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 January 3, 1998.
[ ] 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
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 January 30, 1998
---------------------------- -------------------------------
Common Stock, $.01 par value 18,710,376
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOTREX CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
January 3, September 27,
(In thousands) 1998 1997
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $212,918 $135,720
Available-for-sale investments, at quoted
market value (amortized cost of $19,145
and $17,520) 19,142 17,499
Accounts receivable, less allowances of
$2,066 and $1,969 69,588 58,632
Unbilled contract costs and fees 4,155 4,651
Inventories:
Raw materials and supplies 27,292 27,860
Work in process 15,056 13,474
Finished goods 7,236 6,870
Prepaid expenses 4,427 3,422
Prepaid income taxes 10,638 11,877
-------- --------
370,452 280,005
-------- --------
Property, Plant, and Equipment, at Cost 68,233 67,957
Less: Accumulated depreciation and
amortization 15,460 15,568
-------- --------
52,773 52,389
-------- --------
Notes Receivable from Related Parties (Note 2) 4,967 3,300
-------- --------
Prepaid Income Taxes and Other Assets 17,101 13,831
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 5) 106,748 100,592
-------- --------
$552,041 $450,117
======== ========
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THERMOTREX CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
January 3, September 27,
(In thousands except share amounts) 1998 1997
------------------------------------------------------------------------
Current Liabilities:
Note payable to parent company $ 11,000 $ 11,000
Accounts payable 18,823 21,373
Accrued payroll and employee benefits 7,833 8,863
Accrued warranty costs 6,269 6,299
Accrued commissions 4,893 3,922
Other accrued expenses 26,628 24,245
Due to parent company and affiliated
companies 1,927 2,027
-------- --------
77,373 77,729
-------- --------
Long-term Obligations:
3 1/4% Subordinated convertible debentures
(Note 3) 124,500 -
4 3/8% Subordinated convertible debentures 115,000 115,000
-------- --------
239,500 115,000
-------- --------
Deferred Income Taxes 346 -
-------- --------
Deferred Lease Liability 1,441 1,379
-------- --------
Common Stock of Subsidiary Subject to
Redemption 40,500 40,500
-------- --------
Minority Interest 40,009 39,374
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000
shares authorized; 19,347,122 and
19,251,769 shares issued 193 193
Capital in excess of par value 70,574 78,601
Retained earnings 98,954 97,597
Treasury stock at cost, 711,046 and
8,747 shares (16,847) (243)
Net unrealized loss on available-for-
sale investments (2) (13)
-------- --------
152,872 176,135
-------- --------
$552,041 $450,117
======== ========
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
-------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
------------------------------------------------------------------------
Revenues $ 85,555 $ 62,826
-------- --------
Costs and Operating Expenses:
Cost of revenues 51,865 40,053
Selling, general, and administrative expenses 20,392 14,864
Research and development expenses 9,391 7,370
-------- --------
81,648 62,287
-------- --------
Operating Income 3,907 539
Interest Income 3,271 1,279
Interest Expense (includes $172 and $30 to
related party) (2,233) (30)
Gain on Issuance of Stock by Subsidiary - 1,997
Equity in Losses of Joint Ventures (400) -
-------- --------
Income Before Provision for Income Taxes and
Minority Interest 4,545 3,785
Provision for Income Taxes 2,310 977
Minority Interest Expense 878 45
-------- --------
Net Income $ 1,357 $ 2,763
======== ========
Basic and Diluted Earnings per Share (Note 4) $ .07 $ .14
======== ========
Weighted Average Shares (Note 4):
Basic 19,017 19,181
======== ========
Diluted 19,313 19,660
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOTREX CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 1,357 $ 2,763
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 3,355 1,842
Provision for losses on accounts
receivable 134 156
Gain on issuance of stock by subsidiary - (1,997)
Minority interest expense 878 45
Increase in long-term prepaid income
taxes (1,206) -
Other 572 -
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable (10,829) (1,763)
Inventories and unbilled contract
costs and fees (575) (6,921)
Other current assets 253 (1,187)
Accounts payable (2,549) (743)
Other current liabilities 1,926 5,211
-------- --------
Net cash used in operating activities (6,684) (2,594)
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 5) (7,174) -
Purchases of available-for-sale investments (4,000) -
Proceeds from sale and maturities of
available-for-sale investments 2,400 26,500
Purchases of property, plant, and equipment (2,584) (9,530)
Advance pursuant to note receivable from
related party (Note 2) (1,667) -
Other (25) 510
-------- --------
Net cash provided by (used in) investing
activities $(13,050) $ 17,480
-------- --------
