SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________________________________
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 27, 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: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------------------- ------------------------------------
Common Stock, $.01 par value American Stock Exchange
3 1/4% Subordinated Convertible
Debentures due 2007 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to
the filing requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference into Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of October 31, 1997, was approximately $206,309,000.
As of October 31, 1997, the Registrant had 19,249,204 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended September 27, 1997, are incorporated by reference into Parts I
and II.
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on March 5, 1998, are incorporated by
reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
ThermoTrex Corporation (the Company or the Registrant) has three
majority-owned subsidiaries, 79%-owned Trex Medical Corporation (Trex
Medical), 67%-owned ThermoLase Corporation (ThermoLase), and 78%-owned
Trex Communications Corporation (Trex Communications). Through its
publicly traded Trex Medical subsidiary, the Company designs,
manufactures, and markets mammography and minimally invasive digital
breast-biopsy systems used for the detection of breast cancer, as well as
general-purpose and specialized X-ray equipment. Through its publicly
traded ThermoLase subsidiary, the Company has developed a laser-based
system for the removal of unwanted hair (the SoftLight(SM) system), which
is being marketed in the U.S. through ThermoLase's Spa Thira locations
and through licensing agreements with physicians, and in foreign
countries through joint ventures and other licensing arrangements.
ThermoLase also manufactures and markets skin-care and other
personal-care products. In addition, the Company performs advanced
technology research in the areas of communications, avionics, X-ray
detection, signal processing, and lasers. The Company's laser
communications (lasercom) research is performed by its privately held
Trex Communications Corporation (Trex Communications) subsidiary, which
also designs and markets interactive information and voice-response
systems, as well as call-automation systems.
In October 1997, Trex Medical's XRE Corporation (XRE) subsidiary
acquired substantially all of the assets, subject to certain liabilities,
of Digitec Corporation, a manufacturer of physiological-monitoring
equipment and digital-image archiving and networking systems used in
cardiac catheterization procedures.
Trex Medical is currently developing a full-field digital mammography
system that is intended to be capable of higher image quality. The system
is designed to enhance the X-ray image through software and to allow
near-real-time analysis. Trex Medical expects that it will be possible to
electronically transmit these images to allow off-site analysis by
another radiologist, and believes this technology may also provide better
images of dense breast tissue, which is often found in younger women.
Trex Medical has collected clinical data and, in December 1997, submitted
a 510(k) application with such data to the U.S. Food and Drug
Administration (FDA), which must grant market clearance before this
system can be sold commercially.
Trex Medical has designed its new, high-end conventional mammography
systems so that radiologists can upgrade to digital technology when it
becomes available. Trex Medical believes that the digital-imaging
technology being developed for this system may be adaptable to its
general-purpose and specialized X-ray systems, and will seek to develop
applications in these markets. Trex Medical is also working on a more
advanced version of its digital technology, which incorporates a
flat-panel, direct-digital detector and could provide still more
information for earlier diagnoses.
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ThermoLase opened its first Spa Thira in early fiscal 1996*, and had
a total of four opened by the end of fiscal 1996. In fiscal 1997,
ThermoLase opened nine more domestic spas, and by October 1997 had a
total of 14 domestic Spa Thira locations. In June 1996, ThermoLase
initiated a program to license its SoftLight technology to physicians. As
of November 1997, approximately 150 lasers were placed in practices in
33 states and certain international markets. In January 1996, ThermoLase
established its first international joint venture and, during fiscal
1997, added two additional joint ventures and six additional licensing
arrangements. ThermoLase's international arrangements resulted in the
opening of spas in Paris in May 1997 and Lugano, Switzerland, in October
1997, and additional spas are expected to be constructed during fiscal
1998, pending regulatory approvals.
ThermoLase continues to pursue an extensive research and development
program to improve the efficacy and duration of its hair-removal
treatment. ThermoLase has developed a modification to its procedure,
called SoftLight 2.0, and began introducing this procedure in its spas
and to its licensees in September 1997. Although the clinical laboratory
results are encouraging, the results are preliminary and there can be no
assurance that SoftLight 2.0 will be successful in improving the
hair-removal process. ThermoLase believes that improvements in the
hair-removal procedure are critical elements in its ability to improve
the profitability of its business.
In March 1997, ThermoLase filed with the FDA a 510(k) application
seeking clearance to market cosmetic skin resurfacing services utilizing
its SoftLight Rejuvenation(TM) Laser, including wrinkle- and skin-texture
treatment. This technology, which uses the same laser as ThermoLase's
hair-removal system, is designed to improve the skin's appearance and
texture.
During fiscal 1997, the Company created its Trex Communications
subsidiary, and in September 1997 completed a private placement of
1,133,000 shares of Trex Communications common stock for net proceeds of
$10.6 million. Trex Communications is developing a laser communications
(lasercom) technology, which is designed to move very large amounts of
data quickly via lasers without the need for wires or licensing from the
Federal Communications Commission. In July 1997, Trex Communications
acquired Computer Communications Specialists, Inc. (CCS), which designs
and markets interactive information and voice-response systems, as well
as call-automation systems.
The Company continues to perform substantial amounts of government-
sponsored research and development and apply its core technologies to the
development of new commercial products, such as its passive microwave
camera. The passive microwave camera could be used to enhance safety in
* In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
References to "fiscal 1997," "fiscal 1996," and "fiscal 1995" herein
are for the years ended September 27, 1997, and September 28, 1996,
and the nine months ended September 30, 1995, respectively.
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aircraft navigation during low-visibility conditions and in certain
security applications.
At September 27, 1997, Thermo Electron Corporation (Thermo Electron)
owned 10,149,556 shares of the common stock of the Company, representing
53% of such stock then outstanding. Thermo Electron is a world leader in
environmental monitoring and analysis instruments, biomedical products
such as heart-assist devices, papermaking and recycling equipment,
biomass electric power generation, and other specialized products and
technologies. Thermo Electron also provides a range of services related
to environmental quality.
Thermo Electron intends for the foreseeable future to maintain at
least 50% ownership of the Company. This will require the purchase by
Thermo Electron of additional shares of Company common stock from time to
time as the number of outstanding shares issued by the Company increases.
These and any other purchases may be made either in the open market or
directly from the Company. During fiscal 1997, Thermo Electron purchased
317,200 shares of the Company's common stock in the open market for a
total price of $7.2 million. See Notes 5 and 15 to Consolidated Financial
Statements in the Registrant's Fiscal 1997 Annual Report to Shareholders
for a description of outstanding stock options and subordinated
convertible debentures.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of
the Securities Exchange Act of 1934, are made throughout this Annual
Report on Form 10-K. 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 the Registrant's Fiscal 1997 Annual
Report to Shareholders, which statements are incorporated herein by
reference.
(b) Financial Information About Industry Segments
The Company's business is divided into three industry segments:
Medical Products manufactured by the Company's Trex Medical subsidiary,
Personal-care Products and Services provided by the Company's ThermoLase
subsidiary, and Advanced Technology Research, including research
conducted and products distributed by its Trex Communications subsidiary.
The principal products produced and services rendered by the Company in
these three segments are described in detail below. (See "Principal
Products and Services.")
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Financial information concerning the Company's industry segments is
provided in Note 13 to Consolidated Financial Statements in the
Registrant's Fiscal 1997 Annual Report to Shareholders, which information
is incorporated herein by reference.
(c) Description of Business
(i) Principal Products and Services
Medical Products
Trex Medical consists of four operating units: Lorad, Bennett X-Ray
Corporation (Bennett), XRE, and Continental X-Ray Corporation
(Continental). Lorad manufactures and markets mammography and minimally
invasive digital breast-biopsy systems. Bennett's primary product line
consists of general-purpose X-ray equipment. XRE manufactures and markets
X-ray imaging systems used by interventional cardiologists in the
diagnosis and treatment of blockages in coronary arteries and other
vessels. Continental manufactures and markets a broad line of high-end
general-purpose X-ray systems, as well as specialized units.
Trex Medical sells its products through a worldwide network of more
than 100 independent dealers and, to a lesser extent, on a direct basis.
In addition to manufacturing and marketing its own systems, the Company
manufactures systems and system components as an OEM for other medical
equipment companies such as United States Surgical Corporation (U.S.
Surgical) and the GE Medical Systems division of General Electric Company
(GE).
Mammography Systems
Trex Medical designs, manufactures, and markets mammography systems
that are differentiated on the basis of price and performance. Its
high-end models are the Lorad M-IV and the Bennett Contour Plus, both of
which can be upgraded to accept the full-field digital-imaging technology
being developed by Trex Medical, when available. Trex Medical also offers
two lower-priced models and two mobile mammography systems.
Trex Medical has collected clinical data using its prototype
full-field digital mammography system and, in December 1997, submitted a
510(k) application with such data to the FDA, which must grant market
clearance before the system can be marketed commercially.
Trex Medical believes that demand in the market for mammography
systems is driven primarily by technological innovation that results in
better image quality. Although growth of the installed base has slowed,
demand for new systems continues as older models are replaced with those
offering technological innovations. In addition, Trex Medical believes
that the market outside the United States will grow as more countries
adopt mammography quality standards similar to those adopted in the
United States.
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Minimally Invasive Digital Breast-biopsy Systems
The Company offers a variety of minimally invasive digital
breast-biopsy systems, manufactured by Lorad and Bennett, that provide an
alternative to surgical biopsy. These digital breast-biopsy systems were
introduced to address the disadvantages of open surgical biopsy and can
be performed on an outpatient basis under local anesthetic. The typical
cost of a minimally invasive breast-biopsy procedure is approximately
one-third that of an open surgical biopsy.
The Company offers a dedicated prone table, the StereoGuide(R), and
upright, add-on systems that can be attached to most of its mammography
systems. Trex Medical's StereoGuide system is the subject of a lawsuit
alleging infringement of a Fischer Imaging Corporation (Fischer) patent.
See "Item 3 - Legal Proceedings."
Trex Medical believes that the minimally invasive digital
breast-biopsy system market will grow as the procedure becomes more
widely accepted by the medical community and as pressures to contain
healthcare costs increase.
General-purpose Radiography
Trex Medical addresses the general-purpose X-ray market through its
Bennett and Continental subsidiaries. Bennett primarily designs,
manufactures, and markets low-cost, reliable systems to medical
outpatient facilities, such as doctors' offices and surgi-care centers.
Continental (and, to a lesser extent, Bennett) markets the more
sophisticated and expensive X-ray systems typically used in hospitals and
clinics. In addition, Bennett manufactures and markets imaging systems
designed specifically for chiropractors and veterinarians.
The U.S. market for general-purpose X-ray systems is stable, and
consists primarily of replacement sales as customers upgrade older
equipment. Trex Medical believes that the international market is
substantially larger than the U.S. market and that the installed base of
systems is still growing, particularly in developing countries. Trex
Medical has recently expanded its international sales efforts.
Trex Medical believes digital imaging will have significant
application in the general-purpose and specialized X-ray markets and that
the technology it develops for its full-field digital imaging system may
be adaptable to these applications. In general-purpose X-ray
applications, Trex Medical believes digital imaging will produce better
quality images and reduce operating costs by eliminating the need for
film, processing equipment, and chemicals. In addition, digital imaging
will permit the electronic storage of images on magnetic or optical
media, as well as the transmission of images to multiple locations.
Furthermore, Trex Medical believes digital imaging could make the image
intensifiers, which are large and expensive components in certain imaging
systems, obsolete.
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Cardiac Catheterization, Angiography, and Electrophysiology
Through its XRE subsidiary, Trex Medical designs, manufactures, and
markets cardiac catheterization laboratories (also called cath labs) and
positioners for cardiovascular imaging systems. XRE's imaging equipment
is used in cath labs where angiography (the examination of blood vessels
using X-rays following the injection of a radiopaque contrast medium) is
performed by an interventional cardiologist. XRE systems are designed to
provide real-time images of peripheral blood vessels and of the heart and
coronary arteries for physicians performing diagnostic and interventional
procedures such as balloon angioplasty.
Trex Medical believes vascular and cardiovascular surgeons will
increasingly use balloon angioplasty and other less-invasive techniques
to treat vascular diseases. These procedures are performed under the
guidance of X-ray imaging such as that provided by Trex Medical's
equipment.
To complement its cath labs, XRE has developed a line of digital
image-processing systems, workstations, and archive alternatives. XRE's
Digitec division, acquired in October 1997, manufactures physiological-
monitoring equipment and digital-image archiving and networking systems
used in cardiac catheterization procedures. In addition, Continental
designs, manufactures, and sells electrophysiology systems that are used
in the diagnosis and treatment of cardiac arrhythmia, which is
characterized by the sudden, erratic beating of the heart and can result
in cardiac arrest.
Radiographic/Fluoroscopic Systems
Through its Continental subsidiary, Trex Medical designs,
manufactures, and markets radiographic/fluoroscopic (R/F) products. An
R/F system is able to record dynamic events by capturing a series of
images in a short period of time. For example, R/F systems are used for
various gastrointestinal procedures to image in real-time the progress of
a radiopaque ingested solution (typically barium) through the digestive
tract.
Personal-care Products and Services
Laser-based Hair Removal
ThermoLase's patented SoftLight system uses a low-energy, dermatology
laser in combination with a specially developed lotion that directs and
absorbs the laser's energy to disable hair follicles. Unlike
electrolysis, the SoftLight system can disable numerous hair follicles at
one time. As a result, ThermoLase believes that it will be able to
address a larger market than electrolysis by offering hair removal from
large areas, such as the legs. The lasers, which are similar to those
used for tattoo and birthmark removal, are manufactured for ThermoLase by
Trex Medical. The lotion is manufactured by ThermoLase's CBI Laboratories
subsidiary.
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In a typical treatment, the area from which hair is to be removed is
given a gentle cleansing. The lotion is then applied to the skin, and the
area is scanned several times with the laser beam. The laser energy is
absorbed by the lotion that has penetrated the hair duct, causing the
temperature of the lotion to increase to a level that disables the hair
follicles. The laser treatment most effectively disables hair follicles
in the active growing (anagen) stage of development, and at any one time,
a certain percentage of hair follicles are in the resting (telogen)
stage. Therefore, it is necessary for clients to return for one or more
additional treatments to ensure that each follicle is treated while in
the active stage of hair growth. The number of follow-up sessions
required and the time interval between treatments varies depending on the
particular characteristics of the client and the anatomical site being
treated.
ThermoLase's spas currently offer a variety of pricing programs,
including a fixed fee for a single treatment (occurring over two visits)
as well as fixed fees for multiple treatments during specified time
periods. The per-session cost of the SoftLight system to the customer is,
in general, substantially higher than the per-session costs of
alternative methods of hair removal, including waxing, electrolysis, and
shaving. The total cost of the SoftLight treatments in comparison to
these alternatives varies depending on factors including the body part
treated, the pricing plan selected, and the length of time for which hair
is removed in comparison to such alternatives.
In September 1997, ThermoLase introduced SoftLight 2.0, a
modification of the hair-removal process that is intended to increase the
effectiveness of the treatment. ThermoLase has modified its lotion,
thereby eliminating the need for waxing, part of the process used in
earlier treatment protocols, and added an additional step to better
direct the laser energy into the hair follicle. ThermoLase is continuing
to evaluate the results of the new protocol as well as the connection
between follicle damage and long-term hair removal.
ThermoLase opened its first Spa Thira in early fiscal 1996, and had a
total of four opened by the end of fiscal 1996. In fiscal 1997,
ThermoLase opened nine more domestic spas, and by October 1997 had a
total of 14 domestic Spa Thira locations. In addition, ThermoLase's
international arrangements resulted in the opening of spas in Paris in
May 1997 and Lugano, Switzerland, in October 1997. A spa is also under
construction in Dubai in the United Arab Emirates, and additional spas
are expected to be constructed in Japan, Saudi Arabia, Brazil, and
London, pending regulatory approvals.
The international spas are being developed pursuant to joint ventures
and other licensing arrangements. In January 1996, ThermoLase established
a joint venture in Japan. During fiscal 1997, ThermoLase established
joint ventures in France in November 1996 and England in September 1997,
and six 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; in Switzerland in April 1997; in Brazil
in June 1997; and in the United Kingdom (excluding England) and the
Republic of Ireland in September 1997.
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In June 1996, ThermoLase initiated a program to license its SoftLight
technology to physicians. In this program, ThermoLase receives a
per-procedure royalty that varies depending on the anatomical site
treated and pricing plan selected by the client. It also provides the
physicians with the lasers and supplies that are necessary to perform the
service. As of November 1997, approximately 150 lasers were placed in
practices in 33 states and certain international markets.
ThermoLase's existing and planned spas are designed to reflect the
environment of a luxurious day spa. ThermoLase believes that the
uniformity of its centers will foster brand recognition and facilitate
the opening of new spas. ThermoLase currently uses medical staff,
including physicians and nurses, as well as other personnel, to operate
the SoftLight system at its centers. ThermoLase advertises the SoftLight
system through an advertising and public relations campaign focused on
exposure in fashion and health magazines as well as the national news
media.
Skin-care and Other Personal-care Products
ThermoLase's CBI Laboratories, Inc. (CBI) subsidiary designs,
develops, manufactures, and packages high-quality personal-care products
for sale to retailers under its own brand names and as a contract
manufacturer under arrangements with third parties. CBI develops and
manufactures most of its products, which include shampoos, lotions,
shower creams, bath salts, and facial treatments, using botanicals and
herbal extracts. CBI has the facilities and personnel to develop new
product formulations, design packaging layouts, mix and fill
formulations, and package final products for distribution. CBI does not
manufacture packaging such as containers and boxes, but contracts with
third parties for these supplies. CBI has a portfolio of approximately
3,000 formulations, and may manufacture up to 300 different products in a
quarter.
Advanced Technology Research
The Company is currently focusing its advanced technology research
efforts in the areas of communications, avionics, X-ray detection, signal
processing, and lasers. The Company has developed its expertise in these
core technologies in connection with government-sponsored research and
development.
Laser Communication System (lasercom)
Lasercom is a high-speed, high-bandwidth laser communication system,
which the Company has been developing since 1989 under government-funded
contracts. Through fiscal 1997, the Ballistic Missile Defense
Organization has provided funding totaling $12.4 million. The lasercom
system, which is in early-stage beta testing, is designed to move large
amounts of data quickly via lasers, without the need for wires. Through
the application of its lasercom technology, Trex Communications intends
to commercialize products to meet the growing demand for high-speed,
digital telecommunications technology, including opportunities in
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ground-based networks, satellite-to-satellite crosslinks, and air-based
systems.
In September 1996, the Company received a $4.9 million contract (with
options for an additional $0.4 million) from the Defense Airborne
Reconnaissance Office (DARO) for advanced development of the lasercom
system for use on aircraft. Under this contract, Trex Communications will
apply its lasercom technology to develop a system that could be used on
unmanned reconnaissance aircraft. Lasercom would provide a horizontal
communications link to quickly transmit digitized images of the ground
below the aircraft, for example, to another unmanned aircraft flying near
a command post hundreds of miles away, where the information could be
downlinked and analyzed. Under the contract, Trex Communications is
developing a fully functional prototype to be tested using small
commercial jets.
Passive Microwave Camera
The Company is developing a passive microwave camera (PMC), which is
designed to enable the user to see objects hidden by fog and clouds and
to see through certain opaque objects, such as building partitions. The
PMC will be a totally passive device that emits no radiation and can
produce real-time video images during the day or night without the
clutter typical of radar.
The Company believes the largest potential application of the PMC
would be the incorporation of the device into airplanes for use during
takeoffs, landings, and taxiing in adverse weather conditions. PMC
acceptance is subject to certification by the Federal Aviation
Administration (FAA). The U.S. Army has provided approximately
$10.7 million in funding for PMC development over the last five years.
Development continues under a $4.0 million U.S. Army Research Laboratory
contract that was awarded in fiscal 1996.
Under a $700,000 grant from the National Institute of Justice,
awarded in fiscal 1997, the Company plans to conduct a PMC technology
demonstration and evaluation program in cooperation with local law
enforcement agencies.
Other Projects
In addition to the full-field digital mammography system being
developed by Trex Medical, the Company is developing a next-generation
digital medical imaging technology. This new system would incorporate a
flat-panel, direct-digital detector that could provide even more
information for earlier diagnoses. This system is based on complementary
metal oxide semiconductor (CMOS) technology. The CMOS system would
"directly" detect the X-rays and convert them into digital information,
as opposed to converting them into visible light first before being
digitized, as is the case with the Company's current full-field digital
technology. Trex Medical has the right to license this technology as it
pertains to certain medical applications. The Company is also exploring
other nonmedical applications for this flat-panel direct-digital
detection technology.
