SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended June 28, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-10791
THERMOTREX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-1711436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10455 Pacific Center Court
San Diego, California 92121-4339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each
of the issuer's classes of Common Stock, as of the
latest practicable date.
Class Outstanding at July 25, 1997
---------------------------- ----------------------------
Common Stock, $.01 par value 19,225,476
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOTREX CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 28, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 38,267 $ 43,940
Available-for-sale investments, at quoted
market value (amortized cost of $7,020
and $51,774) 6,986 51,701
Accounts receivable, less allowances of
$1,767 and $1,586 48,061 36,615
Unbilled contract costs and fees 6,906 2,933
Inventories:
Raw materials and supplies 28,333 22,046
Work in process 11,851 9,731
Finished goods 7,633 5,526
Prepaid expenses 3,001 2,157
Prepaid income taxes 7,809 9,685
-------- --------
158,847 184,334
-------- --------
Property, Plant, and Equipment, at Cost 64,386 40,535
Less: Accumulated depreciation and
amortization 13,619 9,031
-------- --------
50,767 31,504
-------- --------
Notes Receivable from Related Party 3,300 3,300
-------- --------
Prepaid Income Taxes and Other Assets 12,058 4,680
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 94,563 96,404
-------- --------
$319,535 $320,222
======== ========
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THERMOTREX CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 28, September 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Note payable to parent company $ - $ 2,000
Accounts payable 20,252 19,569
Accrued payroll and employee benefits 7,150 7,228
Accrued warranty costs 6,479 5,379
Accrued income taxes 2,033 2,239
Customer deposits 3,755 3,582
Accrued commissions 3,546 2,049
Other accrued expenses 15,100 13,156
Due to parent company and affiliated
companies 2,966 1,269
-------- --------
61,281 56,471
-------- --------
Deferred Lease Liability 1,255 494
-------- --------
Common Stock of Subsidiary Subject to
Redemption (Note 2) 40,500 -
-------- --------
Minority Interest 39,302 58,178
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000
shares authorized; 19,230,589 and
19,190,107 shares issued 192 192
Capital in excess of par value 84,835 116,753
Retained earnings 92,392 89,156
Treasury stock at cost, 7,013 and
25,508 shares (200) (975)
Net unrealized loss on available-
for-sale investments (22) (47)
-------- --------
177,197 205,079
-------- --------
$319,535 $320,222
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOTREX CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $72,931 $42,772
------- -------
Costs and Operating Expenses:
Cost of revenues 46,237 25,731
Selling, general, and administrative expenses 18,651 10,274
Research and development expenses 8,350 5,612
------- -------
73,238 41,617
------- -------
Operating Income (Loss) (307) 1,155
Interest Income 860 1,372
Interest Expense, Related Party (11) (112)
Gain on Sale of Investments - 115
Equity in Losses of Joint Ventures (350) -
------- -------
Income Before Provision for Income Taxes and
Minority Interest 192 2,530
Provision for Income Taxes 376 1,284
Minority Interest (Income) Expense (469) 175
------- -------
Net Income $ 285 $ 1,071
======= =======
Earnings per Share $ .01 $ .05
======= =======
Weighted Average Shares 19,222 19,720
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOTREX CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $205,835 $128,566
-------- --------
Costs and Operating Expenses:
Cost of revenues 133,068 77,222
Selling, general, and administrative expenses 50,459 30,896
Research and development expenses 23,544 15,913
-------- --------
207,071 124,031
-------- --------
Operating Income (Loss) (1,236) 4,535
Interest Income 3,323 4,277
Interest Expense, Related Party (70) (351)
Gain on Issuance of Stock by Subsidiary (Note 3) 1,997 13,504
Gain on Sale of Investments - 115
Equity in Losses of Joint Ventures (350) -
-------- --------
Income Before Provision for Income Taxes and
Minority Interest 3,664 22,080
Provision for Income Taxes 1,603 4,366
Minority Interest (Income) Expense (1,175) 368
-------- --------
Net Income $ 3,236 $ 17,346
======== ========
Earnings per Share $ .17 $ .88
======== ========
Weighted Average Shares 19,202 19,682
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOTREX CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 3,236 $ 17,346