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THERMOTREX CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of Company and
subsidiary common stock and sale of
subsidiary put options $ 724 $ 5,179
Purchases of Company and subsidiary common
stock (24,718) (2,179)
Net proceeds from issuance of subordinated
convertible debentures (Note 3) 121,814 -
Payment of withholding taxes related to
stock option exercises (888) (523)
-------- --------
Net cash provided by financing activities 96,932 2,477
-------- --------
Increase in Cash and Cash Equivalents 77,198 17,363
Cash and Cash Equivalents at Beginning of Period 135,720 43,940
-------- --------
Cash and Cash Equivalents at End of Period $212,918 $ 61,303
======== ========
Noncash Activities:
Fair value of assets of acquired company $ 7,787 $ -
Cash paid for acquired company (7,176) -
-------- --------
Liabilities assumed of acquired company $ 611 $ -
======== ========
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
January 3, 1998, and the results of operations and the cash flows for the
three-month periods ended January 3, 1998, and December 28, 1996. The
Company's results of operations for the three-month periods ended January
3, 1998, and December 28, 1996, include 14 weeks and 13 weeks,
respectively. Interim results are not necessarily indicative of results
for a full year.
The consolidated balance sheet presented as of September 27, 1997,
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 27, 1997, filed
with the Securities and Exchange Commission.
2. Related-party Note Receivable
In October 1997, the Company's ThermoLase Corporation (ThermoLase)
subsidiary advanced $1.7 million to ThermoLase U.K. Limited pursuant to a
note receivable, due December 31, 2003, and bearing interest at 8.0%,
payable annually. ThermoLase U.K. Limited, a subsidiary of a joint
venture that is 50%-owned by ThermoLase, is marketing ThermoLase's
SoftLight system in England.
3. Subordinated Convertible Debentures
In November 1997, the Company issued and sold at par value $124.5
million principal amount of 3 1/4% subordinated convertible debentures
due 2007, for net proceeds of $121.8 million. 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 Corporation.
4. Earnings per Share
During the first quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per
Share." As a result, all previously reported earnings per share have been
restated; however, basic and diluted earnings per share equals the
Company's previously reported earnings per share for the fiscal 1997
period. Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the
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THERMOTREX CORPORATION
4. Earnings per Share (continued)
period. Diluted earnings per share have been computed assuming the
exercise of stock options and their related income tax effect. Basic and
diluted earnings per share were calculated as follows:
Three Months Ended
-------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
-----------------------------------------------------------------------
Basic
Net income $ 1,357 $ 2,763
------- -------
Weighted average shares 19,017 19,181
------- -------
Basic earnings per share $ .07 $ .14
======= =======
Diluted
Net income $ 1,357 $ 2,763
Effect of majority-owned subsidiaries'
dilutive securities (18) (27)
------- -------
Income available to common shareholders,
as adjusted $ 1,339 $ 2,736
------- -------
Weighted average shares 19,017 19,181
Effect of stock options 296 479
------- -------
Weighted average shares, as adjusted 19,313 19,660
------- -------
Diluted earnings per share $ .07 $ .14
======= =======
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of January 3, 1998, there were 215,000
of such options outstanding, with exercise prices ranging from $26.69 to
$43.88 per share. In addition, the computation of diluted earnings per
share excludes the effect of assuming the conversion of the Company's
$124.5 million principal amount of 3 1/4% subordinated convertible
debentures, convertible at $27.00 per share, because the effect would be
antidilutive.
5. Acquisition
In October 1997, the Company's Trex Medical Corporation subsidiary
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.
To date, no information has been gathered that would cause the Company to
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THERMOTREX CORPORATION
5. Acquisition (continued)
believe that such post-closing adjustment will be material. The cost of
this acquisition exceeded the estimated fair value of the acquired net
assets by $7.1 million, which is being amortized over 15 years.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the heading "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 27, 1997, filed with the Securities and Exchange
Commission.
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.
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THERMOTREX CORPORATION
Overview (continued)
ThermoLase has developed a laser-based system called SoftLight(R) 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 January 3, 1998, had a total of 14 domestic Spa Thira locations.
