,471
-------- --------
Deferred Lease Liability 993 494
-------- --------
Common Stock of Subsidiary Subject to
Redemption (Note 2) 2,613 -
-------- --------
Minority Interest 57,498 58,178
-------- --------
Shareholders' Investment:
Common stock, $.01 par value,
50,000,000 shares authorized;
19,216,169 and 19,190,107
shares issued 192 192
Capital in excess of par value 113,522 116,753
Retained earnings 92,107 89,156
Treasury stock at cost, 5,912
and 25,508 shares (201) (975)
Net unrealized loss on
available-for-sale investments (16) (47)
-------- --------
205,604 205,079
-------- --------
$331,358 $320,222
======== ========
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
------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $70,079 $42,699
------- -------
Costs and Operating Expenses:
Cost of revenues 46,778 25,159
Selling, general, and administrative expenses 16,944 10,375
Research and development expenses 7,824 5,502
------- -------
71,546 41,036
------- -------
Operating Income (Loss) (1,467) 1,663
Interest Income 1,183 1,545
Interest Expense, Related Party (29) (117)
Gain on Issuance of Stock by Subsidiary - 734
------- -------
Income (Loss) Before Provision for Income Taxes
and Minority Interest (313) 3,825
Provision for Income Taxes 250 1,563
Minority Interest (Income) Expense (751) 159
------- -------
Net Income $ 188 $ 2,103
======= =======
Earnings per Share $ .01 $ .11
======= =======
Weighted Average Shares 19,203 19,683
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOTREX CORPORATION
Consolidated Statement of Income
(Unaudited)
Six Months Ended
------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $132,904 $ 85,794
-------- --------
Costs and Operating Expenses:
Cost of revenues 86,831 51,491
Selling, general, and administrative expenses 31,808 20,622
Research and development expenses 15,194 10,301
-------- --------
133,833 82,414
-------- --------
Operating Income (Loss) (929) 3,380
Interest Income 2,463 2,905
Interest Expense, Related Party (59) (239)
Gain on Issuance of Stock by Subsidiary (Note 3) 1,997 13,504
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 3,472 19,550
Provision for Income Taxes 1,227 3,082
Minority Interest (Income) Expense (706) 193
-------- --------
Net Income $ 2,951 $ 16,275
======== ========
Earnings per Share $ .15 $ .83
======== ========
Weighted Average Shares 19,192 19,663
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOTREX CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 2,951 $ 16,275
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 3,930 2,185
Provision for losses on accounts
receivable 185 159
Gain on issuance of stock by
subsidiary (Note 3) (1,997) (13,504)
Minority interest (income) expense (706) 193
Increase of deferred lease liability 499 -
Changes in current accounts:
Accounts receivable (4,627) (1,415)
Inventories and unbilled contract
costs and fees (10,307) (624)
Other current assets (2,443) (1,089)
Accounts payable (552) (1,216)
Other current liabilities 8,731 3,141
-------- --------
Net cash provided by (used in) operating
activities (4,336) 4,105
-------- --------
Investing Activities:
Purchases of available-for-sale investments - (29,500)
Proceeds from sale and maturities of available-
for-sale investments 29,500 37,525
Purchases of property, plant, and equipment (17,797) (4,049)
Investment in other assets (1,119) -
Other 567 506
-------- --------
Net cash provided by investing activities 11,151 4,482
-------- --------
Financing Activities:
Net proceeds from issuance of Company
and subsidiary common stock and sale
of subsidiary put options (Notes 2 and 3) 5,367 19,599
Purchases of subsidiary common stock (2,179) -
Payment of withholding taxes related to
stock option exercises (1,018) (897)
-------- --------
Net cash provided by financing activities 2,170 18,702
-------- --------
Increase in Cash and Cash Equivalents 8,985 27,289
Cash and Cash Equivalents at Beginning of Period 43,940 21,512
-------- --------
Cash and Cash Equivalents at End of Period $ 52,925 $ 48,801
======== ========
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 March
29, 1997, the results of operations for the three- and six-month periods
ended March 29, 1997, and March 30, 1996, and the cash flows for the
six-month periods ended March 29, 1997, and March 30, 1996. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of September 28, 1996,
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 September 28, 1996, filed
with the Securities and Exchange Commission.