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 6,448 3,426
Provision for losses on accounts
receivable 266 175
Gain on issuance of stock by subsidiary
(Note 3) (1,997) (13,504)
Gain on sale of investments - (115)
Minority interest (income) expense (1,175) 368
Increase in long-term prepaid income taxes (4,725) -
Increase in deferred lease liability 761 -
Equity in losses of joint ventures 350 -
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable (11,712) 3,476
Inventories and unbilled contract
costs and fees (14,487) (1,171)
Other current assets (864) (786)
Accounts payable 683 (2,542)
Other current liabilities 6,126 3,836
-------- --------
Net cash provided by (used in) operating
activities (17,090) 10,509
-------- --------
Investing Activities:
Acquisition, net of cash acquired - (18,817)
Purchases of available-for-sale investments - (52,000)
Proceeds from sale and maturities of available-
for-sale investments 44,000 57,230
Purchases of property, plant, and equipment (23,851) (8,891)
Investment in other assets (1,144) (4,400)
Issuance of note receivable to related party - (1,300)
Other 774 943
-------- --------
Net cash provided by (used in) investing
activities $ 19,779 $(27,235)
-------- --------
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THERMOTREX CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company and
subsidiary common stock and sale of
subsidiary put options (Note 3) $ 5,502 $ 21,774
Net proceeds from subsidiary stock exchange
offer (Note 2) 522 -
Purchases of subsidiary common stock (11,268) -
Repayment of note payable to parent company (2,000) -
Payment of withholding taxes related to
stock option exercises (1,118) (5,760)
-------- --------
Net cash provided by (used in) financing
activities (8,362) 16,014
-------- --------
Decrease in Cash and Cash Equivalents (5,673) (712)
Cash and Cash Equivalents at Beginning of Period 43,940 21,512
-------- --------
Cash and Cash Equivalents at End of Period $ 38,267 $ 20,800
======== ========
Noncash Activities:
Fair value of assets of acquired company $ - $ 28,956
Cash paid for acquired company - (18,878)
-------- --------
Liabilities assumed of acquired company $ - $ 10,078
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOTREX CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoTrex Corporation (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at June
28, 1997, the results of operations for the three- and nine-month periods
ended June 28, 1997, and June 29, 1996, and the cash flows for the
nine-month periods ended June 28, 1997, and June 29, 1996. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of September 28, 1996,
has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 28, 1996, filed
with the Securities and Exchange Commission.
2. Common Stock of Subsidiary Subject to Redemption
On April 2, 1997, the Company's ThermoLase Corporation (ThermoLase)
subsidiary completed an exchange offer whereby its shareholders had the
opportunity to exchange one share of its existing ThermoLase common stock
and $3.00 for a new unit consisting of one share of ThermoLase common
stock and one redemption right. The redemption right entitles the holder
to sell the related share of common stock to ThermoLase for $20.25 during
the period from April 3, 2001, through April 30, 2001. The redemption
right will expire and become worthless if the closing price of ThermoLase
common stock is at least $26.00 for 20 of any 30 consecutive trading
days. The redemption rights are guaranteed on a subordinated basis by
Thermo Electron Corporation (Thermo Electron). The Company and Thermo
Electron are parties to a Master Reimbursement Agreement whereby the
Company would be required to reimburse Thermo Electron for any and all
payments made by Thermo Electron under the guarantee. 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 $522,000 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.
3. Issuance of Stock by Subsidiary
In December 1996, the Company's Trex Medical Corporation (Trex
Medical) subsidiary sold 300,000 shares of its common stock at $14.50 per
share for net proceeds of $4.1 million, resulting in a gain of $2.0
million. At June 28, 1997, the Company owned 79% of the outstanding
common stock of Trex Medical.
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THERMOTREX CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 28, 1996, filed with the Securities and Exchange
Commission.
Overview
The Company operates in three business segments: Medical Products
manufactured by the Company's 79%-owned Trex Medical Corporation (Trex
Medical) subsidiary, Personal-care Products and Services offered by the
Company's 66%-owned ThermoLase Corporation (ThermoLase) subsidiary, and
Advanced Technology Research.