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The Company is currently working on government-funded projects in
several areas, including: (1) space surveillance - Under a contract from
the U.S. Air Force Phillips Laboratory awarded in 1993, the Company is
designing and building a system to produce high-resolution images of low-
earth-orbit satellites. Through fiscal 1997, the Company has received
$11.4 million under this contract. (2) ROBS (rapid optical beam steering)
laser radar system - The Company has developed and extensively tested the
ROBS system over the last 10 years, supported by more than $28 million in
government funding. In fiscal 1996, the Company received a three-year
$8.8 million contract from the U.S. Naval Air Warfare Center at China
Lake, California, to continue development of this system, which is
designed to simultaneously track multiple, fast-moving airborne objects
with extreme precision. In July 1996, the Company received a $5.9 million
contract from the U.S. Army Missile Command to build a new version of
ROBS to meet Army specifications.
(ii) New Products
The Company's business includes the research and development of new
products. (see "Principal Products and Services.")
(iii) Raw Materials
In connection with its SoftLight 2.0 process, ThermoLase currently
uses a hydrogel product that is currently available from only one source.
ThermoLase has been able to obtain an adequate supply of hydrogel to
satisfy its current needs for the product, but there can be no assurance
that it will be able to do so indefinitely or that it will continue to be
able to obtain an adequate supply of the product at prices acceptable to
ThermoLase. Other raw materials, components, and supplies purchased by
the Company are either available from a number of different suppliers or
from alternative sources that could be developed without a material
adverse effect on the Company. To date, the Company has experienced no
difficulties in obtaining these materials.
(iv) Patents, Licenses, and Trademarks
The Company protects its intellectual property through patents,
trademarks, and trade secrets, as appropriate. In addition to relying on
patents, the Company protects some of its technology as trade secrets and
uses trademarks in association with certain products. The Company also
enters into licensing arrangements to acquire rights in technology.
The technology underlying the SoftLight system, including all patents
issued thereon, belongs to the Company by virtue of a license agreement
executed in February 1993 between ThermoLase and the inventor of the
system, which grants ThermoLase an irrevocable, exclusive, worldwide,
perpetual license to the technology in exchange for a $0.1 million
commitment fee and a royalty equal to 0.25% of revenues generated from
the sale or use of the SoftLight system through February 10, 2010.
Patented inventions of the Company include certain mammography and
other X-ray equipment, lasers, telescopes, high-power diamond switches,
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laser-radar devices, microwave cameras, a laser-based hair-removal
process, a Sonic CT system, a wind-shear detector, and methods of
producing composites and ultrafine particles. Patent applications are
pending on certain mammography equipment, a passive microwave camera, and
a free-space laser communication system.
The Company is a defendant in certain patent litigation and has been
notified that it allegedly infringes certain other technology owned by a
third party. See information under the heading "Intellectual Property
Rights, Uncertainties, and Litigation" under the heading "Forward-looking
Statements" in the Registrant's Fiscal 1997 Annual Report to
Shareholders, which information is incorporated herein by reference.
Several of the Company's patents were the result of research programs
funded by the U.S. government. With the exception of a prohibition on
disclosure of classified technology, the government does not impose
significant restrictions on the Company's use of government-sponsored
technology. The government retains a non-exclusive, royalty-free license
to use technology developed under government contracts for government
purposes, and could, in certain circumstances, transfer all commercial
rights to technology to a third party if the Company does not pursue its
development.
(v) Seasonal Influences
There are no significant seasonal influences on the Company's sales
of products and services.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended
to customers that would have a material adverse effect on the Company's
working capital.
(vii) Dependency on a Single Customer
Medical Products segment revenues from OEM sales of a modified design
of Trex Medical's stereotactic prone breast-biopsy system to U.S.
Surgical accounted for 17% of Medical Products segment revenues and 14%
of the Company's total revenues in fiscal 1997. No single customer
accounted for more than 10% of the revenues of the Personal-care Products
and Services segment in fiscal 1997. U.S. government agencies accounted
for substantially all of the Advanced Technology Research segment
revenues in fiscal 1997. The Company's Advanced Technology Research
segment is heavily dependent on government funding through several
agencies, and the loss of any of such agencies or customers would have a
material adverse effect on this segment.
(viii) Backlog
The backlog of firm orders for the Medical Products segment was
$49.3 million as of September 27, 1997, compared with $65.3 million as of
September 28, 1996. The backlog at September 28, 1996, was affected by a
build-up of new orders for Trex Medical's M-IV mammography system, which
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it began shipping in late fiscal 1996, and the timing of certain orders
received in late fiscal 1996. The backlog of firm orders for the
Personal-care Products and Services segment, which consisted exclusively
of orders for CBI's products, was $2.8 million as of September 27, 1997,
compared with $5.5 million as of September 28, 1996. The Company
estimates that CBI will continue to represent a decreasing portion of
total segment revenues as revenues from hair-removal services increase.
The backlog of firm orders for the Advanced Technology Research segment
was $15.0 million as of September 27, 1997, compared with $17.9 million
as of September 28, 1996. Substantially all government contract orders
included in this backlog were funded at September 27, 1997. The Company
does not believe that the decreases in backlog are necessarily indicative
of a trend. The Company believes that substantially all of its fiscal
1997 backlog will be completed during fiscal 1998.
(ix) Government Contracts
Less than 10% of the Company's total revenues in fiscal 1997 were
derived from contracts or subcontracts with the federal government, which
are subject to renegotiation of profits or termination. There are no
pending or, to the Company's knowledge, threatened renegotiations or
terminations that are material to the Company.
(x) Competition
Medical Products
The healthcare industry in general, and the market for imaging
products in particular, is highly competitive. Trex Medical competes with
a number of companies, many of which have substantially greater
financial, marketing, and other resources than Trex Medical. Trex
Medical's competitors include large companies such as GE, the Philips
Medical Systems North America Company subsidiary of Philips N.V.
(Philips), the Siemens Corporation subsidiary of Siemens AG (Siemens),
Toshiba American Medical Systems, Inc., Toshiba America MRI, Inc.,
Shimadzu, and Picker International, Inc., which compete in most
diagnostic imaging modalities, including X-ray imaging. In addition, a
significant portion of Trex Medical's sales are to U.S. Surgical and GE
through OEM arrangements. The products sold through such OEM agreements
compete with those offered by Trex Medical directly and through its
independent dealers. Trex Medical's StereoLoc II, Cytoguide, and
StereoGuide breast-biopsy systems compete with products offered by GE,
Fischer Imaging Corporation, and Philips, and with conventional surgical
biopsy procedures. Trex Medical competes primarily on the basis of
product features, product performance, and reputation as well as price
and service. Trex Medical believes that competition is likely to increase
as a result of healthcare cost-containment pressures and the development
of alternative diagnostic and interventional technologies.
Personal-care Products and Services
ThermoLase expects that, in the near term, the principal competitors
relative to the hair-removal treatment using the SoftLight system will be
electrolysis providers. The electrolysis market is characterized by many
13PAGE
<PAGE>
small practitioners. Although ThermoLase believes that it has a
significant competitive advantage over electrolysis, it does not have the
well-established network of client relationships that many electrologists
have. Over time, it is expected that ThermoLase will face growing
competition from other laser-based hair-removal services. Four other
laser manufacturers received market clearance from the FDA in 1997 for
hair removal. ThermoLase expects that others, in addition to the laser
companies that currently have clearance for hair removal, will seek to
develop similar technologies and products that may compete directly with
the SoftLight system. ThermoLase's services will also compete with other
hair-removal products and methods. ThermoLase believes that competition
for its hair-removal services is based primarily on efficacy, price,
comfort, and safety.
Should it receive clearance to market the SoftLight Rejuvenation
Laser system for skin resurfacing, ThermoLase expects that its principal
competitors will be providers of carbon dioxide laser and chemical peel
resurfacing and traditional spa-based services. ThermoLase believes that
its SoftLight Rejuvenation skin treatment system will offer customers an
alternative to more aggressive skin-texture and wrinkle-treatment
methods.
The professional skin-care and bath-and-body products markets are
highly competitive. In selling its Salon product line, CBI competes with
a number of small manufacturers and divisions of larger companies. The
competition in this market is fragmented with no one competitor
dominating the market. In the Custom Design and Store Brands groups, CBI
competes with numerous contract packaging companies that can prepare and
package custom formulations for customers. Some of these competitors have
substantially greater financial, marketing, and research and development
resources than those of ThermoLase. CBI competes in these markets by
offering its customers exclusive product lines that ThermoLase believes
can generally be sold at a lower price but with higher margins than CBI's
competitors.
Advanced Technology Research
Trex Communications is engaged in segments of the telecommunications
industry that are extremely competitive. In its lasercom division, Trex
Communications expects to compete with large telecommunication service
providers, such as the regional Bell operating companies, competitive
access providers, and microwave and cellular service providers. Such
companies have substantially greater financial, technical, marketing, and
other resources than Trex Communications. Trex Communications' goal,
however, is to enter into strategic relationships with certain of these
competitors to provide components for the network systems that Trex
Communications is developing and to market and sell lasercom technology
and services. No assurance can be given that Trex Communications will be
successful in creating such strategic relationships. In addition, Trex
Communications' lasercom division expects to compete with other laser-
based communication hardware and software providers, most of which have
greater financial, technical, marketing, and other resources than Trex
Communications.
14PAGE
<PAGE>
Trex Communications' CCS subsidiary competes with a number of call
automation companies, primarily on the basis of product features, product
performance, and reputation, as well as price and service. Some of CCS'
competitors have substantially greater financial, technical, marketing,
and other resources than CCS.
The Company competes for its research and development programs
principally on the basis of technological innovations. As government
funding becomes more scarce, particularly for defense projects, the
competition for such funding will become more intense. In addition, as
the Company's programs move from the development stage to procurement of
large-scale, electro-optical systems, competition is expected to develop
and intensify. Some of the Company's competitors for research and
development funding and procurement have substantially greater resources
than those of the Company.
As the Company develops commercial products, it expects to encounter
competition from various sources, including companies that will have
substantially greater technical, marketing, and financial resources than
those of the Company. The Company believes that its overall success will
depend primarily on its ability to continue to make technological
advances.
(xi) Research and Development
During the years ended September 27, 1997, and September 28, 1996,
and the nine months ended September 30, 1995, the Company incurred
$32,067,000, $24,986,000, and $13,430,000, respectively, on internally
sponsored research and development programs, and $11,667,000,
$10,278,000, and $11,803,000, respectively, on research and development
programs sponsored by others. Approximately 344 professional employees
were engaged full-time in research and development activities at
September 27, 1997.
(xii) Environmental Protection Regulations
The Company believes that compliance with federal, state, and local
environmental regulations will not have a material adverse effect on its
capital expenditures, earnings, or competitive position.
(xiii) Number of Employees
As of September 27, 1997, the Company had a total of 1,712 employees.
(d) Financial Information about Exports by Domestic Operations
Financial information about exports by domestic operations is
summarized in Note 13 to Consolidated Financial Statements in the
Registrant's Fiscal 1997 Annual Report to Shareholders, which information
is incorporated herein by reference.
15PAGE
<PAGE>
(e) Executive Officers of the Registrant
Present Title (Fiscal Year First
Name Age Became Executive Officer)
---------------------------------------------------------------------
Gary S. Weinstein 40 Chief Executive Officer (1996)
John N. Hatsopoulos 63 Chief Financial Officer and
Vice President (1990)
Dr. Kenneth Y. Tang 50 Senior Vice President (1990)
David A. Teitel 34 Vice President, Finance (1996)
Paul F. Kelleher 55 Chief Accounting Officer (1990)
Hal Kirshner 56 President and Chief Executive Officer,
Trex Medical Corporation (1992)
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified, or until earlier
resignation, death, or removal. All executive officers, except Messrs.
Weinstein, Kirshner, and Teitel have held comparable positions for at
least five years with the Company or Thermo Electron. Mr. Weinstein has
been Chief Executive Officer of the Company since February 1996. For at
least five years prior to joining the Company, Mr. Weinstein held various
positions at Lehman Brothers, an investment banking firm, including
heading its global syndicate and equity capital market group from March
1995 until joining the Company. Mr. Kirshner was President of Lorad from
January 1991 to April 1997. Mr. Teitel has been Vice President, Finance
of the Company since August 1996. Prior to joining the Company, Mr.
Teitel was Vice President, Finance of Deknatel Snowden Pencer, Inc.
(Deknatel), a manufacturer of specialty surgical products, from May 1995
to August 1996, and was Director of Finance at Deknatel from August 1994
to May 1995. From August 1985 to August 1994, Mr. Teitel held various
positions at Arthur Andersen LLP, a professional services firm.
Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo
Electron, but devote such time to the affairs of the Company as the
Company's needs reasonably require.
Item 2. Properties
The location and general character of the Company's principal
properties as of September 27, 1997, are as follows:
Medical Products
Trex Medical owns two office and manufacturing facilities: a
62,500-square-foot facility in Danbury, Connecticut, and a
164,000-square-foot facility in Broadview, Illinois. Trex Medical leases
a 120,000-square-foot office and manufacturing facility in Copiague, New
York, under a lease expiring in 2005, and a 156,000-square-foot office
and manufacturing facility in Littleton, Massachusetts, under a lease
expiring in 2012, and a 60,000-square-foot office and manufacturing
facility in Danbury, Connecticut, under a lease expiring in 2007.
16PAGE
<PAGE>
Personal-care Products and Services
ThermoLase occupies approximately 213,000 square feet of office and
manufacturing space in Carrollton, Texas, under a lease expiring in 2004,
through its CBI subsidiary. ThermoLase also occupies approximately
83,000 square feet of retail space for its Spa Thira salons, under leases
expiring from 2000 through 2013.
Advanced Technology Research
The Company currently leases 90,000 square feet of office,
engineering, and laboratory space in San Diego under a lease expiring in
2006. In addition, CCS leases office, engineering, and manufacturing
space of 42,000 and 4,000 square feet in Georgia and England,
respectively, under leases expiring from 2001 through 2003. The Company
also leases 25,000 square feet of office and warehouse facilities in San
Diego under leases expiring in fiscal 1998.
The Company believes that its facilities are in good condition and
are suitable and adequate to meet current needs.
Item 3. Legal Proceedings
In April 1992, Fischer Imaging Corporation (Fischer) commenced a
lawsuit in the United States District Court, District of Colorado,
against Lorad, alleging that Lorad's prone breast-biopsy system infringes
a Fischer patent on a precision mammographic needle-biopsy system. As of
September 27, 1997, the Company had recognized aggregate revenues of
approximately $107.1 million from the sale of such systems. The suit
requests a permanent injunction, treble damages, and attorneys' fees and
expenses. If the Company is unsuccessful in defending this lawsuit, it
may be enjoined from manufacturing and selling its prone breast-biopsy
system without a license from Fischer. No assurance can be given that the
Company will be able to obtain such a license, if required, on
commercially reasonable terms, if at all. In addition, the Company may be
subject to damages for past infringement. No assurance can be given as to
the amount that the Company may eventually be required to pay in expenses
or in such damages.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
17PAGE
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.01 par value, and dividend policy is
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's Fiscal 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the
sections labeled "Selected Financial Information" and "Dividend Policy"
in the Registrant's Fiscal 1997 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Registrant's Fiscal 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements and Supplementary
Data are included in the Registrant's Fiscal 1997 Annual Report to
Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
18PAGE
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the close of
the fiscal year. The information concerning delinquent filers pursuant to
Item 405 of Regulation S-K is incorporated herein by reference from the
material contained under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship
with Affiliates" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the close of the fiscal year.
19
PAGE
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a, d) Financial Statements and Schedules
(1)The consolidated financial statements set forth in the list
below are filed as part of this Report.
(2)The consolidated financial statement schedule set forth in
the list below is filed as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference
are set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed
herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is shown
either in the financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
20PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed by the undersigned, thereunto duly authorized.
Date: December 5, 1997 THERMOTREX CORPORATION
By: Gary S. Weinstein
-----------------------
Gary S. Weinstein
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated, as of December 5, 1997.
Signature Title
--------- -----
By: Gary S. Weinstein Chief Executive Officer, Chairman
----------------------------- of the Board, and Director
Gary S. Weinstein
By: John N. Hatsopoulos Vice President, Chief Financial
----------------------------- Officer, and Director
John N. Hatsopoulos
By: Paul F. Kelleher Chief Accounting Officer
-----------------------------
Paul F. Kelleher
By: Morton Collins Director
-----------------------------
Morton Collins
By: Peter O. Crisp Director
-----------------------------
Peter O. Crisp
By: Paul F. Ferrari Director
-----------------------------
Paul F. Ferrari
By: Dr. George N. Hatsopoulos Director
-----------------------------
Dr. George N. Hatsopoulos
By: _____________________________ Director
Robert C. Howard
By: Director
-----------------------------
Nicholas T. Zervas
21PAGE
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of ThermoTrex Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in ThermoTrex
Corporation's Annual Report to Shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated November 3,
1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14 on page 20 is
the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. The
schedule has been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
November 3, 1997
22PAGE
<PAGE>
SCHEDULE II
THERMOTREX CORPORATION
Valuation and Qualifying Accounts
(In thousands)
Provision
Balance at Charged Accounts Balance
Beginning to Written at End
Description of Period Expense Off Other(a) of Period
----------- ---------- --------- -------- -------- ---------
Allowance for
Doubtful Accounts
Year Ended
September 27, 1997 $1,586 $ 279 $ (164) $ 268 $1,969
Year Ended
September 28, 1996 $1,141 $ 336 $ (163) $ 272 $1,586
Nine Months Ended
September 30, 1995 $ 643 $ 178 $ - $ 320 $1,141
(a) Allowances of businesses acquired during the year as described in Note 3
to Consolidated Financial Statements in the Registrant's Fiscal 1997
Annual Report to Shareholders.
23PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.1 Restated Certificate of Incorporation, as amended (filed as
Exhibit 3(i) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended July 2, 1994 [File No.
1-10791] and incorporated herein by reference).
3.2 By-Laws of the Registrant, as amended and restated (filed as
Exhibit 3.2 to the Registrant's Transition Report on Form
10-K for the transition period January 1, 1995, through
September 30, 1995 [File No. 1-10791] and incorporated herein
by reference).
4.1 Indenture dated as of October 28, 1997, by and among the
Registrant, Thermo Electron Corporation, and Bankers Trust
Company, as Trustee, relating to $124.5 principal amount of
the Registrant's 3 1/4% Subordinated Convertible Debentures
due 2007 (filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated October 28, 1997, and filed with the
Securities and Exchange Commission on October 29, 1997, and
incorporated herein by reference).
4.2 Fiscal Agency Agreement dated as of August 12, 1997, among
ThermoLase Corporation, Thermo Electron Corporation, and
Bankers Trust Company, as Fiscal Agent, relating to
$115,000,000 principal amount of ThermoLase's 4 3/8%
Subordinated Convertible Debentures due 2004 (filed as
Exhibit 4.3 to ThermoLase Corporation's Annual Report on Form
10-K for the fiscal year ended September 27, 1997 [File No.
1-13104] and incorporated herein by reference).
10.1 Asset Transfer Agreement dated December 29, 1990, between
Thermo Electron Corporation and the Registrant (filed as
Exhibit 10(a) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-40972] and incorporated herein by
reference).
10.2 Amended and Restated Corporate Services Agreement dated
January 3, 1993, between Thermo Electron Corporation and the
Registrant (filed as Exhibit 10(b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 2, 1993
[File No. 1-10791] and incorporated herein by reference).
10.3 Form of Indemnification Agreement between the Registrant and
its officers and directors (filed as Exhibit 10(f) to the
Registrant's Registration Statement on Form S-1
[Reg. No. 33-40972] and incorporated herein by reference).
10.4 Thermo Electron Corporate Charter as amended and restated
effective January 3, 1993 (filed as Exhibit 10(g) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993 [File No. 1-10791] and incorporated
herein by reference).
24PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.5 Stock Option Agreement granted to Anthony J. Pellegrino dated
November 16, 1992 (filed as Exhibit 10(n) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 2, 1993 [File No. 1-10791] and incorporated herein by
reference).
10.6 Stock Option Agreement granted to Hal Kirshner dated
November 16, 1992 (filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 2, 1993 [File No. 1-10791] and incorporated herein by
reference).
10.7 Lease dated October 12, 1988, between CBI Laboratories, Inc.,
Trammell Crow Company No. 91, and Petula Associates Ltd., as
amended (filed as Exhibit 10.18 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 1, 1994
[File No. 1-10791] and incorporated herein by reference).
10.8 Lease dated September 1, 1993, between CBI Laboratories, Inc.
and Lincoln Valwood, Ltd. (filed as Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994 [File No. 1-10791] and incorporated
herein by reference).
10.9 Master Repurchase Agreement dated as of January 1, 1994,
between the Registrant and Thermo Electron Corporation.
10.10 Master Guarantee Reimbursement Agreement dated as of January
1, 1994, among the Registrant, ThermoLase Corporation, and
Thermo Electron Corporation (filed as Exhibit 10.6 to
ThermoLase's Registration Statement on Form S-1 [Reg. No.
33-78052] and incorporated herein by reference).
10.11 Lease executed February 9, 1995, between LMP Properties Ltd.
and the Registrant (filed as Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 [File No. 1-10791] and incorporated
herein by reference).
10.12 Stock purchase agreement dated as of September 15, 1995, by
and among Bennett X-Ray Corporation, ThermoTrex Corporation,
and Calvin Kleinman, Robert P. Coe, Walter F. Schneider, and
Martin Koening (filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated September 14, 1995 [File No.
1-10791] and incorporated herein by reference).
10.13 Lease dated as of September 15, 1995, by and among the
Registrant and BK Realty Associates, L.P. and Calrob Realty
Associates (filed as Exhibit 10.26 to the Registrant's
Transition Report on Form 10-K for the transition period
January 1, 1995, through September 30, 1995 [File No.
1-10791] and incorporated herein by reference).
25PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.14 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 10(h) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-40972] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Nonqualified
Stock Option Plan is 1,945,000 shares, after adjustment to
reflect share increases approved in 1992 and 1993 and 3-for-2
stock split effected in October 1993).
10.15 Nonqualified Stock Option Plan of the Registrant (filed as
Exhibit 10(i) to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-40972] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's Incentive
Stock Option Plan is 1,945,000 shares, after adjustment to
reflect share increases approved in 1992 and 1993 and 3-for-2
stock split effected in October 1993).
10.16 ThermoTrex Corporation - ThermoLase Corporation (formerly
ThermoLase Inc.) Nonqualified Stock Option Plan (filed as
Exhibit 10.53 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994 [File No. 1-10791]
and incorporated herein by reference).
10.17 ThermoTrex Corporation - Trex Medical Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.73 to
Thermo Cardiosystems' Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 [File No. 1-10114] and
incorporated herein by reference).
10.18 ThermoTrex Corporation - Trex Communications Corporation
Nonqualified Stock Option Plan.
10.19 Directors Stock Option Plan of the Registrant (filed as
Exhibit 10.26 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 [File No.
1-10791] and incorporated herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of Thermo
Electron Corporation for services rendered to the Registrant
or such affiliated corporations. Such plans were filed as
Exhibits 10.21 through 10.45 to the Annual Report on Form
10-K of Thermo Electron for the fiscal year ended December
28, 1996 [File No. 1-8002] and are incorporated herein by
reference.
26PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.20 Operating Agreement of ThermoLase Japan L.L.C. dated as of
January 22, 1996, between ThermoLase Corporation and Fox
River Japan Partners, L.P. (filed as Exhibit 10.1 to
ThermoLase's Quarterly Report on Form 10-Q for the quarter
ended December 30, 1995 [File No. 1-13104] and incorporated
herein by reference).
10.21 License Agreement dated as of January 22, 1996, between
ThermoLase Corporation and ThermoLase Japan L.L.C. (filed as
Exhibit 10.2 to ThermoLase's Quarterly Report on Form 10-Q
for the quarter ended December 30, 1995 [File No. 1-13104]
and incorporated herein by reference).
10.22 Option Agreement dated as of January 22, 1996, between
ThermoLase Corporation and Fox River Japan Partners, L.P.
(filed as Exhibit 10.3 to ThermoLase's Quarterly Report on
Form 10-Q for the quarter ended December 30, 1995 [File No.
1-13104] and incorporated herein by reference).
10.23 Amendment to Operating Agreement of ThermoLase Japan L.L.C.
dated as of May 1, 1996, by and among ThermoLase Corporation,
Fox River Partners L.P., and ThermoLase Japan L.L.C. (filed
as Exhibit 10.29 to ThermoLase Corporation's Annual Report on
Form 10-K for the fiscal year ended September 27, 1997 [File
No. 1-13104] and incorporated herein by reference).
10.24 License Agreement dated as of October 30, 1995, between
ThermoLase Corporation and Ronald G. Wheeland, M.D.,
Professional Corporation (filed as Exhibit 10.4 to
ThermoLase's Quarterly Report on Form 10-Q for the quarter
ended December 30, 1995 [File No. 1-13104] and incorporated
herein by reference).
10.25 Management Agreement dated as of October 30, 1995, between
ThermoLase Corporation and Ronald G. Wheeland, M.D.,
Professional Corporation (filed as Exhibit 10.5 to
ThermoLase's Quarterly Report on Form 10-Q for the quarter
ended December 30, 1995 [File No. 1-13104] and incorporated
herein by reference).
10.26 Sublease Agreement dated as of October 30, 1995, between
ThermoLase Corporation and Ronald G. Wheeland, M.D.,
Professional Corporation (filed as Exhibit 10.6 to
ThermoLase's Quarterly Report on Form 10-Q for the quarter
ended December 30, 1995 [File No. 1-13104] and incorporated
herein by reference).
10.27 Lease dated as of April 12, 1995, between ThermoLase
Corporation and The Goldberg Family Trust (filed as Exhibit
10.7 to ThermoLase's Quarterly Report on Form 10-Q for the
quarter ended December 30, 1995 [File No. 1-13104] and
incorporated herein by reference).
27PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.28 Lease dated as of December 8, 1995, between ThermoLase
Corporation and Canon Properties (filed as Exhibit 10.8 to
ThermoLase's Quarterly Report on Form 10-Q for the quarter
ended December 30, 1995 [File No. 1-13104] and incorporated
herein by reference).
10.29 Lease dated as of January 17, 1996, between ThermoLase
Corporation and Trammell Crow Equity Partners (filed as
Exhibit 10.9 to ThermoLase's Quarterly Report on Form 10-Q
for the quarter ended December 30, 1995 [File No. 1-13104]
and incorporated herein by reference).
10.30 Lease dated as of December 20, 1995, between Melvyn J. Powers
and Mary P. Powers D/B/A M&M Realty and Trex Medical
Corporation as amended (filed as Exhibit 10.14 to Trex
Medical's Registration Statement on Form S-1 [Reg. No.
333-2926] and incorporated herein by reference).
10.31 Lease dated May 29, 1996, between John K. Grady, Trustee of
Concord Associates Foster Street Trust and XRE Corporation
(filed as Exhibit 10.89 to Trex Medical's Registration
Statement on Form S-1 [Reg. No. 333-2926] and incorporated
herein by reference).
10.32 Asset Purchase Agreement dated September 4, 1996, by and
among CXR Acquisition Corp., Trex Medical Corporation,
Continental X-Ray Corporation, Alphatek Corporation,
Broadview Manufacturing Corporation, Haymarket Square
Associates, Advanced Medical Imaging, Inc., Trans-Continental
X-ray Corporation, and the Stockholders and Partners thereof
(filed as Exhibit 10.21 to Trex Medical's Registration
Statement on Form S-1 [Reg. No. 333-15381] and incorporated
herein by reference).
10.33 Master Joint Venture Agreement dated as of October 30, 1996,
among ThermoLase Corporation, Franklin Holdings, S.A., and
Yves Micheli (filed as Exhibit 10.26 to ThermoLase's Annual
Report on Form 10-K for the fiscal year ended September 28,
1996 [File No. 1-13104] and incorporated herein by
reference).
10.34 SoftLight and Spa Thira Franchise and License Agreement dated
as of November 8, 1996, between ThermoLase Corporation and
Medical Supply & Service Co. (filed as Exhibit 10.27 to
ThermoLase's Annual Report on Form 10-K for the fiscal year
ended September 28, 1996 [File No. 1-13104] and incorporated
herein by reference).
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.35 Equipment License Agreement for SoftLight Lasers dated as of
November 8, 1996, between ThermoLase Corporation and Medical
Supply & Service Co. (filed as Exhibit 10.28 to ThermoLase's
Annual Report on Form 10-K for the fiscal year ended
September 28, 1996 [File No. 1-13104] and incorporated herein
by reference).
10.36 Promissory Note due April 30, 1997, issued by the Registrant
to Thermo Electron Corporation (filed as Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 28, 1996, and incorporated herein by
reference).
10.37 Promissory Note due October 5, 1998, issued by the Registrant
to Thermo Electron Corporation (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997, and incorporated herein by reference).
10.38 Amended and Restated Stock Holding Assistance Plan and Form
of Promissory Note.
10.39 Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10(j) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-40972] and incorporated
herein by reference).
11 Statement re: Computation of Earnings per Share.
13 Annual Report to Shareholders for the fiscal year ended
September 27, 1997 (only those portions incorporated herein
by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
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 10.9
MASTER REPURCHASE AGREEMENT
AGREEMENT dated as of the 1st day of January, 1994 between
Thermo Electron Corporation, a Delaware corporation ("Seller"),
and ThermoTrex Corporation, a Delaware corporation (the "Buyer").
1. Applicability
From time to time Buyer and Seller may enter into
transactions in which Seller agrees to transfer to Buyer certain
securities and/or financial instruments ("Securities") against
the transfer of funds by Buyer, with a simultaneous agreement by
Buyer to transfer to Seller such Securities on demand, against
the transfer of funds by Seller. Each such transaction shall be
referred to herein as a "Transaction" and shall be governed by
this Agreement, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to either party (i)
the commencement by such party as debtor of any case or
proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar
official for such party or any substantial part of its property;
or (ii) the commencement of any such case or proceeding against
such party, or another seeking such an appointment, which (A) is
consented to or not timely contested by such party, (B) results
in the entry of an order for relief, such an appointment or the
entry of an order having a similar effect, or (C) is not
dismissed within 15 days; or (iii) the making by a party of a
general assignment for the benefit of creditors; or (iv) the
admission in writing by a party of such party's inability to pay
such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided
by Seller to Buyer pursuant to Paragraph 4(a) hereof;
(c) "Income", with respect to any Security at any time, any
principal thereof then payable and all interest, dividends or
other distributions thereon;
(d) "Market Value", with respect to any Securities as of
any date, the price for such Securities on such date obtained
from a generally recognized source agreed to by the parties or
the most recent closing bid quotation from such a source, plus
accrued Income to the extent not included therein (other than any
Income transferred to Seller pursuant to Paragraph 6 hereof) as
of such date (unless contrary to market practice for such
Securities);
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(e) "Other Buyers", third parties that have entered into an
agreement with Seller that is substantially similar to this
Agreement;
(f) "Pricing Rate", a rate equal to the Commercial Paper
Composite rate for 90-day maturities provided by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (or, if such rate is not
available, a substantially equivalent rate agreed to by Buyer and
Seller) plus 25 basis points, which rate shall be adjusted on
the first business day of each fiscal quarter and shall be in
effect for the entirety such fiscal quarter;
(g) "Purchase Price", the price at which Purchased
Securities are transferred by Seller to Buyer;
(h) "Purchased Securities", the Securities transferred by
Seller to Buyer in a Transaction hereunder, and any Securities
substituted therefor in accordance with Paragraph 9 hereof. The
term "Purchased Securities" with respect to any Transaction at
any time also shall include Additional Purchase Securities
transferred pursuant to Paragraph 4(a) and shall exclude
Securities returned pursuant to Paragraph 4(b);
(i) "Repurchase Collateral Account", a book account
maintained by Seller containing, among other Securities, the
Purchased Securities; and
(j) "Repurchase Price", for any Purchased Security, an
amount equal to the Purchase Price paid by Buyer to Seller for
such Purchased Security.
3. Transactions
(a) A Transaction may be initiated by Buyer upon the
transfer of the Purchase Price to Seller's account. Upon such
transfer, Seller shall transfer to Buyer Purchased Securities
having a Market Value equal to 103% of the Purchase Price.
(b) Purchased Securities shall be held in custody for Buyer
by Seller in the Repurchase Collateral Account. Seller shall
indicate on its books for such account Buyer's ownership of the
Purchased Securities. Upon reasonable request from Buyer, Seller
shall provide Buyer with a complete list of Purchased Securities
owned by Buyer.
(c) Upon demand by Buyer or Seller, Seller shall repurchase
from Buyer, and Buyer shall sell to Seller, for the Repurchase
Price all or any part of the Purchased Securities then owned by
Buyer.
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4. Margin Maintenance
(a) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer is less than 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller shall transfer to Buyer additional Securities ("Additional
Purchased Securities"), so that the aggregate Market Value of
such Purchased Securities, including any such Additional
Purchased Securities, will thereupon equal or exceed 103% of
such aggregate Repurchase Price.
(b) If at any time the aggregate Market Value of all
Purchased Securities then owned by Buyer exceeds 103% of the
aggregate Repurchase Price for such Purchased Securities, then
Seller may transfer Purchased Securities to Seller, so that the
aggregate Market Value of such Purchased Securities will
thereupon not exceed 103% of such aggregate Repurchase Price.
5. Interest Payments
If during any fiscal month Buyer owned Purchased Securities,
then on the first day of the next following fiscal month Seller
shall pay to Buyer an amount equal to the sum of the aggregate
Repurchase Prices of the Purchased Securities owned by Buyer at
the close of each day during the preceding fiscal month divided
by the number of days in such month and the product multiplied by
the Pricing Rate times the number of days in such month divided
by 360.
6. Income Payments and Voting Rights
Where a particular Transaction's term extends over an Income
payment date on the Purchased Securities subject to that
Transaction, Buyer shall, on the date such Income is payable,
transfer to Seller an amount equal to such Income payment or
payments with respect to any Purchased Securities subject to such
Transaction. Seller shall retain all voting rights with respect
to Purchased Securities sold to Buyer under this Agreement.
7. Security Interest
Although the parties intend that all Transactions hereunder
be sales and purchases and not loans, in the event any such
Transactions are deemed to be loans, Seller shall be deemed to
have pledged to Buyer as security for the performance by Seller
of its obligations under each such Transaction and this
Agreement, and shall be deemed to have granted to Buyer a
security interest in, all of the Purchased Securities with
respect to all Transactions hereunder and all proceeds thereof.
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8. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds
hereunder shall be in immediately available funds. As used
herein with respect to Securities, "transfer" is intended to have
the same meaning as when used in Section 8-313 of the
Massachusetts Uniform Commercial Code or, where applicable, in
any federal regulation governing transfers of the Securities.
9. Substitution
Buyer hereby grants Seller the authority to manage, in
Seller's sole discretion, the Purchased Securities held in
custody for Buyer by Seller in the Repurchase Collateral Account.
Buyer expressly agrees that Seller may (i) substitute other
Securities for any Purchased Securities and (ii) commingle
Purchased Securities with other Securities held in the Repurchase
Collateral Account. Substitutions shall be made by transfer to
Buyer of such other Securities and transfer to Seller of the
Purchased Securities for which substitution is being made. After
substitution, the substituted Securities shall be deemed to be
Purchased Securities. Securities which are substituted for
Purchased Securities shall have a Market Value at the time of
substitution equal to or greater than the Market Value of the
Purchase Securities for which such Securities were substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the
other that (i) it is duly authorized to execute and deliver this
Agreement, to enter into the Transactions contemplated hereunder
and to perform its obligations hereunder and has taken all
necessary action to authorize such execution, delivery and
performance, (ii) the person signing this Agreement on its behalf
is duly authorized to do so on its behalf, (iii) it has obtained
all authorizations of any governmental body required in
connection with this Agreement and the Transactions hereunder and
such authorizations are in full force and effect and (iv) the
execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance,
charter, by-law or rule applicable to it or any agreement by
which it is bound or by which any of its assets are affected. On
the date for any Transaction Buyer and Seller shall each be
deemed to repeat all the foregoing representations made by it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer
fails to transfer Purchased Securities upon demand for repurchase
from either Buyer or Seller, (ii) Seller or Buyer fails, after
one business day's notice, to comply with Paragraph 4 hereof,
(iii) Buyer fails to make payment to Seller pursuant to
Paragraph 6 hereof, (iv) Seller fails to comply with Paragraph 5
hereof, (v) an Act of Insolvency occurs with respect to Seller
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or Buyer, (vi) any representation made by Seller or Buyer shall
have been incorrect or untrue in any material respect when made
or repeated or deemed to have been made or repeated, or (vii)
Seller or Buyer shall admit to the other its inability to, or its
intention not to, perform any of its obligations hereunder (each
an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by
written notice to the defaulting party (which option shall be
deemed to have been exercised, even if no notice is given,
immediately upon the occurrence of any Act of Insolvency), Seller
shall become obligated to repurchase, and Buyer shall become
obligated to sell, all Purchased Securities then owned by Buyer
for the Repurchase Price of such Purchased Securities.
(b) If Seller is the defaulting party and Buyer exercises
or is deemed to have exercised the option referred to in
subparagraph (a) of this Paragraph, (i) the Seller's obligations
hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable,
(ii) all Income paid after such exercise or deemed exercise shall
be retained by Buyer and applied to the aggregate unpaid
Repurchase Prices owed by Seller, and (iii) Seller shall
immediately deliver to Buyer any Purchased Securities subject to
such Transactions then in Seller's possession.
(c) In all Transactions in which Buyer is the defaulting
party, upon tender by Seller of payment of the aggregate
Repurchase Prices for all such Transactions, Buyer's right, title
and interest in all Purchased Securities subject to such
Transactions shall be deemed transferred to Seller, and Buyer
shall deliver all such Purchased Securities to Seller.
(d) After one business day's notice to the defaulting party
(which notice need not be given if an Act of Insolvency shall
have occurred, and which may be the notice given under
subparagraph (a) of this Paragraph or the notice referred to in
clause (ii) of the first sentence of this Paragraph), the
nondefaulting party may:
(i) as to Transactions in which Seller is the
defaulting party, (A) immediately sell, in a recognized market at
such price or prices as Buyer may reasonably deem satisfactory,
any or all Purchased Securities subject to such Transactions and
apply the proceeds thereof to the aggregate unpaid Repurchase
Prices and any other amounts owing by Seller hereunder or (B) in
its sole discretion elect, in lieu of selling all or a portion of
such Purchased Securities, to give Seller credit for such
Purchased Securities in an amount equal to the price therefor on
such date, obtained from a generally recognized source or the
most recent closing bid quotation from such a source, against the
aggregate unpaid Repurchase Prices and any other amounts owing by
Seller hereunder; and
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(ii) as to Transactions in which Buyer is the
defaulting party, (A) purchase securities ("Replacement
Securities") of the same class and amount as any Purchased
Securities that are not delivered by Buyer to Seller as required
hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Securities, to be deemed to have purchased
Replacement Securities at the price therefor on such date,
obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
(e) As to Transactions in which Buyer is the defaulting
party , Buyer shall be liable to Seller (i) with respect to
Purchased Securities (other than Additional Purchased
Securities), for any excess of the price paid (or deemed paid) by
Seller for Replacement Securities therefor over the Repurchase
Price for such Purchased Securities and (ii) with respect to
Additional Purchased Securities, for the price paid (or deemed
paid) by Seller for the Replacement Securities therefor.
(f) The defaulting party shall be liable to the
nondefaulting party for the amount of all reasonable legal or
other expenses incurred by the nondefaulting party in connection
with or as a consequence of an Event of Default.
(g) The nondefaulting party shall have, in addition to its
rights hereunder, any rights otherwise available to it under any
other agreement or applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto
and will enter into each Transaction hereunder in consideration
of and in reliance upon the fact that, all Transactions hereunder
constitute a single business and contractual relationship and
have been made in consideration of each other. Accordingly, each
of Buyer and Seller agrees (i) to perform all of its obligations
in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that
each of them shall be entitled to set off claims and apply
property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers
made by either of them in respect of any Transaction shall be
deemed to have been made in consideration of payments, deliveries
and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments,
deliveries and other transfers may be applied against each other
and netted.