2. Common Stock of Subsidiary Subject to Redemption
In September 1996, the Board of Directors of the Company's ThermoLase
Corporation subsidiary (ThermoLase) authorized the repurchase by
ThermoLase of up to $10,000,000 of its common stock through August 28,
1997, in market transactions or pursuant to the exercise by investors of
standardized put options written on its common stock. During the first
six months of fiscal 1997, ThermoLase repurchased 137,500 shares of its
common stock in market transactions for $2,179,000 and wrote put options
obligating ThermoLase, at the election of the option-holders, to
repurchase up to 145,800 shares of its common stock at various prices for
an aggregate purchase price of $2,613,000. The net proceeds from put
options sold of $294,000 has been recorded as an increase to
"Shareholders' investment" and "Minority interest" in the accompanying
balance sheet.
The $2,613,000 obligation classified as "Common stock of subsidiary
subject to redemption" in the accompanying balance sheet as of March 29,
1997, relates to the put options, all of which were exercised on April
18, 1997. ThermoLase repurchased the 145,800 shares of its common stock
tendered pursuant to the exercise of the put options for an aggregate
price of $2,613,000.
On March 6, 1997, ThermoLase commenced an exchange offer whereby its
shareholders had the opportunity to exchange one share of its existing
common stock and $3.00 for a new unit consisting of one share of
ThermoLase common stock and one redemption right. The redemption right
entitles the holder to sell the related share of common stock to
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THERMOTREX CORPORATION
2. Common Stock of Subsidiary Subject to Redemption (continued)
ThermoLase for $20.25 during the period from April 3, 2001, through April
30, 2001. The redemption right will expire and become worthless if the
closing price of ThermoLase common stock is at least $26.00 for 20 of any
30 consecutive trading days. The redemption rights are guaranteed on a
subordinated basis by Thermo Electron Corporation (Thermo Electron). The
Company and Thermo Electron are parties to a Master Reimbursement
Agreement whereby the Company would be required to reimburse Thermo
Electron for any and all payments made by Thermo Electron under the
guarantee. The exchange offer terminated on April 2, 1997, and resulted
in the issuance of 2,000,000 units in exchange for approximately $500,000
in cash, net of expenses, and 2,261,706 shares of ThermoLase common
stock. As a result of these transactions, subsequent to March 29, 1997,
$40,500,000 was reclassified from "Shareholders' investment" and
"Minority interest" to "Common stock of subsidiary subject to
redemption," based on the issuance of 2,000,000 redemption rights each
carrying a maximum liability to ThermoLase of $20.25.
3. Issuance of Stock by Subsidiary
In December 1996, the Company's Trex Medical Corporation (Trex
Medical) subsidiary issued 300,000 shares of its common stock at $14.50
per share in a private placement for net proceeds of $4.1 million,
resulting in a gain of $2.0 million. At March 29, 1997, the Company owned
79% of the outstanding common stock of Trex Medical.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 28, 1996, filed with the Securities and Exchange
Commission.
Overview
The Company operates in three business segments: Medical Products
manufactured by the Company's 79%-owned Trex Medical Corporation (Trex
Medical) subsidiary, Personal-care Products and Services offered by the
Company's 64%-owned ThermoLase Corporation (ThermoLase) subsidiary, and
Advanced Technology Research.
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THERMOTREX CORPORATION
Overview (continued)
Trex Medical designs, manufactures, and markets mammography equipment
and minimally invasive stereotactic breast-biopsy systems, general-
purpose radiography (X-ray) equipment, and X-ray imaging systems used for
cardiac catheterization and angiography, as well as radiographic/
fluoroscopic procedures. Trex Medical sells its systems worldwide
principally through a network of independent dealers, and also acts as an
original equipment manufacturer (OEM) for other medical equipment
companies. Trex Medical has four operating units: Lorad, a manufacturer
of mammography and stereotactic breast-biopsy systems; Bennett X-Ray
Corporation (Bennett), a manufacturer of general-purpose X-ray and
mammography equipment; XRE Corporation (XRE), a manufacturer of X-ray
imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions; and Continental X-Ray Corporation
(Continental), a manufacturer of general-purpose and specialized X-ray
systems.