Trex Medical designs, manufactures, and markets mammography equipment
and minimally invasive stereotactic breast-biopsy systems, general-
purpose radiography (X-ray) equipment, and X-ray imaging systems used for
cardiac catheterization and angiography, as well as radiographic/
fluoroscopic procedures. Trex Medical sells its systems worldwide
principally through a network of independent dealers, and also acts as an
original equipment manufacturer (OEM) for other medical equipment
companies. Trex Medical has four operating units: Lorad, a manufacturer
of mammography and stereotactic breast-biopsy systems; Bennett X-Ray
Corporation (Bennett), a manufacturer of general-purpose X-ray and
mammography equipment; XRE Corporation (XRE), a manufacturer of X-ray
imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions; and Continental X-Ray Corporation
(Continental), a manufacturer of general-purpose and specialized X-ray
systems.
ThermoLase has developed a laser-based system called SoftLight(SM)
for the removal of unwanted hair. The SoftLight system uses a low-energy,
dermatology laser in combination with a lotion that absorbs the laser's
energy to disable hair follicles. In April 1995, the Company received
clearance from the U.S. Food and Drug Administration (FDA) to
commercially market services using the SoftLight system. The Company
began earning revenue from the SoftLight system in the first quarter of
fiscal 1996 as a result of opening its first commercial location (Spa
Thira) in La Jolla, California, in November 1995. As of June 28, 1997,
ThermoLase had 12 spas open in the U.S., two of which opened during the
third quarter of fiscal 1997. In addition, ThermoLase's French joint
venture opened its first European spa in Paris in May. ThermoLase has
signed leases for three additional sites in the U.S. In June 1996,
9PAGE
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THERMOTREX CORPORATION
Overview (continued)
ThermoLase commenced a program to license to physicians and others the
right to perform the Company's patented SoftLight hair-removal procedure.
In this program, ThermoLase licenses its technology and receives a
one-time fee and a per-procedure royalty that varies depending on the
location treated. ThermoLase also provides the licensees with the lasers
and lotion that are necessary to perform the service. ThermoLase is
marketing the SoftLight system internationally through joint ventures and
other licensing arrangements. In January 1996, ThermoLase established a
joint venture in Japan. In fiscal 1997, ThermoLase entered into several
international arrangements, establishing a joint venture in France in
November 1996 and five 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; and
in Brazil in June 1997.
ThermoLase continues to pursue an extensive research and development
program to improve the efficacy and duration of its hair-removal
treatment. ThermoLase is currently testing a modification to its
procedure, called SoftLight 2.0, that has had positive laboratory
results. Although the 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. If the initial
laboratory results relating to SoftLight 2.0 are confirmed, ThermoLase
anticipates implementing the procedure in early fiscal 1998. ThermoLase
believes that improvements in the hair-removal procedure, including the
successful implementation of SoftLight 2.0, 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 its laser skin-resurfacing technology. This
technology, which uses the same laser as ThermoLase's hair-removal
system, is designed to improve the skin's texture and elasticity. In
addition, the 510(k) application seeks wrinkle-treatment claims for the
procedure. 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, advanced-materials technology, and lasers. The Company
has developed its expertise in these core technologies in connection with
government-sponsored research and development.
Results of Operations
Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996
Total revenues increased 71% to $72.9 million in the third quarter of
fiscal 1997 from $42.8 million in the third quarter of fiscal 1996.
Medical Products segment revenues, excluding intersegment sales,
increased 65% to $55.5 million in fiscal 1997 from $33.7 million in
fiscal 1996. Revenues increased $16.5 million as a result of the
acquisitions of Continental in September 1996 and XRE in May 1996.
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THERMOTREX CORPORATION
Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996
(continued)
Revenues at Lorad, excluding intersegment sales, increased 16% as a
result of increased sales of higher-priced mammography systems.