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13. Entire Agreement; Severability
This Agreement shall supersede any existing agreements
between the parties containing general terms and conditions for
repurchase transactions. Each provision and agreement and
agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be
enforceable notwithstanding the unenforceability of any such
other provision or agreement.
14. Non-assignability; Termination
The rights and obligations of the parties under this
Agreement and under any Transactions shall not be assigned by
either party without the prior written consent of the other
party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit
of the parties and their respective successors and assigns. This
Agreement may be canceled by either party upon giving written
notice to the other, except that this Agreement shall,
notwithstanding such notice, remain applicable to any
Transactions then outstanding.
15. Governing Law
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts without giving effect to the
conflict of law principles thereof.
16. No Waivers, Etc.
No express or implied waiver of any Event of Default by
either party shall constitute a waiver of any other Event of
Default and no exercise of any remedy hereunder by any party
shall constitute a wavier of its right to exercise any other
remedy hereunder. No modification or waiver of any provision of
this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in
writing and duly executed by both of the parties hereto.
19. Intent
(a) The parties recognize that each Transaction is a
"repurchase agreement" as that term is defined in Section 101 of
Title 11 of the United States Code, as amended (except insofar as
the type of Securities subject to such Transaction or the term of
such Transaction would render such definition inapplicable), and
a "securities contract" as that term is defined in Section 741 of
Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate
Securities delivered to it in connection with Transactions
hereunder or to exercise any other remedies pursuant to Paragraph
11 hereof, is a contractual right to liquidate such Transaction
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as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THERMO ELECTRON CORPORATION THERMOTREX CORPORATION
By: /s/ Melissa F. Riordan By: /s/ Gary S. Weinstein
Melissa F. Riordan Gary S. Weinstein
Treasurer Chief Executive Officer
EXHIBIT 10.18
THERMOTREX CORPORATION
TREX COMMUNICATIONS NONQUALIFIED STOCK OPTION PLAN
1. Purpose
This Nonqualified Stock Option Plan (the "Plan") is intended
to encourage ownership of Common Stock, $0.01 par value (the
"Common Stock"), of Trex Communications Corporaton
("Subsidiary"), a subsidiary of ThermoTrex Corporation (the
"Company"), by persons selected by the Board of Directors (or a
committee thereof) in its sole discretion, including directors,
executive officers, key employees and consultants of the Company
and its subsidiaries, and to provide additional incentive for
them to promote the success of the business of the Company and
Subsidiary. The Plan is intended to be a nonstatutory stock
option plan.
2. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of
Directors of the Company.
3. Stock Subject to Plan
At no time shall the number of shares of the Common Stock
then outstanding which are attributable to the exercise of
options granted under the Plan plus the number of shares then
issuable upon the exercise of outstanding options granted under
the Plan exceed 50,000 shares, subject howeverm, to the
provisions of paragraph 11 of the Plan. Shares to be issued upon
the exercise of options granted under the Plan shall be shares of
Subsidiary beneficially owned by the Company. If any option
expires or terminates for any reason without having been
exercised in full, the unpurchased shares subject thereto shall
again be available for options thereafter to be granted.
4. Administration
The Plan shall be administered by a committee (the
"Committee") composed of the members of the Board of Directors of
the Company, no member of which shall act upon any matter
exclusively affecting any option granted or to be granted to
himself or herself under the Plan. Subject to the provisions of
the Plan, the Committee shall have complete authority, in its
discretion, to make the following determinations with respect to
each option to be granted by the Company: (a) the person to
receive the option (the "Optionee"); (b) the time of granting the
option; (c) the number of shares subject thereto; (d) the option
price; (e) the option period; and (f) the terms of the option and
form of option agreement (which need not be identical, but which
shall conform to the applicable terms and conditions of the Plan
and contain such other provisions as the Board of Directors deems
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advisable and not inconsistent with the Plan). In making such
determinations, the Committee may take into account the nature of
the services rendered by the Optionees, their present and
potential contributions to the success of the Company and/or one
or more of its subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to it, to determine the terms and
provisions of the respective option agreements (which need not be
identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's
determinations on the matters referred to in this paragraph 4
shall be conclusive.
5. Eligibility
An option may be granted to any person selected by the
Committee in its sole discretion.
6. Time of Granting Options
The granting of an option shall take place at the time
specified by the Committee. Only if expressly so provided by the
Committee shall the granting of an option be regarded as taking
place at the time when a written option agreement shall have been
duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement
shall provide, among other things, that it does not confer upon
an Optionee any right to continue in the employ of the Company
and/or one or more of its subsidiaries or to continue as a
director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such
subsidiary to terminate the employment of the Optionee at any
time if the Optionee is an employee, to remove the Optionee as a
director of the Company if the Optionee is a director, or to
terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
An option may become exercisable immediately or in such
installments, cumulative or noncumulative, as the Committee may
determine.
8. Exercise of Option
An option may be exercised in accordance with its terms by
written notice of intent to exercise the option, specifying the
number of shares of stock with respect to which the option is
then being exercised. The notice shall be accompanied by payment
in the form of cash or shares of Subsidiary Common Stock (the
"Tendered Shares") with a then current market value equal to the
option price of the shares to be purchased; provided, however,
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that such Tendered Shares shall have been acquired by the
Optionee more than six months prior to the date of exercise,
unless such requirement is waived in writing by the Company.
Against such payment the Company shall deliver or cause to be
delivered to the Optionee a certificate for the number of shares
then being purchased, registered in the name of the Optionee or
other person exercising the option. If any law or applicable
regulation of the Securities and Exchange Commission or other
body having jurisdiction in the premises shall require the
Company, Subsidiary or the Optionee to take any action in
connection with shares being purchased upon exercise of the
option, exercise of the option and delivery of the certificate or
certificates for such shares shall be postponed until completion
of the necessary action, which shall be taken at the Company's
expense.
9. Transferability
Except as may be authorized by the Committee , in its sole
discretion, no Option may be transferred other than by will or
the laws of descent and distribution, and during a Optionee's
lifetime an option requiring exercise may be exercised only by
him or her (or in the event of incapacity, the person or persons
properly appointed to act on his or her behalf). The Committee
may, in its discretion, determine the extent to which options
granted to an Optionee shall be transferable, and such provisions
permitting or acknowledging transfer shall be set forth in the
written agreement evidencing the option executed and delivered by
or on behalf of the Company and the Optionee.
10. Vesting, Restrictions and Termination of Options
The Committee, in its sole discretion, may determine the
manner in which options shall vest, the rights of the Company to
repurchase the shares issued upon the exercise of any option and
the manner in which such rights shall lapse, and the terms upon
which any option granted shall terminate. The Board of Directors
shall have the right to accelerate the date of exercise of any
installment or to accelerate the lapse of the Company's
repurchase rights. All of such terms shall be specified in a
written option agreement executed and delivered by or on behalf
of the Company and the Optionee to whom such option shall be
granted.
11. Adjustment of Number of Shares
Each stock option agreement shall provide that in the event
of any stock dividend payable in the Common Stock or any split-up
or contraction in the number of shares of the Common Stock
occurring after the date of the agreement and prior to the
exercise in full of the option, the number of shares for which
the option may thereafter be exercised shall be proportionately
adjusted and the price to be paid for each share subject to the
option shall be proportionately adjusted. Each such agreement
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shall also provide that in case of any reclassification or change
of outstanding shares of the Common Stock or in case of any
consolidation or merger of Subsidiary with or into another
company or in case of any sale or conveyance to another company
or entity of the property of Subsidiary as a whole or
substantially as a whole, the Optionee shall, upon exercise of
the option, be entitled to receive shares of stock or other
securities in its place equivalent in kind and value to those
shares which he would have received if he had exercised the
option in full immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and had
continued to hold the shares subject to the option (together with
all other shares, stock and securities thereafter issued in
respect thereof) to the time of the exercise of the option;
provided , that if any recapitalization is to be effected through
an increase in the par value of the Common Stock without an
increase in the number of authorized shares and such new par
value will exceed the option price under such agreement, the
Company shall notify the Optionee of such proposed
recapitalization, and the Optionee shall then have the right,
exercisable at any time prior to such recapitalization becoming
effective, to purchase all of the shares subject to the option
which he has not theretofore purchased (anything in such
agreement to the contrary notwithstanding), but if the Optionee
fails to exercise such right before such recapitalization becomes
effective, the option price under such agreement shall be
appropriately adjusted. Each such agreement shall further
provide that upon dissolution or liquidation of Subsidiary, the
option shall terminate, but the Optionee (if at the time an
employee or director of the Company and/or any one or more of its
subsidiaries) shall have the right, immediately prior to such
dissolution or liquidation, to exercise the option to the full
extent not theretofore exercised; that no adjustment provided for
above shall apply to any share with respect to which the option
has been exercised prior to the effective date of such
adjustment; and that no fraction of a share or fractional shares
shall be purchasable or deliverable under such agreement, but in
the event any adjustment thereunder of the number of shares
covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the
nearest smaller whole number of shares. In the event of changes
in the outstanding Common Stock by reason of any stock dividend,
split-up, contraction, reclassification, or change of outstanding
shares of the Common Stock of the nature contemplated by this
paragraph 11, the number of shares of Common Stock available for
the purpose of the Plan as stated in paragraph 3 hereof shall be
correspondingly adjusted by the Committee.
12. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in
respect of shares as to which their options shall not have been
exercised, certificates issued and delivered and payment as
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herein provided made in full, and shall have no rights with
respect to such shares not expressly conferred by this Plan.
13. Stock Reserved
The Company shall at all times during the term of the
options reserve and keep available such number of shares of the
Common Stock as will be sufficient to satisfy the requirements of
this Plan and shall pay all other fees and expenses necessarily
incurred by the Company in connection therewith.
14. Securities Laws Restrictions
Each Optionee exercising an option, at the request of the
Company, will be required to give a representation in form
satisfactory to counsel for the Company that he will not
transfer, sell or otherwise dispose of the shares received upon
exercise of the option at any time purchased by him, upon
exercise of any portion of the option, in a manner which would
violate the Securities Act of 1933, as amended, and the
regulations of the Securities and Exchange Commission thereunder
and the Company may, if required or at its discretion, make a
notation on any certificates issued upon exercise of options to
the effect that such certificate may not be transferred except
after receipt by the Company of an opinion of counsel
satisfactory to it to the effect that such transfer will not
violate such Act and such regulations.
15. Tax Withholding
The Company shall have the right to deduct from payments of
any kind otherwise due to an Optionee any federal, state or local
taxes of any kind required by law to be withheld with respect to
any shares issued upon exercise of options under the Plan (the
"withholding requirements"). The Committee will have the right
to require that the Optionee or other appropriate person remit to
the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery
of any Common Stock pursuant to exercise of an option. If and to
the extent that such withholding is required, the Committee may
permit the Optionee or such other person to elect at such time
and in such manner as the Committee provides to have the Company
hold back from the shares to be delivered, or to deliver to the
Company, Common Stock having a value calculated to satisfy the
withholding requirements.
16. Termination and Amendment of Plan
The Board of Directors may at any time, and from time to
time, modify or amend the Plan in any respect, except that if at
any time the approval of the Stockholders of the Company is
required as to such modification or amendment under Rule 16b-3,
PAGE
<PAGE>
the Board of Directors may not effect such modification or
amendment without such approval.
The termination or any modification or amendment of the Plan
shall not, without the consent of an Optionee, affect his or her
rights under an option previously granted to him or her. With
the consent of the Optionees affected, the Board of Directors may
amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to
amend or modify the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
Notwithstanding any other provisions hereof, the Plan shall
terminate on December 31, 2006 and no options shall be granted
hereunder thereafter.
EXHIBIT 10.38
THERMOTREX CORPORATION
RESTATED STOCK HOLDING ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit ThermoTrex
Corporation (the "Company") and its stockholders by encouraging
Key Employees to acquire and maintain share ownership in the
Company, by increasing such employees' proprietary interest in
promoting the growth and performance of the Company and its
subsidiaries and by providing for the implementation of the Stock
Holding Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: ThermoTrex Corporation, a Delaware corporation.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The ThermoTrex Corporation Stock Holding Assistance
Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered
by the Committee, which shall have authority to interpret the
Plan and the Stock Holding Policy and, subject to their
provisions, to prescribe, amend and rescind any rules and
regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's
interpretations and decisions with regard to the Plan and the
PAGE
<PAGE>
Stock Holding Policy and such rules and regulations as may be
established thereunder shall be final and conclusive. The
Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or the Stock Holding
Policy, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made
in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Stock Holding Policy is, in
the judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Stock Holding Policy.
Such Loans may be used solely for the purpose of acquiring Common
Stock (other than upon the exercise of stock options or under
employee stock purchase plans) in open market transactions or
from the Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Stock
Holding Policy, as the Committee shall determine in its sole and
absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable on the fifth anniversary of the date of
the Loan, provided that the Committee may, in its sole and
PAGE
<PAGE>
absolute discretion, authorize such other maturity and repayment
schedule as the Committee may determine. Each Loan shall also
become immediately due and payable in full, without demand, upon
the occurrence of any of the events set forth in the Note;
provided that the Committee may, in its sole and absolute
discretion, authorize an extension of the time for repayment of a
Loan upon such terms and conditions as the Committee may
determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Stock Holding Policy in any respect, or terminate the Plan
or the Stock Holding Policy at any time. No such amendment or
termination, however, shall alter or otherwise affect the terms
and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise
provided herein or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Stock Holding Policy shall become effective
upon approval and adoption by the Committee.
PAGE
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMOTREX CORPORATION
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to ThermoTrex Corporation (the "Company"),
or assigns, ON DEMAND, but in any case on or before [insert date
which is the fifth anniversary of date of issuance] (the
"Maturity Date"), the principal sum of [loan amount in words]
($_______), or such part thereof as then remains unpaid, without
interest. Principal shall be payable in lawful money of the
United States of America, in immediately available funds, at the
principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay to the Company
from the Employee's annual cash incentive compensation (referred
to as bonus), beginning with the first such bonus payment to
occur after the date of this Note and on each of the next four
bonus payment dates occurring prior to the Maturity Date, such
amount as may be designated by the Company but which shall not
exceed 20% of the Employee's bonus payment. Any amount remaining
unpaid under this Note, if no demand has been made by the
Company, shall be due and payable on the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
PAGE
<PAGE>
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holding Assistance Plan and shall be governed by and construed in
accordance with, such Plan and the laws of the State of Delaware
and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
Exhibit 11
THERMOTREX CORPORATION
Computation of Earnings per Share
Nine
Year Ended Months Ended
----------------------------------- ------------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
1997 1996 1995 1995
--------------------------------------------------------------------------
(Unaudited)
Computation of Primary
Earnings per Share:
Net Income (a) $ 8,441,000 $42,575,000 $36,658,000 $36,341,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 19,209,613 19,074,734 18,913,286 18,938,215
Add: Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) - 593,822 - -
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 19,209,613 19,668,556 18,913,286 18,938,215
----------- ----------- ----------- -----------
Primary Earnings
per Share (a) / (b) $ .44 $ 2.16 $ 1.94 $ 1.92
=========== =========== =========== ===========
Exhibit 13
ThermoTrex Corporation
Consolidated Financial Statements
Fiscal Year 1997
PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Statement of Income
Nine Months
Year Ended Ended
-------------------------------- ----------
(In thousands except Sept. 27, Sept. 28, Sept. 30, Sept. 30,
per share amounts) 1997 1996 1995 1995
-------------------------------------------------------------------------
(Unaudited)
Revenues (Notes 7 and 13):
Product and service revenues $265,947 $169,669 $ 93,503 $ 72,485
Contract revenues 16,174 12,360 18,107 14,046
-------- -------- -------- --------
282,121 182,029 111,610 86,531
-------- -------- -------- --------
Costs and Operating Expenses:
Cost of product and service
revenues 168,469 101,967 50,809 39,426
Cost of contract revenues 11,667 10,278 14,750 11,803
Selling, general, and admin-
istrative expenses (Note 7) 69,043 41,283 27,318 21,145
Research and development
expenses 32,067 24,986 17,964 13,430
Write-off of acquired
technology (Note 3) 1,400 - - -
Costs associated with
divisional restructuring
(Note 11) - - 968 968
-------- -------- -------- --------
282,646 178,514 111,809 86,772
-------- -------- -------- --------
Operating Income (Loss) (525) 3,515 (199) (241)
Interest Income 4,752 5,977 4,226 3,223
Interest Expense (includes
$197 in 1997 and $464 in
1996 to parent company) (835) (464) (6) (6)
Gain on Issuance of Stock by
Subsidiaries (Note 10) 7,926 39,149 34,721 34,721
Gain on Sale of Investments - 115 153 194
Equity in Losses of Joint
Ventures (Note 3) (700) - - -
-------- -------- -------- --------
Income Before Provision for
Income Taxes and Minority
Interest 10,618 48,292 38,895 37,891
Provision for Income Taxes
(Note 6) 3,474 5,341 2,802 2,115
Minority Interest (Income)
Expense (1,297) 376 (565) (565)
-------- -------- -------- --------
Net Income $ 8,441 $ 42,575 $ 36,658 $ 36,341
======== ======== ======== ========
Earnings per Share $ .44 $ 2.16 $ 1.94 $ 1.92
======== ======== ======== ========
Weighted Average Shares 19,210 19,669 18,913 18,938
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Balance Sheet
Sept. 27, Sept. 28,
(In thousands) 1997 1996
--------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $135,720 $ 43,940
Available-for-sale investments, at
quoted market value (amortized cost
of $17,520 and $51,774; Note 2) 17,499 51,701
Accounts receivable, less allowances
of $1,969 and $1,586 58,632 36,615
Unbilled contract costs and fees 4,651 2,933
Inventories 48,204 37,303
Prepaid expenses 3,422 2,157
Prepaid income taxes (Note 6) 11,877 9,685
-------- --------
280,005 184,334
-------- --------
Property, Plant, and Equipment, at
Cost, Net 52,389 31,504
-------- --------
Notes Receivable from Related Party
(Note 7) 3,300 3,300
-------- --------
Prepaid Income Taxes and Other Assets
(Note 6) 13,831 4,680
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 100,592 96,404
-------- --------
$450,117 $320,222
======== ========
3PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Balance Sheet (continued)
Sept. 27, Sept. 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Note payable to parent company (Note 7) $ 11,000 $ 2,000
Accounts payable 21,373 19,569
Accrued payroll and employee benefits 8,863 7,228
Accrued warranty costs 6,299 5,379
Customer deposits 3,795 3,582
Accrued commissions 3,922 2,049
Other accrued expenses (Note 3) 20,450 15,395
Due to parent company and affiliated
companies 2,027 1,269
-------- --------
77,729 56,471
-------- --------
4 3/8% Subordinated Convertible Debentures
(Note 8) 115,000 -
-------- --------
Deferred Lease Liability 1,379 494
-------- --------
Common Stock of Subsidiary Subject to
Redemption (Note 1) 40,500 -
-------- --------
Minority Interest 39,374 58,178
-------- --------
Commitments and Contingencies
(Notes 3, 7, 9, and 15)
Shareholders' Investment (Notes 4 and 5):
Common stock, $.01 par value, 50,000,000
shares authorized; 19,251,769 and
19,190,107 shares issued 193 192
Capital in excess of par value 78,601 116,753
Retained earnings 97,597 89,156
Treasury stock at cost, 8,747 and 25,508
shares (243) (975)
Net unrealized loss on available-for-sale
investments (Note 2) (13) (47)
-------- --------
176,135 205,079
-------- --------
$450,117 $320,222
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows
Nine Months
Year Ended Ended
------------------------------ -----------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
(In thousands) 1997 1996 1995 1995
-------------------------------------------------------------------------
