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 April 3, 1999
[ ] 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 Identification No.)
incorporation or organization)
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 April 30, 1999
Common Stock, $.01 par value 18,653,632
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOTREX CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<S> <C> <C>
April 3, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents (includes $67,129 and $146,534 under $ 94,716 $157,107
repurchase agreement with parent company)
Available-for-sale investments, at quoted market value (amortized cost - 8,076
of $8,086 in 1998)
Accounts receivable, less allowances of $4,194 and $3,671 71,484 85,790
Unbilled contract costs and fees 18,087 7,409
Inventories:
Raw materials and supplies 43,640 38,788
Work in process 26,072 20,134
Finished goods 28,413 27,301
Prepaid expenses and other assets 4,470 5,890
Prepaid and refundable income taxes 19,995 13,988
-------- --------
306,877 364,483
-------- --------
Property, Plant, and Equipment, at Cost 90,033 82,506
Less: Accumulated depreciation and amortization 27,521 21,995
-------- --------
62,512 60,511
-------- --------
Notes Receivable from Related Parties 6,667 6,667
-------- --------
Prepaid Income Taxes and Other Assets 8,408 9,200
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 4) 159,247 154,845
-------- --------
$543,711 $595,706
======== ========
2
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THERMOTREX CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 3, October 3,
(In thousands except share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Current maturities of long-term obligations $ 417 $ 435
Accounts payable 26,633 30,871
Accrued payroll and employee benefits 12,028 12,147
Accrued warranty costs 7,935 9,233
Customer deposits 4,510 5,476
Accrued commissions 6,310 7,629
Other accrued expenses (Notes 4 and 5) 39,827 31,763
Due to parent company and affiliated companies 4,351 5,252
-------- --------
102,011 102,806
-------- --------
Deferred Income Taxes 6,418 6,418
-------- --------
Deferred Lease Liability 1,514 1,172
-------- --------
Long-term Obligations:
Subordinated convertible debentures (includes $18,225 and $14,500 of 203,948 203,948
related-party debt)
Other 568 697
-------- --------
204,516 204,645
-------- --------
Common Stock of Subsidiary Subject to Redemption 40,500 40,500
-------- -------
Minority Interest 71,355 90,578
-------- -------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 19,590,466 196 196
shares issued
Capital in excess of par value 66,667 73,293
Retained earnings 73,405 94,984
Treasury stock at cost, 936,814 and 929,100 shares (20,953) (20,944)
Accumulated other comprehensive items (Note 2) (1,918) 2,058
-------- --------
117,397 149,587
-------- --------
$543,711 $595,706
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMOTREX CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues
Product revenues $ 76,372 $72,076
Other revenues 10,016 10,487
-------- --------
86,388 82,563
-------- --------
Costs and Operating Expenses:
Cost of product revenues 44,474 41,665
Cost of other revenues 18,190 11,242
Selling, general, and administrative expenses 25,762 20,769
Research and development expenses 10,527 9,515
Restructuring costs (Note 5) 1,115 -
-------- --------
100,068 83,191
-------- --------
Operating Loss (13,680) (628)
Interest Income 1,223 3,654
Interest Expense (includes $132 and $228 to parent company) (2,113) (2,522)
Gain on Issuance of Stock by Subsidiary - 23,798
Equity in Loss of Joint Ventures - (420)
Other Income 52 -
-------- --------
Income (Loss) Before Income Taxes and Minority Interest (14,518) 23,882
Income Tax (Provision) Benefit 1,787 (3,712)
Minority Interest (Expense) Income 1,356 (1,311)
-------- --------
Net Income (Loss) $(11,375) $ 18,859
======== ========
Earnings (Loss) per Share (Note 3):
Basic $ (.61) $ 1.02
======== ========
Diluted $ (.61) $ .83
======== ========
Weighted Average Shares (Note 3):
Basic 18,658 18,526
======== ========
Diluted 18,658 23,294
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues
Product revenues $154,520 $143,750
Other revenues 19,012 24,368
-------- --------
173,532 168,118
-------- --------
Costs and Operating Expenses:
Cost of product revenues 98,151 82,999
Cost of other revenues 23,896 21,773
Selling, general, and administrative expenses 54,616 41,161
Research and development expenses 20,668 18,906
Restructuring costs (Note 5) 1,115 -
-------- --------
198,446 164,839
-------- --------
Operating Income (Loss) (24,914) 3,279
Interest Income 3,081 6,925
Interest Expense (includes $262 and $557 to parent company) (4,225) (4,755)
Gain on Issuance of Stock by Subsidiary - 23,798
Equity in Loss of Joint Ventures (200) (820)
-------- --------
Income (Loss) Before Income Taxes and Minority Interest (26,258) 28,427
Income Tax (Provision) Benefit 2,883 (6,022)
Minority Interest (Expense) Income 1,796 (2,189)
-------- --------
Net Income (Loss) $(21,579) $ 20,216
======== ========
Earnings (Loss) per Share (Note 3):
Basic $ (1.16) $ 1.08
======== ========
Diluted $ (1.16) $ .93
======== ========
Weighted Average Shares (Note 3):
Basic 18,660 18,772
======== ========
Diluted 18,660 22,889
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income (loss) $(21,579) $20,216
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 9,373 6,962
Provision for losses on accounts receivable 643 437
Gain on issuance of stock by subsidiary - (23,798)
Minority interest expense (income) (1,796) 2,189
Increase in deferred income taxes - (1,050)
Other 2,745 989
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable 15,954 (11,431)
Inventories and unbilled contract costs and fees (16,499) (3,353)
Other current assets (3,764) (747)
Accounts payable (3,524) (2,703)