Personal-care Products and Services segment revenues increased 104%
to $12.9 million in the third quarter of fiscal 1997 from $6.3 million in
the third quarter of fiscal 1996. ThermoLase earned revenues from
hair-removal services of $7.0 million in fiscal 1997, compared with $1.5
million in fiscal 1996. The increase in revenues resulted primarily from
an increase in the number of spas to 12, two of which opened during the
third quarter of fiscal 1997, compared with two spas open during the
third quarter of fiscal 1996. In March 1997, ThermoLase changed its
pricing plan to exclusively offer single or multiple treatment 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 produced only nominal revenues during
that quarter. In addition, revenues from hair-removal services in the
third quarter of fiscal 1997 included $1.1 million of minimum guaranteed
payments relating to ThermoLase's international licensing arrangements,
including $0.7 million in payments received upon granting technology
rights under certain of such agreements, compared with $0.7 million in
the third quarter of fiscal 1996. The amount of minimum guaranteed
payments recorded by ThermoLase will vary depending on its ability to
enter into additional international licensing arrangements and the terms
of any such arrangements. Revenues at CBI increased to $5.9 million in
fiscal 1997 from $4.8 million in fiscal 1996. A portion of CBI's revenues
are derived from sales to large retailers, which have a relatively long
buying cycle that results in quarterly variations in revenues. ThermoLase
estimates that CBI will continue to represent a decreasing portion of its
total revenues as revenues from hair-removal services increase.
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $4.5 million in the third quarter of fiscal 1997 from
$2.8 million in the third quarter of fiscal 1996. The Company estimates
that revenues from Advanced Technology Research will continue to decline
as a percentage of total revenues.
The gross profit margin was 37% in the third quarter of fiscal 1997,
compared with 40% in the third quarter of fiscal 1996. The Medical
Products segment gross profit margin, excluding intersegment sales,
declined to 40% in fiscal 1997 from 43% in fiscal 1996, primarily due to
the inclusion of lower-margin revenues at Continental and the mix of
products sold at Lorad. The Personal-care Products and Services segment
gross profit margin was 23% in fiscal 1997, compared with 29% in fiscal
1996. ThermoLase's hair-removal business reported gross profit of $1.1
million in fiscal 1997, compared with gross profit of $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 the
Company develops a client base and continues refining its operating
11PAGE
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THERMOTREX CORPORATION
Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996
(continued)
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. As
ThermoLase continues to open additional Spa Thira locations in fiscal
1997, the effect of operating each spa below maximum capacity as
ThermoLase develops its client base, as well as pre-opening costs, will
have a negative impact on its gross profit margin. The Company believes
that improvements in the efficacy and duration of the SoftLight process,
including the successful implementation of SoftLight 2.0, are critical
elements in its ability to improve the profitability of its spas.
Selling, general, and administrative expenses as a percentage of
revenues increased to 26% in the third quarter of fiscal 1997 from 24% in
the third quarter of fiscal 1996. Increased spending in the Personal-care
Products and Services segment related to the cost of expanding
ThermoLase's personal-care service organization for its Spa Thira salons
and licensing programs, as well as national advertising costs and
patent-related legal costs, was offset in part by a decrease in expenses
as a percentage of revenues in the Medical Products segment, primarily
due to an increase in revenues.
Research and development expenses increased to $8.4 million in the
third quarter of fiscal 1997 from $5.6 million in the third quarter of
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 skin-resurfacing process, and the
investigation of other health and beauty applications for its proprietary
laser technology. Research and development expenses at Trex Medical
increased to $6.2 million in fiscal 1997 from $4.8 million in fiscal
1996, due to an increase of $1.7 million resulting from the acquisitions
of XRE and Continental, offset in part by a decrease in spending at
Lorad. Research and development expenses at Trex Medical reflect its
continued efforts to develop and commercialize new products, including
the full-breast digital mammography system and direct-detection X-ray
sensor, as well as enhancements of existing systems.
Interest income decreased to $0.9 million in the third quarter of
fiscal 1997 from $1.4 million in the third quarter of fiscal 1996,
primarily due to lower average invested balances, which resulted
primarily from property and equipment expenditures for ThermoLase's Spa
Thira salons and licensing programs. Interest expense decreased to
$11,000 in fiscal 1997 from $112,000 in fiscal 1996 due to the September
1996 repayment of the $8.0 million promissory note issued to Thermo
Electron Corporation (Thermo Electron) in September 1995, offset in part
by interest expense associated with the $2.0 million promissory note
issued on similar terms to Thermo Electron in September 1996. The $2.0
million promissory note was repaid in April 1997.