(Unaudited)
Operating Activities:
Net income $ 8,441 $ 42,575 $ 36,658 $ 36,341
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 9,280 4,902 2,983 2,288
Provision for losses
on accounts
receivable 279 336 185 178
Write-off of acquired
technology (Note 3) 1,400 - - -
Costs associated
with divisional
restructuring
(Note 11) - - 968 968
Gain on issuance of
stock by subsidiaries
(Note 10) (7,926) (39,149) (34,721) (34,721)
Gain on sale of
investments - (115) (153) (194)
Minority interest
(income) expense (1,297) 376 (565) (565)
Increase in long-term
prepaid income taxes (4,308) - - -
Other (Note 3) 1,624 494 162 162
Changes in current
accounts, excluding
the effects of
acquisitions:
Accounts receivable (19,694) (2,790) (8,598) (6,745)
Inventories and
unbilled contract
costs and fees (11,290) (1,176) (3,721) (1,456)
Other current
assets (3,311) (2,734) 1,061 (454)
Accounts payable 1,522 1,254 6,454 3,523
Other current
liabilities 11,208 1,688 2,620 2,767
-------- -------- -------- --------
Net cash provided by
(used in) operating
activities $(14,072) $ 5,661 $ 3,333 $ 2,092
-------- -------- -------- --------
5PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended
---------------------------------- -----------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
(In thousands) 1997 1996 1995 1995
------------------------------------------------------------------------
(Unaudited)
Investing Activities:
Acquisitions, net of
cash acquired (Note 3) $(10,712) $(36,888) $(42,199) $(42,002)
Proceeds from sale of
businesses to related
parties (Note 7) - 860 - -
Purchases of available-
for-sale investments (10,400) (52,000) (50,061) (49,793)
Proceeds from sale and
maturities of
available-for-sale
investments 44,000 65,230 34,836 18,462
Purchases of property,
plant, and equipment (26,853) (14,462) (4,684) (2,603)
Payment to dissenting
shareholders in
connection with 1992
Lorad acquisition
(Note 3) - - (2,300) (2,300)
Issuance of notes
receivable to related
party (Note 7) - (1,300) (2,000) (2,000)
Investment in other
assets (Note 1) (1,200) (4,400) - -
Other - 301 32 -
------- -------- -------- --------
Net cash used in
investing activities $(5,165) $(42,659) $(66,376) $(80,236)
------- -------- -------- --------
6PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended
--------------------------------- -----------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
(In thousands) 1997 1996 1995 1995
--------------------------------------------------------------------------
(Unaudited)
Financing Activities:
Net proceeds from
issuance of
subordinated
convertible
debentures (Note 8) $112,551 $ - $ - $ -
Net proceeds from
issuance of Company
and subsidiaries'
common stock and sale
of subsidiary put
options (Notes 5
and 10) 16,370 71,873 56,162 56,108
Net proceeds from
subsidiary stock
exchange offer (Note 1) 502 - - -
Purchases of subsidiary
common stock (26,072) - - -
Proceeds from issuance
of notes payable to
parent company (Note 7) 11,000 2,000 8,000 8,000
Repayment of notes
payable to parent
company (Note 7) (2,000) (8,000) - -
Payment of withholding
taxes related to stock
option exercises (1,334) (6,447) (2,180) (1,755)
-------- -------- -------- --------
Net cash provided by
financing activities 111,017 59,426 61,982 62,353
-------- -------- -------- --------
Increase (Decrease) in
Cash and Cash
Equivalents 91,780 22,428 (1,061) (15,791)
Cash and Cash Equivalents
at Beginning of Period 43,940 21,512 22,573 37,303
-------- -------- -------- --------
Cash and Cash Equivalents
at End of Period $135,720 $ 43,940 $ 21,512 $ 21,512
======== ======== ======== ========
Cash Paid For:
Interest $ 197 $ 464 $ 6 $ 6
Income taxes $ 6,622 $ 3,106 $ 2,292 $ 2,058
7PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Nine Months
Year Ended Ended
--------------------------------- -----------
Sept. 27, Sept. 28, Sept. 30, Sept. 30,
(In thousands) 1997 1996 1995 1995
--------------------------------------------------------------------------
(Unaudited)
Noncash Activities:
Fair value of assets of
acquired companies $ 14,677 $ 53,519 $ 50,419 $ 49,940
Cash paid for acquired
companies (11,150) (38,178) (42,199) (42,002)
-------- -------- -------- --------
Liabilities assumed of
acquired companies $ 3,527 $ 15,341 $ 8,220 $ 7,938
======== ======== ======== ========
Exchange of subsidiary
common stock for common
stock of subsidiary
subject to redemption
(Note 1) $ 40,500 $ - $ - $ -
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
8PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
Nine Months
Year Ended Ended
-------------------- -----------
Sept. 27, Sept. 28, Sept. 30,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of period $ 192 $ 191 $ 189
Issuance of stock under employees'
and directors' stock plans 1 1 2
-------- -------- -------
Balance at end of period 193 192 191
-------- -------- -------
Capital in Excess of Par Value
Balance at beginning of period 116,753 116,837 113,911
Activity under employees' and
directors' stock plans (103) (424) 1,188
Tax benefit related to employees'
and directors' stock plans 3,017 2,494 2,217
Effect of majority-owned subsidiaries'
equity transactions (Note 1) (41,066) (2,154) (479)
-------- -------- --------
Balance at end of period 78,601 116,753 116,837
-------- -------- --------
Retained Earnings
Balance at beginning of period 89,156 46,581 10,240
Net income 8,441 42,575 36,341
-------- -------- --------
Balance at end of period 97,597 89,156 46,581
-------- -------- --------
Treasury Stock
Balance at beginning of period (975) (1,206) (678)
Activity under employees' and
directors' stock plans 732 231 (528)
-------- -------- --------
Balance at end of period (243) (975) (1,206)
-------- -------- --------
Net Unrealized Loss on Available-for-Sale
Investments
Balance at beginning of period (47) (15) (391)
Change in net unrealized loss on
available-for-sale investments 34 (32) 376
-------- -------- --------
Balance at end of period (13) (47) (15)
-------- -------- --------
Total Shareholders' Investment $176,135 $205,079 $162,388
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
9PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
ThermoTrex Corporation (the Company) develops and markets medical
products and personal-care products and services, and also performs
advanced technology research. The Company's 79%-owned Trex Medical
Corporation (Trex Medical) subsidiary designs, manufactures, and markets
mammography equipment and minimally invasive digital breast-biopsy
systems used for the detection of breast cancer, general-purpose X-ray
equipment, and specialized X-ray equipment, including imaging systems
used during diagnostic and interventional vascular and cardiac procedures
such as balloon angioplasty. The Company's 67%-owned ThermoLase
Corporation (ThermoLase) subsidiary has developed a laser-based system
called SoftLight(SM) for the removal of unwanted hair, and also markets
skin-care, bath, and body products through its wholly owned CBI
Laboratories, Inc. (CBI) subsidiary. ThermoTrex's 78%-owned Trex
Communications Corporation (Trex Communications) subsidiary has developed
a laser communications technology and, through its Computer
Communications Specialists, Inc. (CCS) subsidiary, designs and markets
interactive information and voice-response systems, as well as call-
automation systems. In addition, the Company performs advanced technology
research primarily in the areas of avionics, X-ray detection, signal
processing, and lasers. The Company has developed its expertise in these
core technologies in connection with government-sponsored research and
development.
Relationship with Thermo Electron Corporation
The Company was incorporated in January 1991 as a wholly owned
subsidiary of Thermo Electron Corporation (Thermo Electron). As of
September 27, 1997, Thermo Electron owned 10,149,556 shares of the
Company's common stock, representing 53% of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company, its wholly owned subsidiary, its majority-owned, privately held
Trex Communications subsidiary, and its publicly held ThermoLase and Trex
Medical subsidiaries. All material intercompany accounts and transactions
have been eliminated.
Fiscal Year
In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's transition period, which ended on September
30, 1995, was the 39-week period from January 1, 1995, to September 30,
1995, referenced as fiscal 1995. References to fiscal 1997 and fiscal
1996 are for the years ended September 27, 1997, and September 28, 1996,
respectively. Fiscal 1997 and fiscal 1996 each included 52 weeks. The
unaudited consolidated statements of income and cash flows for the
52-week period ended September 30, 1995, are presented for comparative
purposes only.
10PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Revenue Recognition
The Company recognizes product revenues upon shipment of its
products. The Company provides a reserve for its estimate of warranty
costs at the time of shipment. ThermoLase offers a variety of treatment
plans for its spa-based hair-removal services which include one-time
services and multiple treatment plans that provide for varying numbers of
treatments or treatment periods. ThermoLase recognizes revenue from the
one-time treatment plan upon performance of the related service. Revenues
from multiple treatment plans are recognized over the anticipated
treatment period, which, in fiscal 1997 and 1996, was six months based
upon the average service pattern for customers treated during those
years. ThermoLase earns an initial technology licensing fee and ongoing
royalties from licensing its SoftLight technology to a network of
independent physicians. Initial nonrefundable technology license fees are
recorded as revenue at the time the technology is transferred to the
practitioner. Fees arising from hair-removal procedures performed by
these physicians are recognized when such procedures are performed.
ThermoLase earns nonrefundable initial and ongoing technology licensing
fees from its international arrangements. Initial nonrefundable
technology license fees are recorded as revenue at the time the
technology is transferred. Ongoing licensing fees are recorded when
earned in accordance with contractual terms. The accompanying statement
of income includes international licensing fees of $4,195,000 and
$2,000,000 in fiscal 1997 and fiscal 1996, respectively.
The Company recognizes contract revenues and profits using the
percentage-of-completion method. The percentage of completion is
determined by relating the actual costs incurred to date to management's
estimate of total costs to be incurred on each contract. If a loss is
indicated on any contract in process, a provision is made currently for
the entire loss. The Company's contracts are generally cost-plus-fixed-
fee, and customers are billed monthly as costs are incurred. Revenues
earned on contracts in process in excess of billings are classified as
"Unbilled contract costs and fees" in the accompanying balance sheet.
There are no significant amounts included in the accompanying balance
sheet that are not expected to be recovered from existing contracts at
current contract values, or that are not expected to be collected within
one year.
Research and Development Expenses
Costs classified as research and development expenses in the
accompanying statement of income are costs incurred in connection with
internally funded programs, including independent research and
development as defined by U.S. government procurement regulations.
Included in cost of contract revenues in the accompanying statement of
income are research and development costs incurred under U.S. government-
funded contracts.
11PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Gain on Issuance of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a
price in excess of its book value, the Company's net investment in that
subsidiary increases. If at that time the subsidiary is an operating
entity and not engaged principally in research and development, the
Company records the increase as a gain. See Note 10 for a description of
gains recorded.
If gains have been recognized on the issuance of a subsidiary's stock
and shares of the subsidiary are subsequently repurchased either by the
subsidiary, the Company, or Thermo Electron, gain recognition does not
occur on issuances subsequent to the date of a repurchase until such time
as shares have been issued in an amount equivalent to the number of
repurchased shares.
Concentration of Credit Risk
Trex Medical sells its products primarily to customers in the
healthcare industry. Trex Medical does not normally require collateral or
other security to support its accounts receivable. Management does not
believe that this concentration of credit risk has, or will have, a
significant negative impact on the Company.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its stock-based compensation plans (Note 5).
Accordingly, no accounting recognition is given to stock options granted
at fair market value until they are exercised. Upon exercise, net
proceeds, including tax benefits realized, are credited to equity.
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Earnings per Share
Earnings per share have been computed based on the weighted average
number of shares outstanding during the period. In fiscal 1996, weighted
average shares included the effect of the assumed exercise of stock
options that were computed using the treasury stock method. During fiscal
1997 and 1995, the effect of the assumed exercise of stock options was
not material.
12PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
As of September 27, 1997, $91,164,000 of the Company's cash
equivalents were invested in a repurchase agreement with Thermo Electron.
Under this agreement, the Company in effect lends excess cash to Thermo
Electron, which Thermo Electron collateralizes with investments
principally consisting of U.S. government-agency securities, corporate
notes, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. In addition, cash
equivalents as of September 27, 1997, include government-agency
securities purchased with an original maturity of three months or less.
These investments are carried at cost, which approximates market value.
Available-for-sale Investments
Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company's debt and marketable equity
securities are accounted for at market value (Note 2).
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1997 1996
------------------------------------------------------------------------
Raw materials and supplies $27,860 $22,046
Work in process 13,474 9,731
Finished goods 6,870 5,526
------- -------
$48,204 $37,303
======= =======
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization principally using the
straight-line method over the estimated useful lives of the property as
follows: buildings - 29 to 31.5 years, machinery and equipment - 3 to 10
years, and leasehold improvements - the shorter of the term of the lease
or the life of the asset.
13PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, plant, and equipment consists of the following:
(In thousands) 1997 1996
------------------------------------------------------------------------
Land and building $ 5,014 $ 4,982
Machinery and equipment 40,806 24,918
Leasehold improvements 21,992 9,040
Construction in process 145 1,595
------- -------
67,957 40,535
Less: Accumulated depreciation and amortization 15,568 9,031
------- -------
$52,389 $31,504
======= =======
Other Assets
In June 1996, ThermoLase purchased $4,400,000 of convertible
preferred stock of AntiCancer Incorporated (AntiCancer), representing an
approximate 10% equity interest in AntiCancer on a fully diluted basis.
AntiCancer is a San Diego-based company that is developing a new
chemotherapeutic drug for cancer patients, and that is also developing
certain technologies that may be relevant to ThermoLase's SoftLight
hair-removal process and other personal-care applications. ThermoLase has
the option to purchase for $2,500,000 an additional 5% equity interest in
AntiCancer on a fully diluted basis, exercisable at any time before the
earlier of June 19, 2011, or AntiCancer's initial public offering of
stock. This investment is being accounted for under the cost method of
accounting. In addition, ThermoLase has licensed certain technology from
AntiCancer (Note 9).
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method principally over
40 years. Accumulated amortization was $8,167,000 and $5,434,000 at
year-end 1997 and 1996, respectively. The Company assesses the future
useful life of this asset whenever events or changes in circumstances
indicate that the current useful life has diminished. The Company
considers the future undiscounted cash flows of the acquired businesses
in assessing the recoverability of this asset. If impairment has
occurred, any excess of carrying value over fair value is recorded as a
loss.
Deferred Lease Liability
Deferred lease liability in the accompanying balance sheet represents
facilities rent that is being recognized ratably over the respective
lease terms.
14PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Common Stock of Subsidiary Subject to Redemption
On April 2, 1997, ThermoLase completed an exchange offer whereby its
shareholders had the opportunity to exchange one share of existing
ThermoLase common stock and $3.00 (in cash or ThermoLase common stock)
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. In connection with this offer, ThermoLase
issued in April 1997, 2,000,000 units in exchange for 2,261,706 shares of
its common stock and $502,000 in cash, net of expenses. As a result of
these transactions, $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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Presentation
Certain amounts in fiscal 1996 have been reclassified to conform to
the presentation in the fiscal 1997 financial statements.
2. Available-for-sale Investments
The Company's debt and marketable equity securities are considered
available-for-sale investments in the accompanying balance sheet and are
carried at market value, with the difference between cost and market
value, net of related tax effects, recorded currently as a component of
shareholders' investment titled "Net unrealized loss on available-for-
sale investments."
Available-for-sale investments in the accompanying balance sheet
represents investments in government-agency securities. The difference
between the market value and the cost basis of available-for-sale
investments was $21,000 and $73,000 at fiscal year-end 1997 and 1996,
respectively, which represent gross unrealized losses on those
investments.
15PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
Available-for-sale investments in the accompanying 1997 balance sheet
include $6,999,000 with contractual maturities of one year or less and
$10,500,000 with contractual maturities of more than one year through
five years. Actual maturities may differ from contractual maturities as a
result of the Company's intent to sell these securities prior to maturity
and as a result of put and call options that enable the Company, the
issuer, or both to redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based
on specific identification in determining realized gains and losses
recorded in the accompanying statement of income. Gain on sale of
investments in the accompanying statement of income for fiscal 1996 and
1995 represents the gross realized gains relating to the sale of
available-for-sale investments.
3. Acquisitions and Joint Ventures
Acquisitions
In July 1997, Trex Communications acquired all of the outstanding
common stock of CCS for approximately $10.1 million in cash and repaid
approximately $1.0 million of pre-acquisition liabilities immediately
after closing. CCS develops and markets interactive information and
voice-response systems, as well as call-automation systems. The acquired
assets of CCS included certain technologies for which technological
feasibility had not been established at the acquisition date and that had
no alternative future use. In connection with the acquisition, Trex
Communications wrote off such technology in the amount of $1.4 million,
which represents the portion of the purchase price allocated to the fair
value of technology in development at the acquired business.
In September 1996, Trex Medical acquired substantially all of the
assets and liabilities of Continental X-Ray Corporation and affiliates
(Continental) for approximately $18.4 million in cash, net of cash
acquired and including the repayment of debt. Continental designs,
manufactures, and markets general-purpose and specialized X-ray systems.
In May 1996, Trex Medical acquired substantially all of the assets
and liabilities of XRE Corporation (XRE) for $18.5 million in cash, net
of cash acquired and including the repayment of debt. XRE designs,
manufactures, and markets X-ray imaging systems used in the diagnosis and
treatment of coronary artery disease and other vascular conditions.
In September 1995, the Company acquired all of the outstanding
capital stock of Bennett X-Ray Corporation (Bennett) for approximately
$42.9 million in cash. In conjunction with the capitalization of Trex
Medical, the Company transferred to Trex Medical all of the outstanding
stock of Bennett in October 1995. Bennett manufactures high-frequency
specialty and general-purpose X-ray systems.
16PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Joint Ventures (continued)
These acquisitions have been accounted for using the purchase method
of accounting, and their results of operations have been included in the
accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the
estimated fair value of the acquired net assets by $70.9 million, which
is being amortized principally over 40 years. Allocation of the purchase
price for these acquisitions was based on estimates of the fair value of
the net assets acquired and, for CCS, is subject to adjustment upon
finalization of the purchase price allocation. To date, no information
has been gathered that would cause the Company to believe that the final
allocation of the purchase price will be materially different from the
preliminary estimate.
Based on unaudited data, the following table presents selected
financial information for the Company and Bennett on a pro forma basis,
assuming that Bennett had been purchased at the beginning of 1995. The
effect of acquisitions not included in the pro forma data was not
material to the Company's results of operations.
Nine
(In thousands except Months Ended
per share amounts) Sept. 30, 1995
-------------------------------------------------------------------------
Revenues $117,332
Net income 35,790
Earnings per share 1.89
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Bennett been made at the beginning of 1995.
In November 1992, the Company acquired Lorad for $5.3 million in
cash, assumption of $6.7 million of pre-existing debt of Lorad, and
shares of the Company's common stock and stock options valued at $12.3
million. In addition, in March 1995, the Company made a cash payment of
$2.3 million to the holders of approximately 9.2% of Lorad's common stock
who had earlier voted against the acquisition, in exchange for their
interest in Lorad.
Other accrued expenses in the accompanying balance sheet include $2.5
million at September 27, 1997, and $3.5 million at September 28, 1996,
for estimated reserves associated with acquisitions, including a reserve
of approximately $2 million for legal fees and other costs associated
with a patent infringement suit that existed prior to the Company's
acquisition of Lorad. This suit was brought by Fischer Imaging
Corporation (Fischer), alleging that Lorad infringes on a Fischer patent
on a precision mammographic needle-biopsy system. While the Company
believes it has meritorious legal defenses to the allegation, due to the
inherent uncertainties of litigation, the Company is unable to predict
the outcome of this matter. Although an unsuccessful resolution could
have a material adverse effect on the Company's results of operations,
management does not believe that it is reasonably likely that any
resolution would have a material adverse effect on the Company's
financial position.
17PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions and Joint Ventures (continued)
Joint Ventures
ThermoLase has entered into three joint venture arrangements to
market its SoftLight system internationally. ThermoLase currently holds a
50% stake in each joint venture, but may increase its ownership to above
50% pursuant to fair-value purchase options included in each agreement.
Certain of the joint venture agreements provide that ThermoLase's joint
venture partners may, under certain conditions, elect to sell all or part
of their ownership interest back to ThermoLase at the fair value of such
interest at the time the election is made. ThermoLase and its joint
venture partners have committed to provide equity contributions or loans
to fund the operating needs of the joint ventures. ThermoLase's share of
such funding commitments totals approximately $8,200,000, of which it
funded $1,144,000 in fiscal 1997 and $1,667,000 in October 1997. The
accompanying fiscal 1997 statement of income includes $700,000 of equity
in losses of joint ventures, reflecting ThermoLase's share of losses from
joint venture operations.