ThermoLase has developed a laser-based system called SoftLight(SM)
for the removal of unwanted hair. The SoftLight system uses a low-energy,
dermatology laser in combination with a lotion that absorbs the laser's
energy to disable hair follicles. In April 1995, the Company received
clearance from the U.S. Food and Drug Administration (FDA) to
commercially market services using the SoftLight system. The Company
began earning revenue from the SoftLight system in the first quarter of
fiscal 1996 as a result of opening its first commercial location (Spa
Thira) in La Jolla, California, in November 1995. As of March 29, 1997,
ThermoLase had 10 spas open, three of which opened during the second
quarter of fiscal 1997. In addition, ThermoLase has signed leases for
five additional sites. In June 1996, ThermoLase commenced a program to
license to physicians and others the right to perform the Company's
patented SoftLight hair-removal procedure. In this program, ThermoLase
licenses its technology and receives a one-time fee and a per-procedure
royalty that varies depending on the location treated. ThermoLase also
provides the licensees with the lasers and lotion that are necessary to
perform the service. ThermoLase is marketing the SoftLight system
internationally through joint ventures and other licensing arrangements.
In January 1996, ThermoLase established a joint venture in Japan. In
fiscal 1997, ThermoLase entered into several international arrangements,
establishing a joint venture in France in November 1996 and four
additional licensing arrangements: in Saudi Arabia in November 1996; in
Tunisia and Belgium in December 1996; in the United Arab Emirates and
Oman in March 1997; and in Switzerland in April 1997.
In March 1997, ThermoLase filed with the FDA a 510(k) application
seeking clearance to market its laser skin-resurfacing technology
(formerly called skin-rejuvenation). This technology, which uses the same
laser as ThermoLase's hair-removal system, is designed to improve the
skin's texture and elasticity and to smooth wrinkles. ThermoLase also
manufactures and markets skin-care, bath, and body products through its
CBI Laboratories, Inc. (CBI) subsidiary, which also manufactures the
lotion used in the SoftLight hair-removal process.
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THERMOTREX CORPORATION
Overview (continued)
The Company's Advanced Technology Research segment performs research
primarily in the fields of communications, avionics, X-ray detection,
signal processing, advanced-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
Second Quarter Fiscal 1997 Compared With Second Quarter Fiscal 1996
Total revenues increased 64% to $70.1 million in the second quarter
of fiscal 1997 from $42.7 million in the second quarter of fiscal 1996.
Medical Products segment revenues, excluding intersegment sales,
increased 69% to $54.7 million in fiscal 1997 from $32.4 million in
fiscal 1996, primarily due to the inclusion of $17.6 million in revenues
from Continental, acquired in September 1996, and XRE, acquired in May
1996. Revenues at Lorad, excluding intersegment sales, increased 16% as a
result of increased sales of higher-priced mammography systems.
Personal-care Products and Services segment revenues increased 66% to
$11.7 million in the second quarter of fiscal 1997 from $7.0 million in
the second quarter of fiscal 1996. ThermoLase earned revenues from
hair-removal services of $5.2 million in fiscal 1997, compared with $1.1
million in fiscal 1996. The increase in revenues resulted primarily from
an increase in the number of spas to 10, three of which opened during the
second quarter of fiscal 1997, compared with one spa in La Jolla in the
second quarter of fiscal 1996. 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. Revenues also increased as a result
of fees from ThermoLase's physicians' licensing program, which was not in
effect in the second quarter of fiscal 1996. In addition, revenues from
hair-removal services in the second quarter of fiscal 1997 included $1.3
million of minimum guaranteed payments relating to ThermoLase's
international licensing arrangements, including a $1.0 million payment
received upon granting technology rights under one such agreement,
compared with $0.7 million in the second quarter of fiscal 1996. The
amount of minimum guaranteed payments recorded by ThermoLase will vary
depending on its ability to enter into additional international licensing
arrangements and the terms of any such arrangements. Revenues at CBI
increased to $6.5 million in fiscal 1997 from $5.9 million in fiscal
1996. A portion of CBI's revenues are derived from sales to large
retailers, which have a relatively long buying cycle that results in
quarterly variations in revenues. ThermoLase estimates that CBI will
continue to represent a decreasing portion of its total revenues as
revenues from hair-removal services increase.