Other current liabilities (3,578) 2,362
-------- --------
Net cash used in operating activities (22,025) (9,927)
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 4) (20,112) (7,174)
Proceeds from sale and maturities of available-for-sale investments 8,000 4,400
Purchases of available-for-sale investments - (4,000)
Purchases of property, plant, and equipment (5,162) (5,004)
Advance pursuant to notes receivable from related parties - (1,667)
Other 291 (41)
-------- --------
Net cash used in investing activities (16,983) (13,486)
-------- --------
Financing Activities:
Net proceeds from issuance of subordinated convertible debentures - 121,814
Net proceeds from issuance of Company and subsidiaries common stock 123 68,719
Purchases of Company and subsidiaries common stock (22,647) (28,810)
Repayment of note payable to parent company - (11,000)
Payment of withholding taxes related to stock option exercises (25) (2,234)
Other (28) -
-------- --------
Net cash provided by (used in) financing activities (22,577) 148,489
-------- --------
Exchange Rate Effect on Cash (806) -
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (62,391) 125,076
Cash and Cash Equivalents at Beginning of Period 157,107 135,720
-------- --------
Cash and Cash Equivalents at End of Period $ 94,716 $260,796
======== ========
6
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
April 3, April 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Noncash Activities:
Fair value of assets of acquired companies $ 35,491 $ 7,787
Cash paid for acquired companies (27,161) (7,176)
Amount payable for acquired company (5,464) -
-------- -------
Liabilities assumed of acquired companies $ 2,866 $ 611
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
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 April 3, 1999, the results of
operations for the three- and six-month periods ended April 3, 1999, and April
4, 1998, and the cash flows for the six-month periods ended April 3, 1999, and
April 4, 1998. The Company's results of operations for the six-month periods
ended April 3, 1999, and April 4, 1998, include 26 weeks and 27 weeks,
respectively. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of October 3, 1998, 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, as amended, for the fiscal year ended
October 3, 1998, filed with the Securities and Exchange Commission.
2. Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments and unrealized net-of-tax gains and losses on
available-for-sale investments. During the second quarter of fiscal 1999 and
1998, the Company had a comprehensive loss of $14.4 million and comprehensive
income of $18.9 million, respectively. During the first six months of fiscal
1999 and 1998, the Company had a comprehensive loss of $24.3 million and
comprehensive income of $20.3 million, respectively.
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3. Earnings (Loss) per Share
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Basic and diluted earnings (loss) per share were calculated as follows:
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income (Loss) $(11,375) $ 18,859 $(21,579) $ 20,216
-------- -------- -------- --------
Weighted Average Shares 18,658 18,526 18,660 18,772
-------- -------- -------- --------
Basic Earnings (Loss) per Share $ (.61) $ 1.02 $ (1.16) $ 1.08
======== ======== ======== ========
8
<PAGE>
3. Earnings (Loss) per Share (continued)
Three Months Ended Six Months Ended
April 3, April 4, April 3, April 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Diluted
Net Income (Loss) $(11,375) $ 18,859 $(21,579) $ 20,216
Effect of:
Convertible debentures - 607 - 1,026
Majority-owned subsidiaries' dilutive securities - (26) - (44)
-------- --------- -------- ---------
Income (Loss) Available to Common Shareholders, as Adjusted $(11,375) $ 19,440 $(21,579) $ 21,198
--------- --------- --------- ---------
Weighted Average Shares 18,658 18,526 18,660 18,772
Effect of:
Convertible debentures - 4,611 - 3,902
Stock options - 157 - 215
-------- --------- -------- ---------
Weighted Average Shares, as Adjusted 18,658 23,294 18,660 22,889
-------- --------- -------- ---------
Diluted Earnings (Loss) per Share $ (.61) $ .83 $ (1.16) $ .93
======== ========= ======== =========
The computation of diluted earnings per share for the three- and six-month
periods ended April 3, 1999, excludes the effect of assuming the conversion of
the Company's $88.9 million principal amount 3 1/4% subordinated convertible
debentures, convertible at $27.00 per share, and the exercise of stock options,
because the effect would be antidilutive. As of April 3, 1999, there were
1,171,883 options outstanding, with exercise prices ranging from $0.30 to $41.98
per share.
4. Acquisition
In November 1998, the Company's Trex Communications Corporation subsidiary
acquired LNR Communications, Inc. (LNR) for approximately $18.8 million in cash
and the right to receive 1,250,000 shares of Trex Communications common stock
valued at approximately $5.0 million, net of cash and short-term securities
acquired. Of the cash portion of the purchase price, $0.5 million had not been
paid as of April 3, 1999, and was included in other accrued expenses in the
accompanying fiscal 1999 balance sheet. The arrangement with the former owners
of LNR permits them to receive shares of Trex Communications or up to $5.0
million in cash in lieu of the shares following the first anniversary of the
acquisition and ending no later than August 2000. Accordingly, the maximum
potential obligation of $5.0 million associated with this arrangement is
included in other accrued expenses in the accompanying fiscal 1999 balance
sheet. LNR is a Hauppauge, New York-based manufacturer of electronic subsystems
and turnkey earth stations for the satellite communication market.