4. Common Stock
As of September 27, 1997, the Company had reserved 1,922,529 unissued
shares of its common stock for possible issuance under stock-based
compensation plans.
5. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1990, permit the
grant of nonqualified and incentive stock options. The option recipients
and the terms of options granted under these plans are determined by the
human resources committee of the Company's Board of Directors (the Board
Committee). Generally, options granted to date are exercisable
immediately, but are subject to certain transfer restrictions and the
right of the Company to repurchase shares issued upon exercise of the
options at the exercise price, upon certain events. The restrictions and
repurchase rights generally lapse ratably over periods ranging from five
to ten years after the first anniversary of the grant date, depending on
the term of the option, which may range from seven to twelve years.
Nonqualified stock options may be granted at any price determined by the
Board Committee, although incentive stock options must be granted at not
less than the fair market value of the Company's stock on the date of
grant. To date, with the exception of the options granted in connection
with the acquisition of Lorad (Note 3), all options have been granted at
fair market value. The Company also has a directors' stock option plan,
adopted in 1991 and amended in fiscal 1995, that provides for the grant
of stock options to nonemployee directors pursuant to a formula approved
18PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
by the Company's shareholders. Options awarded under this plan are
exercisable six months after the date of grant and expire three or seven
years after the date of grant. In addition to the Company's stock-based
compensation plans, certain officers and key employees may also
participate in stock-based compensation plans of Thermo Electron.
A summary of the Company's stock option information is as follows:
1997 1996 1995
---------------- ---------------- ----------------
Weighted Weighted Range of
Number Average Number Average Number Option
(Shares in of Exercise of Exercise of Prices
thousands) Shares Price Shares Price Shares per Share
------------------------------------------------------------------------
Options outstanding,
beginning of $ 4.45-
period 1,412 $15.21 1,470 $12.37 1,526 $15.62
21.25-
Granted 81 26.83 114 41.60 180 35.65
4.45-
Exercised (77) 5.98 (172) 8.41 (190) 15.45
4.45-
Forfeited (48) 29.43 - - (46) 15.45
----- ----- -----
Options outstanding, $ 4.45-
end of period 1,368 $15.93 1,412 $15.21 1,470 $35.65
===== ====== ===== ====== ===== =======
$ 4.45-
Options exercisable 1,368 $15.93 1,412 $15.21 1,470 $35.65
===== ====== ===== ====== ===== =======
Options available
for grant 485 518 131
===== ===== =====
Weighted average fair
value per share of
options granted
during period $12.17 $16.59
====== ======
19PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at
September 27, 1997, is as follows:
Options Outstanding and Exercisable
-----------------------------------
Weighted
Average Weighted
Number Remaining Average
of Contractual Exercise
Range of Exercise Prices Shares Life Price
-----------------------------------------------------------------------
(Shares in thousands)
$ 0.30 - $11.19 495 0.9 years $ 6.97
11.20 - 22.09 633 6.3 years 15.99
22.10 - 32.98 104 9.9 years 26.03
32.99 - 43.88 136 5.7 years 40.55
-----
$ 0.30 - $43.88 1,368 4.6 years $15.93
=====
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time employees are eligible
to participate in the Company's employee stock purchase program. Under
this program, shares of the Company's and Thermo Electron's common stock
can be purchased at the end of a 12-month plan year at 95% of the fair
market value at the beginning of the period, and the shares purchased are
subject to a six-month resale restriction. Prior to November 1, 1995, the
applicable shares of common stock could be purchased at 85% of the fair
market value at the beginning of the period, and the shares purchased
were subject to a one-year resale restriction. Shares are purchased
through payroll deductions of up to 10% of each participating employee's
gross wages. During fiscal 1997 and 1996, the Company issued 17,068
shares and 25,792 shares of its common stock, respectively, under this
plan. No shares were issued under this program during fiscal 1995.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in fiscal 1997 and 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
20PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Net income:
As reported $ 8,441 $42,575
Pro forma 7,346 42,046
Earnings per share:
As reported .44 2.16
Pro forma .38 2.14
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Compensation expense for options granted is
reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1997 1996
-----------------------------------------------------------------------
Volatility 37% 37%
Risk-free interest rate 6.1% 6.1%
Expected life of options 5.8 years 4.7 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
401(k) Savings Plan
The majority of the Company's full-time employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to
the 401(k) savings plan are made by both the employee and the Company.
Company contributions are based upon the level of employee contributions.
For these plans, the Company contributed and charged to expense
$1,558,000, $1,166,000, and $653,000 in fiscal 1997, 1996, and 1995,
respectively.
21PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $ 8,146 $ 4,535 $ 1,517
State 2,861 2,043 750
------- ------- -------
11,007 6,578 2,267
------- ------- -------
Prepaid:
Federal (7,333) (1,178) (123)
State (200) (59) (29)
------- ------- -------
(7,533) (1,237) (152)
------- ------- -------
$ 3,474 $ 5,341 $ 2,115
======= ======= =======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's common stock on the date of
exercise. The provision for income taxes that is currently payable does
not reflect $3,999,000, $2,680,000, and $2,217,000 of such benefits of
the Company and its majority-owned subsidiaries from employee exercises
of stock options that have been allocated to capital in excess of par
value, directly or through the effect of majority-owned subsidiaries'
equity transactions in fiscal 1997, 1996, and 1995, respectively.
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 35% in fiscal 1997 and 1996 and 34% in fiscal
1995 to income before provision for income taxes and minority interest
due to the following:
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Provision for income taxes at statutory
rate $ 3,716 $ 16,902 $ 12,883
Increases (decreases) resulting from:
Gain on issuance of stock by subsidiaries (2,774) (13,702) (11,805)
State income taxes, net of federal tax 1,730 1,288 476
Amortization of cost in excess of net
assets of acquired companies 730 680 495
Write-off of acquired technology (Note 3) 490 - -
Other (418) 173 66
------- -------- --------
$ 3,474 $ 5,341 $ 2,115
======= ======== ========
22PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
Prepaid income taxes in the accompanying balance sheet consist of the
following:
(In thousands) 1997 1996
-------------------------------------------------------------
Prepaid income taxes:
Inventory basis differences $ 4,841 $ 2,827
Accruals and other reserves 3,939 3,750
Net operating loss 8,232 2,226
Accrued compensation 1,920 1,711
Allowance for doubtful accounts 924 723
Other, net 31 111
------- -------
19,887 11,348
Less: Valuation allowance 1,820 1,663
------- -------
$18,067 $ 9,685
======= =======
The valuation allowance relates primarily to employee exercises of
stock options for which no tax benefit was recognized, and will be used
to increase capital in excess of par value when the tax benefit is
realized. As of September 27, 1997, ThermoLase had federal tax net
operating loss carryforwards of approximately $24,000,000 that begin to
expire in fiscal 2009.
The Company has not recognized a deferred tax liability for the
difference between the book basis and tax basis of the common stock of
its domestic subsidiaries (such difference relates primarily to
unremitted earnings and gains on issuance of stock by subsidiaries)
because the Company does not expect this basis difference to become
subject to tax at the parent level. The Company believes it can implement
certain tax strategies to recover its investment in its domestic
subsidiaries tax-free.
7. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. The Company
paid an annual fee equal to 1.20% of the Company's revenues in calendar
year 1995. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. For these services, the Company was charged
$2,821,000, $1,906,000, and $1,038,000 in fiscal 1997, 1996, and 1995,
respectively. Management believes that the service fee charged by Thermo
23PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Related-party Transactions (continued)
Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. The
corporate services agreement is renewed annually but can be terminated
upon 30 days' prior notice by the Company or upon the Company's
withdrawal from the Thermo Electron Corporate Charter (the Thermo
Electron Corporate Charter defines the relationships among Thermo
Electron and its majority-owned subsidiaries). For additional items such
as employee benefit plans, insurance coverage, and other identifiable
costs, Thermo Electron charges the Company based upon costs attributable
to the Company.
Other Related-party Services
Data processing services and, from January 1995 through September
1996, contract administration, are provided to the Company by a
majority-owned subsidiary of Thermo Electron and are charged to the
Company based on actual usage. For these services, the Company was
charged $20,000, $90,000, and $139,000 in fiscal 1997, 1996, and 1995,
respectively.
Operating Leases
Until June 1996, the Company leased two office and research
facilities from Thermo Electron. In connection with the Company's
decision to close its Massachusetts division (Note 11), the Company
agreed to vacate these facilities during fiscal 1996. In addition, Trex
Medical leases an office and manufacturing facility from a realty trust
controlled by an employee under a noncancellable operating lease
arrangement expiring in fiscal 2012. The accompanying statement of income
includes expenses from these operating leases of $982,000, $375,000, and
$123,000 in fiscal 1997, 1996, and 1995, respectively. Future minimum
payments due under this noncancellable operating lease as of
September 27, 1997, are $982,000 per year in fiscal 1998, 1999, 2000,
2001, and 2002, and $9,497,000 in fiscal 2003 and thereafter. Total
future minimum lease payments are $14,407,000.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Notes Receivable from Related Party
During fiscal 1995 and fiscal 1996, the Company loaned $2,000,000 and
$1,300,000, respectively, to Dolphin Acquisition Corporation (Dolphin).
Borrowings bear interest at an annual rate of 6.0% and are due in June
2000. Dolphin operates a retail chain of beauty product stores in
California and other states within the United States. The president of
ThermoLase is a shareholder and former officer of Dolphin.
Notes Payable to Parent Company
In September 1995, the Company borrowed $8,000,000 from Thermo
Electron pursuant to a promissory note due September 1996. In September
1996, the Company repaid such amount and borrowed an additional
24PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Related-party Transactions (continued)
$2,000,000 from Thermo Electron pursuant to a separate promissory note,
which was repaid in April 1997. In addition, to finance the acquisition
of CCS, Trex Communications borrowed $11,000,000 from Thermo Electron in
July 1997 pursuant to a promissory note that the Company expects to repay
in fiscal 1998 with the proceeds of its issuance of subordinated
convertible debentures (Note 15). Each borrowing from Thermo Electron
bears interest at the 90-day Commercial Paper Composite Rate plus 25
basis points, set at the beginning of each quarter.
Related-party Revenues
Under an arrangement with Thermedics Detection Inc., a majority-owned
subsidiary of Thermo Electron, Trex Medical manufactures an X-ray source,
pursuant to written purchase orders, that is used as a component in a
fill-measuring device produced by Thermedics Detection. During fiscal
1997, 1996, and 1995, Trex Medical recorded $37,000, $361,000, and
$120,000, respectively, of revenue under this arrangement.
Vendor Agreement
During 1995, Trex Medical placed an order for $2,500,000 for the
design and production of high-transmission cellular grids from Thermo
Electron's Tecomet division (Tecomet), which are expected to be received
through fiscal 1999. During fiscal 1997 and 1996, the Company purchased
grids valued at $678,000 and $397,000 from Tecomet under this
arrangement. In addition, Trex Medical recorded expense of $250,000
during fiscal 1995 related to research and development funding provided
to Tecomet in connection with this project.
Sale of Thermoelectric and Thermionics Businesses
During fiscal 1996, the Company sold its thermoelectrics and
thermionics businesses to two subsidiaries of Thermo Electron. The
selling price for these companies of approximately $860,000 was based on
the net book value of the net assets transferred. These businesses were
not material to the Company's results of operations.
8. Subordinated Convertible Debentures
In August 1997, ThermoLase issued and sold at par value $115,000,000
principal amount of 4 3/8% subordinated convertible debentures due 2004.
The debentures are convertible into shares of ThermoLase's common stock
at a conversion price of $17.385 per share and are guaranteed on a
subordinated basis by Thermo Electron. The Company has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to
make a payment under the guarantee.
See Note 12 for fair value information pertaining to these
debentures.
25PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Commitments and Contingencies
Operating Leases
In addition to the leases described in Note 7, the Company occupies
office, research, manufacturing, and service facilities under various
noncancellable operating lease arrangements that expire at various dates
through 2013. The accompanying statement of income includes expenses from
these operating leases of $6,288,000, $2,253,000, and $794,000, in fiscal
1997, 1996, and 1995, respectively. Future minimum payments due under
these noncancellable operating leases as of September 27, 1997, are
$6,325,000 in fiscal 1998; $6,328,000 in fiscal 1999; $6,443,000 in
fiscal 2000; $6,465,000 in fiscal 2001; $6,396,000 in fiscal 2002; and
$28,893,000 in fiscal 2003 and thereafter. Total future minimum lease
payments are $60,850,000.
Technology License Agreement
In June 1996, ThermoLase purchased an approximate 10% equity interest
in AntiCancer (Note 1). In addition, ThermoLase has licensed from
AntiCancer certain technology related to hair removal, stimulation of
hair growth, suppression of hair growth, and hair coloring under an
agreement that calls for up to $1,500,000 in future payments by
ThermoLase upon the attainment of certain milestones by AntiCancer. In
addition to such future payments, ThermoLase will be substantially
responsible for development costs incurred after attainment of such
milestones. In the event that the funded development efforts result in
commercially viable products that ThermoLase elects to market, ThermoLase
will pay AntiCancer a royalty based on sales, subject to certain minimum
payments.
Contingencies
ThermoLase has from time to time received allegations that its
patented SoftLight laser-based system for the removal of unwanted hair
infringes the intellectual property rights of others, and ThermoLase may
continue to receive such allegations in the future. In general, an owner
of intellectual property can prevent others from using such property and
is entitled to damages for unauthorized past usage. The Company has
investigated the bases of the allegations ThermoLase has received to date
and, based on opinions of its counsel, believes that if ThermoLase were
sued on these bases it would have meritorious defenses.
The Company is aware of two U.S. patents owned by a former employee
which have been asserted against Trex Medical relating to its
High-Transmission Cellular (HTC)(TM) grid used with Trex Medical's
mammography systems. Although the Company believes that the HTC grid does
not infringe either of these patents, if the holder of the patents were
successful in enforcing such patents, the Company could be subject to
damages and enjoined from manufacturing and selling the HTC grid.
See Note 3 for a discussion of certain litigation.
26PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Commitments and Contingencies (continued)
Due to the inherent uncertainty of dispute resolution, management
cannot predict the outcome of the above matters. While an unfavorable
outcome of one or both of these matters could have a material adverse
effect on the Company's results of operations, management does not
believe that it is reasonably likely that any resolution would have a
material adverse effect on the Company's financial position.
10. Transactions in Stock of Subsidiaries
In September 1997, Trex Communications sold 1,133,000 shares of its
common stock in a private placement at $10.00 per share for net proceeds
of $10,550,000, resulting in a gain of $5,929,000.
In December 1996, Trex Medical sold 300,000 shares of its common
stock at $14.50 per share for net proceeds of $4,119,000, resulting in a
gain of $1,997,000.
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
$49,068,000, resulting in a gain of $25,645,000.
In January 1996, Trex Medical sold 100,000 shares of its common stock
at $10.75 per share for net proceeds of $1,070,000, resulting in a gain
of $732,000. In November 1995, Trex Medical sold 1,862,000 shares of its
common stock in a private placement at $10.25 per share for net proceeds
of $17,619,000, resulting in gain of $12,772,000.
In June 1995, ThermoLase sold 150,000 shares and 50,000 shares of its
common stock at $13.75 and $12.825 per share, respectively, in private
placements for net proceeds of $2,563,000, resulting in a gain of
$1,661,000. In August 1995, ThermoLase sold 2,250,000 shares of its
common stock at $25.25 per share in a public offering for net proceeds of
$52,772,000, resulting in a gain of $33,060,000.
The Company's percentage ownership of its majority-owned subsidiaries
at fiscal year-end was as follows:
1997 1996 1995
-----------------------------------------------------------------------
ThermoLase 67% 64% 65%
Trex Medical 79% 80% 100%
Trex Communications 78% 100% 100%
11. Costs Associated with Divisional Restructuring
Costs associated with divisional restructuring in the accompanying
fiscal 1995 statement of income result from the decision to close the
Company's division located in Waltham, Massachusetts. The costs primarily
represent the write-off of cost in excess of net assets of acquired
companies and disposal of equipment.
27PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
12. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale investments, accounts receivable,
note payable to parent company, accounts payable, and due to parent
company and affiliated companies. The carrying amounts of the Company's
cash and cash equivalents, accounts receivable, note payable to parent
company, accounts payable, and due to parent company and affiliated
companies approximate fair value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on
quoted market prices. See Note 2 for information pertaining to the fair
value of available-for-sale investments.
The fair value of ThermoLase's subordinated convertible debentures,
based on quoted market prices, was $123,165,000 at September 27, 1997,
and exceeds the carrying amount primarily due to an increase in the
market price of ThermoLase's common stock relative to the conversion
price of the debentures.
13. Segment Data, Significant Customers, and Export Sales
The Company's business segments include the following:
Medical Products manufactured by the Company's Trex Medical
subsidiary, including mammography equipment, minimally
invasive digital breast-biopsy equipment, general X-ray
equipment, and specialized X-ray equipment, including imaging
systems used during diagnostic and interventional vascular and
cardiac procedures such as balloon angioplasty.
Personal-care Products and Services offered by the Company's
ThermoLase subsidiary, including high-quality skin-care and
other personal-care products manufactured by CBI, hair-removal
services performed at ThermoLase's Spa Thira locations, and
the licensing of the SoftLight hair-removal system to
physicians in the U.S. and to international licensees.
Advanced Technology Research performed by Trex Communications
and the Company's wholly owned subsidiary in the fields of
communications, avionics, X-ray detection, signal processing,
and lasers, funded by the U.S. government and other customers.
The Advanced Technology research segment in fiscal 1997 also
includes interactive information and voice-response systems,
as well as call-automation systems, designed and marketed by
Trex Communications' CCS subsidiary, acquired July 1997.
28PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Segment Data, Significant Customers, and Export Sales (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Revenues:
Medical Products $229,294 $150,195 $ 55,291
Personal-care Products and Services 45,233 27,812 17,544
Advanced Technology Research 21,250 14,401 14,841
Intersegment Sales Elimination (13,656) (10,379) (1,145)
-------- -------- --------
$282,121 $182,029 $ 86,531
======== ======== ========
Income before provision for income
taxes and minority interest:
Medical Products $ 24,147 $ 15,342 $ 6,787
Personal-care Products and Services (18,402) (4,979) (2,970)
Advanced Technology Research (a) (1,345) (3,053) (1,676)
Corporate (b) (4,925) (3,795) (2,382)
-------- -------- --------
Total operating income (loss) (525) 3,515 (241)
Interest and other income, net 11,143 44,777 38,132
-------- -------- --------
$ 10,618 $ 48,292 $ 37,891
======== ======== ========
Identifiable assets:
Medical Products $229,437 $200,850 $102,374
Personal-care Products and Services 167,339 91,713 89,292
Advanced Technology Research 34,168 12,004 16,586
Corporate (c) 19,173 15,655 22,529
-------- -------- --------
$450,117 $320,222 $230,781
======== ======== ========
Depreciation and amortization:
Medical Products $ 4,996 $ 3,195 $ 1,311
Personal-care Products and Services 3,628 1,362 640
Advanced Technology Research 656 345 337
-------- -------- --------
$ 9,280 $ 4,902 $ 2,288
======== ======== ========
Capital expenditures:
Medical Products $ 5,461 $ 3,071 $ 957
Personal-care Products and Services 20,285 9,423 1,409
Advanced Technology Research 1,107 1,968 237
-------- -------- --------
$ 26,853 $ 14,462 $ 2,603
======== ======== ========
(a) Reflects the write-off of $1,400,000 of acquired technology
related to the acquisition of CCS (Note 3).
(b) Primarily general and administrative expenses.
(c) Primarily cash, cash equivalents, and available-for-sale investments
at the Company's headquarters.
29PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Segment Data, Significant Customers, and Export Sales (continued)
U.S. government agencies accounted for less than 10% of the Company's
total revenues in fiscal 1997 and 1996, and 17% of the Company's total
revenues in fiscal 1995. In the Medical Products segment, sales to one
customer in fiscal 1997, and to another customer in fiscal 1995,
accounted for 14% and 11%, respectively, of the Company's total revenues
in those periods. No single customer accounted for 10% or more of the
Company's total revenues in fiscal 1996. Export sales, including revenues
earned from ThermoLase's international licensing arrangements, were
$43,208,000, $35,908,000, and $12,374,000 in fiscal 1997, 1996, and 1995,
respectively. In general, export sales are denominated in U.S. dollars.