Rather than continuing to open additional domestic Spa Thira locations,
ThermoLase presently intends to concentrate its resources on attempting
both to increase the capacity utilization of its existing U.S. spas and
to expand its physicians' licensing program and international licensing
arrangements, discussed below. 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. In December 1997,
the Company established a joint venture to market the SoftLight system in
Australia, Cyprus, Germany, Greece, New Zealand, South Africa, and Spain.
ThermoLase's international arrangements resulted in the opening of spas
in Paris in May 1997 and in Lugano, Switzerland, in October 1997.
In September 1997, ThermoLase introduced a modification to its
hair-removal treatment, called SoftLight 2.0. Although clinical
laboratory results were encouraging, ThermoLase has determined that
further modification is warranted, and accordingly continues to adjust
its treatment protocol. ThermoLase plans to continue research and
development as it seeks to improve the efficacy and duration of its
hair-removal treatment, and believes that such improvements 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. Following discussions with the FDA in December 1997, ThermoLase
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THERMOTREX CORPORATION
Overview (continued)
has decided to submit additional data and to focus on claims related to
skin texture rather than wrinkle treatment, in order to expedite
clearance of the application.
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 addition, Trex Communications'
Computer Communications Specialists, Inc. (CCS) subsidiary designs and
markets interactive information and voice-response systems, as well as
call-automation systems.
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 portion 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
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
Total revenues increased 36% to $85.6 million in the first quarter of
fiscal 1998 from $62.8 million in the first quarter of fiscal 1997.
Medical Products segment revenues, excluding intersegment sales,
increased 25% to $63.8 million in fiscal 1998 from $51.0 million in
fiscal 1997, primarily due to increased sales at all of Trex Medical's
existing operations. Sales increased at Lorad due to increased demand for
breast-biopsy systems, mammography system upgrade components, and mobile
X-ray systems. Sales also increased due to increased demand for XRE's
catheterization labs and Bennett's mammography systems, and due to the
inclusion of $1.5 million of revenues as a result of the acquisition of
Digitec Corporation (Digitec) in October 1997 (Note 5).
Personal-care Products and Services segment revenues increased 56% to
$13.4 million in the first quarter of fiscal 1998 from $8.6 million in
the first quarter of fiscal 1997. ThermoLase earned revenues from
hair-removal services and related activities of $7.0 million in fiscal
1998, compared with $2.6 million in fiscal 1997. The increase in revenues
resulted in part from an increase in the number of U.S. spas to 14,
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THERMOTREX CORPORATION
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
(continued)
compared with seven spas open during fiscal 1997. 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 from ThermoLase's physicians' licensing program also increased
in fiscal 1998, primarily due to an increase in the number of
physician-licensees. In addition, revenues from hair-removal services and
related activities in fiscal 1998 included $2.8 million of minimum
guaranteed payments recorded upon granting technology rights under
ThermoLase's international licensing arrangements, compared with
$0.3 million in fiscal 1997. Of the $2.8 million earned in fiscal 1998,
$0.5 million was due upon the grant of the technology rights during the
quarter, and the balance of $2.3 million is due on March 2, 1998. The
amount of minimum guaranteed payments recorded by ThermoLase will vary
depending on its ability to enter into additional international licensing
arrangements, the availability of additional territories, and the terms
of any such arrangements. Revenues at CBI increased to $6.4 million in
fiscal 1998 from $6.0 million in fiscal 1997. 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.
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $8.4 million in the first quarter of fiscal 1998 from
$3.2 million in the first quarter of fiscal 1997. Revenues increased $4.1
million due to the inclusion of product revenues from CCS, acquired in
July 1997.
The gross profit margin was 39% in the first quarter of fiscal 1998,
compared with 36% in the first quarter of fiscal 1997. The Medical
Products segment gross profit margin, excluding intersegment sales,
increased to 42% in fiscal 1998 from 39% in fiscal 1997, primarily due to
an increase in higher-margin direct sales at XRE and margin improvements
on certain products at Lorad. To a lesser extent, the gross profit margin
at Trex Medical increased due to the inclusion of higher-margin revenues
at Digitec and margin improvements at Continental and Bennett. The
Personal-care Products and Services segment gross profit margin was 26%
in fiscal 1998, compared with 21% in fiscal 1997. ThermoLase's
hair-removal business reported gross profit of $1.4 million in fiscal
1998, compared with gross profit of negative $0.2 million in fiscal 1997.