This acquisition has been accounted for using the purchase method of
accounting, and its results have been included in the accompanying financial
statements from the date of acquisition. The aggregate cost of this acquisition
exceeded the estimated fair value of the acquired net assets by $9.2 million,
which is being amortized over 15 years. Allocation of the purchase price was
based on an estimate of the fair value of the net assets acquired and is subject
to adjustment upon finalization of the purchase price allocation. The Company
has gathered no information that indicates that the final purchase price
allocation will differ materially from preliminary estimates.
</TABLE>
9
<PAGE>
4. Acquisition (continued)
<TABLE>
<CAPTION>
Based on unaudited data, the following table presents selected financial
information of the Company and LNR on a pro forma basis, assuming the companies
had been combined since the beginning of fiscal 1998.
Three Six
Months Ended Months Ended
(In thousands except per share amounts) April 4, April 3, April 4,
1998 1999 1998
- -------------------------------------------------------- ------------------------- ------------ ----------
<S> <C> <C> <C>
Revenues $86,707 $176,316 $177,388
Net Income (Loss) 20,058 (21,802) 21,208
Earnings (Loss) per Share:
Basic 1.08 (1.17) 1.13
Diluted .89 (1.17) .97
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition of LNR been
made at the beginning of fiscal 1998.
In connection with the acquisition of LNR, Trex Communications has
undertaken a restructuring of the acquired business. This restructuring is
expected to primarily include a reduction in staffing levels. In accordance with
the requirements of Emerging Issues Task Force Pronouncement (EITF) 95-3, as
part of the cost of the acquisition, Trex Communications established a reserve
of approximately $0.9 million for restructuring LNR, primarily for severance, of
which $0.2 million was expended at April 3, 1999. As of April 3, 1999, the
remaining liability for restructuring LNR was $0.7 million and is included in
other accrued expenses in the accompanying balance sheet. Unresolved matters at
April 3, 1999, included completion of planned severances. In accordance with the
requirements of EITF 95-3, Trex Communications will finalize its restructuring
plan for LNR no later than one year from the date of acquisition.
5. Restructuring Costs
During the second quarter of fiscal 1999, the Corporation recorded
restructuring costs of $1.1 million. Restructuring costs, which were accounted
for in accordance with EITF 94-3, related to severance costs for 72 employees
across all functions at the Company's Trex Medical Corporation subsidiary and
the Company's corporate office, all of whom terminated employment in the second
quarter of fiscal 1999. As of April 3, 1999, the Company had expended $0.7
million of the established reserve. The remaining liability for severance of
$0.4 million is included in other accrued expenses in the accompanying balance
sheet as of April 3, 1999, and is expected to be paid over the following twelve
months.
In May 1999, Trex Medical announced that it plans to incur additional
restructuring and related costs of approximately $11 million, primarily for
consolidation of manufacturing facilities and severance. Trex Medical expects to
incur approximately $6 - $7 million of such costs in the third fiscal quarter
and the remainder as the related costs are incurred over the following several
quarters.
During fiscal 1998, the Company's ThermoLase Corporation subsidiary
initiated certain restructuring activities, including the announced closure of
three domestic spas and termination of a joint venture that operated its spa in
France. Two of the domestic spas were closed during the first quarter of fiscal
1999. ThermoLase announced the closure of two additional spas in May 1999, and
expects to sell or close other spas during the remainder of fiscal 1999. As of
October 3, 1998, ThermoLase had accrued $5.2 million associated with the actions
announced in fiscal 1998. During the six months ended April 3, 1999, ThermoLase
expended $2.6 million for payments associated with terminating certain
contractual agreements of the French joint venture, closing the spa in France,
and severance. As of April 3, 1999, the remaining obligation for restructuring
activities totaled $2.5 million, which primarily represents $2.3 million of
lease payments on the facilities being closed, net of assumed sublease receipts,
and ongoing costs of severance. Closure or sale of additional spas will result
in charges for asset impairment and losses on operating lease obligations,
depending on the terms of such arrangements.
10
<PAGE>
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, as
amended, for the fiscal year ended October 3, 1998, 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 subsidiary, Personal-care
Products and Services offered by the Company's ThermoLase Corporation
subsidiary, and Advanced Technology Research, including the laser communications
research performed by the Company's Trex Communications Corporation subsidiary.
Trex Medical designs, manufactures, and markets mammography equipment and
minimally invasive digital breast-biopsy systems; general-purpose and
specialized medical X-ray equipment, including imaging systems used during
interventional cardiac procedures such as balloon angioplasty; and dental X-ray
systems. Trex Medical sells its products principally through dealers and direct
sales. In addition, Trex Medical manufactures systems and system components as
an original equipment manufacturer (OEM) for the General Electric Medical
Systems division of the General Electric Company. Trex Medical has five
operating units: Lorad, a manufacturer of mammography and digital breast-biopsy
systems; Bennett X-Ray Corporation, a manufacturer of general-purpose X-ray,
mammography, and breast-biopsy equipment; XRE Corporation, a manufacturer of
X-ray imaging systems used in the diagnosis and treatment of coronary artery
disease and other vascular conditions, and a manufacturer of physiological
monitoring equipment and digital-image archiving and networking systems used in
cardiac catheterization procedures; Continental X-Ray Corporation, a
manufacturer of general-purpose and specialized X-ray systems; and Trophy
Radiologie S.A., a French manufacturer of dental and medical X-ray systems,
specializing in digital dental technology.