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THERMOTREX CORPORATION
Second Quarter Fiscal 1997 Compared With Second Quarter Fiscal 1996
(continued)
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $3.7 million in the second quarter of fiscal 1997
from $3.2 million in the second quarter of fiscal 1996. The Company
estimates that revenues from Advanced Technology Research will continue
to decline as a percentage of total revenues.
The gross profit margin was 33% in the second quarter of fiscal 1997,
compared with 41% in the second quarter of fiscal 1996. The Medical
Products segment gross profit margin, excluding intersegment sales,
declined to 37% in fiscal 1997 from 43% in fiscal 1996, primarily due to
the mix of products sold at Lorad and Bennett, as well as the inclusion
of lower-margin revenues at Continental. The Personal-care Products and
Services segment gross profit margin was 17% in fiscal 1997, compared
with 37% in fiscal 1996. ThermoLase's hair-removal business reported
gross profit of negative $0.1 million in fiscal 1997, compared with gross
profit of $0.3 million in fiscal 1996. Each period was significantly
impacted by the early operations of the Spa Thira business, which has
been operating below maximum capacity as the Company develops a client
base and continues refining its operating procedures, and due to
pre-opening costs incurred in connection with new spa openings, offset in
part in fiscal 1997, and more than offset in fiscal 1996, by the effect
of physician licensing fees and minimum guaranteed payments relating to
international licensing arrangements, which have a relatively high gross
profit margin. The gross profit margin in fiscal 1997 was also impacted
by increased local advertising costs. As ThermoLase continues to open
additional Spa Thira locations in fiscal 1997, the effect of operating
each spa below maximum capacity as the Company develops its client base,
as well as pre-opening costs, will have a negative impact on the
Company's gross profit margin. ThermoLase's decline in gross profit
margin in fiscal 1997 also resulted from lower margins on the sale of
skin-care and other personal-care products at CBI due to a continued
shift to lower-margin products.
Selling, general, and administrative expenses as a percentage of
revenues was 24% in both periods. Increased spending in the Personal-care
Products and Services segment related to the cost of expanding
ThermoLase's personal-care service organization for its Spa Thira salons
and licensing programs, as well as national advertising costs and
patent-related legal costs, was offset by a decrease in expenses as a
percentage of revenues in the Medical Products segment, primarily due to
an increase in revenues.
Research and development expenses increased to $7.8 million in the
second quarter of fiscal 1997 from $5.5 million in the second quarter of
fiscal 1996, primarily due to increased spending at Trex Medical and, to
a lesser extent, spending at ThermoLase for pre-clinical and clinical
research related to improving the effectiveness of its hair-removal
process and developing its skin-resurfacing process, and the
investigation of other health and beauty applications for its proprietary
laser technology. Research and development expenses at Trex Medical of
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THERMOTREX CORPORATION
Second Quarter Fiscal 1997 Compared With Second Quarter Fiscal 1996
(continued)
$6.1 million in fiscal 1997, compared with $4.1 million in fiscal 1996,
reflect the inclusion of $2.0 million of expense at XRE and Continental
and Trex Medical's continued efforts to develop and commercialize new
products, including the full-breast digital mammography system and
direct-detection X-ray sensor, as well as enhancements of existing
systems.
Interest income decreased to $1.2 million in the second quarter of
fiscal 1997 from $1.5 million in the second quarter of fiscal 1996,
primarily as a result of lower average invested balances, which resulted
primarily from property and equipment expenditures for ThermoLase's Spa
Thira salons and licensing programs. Interest expense decreased to
$29,000 in fiscal 1997 from $0.1 million in fiscal 1996 due to the
September 1996 repayment of the $8.0 million promissory note issued to
Thermo Electron Corporation (Thermo Electron) in September 1995, offset
in part by interest expense associated with the $2.0 million promissory
note issued on similar terms to Thermo Electron in September 1996.