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THERMOTREX CORPORATION
Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996
(continued)
Equity in losses of joint ventures in the accompanying statement of
income represents ThermoLase's proportionate share of losses from its
international joint ventures.
The Company recorded minority interest income of $0.5 million in the
third quarter of fiscal 1997, compared with minority interest expense of
$0.2 million in the third quarter of fiscal 1996, as a result of an
increase in ThermoLase's net loss, offset in part by an increase in Trex
Medical's net income.
The effective tax rate in each period differs from the statutory
federal income tax rate due to nondeductible amortization of cost in
excess of net assets of acquired companies and the impact of state income
taxes.
First Nine Months Fiscal 1997 Compared With First Nine Months Fiscal 1996
Total revenues increased 60% to $205.8 million in the first nine
months of fiscal 1997 from $128.6 million in the first nine months of
fiscal 1996. Medical Products segment revenues, excluding intersegment
sales, increased 64% to $161.2 million in fiscal 1997 from $98.3 million
in fiscal 1996. Revenues increased $50.7 million as a result of the
acquisitions of Continental in September 1996 and XRE in May 1996. In
addition, revenues at Lorad, excluding intersegment sales, increased 14%
as a result of increased sales of higher-priced mammography systems and
increased demand for biopsy systems.
Personal-care Products and Services segment revenues increased 60% to
$33.2 million in the first nine months of fiscal 1997 from $20.7 million
in the first nine months of fiscal 1996. ThermoLase earned revenues from
hair-removal services of $14.7 million in fiscal 1997, compared with $2.6
million in fiscal 1996. The increase in revenues resulted primarily from
an increase in the number of spas to 12, eight of which opened in fiscal
1997, compared with two spas open during the first nine months of fiscal
1996. 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 produced only nominal revenues during the first nine
months of fiscal 1996. In addition, revenues from hair-removal services
in fiscal 1997 included $2.7 million of minimum guaranteed payments
relating to ThermoLase's international licensing arrangements, including
$1.7 million in payments received upon granting technology rights under
certain of such agreements, compared with $1.3 million in fiscal 1996.
Revenues at CBI increased slightly to $18.4 million in fiscal 1997 from
$18.1 million in fiscal 1996.
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $11.4 million in the first nine months of fiscal 1997
from $9.6 million in the first nine months of fiscal 1996.
The gross profit margin was 35% in the first nine months of fiscal
1997, compared with 40% in the first nine months of fiscal 1996. The
Medical Products segment gross profit margin, excluding intersegment
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THERMOTREX CORPORATION
First Nine Months Fiscal 1997 Compared With First Nine Months Fiscal 1996
(continued)
sales, declined to 39% in fiscal 1997 from 43% in fiscal 1996, due to the
reasons described in the result of operations for the third quarter. The
Personal-care Products and Services segment gross profit margin was 20%
in fiscal 1997, compared with 32% in fiscal 1996. ThermoLase's hair-
removal business reported gross profit of $0.8 million in fiscal 1997,
compared with gross profit of $0.3 million in fiscal 1996. The gross
profit margin was affected in both periods by the factors discussed in
the results of operations for the third quarter. The decline in the
Personal-care Products and Services segment gross profit margin in fiscal
1997 also resulted from lower margins on the sale of skin-care and other
personal-care products at CBI due to a continued shift to lower-margin
products.
Selling, general, and administrative expenses as a percentage of
revenues increased to 25% in the first nine months of fiscal 1997 from
24% in the first nine months of fiscal 1996, primarily due to the reasons
described in the results of operations for the third quarter.
Research and development expenses increased to $23.5 million in the
first nine months of fiscal 1997 from $15.9 million in the first nine
months of fiscal 1996, primarily due to increased spending at Trex
Medical and, to a lesser extent, increased spending at ThermoLase due to
the reasons described in the results of operations for the third quarter.