During fiscal 1999, Trex Medical experienced a decline in business due to
the loss of an OEM customer and lower demand for its products resulting from a
decline in the domestic and international radiographic market and a decline in
international sales of cardiac catheterization systems. In response, Trex
Medical initiated small-scale restructuring activities in the second quarter of
fiscal 1999 and followed these actions with a larger restructuring plan in the
third quarter of fiscal 1999. The restructuring activities announced in the
third quarter include consolidation of manufacturing facilities and headcount
reductions to achieve product material cost improvements and focus on cost
efficiencies. Trex Medical expects to record restructuring and other charges of
approximately $11 million relating to these actions, of which approximately $6 -
$7 million will be recorded in the third fiscal quarter and the remainder will
be recorded as the related costs are incurred over the following several
quarters.
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 opened
its fourteenth spa in October 1997. In May 1998, ThermoLase received clearance
from the FDA to market cosmetic skin-resurfacing services using the same laser
as ThermoLase's hair-removal system. In this process, the laser's energy reacts
with an activating lotion, creating heat and mechanical energy that remove the
tough outer layer of dead skin. The treatment, known as the SoftLight Laser
Peel, is being offered at all of ThermoLase's day spa locations, as well as
through participating licensees.
11
<PAGE>
Overview (continued)
In connection with its acquisition of The Greenhouse Spa, Inc. in June
1998, a full-service, luxury, destination spa, ThermoLase converted 11 domestic
Spa Thiras to Greenhouse day spas, which, in addition to hair-removal and
skin-resurfacing services, offer more traditional day-spa services, such as
massages and facials. ThermoLase closed two of its domestic spas in November
1998, announced the closure of its Chicago and Boca Raton spas on May 7, 1999,
and expects to sell or close additional domestic spas during the remainder of
fiscal 1999. ThermoLase's future results of operations will be materially
affected by the success of the Greenhouse day spas as well as by decisions to
sell or close additional spas. Closure of spas or sale of facilities at less
than their carrying value would have a material adverse effect on future results
of operations. ThermoLase's investment in spa assets and lasers totaled
approximately $27.0 million at April 3, 1999. In addition, at April 3, 1999,
ThermoLase had operating lease commitments of approximately $24.0 million
related to its spas, other than those announced as closing in fiscal 1998. As
additional spas close in the future, the amount of lease obligations related to
such spas in excess of income from subleasing the facilities will be recorded as
a loss.
In June 1996, ThermoLase commenced a program to license to physicians and
others the right to perform the ThermoLase's patented SoftLight hair-removal
procedure. ThermoLase also provides the licensees with the lasers and lotion
that are necessary to perform the service. In June 1998, ThermoLase began to
offer the SoftLight Laser Peel procedure through its spas and other licensees.
During the second quarter of fiscal 1998, ThermoLase began to experience a
decrease in revenues from its hair-removal services. In response to this trend
and in an attempt to establish price points and other conditions designed to
increase demand and revenues, in April 1998 ThermoLase significantly reduced
treatment prices at its spa locations and has modified the terms and conditions
offered to licensees. Under the terms of the modified licenses, per-procedure
royalties have been reduced or eliminated and a minimum royalty and/or flat
periodic fee requirement was introduced. In addition, ThermoLase now offers
licensees the opportunity to purchase or lease SoftLight lasers in lieu of
paying ongoing license fees. As a result of these changes and other factors,
there has been a net reduction of 48% in the number of licensees from the number
under agreement at the end of fiscal 1998.
Beginning in January 1996, ThermoLase sought to market the SoftLight
system internationally through joint ventures and other licensing arrangements.
ThermoLase liquidated its joint venture relating to the SoftLight system in
France in the fourth quarter of fiscal 1998 and has terminated its licensing
arrangements in certain other countries. ThermoLase is no longer seeking to
expand its international presence.
ThermoLase also manufactures and markets skin-care, bath, and body
products, and markets dietary supplements through its Creative Beauty
Innovations, Inc. (CBI) subsidiary, which also manufactures the lotion used in
the SoftLight hair-removal and skin-resurfacing processes.
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. In May 1998, Trex Communications acquired
Electro-Magnetic Processes, Inc. (EMP), which designs, develops, and
manufactures ground-based satellite communication systems and develops and
integrates telemetry systems used on military aircraft. In November 1998, Trex
Communications acquired LNR Communications, Inc. (LNR), which manufactures
electronic subsystems and turnkey earth stations for the satellite communication
market.
The Company conducts all of its manufacturing operations (other than those
of Trophy) in the United States, and sells its products worldwide. The Company
anticipates that an increasing amount of its revenues will be from sales to
customers outside the United States. Although the Company seeks to charge its
customers in the same currency as its operating costs, 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. The Company may use forward contacts to reduce its exposure to
currency fluctuations.
12
<PAGE>
Results of Operations
Second Quarter Fiscal 1999 Compared With Second Quarter Fiscal 1998
Total revenues increased to $86.4 million in the second quarter of fiscal
1999 from $82.6 million in the second quarter of fiscal 1998. Revenues from the
Medical Products segment, excluding intersegment sales, decreased to $59.2
million in fiscal 1999 from $66.1 million in fiscal 1998. Revenues increased
$15.6 million as a result of the acquisition of Trophy in April 1998. Excluding
Trophy, Medical Products segment revenues decreased $22.5 million. Revenues
decreased at XRE by $9.6 million, primarily due to the inclusion in fiscal 1998
of a $6.7 million cardiac catherization system sale to a Russian customer and,
to a lesser extent, lower demand. Revenues decreased at Lorad by $7.9 million,
primarily due to the termination of an OEM contract with United States Surgical
Corporation (U.S. Surgical), which accounted for $11.3 million of revenues in
the fiscal 1998 period. This decrease was offset in part by higher demand for
mammography systems and mammography system upgrade components. Revenues
decreased at Bennett and Continental primarily due to lower demand in both
businesses for general-purpose X-ray systems and, at Continental, for
radiographic/fluoroscopic systems.