Each period was impacted by the early operations of the Spa Thira
business, which has been operating below maximum capacity as ThermoLase
seeks to develop its client base and refine its process and operating
procedures, 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
addition, fiscal 1997 was negatively impacted by pre-opening costs
incurred in connection with new spa openings. During the remainder of
fiscal 1998, the effect of operating each spa below maximum capacity, as
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THERMOTREX CORPORATION
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
(continued)
ThermoLase seeks to develop its client base and expand its product lines,
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. In December 1997, ThermoLase began introducing
traditional day spa services, such as European facials and massages, in
an effort to improve the capacity utilization of its spas. The increase
in gross profit from ThermoLase's hair-removal business was offset in
part by a decrease in the gross profit margin at CBI, due to a continued
shift to lower-margin products.
Selling, general, and administrative expenses as a percentage of
revenues was 24% in both periods. Research and development expenses
increased to $9.4 million in the first quarter of fiscal 1998 from $7.4
million in the first quarter of fiscal 1997, primarily due to increased
spending at Trex Medical and the inclusion of $0.6 million of expense at
CCS, acquired in July 1997. Trex Medical's increase in spending,
primarily at XRE and Lorad, 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. Research and development expenses at ThermoLase were
$0.9 million in both periods. ThermoLase plans to continue research and
development as it seeks to improve the efficacy and duration of its
hair-removal treatment. In addition, ThermoLase continues to develop its
SoftLight Rejuvenation Laser skin treatment and investigate other health
and beauty applications for its proprietary laser technology.
Interest income increased to $3.3 million in the first quarter of
fiscal 1998 from $1.3 million in the first quarter of fiscal 1997,
primarily due to interest income earned on the invested proceeds from the
Company's November 1997 issuance of $124.5 million principal amount of
3 1/4% subordinated convertible debentures (Note 3) and ThermoLase's
August 1997 issuance of $115.0 million principal amount of 4 3/8%
subordinated convertible debentures. Interest expense increased to $2.2
million in fiscal 1998 from $30,000 in fiscal 1997, primarily due to the
issuance of these debentures.
During the first quarter of fiscal 1997, the Company recorded a gain
of $2.0 million from the issuance of stock by subsidiary in connection
with a private placement of Trex Medical common stock.
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 expense increased to $0.9 million in the first
quarter of fiscal 1998 from $45,000 in the first quarter of fiscal 1997,
primarily due to the Company's inability to record minority interest
income in ThermoLase's net loss, because the Company's minority interest
liability related to ThermoLase has been reduced to zero. In addition,
minority interest expense increased in fiscal 1998 due to an increase in
Trex Medical's net income.
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THERMOTREX CORPORATION
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
(continued)
The effective tax rate exceeded the statutory federal income tax rate
in the first quarter of fiscal 1998 primarily due to the impact of state
income taxes and nondeductible amortization of cost in excess of net
assets of acquired companies. The effective tax rate was below the
statutory federal income tax rate in the first quarter of fiscal 1997
primarily due to a nontaxable gain on the issuance of stock by
subsidiary, offset in part by the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies.
Liquidity and Capital Resources
Consolidated working capital was $293.1 million at January 3, 1998,
compared with $202.3 million at September 27, 1997. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$232.1 million at January 3, 1998, compared with $153.2 million at
September 27, 1997. Of the $232.1 million balance at January 3, 1998,
$117.8 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 the first quarter of
fiscal 1998 was $6.7 million. An increase in accounts receivable,
primarily at Trex Medical, used $10.8 million in cash. The increase in
accounts receivable at Trex Medical was primarily due to increased sales
and, to a lesser extent, longer customer payment patterns as a result of
increased export sales at Bennett and a shift from OEM sales to direct
sales at XRE.
Excluding available-for-sale investments activity, the Company's
primary investing activities during the first quarter of fiscal 1998
included capital expenditures and an acquisition. The Company expended
$2.6 million for property, plant, and equipment and $7.2 million, net of
cash acquired, for the acquisition of Digitec (Note 5).
In connection with certain of ThermoLase's joint venture
arrangements, ThermoLase provided funding of $1.7 million during the
first quarter of fiscal 1998 (Note 2). ThermoLase has agreed to provide
additional funding of up to approximately $5.4 million under these
arrangements.
The Company's financing activities provided $96.9 million of cash
during the first quarter of fiscal 1998. In November 1997, the Company
sold at par value $124.5 million principal amount of 3 1/4% subordinated
convertible debentures due 2007 for net proceeds of $121.8 million
(Note 3).