Research and development expenses at Trex Medical increased to $18.5
million in fiscal 1997 from $12.9 million in fiscal 1996, primarily due
to an increase of $5.4 million resulting from the acquisitions of XRE and
Continental.
Interest income decreased to $3.3 million in the first nine months of
fiscal 1997 from $4.3 million in the first nine months of fiscal 1996,
primarily due to the reasons described in the results of operations for
the third quarter. Interest expense decreased to $0.1 million in fiscal
1997 from $0.4 million in fiscal 1996 due to the reasons discussed in the
results of operations for the third quarter.
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell
a minority interest to outside investors. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiaries through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the
subsidiaries' growth. As a result of the sale of stock by Trex Medical,
the Company recorded gains of $2.0 million in the first nine months of
fiscal 1997 and $13.5 million in the first nine months of fiscal 1996
(Note 3). The size and timing of these transactions are dependent on
market and other conditions that are beyond the Company's control.
Accordingly, there can be no assurance that the Company will be able to
realize gains from such transactions in the future.
Equity in losses of joint ventures in the accompanying statement of
income represents ThermoLase's proportionate share of losses from its
international joint ventures.
14PAGE
<PAGE>
THERMOTREX CORPORATION
First Nine Months Fiscal 1997 Compared With First Nine Months Fiscal 1996
(continued)
Minority interest income was $1.2 million in the first nine months of
fiscal 1997, compared with minority interest expense of $0.4 million in
the first nine months of fiscal 1996. Minority interest income in fiscal
1997 resulted from the reason discussed in the results of operations for
the third quarter.
The effective tax rate in the first nine months of fiscal 1997 was
affected by nondeductible amortization of cost in excess of net assets of
acquired companies and state income taxes, offset by nontaxable gains on
issuance of stock by subsidiary. The effective tax rate in the first nine
months of fiscal 1996 was below the statutory income tax rate primarily
due to nontaxable gains on issuance of stock by subsidiary, offset in
part by nondeductible amortization of cost in excess of net assets of
acquired companies and the impact of state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $97.6 million at June 28, 1997,
compared with $127.9 million at September 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$45.3 million at June 28, 1997, compared with $95.6 million at September
28, 1996. Of the $45.3 million balance at June 28, 1997, $30.2 million
was held by Trex Medical, $8.1 million was held by ThermoLase, and the
remainder was held by the Company and its wholly owned subsidiaries.
Net cash used in operating activities during the first nine months of
fiscal 1997 was $17.1 million. During this period, $14.5 million of cash
was used to fund an increase in inventories and unbilled contract costs
and fees. Inventories at Trex Medical increased primarily to support its
increase in sales, new product introductions at Bennett and Lorad, and,
to a lesser extent, materials required for commitments under an OEM
agreement. An increase in accounts receivable used $11.7 million of cash,
due primarily to the timing of third quarter shipments at Lorad, as well
as Trex Medical's increased sales to international customers, which have
longer payment cycles. These uses of cash were offset in part by $6.1
million provided by an increase in other current liabilities.
Excluding available-for-sale investments activity, the Company's
investing activities during the first nine months of fiscal 1997
consisted primarily of $23.9 million of expenditures for property, plant,
and equipment. In July 1997, the Company acquired all of the outstanding
common stock of Computer Communications Specialists, Inc. (CCS) for
approximately $10.0 million in cash, subject to a post-closing
adjustment, and repaid approximately $1.0 million of pre-acquisition
liabilities immediately after closing. CCS develops and markets
interactive voice-response systems that enable callers to access a wide
variety of information by pressing buttons on a touch-tone phone. To
finance this acquisition, the Company borrowed $11.0 million from Thermo
Electron Corporation (Thermo Electron) pursuant to a promissory note due
October 5, 1998, and bearing interest at the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each
quarter.
15PAGE
<PAGE>
THERMOTREX CORPORATION
Liquidity and Capital Resources (continued)
The Company's financing activities used $8.4 million of cash during
the nine months ended June 28, 1997. In September 1996, ThermoLase's
Board of Directors authorized the repurchase by ThermoLase of up to $10.0
million of its common stock through August 28, 1997, in market
transactions or pursuant to the exercise by investors of standardized put
options written on its common stock. In April 1997, ThermoLase's Board of
Directors authorized the repurchase by ThermoLase, through April 25,
1998, of up to an additional $10.0 million of its common stock. During
the first nine months of fiscal 1997, ThermoLase repurchased 924,300
shares of its common stock for $11.3 million in market transactions and
pursuant to the exercise of standardized put options.