Personal-care Products and Services segment revenues increased to $9.8
million in the second quarter of fiscal 1999 from $8.1 million in the second
quarter of fiscal 1998. ThermoLase earned service revenues of $4.0 million in
fiscal 1999, compared with $2.9 million in fiscal 1998, primarily due to the
inclusion of $1.1 million in revenues from The Greenhouse Spa, Inc., acquired in
June 1998. International revenues increased due to the receipt of a $0.2 million
final installment of a minimum guaranteed payment recorded upon granting
technology rights under an international licensing arrangement and an increase
in licensing fees. Spa revenues increased as a result of ThermoLase's recent
conversion of its existing spas to Greenhouse day spas, offset in part by a
decrease in revenue due to the closure of ThermoLase's LaJolla and Miami spas
during the first quarter of fiscal 1999. These increases in service revenues
were offset in part by a decrease in revenues from ThermoLase's licensing
program in fiscal 1999 compared with fiscal 1998, due to a reduction in the
number of participating licensees, a reduction in royalty rates and other
changes to the financial terms of the licenses, and a decrease in the number of
one-time fees from new licensees.
Product revenues at ThermoLase include sales by CBI, and in the fiscal
1999 period, beauty product sales at ThermoLase's spas and lasers sold in
international and domestic markets. Revenues at CBI decreased to $5.0 million in
the second quarter of fiscal 1999 from $5.2 million in the second quarter of
fiscal 1998, primarily due to a decrease in private label sales, offset in part
by sales of its new branded product lines, introduced in the fourth quarter of
fiscal 1998. This decrease in CBI revenues was more than offset by revenues from
the sale of SoftLight lasers, as well as sales of beauty products at the spas.
Advanced Technology Research segment revenues, excluding segment sales,
increased to $17.4 million in the second quarter of fiscal 1999 from $8.4
million in the second quarter of fiscal 1998. Revenues increased $9.2 million
due to the inclusion of revenues from EMP, acquired in May 1998 and LNR,
acquired in November 1998.
The gross profit margin was 27% in the second quarter of fiscal 1999,
compared with 36% in the second quarter of fiscal 1998. The Medical Products
segment gross profit margin, excluding intersegment sales, decreased to 34% in
the second quarter of fiscal 1999 from 42% in the second quarter of fiscal 1998,
primarily due to lower sales of higher-margin products at a majority of Trex
Medical's operating units and inventory provisions of $2.4 million. The
Personal-care Products and Services segment gross profit margin, excluding
intersegment sales, decreased to negative 17% in fiscal 1999 from negative 13%
in fiscal 1998. ThermoLase's services revenues had a negative gross profit of
$4.0 million in fiscal 1999, compared with negative gross profit of $2.9 million
in fiscal 1998. This decrease was primarily due to an increase in spa-specific
marketing and advertising expenses related to the Company's recent conversion of
its existing spas to Greenhouse day spas. To a lesser extent, the gross profit
margin decreased due to a decline in initial sign-up fees relating to the
licensing program, which have a relatively high gross profit margin.
13
<PAGE>
Second Quarter Fiscal 1999 Compared With Second Quarter Fiscal 1998 (continued)
The gross profit margin at CBI increased to 32% in fiscal 1999 from 31% in
fiscal 1998, primarily due to a reduction in overhead. The gross profit margin
from the Advanced Technology Research segment, excluding intersegment sales,
decreased to 31% in fiscal 1999 from 36% in fiscal 1998. The decrease was
primarily due to the inclusion of lower-margin revenues at EMP and LNR.
Selling, general, and administrative expenses as a percentage of revenues
increased to 30% in the second quarter of fiscal 1999 from 25% in the second
quarter of fiscal 1998. The Medical Products segment selling, general, and
administrative expenses as a percentage of revenues, excluding intersegment
sales, increased to 29% in fiscal 1999 from 18% in fiscal 1998, primarily due to
a decrease in revenues at Trex Medical, excluding Trophy. To a lesser extent,
selling, general, and administrative expenses as a percentage of revenues
increased due to the inclusion of Trophy, which has higher costs as a percentage
of revenues. The Personal-care Products and Services segment selling, general,
and administrative expenses as a percentage of revenues decreased to 37% in
fiscal 1999 from 71% in fiscal 1998, primarily due to the ongoing cost reduction
efforts implemented by ThermoLase during the second half of fiscal 1998.
Research and development expenses increased to $10.5 million in the second
quarter of fiscal 1999 from $9.5 million in the second quarter of fiscal 1998.
An increase in research and development spending, primarily at Trex Medical due
to the inclusion of $1.9 million of expenses at Trophy, was offset in part by
ThermoLase's decrease in spending related primarily to a reduction in the number
of outside testing facilities and consultants used, as well as a reduction in
payroll costs.
Restructuring costs of $1.1 million in the second quarter of fiscal 1999
represents severance costs for the termination of certain employees, all of whom
had been terminated as of April 3, 1999 (Note 5).
Interest income decreased to $1.2 million in the second quarter of fiscal
1999 from $3.7 million in the second quarter of fiscal 1998, as a result of
lower average invested cash balances due primarily to Trex Medical's acquisition
of Trophy in April 1998 and due to the funding of losses at ThermoLase. Interest
expense decreased to $2.1 million in the second quarter of fiscal 1999 from $2.5
million in the second quarter of fiscal 1998, primarily due to the purchase by
the Company of a portion of its subordinated convertible debentures in the
fourth quarter of fiscal 1998.