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THERMOTREX CORPORATION
Liquidity and Capital Resources (continued)
In September 1997, ThermoLase's Board of Directors authorized the
repurchase by ThermoLase of up to 1,000,000 shares of its common stock
through September 4, 1998, in the open market, in negotiated
transactions, or pursuant to the exercise by investors of standardized
put options written on its common stock. During the first quarter of
fiscal 1998, ThermoLase repurchased 643,000 shares of its common stock
for $8.8 million. As of January 3, 1998, authorization to repurchase up
to an additional 1,016 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.
During the first quarter of fiscal 1998, the Company repurchased 672,162
shares of its common stock for $15.9 million.
In January 1998, Trex Medical filed a registration statement under
the Securities Act of 1933 with the Securities and Exchange Commission
for a public offering by Trex Medical of 4,500,000 shares of its common
stock. In addition, the underwriters are expected to be granted a 30-day
over-allotment option to purchase an additional 675,000 shares. There can
be no assurance that this offering will be completed.
In December 1997, Trex Medical signed a nonbinding letter of intent
to acquire Trophy Radiologie (Trophy), a Paris, France-based manufacturer
of dental X-ray systems specializing in digital technology. The proposed
acquisition is subject to certain conditions including completion of due
diligence and approval by the boards of directors of Trex Medical and
Trophy. The final terms of such acquisition have not been determined and
there can be no assurance that it will be completed.
ThermoLase's capital expenditures during the remainder of fiscal 1998
will primarily be affected by the number of physicians and other domestic
and international licensees engaged in its licensing programs. In
addition to expenditures by ThermoLase, the Company plans to make capital
additions of approximately $7.5 million for its other businesses during
the remainder of fiscal 1998. The Company expects that it will finance
growth at its majority-owned and wholly owned subsidiaries 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.
15PAGE
<PAGE>
THERMOTREX CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On October 10, 1997, the Company filed a Current Report on Form 8-K,
with respect to a press release issued that day, related to its estimated
earnings for the period ended September 27, 1997.
On October 10, 1997, the Company filed a Current Report on Form 8-K,
with respect to the sale of $124.5 million principal amount of 3 1/4%
subordinated convertible debentures due 2007. On October 29, 1997, the
Company filed a Current Report on Form 8-K, with respect to the pricing
of these debentures.
16PAGE
<PAGE>
THERMOTREX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 9th day of February
1998.
THERMOTREX CORPORATION
/s/ Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
17PAGE
<PAGE>
THERMOTREX CORPORATION
EXHIBIT INDEX
Exhibit
Number Description
------------------------------------------------------------------------
10.1 Amended and Restated Guarantee and Loan Agreement dated
December 12, 1997, between the Company and Thermo Electron
Corporation.
10.2 Amended and Restated Guarantee and Loan Agreement dated
December 12, 1997, between ThermoLase Corporation and
Thermo Electron Corporation (incorporated by reference from
Exhibit 10.2 to ThermoLase Corporation's Quarterly Report
on Form 10-Q for the quarter ended January 3, 1998 [File
No. 1-13104]).
10.3 Amended and Restated Guarantee and Loan Agreement dated
December 12, 1997, between Trex Medical Corporation and
Thermo Electron Corporation (incorporated by reference from
Exhibit 10.1 to Trex Medical Corporation's Quarterly Report
on Form 10-Q for the quarter ended January 3, 1998 [File
No. 1-11827]).
27 Financial Data Schedule.
EXHIBIT 10.1
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 12th day of
December, 1997, by and among Thermo Electron Corporation (the
"Parent") and those of its subsidiaries that join in this
Agreement by executing the signature page hereto (the "Majority
Owned Subsidiaries").