On April 2, 1997, ThermoLase completed an exchange offer whereby its
shareholders had the opportunity to exchange one share of its existing
common stock and $3.00 for a new unit consisting of one share of
ThermoLase common stock and one redemption right. The redemption right
entitles the holder to sell the related share of common stock to
ThermoLase for $20.25 during the period from April 3, 2001, through April
30, 2001. The redemption right will expire and become worthless if the
closing price of ThermoLase common stock is at least $26.00 for 20 of any
30 consecutive trading days. The redemption rights are guaranteed on a
subordinated basis by Thermo Electron. The Company and Thermo Electron
are parties to a Master Reimbursement Agreement whereby the Company would
be required to reimburse Thermo Electron for any and all payments made by
Thermo Electron under the guarantee. 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 $0.5 million in cash, net of
expenses (Note 2).
In connection with certain of ThermoLase's joint venture
arrangements, it provided $1.1 million in cash funding during the first
nine months of fiscal 1997, and has agreed to provide up to an additional
$5.5 million.
Thermo Electron has agreed to loan ThermoLase up to $25.0 million,
due October 5, 1998, to the extent ThermoLase's working capital needs and
liquidity require, at an interest rate equal to the 90-day Commercial
Paper Composite Rate plus 25 basis points, set at the beginning of each
quarter.
ThermoLase has signed leases to open three additional Spa Thiras
which it expects to open in the fourth quarter of fiscal 1997 or early in
fiscal 1998. Depending on its size, each spa will require approximately
$1.5 million to $2.5 million for such items as leasehold improvements and
laser systems. After completing these three spas, ThermoLase expects to
concentrate its resources on increasing the capacity utilization of the
fifteen U.S. spas that will then be open, 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 $1.0 million
to $1.5 million during the remainder of fiscal 1997 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 physicians and other domestic and
16PAGE
<PAGE>
THERMOTREX CORPORATION
Liquidity and Capital Resources (continued)
international licensees engaged in licensing programs. In addition, the
Company plans to make capital expenditures of approximately $1.4 million
for its other businesses during the remainder of fiscal 1997. The Company
expects that it will finance growth at its publicly held and wholly owned
subsidiaries through a combination of internal funds, additional debt or
equity financing, and/or short-term borrowings from Thermo Electron,
although, other than as described above, it has no agreement to ensure
that funds will be available from Thermo Electron on acceptable terms or
at all.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
17PAGE
<PAGE>
THERMOTREX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 1st day of August
1997.
THERMOTREX CORPORATION
Paul F. Kelleher
---------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
18PAGE
<PAGE>
THERMOTREX CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.1 Promissory Note Due October 5, 1998, issued by the
Company to Thermo Electron Corporation.
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.
EXHIBIT 10.1
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT WITH A VIEW
TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED,
MORTGAGED, HYPOTHECATED OR OTHERWISE TRANSFERRED (1) WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THESE
SECURITIES OR (2) UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
THERMOTREX CORPORATION
Promissory Note Due October 5, 1998
Waltham, Massachusetts
July 31, 1997
For value received, ThermoTrex Corporation, a Delaware
corporation (the "Company"), hereby promises to pay to Thermo
Electron Corporation (hereinafter referred to as the "Payee"), or
registered assigns, on a subordinated basis, on October 5, 1998,
as described below, the principal sum of eleven million dollars
($11,000,000) or such part thereof as then remains unpaid, to pay
interest from the date hereof on the whole amount of said
principal sum remaining from time to time unpaid at a rate per
annum equal to the rate of the Commercial Paper Composite Rate as
reported by Merrill Lynch Capital Markets, as an average of the
last five business days of the fiscal quarter, plus twenty-five
(25) basis points, such interest to be payable in arrears on the
first day of each fiscal quarter of the Company during the term
set forth herein, until the whole amount of the principal hereof
remaining unpaid shall become due and payable, and to pay
interest on all overdue principal and interest at a rate per
annum equal to the rate of interest announced from time to time
by The First National Bank of Boston at its head office in
Boston, Massachusetts as its "base rate" plus one percent (1%).