During the second quarter of fiscal 1998, the Company recorded a gain of
$23.8 million from the issuance of stock by Trex Medical.
The effective tax rate in the second quarter of fiscal 1999 and 1998
reflects the establishment of a valuation allowance for the tax benefit
associated with losses arising at ThermoLase during the periods. The Company
establishes valuation allowances in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company believes that it is more likely than not that tax benefits that arose
during the periods will not be used by ThermoLase prior to their expiration. The
effective tax rate in the second quarter of fiscal 1998 was lower than the
statutory federal income tax rate primarily due to the impact of a nontaxable
gain on issuance of subsidiary stock, offset in part by the effect of
establishing a valuation allowance for ThermoLase losses and of state income
taxes and certain nondeductible expenses, including amortization of cost in
excess of net assets of acquired companies.
The Company recorded minority interest income of $1.4 million in the
second quarter of fiscal 1999, compared with minority interest expense of $1.3
million in the second quarter of fiscal 1998, primarily due to a loss at Trex
Medical in the fiscal 1999 period. The Company is unable 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.
14
<PAGE>
First Six Months Fiscal 1999 Compared With First Six Months Fiscal 1998
Total revenues increased to $173.5 million in the first six months of
fiscal 1999 from $168.1 million in the first six months of fiscal 1998. Medical
Products segment revenues, excluding intersegment sales, decreased to $123.5
million in fiscal 1999 from $129.8 million in fiscal 1998. Revenues increased
$40.7 million as a result of the acquisition of Trophy in April 1998. Excluding
Trophy, Medical Products segment revenues decreased $47.0 million. Revenues
decreased at Lorad by $21.2 million, primarily due to the loss of an OEM
contract with U.S. Surgical, which accounted for $22.8 million of revenues in
the fiscal 1998 period. This decrease was offset in part by higher demand for
mammography systems and mammography system upgrade components. Revenues
decreased at XRE, Bennett, and Continental primarily due to the reasons
discussed in the results of operations for the second quarter.
Personal-care Products and Services segment revenues decreased to $19.4
million in the first six months of fiscal 1999 from $21.5 million in the first
six months of fiscal 1998. ThermoLase earned service revenues of $6.8 million in
fiscal 1999, compared with $9.9 million in fiscal 1998. International revenues
decreased due to a decline in minimum guaranteed payments recorded upon granting
technology rights under international licensing arrangements, offset in part by
an increase in licensing fees. Revenues from ThermoLase's licensing program
decreased in fiscal 1999 compared with fiscal 1998, due to a reduction in the
number of participating licensees, a reduction in royalty rates and other
changes to the financial terms of the licenses, and a decrease in the number of
one-time fees from new licensees. Spa revenues decreased due to reduced demand
and price reductions at ThermoLase's spas in fiscal 1999 compared with fiscal
1998, as well as the closure of ThermoLase's LaJolla and Miami spas during the
first quarter of fiscal 1999. These decreases in revenues were offset in part by
the inclusion of $1.9 million in revenues from The Greenhouse Spa, Inc.,
acquired in June 1998.
Product revenues at ThermoLase include sales by CBI, and in the fiscal
1999 period, beauty product sales at ThermoLase's spas and laser sales. Revenues
at CBI decreased to $11.0 million in the first six months of fiscal 1999 from
$11.6 million in the first six months of fiscal 1998, primarily due the reasons
discussed in the results of operations for the second quarter. This decrease in
CBI revenues was more than offset by revenues from the sale of SoftLight lasers,
as well as sales of beauty products at the spas.
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $30.6 million in the first six months of fiscal 1999 from
$16.8 million in the first six months of fiscal 1998. Revenues increased $14.2
million due to the inclusion of revenues from EMP, acquired in May 1998 and LNR,
acquired in November 1998.
The gross profit margin was 30% in the first six months of fiscal 1999,
compared with 38% in the first six months of fiscal 1998. The Medical Products
segment gross profit margin, excluding intersegment sales, decreased to 37% in
the first six months of fiscal 1999 from 42% in the first six months of fiscal
1998, primarily due to the reasons discussed in the results of operations for
the second quarter. The Personal-care Products and Services segment gross profit
margin, excluding intersegment sales, decreased to negative 16% in the first six
months of fiscal 1999 from 12% in the first six months of fiscal 1998.
ThermoLase's service revenues had a negative gross profit of $7.9 million in
fiscal 1999, compared with a negative gross profit of $1.5 million in fiscal
1998. This decrease was primarily due to a decline in minimum guaranteed
payments relating to international licensing arrangements and initial sign-up
fees relating to the licensing program, both of which have a relatively high
gross profit margin. To a lesser extent, the gross profit margin decreased due
to an increase in spa-specific marketing and advertising expenses related to
ThermoLase's recent conversion of its existing spas to Greenhouse day spas and a
decrease in spa revenues. The gross profit margin at CBI decreased to 29% in the
first six months of fiscal 1999 from 31% in the first six months of fiscal 1998,
primarily due to a decrease in revenues, as well as changes in product mix. The
gross profit margin from the Advanced Technology Research segment, excluding
intersegment sales, decreased to 30% in the first six months of 1999 from 37% in
the first six months of fiscal 1998. The decrease was primarily due to the
inclusion of lower-margin revenues at EMP and LNR.