14. Unaudited Quarterly Information
(In thousands except per share amounts)
1997(a) First Second Third Fourth(b)
----------------------------------------------------------------------
Revenues $62,826 $70,078 $72,931 $76,286
Gross profit 22,773 23,300 26,694 29,218
Net income 2,763 188 285 5,205
Earnings per share .14 .01 .01 .27
1996(c) First Second Third(d) Fourth(e)
----------------------------------------------------------------------
Revenues $43,095 $42,699 $42,772 $53,463
Gross profit 16,763 17,540 17,041 18,440
Net income 14,172 2,103 1,071 25,229
Earnings per share .72 .11 .05 1.32
(a) Results include nontaxable gains of $1,997,000 and $5,929,000 in the
first and fourth quarters, respectively, from the issuance of stock
by subsidiaries.
(b) Reflects the July 1997 acquisition of CCS.
(c) Results include nontaxable gains of $12,772,000, $732,000, and
$25,645,000 in the first, second, and fourth quarters, respectively,
from the issuance of stock by subsidiaries.
(d) Reflects the May 1996 acquisition of XRE.
(e) Reflects the September 1996 acquisition of Continental.
15. Subsequent Event
In November 1997, the Company sold at par value $124,500,000
principal amount of 3 1/4% subordinated convertible debentures due 2007,
including $10,000,000 principal amount of such debentures sold to Thermo
Electron. The debentures are convertible into shares of the Company's
common stock at a conversion price of $27.00 per share and are guaranteed
on a subordinated basis by Thermo Electron.
30PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of ThermoTrex Corporation:
We have audited the accompanying consolidated balance sheet of
ThermoTrex Corporation (a Delaware corporation and 53%-owned subsidiary
of Thermo Electron Corporation) and subsidiaries as of September 27,
1997, and September 28, 1996, and the related consolidated statements of
income, shareholders' investment, and cash flows for the years ended
September 27, 1997, and September 28, 1996, and the nine months ended
September 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
ThermoTrex Corporation and its subsidiaries as of September 27, 1997, and
September 28, 1996, and the results of their operations and their cash
flows for the years ended September 27, 1997, and September 28, 1996, and
the nine months ended September 30, 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 3, 1997
31PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
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 immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operation under the
heading "Forward-looking Statements."
Overview
The Company operates in three business segments: Medical Products
manufactured by the Company's Trex Medical Corporation (Trex Medical)
subsidiary, Personal-care Products and Services offered by the Company's
ThermoLase Corporation (ThermoLase) subsidiary, and Advanced Technology
Research, including the laser communications research performed by the
Company's Trex Communications Corporation (Trex Communications)
subsidiary.
Trex Medical designs, manufactures, and markets mammography equipment
and minimally invasive digital breast-biopsy systems, general-purpose
X-ray equipment, and specialized X-ray equipment, including imaging
systems used during diagnostic and interventional vascular and cardiac
procedures such as balloon angioplasty. 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 digital 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 hair-removal services using the SoftLight system.
ThermoLase 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 November 1995. ThermoLase opened a total of four
spas during fiscal 1996, opened nine additional spas during fiscal 1997,
and, by October 1997, had a total of 14 domestic Spa Thira locations,
32PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
with one additional lease signed. In addition, its international
arrangements resulted in the opening of spas in Paris in May 1997 and
Lugano, Switzerland, in October 1997. 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 anatomical site
treated and pricing plan selected by the client. 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. During fiscal 1997,
ThermoLase established joint ventures in France in November 1996 and
England in September 1997, and six 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; in Switzerland in
April 1997; in Brazil in June 1997; and in the United Kingdom (excluding
England) and the Republic of Ireland in September 1997.
ThermoLase continues to pursue an extensive research and development
program to improve the efficacy and duration of its hair-removal
treatment. ThermoLase has developed a modification to its procedure,
called SoftLight 2.0, and began introducing this procedure in its spas
and to its licensees in September 1997. Although the clinical laboratory
results are encouraging, the results are preliminary and there can be no
assurance that SoftLight 2.0 will be successful in improving the hair-
removal process. ThermoLase believes that improvements in the hair-
removal procedure are critical elements in its ability to improve the
profitability of its business.
In March 1997, ThermoLase filed with the FDA a 510(k) application
seeking clearance to market cosmetic skin-resurfacing services utilizing
its SoftLight Rejuvenation(TM) Laser, including wrinkle- and skin-texture
treatment. This technology, which uses the same laser as ThermoLase's
hair-removal system, is designed to improve the skin's appearance and
texture. 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.
The Company's Advanced Technology Research segment performs research
primarily in the fields of communications, avionics, X-ray detection,
signal processing, and lasers. The Company has developed its expertise in
these core technologies in connection with government-sponsored research
and development. The Advanced Technology Research segment includes the
Company's Trex Communications subsidiary, which is developing a laser
communications (lasercom) technology, designed to move very large amounts
of data quickly via lasers without the need for wires or licensing from
the Federal Communications Commission. In July 1997, Trex Communications
acquired Computer Communications Specialists, Inc. (CCS), which designs
and markets interactive information and voice-response systems, as well
as call-automation systems.
33PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
The Company conducts all of its manufacturing operations in the
United States and distributes its products, services, and technologies
worldwide. The Company anticipates that an increasing percentage of its
revenues will be from international sales. The Company's international
sales are generally denominated in U.S. dollars; however, the Company's
financial performance and competitive position can be affected by
currency exchange rate fluctuations affecting the relationship between
the U.S. dollar and foreign currencies.
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.
Accordingly, the results of operations for 1996 compares the year ended
September 28, 1996 (fiscal 1996) with the unaudited year ended September
30, 1995 (1995).
Fiscal 1997 Compared With Fiscal 1996
Total revenues increased 55% to $282.1 million in fiscal 1997 from
$182.0 million in fiscal 1996. Medical Products segment revenues,
excluding intersegment sales, increased 54% to $217.9 million in fiscal
1997 from $141.8 million in fiscal 1996. Revenues increased $56.2 million
as a result of the acquisitions of XRE in May 1996 and Continental in
September 1996. In addition, revenues at Lorad, excluding intersegment
sales, increased 18% as a result of increased sales of higher-priced
mammography systems and increased demand for biopsy systems, offset in
part by a decline in demand for nondestructive testing (NDT) systems.
Personal-care Products and Services segment revenues increased 63% to
$45.2 million in fiscal 1997 from $27.8 million in fiscal 1996.
ThermoLase earned revenues from hair-removal services and related
activities of $21.0 million in fiscal 1997, compared with $4.6 million in
fiscal 1996. The increase in revenues resulted primarily from an increase
in the number of U.S. spas to 13, nine of which opened in fiscal 1997,
compared with four spas open during fiscal 1996. ThermoLase changed its
pricing plan in March 1997 to offer single or multiple treatment plans,
and continues to evaluate its pricing plans. ThermoLase defers revenue
related to payments for multiple treatment plans, 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 started in the third quarter of fiscal 1996
and did not produce significant revenues during fiscal 1996. In addition,
revenues from hair-removal services and related activities in fiscal 1997
included $4.2 million of minimum guaranteed payments recorded upon
granting technology rights under ThermoLase's international licensing
arrangements, compared with $2.0 million in fiscal 1996. The amount of
minimum guaranteed payments recorded by ThermoLase will vary depending on
its ability to enter into additional international licensing arrangements
34PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
and the terms of any such arrangements. Revenues at CBI increased
slightly to $24.2 million in fiscal 1997 from $23.2 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
periodic variations in revenues. The Company estimates that CBI will
continue to represent a decreasing portion of total revenues within this
segment as revenues from hair-removal services and related activities
increase.
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $19.0 million in fiscal 1997 from $12.4 million in
fiscal 1996. Revenues increased $2.8 million due to the inclusion of
product revenues from CCS, acquired in July 1997, and due to higher
revenues earned from research performed under government contracts,
primarily in the areas of laser-radar systems and laser communications.
The Company estimates that revenues from Advanced Technology Research
will continue to decline as a percentage of total revenues.
The gross profit margin was 36% in fiscal 1997, compared with 38% in
fiscal 1996. The Medical Products segment gross profit margin, excluding
intersegment sales, declined to 40% in fiscal 1997 from 42% in fiscal
1996, primarily due to sales of certain recently introduced products that
incurred high start-up production costs, the inclusion of lower-margin
revenues at Continental, and the mix of products sold at Bennett. The
Personal-care Products and Services segment gross profit margin was 20%
in fiscal 1997, compared with 28% in fiscal 1996. ThermoLase's
hair-removal business reported gross profit of $1.4 million in fiscal
1997, compared with gross profit of negative $0.3 million in fiscal 1996.
Each period was impacted by the early operations of the Spa Thira
business, which has been operating below maximum capacity as ThermoLase
develops a client base and continues refining its process and operating
procedures, and due to pre-opening costs incurred in connection with new
spa openings, offset in part by the effect of physicians' licensing fees
and minimum guaranteed payments relating to international licensing
arrangements, which have a relatively high gross profit margin. In fiscal
1998, the effect of operating each spa below maximum capacity, as
ThermoLase develops its client base, will continue to have a negative
impact on its gross profit margin. ThermoLase believes that improvements
in the efficacy and duration of the SoftLight process are critical
elements in its ability to improve the profitability of its spas. The
decline in the Personal-care Products and Services segment gross profit
margin in fiscal 1997 also resulted from lower margins at CBI due to a
continued shift to lower-margin products.
Selling, general, and administrative expenses as a percentage of
revenues increased to 24% in fiscal 1997 from 23% in fiscal 1996.
Spending in the Personal-care Products and Services segment increased
primarily due to costs related to expanding ThermoLase's administrative
and management efforts for its Spa Thira business and domestic and
international licensing programs; increased marketing efforts, including
national advertising costs for the physicians' licensing program; and
legal costs associated with obtaining and protecting ThermoLase's patent
rights. These increases were offset in part by the impact of the
35PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
significant increase in Medical Products segment revenues, which has
lower expenses as a percentage of revenues.
Research and development expenses increased to $32.1 million in
fiscal 1997 from $25.0 million in fiscal 1996, primarily due to increased
spending at Trex Medical and, to a lesser extent, increased spending at
ThermoLase for pre-clinical and clinical research related to improving
the effectiveness of its hair-removal process and developing its
SoftLight Rejuvenation Laser skin-treatment, and the investigation of
other health and beauty applications for its proprietary laser
technology. The increase at Trex Medical was primarily due to the
inclusion of $5.6 million of additional expense due to the acquisitions
of XRE and Continental, and reflects its continued efforts to develop and
commercialize new products, including the full-field digital mammography
system and direct-detection X-ray sensor, as well as enhancements of
existing systems.
During 1996, the Company's Trex Communications subsidiary wrote off
$1.4 million of acquired technology in connection with the acquisition of
CCS (Note 3).
Interest income decreased to $4.8 million in fiscal 1997 from
$6.0 million in fiscal 1996, primarily due to lower average invested
balances, which resulted primarily from property and equipment
expenditures for ThermoLase's Spa Thira locations and licensing programs.
Interest expense increased to $0.8 million in fiscal 1997 from
$0.5 million in fiscal 1996, primarily due to the August 1997 issuance by
ThermoLase of $115.0 million principal amount of 4 3/8% subordinated
convertible debentures. The Company expects that its interest expense and
interest income will increase in fiscal 1998 as a result of the
November 1997 issuance of $124.5 million principal amount of 3 1/4%
subordinated convertible debentures and the investment of the related
proceeds (Note 8).
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell
a minority interest to outside investors. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiaries through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the
subsidiaries' growth. As a result of the sale of stock by Trex Medical
and Trex Communications, the Company recorded gains on issuance of stock
by subsidiaries of $7.9 million in fiscal 1997 and $39.1 million in
fiscal 1996 (Note 10). The size and timing of these transactions are
dependent on market and other conditions that are beyond the Company's
control. In addition, in October 1995, the Financial Accounting Standards
Board (FASB) issued an exposure draft of a Proposed Statement of
Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (the Proposed Statement). The Proposed Statement
would establish new rules for how consolidated financial statements
should be prepared. If the Proposed Statement is adopted, there could be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
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ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
accounted for as a transaction in the equity of the consolidated entity
with no gain or loss being recorded. The FASB continues to deliberate on
this issue and the timing and contents of any final statement are
uncertain. Accordingly, there can be no assurance that the Company will
be able to realize gains from such transactions in the future.
Equity in losses of joint ventures in the accompanying statement of
income represents ThermoLase's proportionate share of losses from its
international joint ventures.
Minority interest income was $1.3 million in fiscal 1997, compared
with minority interest expense of $0.4 million in 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 both periods was below the statutory income
tax rate primarily due to nontaxable gains on issuance of stock by
subsidiaries, offset in part by the impact of state income taxes,
nondeductible amortization of cost in excess of net assets of acquired
companies, and, in fiscal 1997, the nondeductible write-off of acquired
technology associated with the acquisition of CCS (Note 3).
The Company believes that it is more likely than not that it will
realize a benefit from the tax asset that arises as a result of recording
a benefit from ThermoLase's loss before income taxes. The Company
believes that future taxable income, including any income from tax
planning strategies, will be sufficient to realize such benefit within
the 15-year federal carryforward period for net operating losses.
The Company is a defendant in certain patent litigation (Note 3) and
has been notified that it allegedly infringes other technology owned by a
third party (Notes 3 and 9). While an unfavorable outcome of one or both
of these matters could have a material adverse effect on the Company's
results of operations, the Company does not believe that it is reasonably
likely that any resolution would have a material adverse effect on the
Company's financial position.
Fiscal 1996 Compared With 1995
Total revenues increased 63% to $182.0 million in fiscal 1996 from
$111.6 million in 1995. Medical Products segment revenues, excluding
intersegment sales, increased 102% to $141.8 million in fiscal 1996,
compared with $70.2 million in 1995. Medical Products segment revenues
increased $56.2 million due to the acquisitions of Bennett, XRE, and
Continental. In addition, revenues at Lorad, excluding intersegment
sales, increased 24% as a result of increased demand for mammography
systems and NDT systems. Personal-care Products and Services segment
revenues increased 19% to $27.8 million in fiscal 1996 from $23.3 million
in 1995, primarily due to the inclusion of $2.6 million in revenues from
ThermoLase's Spa Thira business and physicians' licensing program, as
well as $2.0 million in SoftLight licensing fees from an international
arrangement. Revenues at CBI were $23.2 million in fiscal 1996, compared
with $23.3 million in 1995. During fiscal 1996, ThermoLase opened its
first four Spa Thira locations, including two that opened in September
1996. Under the 1996 pricing structure, the majority of spa clients paid
a fixed fee in advance to receive a series of treatments, as necessary.
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ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With 1995 (continued)
Consequently, ThermoLase deferred revenue related to such payments, which
was recognized over the anticipated treatment period.
Advanced Technology Research segment revenues, excluding intersegment
sales, declined to $12.4 million in fiscal 1996, from $18.1 million in
1995, primarily due to lower funding levels for the Company's
government-sponsored research and development contracts and the sale of
the Company's thermoelectrics and thermionics businesses.
The gross profit margin declined to 38% in fiscal 1996, compared with
41% in 1995. The Medical Products segment gross profit margin, excluding
intersegment sales, declined to 42% in fiscal 1996 from 49% in 1995,
primarily due to the inclusion of lower-margin revenues at Bennett and
XRE. The Personal-care Products and Services segment gross profit margin
was 28% in fiscal 1996, compared with 37% in 1995. The gross profit from
ThermoLase's hair-removal business was negative $317,000 in fiscal 1996
due to the early operations of the Spa Thira business, which was operated
below maximum capacity as ThermoLase developed a client base, continued
refining its operating procedures, and incurred pre-opening costs, offset
in part by the effect of revenues from international and physicians'
licensing arrangements. In addition, the decline in the gross profit
margin in fiscal 1996 resulted from lower margins at CBI due to a shift
to lower-margin products. The Advanced Technology Research segment gross
profit margin decreased to 17% in fiscal 1996 from 19% in 1995, primarily
due to cost overruns on certain contracts, offset in part by the absence
of certain lower-margin contracts as a result of the closure of the
Company's Massachusetts division in 1995 (Note 11).
Selling, general, and administrative expenses as a percentage of
revenues declined to 23% in fiscal 1996 from 24% in 1995, primarily due
to increased revenues at Lorad and the inclusion of the operations of
Bennett and XRE, which incurred lower expenses as a percentage of
revenues. This decrease was offset in part by an increase in selling,
general, and administrative expenses as a percentage of revenues for the
Advanced Technology Research segment primarily due to its decrease in
revenues.
Research and development expenses increased to $25.0 million in
fiscal 1996 from $18.0 million in 1995, due to the inclusion of
$4.2 million of expense at Bennett and XRE, and continued efforts to
develop and commercialize new products including the M-IV mammography
system (first shipped in the fourth quarter of fiscal 1996), the
full-field digital mammography system, and the direct-detection X-ray
sensor, as well as enhancements of existing systems.
In 1995 the Company recorded restructuring expenses of $1.0 million
resulting from the decision to close its Massachusetts division
(Note 11). During fiscal 1996 and 1995, this division recorded revenues
of $0.4 million and $3.0 million, respectively, and incurred operating
losses of $0.1 million and $0.7 million, respectively.
Interest income increased to $6.0 million in fiscal 1996 from
$4.2 million in 1995, primarily as a result of interest income earned on
invested proceeds from ThermoLase's August 1995 public offering of common
stock and Trex Medical's private placements of common stock in November
1995 and January 1996 and its initial public offering in July 1996.
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ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With 1995 (continued)
Interest expense in fiscal 1996 and 1995 primarily represents interest
associated with an $8.0 million promissory note issued to Thermo Electron
in September 1995. This note was repaid in September 1996, and the
Company issued a $2.0 million promissory note to Thermo Electron on
similar terms.
As a result of the sale of stock by Trex Medical in fiscal 1996 and
ThermoLase in 1995, the Company recorded gains on issuance of stock by
subsidiaries of $39.1 million and $34.7 million in fiscal 1996 and 1995,
respectively (Note 10).
Minority interest expense in fiscal 1996 represents minority
shareholders' allocable share of Trex Medical's net income, offset in
part by minority shareholders' allocable share of ThermoLase's net loss.
Minority interest income in 1995 represents minority shareholders'
allocable share of ThermoLase's net loss.
The effective tax rates in fiscal 1996 and 1995 differ from the
statutory federal income tax rate due to the nontaxable gains on issuance
of stock by subsidiaries, 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 $202.3 million at September 27,
1997, compared with $127.9 million at September 28, 1996. Included in
working capital are cash, cash equivalents, and available-for-sale
investments of $153.2 million at September 27, 1997, compared with
$95.6 million at September 28, 1996. Of the $153.2 million balance at
September 27, 1997, $139.9 million was held by the Company's
majority-owned subsidiaries, and the remainder was held by the Company
and its wholly owned subsidiary.
Net cash used in operating activities during fiscal 1997 was
$14.1 million. An increase in accounts receivable, primarily at Trex
Medical, used $19.7 million in cash. The increase at Trex Medical was
primarily due to increased sales in fiscal 1997 compared with fiscal 1996
and, to a lesser extent, longer customer payment patterns. Trex Medical
expects to improve cash flow by increasing adherence to its commercial
terms in fiscal 1998. In addition, an increase in inventories and
unbilled contract costs and fees used $11.3 million in cash, primarily in
support of increased sales and new product introductions at Trex Medical.
These uses of cash were offset in part by $11.2 million provided by an
increase in other current liabilities, due in part to an increase in
income taxes payable.
Excluding available-for-sale investments activity, the Company's
primary investing activities during fiscal 1997 included capital
expenditures and an acquisition. The Company expended $26.9 million for
property, plant, and equipment and $10.7 million, net of cash acquired,
for the acquisition of CCS (Note 3).
In connection with certain of ThermoLase's joint venture
arrangements, ThermoLase provided funding of $1.1 million during fiscal
1997 and $1.7 million in October 1997. ThermoLase has agreed to provide
39PAGE
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ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
additional funding of up to approximately $5.4 million under these
arrangements.