During the second quarter of fiscal 1996, the Company recorded a gain
of $0.7 million from the issuance of stock by subsidiary in connection
with a private placement of Trex Medical common stock.
The Company recorded minority interest income of $0.8 million in the
second quarter of fiscal 1997, compared with minority interest expense of
$0.2 million in the second quarter of fiscal 1996, as a result of an
increase in ThermoLase's net loss, offset in part by an increase in Trex
Medical's net income.
The effective tax rate in each period differs 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 part in the second quarter of fiscal 1996 by nontaxable
gains on issuance of stock by subsidiary.
First Six Months Fiscal 1997 Compared With First Six Months Fiscal 1996
Total revenues increased 55% to $132.9 million in the first six
months of fiscal 1997 from $85.8 million in the first six months of
fiscal 1996. Medical Products segment revenues, excluding intersegment
sales, increased 64% to $105.7 million in fiscal 1997 from $64.6 million
in fiscal 1996, primarily due to the inclusion of $34.1 million in
revenues from Continental, acquired in September 1996, and XRE, acquired
in May 1996. In addition, revenues at Lorad, excluding intersegment
sales, increased 13% as a result of increased sales of higher-priced
mammography systems and increased demand for biopsy systems.
Personal-care Products and Services segment revenues increased 41% to
$20.3 million in the first six months of fiscal 1997 from $14.4 million
in the first six months of fiscal 1996. ThermoLase earned revenues from
hair-removal services of $7.7 million in fiscal 1997, compared with $1.1
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THERMOTREX CORPORATION
First Six Months Fiscal 1997 Compared With First Six Months Fiscal 1996
(continued)
million in fiscal 1996. The increase in revenues resulted primarily from
an increase in the number of spas to 10, six of which opened during
fiscal 1997, compared with one spa in La Jolla in the first six months of
fiscal 1996. Revenues also increased as a result of fees from
ThermoLase's physicians' licensing program, which was not in effect in
the first six months of fiscal 1996. In addition, revenues from
hair-removal services included $1.6 million of international licensing
fees in fiscal 1997, compared with $0.7 million in fiscal 1996. Revenues
at CBI decreased to $12.6 million in fiscal 1997 from $13.3 million in
fiscal 1996, due to an unusually large order shipped to a single customer
in the first quarter of fiscal 1996, offset in part by an increase in
revenues from other customers.
Advanced Technology Research segment revenues, excluding intersegment
sales, was $6.9 million in the first six months of fiscal 1997 and $6.7
million in the first six months of fiscal 1996.
The gross profit margin was 35% in the first six months of fiscal
1997, compared with 40% in the first six months of fiscal 1996. The
Medical Products segment gross profit margin, excluding intersegment
sales, declined to 38% in fiscal 1997 from 44% in fiscal 1996, due to the
reasons described in the result of operations for the second quarter. The
Personal-care Products and Services segment gross profit margin was 19%
in fiscal 1997, compared with 34% in fiscal 1996. ThermoLase's
hair-removal business reported gross profit of negative $0.3 million in
fiscal 1997, compared with negative $32,000 in fiscal 1996. The gross
profit margin was affected in both periods by the factors discussed in
the results of operations for the second quarter. The decline in the
Personal-care Products and Services segment gross profit margin in fiscal
1997 also resulted from lower margins on the sale of skin-care and other
personal-care products at CBI due to a continued shift to lower-margin
products.
Selling, general, and administrative expenses as a percentage of
revenues was 24% in both periods, due to the reasons described in the
results of operations for the second quarter.
Research and development expenses increased to $15.2 million in the
first six months of fiscal 1997 from $10.3 million in the first six
months of fiscal 1996, due to the reasons described in the results of
operations for the second quarter, including $3.7 million of additional
expense at XRE and Continental.
Interest income decreased to $2.5 million in the first six months of
fiscal 1997 from $2.9 million in the first six months of fiscal 1996, due
to the reasons described in the results of operations for the second
quarter. Interest expense decreased to $0.1 million in fiscal 1997 from
$0.2 million in fiscal 1996 due to the reasons discussed in the results
of operations for the second quarter.