15
<PAGE>
First Six Months Fiscal 1999 Compared With First Six Months Fiscal 1998 (continued)
Selling, general, and administrative expenses as a percentage of revenues
increased to 31% in the first six months of fiscal 1999 from 24% in the first
six months of fiscal 1998, primarily due to the reasons discussed in the results
of operations for the second quarter.
Research and development expenses increased to $20.7 million in the first
six months of fiscal 1999 from $18.9 million in the first six months of fiscal
1998. An increase in research and development spending, primarily at Trex
Medical due to the inclusion of $3.9 million of expenses at Trophy, was offset
in part by ThermoLase's decrease in spending related primarily to a reduction in
the number of outside testing facilities and consultants used, as well as a
reduction in payroll costs.
Restructuring costs of $1.1 million in the first six months of fiscal 1999
represents severance costs for the termination of certain employees (Note 5),
all of whom had been terminated as of April 3, 1999.
Interest income decreased to $3.1 million in the first six months of
fiscal 1999 from $6.9 million in the first six months of fiscal 1998, primarily
due to the reasons discussed in the results of operations for the second
quarter. Interest expense decreased to $4.2 million in the first six months of
fiscal 1999 from $4.8 million in the first six months of fiscal 1998, primarily
due to the reason discussed in the results of operations for the second quarter.
During the first six months of fiscal 1998, the Company recorded gains of
$23.8 million from the issuance of stock by Trex Medical.
Equity in losses of joint ventures in the accompanying statement of
operations represents ThermoLase's proportionate share of losses from its
international joint ventures.
The effective tax rate in the first six months of fiscal 1999 reflects the
establishment of a valuation allowance for the tax benefit associated with
losses arising at ThermoLase during the period. The Company establishes
valuation allowances in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The Company
believes that it is more likely than not that tax benefits that arose during the
period will not be used by ThermoLase prior to their expiration. The effective
tax rate in the first six months of fiscal 1998 was lower than the statutory
federal income tax rate primarily due to the impact of a material gain on
issuance of subsidiary stock offset in part by the affect of state income taxes
and certain nondeductible expenses, including amortization of cost in excess of
net assets of acquired companies.
The Company recorded minority interest income of $1.8 million in the first
six months of fiscal 1999, compared with minority interest expense of $2.2
million in the first six months of fiscal 1998, primarily due to losses at Trex
Medical in the fiscal 1999 period. The Company is unable 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.
Liquidity and Capital Resources
Consolidated working capital was $204.9 million at April 3, 1999, compared
with $261.7 million at October 3, 1998. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $94.7 million at April
3, 1999, compared with $165.2 million at October 3, 1998. Of the $94.7 million
balance at April 3, 1999, $58.8 million was held by the Company's majority-owned
subsidiaries, and the remainder was held by the Company and its wholly owned
subsidiary.
16
<PAGE>
Liquidity and Capital Resources (continued)
Net cash used in operating activities during the first six months of
fiscal 1999 was $22.0 million. Cash was primarily used to fund the Company's
loss, excluding noncash items. A decrease in accounts receivable provided $16.0
million of cash during the period, due primarily to lower revenues at a majority
of Trex Medical's subsidiaries and, to a lesser extent, improved collections.
The Company used $16.5 million of cash during the period to fund an increase in
inventories and unbilled contract costs and fees primarily due to lower than
expected sales at Trex Medical. The Company used $3.6 million during the period
to reduce other current liabilities, primarily as a result of federal and state
income tax payments for fiscal 1998. In connection with the restructuring
actions commenced at Trex Medical in the third quarter of fiscal 1999, Trex
Medical expects to expend approximately $8 million in cash costs, primarily
during the remainder of calendar 1999.
In connection with the acquisition of U.S. Surgical by Tyco International,
Ltd., and U.S. Surgical's decision to focus on other areas of its business, Trex
Medical has committed to purchase inventories that had been sold to U.S.
Surgical in prior periods totaling approximately $6.7 million, which will be
payable over the following several quarters.
Net cash used in investing activities during the first six months of
fiscal 1999 was $17.0 million. The Company expended $20.1 million, net of cash
and short-term investments acquired, for acquisitions. Up to an additional $5.0
million of cash or shares of Trex Communications common stock will be paid for a
November 1998 acquisition (Note 4). The Company also expended $5.2 million for
property, plant, and equipment during fiscal 1999.
The Company's financing activities used $22.6 million of cash during the
first six months of fiscal 1999. During this period, a majority-owned subsidiary
expended $22.6 million to purchase its own securities, which was funded from
working capital. These purchases were made pursuant to authorizations by the
subsidiary's Board of Directors, pursuant to which an additional $2.4 million
may be purchased through December 1999.
ThermoLase's capital expenditures during the remainder of fiscal 1999 will
primarily be affected by the number of physicians and other domestic and
international licensees engaged in its licensing programs. ThermoLase plans to
expend approximately $0.9 million to renovate the original Greenhouse Spa in
Arlington, Texas. In addition to expenditures by ThermoLase, the Company plans
to make capital additions of approximately $16.5 million for its other
businesses during the remainder of fiscal 1999. The Company expects that it will
finance acquisitions of businesses, if any, at its majority-owned and wholly
owned subsidiaries through a combination of internal funds 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, although if
losses at ThermoLase are not reduced, ThermoLase may not be able to remain in
business.