The Company's financing activities provided $111.0 million of cash
during fiscal 1997. In August 1997, ThermoLase sold at par value $115.0
million principal amount of 4 3/8% subordinated convertible debentures
due 2004 (Note 8). To finance the acquisition of CCS, the Company
borrowed $11.0 million from Thermo Electron (Note 7). The Company raised
$16.4 million from the sale of Company and subsidiary common stock (Note
10).
In November 1997, the Company sold at par value $124.5 million
principal amount of 3 1/4% subordinated convertible debentures due 2007
(Note 15).
In September 1996 and April 1997, ThermoLase's Board of Directors
authorized the repurchase by ThermoLase of up to $20.0 million of its
common stock through various dates ending April 1998, in the open market,
in negotiated transactions, or pursuant to the exercise by investors of
standardized put options written on its common stock. In September 1997,
ThermoLase's Board of Directors authorized the repurchase by ThermoLase,
through September 4, 1998, of up to an additional 1,000,000 shares of its
common stock. During fiscal 1997, ThermoLase repurchased 1,869,200 shares
of its common stock for $26.1 million. As of September 27, 1997,
authorization to repurchase up to an additional 644,016 shares remained
outstanding.
In November 1997, the Company's Board of Directors authorized the
repurchase by the Company of up to $20.0 million of its common stock,
through November 1998, in the open market or in negotiated transactions.
In October 1997, Trex Medical acquired substantially all of the
assets, subject to certain liabilities, of Digitec Corporation, a North
Carolina-based manufacturer of physiological-monitoring equipment and
digital-image archiving and networking systems used in cardiac
catheterization procedures, for approximately $7.2 million in cash,
subject to a post-closing adjustment.
In April 1997, ThermoLase completed an exchange offer whereby it
issued 2,000,000 units, each consisting of one share of ThermoLase common
stock and one redemption right, in exchange for 2,261,706 shares of
existing ThermoLase common stock and $502,000 in cash, net of expenses
(Note 1).
ThermoLase has signed a lease for one additional Spa Thira, which it
expects to open in fiscal 1998. Depending on its size, a spa generally
requires approximately $1.5 million to $2.5 million for such items as
leasehold improvements and laser systems. ThermoLase expects to
concentrate its resources on increasing the capacity utilization of its
existing U.S. spas and expanding its physicians' licensing program and
international licensing arrangements. Construction will begin on new spas
at such time as the existing spas produce improved results from
operations. ThermoLase also expects to expend $8.0 million to $9.0
million during fiscal 1998 for equipment related to its licensing
programs. ThermoLase's capital expenditures will primarily be affected by
the number of Spa Thira locations that are developed and the number of
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ThermoTrex Corporation 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
physicians and other domestic and international licensees engaged in its
licensing programs. In addition, the Company plans to make capital
expenditures of approximately $8.0 million for its other businesses
during fiscal 1998. The Company expects that it will finance growth at
its majority-owned and wholly owned subsidiary through a 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. The Company believes its existing resources are sufficient to
meet the capital requirements of its existing operations for the
foreseeable future.
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<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Forward-looking Statements
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 1998 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.
The Company has developed several of its core technologies in
connection with government-sponsored research and development. The
Company is seeking government funding for further applications of certain
of its core technologies, but there can be no assurance that such funding
can be obtained on favorable terms, if at all. In addition, the Company
does not expect that government funding will be sufficient to complete
the development of the Company's proposed commercial products. In order
to further or complete the development of its commercial products, the
Company may seek to raise additional funds for specific projects or for
subsidiaries of the Company that will commercialize its products. There
can be no assurance that funding for further development of the Company's
commercial products can be obtained on favorable terms, if at all.
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. Laser-based hair removal is significantly
different from traditional 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, including other laser-based systems.
There can be no assurance that the SoftLight process will be accepted by
the general public. The Company's laser communication technology,
ThermoLase's SoftLight Rejuvenation(TM) laser system, and Trex Medical's
full-field 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 1997 Financial Statements
Forward-looking Statements
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 (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.
In December 1997, Trex Medical submitted a 510(k) application for FDA
clearance for its full-field digital mammography system. The process of
obtaining FDA clearance is time consuming and expensive. Full-field
digital mammography has not been classified and there can be no assurance
that the FDA will accept such 510(k) application; the FDA may require
additional data or alternative and more time-consuming approval
procedures. Furthermore, there can be no assurance that the necessary
clearance or approval for the product 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 or cleared. Failure to comply with
applicable regulatory requirements can result in, among other things,
civil and criminal penalties, suspension of approvals, recalls, or
seizures of products, injunctions, and criminal prosecutions.
The extent to which a physician must be involved in the performance
of the SoftLight laser hair-removal procedure, including his or her
ability to delegate to non-physicians the responsibility for providing
particular services, depends upon applicable state and foreign law and
regulations. Some regulatory authorities that have considered the
question have determined that the use of lasers for hair removal
constitutes the practice of medicine and have limited the right to
perform laser hair-removal procedures to physicians, or imposed
restrictions on the conditions under which a physician may delegate to a
non-physician responsibility for performing laser hair-removal
procedures. The use of lasers for hair removal is a new use for lasers,
and there can be no assurance that review of the Company's business,
structures and relationships relating to its SoftLight hair removal
procedures by courts or regulatory authorities having jurisdiction over
matters including, without limitation, the practice of medicine, the
licensure of facilities, equipment or personnel, and franchising, will
not result in determinations that could adversely affect the operations
of the Company, or that interpretations of current laws and regulations
or changes in current laws and regulations will not make such compliance
more difficult or expensive. There can be no assurance that state
regulatory authorities will not (i) require a physician to evaluate each
person for whom laser hair-removal procedures are performed, (ii) require
a supervising physician to be present at all times at the site where
laser hair-removal procedures are performed, (iii) prohibit anyone other
than a physician from using a laser for hair removal, or (iv) impose
other requirements relating to the supervision of persons performing
laser hair-removal procedures or the qualifications and/or training of
such persons. Any of these actions could add significant cost to
ThermoLase's spa operations and increase the cost to physicians under
ThermoLase's licensing program.
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<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Forward-looking Statements
Although the optical frequencies used by the Company's lasercom
technology are not currently regulated by the Federal Communications
Commission, there can be no assurance that such frequencies will not be
regulated in the future nor can there be any assurance that, if
regulated, that the Company's products and services would conform to such
regulations or that future products will not be regulated.
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 United States or elsewhere are likely to have a
significant impact over time on the manner in which the Company 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. Cost
containment policies may have the effect of reducing reimbursement for
certain procedures, and as a result may inhibit or reduce demand by
healthcare providers for products in the markets in which the Company
competes. While the Company cannot predict what effect the policies of
government entities and other third-party payors will have on future
sales of the Company's products, there can be no assurance that such
policies would not have an adverse impact on the operations of the
Company.
Need for Continued Product Development. ThermoLase continues to study
the SoftLight hair-removal process to better understand the effects of
the system and to modify the system in order to increase its
effectiveness and the length of time between treatments. The Company has
developed a modification to its procedure, SoftLight 2.0, that has had
positive clinical laboratory results, and began introducing this
procedure, in its spas and to its licensees in September 1997. Results
are preliminary and there can be no assurance that SoftLight 2.0 will be
successful in improving the hair-removal process. Failure to further
improve the SoftLight process may limit ThermoLase's ability to
successfully commercialize the SoftLight process. The Company has also
developed a skin-resurfacing process, the SoftLight Rejuvenation (TM)
Laser system, intended for wrinkle- and skin-texture treatment, but there
is no assurance that this system will not require additional development
in order to be marketed successfully.
A number of the Company's other potential products are currently
under development. There are a number of technological challenges that
the Company must successfully address to complete any of its development
efforts. Proposed products based on the Company's technologies will
require significant additional research and development, as well as
successful efforts to commercialize such products. There can be no
assurance that any of the products currently being developed by the
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ThermoTrex Corporation 1997 Financial Statements
Forward-looking Statements
Company, or those to be developed in the future by the Company, will be
technologically feasible or accepted by the marketplace, or that any such
development will be completed in any particular time frame.
The telecommunications industry is subject to rapid and substantial
technological change, evolving industry standards and improvements in and
expansion of telecommunications product and service offerings. The
development and commercialization of new technologies and the
introduction of new products and services can render existing products
and services obsolete or unmarketable. There can be no assurance that
Trex Communications will be successful in selecting, developing,
manufacturing, and marketing lasercom products or enhancing its existing
products or that developments by others will not render its products or
technologies obsolete or noncompetitive. Moreover, a number of the
commercial markets for Trex Communication's technology have only recently
begun to develop. If these markets fail to grow, or grow more slowly than
anticipated, the Company's business and operating results could be
materially adversely affected.
Intense Competition. The Company expects that, in the near term, the
principal competitors for ThermoLase, relative to its SoftLight hair-
removal treatment, will be electrolysis providers. Although the Company
believes that it has a significant competitive advantage over
electrolysis, it does not have the well-established network of client
relationships that many electrologists have. Over time, the Company
expects that ThermoLase will face growing competition from other
laser-based hair-removal companies. If the SoftLight technology is widely
accepted by the general public, the Company expects that others, in
addition to the four laser companies that currently have clearance for
hair removal, will seek to develop and commercialize similar technologies
and products that may compete directly with the SoftLight system. The
Company's products and services will also compete with other hair-removal
products and methods. The Company has developed a modification to its
procedure, SoftLight 2.0, that has had positive clinical laboratory
results, and began introducing this procedure in its spas and to its
licensees in September 1997. Results are preliminary and there can be no
assurance that SoftLight 2.0 will be successful in improving the
hair-removal process. Failure to further improve the SoftLight process
may limit ThermoLase's ability to successfully commercialize the
SoftLight process. 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. In addition,
should it receive clearance to market the SoftLight Rejuvenation Laser
system for skin resurfacing, the Company expects that its principal
competitors will be providers of carbon dioxide laser and chemical peel
resurfacing and traditional spa-based services.
Trex Medical encounters and expects to continue to encounter intense
competition in the sale of its products. The Company believes that the
principal competitive factors affecting the market for its products
include product features, product performance and reputation, price, and
service. Trex Medical's competitors may have greater financial,
marketing, and other resources than the Company. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in
45PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Forward-looking Statements
customer requirements, or to devote greater resources to the promotion
and sale of the products than the Company. Moreover, the products sold by
the Company's OEM customers compete with products offered by the Company
directly and its through independent dealers. Competition could increase
if new companies enter the market or if existing competitors expand their
product lines or modify existing product lines. 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.
Trex Communications is engaged in segments of the telecommunications
industry that are extremely competitive. The Company expects that its
lasercom technology will compete with large telecommunication service
providers such as the regional Bell operating companies and microwave and
cellular companies. Both the Company's lasercom division and CCS
subsidiary will compete directly with telecommunications hardware and
software providers. There can be no assurance that Trex Communications
will be able to compete successfully with existing or new competitors.
Need to Manage Growth; Ability to Attract Qualified Personnel.
ThermoLase is experiencing a period of rapid growth as it commences
commercial operations of its SoftLight process. ThermoLase presently
intends to commercialize the SoftLight process primarily through
affiliated spas and a network of physicians using the 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, or 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. Trex
Communications is currently searching for a chief executive officer who
will develop a commercialization and marketing plan for its lasercom
technology. No assurance can be given that Trex Communications will
successfully identify and attract a qualified chief executive officer,
that such person will be able to devise successful commercialization and
marketing strategies or attract additional personnel necessary to
successfully implement such strategies.
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
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ThermoTrex Corporation 1997 Financial Statements
Forward-looking Statements
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 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's prone breast-biopsy systems
infringe a Fischer patent on a precision mammographic needle-biopsy
system. As of September 27, 1997, Trex Medical had aggregate revenues of
approximately $107.1 million from the sale of such systems. The suit
requests a permanent injunction, treble damages, and attorney's fees and
expenses. As of September 27, 1997, Trex Medical had accrued a reserve of
approximately $2 million in connection with this matter, 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 this matter.
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 Relationships. A significant portion of
Trex Medical's sales are through OEM arrangements with United States
Surgical Corporation and General Electric Company. Trex Medical's and
47PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Forward-looking Statements
Trex Communications' sales depend, in part, on the continuation of these
arrangements and the level of end-user sales by such OEMs and VARs. There
can be no assurance that Trex Medical and Trex Communications will be
able to maintain existing, or establish new, relationships. A significant
portion of Trex Communication's call-automation revenues are derived from
large call-automation system installations and customization projects at
customer sites. There can be no assurance that the Company will sell
additional systems to these customers or have the ability to replace
these revenues with comparably sized projects in the future. Trex
Communications' lasercom division plans to develop strategic
relationships with telecommunications product and service providers to
provide components for the network systems which lasercom is developing
and to market and sell lasercom technology and services. There can be no
assurance that Trex Communications will be able to develop such strategic
relationships in the future or that it will benefit from any of such
arrangements.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses that complement or augment the
Company's existing products and services. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory
approvals, including antitrust approvals. Any acquisitions completed by
the Company may be made at substantial premiums over the fair value of
the net assets of the acquired companies. There can be no assurance that
the Company will be able to complete future acquisitions or that the
Company will be able to successfully integrate any acquired businesses.
Risks Associated with Spinout of Subsidiaries. The Company has
adopted a strategy of spinning out certain of its businesses into
separate subsidiaries and having these subsidiaries sell a minority
interest to outside investors. As a result of the sale of stock by
subsidiaries and similar transactions, the Company records gains that
represent the increase in the Company's net investment in the
subsidiaries. These gains have represented a substantial portion of the
net income reported by the Company in certain periods. The size and
timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to generate gains from such
transactions in the future.
In addition, in October 1995, the Financial Accounting Standards
Board (FASB) issued an exposure draft of a Proposed Statement of
Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (Proposed Statement). The Proposed Statement would
establish new rules for how consolidated financial statements should be
prepared. If the Proposed Statement is adopted, there could be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
accounted for as a transaction in equity of the consolidated entity with
no gain or loss being recorded. The exposure draft addresses the
consolidation issues in two parts, consolidation procedures, which
48PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Forward-looking Statements
includes proposed rule changes affecting the Company's ability to
recognize gains on issuance of subsidiary stock, and consolidation policy
which does not address accounting for such gains. During fiscal 1997, the
FASB decided to focus its efforts on the consolidation policy part of the
exposure draft and to consider resuming discussion on consolidation
procedures after completion of the efforts on consolidation policy. The
timing and contents of any final statement is uncertain.
49PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Selected Financial Information
Nine
Months
Year Ended Ended (a) Year Ended
----------------------------- --------- ----------------
(In thousands
except per Sept. 27, Sept. 28, Sept. 30, Sept. 30, Dec. 31, Jan. 1,
share amounts) 1997(b) 1996(c) 1995 1995(d) 1994(e) 1994
------------------------------------------------------- ------- -------
(Unaudited)
Statement of Income Data:
Revenues $282,121 $182,029 $111,610 $ 86,531 $ 91,052 $ 54,329
Income before
provision for
income taxes
and minority
interest 10,618 48,292 38,895 37,891 11,542 1,490
Net income 8,441 42,575 36,658 36,341 9,602 495
Earnings per share .44 2.16 1.94 1.92 .50 .03
Balance Sheet Data:
Working capital $202,276 $127,863 $103,297 $ 82,798 $ 45,103
Total assets 450,117 320,222 230,781 154,984 117,335
Long-term
obligations 115,000 - - - -
Common stock of
subsidiary
subject to
redemption 40,500 - - - 14,511
Shareholders'
investment 176,135 205,079 162,388 123,271 77,594
(a)In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's 39-week transition period ended September
30, 1995, is presented.
(b) Reflects the July 1997 acquisition of CCS and sales of Trex Medical and
Trex Communications common stock, which resulted in nontaxable gains of
$7.9 million. Also reflects the issuance by ThermoLase of $115.0
million principal amount of 4 3/8% subordinated convertible debentures,
the issuance of an $11.0 million promissory note to Thermo Electron,
and the reclassification of $40.5 million to "Common stock of
subsidiary subject to redemption" from "Shareholders' investment" and
"Minority interest" due to ThermoLase's stock exchange transaction.
(c) Reflects the May 1996 and September 1996 acquisitions of XRE and
Continental, respectively, and Trex Medical's private placements,
initial public offering, and rights offering, which resulted in
nontaxable gains of $39.1 million.
(d)Reflects ThermoLase's 1995 private placements and public offering,
which resulted in nontaxable gains of $34.7 million, and the September
1995 acquisition of Bennett.
(e)Reflects the net proceeds of the Company's 1994 public offering and
ThermoLase's 1994 initial public offering, which resulted in a
nontaxable gain of $8.6 million.
50PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sales prices on the American Stock Exchange
(symbol TKN) for fiscal 1997 and fiscal 1996.
Fiscal 1997 Fiscal 1996
--------------------- ---------------------
Quarter High Low High Low
----------------------------------------------------------------------
First $42 1/4 $28 1/4 $50 5/8 $31 1/2
Second 31 1/4 22 1/2 50 7/8 41 3/8
Third 28 7/8 17 7/8 50 1/8 42 3/4
Fourth 28 21 3/4 51 3/8 36 5/8
As of October 31, 1997, the Company had 631 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on October 31, 1997, was $23 per share.
Common stock of certain of the Company's majority-owned public
subsidiaries is traded on the American Stock Exchange: ThermoLase
Corporation (TLZ) and Trex Medical Corporation (TXM).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Shareholder Services
Shareholders of ThermoTrex Corporation who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer and Vice President, ThermoTrex Corporation, 81 Wyman Street, P.O.
Box 9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing
list is maintained to enable shareholders whose stock is held in street
name, and other interested individuals, to receive quarterly reports,
annual reports, and press releases as quickly as possible. Quarterly
distribution of printed reports is limited to the second quarter report
only. All quarterly reports and press releases are available through the
Internet from Thermo Electron's home page (http://www.thermo.com/subsid/
tkn.html).
51PAGE
<PAGE>
ThermoTrex Corporation 1997 Financial Statements
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
September 27, 1997, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer and Vice President, ThermoTrex Corporation, 81 Wyman
Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Thursday, March 5,
1998, at 10:00 a.m., at the Westin Hotel, 70 Third Avenue, Waltham,
Massachusetts.
Exhibit 21
THERMOTREX CORPORATION
Subsidiaries of the Registrant
At October 31, 1997, ThermoTrex Corporation owned the following companies:
Registrant's
State of Jurisdiction % of
Name or Incorporation Ownership
---------------------------------------------------------------------------
Trex Medical Corporation Delaware 79
Bennett X-Ray Corporation New York 100
Bennett International Corporation U.S. Virgin Islands 100
Eagle X-Ray, Inc. New York 100
Island X-Ray Incorporated New York 100
Continental X-Ray Corporation Delaware 100
Thermo Lorad F.S.C. Inc. U.S. Virgin Islands 100
XRE Corporation Delaware 100
ThermoLase Corporation Delaware 67
CBI Laboratories, Inc. Texas 100
ThermoLase Australia L.L.C. Delaware 100
ThermoLase France L.L.C. Delaware 50
ThermoDess S.A.S. France 50
ThermoLase England L.L.C. Delaware 50
ThermoLase UK Limited United Kingdom 100
ThermoLase Japan L.L.C. Wyoming 50
Thira Japan, Inc. Japan 100
ThermoTrex East, Inc. Massachusetts 100
Trex Communications Corporation Delaware 78
Computer Communcations Specialists, Inc. Georgia 100
Computer Communications Specialists
UK Ltd. United Kingdom 100
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated November 3, 1997,
included in or incorporated by reference into ThermoTrex Corporation's
Annual Report on Form 10-K for the year ended September 27, 1997, into
the Company's previously filed Registration Statement No. 33-47846 on
Form S-3, Registration Statement No. 33-45282 on Form S-8, Registration
Statement No. 33-45284 on Form S-8, Registration Statement No. 33-52818
on Form S-8, Registration Statement No. 33-68654 on Form S-3,
Registration Statement No. 33-69426 on Form S-3, Registration Statement
No. 33-70512 on Form S-8, Registration Statement No. 33-80891 on Form
S-8, and Registration Statement No. 333-34909 on Form S-3.
Arthur Andersen LLP
Boston, Massachusetts
December 3, 1997
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOTREX
CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 27, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-END> SEP-27-1997
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<SECURITIES> 17,499
<RECEIVABLES> 60,601
<ALLOWANCES> 1,969
<INVENTORY> 48,204
<CURRENT-ASSETS> 280,005
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