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THERMOTREX CORPORATION
First Six Months Fiscal 1997 Compared With First Six Months Fiscal 1996
(continued)
During the first six months of fiscal 1997 and fiscal 1996, the
Company recorded gains of $2.0 million and $13.5 million, respectively,
from the issuance of stock by subsidiary in connection with private
placements of Trex Medical common stock (Note 3).
Minority interest income was $0.7 million in the first six months of
fiscal 1997, compared with minority interest expense of $0.2 million in
the first six months of fiscal 1996. Minority interest income in fiscal
1997 resulted from the reason discussed in the results of operations for
the second quarter.
The effective tax rate in fiscal 1997 was affected by nondeductible
amortization of cost in excess of net assets of acquired companies and
state income taxes, offset by nontaxable gains on issuance of stock by
subsidiary. The effective tax rate in fiscal 1996 was below the statutory
income tax rate primarily due to nontaxable gains on issuance of stock by
subsidiary, offset in part by nondeductible amortization of cost in
excess of net assets of acquired companies and the impact of state income
taxes.
Liquidity and Capital Resources
Consolidated working capital was $116.0 million at March 29, 1997,
compared with $127.9 million at September 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$74.7 million at March 29, 1997, compared with $95.6 million at September
28, 1996. Of the $74.7 million balance at March 29, 1997, $36.3 million
was held by Trex Medical, $26.0 million was held by ThermoLase, and the
remainder was held by the Company and its wholly owned subsidiaries.
Net cash used in operating activities during the first six months of
fiscal 1997 was $4.3 million. During this period, $10.3 million of cash
was used to fund an increase in inventories and unbilled contract costs
and fees. Inventory at Trex Medical increased as a result of materials
required for commitments under an OEM agreement and higher inventory
levels to support its increased sales. Trex Medical began shipping
products under the OEM agreement in March 1997 and expects to continue to
ship under this agreement throughout fiscal 1997. In addition, an
increase in accounts receivable used $4.6 million of cash, due primarily
to the timing of second quarter shipments at XRE. These uses of cash were
offset in part by $8.7 million provided by an increase in other current
liabilities, including $3.5 million from accrued income taxes.
Excluding available-for-sale investments activity, the Company's
investing activities during the first six months of fiscal 1997 consisted
primarily of $17.8 million of expenditures for property, plant, and
equipment. The Company's financing activities provided cash of $2.2
million during this period.
14PAGE
<PAGE>
THERMOTREX CORPORATION
Liquidity and Capital Resources (continued)
In September 1996, ThermoLase's Board of Directors authorized the
repurchase by ThermoLase of up to $10.0 million of its common stock
through August 28, 1997, in market transactions or pursuant to the
exercise by investors of standardized put options written on its common
stock. During the first six months of fiscal 1997, ThermoLase repurchased
137,500 shares of its common stock in market transactions for $2.2
million. Subsequent to March 29, 1997, ThermoLase settled all of its
outstanding put options by repurchasing 145,800 shares of its common
stock for an aggregate price of $2.6 million (Note 2). In April 1997,
ThermoLase's Board of Directors authorized the repurchase by ThermoLase,
through April 25, 1998, of up to an additional $10.0 million of its
common stock.
In November 1996, ThermoLase entered into a joint venture agreement
to market its SoftLight system in France, as well as its laser-based
skin-resurfacing process, if and when available. During the first six
months of fiscal 1997, ThermoLase contributed $1.1 million to the joint
venture, and has committed to provide up to an additional $4.0 million to
fund its working capital requirements, in exchange for its 50% stake in
the joint venture.
On March 6, 1997, ThermoLase commenced an exchange offer whereby its
shareholders had the opportunity to exchange one share of its existing
common stock and $3.00 for a new unit consisting of one share of
ThermoLase common stock and one redemption right. The redemption right
entitles the holder to sell the related share of common stock to
ThermoLase for $20.25 during the period from April 3, 2001, through April
30, 2001. The redemption right will expire and become worthless if the
closing price of ThermoLase common stock is at least $26.00 for 20 of any
30 consecutive trading days. The redemption rights are guaranteed on a
subordinated basis by Thermo Electron. The Company and Thermo Electron
are parties to a Master Reimbursement Agreement whereby the Company would
be required to reimburse Thermo Electron for any and all payments made by
Thermo Electron under the guarantee. The exchange offer terminated on
April 2, 1997, and resulted in the issuance by ThermoLase of 2,000,000
units in exchange for approximately $0.5 million in cash, net of
expenses, and 2,261,706 shares of ThermoLase common stock (Note 2).