Principal and all accrued but unpaid interest shall be repaid on
October 5, 1998. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Payee or at such
other place as the legal holder may designate from time to time
in writing to the Company. Interest shall be computed on an
actual 360-day basis.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. All
prepayments shall be applied first to accrued interest and then
to principal.
1PAGE
<PAGE>
The then unpaid principal amount of, and interest
outstanding on, this Note shall be and become immediately due and
payable without notice or demand, at the option of the holder
hereof, upon the occurrence of any of the following events:
(a) the failure of the Company to pay any amount due
hereunder within ten (10) days of the date when due;
(b) any representation, warranty or statement made or
furnished to the Payee by the Company in connection with
this Note or the transaction from which it arises shall
prove to have been false or misleading in any material
respect as of the date when made or furnished;
(c) the failure of the Company to pay its debts as
they become due, the insolvency of the Company, the filing
by or against the Company of any petition under the U.S.
Bankruptcy Code (or the filing of any similar petition under
the insolvency law of any jurisdiction), or the making by
the Company 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
Company;
(d) the sale by the Company of all or substantially
all of its assets;
(e) the merger or consolidation of the Company with or
into any other corporation in a transaction in which the
Company is not the surviving entity;
(f) 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 Company or any liability or obligation of the Company to
the holder hereof; and
(g) the suspension of the transaction of the usual
business of the Company.
Upon surrender of this Note for transfer or exchange, a new
Note or new Notes of the same tenor dated the date to which
interest has been paid on the surrendered Note and in an
aggregate principal amount equal to the unpaid principal amount
of the Note so surrendered will be issued to, and registered in
the name of, the transferee or transferees. The Company may
treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all
other purposes.
2PAGE
<PAGE>
In case any payment herein provided for shall not be paid
when due, the Company further promises to pay all cost of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Payee in exercising
any right hereunder shall operate as a waiver of such right or of
any other right of the Payee, 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 Company
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 Payee.
This Note shall be governed by and construed in accordance
with, the laws of the Commonwealth of Massachusetts and shall
have the effect of a sealed instrument.
THERMOTREX CORPORATION
By:
__________________________________
Gary S. Weinstein
Chairman and Chief Executive Officer
[Corporate Seal]
Attest:
____________________________
Sandra L. Lambert
Secretary
cc: Seth Hoogasian
Maureen Jacobs
Sandra Lambert
Karen Levin
Andy Pilla
Gina Silvestri
David Teitel
Chris Vinchesi
AA972120022
3PAGE
<PAGE>
Exhibit 11
THERMOTREX CORPORATION
Computation of Earnings per Share
Three Months Ended Nine Months Ended
------------------------ ------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
--------------------------------------------------------------------------
Computation of Primary
Earnings per Share:
Net Income (a) $ 285,000 $ 1,071,000 $ 3,236,000 $17,346,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 19,221,684 19,089,459 19,201,774 19,060,087
Add: Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) - 630,765 - 621,998
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 19,221,684 19,720,224 19,201,774 19,682,085
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .01 $ .05 $ .17 $ .88
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOTREX
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 38,267
<SECURITIES> 6,986
<RECEIVABLES> 49,828
<ALLOWANCES> 1,767
<INVENTORY> 47,817
<CURRENT-ASSETS> 158,847
<PP&E> 64,386
<DEPRECIATION> 13,619
<TOTAL-ASSETS> 319,535
<CURRENT-LIABILITIES> 61,281
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0
0
<COMMON> 192
<OTHER-SE> 177,005
<TOTAL-LIABILITY-AND-EQUITY> 319,535
<SALES> 205,835
<TOTAL-REVENUES> 205,835
<CGS> 133,068
<TOTAL-COSTS> 133,068
<OTHER-EXPENSES> 23,544
<LOSS-PROVISION> 266
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