WITNESSETH:
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries wish to enter into various financial
transactions, such as convertible or nonconvertible debt, loans,
and equity offerings, and other contractual arrangements with
third parties (the "Underlying Obligations") and may provide
credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent
acknowledge that the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may be unable to enter into many kinds
of Underlying Obligations without a guarantee of their
performance thereunder from the Parent (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority
Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their
wholly-owned subsidiaries may borrow funds from the Parent, and
the Parent may loan funds or provide credit to the Majority Owned
Subsidiaries and their wholly-owned subsidiaries, on a short-term
and unsecured basis;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier
Majority Owned Subsidiaries ") may themselves be majority owned
subsidiaries of other Majority Owned Subsidiaries ("First Tier
Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second
Tier Majority Owned Subsidiary's Underlying Obligations may be
demanded and given without the respective First Tier Majority
Owned Subsidiary also issuing a guarantee of such Underlying
Obligation;
WHEREAS, the Parent may itself make a loan or provide other
credit to a Second Tier Majority Owned Subsidiary or its
wholly-owned subsidiaries under circumstances where the
applicable First Tier Majority Owned Subsidiary does not provide
such credit; and
WHEREAS, the Parent is willing to consider continuing to
issue Parent Guarantees and providing credit, and the Majority
Owned Subsidiaries are willing to consider continuing to provide
PAGE
<PAGE>
Credit Support Obligations and to borrow funds, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, the parties
agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
Parent as a result of the Parent Guarantee. If the
Underlying Obligation is issued by a Second Tier Majority
Owned Subsidiary or a wholly-owned subsidiary thereof, and
such Second Tier Majority Owned Subsidiary is unable to
fully indemnify the Parent (because of the poor financial
condition of such Second Tier Majority Owned Subsidiary, or
for any other reason), then the First Tier Majority Owned
Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary shall indemnify and
save harmless the Parent from any remaining liability, cost,
expense or damage (including reasonable attorneys' fees)
suffered by the Parent as a result of the Parent Guarantee.
If a Majority Owned Subsidiary or a wholly-owned subsidiary
thereof provides a Credit Support Obligation for any
subsidiary of the Parent, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the
Credit Support Obligation enforce the Credit Support
Obligation, or the Majority Owned Subsidiary or its
wholly-owned subsidiary performs under the Credit Support
Obligation for any other reason, then the Parent shall
indemnify and save harmless the Majority Owned Subsidiary or
its wholly-owned subsidiary, as applicable, from any
liability, cost, expense or damage (including reasonable
attorneys' fees) suffered by the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable, as a result
of the Credit Support Obligation. Without limiting the
foregoing, Credit Support Obligations include the deposit of
funds by a Majority Owned Subsidiary or a wholly-owned
subsidiary thereof in a credit arrangement with a banking
facility whereby such funds are available to the banking
facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also
participating in the credit arrangement with such banking
facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
PAGE
<PAGE>
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
PAGE
<PAGE>
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. 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 Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
PAGE
<PAGE>
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. If the Parent makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent thereunder. Such
guaranty shall be enforced only after the Parent, in its
reasonable judgment, determines that the Second Tier
Majority Owned Subsidiary is unable to fully perform its
obligations under the Credit Extension. If the Parent
provides Credit Extension to a wholly-owned subsidiary of a
Second Tier Majority Owned Subsidiary, the Second Tier
Majority Owned Subsidiary hereby guarantees it wholly-owned
subsidiary's obligations to the Parent thereunder and the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent hereunder. Such
guaranty by the First Tier Majority Owned Subsidiary shall
be enforced only after the Parent, in its reasonable
judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its guaranty
obligation hereunder.
6. All payments required to be made by a Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall be made within two days after receipt of notice from
the Parent. All payments required to be made by the Parent
shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
7. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made and performed
therein.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
first above written.
THERMO ELECTRON CORPORATION
By: /s/ Melissa F. Riordan
Title: Treasurer
THERMOTREX CORPORATION
By: /s/ Gary S. Weinstein
Title: President
<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 JANUARY 3,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 212,918
<SECURITIES> 19,142
<RECEIVABLES> 71,654
<ALLOWANCES> 2,066
<INVENTORY> 49,584
<CURRENT-ASSETS> 370,452
<PP&E> 68,233
<DEPRECIATION> 15,460
<TOTAL-ASSETS> 552,041
<CURRENT-LIABILITIES> 77,373
<BONDS> 239,500
0
0
<COMMON> 193
<OTHER-SE> 152,679
<TOTAL-LIABILITY-AND-EQUITY> 552,041
<SALES> 85,555
<TOTAL-REVENUES> 85,555
<CGS> 51,865
<TOTAL-COSTS> 51,865
<OTHER-EXPENSES> 9,391
<LOSS-PROVISION> 134
<INTEREST-EXPENSE> 2,233
<INCOME-PRETAX> 4,545
<INCOME-TAX> 2,310
<INCOME-CONTINUING> 1,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,357
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