ThermoLase has signed leases to open five additional Spa Thiras. In
total, ThermoLase plans to open between 10 and 20 spas in various parts
of the United States during fiscal 1997. Depending on the size of the
spa, each facility will require approximately $1.5 million to $2.5
million for such items as leasehold improvements and laser systems.
ThermoLase also expects to expend $4.0 million to $5.0 million during the
remainder of fiscal 1997 for equipment related to its licensing programs.
Accordingly, ThermoLase's capital expenditures will largely be affected
by the number of Spa Thira locations that can be developed and the number
of physicians and other domestic and international licensees engaged in
licensing programs. In addition, the Company plans to make capital
expenditures of approximately $3 million for its other businesses during
the remainder of fiscal 1997. The Company expects that it will finance
growth at its publicly held and wholly owned subsidiaries through a
15PAGE
<PAGE>
THERMOTREX CORPORATION
Liquidity and Capital Resources (continued)
combination of internal funds, additional debt or equity financing,
and/or short-term borrowings from Thermo Electron, although it has no
agreement to ensure that funds will be available from Thermo Electron on
acceptable terms or at all.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On March 12, 1997, at the Annual Meeting of Shareholders, the
shareholders elected nine incumbent directors to a one-year term expiring
in 1998. The Directors elected at the meeting were: Gary S. Weinstein,
Morton Collins, Peter O. Crisp, Paul F. Ferrari, Dr. George N.
Hatsopoulos, John N. Hatsopoulos, Robert C. Howard, Firooz Rufeh, and Dr.
Nicholas T. Zervas. Mr. Collins and Dr. G. Hatsopoulos each received
16,411,049 shares voted in favor of his election and 50,410 shares voted
against. Mr. Crisp, Mr. Ferrari, and Mr. J. Hatsopoulos each received
16,410,649 shares voted in favor of his election and 50,810 shares voted
against. Mr. Howard and Mr. Rufeh each received 16,410,949 shares voted
in favor of his election and 50,510 shares voted against. Mr. Weinstein
and Dr. Zervas each received 16,410,749 shares voted in favor of his
election and 50,710 shares voted against. No abstentions or broker
nonvotes were recorded on the election of directors.
At the Annual Meeting, the shareholders also approved a proposal to
increase the number of shares available for issuance under the Company's
nonqualified stock option plan by 500,000 shares as follows: 14,850,353
shares were voted in favor of the proposal, 1,588,916 shares were voted
against, and 22,190 shares abstained. No broker nonvotes were recorded on
the proposal.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
16PAGE
<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 May 1997.
THERMOTREX CORPORATION
Paul F. Kelleher
---------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
17PAGE
<PAGE>
THERMOTREX CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
99.1 Form of ThermoLase Corporation Unit Certificate (filed as
Exhibit 4.1 to ThermoLase's Registration Statement on Form
S-4 [Reg. No. 333-19633] and incorporated herein by
reference).
Exhibit 11
THERMOTREX CORPORATION
Computation of Earnings per Share
Three Months Ended Six Months Ended
------------------------ ------------------------
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------
Computation of
Primary Earnings
per Share:
Net Income (a) $ 188,000 $ 2,103,000 $ 2,951,000 $16,275,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 19,202,682 19,056,506 19,191,812 19,045,402
Add: Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) - 626,143 - 617,615
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 19,202,682 19,682,649 19,191,812 19,663,017
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .01 $ .11 $ .15 $ .83
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOTREX
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> MAR-29-1997
<CASH> 52,925
<SECURITIES> 21,816
<RECEIVABLES> 42,669
<ALLOWANCES> 1,612
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<CURRENT-ASSETS> 180,609
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