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information Readiness Disclosure Act. The Company continues
to assess the potential impact of the year 2000 date recognition issue on the
Company's internal business systems, products, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading significant
information-technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors; and (iv) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been completed. During phase one, the Company tested and evaluated
its significant computer systems, software applications, and related equipment
for year 2000 compliance. The Company also evaluated the potential year 2000
impact on its critical
17
<PAGE>
Year 2000 (continued)
facilities. The Company's efforts included testing the year 2000 readiness of
its manufacturing, utility, and telecommunications systems at its critical
facilities. The Company is currently in phase two of its program, during which
any material noncompliant systems or facilities identified during phase one are
prioritized and remediated. The Company is currently upgrading or replacing its
material noncompliant information technology systems and this process was
approximately 50% complete as of April 3, 1999. In many cases, such upgrades or
replacements are being made in the ordinary course of business, without
accelerating previously scheduled upgrades or replacements. The Company expects
that all of its material information-technology systems and critical facilities
will be year 2000 compliant by the end of September 1999. There can be no
assurance that the Company will be able to identify all of the year 2000
problems with its critical information technology systems and facilities.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate third-party products, and operate on computer systems that are
not under the Company's control, there can be no assurance that the Company has
identified all of the year 2000 problems with its current products. The Company
believes that certain of its older products, which it no longer manufactures or
sells, may not be year 2000 compliant nor capable of being upgraded to make them
year 2000 compliant. The Company is continuing to test and evaluate such
products. The Company is focusing its efforts on products that are still under
warranty, early in their expected life, and/or subject to FDA considerations
related to the year 2000. The Company is offering upgrades and/or identifying
potential solutions where reasonably practicable.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that it believes its business operations will be materially
disrupted by the year 2000 issue. The Company has started to follow-up with
significant suppliers and vendors that indicate that they are not year 2000
compliant or that do not respond to the Company's questionnaires. The Company
has not completed the majority of its assessment of third-party risk, but
expects to be substantially completed by September 1999.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying and securing other suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, products and significant suppliers, and vendors, it will modify and
adjust its contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not
been material. The Company does not expect total year 2000 remediation costs to
be material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs
relating to products and facilities were funded from working capital. All
internal costs and related external costs, other than capital additions, related
to year 2000 remediation have been and will continue to be expensed as incurred.
The Company does not track internal costs incurred for its year 2000 compliance
project. Such costs are principally the related payroll costs for its
information systems group.
18
<PAGE>
Year 2000 (continued)
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. As discussed above, if any of
the Company's material suppliers or vendors experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected.
There is expected to be a significant amount of litigation relating to the year
2000 issue and there can be no assurance that the Company will not incur
material costs in defending or bringing lawsuits. In addition, if any year 2000
issues are identified, there can be no assurance that the Company will be able
to retain qualified personnel to remedy such issues. Any unexpected costs or
delays arising from the year 2000 issue could have a material adverse impact on
the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates, interest rates, and equity prices has not changed materially
from its exposure at fiscal year-end 1998.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holder
On March 11, 1999, at the Annual Meeting of Shareholders, the shareholders elected seven incumbent
directors to a one-year term expiring in 2000. The directors elected at the meeting where: Mr. Morton
Collins, Mr. Peter O. Crisp, Mr. Paul F. Ferrari, Dr. George N. Hatsopoulos, Mr. Robert C. Howard, Mr.
John T. Keiser, and Dr. Nicholas T. Zervas. Mr. Collins and Mr. Crisp each received 17,012,836 shares
voted in favor of his election and 141,043 shares voted against. Mr. Ferrari, Mr. Howard, Mr. Keiser,
and Dr. Zervas each received 17,012,636 shares voted in favor of his election and 141,243 shares voted
against. Dr. Hatsopoulos received 17,012,423 shares voted in favor of his election and 141,456 shares
voted against. Mr. Gary S. Weinstein was not reelected as a director and received 6,398,627 shares
voted in favor of his election and 10,755,252 shares voted against. No abstentions or broker nonvotes
were recorded on the election of directors.
19
<PAGE>
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 February 24, 1999, the Company filed a Current Report on Form 8-K with
respect to the resignation of its Chairman and Chief Executive Officer, and the
appointment of a new Chairman and Interim President pending a permanent
replacement.
On May 6, 1999, the Company filed a Current Report on Form 8-K with
respect to restructuring and other charges by Trex Medical Corporation totaling
approximately $11 million.
20
<PAGE>
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 12th day of May 1999.
THERMOTREX CORPORATION
/s/ Paul F. Kelleher
-------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
-------------------------
Theo Melas-Kyriazi
Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
27 Financial Data Schedule.
</TABLE>
<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 PERIOD ENDED APRIL 3, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> APR-03-1999
<CASH> 94,716
<SECURITIES> 0
<RECEIVABLES> 75,678
<ALLOWANCES> 4,194
<INVENTORY> 98,125
<CURRENT-ASSETS> 306,877
<PP&E> 90,033
<DEPRECIATION> 27,521
<TOTAL-ASSETS> 543,711
<CURRENT-LIABILITIES> 102,011
<BONDS> 186,291
0
0
<COMMON> 196
<OTHER-SE> 117,201
<TOTAL-LIABILITY-AND-EQUITY> 543,711
<SALES> 154,520
<TOTAL-REVENUES> 173,532
<CGS> 98,151
<TOTAL-COSTS> 122,047
<OTHER-EXPENSES> 21,783
<LOSS-PROVISION> 643
<INTEREST-EXPENSE> 4,225
<INCOME-PRETAX> (26,258)
<INCOME-TAX> (2,883)
<INCOME-CONTINUING> (21,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,579)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
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